Regulatory capture on emergency due process of law-making

Abstract

During COVID-19, the law-making process in Indonesia needs to be of better quality due to non-transparent and hasty deliberation. The law-making process is often carried out with minimal participation and adherence to the standard. Several decisions of the Constitutional Court, such as the Mining Act of 2020 and the Job Creation Act of 2020 case, show constitutional immorality in the law-making process. For some reason, minimal participation access is indicated by the regulatory capture. This paper intends to answer two research questions: first, how and why capital’s power is interested in dominating the law-making process. Second, what is the scenario to minimise and prevent the negative impact of the influence of the power of money in the law-making process? This study uses a normative legal research method with a conceptual approach. This study shows that the law-making procedure can be a form of realising the fulfilment of more vital economic interests. As a result, the law-making process can become a meaningless procedure. This practice will keep various laws and regulations away from the public interest. This hostage situation can be carried out through corrupt methods such as bribery, political donations, and a cognitive bias model because legislators are indirectly affiliated with business interests. Therefore, lawmakers need to prevent conflicts of interest among business actors. Those conflict of interest prevention clauses at the constitutional level could be an option.

Keywords:

• Regulatory capture
• law-making
• legislation

REVIEWING EDITOR:

• Heng Choon (Oliver) Chan, Department of Social Policy, Sociology, and Criminology, University of Birmingham, Birmingham, United Kingdom

SUBJECTS:

• Regulation
• Administrative Law
• Political Behavior and Participation

Introduction

Nowadays, discussions about law-making that violate moral standards have received much attention in Indonesia. While many nations have struggled to find the best strategies for controlling COVID-19, the government and the House create wider opportunities to extend state power and facilitate rent-seeking interests. Many legal scholars have criticised this issue. However, violating constitutional morality in the law-making process became the central point of the criticism (Andi, 2021; Frohnen & Carey, 2017). The law-making process during the pandemic is often carried out with minimal participation and adherence to the standard. The insignificance of public aspirations in decision-making impacts judicial review, becoming a tool for adjudicating left-behind aspirations. For instance, there is an assumption that legislators do ‘cherry picking’ when accepting aspirations and tend to take sides with business actors. Ultimately, the deliberation in law-making often bends into the constitutional court. Through a constitutional review mechanism, several strategic laws, such as the Mining Act of 2020 and the Job Creation Act of 2020, were tested in the law-making process aspect because they tend to be carried out with minimal participation and only provide an optimal portion to business actors. The two laws are part of a regulatory reform policy launched in 2019 when President Joko Widodo entered his second term of government. The President considered that existing laws and regulations hindered the ease of doing business. Existing laws and regulations are deemed to create a long and complicated licensing system that results in the investment climate in Indonesia being ineffective and inefficient and not providing legal certainty. Ultimately, it affects the decline in foreign investors’ interest in Indonesia.

The controversy of regulatory capture law-making was displayed when the Mining Act of 2020 and the Job Creation Act of 2020 reviewed the law-making procedure by the Constitutional Court. The Mining Act of 2020 is accused of providing benefits to several companies whose licenses are expired, so it was carried out hastily and deemed not to comply with the carry-over mechanism. Meanwhile, the Job Creation Act of 2020 uses the first omnibus method in Indonesia, while the omnibus method and technique are not regulated in the Law-Making Act of 2011. This method is intended to protect large investors’ interests due to the changing of 79 other sector laws to make business easier.

Undeniably, the rule of law as a state concept brings an inherent problem: many laws and regulations. (Chandranegara, 2019; Sholikin, 2018). The logical consequence is that the hyperregulated amount leads to difficulties for legal scholars in mastering all the laws and regulations. (Indrati, 2020; Susskind, 2010) In addition, the result of the massive number of laws and regulations is the moral degradation of the law-making process. Howard Zinn even called the concept of the rule of law “a kind of conspiracy.” For him, “the rule of law masks the true sources of power in society”; therefore, legal products can create alienation, coercion, and oppression. (Zinn, 2017) Ultimately, people assume that the law is just a game of the haves and political interests compared to how legal dogmatics explain a legal product (Balleisen & Moss, 2009). This condition is known as a regulatory capture, where the power of capital can “hostage” the laws and regulations to side with business interests rather than public goods (Karpen, 2016; Karpen & Xanthaki, 2017). Therefore, two elements in the law-making process, namely, legislators and the law of the law-making process, play an essential role. The legislator is the subject of authority, while the direction of the law-making process is the due process of law-making (Chandranegara, 2022b, 2022a).

