Disclaimer: I am not a political scientist. But, well, I am a student of a School of Government anyway, so I'm the one having the most authority among four of us speaking on this issue...
Following a controversy around a statement from the head of BIN (Badan Intelijen Negara = State Intelligence Agency). He said, to prevent religious terrorism and radicalism, they won't hesitate on planting their agents to infiltrate into suspicious Muslim groups or boarding schools. The statement created a controversy among moderate and hardliner Muslims leaders.
I personally don't see any problem with this plan. After all, it is a spy's job to infiltrate. It would be wrong if BIN is granted the authority to arrest. It would also be wrong if the police arrest someone just purely based on intelligence reports, without committing a crime. But planting a secret agent is part of a greater means to provide security. And it part of the reason why we need a government.
But one thing is obviously wrong. An agency like BIN is not supposed to be blabbermouth; it should keep their job secret. That's why they are called 'secret agents.' Telling the public what they are going to do is stupid.
But again, there's always something funny with Indonesian intel. They like to show-off and make their presence obvious. Remember the old activist jokes about intels: when they 'infiltrate,' they do it with their crew-cut hair, military boots or ... handy talkies! Or they would even declare themselves, "Don't mess with me... I'm and intel..!!!"
This adds an irony about our government. Their role is to reduce information gaps. But not in this way, off course!
Wednesday, November 30, 2005
Monday, November 28, 2005
Avian Flu and Government Role
This is another example of "when we don't need the government, it's everywhere; when we do, it's nowhere". Ujang has raised the issue of Indonesia's avian flu problem some time ago. He was wondering what the government had done to tackle the problems. We learn from news that the death toll number keeps increasing. But there seems to be no clear policy on this.
In The Becker-Posner Blog, Posner argues that the spreading avian flu pandemic has much to do with government's planning failure. He even relates the failure to the same mistake with regards to handling the hurricane Katrina:
In The Becker-Posner Blog, Posner argues that the spreading avian flu pandemic has much to do with government's planning failure. He even relates the failure to the same mistake with regards to handling the hurricane Katrina:
[W]e are seeing basically a repetition of the planning failures that resulted in the Hurricane Katrina debacle. The history of flu pandemics should have indicated the necessity for measures to assure an adequate response to any new pandemic, but until an unprecedented number of birds had been infected and human beings were dying from the disease, very little was done.On its economics and how the government can help, Posner says (my emphasis added):
A specific problem with respect to preventing flu pandemics is the difficult economics of flu vaccines. Because of the frequent mutations of the virus, a vaccine may be effective for only one season, in which event the manufacturer must recover his entire investment in the vaccine in just a few months. The expected cost of the vaccine to the manufacturer is increased by his legal liability (a form of products liability) for injuries due to the side effects of the vaccine. If a large population is vaccinated, a percentage of the population, amounting to a very large number of people, will in the normal course experience illness in the months following the vaccination. Many of them will be tempted to sue, and uncertainty about the causation of an illness may enable a number of persons to recover damages who would have become ill anyway. This problem can be solved in a variety of ways: by requiring proof of negligence rather than imposing strict liability for side effects of vaccination; by increasing the burden of proving causation in vaccination suits; or by the government's undertaking to indemnify the producers for damages attributed to the vaccine. Even if such steps were taken, there would be a strong case for the government's financing vaccine development and procuring large quantities of vaccines for distribution as needed.His co-blogger, Gary Becker agrees (again, my emphasis):
[T]he world's population would be willing to pay a lot for an effective vaccine against avian flu, but companies are given weak incentives to spend a lot on developing such vaccines. That is the challenge posed to effective public policy, and I agree with Posner that so far the US and other governments have failed to meet the challenge.Bottom line: this is the case where we cannot rely on the private sectors. The incentives for them are just not enough. The government should take the lead. Sadly, as usual, governments are busy doing things they're not suppose to do. (Why is it for example, the government officials' salary more important than avian flu?)
Saturday, November 26, 2005
On rice imports
I've been meaning to bring up this issue of rice import in the Cafe, as I did here, here, and here. I'm for removing the rice import ban. But I am against the idea that the government should give an import monopoly rights to Bulog. That's even worse. When we allow importation, why should we allow it only for one single institution? I'll talk more on import monopoly rights next time. Now, I want to elaborate more on the first issue, import ban.
