tag:blogger.com,1999:blog-86979047568422508592024-03-13T07:49:50.865-07:00Ade Cahyat...for better IndonesiaUnknownnoreply@blogger.comBlogger31125tag:blogger.com,1999:blog-8697904756842250859.post-58722374294308129582011-07-03T14:05:00.000-07:002011-07-03T14:06:02.232-07:00Should international trading in emission permits be encouraged?<!--[if gte mso 9]><xml> <w:worddocument> <w:view>Normal</w:View> <w:zoom>0</w:Zoom> <w:trackmoves/> <w:trackformatting/> <w:donotshowcomments/> <w:punctuationkerning/> <w:validateagainstschemas/> <w:saveifxmlinvalid>false</w:SaveIfXMLInvalid> <w:ignoremixedcontent>false</w:IgnoreMixedContent> <w:alwaysshowplaceholdertext>false</w:AlwaysShowPlaceholderText> <w:donotpromoteqf/> <w:lidthemeother>EN-AU</w:LidThemeOther> <w:lidthemeasian>X-NONE</w:LidThemeAsian> <w:lidthemecomplexscript>X-NONE</w:LidThemeComplexScript> <w:compatibility> <w:breakwrappedtables/> <w:snaptogridincell/> <w:wraptextwithpunct/> <w:useasianbreakrules/> <w:dontgrowautofit/> 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mso-padding-alt:0cm 5.4pt 0cm 5.4pt; mso-para-margin-top:0cm; mso-para-margin-right:0cm; mso-para-margin-bottom:10.0pt; mso-para-margin-left:0cm; line-height:115%; mso-pagination:widow-orphan; font-size:11.0pt; font-family:"Calibri","sans-serif"; mso-ascii-font-family:Calibri; mso-ascii-theme-font:minor-latin; mso-fareast-font-family:"Times New Roman"; mso-fareast-theme-font:minor-fareast; mso-hansi-font-family:Calibri; mso-hansi-theme-font:minor-latin; mso-bidi-font-family:"Times New Roman"; mso-bidi-theme-font:minor-bidi;} </style> <![endif]--> <p class="MsoNormal" style="text-align:justify;line-height:150%"><b><span style="font-size:12.0pt;line-height:150%;font-family:"Times New Roman","serif"">Introduction </span></b></p> <p class="MsoNormal" style="text-align:justify;line-height:150%"><span style="font-size:12.0pt;line-height:150%;font-family:"Times New Roman","serif"; mso-bidi-font-weight:bold">Many evidences show that climate change is real. The National Academy of Sciences reports 'with a high level of confidence that<span style="mso-spacerun:yes"> </span>global mean surface temperature was higher during the last few decades of the 20th century than during any comparable period during the preceding four centuries' (2006, p. 3). Although the economic impacts of climate change are hard to predict, there are serious prediction in </span><span style="font-size:12.0pt;line-height:150%;font-family:"Times New Roman","serif"">non-market impacts such as the additional 165,000 to 250,000 children could die (Stern 2007, p. 63). <span style="mso-bidi-font-weight:bold"></span></span></p> <p class="MsoNormal" style="text-align:justify;line-height:150%"><span style="font-size:12.0pt;line-height:150%;font-family:"Times New Roman","serif"; mso-bidi-font-weight:bold">The serious mitigation actions must be taken at global level as soon as possible. The delay inaction will just cost the world economy i.e. US$5.7 trillion per year (Bosetti et al. 2009, p. 304). Since the GHG concentration is caused directly by human activities (Australian Academy of Science 2010, p. 4), the key thing in mitigation is to change people's behaviour. In domestic level, there are three public policy options which currently practiced and/or considered; they are: carbon tax, cap and trade, and the combination of both (the hybrid). The former sets the carbon price; the second fixed the emission quantity; while the latter start by settling the emission quantity but also allowing additional permits to control the carbon price. Although there are huge debates on comparing the three (see, for example, McKibbin & Wilcoxen 2007, pp. 187-190; Hansen 2009, p. 2; Stiglitz 2007; Garnaut 2008a, p. 311; Pizer 2002), the basic principle of the three approaches is the same; that is to put a price into carbon. Carbon price is important because </span><span style="font-size:12.0pt;line-height:150%; font-family:"Times New Roman","serif"">price has rationing and allocating function of the scarce resources (Frank et al. 2009, p. 233). <span style="mso-bidi-font-weight:bold">Theoretically, the price must be set at the level so that the cost of the emission equal to the present value of the social damage it causes (IMF 2008, p. 9).<span style="mso-spacerun:yes"> </span>The three carbon pricing approaches are central to carbon market. </span></span></p> <p class="MsoNormal" style="text-align:justify;line-height:150%"><span style="font-size:12.0pt;line-height:150%;font-family:"Times New Roman","serif"; mso-bidi-font-weight:bold">The current international emission permit trading practices are operated under carbon market mechanisms. There are three carbon market mechanisms under the 1997 Kyoto protocol; they are: carbon trading, clean development mechanism (CDM), and joint implementation (JI) (Gerrard et al. 2007, p. 1).<span style="mso-spacerun:yes"> </span></span><span style="font-size:12.0pt;line-height:150%;font-family:"Times New Roman","serif"; mso-fareast-font-family:"Times New Roman";mso-ansi-language:EN-US;mso-fareast-language: EN-AU" lang="EN-US">Both carbon trading and JI involve international permit trading, the difference is that the latter is project based, whereas the former is purely a permit trading. Meanwhile, CDM is only about offset either it is project or program based.