A sustainability review on the Indonesian job creation law

Abstract

The Job Creation Law (JCL) is an omnibus law promulgated by the Indonesian government to promote investment in the nation by simplifying business license issuance and providing an exemption on previously established procedures. Business license applicants are exempted from the obligation to conduct Environmental Impact Assessment (EIA) so long as their projects are aligned with the land utilization policy and the zoning plan. This creates a threat to environmental sustainability as only 10% cities or regencies in Indonesia are equipped with detailed zoning plans. Furthermore, environmental considerations are rarely incorporated into spatial planning. This paper reviews changes in spatial and environmental planning practices based on a comparison among existing regulations, qualitative assessment of potential environmental impact based on lessons learned from various study cases, and critical evaluations on the aim to ease business establishment versus sustainability. The research method includes analysis of relevant document and descriptive quantitative analysis. We found that JCL puts sustainability aside and may lead to further environmental degradation.

1. Research background

Climate change risks and challenges had driven human civilization towards deriving the sustainability concept into action. This lifelong goal requires infrastructure, technology, and relevant laws and regulations. Most importantly, there needs to be a shift in business and economic activities to achieve a new way of doing business that produces less harm to the environment, such as the low carbon economy. Many European countries are considered Green Leaders due to their commitment to using cleaner energy in business conduct, preservinge the environment, as well as implementing effective policies that mitigate climate change [1].

Despite having joined forces in decarbonizing business and creating a novel way of doing business, the Indonesian government recently promulgated a controversial business easement regulation, namely Act number 11/2020 on Job Creation Law (JCL). This bill was passed on October 5th, 2020, by the People's Representative Council (Dewan Perwakilan Rakyat, DPR) of Indonesia, to create jobs and raise foreign and domestic investment by reducing regulatory requirements for business permit applications and land acquisition processes. This law was stipulated following President Joko Widodo's promise to amend various laws that inhibit job creation, such as the Environmental Management Law (Number 32/2009), Spatial Planning Law (Number 26/2007), and Employment Law (Number 13/2003).

However, this law has been criticized due to concerns that it will harm labor and indigenous land rights, and increase environmental degradation by reducing environmental protections [2,3]. The ease of obtaining environmental and operational permits as mediated by this law is the reason behind those concerns. Previously, to obtain an environmental permit, Act 32/2009 on Environmental Protection and Management made it mandatory for project proponents to submit an environmental impact assessment (EIA) report if their proposed activity could potentially cause a significant environmental impact. The project proponent must then report their environmental management performance to the government regularly. These requirements were considered an obstacle in initiating businesses due to their high cost [4]. The JCL changes this policy by allowing for environmental approval with no prior environmental assessment. Sembiring et al. conducted extensive research on the changing regime in the environmental cluster due to JCL and referred to such a change as a setback in environmental law [3].

The process of developing this act also raised controversy. Worker unions and environmental activists protested that the law formulation procedure did not adhere to the openness and public participation principles of law-making stated in Law Number 12/2011 on Law and Regulation Creation [5]. This process also deviated from the Indonesian legal system, which requires expert input in the creation of law [4,6]. Under one of the values of Pancasila, The five principles that represent Indonesia's ideology, any plan concerning public interest must be made through a consultation phase and thorough discussions involving all relevant stakeholders Another controversy is related to the labor law cluster. Mahy [7] argued that the amendments in this law are confusing and unjust, which in turn may make the intended outcome to boost economic growth become “opaque”. In addition, worker unions may also feel threatened with the loss of rights.

All of the above scholars noted the lack of studies on the legal aspect of spatial planning in JCL, despite that it is an integral part of environmental management in Indonesia. Research on JCL is mostly done from the legal perspective, such as in Iwan et al. [6], Lumbanraja [8], Samawati and Sari [5], and Sihombing and Hamid [4]. Under the environmental umbrella topic, Ng and Jye [2] discussed the importance of a shift to renewable energy in Indonesia. Furthermore, they predicted that the implementation of JCL will increase Indonesia's contribution to global greenhouse gas emissions and climate change. Another study from the environmental perspective was done by environmental law experts, Sembiring et al., [3]. Although they presented a critical and extensive discussion on the changing regime, they have yet to cover spatial planning policy. Their research was also conducted on the JCL draft (before the promulgation). Therefore, in this paper, we updated and enhanced the discussion of this Act.