My supporting on import ban removal is based on the fact that majority of Indonesian peasants are net consumers. Therefore the arguments of keeping price high in order to protect peasants (or the poorest farmers) break down.
A moment of reflection, however, might undermine my claim. I failed to consider the employment effect of high rice price. That is, my argument only looked at the consumer price faced by both net producers and net consumers, not their incomes. High price, however, is an incentive for land holders to expand production. As production expands, the demand for landless laborers increases. This would increase employment and real wages of peasants. Therefore, any argument for or against rice import should look at both price effect and income effect.
Fortunately, Peter Warr of Australian National University has recently studied this issue. In his paper, he uses a general equilibrium framework that involves 1,000 individual households. He factors in the distributional effects of rice import restrictions both on households' expenditures and their incomes. He even considers the effect of price increase on the demand for other staple foods, such as corn and wheat flour.
Warr's conclusion is reassuring:
My supporting on import ban removal is based on the fact that majority of Indonesian peasants are net consumers. Therefore the arguments of keeping price high in order to protect peasants (or the poorest farmers) break down.
A moment of reflection, however, might undermine my claim. I failed to consider the employment effect of high rice price. That is, my argument only looked at the consumer price faced by both net producers and net consumers, not their incomes. High price, however, is an incentive for land holders to expand production. As production expands, the demand for landless laborers increases. This would increase employment and real wages of peasants. Therefore, any argument for or against rice import should look at both price effect and income effect.
Fortunately, Peter Warr of Australian National University has recently studied this issue. In his paper, he uses a general equilibrium framework that involves 1,000 individual households. He factors in the distributional effects of rice import restrictions both on households' expenditures and their incomes. He even considers the effect of price increase on the demand for other staple foods, such as corn and wheat flour.
Warr's conclusion is reassuring:
[T]he [Indonesia's] rice import ban raises poverty incidence by a little less than one per cent of the population. Poverty rises in both rural and urban areas. Among farmers, only the richest gain.Therefore, unsurprisingly:
It is not possible to justify the import ban by claiming that it reduces poverty.That said, my position remains: remove the rice import ban.
On press (again) and rice imports
I have a similar concern with Aco regarding our press coverage in certain policies. Few weeks ago, the 'consensus' was "fuel price hike is evil," with the portraits of frustrated (urban) population after the policy.
Nowadays, the media reported a series of protest against government's rice import policy. Again, this policy is also considered as 'evil' because it will harm the (rural) farmers.
One leading daily paper published a news (looks more like a feature than news for me) titled "Rice husk price continued falling - decision to import rice has been widely rejected." This story was following an earlier feature, in the first page, about how the decision to import was rejected by the 'people'.
OK, so raising the fuel price was an evil policy. Now, importing rice, as a means to keep food price down, is also evil. Rendra once asked "Good deeds -- good deeds to whom that you meant, Sir?" I am not sure whether Rendra will agree that I am using his line to question the rejection for fuel price hike and plan to import rice. But his famous line is really relevant in this case, indeed.
Another media, interestingy belongs to the same group as the previous one, still wrote a good editorial in this issue, though. The editor pointed out that:
The imported rice will only amount to about 0.002 percent of national consumption, which is estimated at 32.85 million tons this year, against national production of 33 million tons. ... In fact, past experience has shown that farm-gate rice prices always remain stagnant even when retail prices are rising sharply, meaning that the farmers rarely benefit from rice price increases, except those mandated by the government.
The editorial could even be stronger if they quote the SUSENAS statistics regarding the composition of farmers (land-owners vs share-croppers), and how the share-croppers -- which are the majority -- will be benefited from lower rice price. But it is a good editorial, nevertheless, and hope to see more of the likes of it.
Nowadays, the media reported a series of protest against government's rice import policy. Again, this policy is also considered as 'evil' because it will harm the (rural) farmers.
One leading daily paper published a news (looks more like a feature than news for me) titled "Rice husk price continued falling - decision to import rice has been widely rejected." This story was following an earlier feature, in the first page, about how the decision to import was rejected by the 'people'.
OK, so raising the fuel price was an evil policy. Now, importing rice, as a means to keep food price down, is also evil. Rendra once asked "Good deeds -- good deeds to whom that you meant, Sir?" I am not sure whether Rendra will agree that I am using his line to question the rejection for fuel price hike and plan to import rice. But his famous line is really relevant in this case, indeed.
