Yes, the market works for the poor

In 2005, The Economist published their special reports titled "A Digital Divide." The argument was one of the main reasons for the persistence of poverty is the lack of access to market (goods, labor, or financial). Information and Communication Technology (ICT) has the potential to provide the access to market. The problem is the poor tend to have limited access to such technology. Hence, one way to help alleviating poverty is to provide greater access for the poor to ICT.

A few years ago, this idea did sound absurd. What? Internet or mobile phones for poor farmers or fishermen, while most of them still even struggle to buy food? (Even Rizal once was skeptical. Back in 2005, I asked him how ICT can help the poor. "Sell the computer, buy them rice," was his answer).

However, anecdotal evidences do show that ICT can, and does, help the poor. The Economist's this week special reports provide a series of article - one may see it as a conclusion for their 2005 reports - on how ICT, mobile phone in particular, have transformed lives in the poor world in almost a revolutionary way. It connects buyers and sellers in remote areas; helps small businesses taking orders on the spot; enables farmers to get weather forecast hence deciding whether or not to plant their crops. Amongst all, in India and Africa, mobile phones are the new financial intermediaries:

... mobile money, which allows cash to travel as quickly as a text message. Across the developing world, corner shops are where people buy vouchers to top up their calling credit. Mobile-money services allow these small retailers to act rather like bank branches. They can take your cash, and (by sending a special kind of text message) credit it to your mobile-money account. You can then transfer money (again, via text message) to other registered users, who can withdraw it by visiting their own local corner shops. You can even send money to people who are not registered users; they receive a text message with a code that can be redeemed for cash.

The question is, are anecdotal evidences good evidences? Contemporary studies seem to support the idea. This study is an example. (Of course, there is always a debate on external validity, generalization, etc.)

There is a bigger picture I'd like to point out: this is an example of how market incentives work, and work for the poor. Ten years ago, mobile phones were still a luxury. But in just a decade, costs have fallen dramatically so virtually almost everyone who wants to have a cell phone can have one. Competition and market liberalization has contributed to this falling costs.

On the other hand, (poor) people in the developing world are potential consumers. The market sends this signal to the producers and network providers, who keeps innovating their products. The innovation did not stop there; came Grameen Phone, came M-PESA, and so forth.

So, don't lose faith in the market economy, yet...

Surprising Conversion

No, I am not talking about your barista Aco who, after those years, finally uses Mac. It's Richard Posner, one of the Chicago gang's members, that became (old) Keynesian.

When it comes to macro, it is indeed hard to resist Keynes and his elegant aphorism.

HT: Greg Mankiw

Chicago Strikes Back

By way of a New Keynesian (Greg Mankiw's blog), I learn about John Cochrane's draft of counter attack against Krugman's innuendo.

I like this particular para:

(H)e argues for a future of economics that “recognizes flaws and frictions,” and incorporates alternative assumptions about behavior, especially towards risk-taking. To which I say, “Hello, Paul, where have you been for the last 30 years?” Macroeconomists have not spent 30 years admiring the eternal verities of Kydland and Prescott’s 1982 paper. Pretty much all we have been doing for 30 years is introducing flaws, frictions and new behaviors, especially new models of attitudes to risk, and comparing the resulting models, quantitatively, to data. The long literature on financial crises and banking which Krugman does not mention has also been doing exactly the same.

Which I would also like to shout at emphatically say to our friends the economics no-no (some are within the profession itself) who keep complaining about the lack of behavioural/social interaction/(insert what you want) contents of the discpline,

"Hello, where have you been?"

Addendum:
I recall a conversation with Ujang. He used different words, that is, "ke mana aje, elo?"

To Fast or Not To Fast

When Sisil was pregnant with Lintar, we decided that she skipped fasting during Ramadan. Our common sense says that it'd be healthier for the baby if the mother doesn't fast --and pay the financial compensation to the poor instead. But apparently, as seen from our friends' wall status at Facebook, our thinking differs from many who prefer to keep fasting during pregnancy.

Recently I come across two papers on pregnancy and subsequent offspring's health status. One is from Douglas Almond on the long term impact of in utero 1918 influenza pandemic in the US (JPE, 2006, vol. 114. no. 4); the other is from Reyn Van Ewijk (LSE's CEP working paper, 2009) on the long term health impact on the next generation whose mothers were fasting during pregnancy.

It seems that our common sense is vindicated. Van Ewijk writes:

Using Indonesian cross-sectional data, I show that people who were exposed to Ramadan fasting during their mother’s pregnancy have a poorer general health and are sick more often than people who were not exposed. This effect is especially pronounced among older people, who, when exposed, also report health problems more often that are indicative of coronary heart problems and type 2 diabetes. The exposed are a bit smaller in body size and weigh less.

We are aware that religious interpretation is a very personal affair, yet we still keep wondering what is the selfish true reason for insisting on fasting during pregnancy despite the available exemption option.

