Can a country undo its development stage?

This writing is inspired by an insightful presentation by Professor Hal Hill about his and Ramon Clarete, and Emmanuel Esguerra's upcoming book 'The Philippine economy: no longer the East Asian exception?'

Their book was about how the Philippine development was lagging compared to its neighbours accelerating growth. In the 1960s where GDP per capita in the Philippine was higher, but in the 2000s it became less than others. That political dynamics, bad regulation, and conflicts have made it 'an exception' compared to the other countries miraculous growth.

What intrigue me about Pak Hal's presentation is that he said that the Philippine has skip a development stage, from agriculture to manufacturing and to service. Instead, the main economic sector has transformed from agriculture directly to the service sector. He elaborated that this is mainly due to restrictive internasionalisation in its trade and FDI policies, crony capitalism, bad labor and industry regulation, and infrastructure deficit. Taking account these factors and benefit by its people English language proficiency, the Philippine excels on the service sector exporting semi-skilled and unskilled workers with minimum intervention from the government. As a result, its growth trend is on average the same with its counterparts in the region, but cannot accelerate as fast as South Korea or Taiwan and become the NIE.

South Korea, for instance, has remarkable growth because of its electronic industry which made it a high income country now. The development formula of having a solid manufacturing base before taking off to the service sector seems to be the narative of many successful countries. Manufacturing sector has a comparative advantage for the economy since it absorbs formal workers, it has high forward and backward linkages to other sectors, and it contributes foreign reserve if exported.

In the case of the Philippine, and also Indonesia which manufacturing was vaguely developed, can service sector do the same thing for the economy ? can a country undo its development stage from service, back to manufacturing again ? is there any case study who experience a backward development cycle ?

Improving vocational education in China’s rural area

Introduction

Inequality is a complex socio-economic issue for policy makers in many countries. China’s rapid development with rising inequality provides a setting for many developing countries to learn. From the 1980s China’s income inequality is rising particularly between urban and rural (Shi, 2012). Urban and rural income inequality in China is high compare to other developing countries (ADB, 2007) and even though there is a recent slow-down on the inequality indicator it may have under-estimated the actual condition.  

Rapid growth has transformed the economy from agricultural to knowledge-based industrial economy which requires more skilled workers (Roberts, 2014). The rapid rise of Chinese skill premium in conjunction with an upward trend in relative demand means that the recent technological change has been skill-biased (i.e. Li & Baoping, 2008; Li, 2010).  To overcome the skill mismatch in the labor market, the government has established vocational education training (VET) institution particularly in industrial area close to urban settings. Furthermore, Chinese government has set regulations for VET’s national curricula and teacher’s qualification. However, more needs to be done to improve VET access particularly to solve the urban rural inequality problem. The paper would like to suggest that the Chinese government should increase fiscal spending to the rural areas for establishing upper secondary VET school.

Does inequality matter in China?

From the 1980s to the present, China’s remarkable growth has resulted to a structural change in the economy, transforming from an agricultural to knowledge-based industrial driven economy (Brandt & Rawski, 2008). This poses challenges on income distribution where growth is mainly concentrated in urban area. The ratio of urban household income per capita to rural one rose to 3 times higher in the last decade (Shi, 2012 p.1), which makes China as one of the highest urban-rural income gap country in the world (Sicular et al, 2007 p.4).

After an increasing trend of income inequality, the indicator is slowing down in recent years. However, the slow-down is unconvincing since the under-representativeness of people with extremely high income in the sample (Li and Luo, 2011) and the household income survey is based on registration instead of residency which pose a serious problem of rural migration omission (World Bank, 1997 p.19). Despite the survey’s measurement error, China’s income inequality is high compare to other developing countries creating several challenges to the economy.

China’s inequality can limit poor people opportunities, undermine their utility, and in the long term can be harmful for political stability. Knight & Li (1993) found that Chinese children in poor rural household has lower education compared to children from rich household, implying high intergenerational educational persistence, which may in economic drag. Poor household has lower utility indicated by urban residents’ life satisfaction is 60% higher than rural residents (He et al., 2007 pp.30-32). In addition to the drawback from the utilitarian framework, the income gap has cause symptoms of social distress which may threaten the power of ruling party and creating political instability in the future (Fortune, 2013).

The urgency in improving VET

As the economy transforms from agricultural to knowledge-based industrial driven, the country’s productivity increase. Under the production function, Solow explains that productivity is the residual of growth thereby indifferent in the changes of production factors, or factor neutral. However, there are evidences in several countries that labor, as one of the production factors, is segregated between skilled and unskilled workers, consequently as productivity increases skill premium also rises (i.e. Kiley, 1999; Violante, 2016). This implies that productivity is factor biased. As technology grows the demand for skilled labor rise faster. This is known as skill-biased technological progress which leads to income inequality (Goldin and Katz, 2008). The analysis is compatible with China case study, where manufacturing worker mainly located in the urban has higher income compare to agricultural workers located in rural area.