This paper is aimed to: (i) review the spatial planning aspect of JCL, as part of the environmental cluster; (ii) assess potential environmental impact based on existing case studies; and (iii) review the law-making process under the sustainability paradigm.

2. Theoretical overview

Spatial planning is an important instrument in maintaining harmony between land utilization and environmental constraints. Faludi [9] considered spatial planning as a key instrument in achieving green development. Conceptually, spatial planning is aligned with the spirit of sustainable development, which emphasizes the responsible use of resources to ensure that future generations could fulfill their needs properly. This is done by integrating environmental considerations in space and land allocation.

The above paradigm has been adopted in Indonesian policy since the 1970s [10]. The latest derived regulation is law number 32/2009 on environmental protection and management. The regulation mandates any project that can potentially cause significant environmental impact to be subject to environmental impact assessment prior to its execution. tThis law is further derived into Governmental Regulation Number 27/2012 and 24/2018, which in detail describe how the environmental feasibility studies, followed by report generation for Environmental Management Efforts and Environmental Monitoring Efforts, shall be done for any small scale project before the issuance of its operational permit. These three regulations are among the 74 regulations amended in the creation of JCL.

Since the JCL is intended towards making a better climate for investment climate, we should also drive theories from the business perspective. In particular, sustainability management considers measures and efforts towards achieving sustainable development, in which there should be harmony among economic, social, and ecological aspects [11,12].

In the context of policy-making, the stakeholder theory is also important to be discussed because the success of policy implementation depends on stakeholder acceptance and involvement [13]. Furthermore, the stakeholder theory is a mainstream paradigm used in business management and related works. Promoted in Hörisch et al. [11], the theory is emphasized on satisfying the needs and expectations of all individuals or groups that may affect or become affected by an activity [14]. In this theory, the most important part is to understand and create mutual interests among stakeholders, and fulfill them in any businesses or programs.

As the stakeholder theory does not explicitly state the need to shape sustainable development, it was further proposed that mutual interests should be directed towards pursuing the best profit for the current generation without neglecting the needs of the future one(s) [11]. Under this integration, pursuing profit and attracting investment is not regarded as an immoral act, “as long as the business can create valuable impact to the environment, as well as keeping up healthy interaction and outcome among stakeholders affected” [11]. They added that to achieve such an optimistic concept, there shall be efforts and measures in strengthening the sustainable mindset among all stakeholders, as well as the willingness of regulators or government to provide incentives to promote cooperation. This resonates with a view that emphasizes the importance of government, policies, and regulations in bringing human civilization into a more sustainable system [15].

In this discussion, we have come to an assumption better investment climate might be needed to achieve sustainable development. At the same time, there should be a strong commitment that the JCL is heading in the same direction instead of tackling environmental sustainability for the sake of maximizing profit.

3. Research method

Data were collected in the form of a national government policy document on Job Creation Law (JCL), spatial plans, and detailed spatial plans (Table 1). Data were also generated during our participation in: (i) a public forum for EIA requirements in JCL organized by the Indonesian Centre for Environmental Law on October 26th, 2020, and (ii) a public hearing on the implementation of JCL organized by the Regional Representative Council on June 2nd, 2021. These data were analyzed normatively through narrative comparison and critical reviews to review the spatial planning aspect of JCL.

Table 1.

National policy data source.

Document Title	Access
Job Creation Law (Law Number 11/2020)	https://peraturan.bpk.go.id/Home/Details/149750/uu-no-11-tahun-2020
Laws of The Republic Indonesia. Number 32/2009 Concerning Protection and Management of The Environment	https://peraturan.bpk.go.id/Home/Details/38771/uu-no-32-tahun-2009
Administration of Spatial Planning (Government Regulations Number 11/2021)	https://peraturan.bpk.go.id/Home/Details/161851/pp-no-21-tahun-2021
Online Single Submission Law (Government Regulation Number 24/2018)	https://peraturan.bpk.go.id/Home/Details/82994/pp-no-24-tahun-2018
Government Regulation (PP) Number 27/2012 on Environmental Permit	https://peraturan.bpk.go.id/Home/Details/5239/pp-no-27-tahun-2012
Law Number 26/2007 on Spatial Planning	https://jdih.kemenkeu.go.id/fulltext/2007/26TAHUN2007UU.HTM
Regulation of the Minister of Agrarian Affairs and Spatial Planning Number 16/2018 concerning Guidelines for the Compilation of Detailed Spatial Plans and District/City Zoning Regulations	https://tataruang.atrbpn.go.id/sitarunas/nspk/dokumen
Implementing Regulations for Law Number 28/2002 Concerning Buildings (Government Regulation Number 36/2005)	https://peraturan.bpk.go.id/Home/Details/49491

*Data presented in this study were accessed in May 2021.

