They out-attractive us! Please protect us!

These Malaysian wives made my day. According to the news, they are urging the Malaysian authority to block Chinese female domestic helpers from entering Malaysia, because those 'little dragons' could seduce their husbands. Isn't that hilarious? Let me say their request differently:

Oh dear Government, please help us. We think we are not that sexy and attractive. And unfortunately our husbands are all jerks. Please protect us. Don't let the seductive Chinese maids come into the country.

No, it ain't about racism -- they, the angry wives, are Malaysian Chinese, after all. It's just about protection-seeking mentality, nothing to do with race.

Hah.

Do modern markets really harm the traditional ones?

Errata. I wrote "the treatment group consists of traditional markets opened between 2003-2006 which are located within 5 km from a modern market." The correct passage should be "sellers in traditional markets which are located within 5 km from a modern market(s) opened between 2003-2006." Sorry.

One one occasion, a student confronted my statement that market competition does not necessarily means the weak will have to face the strong in one battlefield. This student used the traditional vs. super/hypermarket as the evidence. To be honest, although I thought his statement (as well as others who shared this view) was still debatable, I could not provide any scientific evidence to refute his argument.

But a recent study of our colleagues at SMERU Research Institute now provides the empirical evidence. Their study shows that although it is true that sellers in traditional market has been loosing profits, it can not be attributed to direct competition with modern super/hypermarkets. The report is not yet available online (thanks to Dr. Sudarno Sumarto for letting me quote and discuss their work). But it has been quoted by a local news magazine.

They interviewed fresh food sellers in traditional markets in Greater Jakarta and Bandung area. The sample was then divided into two groups:

• Treatment group consists of traditional markets opened between 2003-2006 which are located within 5 km from a modern market.
• Control group consists of markets located in the same districts with that in the control group where no modern market exists within 5-km radius, but according to the regional site plan, there will be a super/hypermarket opening nearby in 2007. This last criteria is important to isolate the placement effect (the fact that a modern market is opening soon means that the location is equally attractive to modern markets).

In addition, the markets in both groups must not have been renovated after 2003 (the benchmark year in this study).

The difference-in-difference result (see below) showed that from 2003-2006, sellers in both group are losing profits. Interestingly, those in the control group (who faced no direct competition with modern markets) experienced bigger decline in percentage term. However, the difference is statistically not different from zero (but still provides no evidence that the modern markets harmed the traditional ones). The bottom row shows that in terms of earning, the control group experienced bigger decline. This may suggest that to cope with declining profits, traditional sellers tend to maximize sales rather than profit. Still, the difference is not statistically significant.
To put it in another words, this study shows that with or without modern markets, traditional markets are declining. If financially strong modern markets are not the main culprit, then what are? According to the qualitative part of the study, many sellers view street vendors (those selling similar products outside the marketplace) as more of the problem, as well as bad management.

Before we either believe or bash this study, there are some caveats needs to be taken into account:

• First, the question of external validity: can the sample represent the population? (SMERU has acknowledged this in their study).
• Second, as our friend Arya Gaduh pointed, although they had tried to correct the placement-endogeneity bias by only considering locations where a modern market is opening, the problem may still exist. The decision to open in 2007, not earlier, may perhaps reflect location preference.
• Third, our co-blogger Sjamsu raised the issue of selection bias. Could it be that those who were interviewed only represents the 'winner,' while the 'losers' have already exit the business?
• Fourth, the study was limited to fresh-food sellers. Sjamsu also referred me to a study conducted by a consulting firm that fresh food sellers are still the winner as they still have a comparative advantage: freshness. They start selling early in the morning (when modern markets are still closed). And, in the urban/suburban areas, even the most of the mid-high income still buy fresh food from the traditional markets (or ask their pembantu to do that). So perhaps the result was skewed towards the 'winners.'

Nevertheless, SMERU study has provided us a very valuable empirical evidence. More than just anecdotal or 'romanticizing' the David vs. Goliath epic in market competition.