The industry is facing rising wage from urban labor (Li & Baoping, 2008). This creates opportunity for rural labor. However, the rural residents are mostly agriculture workers who have lack of education and skill to work in the manufacturing sector. Only a small portion of rural workforce attend school and vocational institution (SCMP, 2015). Moreover, a report from Chen, Mourshed, & Grant (2013) elaborates that manufacturing companies are failing to find high skilled employees (p.3). Furthermore, the report predicts that there will be shortage of 16 million vocationally-trained workers by 2020 (p.6), emphasizing the high demand for VET.

The government has formulated VET policy with limited focus on rural vocational education to reduce urban rural inequality. There is an existing VET policy for teacher’s qualification that teachers must undergo trainings and work in the industry and national VET curricula (Ministry of Education, 1996). However, vocational institution is mainly established in industrial area while technical training opportunities for rural workforce remains limited (Lai et al., 2011 p.2) and vocational institutions in rural area are under-resourced (OECD, 2010 p.1).

To reduce inequality, the government has approved an Income Distribution Plan by enhancing social safety net and adjust taxes for the rich. These are supported by an anti-corruption policy. From 2012 China has put anti-corruption as a serious agenda. They arrested more than 100,000 officials, which is a striking figure compare to previous years (Economist, 2015). In addition, from the list of income distribution plan, the Chinese government will increase education funding. However, the education policy formulation and implication is unclear. It does not specifically elaborate which types of education policy. If it is concerning basic compulsory education, then is not a sufficient solution for inequality. In particular, it does not solve China’s inequality problem which is caused by skill-biased technological change.

Recommendation

I recommend that the Chinese government should increase funding for the vocational education in rural area so that providing opportunity for rural worker to increase their skill and to work. VET will give benefit for rural people a higher return on education. This is particularly significant since poor rural students are giving larger relative investment for lower return compared to affluent urban students (Bingqi, 2011).  Furthermore, VET education should be provided in upper secondary school, instead in tertiary level as the government mainly focused, since rural worker can work as soon as they graduate from secondary school, furthermore providing the industry with younger thus cheaper labor. Accordingly, Chinese economy will also benefit since it increases the supply of skilled worker needed.

The VET school should use a benchmark from the success of Germany’s dual-system. The system creates institutional linkage between schools and workplace that after several years of schooling the student has the opportunity to take apprenticeship. This is in line with the government concern to increase trained-workers (Roberts, 2014). The system which combines vocational education in school and training in the workplace is feasible to be implemented in rural China for several reasons. Firstly, because the government is a central-planned government which can impose policy to regional level. Secondly, Chinese government is already familiar with the system since they already have collaboration with German government and companies such as German Technical Cooperation in various VET projects (Li, 2013 p.3).

However, in implementing the policy, the government may face challenges which are budget constraint and ensuring quality amongst local VET. Firstly, Chinese government may face fiscal budget constraint. To reduce fiscal burden, the government can divide the transfer to several phases. Regions are selected according to their income per capita for different phase of funding. This means that regions with lower income per capita should have the priority to receive funding. Another solution is the government should cooperate with countries who have business linkage and also interested in improving vocational education in China, such as Australia (Smith, 2006).

Secondly, the government will face challenges to ensure the quality of the rural VET. To ensure the rural VET meet the national standard, the government should closely monitor each local VET. Furthermore, as business engagement in the program is essentially important in meeting skill demand, the government should encourage business commitment to provide apprenticeship for teachers and students by imposing regulation, or collective action through industrial associations, or giving incentive through tax reduction, as some OECD countries have applied (Hoeckel, 2008 p.8-9). By involving in the local VET, the industry can ensure the prospectus worker’s technical qualification, reduce time and cost in training, and have early engagement with workers thus improving labor loyalty and reducing turn over.

Conclusion

Traditional theory suggests that in a growing market wealth will be distributed efficiently.  However, China’s growth has resulted in an increase in income inequality between rural and urban workers. Over the decades, China economy has transformed from agricultural economy to knowledge-based industrial driven requiring more skilled workers. The structural change has led to income inequality which suggest that China is experiencing skill-biased technological change as many countries also experienced. To meet the skill demand, the government has provided VET policy and institutions; however, the VET is mainly available in the industrial area agglomerated near urban settings. Accordingly, the government should increase the access of VET in the rural area.

A reform on Malaysia’s technology transfer program

Introduction

The world’s economy is divided into several stages, of which the countries with lower stages are formulating different ways to step up the ladder by achieving higher growth. Furthermore, middle income countries are finding ways on how to thrust themselves to the high income status. Some, like Taiwan and South Korea, have achieved the higher status faster than the others, such as Malaysia. Malaysia is blessed with geographical advantages, macroeconomic and political stability, and trade openness (Cherif & Hasanov, 2015 p.4). For almost 50 years it has sustained a steady growth and in the next few years it may achieve the high-income status. But, why does the set of advantageous has not support Malaysia to achieve high-income status faster?

Discussion on economic growth has defined many growth determinants with the most recent theory is Romer’s endogenous growth. It emphasizes the importance of technological progress on productivity and it’s spill-over effects to economic development. Malaysia’s economic openness has created an opportunity for export, the establishment of foreign companies to operates and invest in the country, and most importantly technology transfer to the domestic firms. However, the spill-over effects are limited (Cherif & Hasanov, 2015) which hinder the higher rate of technological diffusion and the emergence of innovation driven local champions.

