Rock Nationalization

Usually, the word nationalization is associated with Hugo Chavez or Evo Morales. But now Gordon Brown has joined the club. The UK government nationalizes the ailing Northern Rock--the UK bank that hit badly by current US sub prime mortgage crisis.

Add this action to the already signed US economic stimulus package, it got me thinking (and confused) on the way developed countries government handles financial and banking crisis

This is my simple math: nationalization plus "business as usual" equals moral hazard, because you just put too little stick -and perhaps too much carrot--into the equation.

Why don't they just learn from our experience, albeit developing country, with the messy BLBI, bank re capitalization, BPPN and all those government bail-out plan that have just led to a slow and mediocre impact on banking performance?

(HT: Marginal Revolution)

Money for the Military

One of the delicate issue in this country is how to finance the armed-forces --and the police. In fact, the state budget allocation is too small to pay the military officers salary and operation in this enormous area of the country. As a result it is a common knowledge that those officers do moonlighting and receive extra payment for their services.

National defense and security is a typical of public good, therefore deserves to be subsidized. But what if the money is short? One may argue then, let the private to participate --in other words, to pay for their services. And this is the case of Freeport's payment to Indonesian armed forces reported by the Jakarta Post daily.

As quoted

"...Mahidin (the general, my note) added, though, that such payments should not result in the military being seen as mercenary."We've been deployed to difficult areas. Don't we deserve better supplies?" he argued..."

We know the price of military officers services (read: the official salary) is wrong--as well as the public servant's. Who should fix this problem? The state to add the budget allocation --but hey, didn't i say that the state money is short?; or the private market that are willing to pay more for the services.

Morality aside, say, let us have private market, and, perhaps, legalize the bribe. But hey, is the national defense really a non-rivalrious goods (the Freeport's consumption would not suck up the service for indigenous people of Wamena tribe)--let alone considering the limited armed forces resources?

Or are we going to privatize the armed-forces/security services? Hang on, dude, does the state exist to monopoly the violence so that we have the so-called public order?

Apology for too many question marks on this posting. But I can't help it :-)

On privatization, a non-financial measure of success

Joining the fray...

At the heart of the argument against privatization of public utilities is the fear that profit oriented firms will ration out poor consumers, either by price or simply by failing to provide services to the poor population or regions from which no profits could be made. The proponents of privatization, on the other hand, argue that privatization leads to increased efficiency, and along with it, increase in service quality. The fear that the poor will lose access to high quality services or any service altogether (through price or other mechanism) means that an increase in the profitability should not be the only metric by which we judge the success or failure of the privatization. Quality of services and access to the services are equally important.

That is why a good study on the effects of privatization should go beyond looking at the firm's profitability or other financial indicators. In fact, there is also no reason to stop at studying the coverage or the quality of services. Why not keep on going and look at the real outcomes? For example, what are the effects of privatization on the welfare (pick a measure) of the poor? Let's ask for the sake argument, what are the effects of privatization of water services on health outcome of the population?

Ok, some of you probably know I'm cheating here, because yes, I am going to refer you to the study by Galiani, Gertler and Schargrodsky (Journal of Political Economy, February 2005) on the effects of privatization of water services on child mortality in Argentina. If you haven't seen the paper, take the time to download the paper from JSTOR, or the working paper here , I'll wait.

Done? That was quick. As you see, the authors look at the effects of privatization in the '90s of around 30 percent of water companies in Argentina covering around 60 percent of the population. By exploiting the variation in the timing and locations of the privatization, and looking at what happened to child mortality across time and locations, they were able to tease out the causal effect of the privatization on child mortality. The paper is interesting in a number of ways: it looks at the real outcome of privatization, namely child mortality; it also addresses -with varying success but overall convincing- all sorts of the econometric problems that might bias the results (e.g., selection into privatization, heterogeneity in responses to privatization) .

If you buy their approach, the conclusions were striking:

• network increased significantly in the areas that privatized
• child mortality went down in the areas where privatization took place, and the effect was largest in the poorest areas
• as a robustness check they also test and show that the drop in child mortality was due to the decline of deaths due to infectious and parasitic diseases and not from the decline of deaths due to causes unrelated to water conditions

and here's a kicker:

• while private companies may provide suboptimal services, they did much better job than the public sector or the non-profit cooperative sector

Of course we know better than to generalize too much and think what happened there will happen anywhere. What about institutions, political context, historical background, you might ask. But the point in bringing this up is that while the debate on privatization has been going on so long, rarely have we seen people go beyond the rhetorics and start digging for empirical evidence. It's high time to take the debate to another level.

Updates:
Blogowner, I agree with you, both the scientific community and the mass media have a lot to learn on how to communicate with each other. The burden is on us to make our ideas more accessible.

Rizal, thanks for the reference. There's a new book coming out, Reality Check: The Distributional Impact of Privatization in Developing Countries", edited by Nellis and Birdsall of the CGD . It looks like a case studies book. The chapters are downloadable.

Privatize PLN!

An economist who is also a member of the parliament was cited in Kompas today. Commenting on the 2004's Rp 2.02 trillion loss of PLN, the state-owned electricity monopoly, he said, "PLN is a public-service oriented company. Therefore, it should not be treated as a profit center". He then asserted, "Accounting practice for PLN should differ from those for private companies. Furthermore, PLN should not be decentralized, because otherwise it will create cost inefficiency, since prices will be different across regions".

This is like a father telling his adult son. Son, you have to support your brothers and sisters. Therefore, I will keep supporting you. Just do your work, no matter how bad you do. Where I got money to support you from is of no concern for you. (Of course I'll tax your brothers and sisters).

The only way to make PLN more efficient is to leave it to private and expose it to competition.

ideologi

Ini lucu.
Pemerintahan sosialis di Calcutta, atas nasehat konsultan global PwC, akhirnya meminjam uang pemerintah (kapitalis) Inggris untuk memberi pesangon dan memecat karyawan BUMD yang tergabung dalam serikat pekerja komunis untuk kemudian diprivatisasi. Setelah menerima uang pesangon yang cukup royal, maka keluarlah statemen bersama bahwa apa yang dilakukan adalah privatisasi yang manusiawi (silakan baca).

Wooii BUMN Indonesia yang bermasalah dan para pendukungnya !! Sebenernya apa sih yang anda mau ? Modal cekak, disuruh kerja keras malas, kompetisi ogah, tapi dikasih uang kok mau.

Addendum: judul diganti agar lebih relevan