Categories
Economics

[2154] Of introduce targeted cash transfer instead of targeted subsidy

In spite of opposition that saw the streets of Kuala Lumpur filled with pro-fuel subsidy groups during the Abdullah administration, efforts to liberalize the fuel subsidy regime have gone a long way. Several arguments, including one that criticizes the untargeted and blanket nature of the policy have gained tremendous traction. The fact that it benefits those who do not need or deserve the subsidy is clearly one of the main motivators — the bigger drivers are probably cost and waste — behind the reformation of the policy.

The Najib administration is addressing this particular criticism. That has resulted in multiple novel moves and proposals from the federal government. Among the proposals reported in the mainstream media are different prices for different groups, a cap on subsidized fuel consumption and access to subsidy based on engine size. All of it tries to discriminate consumers at the pump. While the moves and proposals may reduce the size of fuel subsidy either in value or in quantity, the proposals under explicit fuel subsidy regime are too convoluted. The more convoluted the methods are, the more complex the implementation will be. That is a recipe for a disaster, policy wise.

I appreciate the government’s effort at making the policy more targeted and hence, making it less wasteful in terms of opportunity cost. Yet, these novel ways are unnecessary given the existence of at least one simpler alternative.

Just observe the recent attempt to limit the sale of subsidized fuel to foreigners at the border. So complicated was it that everybody was confused and in the end, it did not work. Consumers found ways around the restriction.

There is a better and much simpler way to do to this.

Before we proceed to that better and simpler policy, it is crucial for us to recall the purpose of the fuel subsidy. Its goal is ultimately to reduce the cost of living of the less well-to-do Malaysians. On top of that, fuel subsidy is not the only way to achieve that goal.

With that in mind, the better alternative to targeted fuel subsidy is a simple targeted cash transfer from the government to those who deserve it.

Why targeted cash transfer?

The first reason is that it paves the way for total elimination of fuel subsidy to free up the market. Since free prices signal scarcity, individuals and entities will make decisions that are more reflective of the reality of the energy market. On top of that, it creates real competition among pump owners. The same system of free prices already exists in the United States and Australia. Its effectiveness is proven.

Not only that, elimination of subsidy at the pump reduces consumption, all else being constant. That means lower carbon emissions. In times when carbon emissions are a worldwide concern and in light of the Najib administration’s promise to announce a carbon cut roadmap in the near future, this is an opportunity to integrate transportation and energy policies together environmental policy. Such integration is important given that, according to the International Energy Agency in 2007, the transportation sector was the source of 30 per cent of Malaysia’s carbon dioxide emissions in 2005.

Thirdly, cash can be used for a variety of things and not just fuel. Maybe a beneficiary of such a cash transfer appreciates books or food more than fuel. This has the potential of increasing the beneficiary’s welfare higher than what a fuel subsidy policy can bring. If the beneficiary does appreciate fuel more than anything else, then he or she can simply buy the same amount of fuel he or she would have otherwise bought under the fuel subsidy policy. In other words, there are more choices. The economics behind cash transfer is clearly more welfare enhancing than a simple fuel subsidy.

The next question is, naturally, how to do it.

If the sale of subsidized fuel is to be limited, then the government will have a good idea about the maximum amount of money it needs to spend on fuel subsidy. Furthermore, the lower the cap, the higher the likelihood a beneficiary of the subsidy will exhaust his or her quota. From there on, certain statistical manipulations can give us the size of money transfer per capita required to make the cash transfer method the equivalent of the fuel subsidy policy in terms of value.

The cash transfer itself can be delivered to the deserving via the existing tax system. Here is another beauty of cash transfer. It pays only to those who have filed their taxes. Thus, this is yet another incentive for those who have yet to file their tax to finally do so.

For those who just want to fill up their vehicles, here is another reason to support a simple cash transfer instead of an explicit targeted fuel subsidy policy: no weird rule at the pump. With cash transfer, any discriminative method used to ensure that the policy is targeted is done not at the pump but during the transfer of cash. This makes its implementation simpler.

So, what about it that is not to like?

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

A version of this article was first published in The Malaysian Insider on January 19 2010. Unlike the TMI edition, I added several sentences and phrases here to emphasize or rather, to clarify that the cash transfer is targeted in a sense that whatever discriminative method introduced in a subsidy regime can be applied to cash transfer system.

Categories
Politics & government Society

[2153] Of republicanism in Malaysia? Meh

Prince William visited Redfern in Sydney yesterday. He is still in Sydney today.