To assess the potential environmental impact due to the implementation of JCL, we analyzed data from two case studies, i.e.: an environmental conflict in North Kendeng Mountain and the spatial planning implementation in the city of Semarang. These case studies were chosen because they portray the potential impact of the removal of environmental permit requirement, as stipulated by JCL. Both cases deviated from Law no 32/2009 on environmental protection and management, in which environmental carrying capacity was not considered in spatial planning. This indicates that there are problems in the spatial planning process itself. The first case was studied by collecting the Strategic Environmental Assessment (SEA) report of North Kendeng Mountain. The second case was studied based on our participation in the online focus group discussion for spatial planning in the City of Semarang on February 20th, 2020. Through content analysis, we derived several lessons from both cases.

Lastly, to review the law-making process under the sustainability paradigm, quantitative descriptive analysis was done on relevant publicly available data: (i) Ease of Doing Business (EoDB) Score; and (ii) Environmental Performance Index (EPI). Table 2 describes the public resources used in this study.

Table 2.

Quantitative data sources used in this study.

Source	Publishing Institution	Accessa
EPI 2020 Country Report	Yale University	https://epi.yale.edu/sites/default/files/files/IDN_EPI2020_CP.pdf
EPI 2018 Country Report		https://epi.yale.edu/sites/default/files/2018-idn.pdf
EoDB (2020)	World Bank	https://www.doingbusiness.org/en/data/doing-business-score
EoDB (2018)		https://www.doingbusiness.org/en/custom-query

^aData presented in this study were accessed in May 2021.

4. Results and discussion

4.1. Changes in environmental and spatial planning regime

JCL simplifies environmental assessment requirements to increase the ease of doing business. Any project conducted in an area with a detailed spatial plan is exempted from the obligation to conduct EIA. Previously, such an exemption has been stipulated by Government Regulation Number 27/2018 on Environmental License. However, an exemption would only be granted with a strict procedure, in which the Regent/Mayor/Governor has to submit a project proposal to the Minister of Environment and Forestry, accompanied with detailed spatial planning and SEA documents. This is intended as proof that SEA has been conducted and used forin formulating the detailed spatial planning document. If the Minister approves the proposal, the project must be further equipped by an environmental feasibility study report (UKL/UPL), which only applies for small-scale projects. This is not in agreement with article 22 of Act no 32 of 2009, which states that any project that will potentially cause significant environmental impact must be accompanied with an EIA report.

To facilitate investment, Act 11/2020 on JCL simplifies the above procedure. As shown in Table 3, the permit application process for a project is easier as long as the project location is subject to detailed spatial planning. In this case, the project proponent could request for an operational license instead of an environmental permit. This policy is based on the assumption that a zoning map is included in the detailed spatial plan. However, from the perspective of the environment, a detailed spatial plan does not necessarily consider environmental carrying capacity and capability.

Table 3.

A comparison between the Job Creation Law and a relevant preceding environmental law.

Governmental Regulation Number 27/2012 on Environmental Permit	Job Creation Law Law Number 11/2021
The Regent/Mayor/Governor proposes the projects to the Minister of Environment and Forestry accompanied with documents for detailed spatial planning and strategic environmental assessment report.	Projects that will take place in areas covered by a detailed spatial plan are exempted from the obligation to conduct environmental impact assessment
Following pre-approval by the Minister, project applicants should submit a plan on environmental management and monitoring efforts (environmental feasibility analysis for small scale project)	The project proponent is eligible to apply for an in lieu of an operational permit
Once the above document has been considered feasible, the project proponent is eligible to apply for operational permit

