Riza Noer Arfani (Director, Center for World Trade Studies/CWTS at Universitas Gadjah Mada/UGM and WTO Chair- holder Indonesia)

Transcription

1 Sustaining Post- disaster Community- based Programs in Indonesia s Export- Driven Industrial Clusters: Cases from Yogyakarta Handicraft/Furniture Industries and Tourism- related Services Riza Noer Arfani (Director, Center for World Trade Studies/CWTS at Universitas Gadjah Mada/UGM and WTO Chair- holder Indonesia) Maharani Hapsari Kumoro (Vice Director for Cooperation and Academic Affairs, CWTS UGM and Managing Director, Institute of International Studies/IIS UGM) Progress Report/Paper presented at the 4 th Global Review on Aid for Trade (WTO Geneva, July ) in the Framework of POHA IIS- Osaka University Disaster Management and Humanitarian Action Research on Building Disaster Resilient Community in Indonesia

2 Table of Content Table of Content 2 List of Diagrams 3 Abstract 4 A. Background 5 B. Purpose of the Study 6 C. Questions Explored 7 D. Methodological, Conceptual Frameworks 8 1. Linking Aid for Trade to Post- Disaster Recovery 8 2. Aid for Trade as an Expanding Concept 8 3. Disruption Effects of Disasters 9 4. Toward Potential Linkages GVC Governance Structure and Upgrading Governance Linkages 17 E. Indonesian Context and the Clusters under Study Post Indonesia: Political Economy of the Peripherals The Three Clusters Studied (Bobung, Krebet, Kasongan/BKK) 24 F. Preliminary Findings and Assessment Disaster Occurrences and Its Disruption Effects Disaster Episodes and Management Chain Governance 31 a. The Bobung Cluster 31 b. The Krebet Cluster 31 c. The Kasongan Cluster Upgrading and Value Addition Activities Governance Triple Helix 34 G. Finding Linkages: How Disaster Management Matter to Trade 35 H. Concluding Remarks 38 Reference 39 2

3 List of Diagrams Diagram 1 Typical GVC Governance 15 Diagram 2 Typical Upgrading 16 Diagram 3 Phases in Disaster Management 17 Diagram 4 Conceptual Modeling for GVC- Disaster Management 18 Governance Linkages Diagram 5 Bobung Cluster s Basic Feature 25 Diagram 6 Krebet Cluster s Basic Feature 26 Diagram 7 Kasongan Cluster s Basic Feature 27 Diagram 8 Disaster Occurrences and Its Disruption Effects 28 Diagram 9 Disaster Episodes and Management 29 Diagram 10 Bobung GVC Governance 31 Diagram 11 Krebet GVC Governance 32 Diagram 12 Kasongan GVC Governance 33 Diagram 13 BKK Clusters Upgrading/Value Addition Activities 34 Diagram 14 BKK Clusters Triple Helix 35 Diagram 15 BKK Governance Linkages 38 3

4 Abstract The paper endeavors to link developing country s export- driven industrial clusters to international post- disaster relief program in their efforts to sustain in international trade activities. In line with the context of Aid- for- Trade initiative undertaken by WTO (World Trade Organization) and OECD (Organization for Economic Cooperation and Development) since WTO s Hong Kong Ministerial Conference in 2005, it pioneers an effort to attribute locally based and initiated community- based program with the wider context of international development assistance scheme. By offering cases on handicraft, furniture industrial clusters and its tourism- related services in the area affected by Yogyakarta s 2010 volcanic eruption and 2006 earthquake, the paper seeks to explain how the clusters escape from and sustain themselves in production, distribution, market and business disruptions and eventually develop resilient recovery programs. The paper attempts to map out the clusters community development programs in their efforts to recover from the disruptions and at the same time to develop their upgrading capacities to remain competitive in the global value chains of handicraft and furniture industries as well as its tourism- related supporting services. Subject descriptors: Empirical Studies of Trade, Country and Industry Studies of Trade F14 International Linkages to Development, Role of International Organizations O19 Keywords: Developing Country, Trade, Aid, Industrial Cluster, Global Value Chains 4

