Category: Economics

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Economics Environment Politics & government

[1257] Of a sensible US proposal but a better German option

Anthropogenic climate change is a contentious issue in the international arena; it is a tragedy of the global commons. The latest high profile debate took place at the Germany-hosted G8 summit in the week of June 6 2007. The discussion stayed true to the current trend that no longer doubts the existence of human-induced climate change but rather, seeks to mitigate the effects of climate change. At the meeting, two road maps were presented: one by Germany and another by the United States with the former being supported by a clear majority. Within this context, I fall within the majority but that does not necessarily mean I reject the US version outright.

The German proposal calls for the halving of the 1990 global carbon dioxide level by 2050. Such suggestion would limit temperature increase to between 1.5 and 2.5 ºC. If it is adopted as the son of Kyoto, it would be binding just like Kyoto. As a note, the Kyoto Protocol demands a 5% cut of carbon dioxide as well as five other greenhouse gases from the 1990 level by 2012.

The US has refused to that proposal and has come up with an alternative of its own. Instead of reducing the level of carbon dioxide in the atmosphere, it seeks to concentrate on reducing carbon intensity. Carbon intensity is simply a fancy word describing the ratio of carbon emissions to gross domestic product (GDP): the lower the figure, the more efficient the economy operates in term of carbon emissions.

While politically angry at the US, I am sympathetic to the US suggestion after giving it a fair inspection.

It is typical to blame countries with the larger total annual emissions of contributing to climate change. Applying the total annual national emissions as a basis of comparison is dependent on the size of the country, population and geography-wise. The larger a country is, the higher the emissions would be with all else equal. For instance, Malaysia contributed 0.6% of global emissions in 2002. If ASEAN is to be taken as a state, it, inclusive of Malaysia, would produce approximately 3.7% of global carbon emissions in 2002. That would rival a smaller Germany which contributed 3.3% of global emissions in the same year; Germany according to Wikipedia, based on figures produced by the United Nations Statistics Division, was the sixth largest emitter of carbon dioxide in 2002. Such comparison does not control for population or economy size. Without such control, the data is noisy and produces misleading conception.

In other words, using annual national carbon emissions for comparison purpose is almost meaningless and unfairly put too much blame related to climate change on the shoulders of large countries. What would be better for comparison purpose is the carbon intensity measurement as proposed by the US. Or, perhaps, my favorite, emissions per capita.

Take a look at annual national emissions in 2002:

GFDL. Wikipedia. http://en.wikipedia.org/wiki/Image:Ratio_of_GDP_to_carbon_dioxide_emissions.PNG

Then, observe carbon intensity in 2005 (in this graph, the red is below world’s average and green is above; the dimension is GDP/emissions. The inversed dimension means higher figure equals to higher efficiency):

GFDL. Wikipedia. http://en.wikipedia.org/wiki/Image:Countries_by_carbon_dioxide_emissions_world_map_deobfuscated.png

For emission per capita in 2003:

GFDL. Wikipedia. http://en.wikipedia.org/wiki/Image:Countries_by_carbon_dioxide_emissions_world_map_deobfuscated.png

Despite me preferring carbon intensity used as comparison purpose to annual national emissions, why would I not lending my support to the US proposal?

The answer is this: we need to lower the level of carbon dioxide in the atmosphere. In fact, not just carbon dioxide but other sensible greenhouse gases. Lower carbon intensity alone does not do that job. Indeed, effort to lower carbon intensity does not mean lower global carbon level. During a period of economic boom and technological progress, efficiency as well as the carbon level could increase. Depending on the rate and volume, it would lead to increase in carbon level in the atmosphere.

How is that possible?

Efficiency is essentially a multiplier and it basically could reflect emissions reduction know-how. Greater technological level could permit greater efficient; lower rate. Then we have volume which could be interpreted as economic activities. Finally, of course, there is some rate of carbon absorption by nature. The diagram below illustrates the flow versus level model which is typical in economics:

By Mohd Hafiz Noor Shams. Some rights reserved.