Addendum. As presented, the numbers in parentheses from the table above are standard deviations calculated from the sample. The authors did not present the standard errors for the mean values and the DiD coefficients. However, in the appendix section of the report, the authors presented the standard error and t-statistics for the DiD coefficients. The t-statistics are 0.76 (changes in profit) and -0.32 (changes in earnings). So statistically speaking the DiD coefficients are not different from zero. The authors estimated several models, adding some controls in the regressions. The coefficients changed slightly, but the results are consistently not significant.

Power Game (3): Even Top Execs Are Rational

(Continued)

Where do you think our President and VP will end up? Think about either one of them. For simplicity just pick the VP (you can do this the other way around). He would think like this. If he testifies against the President and the President does not testify against him, he will be free. It is better than 1.5 year promised by the evidence, if he refuses to testify. If it turns out the President also testifies against him, he will get 2 years. It is better than 3 years, a consequence if he refuses to testify while the President does testify against him. From these two scenarios, it seems that it is better for him to testify instead of refusing the offer.

Of course you can replace the VP in the above paragraph with the President (or the other way around, depending on what you did above). The logical result will apply as well. That is, it seems better also for the President to accept (i.e. to testify against the VP) than to refuse the deal.

Where does this leave us? Yes, if both of them are rational, they both testify and both will stay in jail for two years. Too bad. If only they can communicate each other, they will end up only with 1.5 years each. Do you see why?

Next time we will see what is going to happen if we put more complexity into the game. Say, what happens if the President is a flip-flop kind of guy and the VP knows this very well. Here's a spoiler: both will 'randomize' their action.

Stay tuned (but what are the odds of me continuing this story?)

Power Game (2): Trick or Treat?

(Continued)

So what happens to the president and the vice president? They are in this awkward position. Rumor has it; the Vice prefers to run as number one next time, not a sidekick anymore. And that the President is smart enough to have sensed this all along – he is not very happy about that, of course. If these are true, we can imagine a situation shown by this picture. Yes, for those familiar, this is nothing but the famous prisoner’s dilemma situation. Here how it goes.

The table above summarizes the expected ‘payoff’ for each of our ‘player’ in this ‘game’. Each pair of payoffs in the inner cells is such that the first one is the payoff to The VP and the second to The President. But before we go on with the numbers, let me introduce a third (or fourth, if we don’t want to leave out our Great Confessor) character: a smart, world-class TV journalist. The journo knows about this situation between the President and the VP and that they always try to hide it. Letting it appears on the public is just creating damage to the team as a whole, who still has two years to go.

The journo thinks hard how to actually know what each thinks. And suppose he gets this brilliant idea: applying the prisoner’s dilemma game to each of the accused executives. First, he interviews the President privately and promises to him the usual off-the-record disclaimer. At the very same time in a different place, his best friend – also a professional journalist – does the same to the VP. They make sure that both the interviewees can in no way communicate to each other about this. Both journalists tell the interviewees that they have somehow learned that the Judicial System holds evidence against both of them. But the evidence is still not very strong. In the midst of mounting public pressure, the Judicial System has no choice but to offer them a bargain (and now you can look at the numbers in the table).

The bargain says, if anyone testifies against the other (like: it was not me, it was he who agreed to accept the offer from the damn minister), he will be free while the other gets 3 years in jail (this is the lower-left cell and the upper-right cell in the payoff table). If both refuses the offer, each will get 1.5 years, based on the limited evidence the Judicial System now holds (upper-left). But if one testifies against the other and as it turns out the latter also does the same, both will get 2 years (lower-right).

Where do you think our President and VP will end up?

(To be continued...)

Power Game (1): How to be Hero Even If You're Not

Think about a hypothetical country (do it at your own risk) whose top leaders (incumbents, oppositions, and former losers) are all in trouble because a former, dismissed minister just leaked out to the press that these VIPs used illegal money from the state budget for their campaign funding in the last election.

