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


Arya Gaduh said...

You reckon, is it FB's fault or Kompas's (editor's) fault?

Aco said...

Frankly, I don't know, Arya. But in either case, FB could have made clarification.

Anonymous said...

Aco, I think you must write in KOMPAS since there are many wanna-be economists who fill the media with their flawed analyses. I believe that your analysis will have strong theoretical and analytical background. It is rare that Indonesia has high calibre economist like you nowadays.

Aco said...

Thank you for your kind encouragement. I'm still trying to understand economics and to deliver it to larger audience.

Anonymous said...

You should learn to Krugman how to make a prose in economics. Economics indeed now become too sophisticated for layman. In domestic, you can learn from Dede.