Local leadership in transition : explaining variation in Indonesian subnational government

Why do some local governments perform well, while others perform badly? This question, which frames the analysis of the present study, connects to a wider puzzle in recent development debates. Many post-authoritarian regimes that have embarked on pronounced decentralization and local democracy reforms display, if anything, declining government performance over the last ten years. The persistence of bureaucratic inefficiencies and corruption, irrespective of efforts to 'move governments closer to people', calls for a deeper inquiry into the dynamics of local decision-making after decentralization has come to pass. Indonesia provides a unique study case in this respect. Indonesia's rapid regime change, from centralized authoritarian to decentralized democratic rule, has brought about a large variation in subnational policy outcomes. This is particularly evident in strongly diverging tax, license and corruption practices across 440 newly empowered district governments. These marked 'business-climate' variations make it possible to test two contending explanations for government performance: (1) 'societal pressure' which is advocated as an essential reform mechanism in the good-governance debate and (2) 'government leadership' which emerges as a key determinant in recent policy­ reform literatures. Based on eight district cases (comprising 1000 business surveys and 120 in­ depth interviews) and multivariate regression analyses (using data from 200 districts), I demonstrate that societal pressure is less significant in explaining local policy outcomes than government leadership. In Indonesia's early transition to democracy, reform pressures by local firms and district councilors were found to be largely absent due to collective action problems and dysfunctional political incentives. Conversely, local government leaders were found to be the primary driving force for local business climates. In good cases, government leaders skillfully used their office powers - motivated by direct elections and career aspirations - to forge reform coalitions and supervise local bureaucracies. In response to the 'good governance' debate, these empirical findings signal that government leadership can be an effective, and often underestimated, reform mechanism, which compensates for weak societal pressures in early transition periods