5 A. Background The study 1 endeavors to link community- based programs developed in the post- disaster areas with sustainable activities which have been the key characteristics and typical features in the recovery of Yogyakarta s export- oriented industrial and tourism clusters after the 2006 earthquake and 2010 volcanic eruption 2. Those sustainable and resilient activities are of economic and commercial as well as social and cultural natures as the communities in the clusters develop a form of socio- entrepreneurship business. They involve not only in profit- oriented setting activities but also in community building ones. The study therefore attempts to capture programs on disaster mitigation, prevention and recovery that are economically, commercially and socially sound which in turn would help communities in the three clusters/area under study 3 to develop their resilience. By serving relevant stakeholders in the areas (such as community members, business/cluster players, government apparatus, 1 The study (of which the article is originated) is part of an on- going research project themed Building Disaster Resilient Community in Indonesia conducted under the Program of Humanitarian Action (POHA) at the Institute of International Studies (IIS), Department of International Relations, Faculty of Social and Political Sciences. Universitas Gadjah Mada (UGM) in collaboration with Osaka University, Japan (2013). 2 The earthquake on May is one the biggest calamities in Yogyakarta area in terms of the destruction of physical infrastructure, socio- economic activities and human casualties. Death tolls reach more than 5700 lives with more than 36,000 injured, 1.5 millions left homeless, while as many as 135,000 houses damaged. District of Bantul where the clusters of Krebet and Kasongan are located is the area most affected by the mishap. Although in terms of scale of destruction is not as severe as the May earthquake, the 2010 Mt. Merapi eruption (that lasted for more than a month in late October to December) has forced as many as 350,000 people evacuated from the affected areas, with more than 350 people killed, and has affected socio- economic activities in the months following it due to volcanic ash plumes, lava stream that bound to the city of Yogyakarta and surrounding areas. 3 The three clusters under study are located in the Special Regency of Yogyakarta Province, Indonesia: the Kasongan (at the District of Bantul), a cluster of ceramic, pottery- based handicraft and furniture industry, the Krebet (also at the District of Bantul), a cluster of wooden- based handicraft and village tourism, and the Bobung (at the District of Gunung Kidul), a cluster of wooden- based handicraft and village tourism. Both Krebet and Bobung are in the same supply chain of the batik wooden- mask handicraft products, where Bobung serves as one of the sole sub- contractor to Krebet in the industry. 5

6 academia and social activists) with necessary information and pool of resources which need to be shared and developed, it synergizes capacity building and community development programs, more particularly in the face of their preparedness for future and possible disruption related to natural disasters which in the case of Yogyakarta will regularly be part of its mitigation efforts. The study is also to pioneer efforts in attaching locally based and initiated community development programs with their wider context of development assistance. In the context of Aid- for- Trade initiative undertaken by WTO (World Trade Organization) and OECD (Organization for Economic Cooperation and Development) at the 2005 WTO s Hongkong Ministerial Conference, it will be part of WTO and other international organizations capacity building efforts for developing countries stakeholders that are willing to benefit more and more from international trade activities. Seeing from peace building and disaster management point of view, the Aid for Trade initiative is also an attempt to prompt public discourses and academic discussions on the notion of Peace and Trade which is in parallel to linkages of trade as an apparent factor in post- conflict or post- disaster recovery programs. In the context of the three clusters under study, the attempt is in the interests of major relevant stakeholders in the clusters who have been working on series of recovery programs and initiatives since the 2006 earthquake and 2010 volcanic eruption misfortunes. B. Purpose of the Study The intention of the study is to provide relevant stakeholders in the three industrial clusters 4 /areas to be observed with: case stories of how they manage to escape from production, distribution, market and business disruptions and build resilient recovery programs after being affected by the twin natural disasters that hit Yogyakarta area in 2006 (earthquake) and 2010 (volcanic eruption); description of community development programs as they recover 4 Industrial clusters are made up of a large number of small specialized firms that affect the economic relations among firms located in that area. Conversely, relationships in industrial clusters are affected by deliberate inter- firm cooperative arrangements based on trust and reciprocal relationships among local people (Ismalina, 2010) 6

7 from the disruptions and at the same time develop their upgrading efforts to remain competitive in the business; notes on recovery and/or mitigation programs as they confront with new challenges in disaster- prone area which will in turn to be served as inputs, policy recommendation and good practices for an integration or a comprehensive model of community development, disaster management as well as business upgrading programs. In so doing it employs a couple of approaches that are derived chiefly from studies on Global Value Chains (GVC) as to explain how the three clusters are connected to global market in handicraft, furniture or wood- based products and tourism industries, and Governance and Community Development as to explain how they develop community resilient strategies and survive in the industry despite difficulties and challenges in dealing with disruptions of their production, distribution and market networks due to the twin natural disasters. The two approaches offer unique conceptual frameworks and analytical tools as they focus on identifying the underlying governance structure contributive to actions taken by a community as well as its industrial cluster. Governance of two kinds is to be explored in the study. The first type is the structure under which the initiative of community building is rest upon. It offers an understanding of norms, values and tradition adopted and practiced in the community. Through such a comprehension, functions of governance are detected by looking at how local norms, values and traditions are blended with the newer ones resulted from the community active involvement in the global industrial and market networks. Thus, the second type of governance is precisely understood via the community s global interaction in the market. It consists of governance structures suggested by GVC model: market/arms- length, networks, quasi- hierarchy, and hierarchy. C. Questions Explored A pair of questions is explored in the study: how the community in the three clusters/areas is build and develop community- based program(s) in the post- 7