Suppose the ruling president and his vice president plan to run for the next presidential election to be held less than three years from now, either together as a team like before, or separately as competitors. Suppose that another hopeful who also ran in the last election is still high on the polls’ lists. But this third person just confessed that he did accept the dirty money and that he would be happy to stay in prison for that – as long as he takes the others with him (he thought he knew too well that those others were equally guilty).

The confessor, long known as a heroic reformist and a strong xenophobic, is gaining a good momentum. The public, instead of feeling betrayed by his misusing their tax money, regard him as none but a braveheart. His interviews in TVs offering himself to the prison and his famous nationalistic tones are as heroic as Evo Morales of Bolivia in confiscating foreign-owned properties or Hugo Chavez of Venezuela in building his own World Bank of the South. Even the head of the country’s Honorable Assembly is doped – he calls for the public not to take the respected national icon to jail, because he is, well, a respected national icon. A respected law professor even claims that he gives enlightenment to the study of law. Media editorials praise him not less. Chances are, the confessor will run again (and the odds are good). His confession turns out to be just great. By admitting his wrongdoing, and by admitting it in the right time, he might as well get a very generous ‘punishment’: freedom (plus overwhelming votes may be). Or, at worst, say an only one year in prison – just enough not to completely ridicule the whole judicial system.

So what happens to the president and the vice president?

(To be continued...)

Tale of Two Presidents

In his first dispatch from Istana Negara/Cikeas, MT writes about the somewhat comical behind the scene reactions of (now former) cabinet members during the highly anticipated non-event otherwise known as the cabinet reshuffling. In his second post as a guest blogger for the Cafe, MT writes about some similarities between SBY and Soeharto (they just keep coming, don't they) which include SBY's ability to make people cringe, instead of laugh, with his jokes. - Manager

Tale of Two Presidents
by MT

Days before former president Soeharto resigned -I think its around November 1997- Cornell’s Ben Anderson gave a not-so-famous interview about Soeharto’s intention to resign (in high Javanese language as Lengser Keprabon, Madheg Pandhito for whatever that means). Anderson talked at length about the hypocrisy of Soeharto and how alluded much to Javanese olden day epic (Babad) to justify his action. But that I don’t want to talk about.

In one part Anderson spoke about his coldness (he could order the killing of thousands of people, borrowing Capote’s words in cold blood), in spite of (or may be because) his being Javanese. Anderson said that when Soeharto resorts to cruelness it is not something from his nature, but something that has been calculated, it is part of his strategy. He is an extremely cautious, suspecting and never acts spontaneously. One demeanor that rings true to me more
than ever watching Soeharto’s pictures and news footage was that when he tried to be friendly and warm, we barely feels the warmth he exudes. And if he is being warm and friendly, Anderson said that we have to be very cautious about what he hid behind the smile. (well, he is indeed a Javanese par excellence that way).

Much has been said that Yudhoyono have the potential to follow Soeharto’s footprints. Hey, he’s a Javanese, an army general (albeit U.S. educated and holds Ph.D in economics), married also to a Javanese woman, and much as stoic as Soeharto. And the most worrying sign that is however difficult to corroborate is Yudhoyono’s dalliance with Javanese mysticism (very Soeharto-like indeed). The most famous being his fixation with figure nine. The combination of his date of birth is nine so he does almost anything based on that number (well, not always) but the most famous example is that he broke several big news when the date strikes nine. One other thing that could show his Javanese mind set is his penchant for looking for guidance from the other side. In several occasion he made a visit to both his father’s and father in law (the famous general Sarwo Edhi Wibowo) ’s tomb before making important announcement. Well, of course there is nothing wrong about visiting your parent’s grave, but it’s the timing.

But if you think that this country is at risk of being led by another cruel and humorless general, think again. However dour he might be, Yudhoyono is at the very least an amiable person to go by. In fact, he likes jokes too, however dry. OK, he might be pale in comparison with Abdurrahman “Gus Dur” Wahid in this joke affairs. In out-of-palace functions, Yudhoyono frequently tells us jokes.