Flexible Professor's Wage

What makes economics professors (well, Jim Hamilton, to be precise) different from their non-economics colleagues (to be exact, the other UC's professors)?

The former is more willing to adjust their price and take salary cut (and be explicit about the term, instead of using an obscure word of furlough), when the economy goes bust, and demand for economics teaching and research down.

Of course when thing is the other way around, no difference between the two. Both would love to have a raise.

Krugman on Macroeconomics

Bias toward old Keynesianism and against Chicago school aside, Krugman writes a useful summary on the state of macroeconomics here. It'd help anyone who wants to know the difference between saltwater and freshwater schools as well who's who in the discipline.

My take is here, and for sure I don't take hostile perspective to the freshwater school the way Krugman did. Nonetheless, one thing I agree with Krugman: his opinion on the use of math in the profession that prefers beauty over truth. But it just reinforces my intention to learn more (gasp!) math. A heroically tall order for me indeed, but I just see no other way.

Democracy's Metric

In his latest book, The Idea of Justice, Amartya Sen writes:

But democracy must also be seen more generally in terms of the capacity to enrich reasoned engagement through enhancing informational availability and the feasibility of interactive discussions.

Back to current Indonesian democracy.
1. Informational availability, yes. We have various sources of information, thanks to free press, political websites, academic freedom -to mention some of information sources.
2. Interactive discussion, yes. Thanks to facebook, comment section of blogs, email threads, free electoral campaign, presidential debate, and warm warung kopi talks among ordinary folks.
3. reasoned engagement?

Many times I feel the most unreasoned too-normative arguments come from, ironically, the chattering middle class failing to fairly grasp the bigger picture and falsely believing in knowing all s@%ts --empowered by lousy journalism.

Mangan ora Mangan.. yang Penting Merkantilis

Selama tiga hari berturut-turut Kompas memuat berita terpuruknya sektor pertanian Indonesia. Setuju, peningkatan produksi dan peningkatan pendapatan petani memang perlu diperjuangkan. Sederet masalah sisi produksi masih menghambat petani kita. Fluktuasi harga menjadi momok petani sementara akses bibit, modal, dan teknologi juga menjadi penghambat daya saing produk pertanian.

Kompas juga tepat mengagkat isu dis-integrasi ekonomi domestik ketika kondisi ekonomi eksternal sedang kacau. Tantangan geografis kita sebagai negara kepulauan menyebabkan segmentasi pasar dan terbatasnya economies of scale sehingga menjadi salah satu kendala pertumbuhan ekonomi. Sulit membayangkan perekonomian Indonesia bisa tumbuh seperti China karena kita punya hambatan infrastruktur. Oleh karena itu, meningkatkan integrasi pasar domestik sebaiknya menjadi salah satu acuan Kabinet ekonomi mendatang.

Tetapi konten sentimen anti-impor yang ditulis Kompas tiga hari berturut-turut membuat saya heran. Apakah pemahanam para penulis teresebut terhadap ilmu ekonomi makin melorot? Mudah-mudahan tidak. Tetapi artikel Kompas tersebut rasanya sudah "terjebak" dalam pemikiran merkantilisme abad ke 18 yang menganggap impor suatu kejahatan dan penumpukan devisa di dalam negeri sebagai barometer prestasi ekonomi.

Artikel tersebut menuliskan bahwa Indonesia telah "terjebak impor pangan" karena impornya yang kira-kira mencapai $5 milyar per tahun. Konten berita juga mengesankan perlunya "kebijakan berani" untuk swasembada produksi.

Saya tidak ingin masuk ke teknis ekonomi pertanian, tetapi saya ingin mempertanyakan beberapa hal yang muncul dalam artikel artikel tersebut.

Pertama mengenai impor dan devisa. Memang kita mengimpor sebagian pangan dan total nilai impor 2008 mencapai $5 milyar. Dari mulai gula, kedelai, dan komoditas pertanian lain yang kita juga produsen seperti ikan tertentu Indonesia pun mengiimpor.

Yang tidak ditulis Kompas adalah total ekspor non-migas Indonesia tahun 2008 mencapai $107 milyar. Ekspor produk perkebunan, pertanian dan perikanan Indonesia di tahun itu saja juga mencapai $29 milyar dan $21 milyar tergolong komoditas pangan (termasuk sawit, teh, kopi, perikanan). Lalu kalau kita impor pangan $5 milyar, apakah ini sesuatu yang mencemaskan bagi negara dengan penduduk lebih dari 250 juta jiwa dan termasuk dalam 20 negara dengan PDB terbesar?

Betul, impor menggunakan devisa dan ekspor mendatangkan devisa. Tetapi apakah perekonomian akan lebih baik dengan hanya mengumpulkan devisa? Penumpukan devisa hanya akan mengakibatkan Rupiah terapresiasi dan akhirnya malah menurunkan daya saing produk ekspor. Memang, salah satu cara menghindari masalah ini adalah dengan meniru China yang menukarkan sebagian penerimaan devisa ekspor kedalam aset asing (seperti US Treasury). Tetapi ini juga yang mengakibatkan ketidakseimbangan global yang pada akhirnya memicu krisis keuangan saat ini.