8 2006 and 2010 natural disasters, particularly in their efforts to recover the disrupted production, distribution and market/business networks? What can be learnt from the three clusters good practices that are constructive as well as practical as a disaster recovery or mitigation management model in such a quite dependent to global market as well as highly disaster- prone industrial clusters as the three areas under study? D. Methodological, Conceptual Frameworks 1. Linking Aid for Trade to Post- Disaster Recovery In order to highlight the relevance of Aid for Trade in the context of post- disaster recovery, it is important to first see how the concept has expanded since its first introduction in 2005 and how responding to the impacts of disaster has emerged in the conceptual debate. Subsequently, it shall be followed by an understanding of how disaster- affected communities have engaged in post- disaster recovery context, its respective challenges as international trade is disrupted. Finally, it needs to be followed by identifying some potential linkages that may emerge between the two. 2. Aid for Trade as an Expanding Concept Aid for Trade can be understood as an intervening tool that aims to increase participation of developing countries in international trade by employing mechanisms in addition to the elimination of tariff and non- tariff barriers. It is broadly defined as any assistance intended to help countries to trade and, in particular, to help them take advantage of trade agreements (Cameron & Njinkeu, 2008, p. 2). The delivery of Aid for Trade has worked through several mechanisms, ranging from strengthening trade capacity to reducing supply- side constraints that will put low- income countries at a higher level of playing field when entering into the international market. More specifically, there are three pillars which support Aid for Trade practices, i.e., supply- side capacity, trade system costs, and trade policy development (Cameron & Njinkeu, 2008, p. 9). 8

9 As Aid for Trade has touched upon the varying needs of its recipients, there has been an expanding consideration on its implementation. Some considerations are given to the particular link between Aid for Trade and broader issues, such as poverty reduction, development, human rights, environmental protection, social justice, environment and gender. The role of research networks and civil society has also been important in providing policy recommendation, such as that on the need of recipient governments to pay more attention to aid coordination, conditionality, and the political impact of international financial institutions and donor policies in trade negotiations (Cameron & Njinkeu, 2008, p. 19). One worth- noting development of Aid for Trade since its establishment, however, was that most of the measurements have been delivered in normal situation. This means that it has worked when there is an absence or a relatively low level of sudden disruption to the functioning of the economy. Such trend have to some extent undermined conditions that may bring cause significant impacts to supply chain as well as to connect the supply chain with the market. The occurrence of disasters is one of conditions that seem to have challenged such assumption. 3. Disruption Effects of Disasters An intensified trend in natural disasters which since the mid- 2000s have brought with it serious disruption to international trade flow. Although the degree of impacts vary from one cases to others, it was generally acknowledged that disasters as an unpredictable event deserves more attention in this increasingly globalizing economy where international trade plays a very significant role. The impact of disasters may disrupt the relations between local economy and the global economy through which international trade acts as a medium. Depending on the scale, the impact of a disaster on international can be direct and indirect. The direct impact can be witnessed for example on the supply side when it affects exports. Disaster may destroy infrastructures which support production- related facilities as well as physical connection to market. The loss of 9

10 human resources can be another impact, particularly for a large disaster with so many casualties. The indirect impact of disaster, meanwhile, was largely in the form of a decreasing GDP (Gassebner, Keck, & Teh, 2006, pp. 3-4). Another impact may be the decreasing capability of firms to settle their financial obligation, which further affects the performance of international financial institutions (Ye & Abe, 2012, pp. 9-10). Disaster may also bring intangible impacts, defined as all those costs that are very difficult to estimate, for which there is no agreed method of estimation and for which there is no market to provide a benchmark. Firms may suffer from the loss of future contracts, the loss of experienced staffs, and the loss of confidence. Community may need to cope with loss of items of cultural significance, heritage losses, dislocation, lack of access to education, health, etc. (Emergency Management Australia, 2002, p. 4). 4. Toward Potential Linkages The relevance of Aid for Trade within the general framework of disaster management emphasizes its expanding role in addressing humanitarian issues. According to Warfield (2009), there are four phases of disaster management: mitigation, preparedness, response and recovery, which shape its building blocks. Among these four phases, however, this study puts the post- disaster recovery phase as a crucial entry point for Aid for Trade. This is without neglecting the fact that all four phases are intertwined with each other. In this phase, it is assumed that local community has already developed some capabilities to normalize the function of social and economic institutions to restore their sources of livelihoods. It influences the economic dimension of disaster- affected communities in the normalization and improvement of their economic situation by reshaping their engagement in international trade market and forms of interdependence established with various actors. In identifying the link between Aid for Trade and post- disaster recovery, it is worthy to consider the role of various actors in a disaster- affected value chain. Hence, it is related to the upgrading process that these actors have undergone before disaster hit. Disaster- affected firms may encounter difficulties in finding 10

