Saturday, September 29, 2007

New blog

Introducing "Ekonomi dan Politik di Indonesia" (economics and politics in Indonesia), a blog in Bahasa Indonesia by Chatib Basri and me. We are going to address common fallacies in the debate on Indonesian political economy. Comments encouraged.

Saturday, September 15, 2007

Banning the beggars (and givers)

The Jakarta’s new bylaw that bans beggars, buskers, and on-street vendors and fines the givers has created controversy. The bylaw itself makes some sense. Here is why.

It is a fact that these elements of society are one of the reasons we have poor traffic jams – others include bad public transportation management and high subsidy on fuel price. They are also accused of making the city unclean -- an unfair accusation as we see even some rich people throw things out from their cars to street every day. In all fairness, the Governor should fine the latter as well.

Busking and selling stuff are supposed to be legitimate jobs. Yes, many buskers can not even sing or play guitar (or other instruments). But at least they try (clapping hands and all) and you can refuse their ‘service’ if you don’t want them. Many vendors sell trivial things. But you don’t have to buy them. The problem is, they do this on the streets (mostly in traffic light areas). It is both distracting and dangerous.

Those who help directing traffic in the absence of police officers (famously called Pak Ogah-s) for a tip are also banned. Yes, some of them ‘help’ motorists in U-turns or intersections. But some others simply pretend to help while in fact they stand in your way blocking your view to the incoming traffic. Not to mention those who threaten to scratch your car if you don’t give them money. This is an issue of poor traffic management. The solution is to fix it, not to give justification to Pak Ogahs.

And now, beggars. Beggars beg because it is their choice. Do they have alternatives? Yes. At least, they can go (back) to rural villages and live on subsistence, they can apply for jobs wherever with a small pay, or they can steal. Whatever the alternatives are, the fact that they are begging is a clear indicator that it is their best choice. The benefits of begging obviously exceed those of working far from the city. Begging can even be more attractive than working night shifts in a factory with fees and tips under minimum wage. And stealing can be very costly: prison. What the Jakarta authority seems trying to do is increase the total cost of begging so as the net benefits of begging fall below those of legal working or not-working-not-begging while still above the net benefit of stealing (and other illegal acts for that matter). This is acceptable as far as economics is concerned.

But many protest, however. You can’t just ban them. Provide them jobs. While this sounds noble, it is easier said than done. Try a simple math of what a typical beggar can earn in one day in. You would be surprised that it can be a lot higher than the minimum wage. No wonder begging is so attractive; it is for them, a job. As a consequence, if you try providing them with other jobs, they might as well refuse to switch, unless you can make those offered jobs more attractive. How long can you provide such costly service, before they decide to go back begging? So, rather than providing them with new jobs, what the government should do is to ease the rigidity in labor law. Many of those working in informal sectors (or worse, begging) are well, working in informal sectors (or worse, begging) because they simply can not enter into the formal sectors due to the extremely rigid labor law. And that includes the minimum wage standards.

Shame on you, Telkom

PT Telkom, state-owned telecommunication company, leaked text messages between Tempo's journalist and a former employee of PT Asian Agri, a company under investigation for tax evasion. The messages were given away to law enforcers. Press Council condemns this action, as it violates Telecommunication Act.

Lesson learned: be careful with your using of SMS. Telkom gives them away!

Monday, September 10, 2007

Welfare state, toll road

Faisal Basri's column in Kompas today talks about the importance of institutional development. To make his point, he appeals to welfare state idea and an illustration of the controversy over the toll road price increase. In both, I think there are flaws.

First, in his praise for welfare states, he does not mention about the tax implication. Welfare state is almost identical with high tax collection. Promoting welfare state to the public would be more balance if accompanied by an explanation or two as to how the State would finance it. Furthermore, FB writes as if the implementation of welfare state in Norway, Switzerland, Denmark, and Sweden is the cause of the low inequality in those countries. This needs proof of causality. It is possible that the income inequality had been lower so the implementation of welfare programs were easier. Finally, there is an issue of size. Arguably, the smaller a country is, the easier you implement social programs like those in the four countries FB used as examples.

But what strikes me most is the part when FB talks about the recent toll road price increase. He says that the formula used to calculate the rate change is ridiculous, since it is only subjected to inflation rate every two years. I agree, the formula should probably be improved. But then FB goes on to refer to a formula for determination of bus rate (yes, bus, not even toll road) in Bogota! He writes that the Bogotans have a "very detailed" formula: QSTxFT = (SCMLi x Kmi) + (CF x PasF) + (CC x QST) + (%Tr x QST x FT) + (%M x QST xFT) -- without even explaining what the symbols stand for. Basically he says that even without knowing what the symbols are, we can already see how detailed it is, and therefore "how poor ours is". I think this is a dangerous approach to arguing. As if, we are good if we can come up with more complicated formula.

You can come up with as many and as complicated formulas as you like. But that does not necessarily mean they are good.

Update: Dewa joins the fray

Friday, September 07, 2007


APEC members are to be commended for being cautious with U.S. proposal for a giant FTA. The proposer is the main culprit behind DDA's failure. Why trust them now?

"Balance" in trade balance is overrated

I bought a donut from Dunkin. In trade terms, I ran a deficit, Dunkin a surplus. Does Dunkin need to buy some good from me? Of course not. They're fine with my money, I'm OK with my donut. Trade balance (or, imbalance, for that matter) is a positive concept. Meaning, it is useful to describe what is going on between two parties -- or countries. It is not a matter of good or bad. So, this kind of news that we still have a trade imbalance with Russia (and implying that progress should be made to balance the account) is misleading.