I walked to Redfern just to see what it was all about. By the time I got there however, he has already left. Still, there were many people around. Police officers were everywhere. So were reporters. Those there seemed excited about having the Prince in their neighborhood. Somebody had a poster professing her love for Queen Elizabeth II. I suppose, somebody — like what somebody did at the Malay College in Kuala Kangsar to commemorate the visit of the Queen to the school — would erect a small memorial to remember the occasion, effectively saying ‘Prince William was here’ in a manner more refined than that of a graffiti artist.

The premier of New South Wales, Kristina Keneally, a proponent of republicanism in Australia said that the Prince is a “very charming” and “a young man of great character.” That however does little to reverse her republicanism. The Australian Labor Party, the party which Keneally belongs to as well as the party of the Australian Prime Minister Kevin Rudd, advocates republicanism.

I myself am a republican, though not quite a fan of the Labor Party. This stems from my distrust of institutions which claim authority from above rather from the bottom. I reject the idea of divine rights outrightly. Granted, these days the monarchy institution does not explicitly claim as such but its origin firmly belongs to that tradition. My egalitarianism mops up any spot that such distrust fails to sweep clean.

In that sense, to have an Australian republic is good. To have a Malaysian republic is ideal.

Yet, republicanism is never a priority for me, given a myriad of burning issues deserving more attention. It is down there somewhere in the priority list. To fight for republicanism appears to be indulging in an unwise battle where energy can better be used to issues that are more concrete.

This is especially so when the monarchy in Malaysia — a total of 9 houses and the Agong as the head of the 13-state federation — has limited power although from time to time, its influence has national repercussions, as observed in the aftermath of the 2008 general election, especially so in Perak. All this is thanks to the former Prime Minister Mahathir Mohamed. He may have overdone it but his maneuver ensures restriction to royal powers.

Besides, while I am reluctant to give ground to monarchists, the monarchy does in a way play a balancing role in Malaysia. The highly flawed Malaysian system of governance, due to damages done to it by Mahathir, ironically, enhances the space for the monarchy.

Until the issue of separation of powers between the three arms of government is addressed, and until the empowerment of states as proper member states of the federation rather than just units of a practically unitary state, republicanism in Malaysia, will remain bottom out of pile of concerns and even unlooked.

Despite considering myself a republican, I just could not care less about republicanism at the moment. I want my liberal democracy first.

Categories
Personal

[2152] Of thank you number 31, hello number 21

I used to marvel at friends whose frequent relocation is part of their lives. Long ago when I was prodding through the national education system learning addition, subtraction and the like, I would quiz them on how was it like to live wherever they lived. Some lived so far away in Labuan on the other side of Malaysia. Some in Kelantan. Others were from other places. I remember from elementary school, one lived in London.

They moved around because their fathers were working with the government. Teachers, police officers, military men, diplomats, civil servants. Wherever the fathers went, the family would follow.

Seeing new things and meeting new faces must be an exciting experience, I thought.

Back then, I was a smart kid. At least, I would like to think so. In fact, I think, smarter than I am right now. I topped my class often. And when others were talking of Ultraman and Transformers, I already knew who Marcus Aurelius was. But I had little inkling of what was in store for me. Predicting the future was beyond me.

With academic achievement, the reward came with the curse of having no permanent home. By the age of 15, I found myself uprooted from my familiar neighborhood to embark on a journey travelling to places I would not have imagined years ago as a teenager, much less as a child.

From the metropolitan Kuala Lumpur, I stood hundreds of kilometers north in the rural and serene town of Kuala Kangsar. Kuala Kangsar was not as glorious as I had imagined it. Those colonial stories were clearly exaggerated. But it was a magnificent experience nonetheless.

Once done with high school, I moved to Bangi to become a lab rat of the Ministry of Education. There is a new system in place for the bright ones, they said. Yeah, sure, whatever. What I knew was that Bangi, at least the place I was marooned in, was in the middle of nowhere even compared to Kuala Kangsar, although it was closer to the cultural, economic and political center of Malaysia. I did not spend too much time there. Finding myself hating the place, I grabbed the first best chance I could get my hands on.

That brought me to in an even worse placed called Tronoh in Perak. Hot, empty, I call it hell on earth. The best chance, eh? It was a big mistake. Thank the stars I was fated to stay there for no more than 2 weeks. A scholarship to the United States saved me.

From Tronoh, I spent a short period in Shah Alam before setting my feet in the new world. Across the Pacific Ocean, Ann Arbor became my home for the next four years. My years in Ann Arbor were ones that changed everything. That however is a story for another day.

Even in Ann Arbor, I kept moving to new places although it was within the same town.