Another media, interestingy belongs to the same group as the previous one, still wrote a good editorial in this issue, though. The editor pointed out that:
The imported rice will only amount to about 0.002 percent of national consumption, which is estimated at 32.85 million tons this year, against national production of 33 million tons. ... In fact, past experience has shown that farm-gate rice prices always remain stagnant even when retail prices are rising sharply, meaning that the farmers rarely benefit from rice price increases, except those mandated by the government.
The editorial could even be stronger if they quote the SUSENAS statistics regarding the composition of farmers (land-owners vs share-croppers), and how the share-croppers -- which are the majority -- will be benefited from lower rice price. But it is a good editorial, nevertheless, and hope to see more of the likes of it.
Thursday, November 24, 2005
Should university tuition fees be subsidized?
Some ECONOMIC arguments against university tuition subsidy (I mean a general tuition subsidy, not targeted scholarships):
1. The private benefits of tertiary education is higher than its social benefit. University graduates will be the 'elite' groups of the society, and they will make a big private return of their education. Anne Booth (2000) argued that the increasing Gini coefficient in Indonesia in the early '80s was a result of more-than-proportionate government subsidies to tertiary educations. University graduates were the ones benefited most from economic boom in the early '90s. Unskilled labor, on the other hand, benefited less from the boom.
2. Rich kids can afford their education -- they (including me!) are even willing to pay for university admission test tutorials (bimbingan tes). They are the ones who will be more likely to get admission to favorite schools, and not the poor kids in a poor district somewhere in a remote place of the country. So what's the justification of subsidizing them?
However, there is a valid ECONOMIC arguments why it should be subsidized (not the populistic type arguments that are usually based on moral justice, inequality, government's responsibility etc): higher education has an increasing return. Hence, the benefit for the whole population will be high only if a significant portion of the population have higher education -- there will be a positive externality from interactions among educated people.
But increasing returns to education imply that people will tend to underinvest. If only a small fraction of the population have high education, there will be small incentives to invest in higher education. Hence the government intervention is needed to create incentives for people to go to universities, for instance by subsidizing tution fees. (Sometimes, intervention may not be needed. Consider the IT boom in India, pioneered by the Bangalore Inst. of Technology. The attraction to work in Silicon Valley is enough incentives for them).
How to reconcile these two arguments? The government provides tuition subsidies for universities in areas where the social benefits of tertiary education will be higher than the private benefits. In practice:
1. The subdidy should be provided to smaller universities in 'disadvantaged' areas, to create education in such places. Not for top, elite universities like UI, ITB, UGM and the likes.
2. Create the 'community college' systems. Or, the existing small private universities can be given status as community college, hence eligible for subsidized tuition fees. In this instance, students of UWI (Universitas Wiraswasta Indonesia, Jagakarsa, South Jakarta) are more eligible for subdidized fees rather than UI students.
Note: my arguments are only concerning tuition subsidy. I don't make any claims about government subsidies on university research. That would be another story.
1. The private benefits of tertiary education is higher than its social benefit. University graduates will be the 'elite' groups of the society, and they will make a big private return of their education. Anne Booth (2000) argued that the increasing Gini coefficient in Indonesia in the early '80s was a result of more-than-proportionate government subsidies to tertiary educations. University graduates were the ones benefited most from economic boom in the early '90s. Unskilled labor, on the other hand, benefited less from the boom.
2. Rich kids can afford their education -- they (including me!) are even willing to pay for university admission test tutorials (bimbingan tes). They are the ones who will be more likely to get admission to favorite schools, and not the poor kids in a poor district somewhere in a remote place of the country. So what's the justification of subsidizing them?
However, there is a valid ECONOMIC arguments why it should be subsidized (not the populistic type arguments that are usually based on moral justice, inequality, government's responsibility etc): higher education has an increasing return. Hence, the benefit for the whole population will be high only if a significant portion of the population have higher education -- there will be a positive externality from interactions among educated people.
But increasing returns to education imply that people will tend to underinvest. If only a small fraction of the population have high education, there will be small incentives to invest in higher education. Hence the government intervention is needed to create incentives for people to go to universities, for instance by subsidizing tution fees. (Sometimes, intervention may not be needed. Consider the IT boom in India, pioneered by the Bangalore Inst. of Technology. The attraction to work in Silicon Valley is enough incentives for them).
