At first sight, political turmoil in Thailand and the Philippines—repeated violent protests, impeachment battles, and military coups—gives the impression that democracy in Southeast Asia is on a downward spiral. One country in the region, however, has sustained a stable pluralistic democracy: the Republic of Indonesia.

In 1999, after thirty years of Suharto’s centralistic, authoritarian rule, Indonesia embraced far-reaching decentralization and election reforms. Within a brief period of two years, the Indonesian government reshaped its administrative architecture, including the devolution of local tax and service responsibilities to more than 400 district governments. In view of its deep-seated authoritarian traditions, beginning with Javanese kingdoms and sultanates, moving through Dutch colonialism (1619–1942), and ending with Suharto’s New Order (1965–98), Indonesia’s rapid shift toward democratic decentralization stands out as one of the most remarkable political transitions in recent history.

Particularly notable is the peaceful and competitive conduct of Indonesian elections. Over the last decade, local citizens have elected more than 30,000 local councilors and over 400 mayors, regents, and governors, with little violence or intimidation. High voter turnouts (around 70 percent) and high replacement rates of incumbent executives (roughly 40 percent) bear witness to rising electoral competition in local polities. While subnational elections display considerable flux, the upcoming presidential elections in July 2009 suggest continuity. The latest national polls, for example, predict a comfortable lead for President Susilo Bambang Yudhoyono (49 percent) over his main competitor, Megawati Soekarnoputri (36 percent).

The institutionalization of democracy and decentralization, however, has yet to translate into substantive public sector reforms. Indonesia continues to score low in global governance assessments. According to Transparency International and the World Bank, Indonesia’s government ranks 126th (out of 180) in terms of corruption, and 129th (out of 181) in terms of administrative efficiency for business start-ups. With the introduction of regional autonomy, these governance problems have, to a considerable extent, been decentralized to hundreds of districts. Yet, despite formally uniform institutional settings, local governments exhibit vast differences in regulatory quality, administrative efficiency, and anticorruption measures.

What motivates some local governments to perform better than others? Implicit in this question, which stands at the center of my research, is the idea that local democracy is not only an end in itself, but also a means for improving government outcomes. The pronounced policy differences that arise in Indonesia’s district polities provide a good opportunity to examine the workings of Indonesian local democracy or, to use a different terminology, the political economy of local decision-making.

The findings from controlled case comparisons and subnational datasets suggest that policy variations are best explained by differences in government leadership. Good policy environments emerge primarily in cases where local regents and mayors, whose career aspirations are tested by direct elections, skillfully use their office powers to forge reform coalitions and supervise bureaucratic practices. Societal reform pressures that arise from local parliaments, business chambers, and nongovernmental organizations, in comparison, tend to be less significant drivers of good governance. While broad-based interest groups continue to struggle with collective-action problems, district council members seem more concerned with provincial/national party elites (and their party list positions) than with representing local constituencies. Thus, in Indonesia’s early stage of democratic transition, where societal pressures are yet to fully unfold, much seems to depend on leadership efforts to initiate, facilitate, and oversee government improvements.

Under what conditions, then, are local leaders likely to act in the public interest, rather for private gain? While direct elections provide basic incentives, the direction and strength of these incentives also hinge upon existing socioeconomic structures. Government leaders need to accommodate interests of powerful economic groups in order to secure support for campaign funding and co-investments in public goods. Whether these interest alignments result in unproductive rent-seeking and corruption, or in constructive government reforms, depends on the constellation and transparency of economic powers.  The more economic powers become concentrated in specific sectors, groups, and firms, and the less public-private interactions are monitored by local media, the greater the likelihood that leaders will pursue self-preferential and collusive strategies.

As a result, it is plausible to assume that a moderate economic concentration and strong media presence are conducive to better governance. At this point, only some districts fall into this category. But as globalization and communication technologies progress, local polities are bound to become more economically diverse and politically informed. With growing political awareness and increased incentives for better leadership, it is likely that Indonesia, over time, will see more public-private symbioses for reform and, thus, bridge the gap between well-functioning elections on the one hand and poor governance
on the other.

