Institutionalized Public Sector Corruption: A Legacy of the Soeharto Franchise

34 Pages Posted: 1 Jun 2012

See all articles by Ross McLeod

Ross McLeod

Australian National University (ANU) - Crawford School of Public Policy

Date Written: February 2010

Abstract

Attempts to maintain prices different from those that would otherwise be determined by supply and demand are virtually guaranteed to result in illegal behaviour, including in the case of laws that determine the salaries of civil servants. In Indonesia, private sector salaries are highly progressive with respect to increasing levels of responsibility, whereas the civil service structure is very flat, resulting in an enormous gap between private and public sector salaries at higher levels of management. As a consequence, informal — and often illegal — income generating practices are observed that make public sector careers far more attractive than formal remuneration levels would suggest. It is argued here that it is unhelpful to view endemic corruption simply in terms of unprincipled behaviour. Rather, it is best understood in terms of institutional weakness in the form of continued reliance on entrenched personnel management practices from the Soeharto era that deliberately ignored market realities.

Keywords: franchise, Indonesia, rents, private taxation, bureaucratic extortion

JEL Classification: D72, D73, P16, P17

Suggested Citation

McLeod, Ross, Institutionalized Public Sector Corruption: A Legacy of the Soeharto Franchise (February 2010). Working Papers in Trade and Development, ACDE, Crawford School of Economics and Government, Australian National University, Canberra.; Crawford School Research Paper No. 2010/02. Available at SSRN: https://ssrn.com/abstract=1915697

Ross McLeod (Contact Author)

Australian National University (ANU) - Crawford School of Public Policy ( email )

ANU College of Asia and the Pacific
J.G. Crawford Building, #132, Lennox Crossing
Canberra, Australian Capital Territory 0200
Australia

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