This study aims to shed light on two points: first, how and why the power of capital is interested in dominating the law-making process and second, how to minimise and prevent the negative impact of the influence of the power of capital in the law-making process.

The current paper followed the logical sequence of notions‘appearance. The structure of this paper is as follows. Part 1 presents the introduction of the gap between the fact and the value quality of legislation and the regulatory capture in Indonesia during the pandemic Covid 19. Part 2 analyses the methodology used to conduct normative legal research. Part 3 reviews the relevant literature on regulatory capture and due process of law-making. Part 4 deals with the case analysis of several law-making processes during the COVID-19 pandemic in Indonesia and how regulatory capture operates. Part 5 discusses the study‘s results concerning how to prevent regulatory capture. Part 6 highlights the conclusion of this research.

Methods and material

It is doctrinal legal research using secondary data. It employed the statutory approach. For instance, it used the Indonesian 1945 Constitution, The Law-Making Act, The Mining Act, The Job Creation Act, Constitutional Court Decisions and several Constitutional Court Cases in other states. In addition, a conceptual approach was used before the data was analysed qualitatively. The study used only secondary data. A favourable legal inventory became an initial and primary activity for conducting research and assessment in the study.

Regulatory capture in law-making process

Laws are not only known as legal products but also as political products. This doctrine made laws a product of the political configuration that worked in its time (Wheare, 1951). On the other hand, the state’s style also influences the law. For example, if the state adheres to the character of a state organised for war (Kriegstaat), then the legal products will be war-oriented. On the other hand, if the state is oriented on maintaining order (Polizeistaat), legal products will be limited to maintaining order and not interfering in welfare efforts (Verzorgingsstaat) (Chandranegara, 2023). This condition explains that policymakers have consciously made laws with many understandings and interests (Waldron, 1999). Therefore, even though laws are believed to have values and meanings in organising social life, they are still the result of friction between political and economic interests.

There are at least two ways and motivations for legislators to be captured. The first is through the model known as the materialist. This model is created through corrupt practices such as bribery or political donations, which are generally associated with corruption (Carpenter & Moss, 2013; Levine & Forrence, 1990). Second, through the cognitive bias model, commonly known as the non-materialist model. These two models have a corrosive effect on the formation of laws and regulations in the long term, namely the reduction of laws and regulations that serve the public interest and shift to industrial interests (Boehm, 2007; Laffont & Tirole, 1991; Makkai & Braithwaite, 1992).

In some doctrines, it has been explained that if the interests of a group are significant and the number of groups is small, then the group will have a better position in influencing the course of regulation. (Balleisen & Moss, 2009) The legislation’s original purpose is to protect the public interest. Still, this goal is not achieved when the object that wants to be regulated instead turns to control or dominate the regulator. For example, business groups have a significant per capita interest compared to consumers, workers, or others, and they have extensive resources to control regulations. So, there are at least 4 (four) things that are expected from this “hostage” process, among others: first, control of the laws and regulations and their forming bodies; second, success in coordinating the activities of regulatory bodies with theirs so that their interests can be satisfied; third, neutralise or ensure the non-existent or mediocre performance of regulatory bodies, and fourth, the interaction process with regulators gave regulators a mutually beneficial perspective of sharing.(Balleisen & Moss, 2009; Carpenter & Moss, 2013)

From an economic perspective, government intervention is needed if there is a market failure. Economics usually refers to the four conditions that indicate the existence of this market failure. First is the presence of monopoly or abuse of a dominant position. In contrast to a competitive market, where the price is determined when the marginal cost equals the marginal benefit, in a monopoly market, the price is determined by business actors above the marginal cost so that the price becomes too high (Cooter & Ulen, 2012). As a result, the market is not functioning correctly, and therefore, government intervention is needed to ensure that consumers get value for money. (Levine & Forrence, 1990)

Second, market failure also occurs when there are severe informational asymmetries. Information imbalances like this can lead to one party benefiting only by exploiting the other party’s ignorance, leading to delays in the efficient exchange of goods or market activities. Even though this information problem can sometimes be solved by the market mechanism itself, in many cases, it can only be solved by government intervention. (Cooter & Ulen, 2012) Government intervention to overcome information imbalances can be done on two sides. On the one hand, the government can make various provisions that require mandatory disclosure or prohibit misleading information. This control over information applies to information voluntarily provided by the parties and necessary information to be provided (Ogus, 2004).