11 proper substitute suppliers or customers elsewhere, making the impact of the disaster last longer. Furthermore, dependence on international distribution facilities has increased vulnerability to disaster as damage to these facilities can easily lead to supply chain disruption (Ye & Abe, 2012, p. 9). Countries with lack of resilience may be trapped in the cycle of poverty. Aid for trade and post disaster recovery, therefore, shall play a crucial role to revive the livelihoods of the affected communities. Economic recovery from disaster is argued to be most effective under several conditions: (1) Response and recovery actions actively support the recovery of business and industry (2) Business and/or industry representatives participate in economic recovery decision- making (3) Business and industry is returned to activity as early as possible (4) Economic recovery strategies are an integral part of the overall recovery management process (5) Measures are taken to mitigate against the impacts of future disaster on business continuity (6) There is coordination of all recovery programs to support and enhance the economic structure (Emergency Management Australia, 2002, p. 5). In post- disaster recovery period, several strategies may be adopted by disaster- affected enterprises as well as governments. For enterprises, there is a need to adopt risk reduction strategies by for example finding a balance between efficiency and risk and by investing in long- term continuity. Creating more alternative forms of interdependence with various sources of supply chain was one of the options to anticipate sudden disruption (Ye & Abe, 2012, pp ). While the internal ability of firms to cope with disaster impacts is at the core of post- disaster recovery, the role of government in the value chain governance may create a supporting environment that make firms more resilient. In fact, it was argued that governance is a key factor determining the magnitude of trade effects. The less democratic a country the more trade is lost (Gassebner, Keck, & Teh, 2006, p. 15). In practice, policy options may range from ex- ante to ex- post responses. 5 It is reasoned that ex- ante measures are likely to be more effective 5 Ex- ante measures by governments may vary from technical approach such as implementing stricter building codes, providing more reliable public 11

12 than ex- post ones, since they can contribute to welfare gain through increasing net savings and promoting better mitigation. Meanwhile, the ex- post measures may result in welfare loss due to unprepared consumption fluctuations and may trigger moral hazard problems. Moreover, problems surrounding financial resources and information flows may exacerbate constraints during recovery. Ex- ante policies, therefore, can help to minimize losses and be more robust through maintaining the function of the supply chain (Ye & Abe, 2012, pp ). In building community resilience to disaster, forging a closer public- private partnership is a strategy that may produce long- term impacts. Collaboration between the two can be developed through identifying and mobilizing complementary resources not only to cope with the immediate impacts of disaster, but also within the framework of disaster risk reduction. Some forms of collaboration are setting up public- private insurance, development of relevant database (Ye & Abe, 2012, pp ). Providing insurance can be a means of gaining financial compensation for the cost of restoration of infrastructure damages. Such insurance scheme may cover home and contents, property and business interruption policies (Emergency Management Australia, 2002, p. 7). Governance mechanisms need to consider how strategies at different levels may at best contribute to increasing community resilience to disaster, thus enable to recover international trade activities undertaken by the affected community. Strategies at the national level are considered as the most important area to establish stronger multilevel coordination. In this context, the presence of constituencies to push for trade agenda to be included in the government priority is a starting point. This will involve exporters and importers whose role will be to identify actions together with an interlocutor in the relevant government body. A follow up to donor community will be needed to enable further development and financing of the program (Cameron & Njinkeu, 2008, p. 38). infrastructure and a more transformative approach such as diversifying economic structures and energy sources, meticulous selection of production sites, rational urban planning. Special consideration for SMEs and the poor can also be found when governments promote disaster insurance coverage 12

13 5. GVC Governance Structure and Upgrading Subsequent to the issues described in the background, the study notes the necessity to diagnose social as well as industrial changes in the three clusters/areas, particularly in terms of community development program initiated in light of recovering their value chains network in the production, distribution and business activities. GVC analysis therefore shall be offered here, that is to map out patterns of governance structure underlying social and industrial relations among relevant actors in the areas. Kaplinsky (2000) and Wood (1997) (in Schmitz, 2003) accentuate that participating in the global market brings both opportunities and dangers. Many producers, especially those of small and medium size (such as the cases of the three clusters under study here) find that participating in and gaining from the global economy do not always go together. However, as Schmitz (2003) noted, to achieve both export growth and rising incomes, it seems essential for local enterprises to upgrade, to make better products, make them more efficiently, or move into more skilled activities. Policy makers in many parts of the world are looking for ways of helping their enterprises to achieve this. Local sources of competitiveness then are to be strengthened. The buzzwords are synergy, economies of clustering, systemic competitiveness, collective efficiency, local or national innovation systems. Studies carried out in the 1980s and 1990s showed many unexpected success stories of local enterprise clusters breaking into global markets. These stories continue to fuel excitement amongst local policy makers and their external backers. The framework offered to such a development is the network- based global economy (Dirk Messner in Schmitz, 2003). The global economy is not just governed by a combination of reliance on free markets and rules of inter- governmental organizations. Export oriented regions experience this most directly as they are tied into global value chains often governed by global buyers and they are faced with global standards that are defined by global policy networks. A governance triangle comprising local policy network, lead firms of global chains and a global policy network (which concerns 13

