Category: Economics

Categories
Economics Politics & government Society

[2285] Of why is bribery wrong?

Bribery is wrong. That is a given. Yet surprisingly, I am struggling to explain why it is wrong.

The best I can come up with without referring to other sources is that bribery undermines a system of rules and it gives those involved in the transaction unfair advantage against those who adhere to the rules.

This casts too wide a net however, hence an imperfect reasoning. Not all rules are good and bad rules should be broken. Without looking into what separates the good rules from the bad, the breaking of good rules is a necessary condition in making bribery wrong but it is not a sufficient condition. The determination of wrongness depends on the kind of rules being broken.

Unfairness is also only a necessary condition but the concern for unfairness is only secondary because it arises from the breaking of rules. If a rule is broken, then it is immediately unfair because there are those who follow the rules, with an exception that I will go into below near the end of this entry.

The collective necessary conditions can be construed as the sufficient condition.

Is there any other sufficient condition?

I can at least define a minimum why bribery is wrong, which I propose as another sufficient condition. This goes back to the rationale of establishment of a third party or the state to protect individual rights. If a person bribes the authority to erode the rights of others to the briber’s benefit, then the briber has committed a wrong. When the rules involve individual rights, then the breaking of these specific rules becomes the sufficient condition for bribery to be wrong.

This minimum or sufficient condition is highly unsatisfactory however. Bribery can be wrong even when it does not involve the protection of individual rights. Consider a person who wants a document be kept confidential and there is a company offering safekeeping service, much like a bank. The person engages the company. And then, a third party becomes interested in the document and bribes the company in order to access the document. Quite clearly, a wrong has been committed. Or, maybe the wrong is not due to bribery but due to a breach of trust? I do not know. It requires more thinking.

In any case, if the idea that bribery is wrong is dependent on the idea of rule-breaking, then what if there is no rule? Would bribery be wrong under that situation? Under this situation, bribery ceases to be a concern anymore because the idea of bribery ceases to exist. Any action that can be construed as bribery under rule-based environment suddenly becomes just another mundane transaction in the marketplace under no-rule environment. Bribery simply becomes a purchase of service.

Now comes to the original question that piqued my interest in the idea of bribery in the first place, that subsequently made me to question my basic understanding of why bribery is wrong. What if there are rules but everybody breaks it? The Daily Chart blog at The Economist has a chart reproducing the findings on corruption from Transparency International.[1]

It shows that in Liberia, nearly 90% member of the public had bribed an official. Nearly ninety percent is nearly everybody. I am highlighting this because if everybody does it, it effectively takes the necessary condition of fairness out of the equation. Since nobody follows the rules, then the person who engages in bribery is not being unfair to anybody. Without the fulfilment of the necessary condition of unfairness, does bribery cease to become a wrong?

Mohd Hafiz Noor Shams. Some rights reserved Mohd Hafiz Noor Shams. Some rights reserved Mohd Hafiz Noor Shams. Some rights reserved

[1] — ONE in four people paid a bribe during the past year, according to the latest Global Corruption Barometer, which is published annually by Transparency International, an anti-corruption campaign group… Among the countries surveyed, this kind of everyday corruption was most prevalent in Liberia. Britain was the cleanest. [Something for your troubles. Daily Chart. December 9 2010]

Mohd Hafiz Noor Shams. Some rights reserved Mohd Hafiz Noor Shams. Some rights reserved Mohd Hafiz Noor Shams. Some rights reserved

p/s — I have found two very good short pieces by Richard Posner on corruption in general. They are:

  1. Economics of Corruption
  2. Corruption

I especially like Posner’s distinction between corruption in the public and private spheres. In retrospect, this blog post of mine involves bribery in the public sphere, i.e. public institutions.

Categories
Economics

[2284] Of a simple solution to Raja Nong Chik’s problem

Minister for the Federal Territories “is peeved” that local traders and hawkers in Kuala Lumpur are subletting their licences to foreigners. He prefers the licence owners to run their business to them renting it out to foreigners.[1] That is a value judgment and based on his preference, there is a problem.

I also see this phenomenon as a problem but the word that catches my eyes is sublet, and not foreigners. I do not mind the origin of the license users unlike the Minister, and others who harbor xenophobic sentiment.

It is likely that the licenses are in the hand of those who do not value it the most. If they were, then there would probably be no rent-seeking activity. If they were, the owners of the license would use it rather than redistribute it to others.

I have a solution for my concern.

Auction it to those who value it the most, regardless of origin.  Change the value and adopt the best market mechanism to allocate the licenses. This is likely to address the problem of subletting. While at it, the authority — the City Hall, which is under the purview of the Minister — get to get more revenue to boot.