The product of efficiency and volume, subtracted with the amount of absorption could be positive. To make it clearer, assuming increased efficiency leads to lower emissions, ceteris paribus, a sufficient increase in volume could erase any reduction made possible through higher emissions if volume is held constant.

The US proposal does not address that but the German proposal does. Hence, my support. Despite that, the German proposal should incorporate the other suggestion without losing sight of the level reduction goal.

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Economics

[1255] Of a tip to improve the tourism industry

About six years ago, I found myself awfully famished and called for a pizza. What felt like a century later, a pizzaman called me back to let me know that he was standing at the door. What exciting news! I grabbed some cash, rushed down to the door, gave the guy some cash and expected some change. I never got that change and I was puzzled by the fact that he just took the cash and left nonchalantly. I almost protested, thinking it was theft but with just a couple of dimes, nickels and pennies and an empty stomach, I decided to enjoy my pizza instead. Later, I learned that it is a culture called tipping. More importantly, that culture might be the key to an excellent tourism-related service industry.

Tipping is not big in Malaysia. I myself am not a big fan of tipping. After all, why should I pay more on top of an overpriced meal, especially with the bad service that comes along with it?

I was very thrifty while I was in the US. I am still is now but once in New York, my friends and I were scolded for giving what I would guess was an insulting amount of tip. What a lecture we had! It was enough to heat us up in the frigid New York winter! But please do not blame me for that for I am but a product of Malaysian culture.

But back to the question, why should we tip?

The answer is simple and relates to one truth in economics: people respond to incentive. This is an universal truth. Well, almost but let us pretend that there is no irrational people in this world.

When I say tourism-related service industry, I really mean the sector such as hoteling and restaurant. If I might add, Malaysia has a relatively terrible service industry. A friend of mine from India once lamented on how terrible the service he received at what could be considered as a posh place in the middle of Kuala Lumpur. I was shocked to hear him complaining about that place.

The fortunately could be changed if the culture of tipping is introduced in a big way in Malaysia. With it, visitors would have the power to reward those whom exhibited good effort and, in some way, punish the sloppy ones. Alas, introducing a new culture is an Herculean task. A more sensible proposal is to start it with a more humble manner: develop a personal habit of tipping.

In order to get good service, one has to develop a reputation for tipping. In an environment where tipping is alien, one does not have tip too much to be well served. One has to repeatedly tip the same service provider over some time to gain that reputation. Just like in a repeated game model, players learn. The same fact is true in the real world.

So, if you hate the service you get in Malaysia, start tipping. Trust me. Once one has a tipping reputation, many in the tourism-related service industry would try to please you. If everybody tips, we would have a great tourism industry in no time.

If that is not enough a reason for you to start tipping, there is another reason why you should tip: tip big enough, you may get lucky.

Categories
Economics Environment Politics & government

[1254] Of G8 on climate change

Categories
Economics Humor

[1250] Of price control rendered useless

Hahaha…

PETALING JAYA: Following the painful raids against traders who overprice their food and drinks, most restaurants are sticking to their regular prices.

The difference, however, is that some restaurants may be dishing out smaller-sized roti canai as well as diluted Nescafe or Milo drinks.

Contrary to earlier complaints by restaurant operators that they would lose out following the government move to increase the price of flour, a random survey by The Star found that they would actually make a hefty profit if the price of roti canai goes up by 10sen a piece. [Roti canai getting smaller. Goh, Michelle. Nur Akmal. The Star. June 3 2007]

Instead of liberalizing the market, I suspect the state would engage in more stifling policy by regulating the size of roti canai.

We as responsible citizens on the other hand desperately need to upgrade the mentality of our politicians. I am in the opinion that all ministers need at least at a basic lesson in economics.