The day when he was about to break the news that a cabinet shake-up would take place in the early May – in the now famous durian plantation in Bogor – he cracked a joke about nutmeg and durian. He told us that during a visit to East Nusa Tenggara he inspected a nutmeg plantation when he stumbled upon a pile of that spice. And as he inspected the pile, he told us, one of fresh nutmeg fruit fell upon his head and he said “this is not fair, a fruit this useful only has a tiny size” and he strolled ahead.

Later in durian field, he discovered a pile of durian skin and while he observed it, a durian fell close to him. To us he said, “God the merciful, if only nutmeg is as big as durian then I would be dead when it fell upon me,” he said to a confused laughter among the audience. It’s not a funny joke (I read this joke in some obscure jokes book before and we all know that durian doesn’t grow in East NusaTenggara) but at least he tried.

The visible hand(set)

Will information and communication technology help the poor? It is tempting to say ‘yes’ to the question. The ‘how’ part is more difficult to explain. Studies on this issue tend to be macroeconomic (an x percent increase of phones or internet per capita is associated with a y percent of income per capita, or the likes).

Others are anecdotal evidence, although doesn’t mean that they are flawed. In a seminar, C.K. Prahalad of the Ross Business School, University of Michigan, mentioned that internet-literate wheat farmers in India examine the world price fluctuation through the Chicago Board of Trade website before deciding how much they should sell to the market. (Our fellow Rizal once said, “How internet helps the poor? Sell the computer, buy them food!)

A forthcoming paper by Robert Jensen (was my advisor at Harvard, now at Brown) provides a deeper analysis. The paper will be published in the Quarterly Journal of Economics next August. A review of the paper is available in the Economist. His work showed that the penetration of mobile phone had increased the average profit of fishermen in Kerala, South India.

At any given day, Kerala’s fishermen have to make a difficult choice: to sell their catch at the local market, or to go to another market along the coast. Whatever the decision is, you need to hope that your fellow fishermen go to the other market so that you would face fewer competitors. This is a one-off decision. Once you come to a certain market, it is almost impossible to move even if the market is full. You need fuel and time to travel. As the result, in a certain market there are plenty of fish that are thrown away (you can not keep the fish). In another market fifteen kilometers away, however, some buyers have to leave the market empty-handed.

This was the situation before 1997. Starting in 1997, mobile phones were available in Kerala. With mobile phones, fishermen were able to call around to find the best price, or to decide to which market they should go while they were still at sea (within 20-25 km from the coast).

The paper was more than just anecdotal. The gradual introduction of mobile phones provided a pseudo-randomization. So the author can divide the population into ‘treatments’ (the early birds) and ‘controls’ (the late comers). The result was very interesting. Once coverage became available in a region, fishermen who ventured beyond their home markets jumped from zero to 35%. The number of excess supply (wasted fish) or excess demand (unlucky buyers) went down to almost zero. Price disparities among markets fell in a typical ‘law of one price’ movement. And, more importantly, fishermen’s profits rose by 8%, and consumer price fell by 4%, on average.

This study provides more insights than that. It shows that the market, when it works, helps the poor instead of exploiting them. True, sometimes the market doesn’t work. The introduction of (information) technology makes the market work. And, beautifully, it was the profit-maximizing mobile phone companies who eventually helped the poor. Not the government, nor charity organizations.

Reshuffle Kerfuffle (by MT)

Hi there. This below is a dispatch from a friend, MT, a journalist from a leading newspaper. From now on, we'll bring you guest posts like this, occasionally. Enjoy! (The Manager).

Reshuffle Kerfuffle
by MT

As we all know that Yudhoyono finally made up his mind and make the announcement just now, and it's barely surprising (the only surprise being he finally have the guts to fire Yusril and Hamid) but its predictable given his penchant for maintaining the public image. Yusril and Hamid has been the lightning rod for a media-driven corruption allegation.

My fellow journalist (a female) was barred from entering Setneg today as Yusril has instructed his staff to bar her entry (the last policy he made during his stint anyway). And when contacted on the phone the only words he (Yusril) was that

"Congratulations, you [journalists] finally managed to bring me down."