14 with the setting and monitoring of standards) is therefore emerging from such a scheme. GVC analysis has emerged since the early 1990s as a novel methodological tool for understanding the dynamics of economic globalization and international trade. It is based on the analysis of discrete value chains where input supply, production, trade and consumption or disposal are explicitly and (at least to some extent) coherently linked. GVC discussion has revolved around two analytical issues: how GVC are governed (in the context of a larger institutional framework) and how upgrading or downgrading takes place along GVCs. GVC institutional framework identifies how local, national and international conditions and policies shape the globalization in each stage of the value chain (Gereffi and Fernandez- Stark, 2011). GVCs are embedded within local economic, social and institutional dynamics. Insertion in the GVC depends significantly on these local conditions. Economic conditions include the availability of key inputs: labor costs, available infrastructure and access to other resources such as finance; social context governs the availability of labor and its skill level (such as female participation in the labor force and access to education); and finally institutions includes tax and labor regulation, subsidies, and education and innovation policy that can promote or hinder industry growth and development. The use of the terminology chain suggests a focus on vertical relationships between buyers and suppliers and the movement of a good or service from producer to consumer. This entails an analysis centered on flows of material resources, finance, knowledge and information between buyers and suppliers. Processes of coordination and competition among actors operating in the same function or segment of a particular market are given less attention in GVC analysis (Stefano Ponte, not dated). GVC governance or chain governance structures the upgrading opportunities of local producers. Analytical tools developed by Humphrey and Schmitz (2000, 2002) include distinctions among four types of chain governance structure: Arm s length market relations where buyers and suppliers do not need to develop close relationships because the product is standard or easily customized. 14

15 Networks where firms develop information- intensive relationships, frequently dividing essential competences between them. Quasi hierarchy where one firm exercises a high degree of control over other firms in the chain, frequently specifying the characteristics of the product to be produced, and sometimes specifying the processes to be followed and the control mechanisms to be enforced. Hierarchy where the lead firm takes direct ownership of some operations in the chain (e.g.: the case of the intra- firm trade between a transnational company and its subsidiaries falls into this category). The following diagram depicts in more detailed way how chain governance structures relations among its key players, actors and stakeholders along the value chains in an industrial cluster: Diagram 1: Typical GVC Governance (Source: Humphrey and Schmitz, 2000, 2002) 15

16 With such distinctions one can then ask whether some types of chains offer local producers better upgrading prospects than others. There are four different types of upgrading (Humphrey and Schmitz, 2000, 2002), i.e.: Process upgrading: transforming inputs into outputs more efficiently by reorganizing the production system or introducing superior technology. Product upgrading: moving into more sophisticated product lines (which can be defined in terms of increased unit values). Functional upgrading: acquiring new functions in the chain (or abandoning existing functions) to increase the overall skill content of activities. Inter- sectoral upgrading: using the knowledge acquired in particular chain functions to move into different sectors. Inter- Sectoral Functional Upgrading Product Upgrading Process Upgrading Diagram 2: Typical Upgrading (Source: Humphrey and Schmitz, 2000, 2002) 16

17 6. Governance Linkages In the context of disaster mitigation and management, the above- mentioned governance structure in a GVC conceptual framework would coincide in 4 (four) phases of disaster management (Warfield, 2008): Mitigation (minimizing the effects of disaster through planning, analysis, assessment, and public education) Preparedness (planning how to respond through preparedness planning, conducting emergency exercises and training, implementing warning systems, and public education) Response or Emergency Response (efforts to minimize the hazards created by a disaster through search and rescue, disaster relief/aid, and other response efforts implemented or coordinated as a result of planning, public education, emergency exercises and training, and other response efforts) Recovery (returning the community to a sense of normalcy where some communities may not be restored to the way they were before a disaster, but a sense of normalcy can be restored through mitigation, preparedness, and effective response) Mitigation Preparedness Disaster Occurence (Emergency) Response Recovery Pre- Disaster Post- Disaster Diagram 3: Phases in Disaster Management Possible linkages of GVC governance structure and disaster management efforts in the clusters/areas under study are identified in the following diagram 17

18 which serves as conceptual modeling in the study. Linkages are formed based on the types of GVC governance structure (depicted in columns of the diagram) and the phases of disaster management (depicted in rows of the diagram). The arms- length market relations type (A) would result in governance linkages in: The mitigation phase (M- A) in terms of how buyers and suppliers coordinate in minimizing the effects of disaster; Preparedness phase (P- A) in terms of how buyers and suppliers coordinate in planning to prepare in conducting emergency exercises and training, implementing warning systems, and public education; Response phase (Rp- A) in terms how buyers and suppliers coordinate efforts to minimize the hazards created by a disaster through search and rescue, disaster relief/aid; Recovery phase (Rv- A) in terms of how buyers and suppliers coordinate in returning the community to a sense of normalcy where some communities may not be restored to the way they were before a disaster Types of GVC Governance Structure è Arms- length Market Relations (A) Network: Modular (Nm) Relational (Nr) Quasi- hierarchy: Captive (Qc) Hierarchy (H) Phases of Disaster Managementê Mitigation (M) M- A Linkages M- Nm, M- Nr Linkages Preparedness P- A Linkages P- Nm, P- Nr (P) Linkages Response (Rp) Rp- A Linkages Rp- Nm, Rp- Nr Linkages Recovery (Rv) Rv- A Linkages Rv- Nm, Rv- Nr Linkages M- Qc Linkages P- Qc Linkages Rp- Qc Linkages Rv- Qc Linkages M- H Linkages P- H Linkages Rp- H Linkages Rv- H Linkages Diagram 4: Conceptual Modeling for GVC- Disaster Management Governance Linkages 18