Categories
Economics History & heritage

[1242] Of 1800 years before the construction of the USD7 billion Kedah-Kelantan pipeline

Three firms from Malaysia, Indonesia and Saudi Arabia are cooperating to build a pipeline worth USD7 billion to transport crude oil across the Malay Peninsula, bypassing the busy Straits of Malacca. The chairman of Trans-Peninsula Petroleum expects the pipeline to divert 20% of oil tankers traffic off the Straits of Malacca.

“The savings in using our pipeline to the oil producers, to oil traders, is enough to even pay for one month of storage,” said chairman of Trans-Peninsula Petroleum Sdn Bhd (Transpen), Mohd Kamil Sulaiman.

[…]

Mohd Kamil said the pipeline would help ease congestion in the Straits of Malacca where out of 60,000 vessels that transit the straits, 30 percent were oil tankers.

He said the pipeline would divert about 20 percent of the oil tankers. [Transpen’s US$7 Bln-pipeline To Cut Down Time Taken To Transport Oil. Bernama. May 29 2007]

While the project is huge, this is not the first time northern Malay Peninsula becomes a land bridge facilitating international trade. Not in such gigantic scale of course but still, in my humble opinion, far more significant.

The third century of the common era was a period of economic boom in Southeast Asia. The boom was caused by a civil war in China; the Romance of the Three Kingdoms. The conflict threatened the reliability of the Silk Road, the artery of international trade and soon, the route between China and Rome became unsafe for passage.

Like water, trade seeks the path of least resistance. The unique circumstances encouraged the development of sea routes that ran through Southeast Asia. This is the impetus of the formation of many kingdoms in this region during this period. Three of the kingdoms were Dungsun, Pan Pan and Langkasuka. Another one, although not located on the Malay Peninsula but closely related to the history of the three Southeast Asia kingdoms was Funan.

Funan was a civilization that existed at the mouth of river Mekong. More importantly, it was the gate to southern China which was controlled by the kingdom of Wu. It is probably safe to claim that almost all goods originated or going to southern China went through Funan. Relating to the topic at hand, the three kingdoms at one time or another came under the influence of Funan.

To or fro Funan, depending on the flow of trade, goods would pass through Dungsun, Pan Pan, Langkasuka or by circumventing the Malay Peninsula. There may be other routes but there four are the major ones.

Dungsun was a kingdom located near the Isthmus of Kra. Its strategic location allowed it to connect the Bay of Bengal and the Bay of Siam. Apart from that, not much is known about it and this makes it so mysterious.

South of Dungsun was Pan Pan, centered around the cities of Ligor or Chaiya. It is worth remembering that Chaiya was the regional capital of the Malay empire of Srivijaya later in history. While that is clear, I find Pan Pan a little bit confusing though. Some called Pan Pan as Tambralinga while others recognized Tambralinga as Ligor. Nevertheless, Pan Pan accommodated international trade.

Even farther south was the kingdom of Langkasuka that roughly covered the old Malay kingdoms of Pattani as well as Old Kedah and its surrounding. Over land, goods traveled between Singora and Kedah or Pattani and Kedah. The Pattani-Kedah route in particular ran along Muda River in Kedah and Pattani River on the other side of the Peninsula. Anyway, as mentioned earlier, Funan exerted influence over Langkasuka but among three kingdoms, Langkasuka was the farthest from Funan and hence, Funanese controlled over it was probably the weakest.

About four centuries later, both Pan Pan and Langkasuka were absorbed by Srivijaya. Despite the presence of a new master, these two kingdoms still played the role they played back in the second century. Langkasuka specifically reached its peak between the 7th and the 10th century, coinciding with the Srivijayan golden age. The era made Kedah a very busy port. The archaeologically rich Bujang Valley provides some proofs of the prosperity Kedah once enjoyed.

So, when you ever passby that crude oil pipeline will connect Kedah and Kelantan around 2014, just remember that the idea of trade cutting through the Malay Peninsula went as far back as about 1800 years ago. Beyond Malacca, if I might add.