4.2. Potential environmental impact and other consequences: lessons learned from study cases

Environment and development conflicts have occurred nationwide in Indonesia. Among these, the North Kendeng Mountain area case involved a huge and prolonged women-led protest that fought for nature rights against the industrial exploitation plan [16]. To resolve the conflict about whether the North Kendeng Mountain area should be used for industrial or conservation purposes, in 2016 President Jokowi mandated strategic environmental assessment (SEA) on the surrounding ecosystem, including Grobogan, Pati, Rembang, and Blora Regency in Central Java, as well as Bojonegoro, Tuban, and Lamongan Regency in East Java [17]. The SEA report was expected to provide a recommendation on which area should be assigned for conservation or industrial exploitation. The assessment was conducted in two phases, with phase 1 focused on Watuputih groundwater basin in Rembang. While the assessment was in progress, a conflict escalated between the locals on one side and the government and investors on the other side regarding area utilization [18]. Twenty-one mining companies are operating and one cement factory is applying for an operational permit in the area. SEA results showed that Watuputih groundwater basin has a strong indication as a karst landscape area (kawasan bentang alam karst/KBAK), with the following characteristics: (a) has a scientific function; (b) plays a role as water recharge and reservoir; (c) is a permanent spring; and (d) has caves with underground river formation. However, these findings were not considered in revising the spatial plan, either by the government of Rembang Regency or Central Java.

Another evidence that spatial planning was not done based on the environmental carrying capacity is shown by the case of Pati Regency and its 2011–2031 spatial plan [18]. Local residents of the North Kendeng Mountain area, pioneered by an indigenous group called Sedulur Sikep, opposed the plan to build a cement factory in the area. They believe that the area is a water reservoir that irrigates hundreds of hectares of rice fields and provides water for household use. Despite that, the area was allocated for mining in Pati Regency 2011–2031 spatial plan.

In addition, a private cement factory will be built in Tambakromo and Kayen districts. The issues arose from the fact that the proposed location for this factory, is within the Karst Natural Area (KBAK) that need to be conserved. In a focus group discussion initiated by Suara Merdeka Newspaper on August 14th, 2014 in Kudus, Central Java, Gunretno, the head of Sedulur Sikep, mentioned that there is a decrease of karst landscape area from 11,802 ha in 2005 to 7180 ha in 2008. This has been codified by the Ministry of Energy and Mineral Resources Decree Number 2641/2014. Even though the proposed site for the cement factory is not formally categorized as a karst landscape area, the locals observe that the characteristics of this area indicate otherwise. This is parallel with the findings of another study, that there are five sinkholes, 25 cave entrances, and 30 springs in the proposed area [19]. Therefore, both the decision to narrow down the karst landscape area and the site selection for the mining area were made with no regard to environmental carrying capacity, and therefore they are not compliant with Act 26/2007 on spatial planning and Act 32/2009 on environmental protection and management.

Phase two of SEA covered all four regencies in Central Java and three regencies in East Java [17]. All administrative areas located in North Kendeng Mountain are at high risk of environmental disasters, including floods, flash floods, and landslides. In 2030, it is estimated that the water resources in 71 districts in Central Java and East Java, partly located in the North Kendeng Mountain area, will be vulnerable. In 2040, the area is predicted to experience a water deficit. A massive land use change in all administrative areas of North Kendeng Mountain occurred from 1996 to 2016.

Based on these findings, SEA studies propose the following recommendations: (1) the status of Juwana, Jepara, Kudus, Pati, Rembang, and Blora (Wanarakurti) in Central Java should be changed in the national spatial plan, from being a leading sector for mining to an environmental cultivation and conservation; (2) areas subject to environmental degradation should be restored into water reservoirs; (3) Grobogan, Pati, Rembang, and Blora Regency, spanning across North Kendeng Mountain, as well as Tuban-Bojonegoro Regency, should be transformed to allow a balance between mining and conservation activity, with an emphasis on the restoration of degraded land and water reservation function. When the SEA studies were finished in 2018, the regency, city, and Central Java government were revising their spatial plans. However, they did not take the results of SEA into account.