Mohd Hafiz Noor Shams. Some rights reserved Mohd Hafiz Noor Shams. Some rights reserved Mohd Hafiz Noor Shams. Some rights reserved

[1] — KUALA LUMPUR, Dec 4 — Federal Territories and Urban Wellbeing Minister Datuk Raja Nong Chik Raja Zainal Abidin is peeved that there are still traders and hawkers in the city sub-letting their licences to foreigners.

“Not only Malays are doing this but also Chinese traders in Petaling Street and Indians in Brickfields. It seems to have become a 1 Malaysia,” he told reporters after attending the ministry’s educational assistance programme for the poor at the Chinese Assembly Hall here today.

He said this when asked about the mushrooming of foreign hawkers in Jalan Raja Bot, Chow Kit here lately. [Nong Chik wants end to traders sub-letting licences to foreigners. Bernama. December 4 2010]

Categories
Economics Education

[2283] Of my issues with introductory macroeconomics

Although normatively one should not judge a book by its cover, positively, first impression matters. The first few lessons in economics are likely to affect a person’s perspective on the roles of government. Those who are familiar with economics and who ended up skeptical with the concept of activist government have to suffer those first lessons that suggest increased government spending in the economy is good.

Introductory macroeconomics at the undergraduate level typically presents the Keynesian consensus quite forcefully. Students tend to spend considerable amount of time studying the mechanics of simple IS-LM. The simplified model, while useful as a primer and for the cultivation of understanding in the workings of the economy, tends to overemphasize the effectiveness of government spending in the economy. In the jargons of macroeconomics for example, increase (decrease) in government spending positively (negatively) shifts the IS curve to increase (decrease) aggregate demand that eventually increases (decreases) economy-wide output, given all else the same.

Other complications do get introduced to shake that ceteris paribus assumption by a bit like the crowding out effect of higher interest rate on other components of the GDP and the dynamic of monetary policy. Here, for the first time, macroeconomics cautions students that sometimes, the effect of change in government spending can be ambiguous.

Add more complications and only then, government spending can be bad. Unfortunately, by adding more and more complications, the pedagogic value becomes marginal, making it wise for teachers of introductory macroeconomics to stop at the level where the lesson of the semester suggests that government spending is largely favorable.

By the time simple complications such as monetary policy are introduced, the perception that government is almighty will already have been ingrained in students. Consider the Keynesian multiplier. Students will learn this concept early, well before greater realism appears in the picture. Specifically, it is the idea that an increase in government spending has amplifying impact on total output, never mind that the rate of the multiplier itself is controversial.

My biggest grip has always been the silence regarding government finance. Increased government spending has to be funded. This concern is only answered at the later stage of introductory course, where Ricardian equivalence is finally mentioned. When it is mentioned however, it sounds like a minor curiosity only.

Given the bias, it is a miracle how anybody could finish undergraduate economics and become skeptical of government spending being the panache to short-term economic fluctuation.

Categories
Economics Politics & government

[2280] Of centrists lose with a viable “third force”

There is talk of a third force in Malaysia. Lawyer and activist Haris Ibrahim has stated that the third force is a bunch of independents ready to co-operate with Pakatan Rakyat. Zaid Ibrahim wants to form a third political party. If in the end, it comes to a third competitive and national political grouping capable of affecting national elections, then I do not think it is the wisest of all moves.

A third party will adversely affect Pakatan Rakyat more than Barisan Nasional, given that members of the so-called third force seem to be those disillusioned liberals. They sided with Pakatan Rakyat in the last general election but that alliance is unraveling. They are disappointed with Pakatan Rakyat due to various reasons.

While liberals, they are liberal in superlative terms instead of being proper liberals who adopt a comprehensive liberal worldview like the classical liberals. Some may even be social liberals, however, noting how Kua Kia Soong has written that the third force has to stand on the left of Pakatan Rakyat, assuming he is part of the so-called third force. But never mind whether they are proper liberals or not. What matters is that these groups disagree with the status quo in the country.

Furthermore, Barisan Nasional, the beneficiary of the status quo, does not have too many liberals within its ranks. The liberals are closer to Pakatan Rakyat than Barisan Nasional, hence any competitive third grouping will compete more against the former rather than the latter. I would be in agreement with Nik Nazmi Nik Ahmad about the effect of a third force as defined earlier in encouraging the status quo, i.e. having Barisan Nasional continue to be in power, for better or for worse.

Pakatan Rakyat, however, will not be the only side to lose because of a third force. A system of one-party dominance is bad for centrists because it provides only one choice to centrists. Instead of Sophie’s choice, one faces Hobson’s. In fact, it is worse than that. Regardless of choices, there is only one outcome: more of the same.