To help improve the diffusion flow in the economy, the government implement Vendor Development Program (VDP) which then was revised to Industrial Linkage Program (ILP). It is targeted to industrial clusters, with multinational companies (MNCs) as the anchor firms and their domestic supplier as the vendor firms. The program has helped to increase knowledge transfer; however, the result is below optimal (Karikomi, 1998). This paper would like to recommend a reform of the ILP structure to generate active linkages. To be precise, this paper suggests that instead the MNCs, the local suppliers should be the leader of the partnership along with enhancement of the research institutions’ role in the program. Accordingly, it will improve the spill-over effect, transforming to knowledge based economy, and therefore resulting rapid economic growth.

Industrial policy to accelerate economic growth

Technological progress and spill-over are crucial to achieving higher economic growth. Malaysia has a stagnant growth over the years with a tendency of a slower pace in recent periods (Hill, 2012 p. 28), while other countries who had the same initial condition in the 1970s has achieved high-income status (Cherif & Hasanov, 2015 p. 5). Why growth rate can change over time and the income per capita differentials among countries has become a topic of interest to many economists, with Romer’s theory of endogenous growth emerged to answer the question (Parker, 2012 p.2).  The theory suggests that technological progress is needed so that the country achieve higher economic growth, or else it will decelerate and converge to it’s steady state growth. On doing this, economists promote to embrace openness which then is assumed to give spill-over effects to the economy (i.e. Jones & Romer, 2010; Rodrik, 2003). The spill-over will then creates technological progress and sustain a higher economic growth.

However, there are barriers on Malaysia’s trade openness spill-over effect. Interconnectivity through trade and FDI has played an important role in Malaysia’s economy, as it improves export sophistication, industrial sector, and investment in the country. Nevertheless, there is a hurdle on the diffusion. Malaysia’s technological diffusion is less than 5% of total public R&D projects, and less than 3% were commercialized (Thiruchelvam, 2013 p. 21). One of the reasons is the growth seems to be segregated for the foreign companies excluding domestic firms with lower competitive advantage (Cherif & Hasanov, 2015 pp. 10-11). To overcome this problem, government intervention is needed to improve the knowledge flows.

Government intervention particularly through industrial policy is not necessarily to pick a winner, instead, it can be used to rebalance the economy and fix market failures. Industrial policy, particularly subsidies and promotion of champions, can discourage competition and heavily influence by political interest. On the other side, a sound industrial policy should avoid targeting particular firms, instead, it should support a range of technologies and players, promote competition, and assure accountability (OECD, 2012). Accordingly, Malaysian government designed ILP program to fix diffusion failures on a range of industrial subsectors. Through ILP, technological diffusion and innovation are expected to grow knowledge capital which then can improve the economy.

Why local firms gain limited benefit from the ILP ?

The ILP program gives the advantage for the local firms in the MNCs supply chain to receive technical assistance, management support, and the market for their products from the MNCs or the anchors. Karikomi (1998, p. 23) evaluated that the program was participated by 27 anchors and their first and second tier domestic suppliers. The MNCs reported that there is an improvement in the suppliers’ product quality, sales, and price. Furthermore, the MNCs benefited from operational expenses tax deductions and creating domestic value chains.

Nevertheless, the partnership is heavily driven by the MNCs since they do the planning, implementation, and evaluation which resulted from a more one-way partnership in ILP. Japanese Chamber of Trade and Industry in Malaysia (JACTIM) stated that most of the suppliers are very dependent on the anchor’s support. In addition, some MNCs complaint that their participation in the program was due to the political pressure from the government (Karikomi, 1998 pp. 24-26).

The institutional structure of the ILP program creates a disadvantageous in achieving a higher rate of technology transfer and the emergence of innovation driven local winners. The local firms participating in the program does not take a step further to develop a new product or more effective production. The main cause of this problem are the local firms are passive participants and the research institutions are only connected to the MNCs. The limited partnership between the local firms and research institutions hinder the opportunity of innovation cooperation. These institutional features differentiate Malaysia’s ILP with Muro & Katz (2010) examples of successful clusters in USA, Germany, and Canada whereas the local firms are the leader and research institutions are the main partner in the clusters.

Recommendation

To overcome the problems of low involvement of local firms and disruption in innovation flows, this paper proposes that the local firms should be the leader with the support of the research institutions. Local firms of each ILP group should choose a local firms leader. The leader then plan the assistance needed from the MNCs or having the planning role, in contrast of the existing structure, which the MNCs do all the planning. The partnership should develop a two-way communication between the research institutions to provide prototype and the local firms to test the product’s marketability so that the cluster become an incubator and creating a cycle of technology development of a series of testing and prototyping through the local firms and research institutions interactions.