19 The network type (Nm and Nr) would result in governance linkages in: The mitigation phase (M- Nm, M- Nr) in terms of how firms (that relatively have equal capacities) coordinate in minimizing the effects of disaster; Preparedness phase (P- Nm, P- Nr) in terms of how firms (that relatively have equal capacities) coordinate in planning to prepare in conducting emergency exercises and training, implementing warning systems, and public education; Response phase (Rp- Nm, Rp- Nr) in terms how firms (that relatively have equal capacities) coordinate efforts to minimize the hazards created by a disaster through search and rescue, disaster relief/aid; Recovery phase (Rv- Nm, Rv- Nr) in terms of how firms (that relatively have equal capacities) coordinate in returning the community to a sense of normalcy where some communities may not be restored to the way they were before a disaster The quasi hierarchy captive type (Qc) would result in governance linkages in: The mitigation phase (M- Qc) in terms of how one firm (that have expanded capacity) coordinate with other firms (that have less capacities) in minimizing the effects of disaster; Preparedness phase (P- Qc) in terms of how one firm (that have expanded capacity) coordinate with other firms (that have less capacities) in planning to prepare in conducting emergency exercises and training, implementing warning systems, and public education; Response phase (Rp- Qc) in terms how one firm (that have expanded capacity) coordinate with other firms (that have less capacities) in efforts to minimize the hazards created by a disaster through search and rescue, disaster relief/aid; Recovery phase (Rv- Qc) in terms of how one firm (that have expanded capacity) coordinate with other firms (that have less capacities) in returning the community to a sense of normalcy where some communities may not be restored to the way they were before a disaster 19

20 The hierarchy type (H) would result in governance linkages in: The mitigation phase (M- H) in terms of how lead firm coordinate in minimizing the effects of disaster; Preparedness phase (P- H) in terms of how lead firm coordinate in planning to prepare in conducting emergency exercises and training, implementing warning systems, and public education; Response phase (Rp- H) in terms how lead firm coordinate efforts to minimize the hazards created by a disaster through search and rescue, disaster relief/aid; Recovery phase (Rv- H) in terms of how lead firm coordinate in returning the community to a sense of normalcy where some communities may not be restored to the way they were before a disaster E. Indonesian Context and the Clusters under Study 1. Post Indonesia: Political Economy of the Peripherals The following key features signify recent changes in Indonesia s political- economic, socio- cultural, legal- bureaucratic, and governance relations. It was reformasi of 1998 which ended the authoritarian regime of the New- Order under the then President Soeharto ( ). The emergence of a more pluralist democracy and liberal political- economic regimentation since then (1999- now) has apparent consequences to the subsequent arena in the country s politics and economics as well as socio- cultural life. However, endurance of oligarchic rules characterized by the existence of dominant key political- economic players similar to those under previous New- Order regime has been the major challenges in retaining consolidated democratic performance. These three key features marked the most- recent development in Indonesia s political, economic and socio- cultural life. They are helpful hints in understanding how democratic consolidation (after series of democratic transitional periods) seems to be such a hopeless and useless effort. 20

21 The 1998 reformasi was in part triggered by concurrent decays in the New Order policies and measures toward economic and monetary, political regimentation as well as bureaucratic governance. It was devalued rupiah (Indonesian currency) to major trading and investment partners currencies (US $, Japanese Yen) that in the first place set off the decomposing the very nature of New Order s economic structure. The then strongly- held monetary economic decisions were in crumble partly due to the lack of control particularly over private foreign borrowings. What happened was in the words of some mainstream economists herding behavior syndrome among business, financial players persisted, making the situation even worse. At the end of the day, these herds were no longer belief in anyone else (including the previously strong government under Soeharto) except to their own rational calculation. The result was three- folds. First, impact to the economic system particularly financial and banking sectors was so severe. These particular sectors were then collapse almost completely marking the end of New Order s macro- economic stability achievement. Second, influence to the political system. In terms of power management, the then- President Soeharto loose his grips over close political allies in dominant political party, i.e. the Golongan Karya or Golkar, bureaucracy (as reflected in fractures and opposing opinions among his own cabinet members during the monetary crisis), key business players, international allies (especially to those of International Monetary Fund/IMF, the United States, Singapore, and within certain limits of Japan too), and several key high- ranking army officers. Finally, after series of failed attempts against IMF decisions to restructure the country s economic management, unsuccessful efforts to reconsolidate power, massive political protests, and social unrests (the bloody, engineered anti- Chinese riots in Jakarta of May is among the worst), May 20 th 1998 witnessed the final day of Soeharto s era marked by his decision to step down and handed in power to the then- Vice President B.J. Habibie. More pluralistic nature of political life was then introduced, offered and executed by transitional government under B.J. Habibie that then ready to hold the first direct general election in A total of 48 political parties are registered to participate in the election making it a ground- breaking record in 21