Third, market failure can materialise in the form of public goods. Cooter and Ulen contrast public goods with private goods. Public goods have non-rivalrous properties; one person’s consumption of an item does not reduce the availability of that item for others, and non-excludability, namely that the costs of preventing other people from enjoying the goods are very high. (Cooter & Ulen, 2012) A classic example of this public good is the lighthouse beam. The lighthouse beam will not diminish if it is consumed by a ship, and a boat cannot prevent other vessels from enjoying the benefits of the light. If individuals are self-interested and want to maximise profit from their activities, public goods will experience a supply shortage. In this case, because of its non-rivalrous and non-excludable nature, those who build a lighthouse at their own expense cannot prevent others from enjoying it (Aglietta, 1998). Most rational individuals will only want to be free riders from other people’s efforts, enjoying the lighthouse without spending money to build it. In this case, the market has failed to lead to optimal results, so another party (i.e. the government) needs to step in to provide and manage the lighthouses (Chandranegara & Cahyawati, 2023).

Fourth, another form of market failure is an externality. This condition is indicated by prices that do not reflect environmental costs. With externalities, the market needs to consider the total costs caused by a production process. Thus, externalities give the wrong signal/direction to individuals when making decisions because the prices faced by individuals do not reflect the actual price of a product or activity. (Holmstrom, 2020) Everyone, both producers and consumers, fails to consider all the costs of their decisions and actions because there are components of costs that experience externalisation and become a burden on society in general. In short, externalities reflect behaviour that wants to reap personal benefits but is unwilling to bear the costs involved in obtaining those benefits (Anton & Fisk, 2000).

The justification for government intervention above can be categorised as justification based on an economic perspective. The sense that government intervention in the form of regulations and instruments run by the government can be justified because this intervention is helpful for the economy, for example, to correct market failures. Public choice theory seeks to explain how individual preferences are reflected in voting systems or other procedures adopted by public institutions to produce collective choices or evaluate the consequences of those choices on social welfare. This theory assumes that behaviour in politics is similar to individual behaviour in the market (Ogus, 2004).

This theory of public choice can be explained at least in three groups, namely groups that see regulation as an extension of the interests of interest groups, groups that see regulation as a manifestation of the interests of bureaucrats, and groups that see regulation as a means of regulators to seek income.

The first group sees that government intervention, such as regulations, standards, or licensing, is not intended for the public interest but instead serves the interests of specific groups/industries. The idea of this group is closely related to regulatory capture theory, which explains that government intervention’s failure to achieve the intervention’s goals is due to the influence or pressure of pressure groups. In this case, this pressure group exercises its power to ensure that government policies will not cause the group to suffer (Carrigan & Coglianese, 2015).

The second group of public choice theories seeks to explain that government intervention is born or formed because of the influence of the bureaucracy. Initially, this group’s view stemmed from the standpoint of Niskanen, who compared bureaucrats to employees in private organisations (Niskanen, 2001). Bureaucrats and employees of private companies are different because of incentives and restrictions only owned by bureaucrats. In contrast to private companies, whose behaviour is controlled by consumers, the leaders of the bureaucracy are the only “buyers” of the bureaucrats’ services. On the one hand, politicians enjoy a monopoly position as the sole buyers and sellers of goods and services. Bureaucrats want a unique position as “sellers” and “buyers” of monopolies. Unlike private companies, the budget for the bureaucracy and politicians is not borne by themselves but by others, namely the public (Chandranegara, 2023).

The third group of public choice theory sees government intervention as entirely useless for the public interest and is only a source of income or rent for the government. This view, for example, is represented by De Soto’s statement, which, as quoted by Shleifer and Vishny, states: “An important reason why many of these permits and regulations exist is probably to give officials the power to deny them and to collect bribes in return for providing the permits” (Shleifer & Vishny, 1998).

An empirical study by Djankov et al. shows that developed countries have much less government intervention (regarding requirements, regulations, controls, and permits) than developing countries. More importantly, the research of Djankov et al. also concludes that there is no correlation between improving social conditions, such as environmental protection, and increasing government intervention. (Djankov et al., 2002) On the contrary, bad environmental conditions are often encountered in countries subject to much interference. Thus, the research of Djankov et al. confirms that interference and regulation, for example, are only made as a way for the government to benefit from its people.

