After one-and-a-half decades of “big bang” political reform, thanks to the people power that shifted the Indonesian political system from authoritarian to democratic, a strong demand has emerged for good governance using a checks-and-balances system.
But, the legitimacy of quality decision-making as a key element of democracy, through accountability and representativeness, seems to be far from ideal, due to the “principal agent problem” or “agency dilemma”. The term “principal agent problem” is commonly used in business to refer to a disconnection between “the principal”, represented by owners or shareholders, and “the agent”, such as a CEO or director, a person or entity tasked with running the day-to- day operations of an enterprise.
In business, the principal agent problem occurs when the CEO (“the agent”), who is supposed to act on behalf of the shareholders (“the principal”), follows his or her own interests, instead of pursuing the maximum benefits and objectives (usually wealth) of the owners.
In politics or the public domain, the “agency dilemma” may occur when elected officials in executive or legislative bodies make decisions that are driven by their own interests rather than their voters’ preferences.
The main drivers of the principal agent problem in politics are conflicts of interest and asymmetric information between politicians and their constituents. Such circumstances eventually lead to “agency cost” and “moral hazard”, in which voters—or, by and large, the nation—bear the costs.
It is important to widely educate voters on their civic rights, because whatever the regulations on election reform intended to get rid of conflicts of interest and to prevent asymmetric information are, as long as there are responsible voters, the issue of the agency problem will not be addressed properly.
Analogous to the political sphere in Indonesia, particularly during the current election race, we can see perfect examples of the principal agent problem in numerous events and decisions that have taken place and have to be addressed.
The agency dilemma is rampant in the executive, legislative and judicial branches of power. Those institutions are supposed to be segregated in power and ensure quality and accountability of public policy and that decisions are made through a checks-and-balances system, but this is not the case.
The conflicts of interest and asymmetric information take shape in, among other things, the establishment of a multi-party (rainbow) coalition that is intended to ease negotiations between executive and legislative powers in the making and endorsement of laws. Another example is the nomination of Jakarta Governor Joko “Jokowi” Widodo as a presidential candidate although he has not yet completed his five- year term as promised, or the postponement of simultaneous presidential and legislative elections to 2019 and nomination of presidential candidates by political parties that differ in political platforms.
To avoid conflicts of interest and asymmetric information, certain measures must be taken, including revisiting a regulatory framework on elections and political parties, upgrading the capacity of political parties, as well as public information related to political parties and voter education. Reform of the regulatory framework should aim at limiting the number of political parties involved in the policymaking process by replacing the current open proportional electoral system with a district system. With fewer political parties, the checks-and-balances mechanism would work and would reduce vulnerability of the legislative body to the agency dilemma.
As happens in the US, with only two political parties, the Republican Party and Democratic Party, dominating the House of Representatives, American voters can easily exercise checks and balances at a grassroots level by voting or punishing (not giving a vote to) political parties that fail to perform well.
Limiting the number of political parties will also strengthen the presidential system and at the same time allow legislative bodies to exercise checks and balances and remove any conflicts of interest. Facilitating access for voters to more information about political parties’ missions and visions, as well as their stance on particular issues, is necessary to reduce asymmetric information.
In the context of a democratic country, we can easily distinguish political platforms and positions between parties, allowing voters to make decisions based on preferences. In the US, the Republicans are defined as conservative, pro-business and supportive of a deregulated market.
In comparison, the Democrats are perceived as socially liberal and they tend to support workers’ union concerns and progressive income tax, and oppose unregulated business and finance. In the UK, the Conservative Party is opposing closer economic cooperation with European Union, while supporting free trade. On the other hand, the Labor Party is in favor of the labor union and rejects neoliberalism.
In contrast, in Indonesia, it is difficult to differentiate between political parties’ platforms, though voters need to make up their minds and understand the underlying reasons behind parties’ need to build a coalition to secure power. It seems it is driven more by transactional than transformational politics.
The declaration of the Confederation of the Indonesian Workers Union (KSPI) leader on the most recent Labor Day to support a political party’s presidential candidate by making a trade-off with 10 points of the workers’ proposal, among other demands such as increasing the minimum wage by 30 percent by 2015 and removing outsourcing practices, as a sort of “social contract” would be a good initiative to address asymmetric information.
The issue now is whether the support has been discussed among respective organizations’ members before it is declared. Otherwise, such initiatives will be trapped by transactional politics of getting ministerial posts in exchange for support for the presidential nomination, which could possibly lead to another agency dilemma.
Lastly, it is important to widely educate voters on their civic rights, because whatever the regulations on election reform intended to get rid of conflicts of interest and to prevent asymmetric information are, as long as there are responsible voters, the issue of the agency problem will not be addressed properly.