22 Indonesia s political history since Under the New Order, it was only 3 (three) political parties allowed to participate in elections. Soon after the general election of June 7, 1999, Indonesian politics is alive once again. Series of constitutional amendments are introduced in which a political decision to elect President directly is among the most significant ones. The decision was then put into effect in 2004 when Indonesian people enjoy their first experience in exercising their constitutional right to directly elect their president. Decentralization policy has also marked significant change in power relations in political- economic, socio- cultural as well as legal, bureaucratic and governance life. It was initially introduced in 1999 with the promulgation of the Law (Undang- Undang or UU) No. 22 and 25 and took into effect in Instead of making the bureaucracy more efficient and closer to the people, the decision has been considered as a major factor behind various problems of under- performed apparatus and poorly managed public services where corruption and other moral hazards behavior persist in much more intensified ways. Despite those changes in institutional political and economic arrangements from authoritarian, monopolized to more pluralistic, competitive ones political economic, socio- cultural, legal and governance relations among key power players remain intact. As Hadiz (2005) noticed, key players or as he termed as predatory oligarchs are inherited from the country s civil or military technocrats, bureaucrats and politicians, plus of course business actors (both of traditional Chinese- descendent conglomerates and the privileged- indigenous ones). Operated via what Hadiz call as gate- keepers institutions, such as big state- owned enterprises (Pertamina 6, Perum Bulog 7, PT Telkom 8, PTPN 9, etc.), 6 Pertamina is a state- owned enterprise (SOE) mainly responsible in oil industry through exploration, exploitation, refinery and distribution activities, along with production- sharing contracts (PSC) mechanism collaborated with several Multi National Corporations (MNCs) in exploration and exploitation activities. Few years ago, Pertamina monopoly in oil distribution activities is lifted, making it possible for MNCs to open distribution chains in Indonesia. 7 Bulog (stands for Badan Urusan Logistik) is a government agency (now a semi SOE with a status of Perum/Perusahaan Umum) responsible for the management of supply and demands of the country s main staple foods (especially rice, but also others called as Sembako or Sembilan Bahan Pokok (nine core commodities) to include rice, cooking oil, sugar, meat, milk, eggs, corn, salt and subsidized kerosene/gas for cooking needs. 22

23 lucrative ministries (such as Energy and Mineral Resources, Industry, Trade, Forestry, Agriculture, etc.), these key players capture power via licensing, credits, concessions and contracts. The relations among big businesses and governmental apparatus are mutually symbiotic, i.e. benefitting both, but are predatoric to others that is outside the circle. However, looking at from the rational choice perspective point of view, the relations are manifestation of rent- seeking behaviors resulted in the seeking of man- made scarcity of resources in the form of limited and scarce licenses, credits, concessions and contracts which will end up in monopolistic, oligopolistic, monopsonistic or oligopsonistic natures of economic activities. Control and power over those gatekeepers will eventually shift to control and power over the state (i.e. the structure of economic, social and political governance). In turn, what then emerges is a state which is captured (or even hijacked) by the power of gatekeepers. It eventually marks a return to the New Order state corporatism where state surrounding institutions (political parties, the media, international players (business, non- government or government agencies), or even civil society organizations, academia) are more inclined to be co- opted in such a situation. Important questions to be addressed therefore are where and how players outside the mainstream formal economy (I would call it as peripherals ) would fit in such a political- economic relations. They d include questions on the SMEs (small and medium enterprises) 10, labors, local and village level home industries, craftmanships, local community members, small- scale entrepreneurs, artisans, etc. The three small- scale industrial clusters under study will provide an escape 8 PT Telkom (Perusahaan Terbatas Telkom) is an SOE operated mainly in telecommunication industry covering activities in infrastructure development as well as service providers across Indonesia. Although it is still a major player in the industry, competitors flourish as new regulations permit new comers, including foreign ones, to exist especially in providing telecommunication services. 9 PTPN or PT (Persero) Perkebunan Nusantara is an SOE operated mainly in agro- business and plantation industry. Currently, palm oil industry is the major commodity. Traditionally, it deals with coffee, tea, cocoa, sugar, and rubber industries. 10 The Indonesian government s classification for SMEs that have integrated industrial clusters is termed as Sentra Industri Kecil or small- scale industrial clusters. 23