I will not tell the whole story but suffice to say, I was young, immature and lacking self-confidence. That contributed to me having to move around a lot. Each spring and each summer, I had to move out of the posh Cambridge House on State Street to somewhere near north campus or closer to the University Hospital.

Moving can be fun, especially with friends. However, after doing it so many times, it became tiring and old. It was, and still is stressful. My friends decided enough was enough. I did not do the same, even though I hated it. I was stupid. I continued doing the same thing over and over again. I somehow refused to break the Sisyphean cycle. In a year, I found myself moving at least twice.

The biggest relocation ever for me was from Ann Arbor back to Kuala Lumpur. This is the hardest decision I had to make so far. It is the hardest decision because I did not want to go back. Ann Arbor, decidedly, was my home. I was tired. I want, for once, to stay somewhere familiar. I want a home and the tree town was my home.

I returned to Malaysia, regardless.

Malaysia was a country that I no longer recognized then. Four years could do that. New buildings, new roads, new places and new faces. Never mind the heat and humidity. There was no rest, physically and mentally.

Mentally because I discovered that the culture in Malaysia as suffocating. I did not realize that previously. The freedom that I tasted the previous four years was no longer there. And the paternalistic atmosphere was just everywhere. There was no escape. I despised that. And I rebelled. But I was stuck in Malaysia. I did try to get out of the country and some friends did connect me with something abroad. But I, somehow, did not take it up.

Once, I joked to a friend about the supposedly five stages of grief. There are denial, anger, bargaining, depression and finally acceptance. I progressed from denial, to anger, to bargaining, to depression and then violently returned to the state of denial instead of progressing to the final stage. That is partly why I am in Australia now. I refused to accept the fact that I was in Malaysia, only that this time, I did something about it. The financial crisis, and a little bit of luck, made it possible for me to do that.

Tomorrow, after spending over five months at a place where I am in right now, I will move yet again to new place in Sydney. I dread tomorrow’s moving but the place that I am moving to in many ways is better than where I am at the moment. It is much farther from the university but I think I would enjoy the walk. I love walking, and maybe this is the time I should do more of it.

I can explore Sydney’s suburb too by doing so. I love the stairs around Forest Lodge and Glebe. There is something charming about them, the stairs. Old, they are. It reminds me of those stairs in Keramat, going through the Indonesian squatters that is no more, where military residential complex now stands.

But I like where I am right now as well, even if it is a bit small and cramp. I have always lived like a spartan. I do not need much to live. So, the small space does not disturb me too much. As long as I have a space of my own, I am fine.

I like it here because the cats on the streets, the neighbor who plays his violin on the weekends and the pide place. I like my current house mates too. It took time to develop friendship with them but it worked out in the end. How sad it is to finally having to move out and start anew on building relationship with new people.

But sigh, life moves on.

Categories
Politics & government Society

[2151] Of barking up the wrong tree

How many times have we heard the statement that if so and so did not exist, certain problems would go away? Specifically, one side would blame UMNO and Barisan Nasional for racial and religious problems in Malaysia, while the other would blame PKR and its allies for the instability in the country.

The truth is that politicians and political parties get too much credit for the various issues the country faces. As controversial issues erupt, the blame game begins in earnest. The usual suspects get apportioned with the blame at the slightest chance by the other side, as if there were quota to fill. The controversy revolving around the use of the term “Allah” is a case in point.

At this juncture, where venom is thrown so easily as to make the atmosphere too toxic for fruitful exchange, the air needs clearing. This can be achieved by recognizing the sources of issues and identifying proxies for what they are.

Granted, politicians and political parties — especially those in government — have disproportionate power to influence politics. There is no doubt that there are cases where the blame clearly belongs to one side.

Yet, the relationship of politicians and political parties with society is not characterized by one-way traffic. It is a two-way street. In many cases involving grander issues like race, religion, democracy or liberty, for instance, the causal flow to the other side is greater than the direction that blame-gamers typical take.

However imperfect our democracy is — condemn it as crass majoritarianism all you want — it is a democracy nonetheless. This means the views of real individuals, with real wants and real needs, along with real hope and real fear — like you and I — get represented in the system. Elected individuals in Barisan Nasional, Pakatan Rakyat and others as well, largely represent diverse opinions that exist within Malaysian society.

Even if they are not elected, individuals still have voices of their own. There is no reason to discount these voices as irrelevant when it resonates so well with other individuals.

From this perspective, these individuals are effectively proxies within the issues. To put it another way, they are mere reflections of what the society at large thinks. Without issues — the concerns lingering in our society — these proxies will not exist.