How to reconcile these two arguments? The government provides tuition subsidies for universities in areas where the social benefits of tertiary education will be higher than the private benefits. In practice:
1. The subdidy should be provided to smaller universities in 'disadvantaged' areas, to create education in such places. Not for top, elite universities like UI, ITB, UGM and the likes.
2. Create the 'community college' systems. Or, the existing small private universities can be given status as community college, hence eligible for subsidized tuition fees. In this instance, students of UWI (Universitas Wiraswasta Indonesia, Jagakarsa, South Jakarta) are more eligible for subdidized fees rather than UI students.
Note: my arguments are only concerning tuition subsidy. I don't make any claims about government subsidies on university research. That would be another story.
De Soto's solution for Australia
In its recent edition, 'The Economist' published a story from the Down Under about a proposal to give the Aborigins private title on communal lands. This proposal was raised by an indigenous Australian, who is very lucky enough to have a law degree from Sydney University.
This Hernando De Soto's type of proposal, in my opinion, is worth delivering. If we want to help indigenous people, settling them in preservation areas, and give them money in the forms of 'public welfare programsm,' won't work. Well, it indeed had not worked for all these years. So the best way is to integrate them into the market economy. Provide them with private property rights, in this case private land titles, is the first step.
Too bad, somehow this proposal was not too popular, even among the indigenous people.
This Hernando De Soto's type of proposal, in my opinion, is worth delivering. If we want to help indigenous people, settling them in preservation areas, and give them money in the forms of 'public welfare programsm,' won't work. Well, it indeed had not worked for all these years. So the best way is to integrate them into the market economy. Provide them with private property rights, in this case private land titles, is the first step.
Too bad, somehow this proposal was not too popular, even among the indigenous people.
Iman vs incentive
I still wait for the forwarded newspaper report. But just heard a story from a colleague that an official of Bank Indonesia's sharia division recently appealed that the customers of sharia banks should remain 'loyal,' and not to move their funds to the conventional banks. This appeal was made after the interest rate (of the conventional banking system) rose, following the increase of inflation, making it more INTERESTing to save in the conventional banks.
'Iman' is one thing. But at the end, it's the incentives that matter, no...?
'Iman' is one thing. But at the end, it's the incentives that matter, no...?
Wednesday, November 23, 2005
Do you speak English? Litte-little sih I can...
Read a funny story on the Jakarta Post about the quality of one Minister's English. The news said that during a session between the president, some economic ministers and the executives of an Indian software company in India, this Minister asked a question, supposedly in English, but no one could understand what he was trying to say. The president was reportedly irked with him.
Some quotes of the news:
[The minister's] muddled assemblage of apparently English words, left the executives visibly perplexed and the audience silent for a long, uncomfortable moment, as everyone attempted to decipher the verbiage. President Susilo had a disturbed look on his face and turned and glared furiously at [him].
"If he is not sure of his English, he must not ask questions. It is embarrassing. I think he should take an English course to catch up with fellow ministers, who have shown their capabilities," said an official from the Ministry of Foreign Affairs."
Mind you, this minister holds a degree from Pittsburgh! The paper, naughtily, raised this alma mater issue:
[The minister], who holds a degree from a university in Pittsburgh, might have felt obliged to ask a question after Minister of Trade Mari Elka Pangestu, who studied at the University of California, Davis, and Coordinating Minister for the Economy Aburizal Bakrie successfully asked questions about the Infosys success strategy.
And, ironically, the chairman of the company "told the audience that among the key successes of Infosys, and India generally, in developing the software industry was good skills in English in order to communicate well with the international community."
Well, if there is to be a cabinet reshuffle, perhaps one criteria should be... TOEFL score...?
Some quotes of the news:
[The minister's] muddled assemblage of apparently English words, left the executives visibly perplexed and the audience silent for a long, uncomfortable moment, as everyone attempted to decipher the verbiage. President Susilo had a disturbed look on his face and turned and glared furiously at [him].
"If he is not sure of his English, he must not ask questions. It is embarrassing. I think he should take an English course to catch up with fellow ministers, who have shown their capabilities," said an official from the Ministry of Foreign Affairs."