Nevertheless, there would be two major problems arise in the program, which are choosing the wrong leader and the MNCs disapproval with the proposed plan. First of all, the chosen local firm can be politically strong but have a lack of technical capacity. Since there is a strong influence from the government to the business sector, it is possible that a strong candidate of a local firm is politically linked with the ruling government. In addition, a more active local firm can be seen to overpower a less dominant firm. Therefore, research institution and anchor companies should work together and assess the technical capacity of each local supplier in choosing the leader. The assessment should be accountable and transparent to the public so that avoiding political conflict. By increasing the transparency, the ILP can choose the local leader without political pressures. In addition, the candidates should have the willingness to actively participate as a leader and also supporting other local firms in the ILP.

Secondly, local firm’s proposed plan can be rejected by the MNCs due to technical and financial constraints. In planning a technical assistance, research institutions should play an important role to formulate it. The research institution as a neutral-side and a think-tank should accommodate technological adoption needs from the local firms and also the demand of product quality and price while taking account technical and financial constraints of the MNCs. The proposed plan then reviewed and discussed together with the ILP participants to reach consensus.

In addition, local firms’ leadership in the program must be supported by a strong human capital. Technological adoption involves a complex interaction between human capital and institutions. The local firms should have a qualified human capital to support the program. On doing this, the government should specifically respond to the local firms’ need through enhancing the role of research institution. The research institutions should conduct training programs to develop talent pool specifically for each type of industry.

Conclusion

Take-off growth can be achieved through technological progress by promoting economic openness while assuming there is a knowledge spill-over. However, the spill-over in Malaysia is hampered and a reform in the industrial policy is needed. Malaysia has implemented a program called ILP to increase the effectiveness of the technology diffusion. However, the program has not ensured the emergence of competitive local firms which are able to create marketable high technological products. On doing so, a reform in ILP structure is crucial by enhancing the role of local firms and research institution.

To achieve the technological frontier, Malaysia needs a total reform on the manufacturing industry, political institutions, and socio-cultural structure. Nevertheless, deep and extensive reforms are often not the best way, only a significant and focus reform is needed to have the biggest and fastest effect.

(1596 words)

References

Cherif, R & Hasanov, F 2015, ‘The leap of the tiger: how Malaysia can escape from the middle-income trap’, International Monetary Fund Working Paper WP/15/131, International Monetary Fund, .

Hill, H. 2012, ‘Malaysian economic development: looking backward and forward’, in Hill, H. Yean, T.S. and Zin, R.M.H. (eds.), Malaysia’s development challenges: graduating from the middle, London and New York: Routledge.

Jones, CI, Romer, PM 2010, ‘The new Kaldor facts: ideas, institutions, populations, and human capital’, American Economic Journal: Macroeconomics 2010, vol. 20, no. 1, pp. 224-245, < http://www.aeaweb.org/articles.php?doi=10.1257/mac.2.1.224>.

Karikomi, S 1998, ‘The development strategy for small and medium enterprises in Malaysia’, IDE APEC Study Centre, Working Paper Series 97/98 No. 4 .

Muro, M & Katz, B 2010, ‘The new cluster moment: how regional innovation clusters can foster the next economy’, Metropolitan Policy Program, < https://www.brookings.edu/wp-content/uploads/2016/06/0921_clusters_muro_katz.pdf>.

OECD, see Organization of Economic Cooperation and Development

Organization of Economic Cooperation and Development 2012, ‘Resurrecting industrial policy’, OECD Observer No. 292, .

Parker, J 2012, ‘Theories of endogenous growth’, Economics 314 coursebook, .

Rodrik, D 2003, ‘Introduction: what do we learn from country narratives?’, In search of prosperity, Princeton University Press.

Thiruchelvam, K 2013, ‘Malaysia’s quest for innovation: leveraging on science and technology’, 11^th Malaysia Plan kick off conference, viewed 4 August 2016, .

Will Indonesia learn her lesson from the Dutch Disease phase?

Inspired by Pierre van der Eng work

Indonesia experienced commodity boom several times. Before 1930 when there was a strong demand for sugar, the country increased its production and gained international trade surplus. In this time of Dutch colonialization, the trade was run without any policies of protection or transfer to other sectors. Resulting minimum utilization on the trade revenue for the country's capital stock which led to non-optimum long-term growth rate.

Then, came the time of oil boom in 1970s. In this era, the New Order implemented a trade protection for manufacturing and received high tax revenue from the oil extraction. The government at that time had medium term plans for the manufacturing sector which lead to industrialization, particularly of state-owned enterprises. Well-design development plan for the industry made slight Dutch Disease of commodity boom-bust and took Indonesia's industry to a step forward.

The world then experienced another commodity boom from early 2000 to the end of 2011, which was led by mining commodities such as coal and oil. Indonesia benefits from this boom indicated by strong GDP growth of around 6%, the highest after the Asian monetary crisis. However, the government on those years were relaxed, had unclear manufacturing policies, which intensified pressures to real effective exchange rate; thus, resulting industrial products less competitive. The recurring commodity boom in this cycle had no advantage in Indonesia's manufacturing sector. On the other hand, profit of mining sector which has low labor absorption could only be obtained by the businessman than the poor, resulting larger income gap.