Indonesia law-making in time of the pandemic

During the pandemic, Indonesia’s rule of law is relatively absent. Therefore, crises are part of the disorder conducive to the thriving of dominant politico-business elites. Such environments create wider opportunities to plunder material resources and accumulate power, partly by manipulating democratic institutions and legal avenues. The executive and legislative assemblies have also used the outbreak to suppress public dissent, allowing them to pass contentious bills potentially harming human rights and facilitating resource plundering without adequate deliberation and public consultation. The issuance of highly controversial regulations—which pose severe threats to human rights, extend state power, and undermine notable post-1998 institutional reforms—in the middle of the pandemic is an example of this tendency. Among these regulations are the Mining Act of 2020 and the Job Creation Act of 2020. The way these regulations were issued shows disregard for the principles of the law-making process, such as transparency and public participation, and exploiting public health crises for special interests is inevitable.

Mining Act of 2020

Ratification Mining Act of 2020 on June 10, 2020, drew criticism from various parties, including non-governmental organisations and environmental activists. Since the law’s enactment, seven judicial review lawsuits have been registered, three of which have examined its law-making process. (Chandranegara, 2021) Several parties and applicants for judicial review stated that the Mining Act of 2020 only favours coal mining companies. Moreover, the law ignores the community’s interests in mining areas and environmental sustainability. In addition, The deliberation from the planning session until its ratification did not involve participants from the district. Article 96 of the Law-Making Act of 20211 states that the public can provide aspiration orally or in writing. For instance, it was passed in May 2020 after only three months, which is incredibly quick for the House. The amended Mining Act Bill was one of the contentious proposals whose passage the House had intended to expedite before the 2014–2019 legislative session ends in September. However, the discussion of this bill was tabled in response to student protests. The breakout of COVID-19 in early 2020 and the restrictions it imposed on public protest made it possible for the government to resurrect the law.

For governments and businesses, the existing Mining Act was seen as needing to provide legal certainty for mining activities (Harsono, n.d.). Minister of Energy Arifin Tasrif claimed that the revisions aim to address this problem and maximise benefits for the people in the field (Petriella, 2020). It was also claimed that the revisions would create more significant investment opportunities and improve the ease of doing business for miners, encouraging more investment in mining industries. One of the critical revisions is stated in Art 35 of the Mining Act of 2020, which eliminates local governments’ authority to issue mining licences, including for small-scale mining by local populations (Art 67), meaning that this process has now been centralised. The government claims that removing obstacles and red tape was intended to speed up the process of mining businesses acquiring permits. However, centralising mining permits could instead be an attempt to centralise rent-seeking practices. Indeed, as stipulated in Art 47, the Mining Act of 2020 allows more extended contracts and guarantees the renewal of mining business permits for 20 years. Before the revision, Art 47 merely stipulated that business permits could be extended. Art 83, the Mining Act of 2020 also replaces the phrase ‘can be given’ with ‘guaranteed’ for the renewal of special mining business permits.

These updated regulations for mining activities are, in fact, advantageous to commercial interests. For example, the Indonesian Coal Mining Association welcomed the Mining Act 2020 to provide better long-term legal and investment certainty. (Harsono, n.d.) As seen in Table 1, there are six coal mining agreements owned by corporations linked to top executive officials and prominent mining tycoons whose contracts are due to expire between 2020 and 2025.

Table 1. Companies that benefit from the 2020 mining law.

