Institutional change and resource governance in hydrocarbon and mining industries in Indonesia

Aurora, Friane (2019). Institutional change and resource governance in hydrocarbon and mining industries in Indonesia. University of Birmingham. M.A.

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Abstract

This research attempted to answer two questions related to the resource governance in Indonesia. The first question is why and how the governance in hydrocarbon and mining industries change the way they do. The second one is why both governances change to different trajectory. Institutional change, developed by North (1990, 2005, and 2009); Lowndes and Robert (2013); and Campbell (2004), is the main theoretical framework use to answer those questions. The theorist proposed that a study of institutional change should consider; institutional elements, the agent of change, the sources of change, and the process as well as mechanism of institutional change. In addition, theories (1977) about bargaining relationship between state and business developed initially by Vernon () and developed further by Luo () by the name of political bargaining relations are used to explore the way in which interaction among actors could change initial institutional arrangements. Meanwhile, governing interdependence and actors’ capacity in economic activities developed by Weiss (1991) are used to analyse how actors act in their respective role in the structure as well as react to problems and challenges from their environment. Qualitative comparative research method became a guideline to make a research design and process tracing is the method of analysis. The development of the resource governance in Indonesia extractive industry is an important case study for research about institutional change that also provides an alternative framework for further studies on resource-rich countries other than using dominant perspectives like resource curse and rentier state.

The study shows that a government could generate two different types of resource governances for its extractive industry. Indonesia has different institutional arrangement for both hydrocarbon and mining sectors. Both were also changing to a different mode of governance and influencing by different factors although locating in the same political, economic, and social environment. Dominant actors, institutional elements that change, as well as process and mechanism of institutional change are all different. Hence, it is possible that extractive industry could have different institutional arrangement despite historically, having similar point of departure.

Those basic findings provided an alternative point of view than previous studies about resource-rich countries that is usually starting from a continuous struggling political and economic condition producing weak institution, rent-seeking behaviour of dominant elites, as well as social conflict emerge in the region against either the corrupt government or the company, or both. In this regard, institutionalism developing by North (1991, 2005, and 2009) gives an interesting point of departure. He pointed learning process as an important capacity and process for expanding actors’ ability to act and interact. Furthermore, he highlighted openness as an important factor and mechanism in an institutional change and understanding historical path of the case as crucial process to uncover the source of different outcome and trajectory of change.

The result of my study is that institutional change in both mining and hydrocarbon industries happens in both element of rule and procedure. The process is influenced by similar factors; the political and economic environment and it happens both evolutionary and revolutionary. Incremental development happens as part of actors’ transition and adaptation to the bigger change. Both types of change are following a historical path, that means gradual shift is usually followed by the big change, usually happen in rule element, and so does the big change is followed further ii by smaller one, usually in procedure element. The source is from both internal and external factors. The mechanism of change is following North, Wallis, and Weingast (2005) mechanism of transition from limited to open access order. The transition involved the continuous interaction with other actors, shifting from personal to impersonal exchange among actors, and the emergence of perpetual-life organization (in Indonesia case, such organization is both national companies and bureaucratic agencies).

In conclusion, analyzing about institutional change in resource governance of a resource-rich country gave a valuable insight that was usually obscured by prejudice about the weak institution embedded in the governmental system and rent-seeking behavior done by elites. Such insight is important to produce an alternative analysis highlighting how actors, both the dominant and the usual ones, always move by themselves, expanding their capacity to act and interact with each other. In this regard, starting from the prejudice stated could not give a better and deeper analysis as the institutional arrangement and structure is not owned and directed only by the movement of dominant

Type of Work:

Thesis (Masters by Research > M.A.)

Award Type:

Masters by Research > M.A.

Supervisor(s):