So, will Indonesia learn her lesson from the recurring phase of commodity boom-bust? Or, will it only be a part of good-to-know economic history book? We will see in the next cycle....

Jokowi's Vision of the Economy : Investment-led Growth?

[Comments on Prof. Bambang Brodjonegoro's Public Lecture on 24 March 2016 in ANU]

Indonesia in the leadership of Mr. Joko Widodo has set it's goal to transform the economy from consumption-led growth to investment-led growth. An approach that has led several countries like Japan, Hong Kong, Taiwan, Singapore, South Korea and China from low income country to distinguished economic powers. These countries increase capacity of production and stimulate firms to increase their capital, and expect that bigger supply will eventually increase demand and support growth and employment. A side of the monetary terminology, investment-led growth may also means building a better human capital, i.e. health, education, and productivity.

For Indonesia, this could be a good solution since the country has strong demand, in particular household consumption which over the last decades consumption expenditure share has been around 60% of the GDP. With the strong growth of consumption accompanied by the supply side inelasticity, this has caused Indonesia is heavily reliant on import. An argument that support Jokowi's decision on this matter.

So where should the investment be directed to? First, investing to make production in Indonesia more efficient or in other words to lower the cost of production. Infrastructure is a good way to make logistic cost lower, additionally efforts like to reduce transportation barrier, red tapes are essentially needed. Java island, the biggest consumer and producer base, must have lower cost of distribution, on the other hand Eastern Indonesia infrastructure projects should also be mended. Another area of improvement, is the cost of energy. Until now, the availability and continuity of electricity is a big problem in Indonesia which leads to higher electricity cost of the industry. Second, producing the right product to meet domestic demand. We have seen how investment-led growth created Great Depression in America which the increase of supply insufficiently considers the power of demand. Thus, Indonesia should increase the basic industries and sectors, i.e. food, agriculture, processed food products.

Now, the next question is 'Can Indonesia achieve it?'. Challenges for the government are to ensure good business climate, reducing corruption and creating political stability, investment and infrastructure should avoid to compete over land which creates asset price hikes, plus the labor market and wage must be competitive. Financially, the financial sector should have the intermediation capacity to distribute loans, giving low cost of capital, and better resource allocation. This also means encouraging people to have higher saving rates, and curtailing consumptive. Business wise, does the firms eager to invest? since government capacity is limited, private business investment should be the locus of growth.

All in all investment led growth might look like a solution to Indonesia, however if planned carelessly would made investment wasteful. Moreover, excessive and wrongly directed expansionary policies may lead to stagflation like Japan.

[Journal Review] Urban Shopping Patterns in Indonesia and Their Implications for Small Farmers

By Nicholas Minot, Randy Stringer, C. Wendy J. Umberger, and Wahilda Maghraby 
Bulletin of Indonesian Economic Studies vol. 51 No. 3, December 2015

Indonesia is one of the emerging countriest with the largest middle income growth right after China and India. While it means that more people have higher income, it also cause many challenges. Urbanization has become a focus on demographic and also economics studies. This new wave has altered urban dwellers behavior particularly on purchasing channels to modern markets. These channels offer better buying experience, more hygienic products, and some retailers even have large networks whereas it is more accessible.

This study investigate on how the effect of Indonesia's modern retailer emergence on traditional channels and also sellers. A household survey was conducted in several cities and the result is regressed to know the factors affecting urban household buying behavior. Based on the research, people with high expenditure will prefer modern channels. Products which are famous in the modern market are industrial products, whilst perishable products are more commonly buy in traditional channels. Additionally, it also forecast the portion of modern channels like supermarket, mini-market, and wholesale sellers using the dominant factors, that was expenditure per capita.

It would be more resourceful if the paper compared the survey result with a similar survey conducted by Statistics Agency (Badan Pusat Statistik, BPS) Indonesia. BPS conducted a survey of consumption behavior every 5 years, called Survei Biaya Hidup (SBH). The respondents are urban dwellers living in more than 50 big cities across Indonesia. Respondents are told to write their every-day consumption and where they bought it in a log book. After several weeks, the survey officer would collect and aggregate the logbook to become the baseline of consumption to count inflation. The latest survey in 2012 covered a wide range of products, more than 400 commodities nation-wide, in traditional and modern market. For this reason, by incorporating this big scale of data, the analysis on urban consumer behavior in the paper would be more accurate.

Several variables in the equation may have multi-collinearity such as expenditure to education, and also having refrigerator with distance. People with higher education may have high income and resulting to higher expenditure. The latter variables can also relates to one another since people with refrigerator wouldn't mind to buy in further location, while those who don't have it will prefer closer location for frequent shopping.

An important variable should have been added in the research, which is price. The research have estimated the expenditure in modern channels to several variables like expenditure per capita, household characteristics, and travel time. However, comparing price of a product in traditional to modern market is crucial. Many competition theories, or even supply-demand interaction view price as an important variable. Middle income people who are dominant in the cities are price sensitive. Moreover, the result of the survey also indicated that price should have been an important factor, since in Indonesia dairy products, industrial products like eggs, or import products are usually cheaper in the modern market due to it's efficiency in handling and inventory cost. In addition, modern retailers  often subsidize those products to attract buyers. While perishable products, such as vegetables, fruits, and spices are cheaper in traditional markets since it's packaging cost and contract barrier are lower.