Another point on the adverse effect of a third force can be demonstrated through the famed Hotelling-Downs model.

The model is a location game. In a two-party (or two coalition like in Malaysia; it does not matter as long as the parties within the respective group collude) democratic system, both political parties gravitate to the center. This happens because political parties want to win elections and they win it by garnering the most votes. Meanwhile, voters will vote for the party that is closest to them. As a result, a party that sits farther from the center with respect to the other party will get fewer votes than its rival. Both sides know this, sooner or later. Eventually, there is only one solution: sitting at the center is the best winning strategy.

Now, I do not think highly of centrists. More often than not, their positions are inconsistent. It is forged out of convenience rather than conviction. Their positions are a hodgepodge of points assimilated from everywhere, regardless of contradictions. Some centrists are centrists simply because they are apathetic.

Nonetheless, centrists do provide the stability required in a political system. They are the anchor in society. Given that many views are diametrical, centrists would process these views and hold compromised ones instead, if they care at all. Since the Hotelling-Downs model suggests centrist voters — more accurately the median voters — will win, the other side of the coin suggests that a competitive two-party system has the capability of preventing extremists from assuming power.

Unfortunately, this central tendency within the model is weak. The moment the system accommodates a third competitive third party or more, the central tendency weakens, or even disappears. It has been proven under the Hotelling-Downs assumption that there is no equilibrium with three competitive parties or more.

It will always be optimal for parties to change their positions, be it at the center or somewhere else. A party can always do better than the others can until the other parties respond by changing their positions. That in turn encourages the original party in question to change its position to outdo the others. The process will continue on forever.

There is no guarantee that the center position will be taken. There is really no reason why the center position is special anymore. The political centrists cease to be the anchor. Their influence on national politics decreases with respect to extremists. Thus, it is quite possible for extremists to hold power in the end, even if for a short while.

The lack of equilibrium is not necessarily bad, of course. It is an opportunity for diverse political views to prevail. There are many other benefits to having a third competitive party, but breaking the one-party dominant system is not it.

Even so, it is hard to see these liberals switching their positions too much in order to win elections. Their views are ones based on conviction and not convenience. The same cannot be said about Barisan Nasional and Pakatan Rakyat. If the Hotelling-Downs model can be used and if the competitive third party is strong enough to affect the election outcome, then this suggests that it will be optimal for Barisan Nasional and Pakatan Rakyat to move away from the third party and away from the center.

Again, centrists will lose out.

Mohd Hafiz Noor Shams. Some rights reserved Mohd Hafiz Noor Shams. Some rights reserved Mohd Hafiz Noor Shams. Some rights reserved

First published in The Malaysian Insider on November 24 2010.

Categories
Economics Education

[2279] Of PTPTN exacerbates its problem

Not all borrowers are the same. Some are goods borrowers who repay their loans mostly on time. Others do not.

Under typical market operations, the good borrowers get to pay lower rates as compared to the bad ones. This mitigate the risk of default and it discourages too many bad borrowers from borrowing. If everybody pays the same rate, then too many borrowers will likely default. That is happening to the National Higher Education Fund Corporation (PTPTN) in Malaysia, essentially.

PTPTN is having a serious loan recollection problem. As stated earlier, RM22 billion worth of loans have been lent out since 1997 but only 9% of its have been paid back.

Now, here comes something outrageous. PTPTN is waiving loans given to top performing students.[1] The intention is noble and it does provide students with an incentive to perform, provided that they know a waiver is possible.

Unfortunately for PTPTN, good students are likely to be the ones who are good at repaying their loans. I do not have the data to back this up but it is a reasonable assumption to make. Good students excel partly because they have good ethics. They are disciplined given all else the same. Paying back one’s loan is always good ethics. On time repayment requires discipline. Bad students have less discipline and maybe, less ethics as well.

At the same time, good results will likely allow good students to land some good jobs with good wages, which makes them all the more capable of paying back their loans. The same might not be true for the bad ones.

So, if the good students are left off the hook to leave PTPTN with bad borrowers only, then PTPTN will exacerbate its situation.

Mohd Hafiz Noor Shams. Some rights reserved Mohd Hafiz Noor Shams. Some rights reserved Mohd Hafiz Noor Shams. Some rights reserved

[1] — TEMERLOH: The National Higher Education Fund Corporation (PTPTN) has written off RM59mil in loans to 2,162 students who obtained Class One Honours from January to July. [PTPTN writes off RM59m loans to top students. The Star. November 24 2010]