Wednesday, January 03, 2007

Blaming competition

People are good in blaming game. But, not only that. Some go beyond blaming game to disguised protection seeking. And some think they have more authority than they actually do. At least there are three cases recently that are in point.

First, shopkeepers (small scale traders) vs minimarkets vs hypermarkets. As reported in The Jakarta Post, shopkeepers are angry at minimarkets. One of them complains, "I lost most of my customers when a minimarket opened up right in front...". And the government of Jakarta, not surprisingly, thinks they have to do something regarding the competition. Says one city official, "We are trying to temporarily stop issuing licenses for the establishment of minimarkets, because there are too many shops opening up... ". Of course the minimarket people are not happy. ... says, "...". What do we learn from this? A) The Jakarta government is lousy in doing its job managing city zoning. But rather than dealing with it, they blame business competition. This is rational though, since by doing that, the government can use populist sentiment to gain sympathy. B). The minimarket rep seems to be just playing with words. He argues as if he is concerned with consumers' welfare. But go ask these minimarket guys about their opinion toward hypermarkets like Carrefour. Now it is just like a role-playing game: suddenly minimarkets would want protection from hypermarkets, just like shopkeepers want protection from minimarkets; in all case, consumers are actually of no concern.

Second, IGOS vs Microsoft. As reported by Tempo magazine, there has been furor over the government fishy decision to buy Microsoft softwares instead of using the open source IGOS. The Monitoring Committee for Business Competition (KPPU) accuses the government of violating Presidential Regulation No. 8/2006 that requires open bid for such procurement. The case made by KPPU is well taken. It is quite obvious that had the government run a tender process, IGOS would have won, because it is an open source. Using IGOS would therefore save taxpayers' money. But, KPPU should not go too far in its argument. For example, it argues that one benefit that would be gained by using IGOS rather than Microsoft is employment creation. As true as it might be, employment is not KPPU's business.

Third, the Adam Air missing plane. As covered by media (e.g. this and this), a passenger plane owned by one of the Indonesian carriers, Adam Air is missing. Some people have started to blame the high competition in air plane business as the root cause of this and other accidents. According to them, the low cost carriers have been pushing their costs to the limit while risking the safety. So, the government should re-regulate the market. It is true that low air fare might come with low safety level. But that is not an issue of competition. Rather, it is an issue of imposing and enforcing safety standard. If the safety rules are enforced, some of those cheap planes would be out of the business; without having to deal with competition policy. This is also the case of cheap medicines, for example. Some of those label-less drugs are out without approval from Health Department. But, it is again an issue of the government failure to enforce its safety regulation. It is not for competition policy.

Update: Rasyad Parinduri has a rebuttal here. Ujang and Arya have made the discussion clear. Thanks, guys. Sorry if I was being obscure. What I was really trying to say was that many times, we are lousy in X, but we blame Y and do something on Y instead of X, just because the former is easier even though it would not solve the problem. I accept Arsyad's point that "lower air safety is the consequence of competition"; it is very rational for business to use anything possible to minimize cost including finding ways around safety standards, if any. If I know that the government is lousy in enforcing safety standards, than I would economize on that; I would be stupid not to use that opportunity. Who's to blame? Cheap tickets? As Ujang said, this is not an easy thing (as indicated by the fact that I failed to make my point clear, I suppose): people can easily confuse safety and competition. Yes, they are related, but the policy implication would be very different. Imagine this: if somehow the government can really enforce a good safety standard on airline business, I would expect that tickets would be more expensive relative to the current fares. Note, however, that the business response is due to the enforcement of safety regulation policy, not competition policy.

As a side note, let me say one more thing before people accuse me with 'so-now-you-want-the-government-to-do-something' or 'wtf-you-oppose-seatbelt-requirement-but-you-want- safety-standards-on-airlines'. This is an issue of information. Air passenger has the rights to know whether the carrier he is going to use is too old to fly, has a cripple pilot, and so forth. Then he would make his own decision: cheaper ticket slash old bird slash cripple pilot or more expensive ticket slash newer carrier slash qualified pilot. Where is the government here? Its role is to make sure that the information is carried through. How? Well, let them think. But here's an illustration: require every airlines to announce the age of the carrier and the qualification of the pilot in ticket boxes. (Note that this is different with seatbelt case. When you buy a car or take a cab, you can check first whether it has a seatbelt or not. Then you decide. Unfortunately, you can not do this to airplanes).