Lastly, to forecast consumer behavior, it should have include farmer's capacity on supplying the perishable products to the modern channels. Supply continuity and product quality are barriers that farmers must solved to increase their sales and could make a structural changes in consumer behaviors in the future. That is why, to predict modern contribution, the study firstly must answer 'Why it is cheaper to buy products in traditional market?' By answering this question will give accurate prediction of the future of supermarket.

The research can be downloaded here

First post, after a while

Many things had happened since my last blog note. Happy or sad moments in those several years have made me a better person. I cant complaint.. Being a single mother, and also the only child is challenging. Many responsibilities and issues to be solved everyday. But, the toughest part is not sharing our thoughts and problems.   One of my way out is catching up with a good friend. Random chats, laugh out loud, daydreaming are what  I love to do with a good friend. It's a good escape, a switch from my issues. And also, I like to see a good friend feeling happy talking to me, it makes me happy too.. :-)   I seldom talk what I feel to my friends. Not that I dont trust my friends, but I dont wanna be a burden to my friends and I dont like being dependent to others. Meeting up and make a good friend smile is good enough for me..   Another alternative is writing. I used to perceive blogging as an intellectual stimulation, but now it can be a RELEASE. It can be a theraphy for my soul, keep my feet on the ground, and make my head occupied with important matters. Thus, it's time for me to write regularly. And I will surely try to upload it in this blogspot..

Restraint of Trade

Antitrust laws are controlling the openness of market and output expansion through competition. The law is a form of control that prevent monopoly, punishing cartels, and protecting competition. Monopoly can be established in many contract types, like assigned marketing territories, acqusition of market power, or supplies arrangements from the only producer; while cartels are price fixing, selective price cutting through conspiracy that make inefficient market.

Remarks:
I think all countries experience unfair competition in some products. Those products have high profit whilst low quality. Therefore, the existence of antitrust law and authority is essentially needed in each country. Indonesia's antitrust law is still in it's early-stage though many expectations lay upon the institution.

Surviving

Why do people stay alive in an egosentric world?

Without question everyone in the world is a narcist, though with different level. It's ok to be narcist but egosentric is not allowed, some tell..what egosentric is?self-centered,selfish,and many other synonims with the word 'self'..so it is 'self' itself..

The feeling that other concern is not important, the act of being ignorant..currently people tend to be like that..it seems that technology has become one of the biggest contributor..when I was in hk I saw that most of the middle age and teenager are preoccupied with their mobile phone..in bus,subway,restaurant,pedestrian..I tried to eavesdrop or just pass by while peeking..they are texting,twittering,facebooking,or called their friends to just gossiping..

I think this bunch missed a lot on their way..I saw many things than what they see through their screen..I saw elders sat on a park bench or entered the bus with shaky hand..some people wondering near restaurants with hungry stomach..or just talking with a stranger in a bus..

How can they live? I don't have any clue, can you help?

Me and My Veil

If you like to read it, please access: http://kopidangdut.wordpress.com/author/lolitamoorena/

See you.
LM

Ahead or Behind The Curve?

I identify the word ‘policy’ as an intense word; I define it as to rein a scope of complex problem. The first thing that a policy maker must do is to characterize the complexity of the problem, whether it is to find the ‘causal factors’, the ‘common factors’, or the ‘scenarios’ between factors. In addition , the attempt to know is also including each factor’s magnitude to intensively affect the complex problem and the timing of each factor’s impact; thus, there are two very important words of policy making ‘timing’ and ‘significance’…

Yes, even the act of knowing is a very hard thing to do….

I tried to metaphor policy making as cooking. I have to know the food’s ingredients, the composition, and the process to make the dish. However with a non-analogous condition, in cooking I can try as many times as possible to make the same dish until it tastes good, but in policy making, policies should be implemented as effectively as possible with the best result possible.

Ok now let’s cook….

Do research on the dish: which ingredients are the best, where I can found it, and the composition of the factors. One thing that I believe is best practice not always bring the best result. So, different cook put diverse ingredient depends on, for instance, the climate condition and consumer’s cultural background. After deciding the best composition, then let’s start….timing is very important! If I put the ingredient earlier the dish will be raw, the taste of each ingredient won’t be so delicious (not optimal). Moreover, as an inexperienced cooker, most of the time I put the items too late thus making the dish too cooked. Again, like the early trial the ingredients won’t be tasteful….the effectiveness of the factors is reduced…

Policy making is also an art of knowing and timing…whether we are behind or ahead the curve, we cannot be sure yet…

Associating it with Bank Indonesia’s job, it has to guide public expectation inflation; therefore, Bank Indonesia must implement policy ahead the business cycle, identify the turning point, and choosing the most effective tool to affect the market…Currently, inflation is predicted to be in a downward trend until the third quarter and slightly increased in the last quarter until next year. So, when is the right timing for BI rate drop to stop? Will it be ahead or behind the curve? We will see…