Hence, to accuse these proxies as the sources of our problems is effectively an effort to dismiss real issues that real people care for as merely artificial issues created by special interest groups. Such accusations pretend that the other side does not have real concerns.

That path will essentially result in a misdiagnosis of the problem. Based on that misdiagnosis, any solution provided to address the problem will disproportionately take the proxies into account while disproportionately discounting the issues. In the end, the intended result will likely be unsatisfactory because it will address the proxies and not the issues.

Realize that if these proxies are somehow immediately removed while the issues remain unresolved, different players will take over the proxies’ places to champion those issues. If Barisan Nasional were to be done away with, would racial issues disappear? If Pakatan Rakyat were to removed, would the demand for equality suddenly vanish?

It is naïve to answer in the affirmative.

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 January 14 2010.

Categories
Conflict & disaster Economics

[2150] Of aid and logistical challenges for Haitian earthquake victims

When the gods battle in Malaysia, the gods forgot Haiti.

As always, the affairs of men are too important to be left in the hands of the gods. Christian conservative Pat Robertson may disagree. Instead, he thinks god wants Haiti to suffer because Haitians made a pact with the devil.[1] Ah, the glory of god.

Thank goodness for the reasonable and capable Bill Clinton!

Former President Bill Clinton yesterday spoke of the need to send cash to Haiti instead of items like food and blankets.

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He reasoned that in Haiti now, there is simply no logistical capability to handle various items from abroad in huge quantity. Haiti’s principle airport inability to cope with the volume of aid material is one evidence of that.[2] With an earthquake that devastating, it is probably a prudent to assume that transportation infrastructure in the country’s capital — a major population center located too close to the epicenter of a major earthquake  — is unreliable now.

In economics, cash aid is the best kind of aid because only the persons on the ground know how the money should be spent, especially when compared to some kind-hearted donors living abroad. It is a case of imperfect information.

That statement is made barring the issue of corruption, which is a major motivation behind the need of material aid.

The probability of abuse of material aid is lower than the likelihood of cash aid abuse. This does not mean that there can be no abuse with material aid — somebody may get all the material aid and start selling them when it should be free— but in comparison, material aid does better than cash aid in terms of abuse prevention. Due to this as well as the horrible record of the government of Myanmar, I advocated material aid to the victims of Nargis back in 2008.

I am ignorant of Haitian politics but Haiti is located not so far away from Myanmar in Transparency International’s 2009 Corruption Perception Index.[3] It is classified as above Myanmar but really but comparison to Myanmar is not much of a comparison. Corruption is a serious there.

I have a lot of respect of former President Bill Clinton. He is the US President I respect the most out of Obama, the Bushes and him. When he said something, I would think twice before disagreeing with him. Indeed, as a libertarian, I should be agreeing with Clinton on his assertion of the superiority of cash aid. And sending money is definitely easier than sending material aid. Yet, I have trouble accepting his advice that cash aid is better.

Perhaps, as an UN envoy to Haiti, as well as a person that has been to Haiti, he knows more than me. His knowledge might not be as good as the victims themselves but it is likely better than mine who lives two oceans across from Haiti.

Still, what good is cash when everything is destroyed?

The economy may rebuild and spontaneous order will establish itself during this chaos but as Clinton said himself, there is no logistical capability to handle the kind of volume of aid material in Haiti at the moment. Okay but will local production be able to match the heightened demand for food, blanket, etc.?

I doubt so.

Even if local production is able to do so, would the logistics be able to cope to the traffic of goods? Would local production be able to produce everything autarkically?

Clinton is right. There is no logistical capability in Haiti. But I think that problem adversely affects the effectiveness of both cash and material aids. I am not saying aid should not be sent at all. What I am saying is that the problem with logistics might not impact the relative desirability between both types of aid by too much.

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

[1] — American televangelist Pat Robertson has blamed the devastating earthquake in Haiti on a pact between the impoverished nation’s founders and the devil.

It is feared that up to 100,000 people may have lost their lives when the magnitude 7.0 earthquake flattened massive areas of the capital Port-au-Prince yesterday.

Speaking on his television program The 700 Club, Mr Robertson said the pact happened “a long time ago in Haiti”. [Haiti disaster blamed on pact with devil. ABC News. January 14 2010]

[2] — International relief to quake-devastated Haiti was reduced to a trickle this morning after the capital’s airport was overwhelmed by a sudden influx of aid planes, as the country’s President said 7,000 victims had already been buried in a mass grave. [Bottleneck paralyses Haiti relief efforts. Kim Landers. Craig McMurtrie. et al. ABC News. January 15 2010]

[3] — See [Corruption Perception Index at Wikipedia. Accessed January 15 2010]