The Secretary of Central Java Government addressed a letter to the Directorate General of Planology and Environmental Management, Ministry of Environment and Forestry in December 2018, stating that the 2009–2029 spatial plan and the mid-term development plan were formulated based on the SEA report which is created by their own, with the principles of sustainable development and sustainable development goals in mind. They also stated that the revised spatial plan was also in accordance to the Ministry of Energy and Mineral Resources Decree Number 2641/2014 on Sukolilo karst landscape area, which specify that the total area for mining is reduced. However, as brought up by Sedulur Sikep in the focus group discussion, the total area of karst landscape area stated in this decree is lower (7180 ha) compared to that in the preceding decree, number 0398/k/40/MES/2005 (11,802 ha). This means that approximately 4600 ha of area that could potentially belong to the karst landscape area were designated for mining.

Another case is related to the formulation of a mid-term development plan for Semarang City through SEA studies. The results were presented by a consultant and they did not address indications that the environmental carrying capacity has been exceeded, such as the existence critical areas exposed to tidal flood risks, land subsidence at the Northern coast of Semarang, land-slide risks in some hilly areas, or flooding in many parts of the city. The stages of SEA include the identification of strategic issues, a review of potential environmental impact that may arise from policy and planning, assess the impact of policy and plan to existing environmental conditions, and formulation of recommendations for policy changes in spatial and mid-term development planning. The consultant did not identify strategic issues encountered by the City of Semarang or propose any changes to the spatial or mid-term development plan.

Based on the discussions above, it can be concluded that SEA results were not considered during spatial plan revision by the government of Central Java and some regencies located in the North Kendeng Mountain area. The case of Semarang City demonstrated a deviation in the proper implementation of SEA, thus certain areas with exceeding environmental carrying capacity were not taken into account in revising the spatial plan. If such a plan is utilized to issue operational permits with EIA exemptions, environmental degradation will worsen. Furthermore, at present only 56 regencies out of 514 regencies and cities have a detailed spatial plan.

4.3. Job creation law under sustainability paradigm

In the sustainable management era, environmental considerations shall be the main aspects of sustaining a business. Globally, the Environmental Performance Index (EPI) conceptualized by Yale University is used to assess actions, policies, and programs that support the environment in individual countries. In 2020, Indonesia reached 37.8 points, decreasing 42.2 points from 2018 [15]. To evaluate if this is aligned with JCL's to provide ease of conducting business, we compare the EoDB and EPI scores for Indonesia in 2018–2020.

According to Yale University's report, globally, the statistical correlation between these two indices is slightly significant with a positive coefficient (+0.72). This association means that the higher the ease of business index, the higher the EPI score will be [15]. However, they further noted that this might be concurrent with the country's wealth and its commitment towards the environment, in that wealthy countries tend to be more committed to preserving the environment. In contrast, there were cases where a country with high ease of business score and high wealth, but did not score high in EPI. Looking at Indonesia's performance, the increase of both EoDB and GDP per capita contradicted EPI. While the EoDB rose over time, the EPI instead decreased significantly (Table 4).

Table 4.

Comparison of environmental performance index, gross development product, and ease of doing business in 2018–2020.

Indicator	2018	2020	Fold Change
EPI Score [0 = lowest; 100 = highest]	80	37.8	−42.2
GDP Per capita [in USD]	10,765	11,606	+0.841
EoDB Score [0 = lowest; 100 = highest]	66.9	69.6	+2.7

This showed that economic growth in Indonesia might not be followed by an increase in sustainability. Opposite to the initial presumption, the JCL might have a negative influence on the environment, as the Indonesian government's commitment to climate change mitigation and environmental sustainability may have changed. This result resonates with a previous view that the promulgation of JCL might make Indonesia's commitment towards sustainability “is called into doubt” [2].

As noted by Hörisch et al. (2014), to involve stakeholders in establishing sustainability management, there should be efforts to make sustainability a main and mutual interest. Concerning the quantitative analysis results discussed above, the Indonesian government should take further steps to ensure that although we are working on promoting business, we shall not put the environment aside, or else we will be driving this country into an unimaginable disaster.

The ultimate goal of the JCL is to stimulate economic growth and increase job opportunities [[2], [3], [4],8]. Internationally, this goal is translated into increasing the EoDB Score [7]. As shown in Fig. 1., Indonesia's EoDB score has been increasing in the last five years, putting the nation in the 73rd ranking out of 190 countries assessed by the World Bank [20]. Such an increase was due to the use of advanced technology, such as: (i) electronic systems that simplify tax payment, business licensing, export declaration, and case management; and (ii) better electrical infrastructures.

Fig. 1.