No	Company	Concession	End of Contract	Bussiness Affliation And Spesial Interest
1	PT Arutmin Indonesia	57,107	November 1 2020	99.99% of shares are owned by PT Bumi Resources, linked to businessperson-turned-politician Aburizal Bakrie, former Chair of the Golkar party. Rosan Roeslani, former chairman of Kadin, was the president and director of PT Bumi and is now the president and commissioner of the same company.
2	PT Kaltim Prima Coal	84,938	December 13 2021	51% of shares are divested by PT Bumi Resources, linked to Aburizal Bakrie. Rosan Roeslani, former chairman of Kadin, was a commissioner of PT Kaltim Prima Coal
3	PT Multi Harapan Utama (MHU)	39,972	October 1 2022	Owned by Pakarti Putra Sang Fajar and Perth-based company Private Resources Pty Ltd. These companies are linked to Reza Pribadi, who acts as Director and Commissioner. Reza is the son of businessman Henry Pribadi, the owner of Nappan Group. Coordinating Minister for Economic Affairs Airlangga Hartarto and Minister of Tourism and Creative Economy Sandiaga Uno were commissioners of PT MHU
4	PT Adaro Indonesia	31,380	October 1 2022	A subsidiary of PT Adaro Energi, whose CEO is Garibaldi Thohir, the brother of BUMN Minister Erick Thohir. Sandiaga Uno (above) also owns shares in PT Adaro Energi.
5	PT Kideco Jaya Agung	47,500	13 March 2023	The shareholders of Kideco Jaya Agung (47,500 hectares) are Indika Energy (91%) and Samtan Limited, South Korea (9%). Indika Energy is owned by Arsjad Rasjid, Wishnu Wardhana, and Agus Lasmono. Indika Energy’s shareholders consist of Indika Inti Investindo (37.79%), Teladan Resources (30.65%), and the Public (31.56%). The majority owner of Indika Inti Investindo, one of the controlling shareholders of Indika Energy, is Agus Lasmono, the founder of the Indika Group, President Suharto’s cousin.
6	PT Berau Coal	108,009	April 26 2025	The shareholder or owner of Berau Coal (land area 108,009 hectares!) is the Sinar Mas Group through Asia Coal Energy Ventures Limited (ACE). ACE stated that it has indirectly controlled Berau Coal because it owns a 94.19% stake in Asia Resources Minerals Plc (ARM), originally the owner of Berau. ACE, backed by the Sinarmas Group, owns an 84.7% stake in Berau Coal through Vallar Investment UK Limited. ACE, a company legally bound by the Virgin Islands, completed the acquisition of ARM on July 15, 2015. Berau Coal, previously a public company, on November 16, 2017, officially exited the Indonesia Stock Exchange (IDX).

Source: (A’yun & Mudhoffir, 2022; Mudhoffir & A’yun, 2021).

These corporations have created 87,000 hectares of coal mine voids (Jong, n.d.). Automatic lease renewals will prevent the restoration of these deserted mining mines. In violation of the market economic principles of sustainable development, it has harmed local communities’ lives and the environment. The Mining Act of 2020 issuance furthers rent-seeking interests, promoting illiberal legalism rather than the government’s declared attempt to construct a liberal political-legal structure to support the market economy. This draft law was also debated—without sufficient public input and openness—so the regulatory model was captured by abusing public health emergencies (Chandranegara, 2021).

Job Creation Act of 2020

Likewise, the Job Creation Act of 2020 is built by a class conflict narrative, which is shown by siding with capitalists and tends to ignore the interests of workers and the environment and the law-making process that tends to be clandestine (Redi & Chandranegara, 2020). Apart from the complex process of avoiding clandestine arguments, big business interests are also manifested in the birth of the main idea in the form of ease of licensing, supervision or lighter standards. (Chandranegara, 2020a) So, the hypothesis that explains that business interests will try to pursue a “race to the bottom” becomes difficult to refute. (Al’afghani & Bisariyadi, 2021) Concepts that are oriented to the capitalist are detected by introducing the concept of risk-based regulation that, as much as possible: (i) categorises a business activity in low or medium risk so that it does not require a permit; (ii) lowers standards; and (iii) reducing the frequency of supervision.

The deliberation process for the draft of the Job Creation Act also contradicted principles of transparency, as it was undertaken in a rush without sufficient public discussion. The government and legislative bodies used COVID-19 to justify this, as they claimed that the new law would create more jobs for workers who had become unemployed for pandemic-related reasons. (Chandranegara, 2020b; Cormacain, 2020) Furthermore, the government secretly drafted the bill without the participation of relevant stakeholders. Only when the draft bill and its academic study were submitted to the House were these documents disclosed to the public (Mochtar & Rishan, n.d.). Members of the government’s task force for preparing the Job Creation Bill were also dominated by businesspersons. At the same time, no workers’ representatives were involved, indicating whose interests would be served by this Law (Keyzer, 2020).

The government claims that the Job Creation Act will provide more jobs by creating more investment opportunities. However, the reality is that many workers’ rights have been removed from the existing regulations by this law. For example, it extends the maximum overtime allowed to be worked from 14 hours to 18 hours (Art 78) while at the same time scrapping the mandatory two-day weekend (Art 79). It also removes the maximum period of the temporary work agreement (Art 59), preventing workers from gaining job security and employment benefits. Meanwhile, Art 156 reduces compensation for laid-off workers from the equivalent of 32 to just 25 times their monthly salary. The Law also modifies how the balance is paid by distributing part of the payment responsibility to the government (Art 4Art. The government must now compensate laid-off employees six times their prior wage through a new unemployment fund. Simply put, this law drastically reduces the obligation of companies to guarantee job security and employment benefits to entice investors.