Creativity to Get Rid Boredom

After about 6 months not learning in classroom, I finally experienced the static and hours of learning in BI’s learning center. During sessions, I ask many things to my friend, that is a lecturer, about economics. Rather feeling insecure about this topic since I’m from engineering. The friend of mine, which is slightly old enough to be my lecturer but young-hearted, was very nice to teach many things through scrap papers. I were pretty excited about the next topic, statistics, which I knew about; yet, after the 2nd out of 8 day I was quite bored with the constant intonation of the lecturer. The lecturer was actually smart, but as most statistician I knew aren’t expressive J Me and my friend had a light talk about Personality Plus characters and after that the discussion continued through comic pictures. We took turn in drawing each story box and challenged each other by putting difficult story box to continue.

As you can see that I put several serious topic to talk to through comic’s writing, but we can’t help to tease each other. It was fun that we still laugh each other while listening to the lecturer. Obviously, creativity is useful to save us from being a sleepyhead. We’ll try other things to make us awake in class. Do you have any idea to have fun in class while listening to the lecturer?

An Indonesian facing AEC

It is foretold that AEC will create comparative advantage for each nation so that increase each output. European Union is a proof that economic integration will craft greater confidence of the market. Nevertheless, does every tier of Indonesian people will enjoy the same impact?

ASEAN Economic Community is a concept where there is no border in economic activities among ASEAN countries by freer flow of trade, investment, and human resources. However it has several potential hazards, like unsmooth flow in resources among countries in the union, Indonesia’s decentralization system is still in its ‘baby’ stage, the wages rigidity compared to Vietnam and other country, plus do with different political stances and government policies’ structure a free flow area can be implemented? Won’t it cause an instability and big gap in resources allocation? Economics theory will always say that the unequilibrium of wide gap of prosperity will adapt so that economy will be efficient in the long-run. Nevertheless, do in the complex and globalize economy can made the long-run assumption lasts? Dynamic economy transaction is occurring in many areas that would not cause any long-run stability.

Supportive (familiar) regulations
This type of crutch has been elaborated, researched and even (dare to be) suggested by many international organizations. Among many suggestions that those organizations recommend are minimizing corruption, infrastructure investment and maintenance for trade, law enforcement, clear and protective Act for investors and entrepreneurs, bureaucracy reformation, depleting grassroots subsidy, encourage classical economic theory of the market’s invisible hands, and many others. I believe that the 1st rule of giving well advises am I had to be his/her best friend with empathy. Indeed that fairness and supporting infrastructure for business essentially important. But, do those counselors really have empathy? are they really our best friends? or without any distrust, do they really understand our conditions and cultures? not really I think…

Inhibit excessive capitalism
Taking people’s freedom is currently not from colonialism but through imperialism, like the adaptation of change, right now the war is changing from the borjuis and proletarian to consumers vs. producers. In which, this integration will be the solution. It will create comparative advantage between ASEAN countries make each country focus, yet the different added value each country produce is questionable. Without doubt, it will create efficiency for the alliance; still it will kill the inefficient enough SMEs. For that reason, Indonesia government must compose regulations to protect the ‘not enough’ actors. Decentralization has created an opportunity to do so, that choosing core competence and products with intensive labor (and still checking with other countries comparative advantage) will be a foremost step to take. Along the way, education and health level must be fueled to support the transform our human capital into a primed capital intensive labor. Additionally, technological transfer must be given incentive in the preparation of the 2030’s goal. The attack of monetary crisis is still vividly recalled; thus, stringent watch in the financial market is essentially needed to harness speculators and ensure its stability.

Nationalism that I believe
Our nation has a loose grip in our identity. Many have become individualistic and forgot about our principle of tenggang rasa (helping each other) that jealousy and dubiously create conflict in several areas; yet many are so considerate that it becomes the reason for corruption, collusion, or nepotism. Have we forgotten that our land is so fertile that it can grow anything? or the concept of harmony in our role that our ancestors always teach? are monetary things very urgent for us that the proud of becoming Indonesian only prevent us to become happy? Delayed hunger will not make us die but delayed thinking and believing will… Can’t we be proud in our country that obtains our own freedom? Can’t we be proud that we have so many cultures that it seems to complete each other? Can’t we be proud that many Indonesians are exceptionally smart? Can’t we be proud that we got abundant of legacy in philosophy from our ancestors?.. Proud is useless without understanding the essence.. Does our government really has the nationalism spirit or it slowly decayed? I hope they have because I sincerely believe that it is the groundwork of civil and economic regulations facing AEC

Like some know that now I am the part of the community and government. Maybe this is the enclosing question that I would ask to myself, am I going to be a person that only talks truthfully? or I will also be a person that do what I think and talk with integrity?...

Computational Sociology

I think most of the people reading my blog have interest in ‘human’, human matters that are well-known in social issues like poverty or pop-culture development. Moreover, human matters have motivated several experts to form theories in human behavior that many of it are used to rule in our own society.