Kedua, apakah keberhasilan adalah jika apapun dapat disediakan sendiri? Apakah para penulis artikel tersebut belum pernah mendengar istilah intra-industry trade?

Contohnya begini. Mengapa negara produsen keju seperti Belanda masih mengimpor keju dari Perancis? Arab Saudi pun masih mengimpor kurma dari Tunisia atau negara Arab lainnya. Australia sebagai penghasil wool terbesar masih mengimpor kain wool atau jas ketimbang menjahit semuanya sendiri. Mengapa Eropa sebagai penghasil Airbus masih membeli pesawat Boeing, Embraer, atau produk IPTN? Jepang, sebagai produsen mobil dunia masih mengimpor Daihatsu Grand Max dari Indonesia. Lalu mengapa Amerika sebagai penghasil kedelai, gandum, dan produk teknologi tinggi masih mau impor kecap ABC dan Indomie dari kita?

Perdagangan membuka pintu bagi spesialisasi produksi sehingga produsen bisa mengeksploitasi skala ekonomi dan keunggulan komparatif nya. Perdaganan juga memungkinkan terjadinya spesialisasi produksi yang memberikan keuntungan terbesar. Ini kredo dasar teori ekonomi yang saya tidak temukan setelah membaca artikel-artikel tersebut.

Ketiga, apakah "kebijakan berani" itu berarti proteksi, subsidi, atau tata niaga? Kalau maksudnya proteksi, tidak ada gunanya untuk dibahas karena ilmunya sudah jelas. Kalau proteksi tersebut untuk mengurangi ketidakadilan karena subsidi pertanian negara-negara maju, jalankan saja mekanisme safeguard WTO secara transparan dan bukan lewat larangan ad-hoc. Kita tinggal perlu membuktikan kalau subsidi impor produk pertanian tertentu membawa akibat desktruktif oleh karena itu bea masuk perlu dinaikkan.

Kalau subsidi, saya setuju tinggal pertanyaanya mekanisme subsidi bagaimana desain subsidi yang tepat. Apakah meniru subsidi pertanian di Eropa atau Amerika yang terjebak oleh lobi politik? Apakah sebaiknya terarah (targeted) kepada petani atau dalam bentuk irigasi, bibit, dan extension services? Dengan perbaikan infrastruktur fisik, rasanya produk pertanian kita juga bisa kompetitif di dalam negeri. Miris rasanya kalau betul marjin keuntungan mengimpor jeruk China bisa lebih tinggi ketimbang mendatangkan jeruk Medan atau Pontianak.

Bagiamana dengan tata niaga? Kecuali beras yang memang punya bobot besar (22%) dalam konsumsi rumah tangga miskin, sulit menjustifikasi perlunya tata niaga untuk produk pertanian lain. Tata niaga dapat mendistorsi sinyal harga dan meningkatkan resiko petani terjebak dalam produksi komoditas tertentu saja. Katakanlah kita memaksakan adanya tata niaga kedelai. Bisa jadi harga kedelai naik secara artifisial sehingga petani tidak dibiarkan menanam produk dengan harga yang menarik seperti holtikultur (sayuran dan buah-buahan).

Keempat mengenai ketahanan pangan. I'm not an agriculture economist but why the concept of food security seems narrowly focused on the ability to produce rather on securing the ability to access food?

New Order's Rerun, Not

Many observers and pundits warned that the recent maneuvers of political parties and politicians to regroup and form coalition, regardless their stands in the last elections, is the sign for the return of New Order's regime.

They misunderstood the situation while too easy labeled it as the New Order's rerun.

These political observers puts too much attention to political parties and overlooked the people as voters and interest groups. Important as it is, political parties (and their coalition tendency) is not the essence of democracy. You need to look at what happens to the voters, interest groups, and the game itself.

As voter, can you voice your concern without fear of being kidnapped? Can you openly disagree with the current administration? Can you say that President is stupid in a public forum, and next day you are still walking free? Can the voters punish the political parties if they go to unwanted direction? Can the voters generate pressure group?

Lest you forget or wasn't yet aware of those repressive days, it wasn't long ago that you can not do all of these. We are by far not in New Order-like regime --no matters who wins the last election.

Addendum: Even if those pundits insist on just looking at political parties, the very possibility that the parties can easily regroup and form non permanent coalition dismisses the idea of the return of New Order era.

Ben Again

Obama has re-nominated Ben Bernanke for the 2nd term of Fed Chairmanship. A good move. As any student of monetary economics knows, Bernanke is the leading scholar when it comes into monetary policy transmission and business cycle.

His work on agency cost, net worth, and business fluctuation is important. For those who want to force Indonesian banks' lending rate down (by regulation or any non market mechanism), that article should be on the top of their reading list.