In 2007 Shorenstein APARC and The Asia Foundation chose Dennis Arroyo to be the first Shorenstein APARC/Asia Foundation Visiting Fellow.  Arroyo spent the 2007-08 academic year researching and completing a monograph on "The Political Economy of Successful Reform:  Asian Stratagems."  An edited abstract follows:

Major economic reforms are often politically difficult, causing pain to voters and provoking unrest.  They may be opposed by politicians with short time horizons. They may collide with the established ideology and an entrenched ruling party.  They may be resisted by bureaucrats and by vested interests.  Obstacles to major economic reform can be daunting in democratic and autocratic polities alike.
 
And yet, somehow, past leaders of today's Asian dragons did implement vital economic reforms. "The Political Economy of Successful Reform:  Asian Stratagems" recounts the political maneuvers used by Asian leaders of economic reform in these countries at these pivotal times:  Thailand under General Prem Tinsulanonda; Vietnam during Doi Moi (or Renovation); Singapore under Lee Kuan Yew; China under Deng Xiaoping; India in the 1990s; and South Korea under Park Chung Hee.

The paper classifies these maneuvers as responses to the main political barriers to reform and develops a "playbook" of tactics for economic reformers.  To overcome ideological obstacles, for example, the reformers packaged and presented reforms as ways of strengthening the party in power. Reformers proceeded gradually.  Initially they sought win-win compromises. They blessed pro-market violations as pilot projects. They even created new provinces in order to dilute the anti-reform vote.

The full text of Arroyo's monograph has been published by the Stanford Center for International Development in its working paper series.

Arroyo came to Stanford well qualified to study economic reform techniques.  In 2005 he was named director for national planning and policy at the National Economic and Development Authority (NEDA) of the Philippines.  His duties included building public support for the economic reforms championed by NEDA.  He has consulted for the World Bank, the United Nations, and the survey research firm Social Weather Stations, and has written widely on socioeconomic topics.  His critique of the Philippine development plan won a mass media award for "best analysis."  He has degrees in economics from the University of the Philippines.

In May 2008 Arroyo presented his findings in a SEAF lecture entitled "The Foxy Art of Herding Dragons: How Sly Asian Leaders Pulled off Politically Difficult Economic Reforms."

In 2008 an Indonesian economist, Sudarno Sumarto, was chosen to become the second Shorenstein APARC/Asia Foundation Visiting Fellow. He will be in residence at Stanford during the 2009-2010 academic year.  

An edited summary of Dr. Sumarto's proposed research and writing at Stanford follows:

Facing the major damage wreaked by the Asian financial crisis of 1997-98 on already poor and/or vulnerable Indonesians, the government in Jakarta was forced to launch a series of emergency social safety nets.  These programs targeted multiple sectors:  employment, education, health, food security, and community empowerment.  

Now that a decade has gone by since these measures were undertaken, it is time to draw policy lessons from the experience.  Special attention will be paid in this project to the dynamics of the process of deciding and delivering social protection, the difficulty of enlisting or creating appropriate targeting and implementation mechanisms, institutional enablers and impediments, the role of civil society, the impact of commodity subsidy reforms, and the relevance of good (and bad) governance.  

The study will also draw comparisons between Indonesia's record of targeted social protection and the experiences of other developing countries.  

Dr. Sumarto heads the SMERU Research Institute (Jakarta).  He also lectures at the Bandung Institute of Technology, Universitas Nusa Bangsa (Bogor), and the University of Indonesia (Jakarta).  

Dr. Sumarto has contributed to more than sixty co-authored articles, chapters, reports, and working papers, including "Agricultural Growth and Poverty Reduction in Indonesia," in Beyond Food Production (2007); "Reducing Unemployment in Indonesia," SMERU Working Paper, 2007; and "Improving Student Performance in Public Primary Schools in Developing Countries:  Evidence from Indonesia," Education Economics, December 2006.

Dr. Sumarto has spoken on poverty and development issues in Australia, Chile, China, Egypt, Ethiopia, France, Japan, Morocco, Thailand, and the United Kingdom, among other countries.  He has a PhD and an MA from Vanderbilt University and a BSc Cum Laude from Satya Wacana Christian University (Salatiga), all in economics.  He and his wife Wiwik Widowati have three children.  