Mind you, this minister holds a degree from Pittsburgh! The paper, naughtily, raised this alma mater issue:
[The minister], who holds a degree from a university in Pittsburgh, might have felt obliged to ask a question after Minister of Trade Mari Elka Pangestu, who studied at the University of California, Davis, and Coordinating Minister for the Economy Aburizal Bakrie successfully asked questions about the Infosys success strategy.
And, ironically, the chairman of the company "told the audience that among the key successes of Infosys, and India generally, in developing the software industry was good skills in English in order to communicate well with the international community."
Well, if there is to be a cabinet reshuffle, perhaps one criteria should be... TOEFL score...?
Big Shots Go Green
When Goldman Sachs goes green:
Of course there are times when such good competition might not be possible. For example, in areas that suffer from environmental injustice, the community might not be able to get attention from private companies. In this case, a little role of the government might have its justification. Some kind of taxation is a case in point. Here's a paper I co-wrote on this issue.
The big investment banking firm has announced a policy that details how its 24,000 employees - be they bankers, analysts or purchasing agents - should promote activities that protect forests and guard against climate change,i'm really not surprised that it does that voluntarily. Was there a pressure from the government? No, the "pressure" comes from J.P. Morgan and Merrill Lynch:
This year, J. P. Morgan Chase set out strict environmental dos and don'ts for each part of its business. And Merrill Lynch now includes environmental issues in the due-diligence checklist its bankers use before underwriting stock issues.I remember a conversation between my student ("him") and me in Env-Econ class:
Me: I happened to visit two big, export oriented companies located in East Jakarta. They told me, they're green. The first company allocated some fraction of its annual sales to fund environmental cleanup. The second established an environmental awareness program in its community. I curiously asked them, why they did that -- as far as I knew the government had not issued any regulation for that. They said, well, their competitors did that, too.My point was, and is, that competition can play a role in favor of the environment. You don't really need government.
Him: Yeah, right. But you didn't know what their intention was, did you? It's probably just a pure profit motive -- you know, to build good image, than attract buyers.
Me: I don't give a damn to "intention". What I know is, they were green. I don't care with the motive.
Of course there are times when such good competition might not be possible. For example, in areas that suffer from environmental injustice, the community might not be able to get attention from private companies. In this case, a little role of the government might have its justification. Some kind of taxation is a case in point. Here's a paper I co-wrote on this issue.
"Who Stands to Gain" Is Not A Proof
If you are as sick and tired as I am of how people buy so much into conspiracy theories, you are not alone. Wikipedia has an amusing entry on this , but I'd just like to point out one of the most annoying lines of twisted reasoning that I often find in our daily newspapers (mostly from interviews with public figures or 'experts', not bylines) so that we'll recognize them next time we see it.
The "Who Stands to Gains" Approach
This refers to the approach, usually used by an 'expert' or a public figure, following a major event such as bombing/economic crisis/tourism slump/kemben melorot, that usually start with a strong denial, "No, it can't be X who did this." Why do you think that's true, Sir, we ask obligingly. "Look, let's see who stands to gain from this bombing/economic crisis/tourism slump/kemben melorot? Who are happy that we are suffering from this bombing/economic crisis/tourism slump/kemben melorot?" asks the so called expert, followed by wink, wink, a pause, and a smile. And before we can say "Sorry, Sir, that's a bunch of bullcra...", he goes for the thumping conclusion, "See, Y stands to gain from this bombing/economic crisis/tourism slump/kemben melorot, so it must be the case that Y is the one who did this."
I'm sure you have seen people say these things, most likely you have seen worse! So let me hear them!.
The "Who Stands to Gains" Approach
This refers to the approach, usually used by an 'expert' or a public figure, following a major event such as bombing/economic crisis/tourism slump/kemben melorot, that usually start with a strong denial, "No, it can't be X who did this." Why do you think that's true, Sir, we ask obligingly. "Look, let's see who stands to gain from this bombing/economic crisis/tourism slump/kemben melorot? Who are happy that we are suffering from this bombing/economic crisis/tourism slump/kemben melorot?" asks the so called expert, followed by wink, wink, a pause, and a smile. And before we can say "Sorry, Sir, that's a bunch of bullcra...", he goes for the thumping conclusion, "See, Y stands to gain from this bombing/economic crisis/tourism slump/kemben melorot, so it must be the case that Y is the one who did this."
I'm sure you have seen people say these things, most likely you have seen worse! So let me hear them!.
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