24 to comprehend those peripheral groups in Indonesia s contemporary political- economic, socio- cultural and governance relations. 2. The Three Clusters Studied (Bobung, Krebet, Kasongan/BKK) The first cluster of the study is located at Dusun 11 Bobung, Desa 12 Putat, in the District of Gunung Kidul, Yogyakarta. Bobung was designed about a decade ago as Desa Wisata 13 (tourism village), a term collaboratively introduced, developed by the local governmental bodies responsible of tourism industry and the local/village level community as well as tourism industry practitioners and others who are concerned with and interested in the development of the industry in the region of Yogyakarta. Series of governmental supports have been launched to attract more people to come to the village. In terms of handicraft industry, Bobung also offers plentiful potential and actual resources as it has been developing export markets for products such as topeng (traditional batik masks), wooden batik souvenirs, art exhibits, bamboo craft works, etc. Destination markets include domestic cities such as Yogyakarta, Solo, Jakarta and Bali, and overseas markets such as Australia, Malaysia, Singapore, Canada and Japan. There are at least 19 (nineteen) sanggar (workshops) of handicraft and a koperasi (cooperative) as an instrument for all the 19 sanggar to collaboratively coordinate and develop management capacity. Socio- demographic supports of the Bobung industrial capacity are based on a small community that has been predominantly rural and culturally based on agricultural livings. With a less than 100 hectares landscape, the community has managed themselves transforming to an industrial cluster. The following table depicts basic features of Dusun Bobung demographic and socio- economic context: 11 Dusun (or Dukuh) in Javanese tradition is a sub- village community grouping. A village (which is then administratively called as Desa) is divided non- administratively into local communities which manage certain number of households called typically as Dusun (or Dukuh). 12 Desa is the lowest level of government administration in the current Indonesian political system. 13 As early as of 1990s the idea was set off, then develop further, as currently we could see dozens of Desa Wisata (in the regencies of Sleman, Bantul and Gunung Kidul) and Kampung Wisata in the city of Yogyakarta developing and progressing. 24

25 Bobung Total Population 446 Numbers of Households 128 Main Language Spoken Javanese (local language) Prescribed Occupation Farmers/Peasants/Artisans Total Area 78 ha s Distance to Village (Desa) and to 4 km s (to Putat) and 8 km s (to Pathuk) Sub- district (Kecamatan) Capitals Distance to District (Kabupaten) 15 km s (to Wonosari) Capital Distance to Provincial Capital of 30 km s (to Yogyakarta) Yogyakarta Diagram 5: Bobung Cluster s Basic Features [Sources: Kemiran, Laporan Badan Pengelola Desa Wisata Bobung, Putat, Patuk, Gunung Kidul (2009) & Dinas Pariwisata dan Kebudayaan Kabupaten Gunung Kidul, Penyusunan Site Plan Desa Wisata Bobung Kabupaten Gunung Kidul (2008)] The second cluster of the study is located at Dusun Krebet, Desa Sendangsari in the District of Bantul, Yogyakarta. Krebet is also designed as a village tourism sice It has been promoted by the District of Bantul authority as a tourism village since October which then legalized under head of district government decree number 259 in Like in the case of Bobung, Krebet tourism village initiative has also gained supports not only from the local government, but also from various stakeholders, such as business groups, travel agencies, academia and research institute, community groups and individuals concerned on the development of rural areas. Krebet s handicraft industry dated back to the 1970s when the community started to notice that their customary skills in making crafts for kitchen and other household utensils could be converted to something new: wooden batik handicraft. By the 1980s, those enhanced skills in painting and carving batik on wooden crafts then began to be discovered by international buyers and traders which are closely linked to the third industrial cluster under study, Kasongan given its geographical proximity. Krebet nowadays manage to organize more than 40 sanggar (workshops) of artisans and cooperatives that is twice of the Bobung cluster. 25

26 Socio- demographic supports of Krebet industrial capacity are similar to that of Bobung, only twice as big as Bobung. General feature of the landscape is agriculture and rural, however its richness in cultural heritage has made the village as one of tourism cultural landscape development initiative in Yogyakarta (Soeroso & Sri Susilo, 2008). It has an estimated of 800 population with an estimated 200 households. The following table depicts basic features of Dusun Krebet demographic and socio- economic context: Krebet Total Population 800 (est.) Numbers of Households 200 (est.) Main Language Spoken Javanese (local language) Prescribed Occupation Farmers/Peasants/Artisans Total Area 104 ha s Distance to Village (Desa) and to 2 km s (to Sendangsari) and 4 km s (to Sub- district (Kecamatan) Capitals Pajangan) Distance to District (Kabupaten) 8 km s (to Bantul) Capital Distance to Provincial Capital of 12 km s (to Yogyakarta) Yogyakarta Diagram 6: Krebet Cluster s Basic Features [Sources: various, available on- line at Krebet- related development websites: village- wood- batik- krebet.html; tamansari.blogspot.com/2012/04/desa- wisata- krebet.html] The third cluster of the study, Kasongan, is located at Dusun Kajen, Desa Bangunjiwo, at the sub- district of Kasihan, Bantul. Historically, dated back to the ancient Yogyakarta kingdom, it has been admired as a center of pottery/ceramic industry (Ismalina, 2010; Nugraha, 2009). The industry gained its momentum in the 1970s and 1980s when scores of prominent artists (especially under the influence of Sapto Hudoyo, a well- known Yogyakarta- based painter, artist and arts gallery pioneer) began to search for the cluster s potentials as pottery and ceramic art center. In parallel with the art works booming industry in Bali and Yogyakarta during the two decades, Kasongan then positioned itself as one of the industry sole suppliers. Intensive cooperation and development scheme which involve the cluster community members, local and central government, social activists, academia from surrounding universities and art centers, local artist and 26