The paper develops a simple model of the Soeharto 'franchise', in which the coercive power of government was deployed in the interests of the president, his family, his business cronies and key officials within the franchise. The franchise prospered by generating rents that could be harvested by, and shared with, insider firms, and by extorting payments from outsider firms and individuals. In this model the franchise inevitably collapses in the long run for various reasons: the level of 'private taxation' from which it prospers eventually becomes intolerable; rents are diluted as franchise membership is expanded to buy off opposition; insider firms grow so rapidly that they run into financial and management bottlenecks; internal discipline declines as members compete for larger shares of the rents. The float of the Thai baht in 1997 merely provided the trigger for this inevitable collapse, while Soeharto's failing health helped to accelerate it.
franchise, Asian crisis, Indonesia, rents, private taxation, bureaucratic extortion
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