However, as was already established, the Job Creation Act’s deliberation process was at odds with a liberal political-legal order. Instead, it strengthened illiberal legalism favouring domestic companies that engage in rent-seeking activities over international investment. Moreover, the Job Creation Act of 2020 opens up even more tremendous potential to steal state resources, similar to the Mining Act of 2020, which poses grave risks to the environment and people. For example, articles 7 to 11 of the Job Creation Act significantly relax environmental protection standards in doing business by changing the permit regime from a license-based to a risk-based approach. With this new approach, an environmental impact analysis report is now required only for specific business activities considered by the government to significantly impact the environment and social, economic, and cultural aspects.

Sembiring et al. comment, ‘it is possible that an activity that may have significant impacts is not deemed a high-risk activity if the possibility of the damage occurring is infrequent’, in which case an environmental impact analysis report document would not be needed. (Sembiring et al., 2020) Moreover, environmental permits based on an environmental impact analysis report as a requirement for obtaining a business permit have now been replaced by governmental approval. In this way, the environmental permit is no longer a governmental instrument to determine the legally binding requirements concerning any activity that may significantly impact the environment. In addition, affected communities continue to participate in creating the environmental document through the revisions to Art. 26 of the Environmental Protection and Management Act. However, removing their right to challenge the paper puts them at greater risk. During this time, the environmental impact analysis document cannot be reviewed by environmental NGOs, public officials, or environmental professionals. These changes increase environmental risks, contrary to sustainable development ideals, which are widely recognised as a crucial component of a liberal market economy.

The Job Creation Act also supports rent-seeking interests, which is common in the undemocratic political system. This is evident from Article 111, which classifies as taxable income “gratification” or any gifts or perks given to public officials or civil servants. Articles 154 to 165, which regulate the establishment of a new Investment Management Institute, also provide an opportunity to plunder state resources. This institution coordinates and controls the flow of investment funds with little accountability. Any investment capital obtained from state financing is no longer considered state property. Since it becomes the relevant institution’s asset as required by Art. 160, any financial losses incurred by that institution are not considered state financial losses even though, as was previously stated, “state loss” is a crucial component of the corruption offence. (Mudhoffir & A’yun, 2021) As a result, the Supreme Audit Agency cannot audit the institution’s assets (Art 161). Likewise, no government or Investment Management Institute officials are subject to legal responsibility if they contribute to the institution suffering from financial losses (Art 163).

The Job Creation Act is finally declared conditionally unconstitutional with a grace period of 2 (two) years after a review of the constitutionality of its formality through case 91/PUU-XVIII/2020 by the Constitutional Court. Within two years, legislators were ordered to improve the process of their formation and prohibit issuing strategic and broad-impact policies related to the Job Creation Act of 2020. Apart from not considering the substance of the content and only regarding the formal aspects, it is confirmed that the law-making procedure is based on something other than standard, clear and definite standards. The fulfilment of the principle of openness ensures that the establishment gets the power of attorney hostage, such as the concept and typology described previously. This also confirms that the Job Creation Act has been established in the context of industrial capitalism, which demands a policy of flexibility in the labour market. Marx stated that capitalism is based on social, legal, and political relations that underpin labour exploitation. Labour is understood as a commodity purchased by capitalists who use labour as part of spending to produce goods (Milios et al., 2018). Therefore, it is unsurprising that labour policies always satisfy market appetites rather than protecting and fulfilling basic needs and workers’ rights.

How to preventing regulatory capture

If we learn from the cases, the real power behind the formal influence on the law-making process determines how the law is made. Political philosophers have paid attention to the force of interpretation, as is the view of Thrasymachus, which states that law is a vehicle for their vital interests. (Wiratraman, 2007) In law, legislation is part of public policy output. Public policy is the idea that harm to the public good is a reason to deny the legitimacy of a contract or other transaction. It’s a common law doctrine that’s used when an action affects or offends the public interest, or when a contract would harm the public at large. The doctrine of public policy allows the legal system to strike down agreements that would be detrimental to public welfare, even if both parties agree. (Ghodoosi, 2015) Likewise, Machiavelli, who erased the distance between law and power, noted that law is nothing but a tool to legitimise power and can be a tool to justify violence. (Mochtar & Hiariej, 2021)

