When state capitalism fails to keep destructive entrepreneurs at bay

Indonesia's shift toward state capitalism risks falling prey to rent-seeking entrepreneurs, warns analyst. Within just two years of President Prabowo Subianto's rule, the country has launched a sovereign wealth fund and other measures to centralize commercial activities under state control. Article 33, Paragraph 3 of Indonesia's 1945 Constitution provides legal backing for this approach, with officials emphasizing the state's responsibility to be present in strategic sectors like natural resources.

This is meant to bolster national resilience and prevent revenue leaks. However, the phrase "the state must get a cut" could be gaining traction, driven by the need to boost state revenue. Despite the noble intention behind Article 33's mandate for the state to have policymaking authority over resources, the legal architecture lacks robust oversight.

The constitution outlines four tools for state control: regulation, administration, management, and oversight. While private participation is permitted via state-owned enterprises, the managerial function should not overshadow the state's role as a neutral regulator and impartial overseer. When administrative gates are opened without sufficient checks and balances, rent-seeking opportunities arise.

Politically connected entrepreneurs may exploit the system by creating lucrative licenses for personal gain, siphoning public value.