A research institute in Indonesia founded by several young prospective scientists has great concern in sociology and this is a tutorial about their works in computational sociology. This is a very resourceful and inspiring tutorial indeed to read and for whom interested in sociology please have the time to visit Bandung FE Institute website (www.bandungfe.net).

The tutorial is written basically in the following scheme:

Sociology = Social Interaction
Sociology is always discussing about the interaction among people that creates community dynamics. Many experts approached sociology to explain the motives of human interaction. Readers may recall theories like functionalism, social trade, structures, marxism, the control of conflict, and symbolical interaction. Accordingly, many neo-theories are based on their predecessors. Then, theories of sociology are modified, combined, or diminished according to the world’s relevancy and the opinion of new-aged philosophers, yet there is a captivating question; where do those theories come from?

Speculation Sociology
For many centuries, sociologist is also called philosopher, yet the philosopher terminology nowadays may have different meaning. Plato is a philosopher of the early centuries who observe community’s behavior (analyze), think about the motive-mechanism-effect, think (again) about the truth of his deduction by observing (again), and after that publicized his findings. With the on-going inventions of statistics or simulations (computational methodology) to test the truth of the deductions, is it still relevant to only think then deduce without proving? Philosopher (for me) is still an out-of-the box thinker, a contempt observer, and a social-sensitive person. Nevertheless, now it’s a new era, science has developed, and change is the only absolute thing; thus, sociologist must not developed theories by speculation. Speculation will only blur the truth and in effect will transform human life into badly chosen life (so, does Keynesian or Marxism ring a bell? :))

Sociology and Physics are the same…
Like many have considered sociology is full of many debatable aspects and those that wins in a debate is the one who have the strongest dialectics, plus I also thought that it is always contextual and very normative. However, computational sociology has made me believed that sociology is the same as physics, it is also science. Science produce theories from social phenomenon, need to be proved empirically, and renew by more accurate theories. The new concept of sociology eliminated my pessimistic opinion in the validity of sociology theories debates. Obviously, in the long term, sociologist (and hopefully us too) aren’t trapped by definitive debates that obstruct community’s understanding. Sociologist will be developing their theories by counterargument of proves against prove. (So do you really still think that the ‘invincible hand’ or socialism is still appropriate to be implemented? :))

Simulation or Statistics
There are many debates in using the method for sociology. Many economists also neo-sociologists use statistics, to find out correlation between variables yet seldom giving the direct causal relationship between it. Moreover, statistics also involved tight assumption that many real world data don’t comply to the method. On the other side, there is an emerging method of simulation in sociology. Simulation basically construct real world issue by capturing it’s mechanism through cause-effect relationship or if logics. Nevertheless, simulation gives the disadvantages of not finding the degree of correlation. The interesting part is ‘neo-simulation’ (please mind me, I make the term myself) is developing towards its integration with biology and physics, like neural network, genetic algorithm, and memetics.

Despite of the ongoing debates, based on my experience in Industrial Engineering department and Techno-Economics interest group, I believed that both must be used to find the pattern and explain the relationship. Both tools will give the benefit to comprehensively understand about the system and its behavior, so that experts can generate theories most suitable to the society. One thing that I most agree with the tutorials is the concept of KISS (KEEP IT SIMPLE STUPID!!) hehe, if we get too involved IN the system then making it as simple as possible is very essential.

Computational Sociology
Computational sociology divided social system based on micro (individual) and macro (community/nation) level. One of the quotes from the tutorial is that ‘A simple micro pattern will emerge to a complex macro pattern’, that is why micro-modeling (or conceptualization) is fairly important for behavior study. Macro behaviors are mostly explained by macro-motives, yet never taking any account of micro-motives that is structured of the phenomena like the commodities-keeper during Ramadhan for price speculation. On the above picture, individual have decision system, behavioral psychology, and exchange theories that provoke each individual behavior or decision. Obviously, a simple reaction from each individual will correspond to the complex behavior of the macro level. The complexity of the macro level is characterized by social structure (the ‘how’ of every phenomenon in the study), like how does a vote occur in 2009 election, and social order, like how come GOLKAR may have higher vote in 2009 election influenced by the risk averse voters.

I believed that computational sociology will open a new path to applicable theory for the society; hence, giving more value to human interactions. Keynes theory of invincible hand and Marx theory of economic class absence have inspired several ideologies (though of its speculation thinking), yet its strength to create better society is still questionable. In a broader view, hopefully ideology like capitalism and communism that are developing in the society nowadays can be justified empirically (thus, truthfully) whether it’s good for the nation or those ideologies are implemented in certain boundaries.

Closing remarks..
I translated this section without major modifications (I like it very much)
Only a simple enclosing, the above picture can be a RABBIT or a DUCK depending from your point of view. We can construct social theory from any side of our main interest, yet it doesn’t mean that social theory is ANYTHING CAN BE TRUE because the picture is IMPOSSIBLE to be an object besides a RABBIT or a DUCK. By strict methodology and comprehensive definition, we can set whether it is a DUCK or a RABBIT, and which social theory is accepted or rejected….

PS. The tutorials are attractive, easy to read, and resourceful..highly recommended to read