Political economy of conflict during Indonesia's democratic transition

Violent conflict, which has significantly marked Indonesia’s democratic transition since late 1990s, may threaten the development of viable democracy. The key research objective, as well as the moral appeal of this thesis is to discover what developments may mitigate the tendency for various types of conflict and violence to emerge in contemporary Indonesia, and make the country’s transition to democracy safe for its constituents. This thesis is the first coherent study of social conflict in Indonesia that empirically evaluates the grievance, greed and social contract theories of conflict. It provides a historical overview of conflict and development since Indonesia’s independence and simultaneously undertakes empirical analyses of four types of conflict – separatist, ethnic, routine-everyday and electoral – in contemporary Indonesia. It also extensively surveys the theoretical and empirical literature on the economics of conflict to locate the present research within a broader context. The thesis utilizes a variety of research methodologies in its data collection and empirical exercises. The data section of this study has specifically constructed an electoral hostility index across 282 of Indonesian districts, based on a database on electoral conflict compiled mainly from newspaper reports. The empirical sections employ several different regression techniques, including Poisson, Negative Binomial, Logistic, Ordered Logistic, Ordinary Least Square (OLS) and Two-Stage Least Square (2SLS). Grievance is found to be the most powerful explanation of the origin of social conflict in Indonesia. Ironically, both centre–region (separatist) conflict and ethnic conflict are rooted in the socio-economic convergences (of regions and of ethnic groups) achieved during the three decades of development under the autocratic regime of President Suharto. In contrast to the prediction of grievance theory, convergence rather than divergence fuelled a sense of relative deprivation among richer regions and previously privileged ethnic groups. Although this may appear as a reflection of ‘greedy’ behaviour, the grievances were mainly due to imposed convergence, where groups had no say in the development strategy of the centrist state, which was dominated by Javanese elites. This conclusion seems logical as the country's democratic consolidation and decentralization have been able to transform the previously non-cooperative behaviour of regions and ethnic groups into cooperation. The vertical nature of the social contract under Suharto was not sustainable, and has been replaced by a horizontal one under a democratic and decentralized setting of polity and governance. Routine violence can be explained by the relative deprivation of the community at large in terms of unfulfilled expectations commensurate with their level of education or other human capital attributes. This study finds empirical evidence of a neo-Malthusian conflict scenario, where population pressure-induced resource scarcity may cause conflict. The effect becomes worse when higher population density coincides with higher population growth. However, the neo-Malthusian outcome is not inevitable; it can be mitigated by improvements in socioeconomic condition, or inclusive growth. Although the role of vertical inequality in conflict has been largely discounted in empirical cross-country studies, this study finds empirical evidence for a violence inducing effect of vertical inequality in the case of routine violence. This finding is based on the apparent presence of an inverted-U relationship between inequality and income al la Kuznets. This finding helps explain the inverted-U relationship between income and routine violence. The effect of income on violence is channelled through inequality. Electoral violence reflects the lack of democratic maturity in socio-economically poorer regions, giving some validity to the modernization theory in the context of a within-country analysis. Two results are particularly important, namely the negative effect of income and the positive effect of poverty, on electoral hostility. This leads to a general implication that the country needs to achieve nationally consistent improvements in terms of people prosperity and overall quality of life while consolidating its democracy. The need becomes more urgent from the perspective of local democracy, especially considering that local democratic events tend to be more hostile than national ones. Therefore, while consolidating democracy as a key element of institution building requires huge national energy and resources, it must not be achieved at the expense of improvement of people’s welfare. The masses, who are the ordinary participants in as well as the main beneficiaries of democracy will be quick to recognize the democratic dividends if they are linked to improved life. This will deepen their faith in democracy, lowering any risks of democracy drawback. The findings of this study have a number of key policy messages. First, the overall process of Indonesia’s democratization and decentralization serves as a means to construct a new horizontal social contract, replacing the previous vertical social contract that operated under Suharto. To maintain this, Indonesia’s democracy needs to be further consolidated. Secondly, a key element that should be achieved while moving forward with democracy is across-the-board improvement in the socioeconomic life of average citizens. However, there is a danger that Indonesia could allocate most of its limited energy and talent to the democracy project, leaving only a little for improvements in socio-economic life of its citizens. With the right balance, democratic consolidation and socio-economic development will reinforce each other. Thirdly, inequality and demographic change are two factors that require a good deal of attention in the process of development, especially in densely populated areas. Inequality, for example, can be seen as an unintended outcome of the development progress that has the potential to spoil the development itself. It becomes more delicate if it coincides with population pressure. Such understanding should be taken into consideration when designing development policies for particular regions. Finally, Indonesia should be aware of a resource curse that may one day be faced by its resource-rich regions. Three channelling mechanisms leading to the curse can be listed: bad governance, internal conflict and ‘Dutch disease’. In particular, highly competitive electoral processes lacking in checks and balances in resource-rich regions may result in local politicians behaving as ‘roving bandits’ under the shadow of democracy and thereby inviting the resource curse