The legislature appears to be stuck in the puzzle of legalism, believing they can enact any law as they are a legitimate body and are not constrained by legal efficacy and logical acceptability considerations (Harijanti et al., 2019). The legislators think that as long as they make a law, as an institution that has direct legitimacy from the people, the law is legally valid and must be obeyed. However, even if the law-making process is problematic, the government also feels it is legitimate to act coercively against people who do not comply with a law. More is needed for legislators to assume that they are the organs authorised to enact laws only because they have gained legitimacy but that legislators are obliged to legitimise every choice made in making laws. (Wintgens, 2002) Thus, even though they have legitimacy from the people, legislators cannot form rules at will. Still, a series of procedures must be followed so that the laws created have legality and quality and reflect the will of the public. With all its consequences, the concept of the rule of law recognises the meaning of the procedural due process of law-making and substantive due process of law-making. (Gardbaum, 2018; Rose-Ackerman et al., 2015) It is necessary to be informed about plans for creating or amending laws because it will allow citizens to conduct public discourse. On this side, the due process of law-making correlates with substantive due process. Therefore, procedural due process ensures that substantive due process can be fulfilled. Thus, the law-making procedure should be seen as something other than a process provision that does not correlate with the resulting law (Bartley, 2014; Dorantes & Brooks, 2012).

In the context of maintaining this due process of law-making, it can at least be divided into two dimensions that need to be obtained: the actor and the instrument dimension. The actor dimension is the legislator. In this context, actors are expected to be able to choose policies that represent the public interest and get out of the trap of being held hostage by the capitalists. This aspect can be restrained by limits on conflicts of interest caused by the penetration of the capitalist authority in the law-making process. A conflict of interest can cause bias in the consideration/assessment of decisions. (Moore et al., 2010) In addition, conflicts of interest can affect (cognitive) thinking processes in two ways: conscious and subconscious (self-interest). (Orentlicher, 2002) Such a situation will bring a moral dilemma (Foot, 2002). Moral choices are made not in a closed space but are part of social interaction. (Alvarez, 2011) Ultimately, decisions are made based on social motives such as loyalty, trust, reciprocating or helping someone in a difficult situation. (OECD, 2004)

The norms that are meant to prevent conflicts of interest have been regulated in Article 79 (2) of the 1949 Constitution of the United States of Indonesia and Article 55 of the 1950 Provisional Constitution, which states:

1. The positions of the President and the Minister may be held separately by carrying out public office inside and outside the Republic of the United States of Indonesia.

2. The President and the Ministers may not, directly or indirectly, participate in or be a guarantor for any corporate entity based on a profit or profit agreement with the Republic of the United States of Indonesia or any part of Indonesia.

3. They may not have debts at the expense of the Republic of the United States of Indonesia, except for general debt.

4. What is stipulated in paragraphs (2) and (3) of this article shall remain in force for them for three years after they have resigned from their positions.

However, after issuing the Presidential Decree dated July 5 1959, which reinstated the 1945 Constitution, such a clause still needs to be re-applied. The loss of the conflict of interest clause harms the possibility of making decisions vulnerable to being influenced directly by their interests.

Regarding the instrument dimension, the availability of standardised procedures in law-making is an instrument effort to prevent the regulatory captured. (Mochtar & Hiariej, 2021) The principle of democracy states that legislators are an extension of the people’s sovereignty. Therefore, it was just being the executor of the people’s wishes. So, the constitutionality of the law-making process must be sourced from the fundamental law; it is only binding if it is based on the highest power (sovereignty) and takes the people’s wishes seriously as a source of sovereignty owned by the state in carrying out its authority.

In addition to having a function as a standard procedure of law-making, the law must encourage legislators to be obliged to offer guarantees to the participation rights of the community in policy-making, law-making, and various other decision-making mechanisms in government. For example, in the case of the South African Constitutional Court, No CCT12/05 regarding Doctors for Life International v Speaker of the National Assembly and Others (2006), Para [129] states: (Case No CCT12/05: Doctors for Life International v Speaker of the National Assembly and Others, 2006)

