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Institutionalized Public Sector Corruption:a Legacy of the Soeharto Franchise


  • Ross H. McLeod



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.

Suggested Citation

  • Ross H. McLeod, 2010. "Institutionalized Public Sector Corruption:a Legacy of the Soeharto Franchise," Departmental Working Papers 2010-02, The Australian National University, Arndt-Corden Department of Economics.
  • Handle: RePEc:pas:papers:2010-02

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    References listed on IDEAS

    1. Miguel Almunia & Agustín Bénétrix & Barry Eichengreen & Kevin H. O'Rourke & Gisela Rua, 2010. "From Great Depression to Great Credit Crisis: similarities, differences and lessons," Economic Policy, CEPR;CES;MSH, vol. 25, pages 219-265, April.
    2. Prema-chandra Athukorala, 2005. "Product Fragmentation and Trade Patterns in East Asia," Asian Economic Papers, MIT Press, vol. 4(3), pages 1-27, Fall.
    3. Yung Chul Park & Kwanho Shin, 2009. "Economic Integration and Changes in the Business Cycle in East Asia: Is the Region Decoupling from the Rest of the World?-super-," Asian Economic Papers, MIT Press, vol. 8(1), pages 107-140, Winter.
    4. Prema-chandra Athukorala, 2009. "Production Networks and Trade Patterns:East Asia in a Global Context," Departmental Working Papers 2009-15, The Australian National University, Arndt-Corden Department of Economics.
    5. TAKAHASHI Katsuhide & URATA Shujiro, 2008. "On the Use of FTAs by Japanese Firms," Discussion papers 08002, Research Institute of Economy, Trade and Industry (RIETI).
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    Cited by:

    1. Nina Korte, 2011. "It’s Not Only Rents: Explaining the Persistence and Change of Neopatrimonialism in Indonesia," GIGA Working Paper Series 167, GIGA German Institute of Global and Area Studies.

    More about this item


    franchise; Indonesia; rents; private taxation; bureaucratic extortion;

    JEL classification:

    • D72 - Microeconomics - - Analysis of Collective Decision-Making - - - Political Processes: Rent-seeking, Lobbying, Elections, Legislatures, and Voting Behavior
    • D73 - Microeconomics - - Analysis of Collective Decision-Making - - - Bureaucracy; Administrative Processes in Public Organizations; Corruption
    • P16 - Economic Systems - - Capitalist Systems - - - Political Economy of Capitalism
    • P17 - Economic Systems - - Capitalist Systems - - - Performance and Prospects

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