Yusril was so furious with his dismissal that he declined to meet Yudhoyono when he was required to meet him in the morning. Well, I was wrong for overestimating him and Hamid in our last conversation. It seems that Yusril had finally stumbled this time.

Abdul Rahman Saleh -- one of my favourite officials in Yudhoyono cabinet (simply because he sided with me when my article on ban on communism book was published and he attended a book launch of Ruth Mc Vey's book on Communism held by Jakarta-based publisher Equinox--he also came to the function partly also because of my article) -- reportedly broke down in tears when a letter dismissing him got to his hand.

"What have I done wrong to deserve this" he said.

Abdul Rahman dismissal is a little bit of a surprise, especially as his replacement Hendarman Supandji is his confidante. But anyone who know the going-ons in the AGO knew very well that Abdul Rahman is not an effective Attorney General. Some of his policies has been sabotaged by his corrupt underlings to the point when he had to hire his own PR company and brought own lunch from home. Not to mention, regular attacks initiated by the House of Representatives Law Commission (which is no less corrupt). But this morning when he was summoned by Yudhoyono he appeared alright and joked with us about the possibility of accepting new post offered by the President. He also admitted that Yudhoyono showed him the door because of the tremendous pressure exerted upon him. "I lost eight kilograms while I was the Attorney General," he told us.

As for Hamid, as usual he always ran away from us whenever we asked anything and the only consolation that he got from being fired was seeing Nagabonar Jadi 2 at Setibudi One 21 organized by Kalla on Sunday. Some say they expected to see Spiderman 3 but as all poor Spidey fans, no tickets were available.

Syaifullah Yusuf's downfall is a bit tragic. Until Friday night, he was in dark over whether or not he would be fired. When we called him, he just said "Masih Gelap nih" (the expression is better in Bahasa Indonesia). But, I think Syaifullah's position is beyond saving. The United Development Party (in which Syaifullah is now a member) could not get more seats even after losing Sugiharto.

Hatta Radjasa maintained his position thanks to endorsement from PAN (which has become Yudhoyono's lap dog since Amien Rais was toppled and this is what we can get when businessman is in charge of party).

The worst choice however was over Lukman Edy for Minister for Disadvantaged Regions. I mean, who is this guy, judging by his name alone he is not at all convincing and he had no experience beyond the PKB secretary general and working for a construction companies. It seems that PKB can only produced mediocre politicians as ministers (Erman Soeparno is another bad example).

The whole reshuffle thing, however, give us another compelling reason why Yudhoyono in his military career was never in charge of important posts and relegated only to administrative duties. If he was a TNI chief and the country is at war we will be doomed as it will take him more than a month just to decide whether an assault force should be deployed. It took him seven-long months before he finally have the guts to do the cabinet shake-up.
(MT).

Don't miss this!

One of the best debates ever in the blogosphere: Dan Drezner, Dani Rodrik, Greg Mankiw, Tyler Cowen, Alex Tabarrok, Paul Krugman, and others. Of course, usefully summarized by Mark Thoma of Economist's View. Thanks to Dede who first alerted me to all this.

Ah, just say it, Mister!

I couldn't help laughing as I was reading Kompas this morning. It has a new section named Klass, supposedly a derivative of Klasika, its ads section. Today it runs a head titled "Opportunity Behind Consumerism" written by its chief, Suryopratomo.

Suryopratomo basically said consumerism is only for developed countries, not for developing countries. It's a bad idea if people from the latter group join this wave of consumerism.

Nevertheless, Klass is promoting it, yes the consumerism. What do you think if a newspaper displays ads and features of prestigious Banyan Tree property, Colnago bike, Nokia's Sirocco 8800 (yes, it has diamonds), Convergent Audio JL3, Flybook Dialogue, and of course Gc watches?

But, Suryopratomo said,

If Kompas now brings to you these high life style products, is that part of consumerism? Of course not. Kompas is only capturing the phenomena around us.

Yeah, right.

(By the way, the picture in the background of Suryopratomo's note is Lexus).