Bureaucracy 4.0? Algorithmic Opacity and Intermediary Capture

Indonesia's OSS platform was designed to simplify licensing and reduce SME informality by eliminating official fees and cutting processing time. Yet informality rose from 57.8% to 60.4% nationally and from 52% to 67% in Bandung’s apparel SME cluster. This study asks: Does OSS reduce informality or inadvertently deepen it? Using a mixed-method design—pre-post cost comparison (2018, n=52; 2025, n=47), process tracing of 47 licensing journeys, regulatory capture scoring, 22 interviews, and modified QSPM—we examine Bandung’s apparel cluster. Total formalization costs increased 39% post-OSS (IDR 35.6M to IDR 49.5M median). A new intermediary class emerged, with 78% of SMEs using paid agents (IDR 2.5–7M fees). Algorithmic opacity drives dependency: 62% of OSS rejections lack specific reasons, forcing abandonment after 4.2 hours. Micro enterprises suffered most (54% cost increase, 74% abandonment). We introduce Adverse Digital Incorporation—platforms raising costs for marginalized actors—and intermediary capture, extending Stigler to the digital age. Modified QSPM shows SME owners rationally prioritize penetration pricing over government-dependent strategies. We recommend abolishing OSS for micro enterprises, replacing with self-declaration; agent licensing with fee caps (IDR 500,000); algorithmic transparency; and offline-first assistance desks.