What is ultimately important is that the legislature has taken steps to afford the public a reasonable opportunity to participate effectively in the law-making process. Thus construed, there are at least two aspects of the duty to facilitate public involvement. The first is the duty to provide meaningful opportunities for public participation in the law-making process. The second is the duty to take measures to ensure people can take advantage of the opportunities provided. Public involvement may be seen as “a continuum that ranges from providing information and building awareness to partnering in decision-making.” This construction of the duty to facilitate public involvement is consistent with our participatory democracy and international law’s right to political participation. As pointed out, that right not only guarantees the positive right to participate in public affairs but simultaneously imposes a duty on the State to facilitate public participation by ensuring that this right can be realised. It will be convenient here to consider each of these aspects, beginning with the broader duty to take steps to ensure that people can participate. The duty to take action to facilitate public involvement

Such considerations indicate a shift in viewing the relationship between the people and the legislators. The traditional view explains that the relationship between the people and legislators is approached from the perspective of social contract theory. The people are described as giving legitimacy to the legislature to form laws that reflect the general will. (Arter, 2006). This social contract relationship is often seen from the perspective of the proxy version, where the people give legitimacy to the legislators. Then, the legislators can regulate public life without needing to bring legitimacy to the products they create. (Harijanti et al., 2019) Such a relationship can be categorised as a one-way relationship between the people and the state. Meanwhile, the current view sees the social contract through a “trade-off” perspective. (Harijanti, 2020). So legislators must interact with the people and justify every law-making that is carried out. The new paradigm requires that every law formation be carried out by involving proper and meaningful public participation.

Public participation in law-making has significant objectives, among others: firstly, to create solid collective intelligence between all interested parties and especially those affected, so that can provide a better analysis of potential impacts and produce a quality legislative process; secondly, create an inclusive and representative relationship between legislators and citizens; third, increasing citizens’ trust and confidence in legislators; fourth, strengthen the legitimacy and responsibility together for every decision and action; fifth, improved understanding of the role of legislators by citizens; sixth, providing opportunities for citizens to communicate their interests; and seventh, creating an accountable and transparent law-making process. Therefore, updating the Law-Making Act as a dimension of the instrument for preventing the power of attorney of capital hostages must contain all definite, standard methods that bind all institutions. So, if legislators want to use improvisation in law-making, they must determine a solid standard to fulfil these improvisations.

Conclusions

This article attempts to comprehend the political and legal reasoning behind the pandemic reactions that relate to the law-making process as we see it today. We contend that the public health issue has become a tool for amassing power and profit because Indonesia is governed by a state of disorder representing an illiberal form of politico-legal system. Elite political and corporate groups have viewed the pandemic more as an opportunity than a threat. The pandemic has also been exploited, paving the way for politico-business elites to produce many contentious laws, such as the Mining Law Act of 2020 and the Job Creation Law of 2020. The Law-making process can be a form of realising the fulfilment of more vital economic interests. As a result, it can become a meaningless procedure. This practice will keep various laws and regulations away from the public interest. This regulatory capture can be carried out through a model that begins with corrupt practices in the form of bribery or political donations, which are generally associated with corruption and through a cognitive bias model because legislators are indirectly affiliated with special interests.

Therefore, a scenario is needed to prevent the law-making process’s corrosion. The actor’s (lawmaker) dimension must be precluded from conflict of interest with the business actor. Furthermore, the instrument’s measurements (The Law-Making Act) must be updated on all definite, standard, and standard methods that meet the practice’s needs, as well as affirmation of the guarantee of participation for the community, which ensures that the public has the opportunity or ability to participate.

Disclosure statement

No potential conflict of interest was reported by the author(s).

Additional information

Notes on contributors

Ibnu Sina Chandranegara

Prof. Dr Ibnu Sina Chandranegara is a Professor of Law at the University of Muhammadiyah Jakarta. he has expertise in Judicial Politics, Court Administration and Regulatory Reform. he is known to have many publications, namely eight books, 12 book chapters, 38 international journals, and 12 publications in international and national conferences. During his career, he held as Vice Dean of the Faculty of Law and the Founder and Managing Partner of Chandranegara & Prasetya. In addition, he was a Senior Partner at MS. Bakhri and is currently a Senior Partner at Jurist Resia & Co.

Luthfi Marfungah

Luthfi Marfungah is a Ph.D student at Brawijaya University, Malang, Indonesia. She completed his Bachelor’s and Master’s at Tarumanagara University. Field of expertise in State Administration Law focusing on Natural Resources and the Environment. In addition, Luthfi Marfungah has scientific publications spread throughout the world. During his career as a Legal Consultant, she currently serves as Director of Media, Suara Energi, Head of the Office of Jurist Resia Legal Consulting, Jurist Institute Collegium Researcher and Expert of the Regional Representative Council of the Republic of Indonesia.