The July/August issue of Health Affairs, the leading U.S.-based health policy journal, focuses on China and India. The special issue includes an article on China’s pharmaceutical policy by five contributors to Prescribing Cultures and Pharmaceutical Policy in the Asia-Pacific, a book forthcoming in 2009 from the Shorenstein Asia-Pacific Research Center series with Brookings Institution Press. Chapters on Korea and Japan by Soonman Kwon (Seoul National University) and Toshiaki Iizuka (Aoyama Gakuin University) also appear in Chinese translation in the journal Bijiao (Comparative Studies), along with an overview paper (“Pharmaceutical policy reforms to separate prescribing from dispensing in Japan and South Korea: Possible implications for China”) by Karen Eggleston, Asian Health Policy Program Director.

As Eggleston writes in the introduction to Prescribing Cultures, pharmaceuticals and their regulation play an increasingly important and often contentious role in the health care systems of the Asia Pacific.  For example, some economies such as China have extraordinarily high drug spending as a percentage of total health spending; India and a few others host thriving domestic pharmaceutical industries of global importance, while controversy surrounds patents, trade-related aspects of intellectual property (TRIPS), and pharmaceutical pricing within bilateral trade agreements (Australia-US, Republic of Korea-US); nations throughout the region struggle with appropriate regulation of drugs, from patents to evidence-based purchasing (e.g., Australia’s Pharmaceuticals Benefit Scheme) and direct-to-consumer advertising; deeply-rooted traditions of indigenous medicine are modernizing and integrating into broader health care systems; and policies to separate prescribing and dispensing re-write the professional roles of physicians and pharmacists, with modifications to accommodate cultural norms and strong economic interests. Effective prescribing and pharmaceutical use will be central to controlling infectious diseases, both old and emerging; protecting the global public good of antimicrobial effectiveness; and treating the growing burden of chronic disease in the Asia Pacific.

The forthcoming book will explore these issues in detail, through a multi-disciplinary lens. The first section of the book features chapters on pharmaceutical policy within seven selected health care systems of the Asia Pacific: South Korea, Japan, Thailand, Taiwan, Australia, India, and China. The second section focuses on the cross-cutting themes of prescribing cultures and access versus innovation. Taken as a whole, the contributions aim to provide an evidence base for policy while acknowledging the historical and cultural context that makes policies distinctive.

Clear evidence suggests the importance of health service provider payment incentives for achieving efficiency, equal access, and quality, including attention to primary, secondary, and tertiary prevention. “Pay for performance” may be on the cusp of significant expansion in Asia, and reform away from fee-for-service has been underway for several years in several economies. Yet despite the policy relevance, the evidence base for evaluating payment reforms in Asia is still very limited.

China in particular has been undertaking significant reforms to its health care system in both rural and urban areas. With the expansion of insurance coverage and need to resolve incentive problems like “supporting medical care through drug sales,” there is an urgent need for evaluating alternative ways of paying health service providers. Evidence from policy reforms in specific regions of China, as well as other economies of the Asia-Pacific, can provide valuable evidence to help inform policy decisions about how to align provider incentives with policy goals of quality care at reasonable cost.

To illuminate these questions, the Asia Health Policy Program and several collaborating institutions are planning to convene a conference on health care provider payment incentives on November 7-8, 2008 in Beijing. The conference will highlight and seek to distill “best-practice” lessons from rigorous and policy-relevant evaluations of recent reforms in China and elsewhere in the Asia Pacific.

The organizing committee – including health economists from Shorenstein APARC, Peking University, Tsinghua University, and Seoul National University – reviewed submissions in June 2008 and accepted sixteen. The conference papers cover payment issues in Korea, Japan, China, Taiwan, Thailand, Tajikistan, the Philippines, and the US, and the disciplines of economics, health services research/health policy, public health, medicine, and ethics. Topics include institutionalized informal payments; the impact of global budget policies on high-cost patients; public-private partnerships; public-sector physicians owning private pharmacies; evidence-informed case payment rates; payment and hospital quality; bonuses and physician satisfaction; physician prescription choice between brand-name and generic drugs; and differences in pharmaceutical utilization across insurance plans that pay providers differently (fee-for-service versus capitation).

Policymakers from China’s National Development and Reform Commission and Ministry of Health will also speak at the conference. Selected research papers will be published through the Shorenstein Asia-Pacific Research Center either in a special volume or in a special issue of an English-language health policy journal.