Indonesia's national Ease of Doing Business (EoDB) Score according to the Worldbank. The lowest to highest performance are represented by a range of value from 0 to 100, respectively. Data were retrieved from <https://www.doingbusiness.org/en/custom-query > using these query words: (i) “INDONESIA” economy; (ii) “ALL” Topics; and (iii) “ALL” Data Years).

Indonesia is categorized as one of the countries with the “most rigid employment regulation” in the world [20]. The World Bank [20] argued that this rigid employment regulation is common among lower middle-income countries. In contrast, upper-income countries tend to have more flexible employment regulations. Nevertheless, aspiring to obtain a better EoDB score, the government chose to increase its employment rigidity by creating the JCL.

The labor community responded negatively to JCL. Instead of seeing JCL as a way to bring more job and income security, the Worker Union stated that they refuse this proposed law because they worry about the loss of labor rights [21]. This resonates with an academic review by Monash University's Labour, Equality and Human Rights (LEAH) Research Group that the changes made in JCL will reduce worker rights, and therefore the outcome and economic growth of the law is unclear [7].

According to the stakeholder theory, which enforces stakeholder involvement and identification of mutual interests, such a different view between the government and the laborers is not being addressed properly. Looking back at previous cases (Fig. 2), among the four thousand local regulations rejected by the central government, some of them were rejected because they did not accommodate stakeholder interests [13]. This contradicts the JCL-making process. Instead of considering the worker unions’ request for revisions in the participatory stage, the JCL was directly promulgated. As a result, even though the law has been implemented as of November 2020, the worker unions keep on advocating their interests by pursuing a judicial review to the Constitutional Court [22]. On Labor Day of 2021, the worker unions held a protest against the JCL [23].

Fig. 2.

Number of local regulations approved by the central government of Indonesia in 2002 to 2011 as reported by Hutahaean [13].

5. Conclusions and recommendations

Since early on in the development of JCL, the fact that environmental regulations are considered obstacles in business conduct has brought up doubt about Indonesia's commitment to the environment. Our quantitative and qualitative analysis showed a lack of a positive relationship between the environment and business development. Rather than improving environmental monitoring and management technologies or strategies, the JCL instead makes it easier to forego environmental assessment requirements. As demonstrated by previous projects with similar contexts, this is a threat to environmental sustainability. Moreover, the JCL formulation did not incorporate the needs, aspirations, or interests of workers, environmental activists, and academicians. In some other countries, wealth may lead to an increase in environmental protection efforts, but Indonesia's performance showed the opposite. As of now, while the JCL is still pending approval by the constitutional court and regulations derived from it are in progress, we would like to make several recommendations. First, we need to internalize the paradigm of sustainable development among our political elites. Mother nature should be a priority in doing business, not the opposite. Second, Indonesia should work on technology advancement as it has been proven an important aspect in increasing Indonesia's EoDB score. Third, there needs to be an alignment between the law-making process and pattern at the national level and at the lower (regional) level. This is best done by listening more to vulnerable groups, which in this case is the working class, and by giving more consideration to environmental sustainability protection. Future research regarding the JCL should be based on quantitative impact assessment from the economical point of view, as this is the preferred language used in policy-making.

Limitation of the study

Due to this study was conducted during the period of 2020–2021, amidst the Covid-19 pandemic, the study relies on secondary data and data gathered through webinars. The researcher could not collect primary data directly from relevant stakeholders.

Author contribution statement

Sudharto Prawata Hadi, Drs. M. ES., Ph.D.: Conceived and designed the experiments; Performed the experiments; Analyzed and interpreted the data; Contributed reagents, materials, analysis tools or data; Wrote the paper. Rizkiana Sidqiyatul Hamdani, S·PWK., M. Ling.: Performed the experiments; Analyzed and interpreted the data; Contributed reagents, materials, analysis tools or data; Wrote the paper. Ali Roziqin, S.A.P., M. PA.: Contributed reagents, materials, analysis tools or data; Wrote the paper.

Funding statement

This research did not receive any specific grant from funding agencies in the public, commercial, or not-for-profit sectors.

Data availability statement

No data was used for the research described in the article.

Declaration of interest's statement

The authors declare that they have no known competing financial interests or personal relationships that could have appeared to influence the work reported in this paper.

Additional information

Supplementary content related to this article has been published online at [URL].