<span style="mso-spacerun:yes"> </span>Permit trading can be conducted only between actors in countries with cap, whereas countries without caps can provide offsets to countries with caps.</span></p> <p class="MsoNormal" style="text-align:justify;line-height:150%"><span style="font-size:12.0pt;line-height:150%;font-family:"Times New Roman","serif"; mso-bidi-font-weight:bold">This paper will focus on international trading in emissions permits (IPT). It will first elaborate the pros and cons of IPT and will argue that IPT should be conducted gradually after the improvement of the capacity of the developing countries and the global market regulatory body. </span></p> <p class="MsoNormal" style="margin-bottom:0cm;margin-bottom:.0001pt;text-align: justify;line-height:150%"><b><span style="font-size:12.0pt;line-height:150%; font-family:"Times New Roman","serif"">Pros</span></b></p> <p class="MsoNormal" style="margin-bottom:0cm;margin-bottom:.0001pt;text-align: justify;line-height:150%;tab-stops:11.0cm"><span style="font-size:12.0pt; line-height:150%;font-family:"Times New Roman","serif";mso-bidi-font-weight: bold">IPT could reduce the global mitigation costs which reflected by the lower permit price or lower carbon price. That could happen because of the marginal abatement costs differ across countries (McKibbin et al. 2004, p. 25; Nordhaus 2008, p. 13), which developing countries have lower marginal abatement costs (Weyant & Hill 1999, p. xxxv; Howes 2009, p.10). When there is global trading, the abatement cost will be equalized into a global price which will be between the developed countries' marginal abatement cost and the developing countries' marginal abatement cost. That will result in a lower global abatement costs to achieve the same emission reductions. And the reduction will be more when there are more big players cap their emissions and participate in the permit trading (Aldy & Stavins 2007, p. 12).<span style="mso-spacerun:yes"> </span></span></p> <p class="MsoNormal" style="margin-bottom:0cm;margin-bottom:.0001pt;text-align: justify;line-height:150%"><span style="font-size:12.0pt;line-height:150%; font-family:"Times New Roman","serif";mso-bidi-font-weight:bold"> </span></p> <p class="MsoNormal" style="margin-bottom:0cm;margin-bottom:.0001pt;text-align: justify;line-height:150%"><span style="font-size:12.0pt;line-height:150%; font-family:"Times New Roman","serif";mso-bidi-font-weight:bold">IPT could increase the possibility to achieve the higher target of stabilization level through more participation. Another effect of the different marginal abatement costs in IPT is the attraction to more countries to join the global efforts on climate change mitigation. IPT could attract net-sellers countries through profit-making motives, whereas net-purchaser countries could be tempted to join because of their domestic political interests (Keohane & Raustiala 2008, p. 6). As more countries participate and more ambitious target they can make due to the lower abatement costs (Garnaut 2008b, p. 6), the more global abatements can be expected. In contrast, incomplete participation could reduce the effectiveness, and increase the cost of mitigation (Howes 2009, p. 13). If we just rely only to Annex B of the Kyoto protocol, the GHG concentration in atmosphere will exceed 550 ppm—or leads to more than 3<sup>0</sup>C warming—by the end of this century (Wigley 1998, p. 2288).<span style="mso-spacerun:yes"> </span></span></p> <p class="MsoNormal" style="margin-bottom:0cm;margin-bottom:.0001pt;text-align: justify;line-height:150%"><span style="font-size:12.0pt;line-height:150%; font-family:"Times New Roman","serif";mso-bidi-font-weight:bold"> </span></p> <p class="MsoNormal" style="text-align:justify;line-height:150%"><span style="font-size:12.0pt;line-height:150%;font-family:"Times New Roman","serif"; mso-bidi-font-weight:bold">IPT is an instrument that can help the creation of global economic convergence as an impact of the emissions convergence in per capita basis. Although developed countries are unlikely to support, developing countries—especially India—have been in the position to argue that equity requires setting quantitative targets at equal amounts per capita (Frankel 2007, p. 40). Indeed, distributing permits based on equal right to emit is the only principle that has some ethical basis (Stiglitz 2007). The best way to achieve equal emission per capita is through 'convergence and construction' approach (Garnaut 2008a, p. xxiv). There are two main steps as reflected in the name of the approach: set-up the stabilization level as the global target, for example 450 ppmv (contraction); share the emission limit among all countries so that per-capita emissions converge by specific date (convergence). There are two key elements to be negotiated and agreed upon: the target atmospheric concentration of GHG and the date (H</span><span style="font-size:9.0pt; line-height:150%;font-family:"Times New Roman","serif"">Ö</span><span style="font-size:12.0pt;line-height:150%;font-family:"Times New Roman","serif"; mso-bidi-font-weight:bold">hne et al. 2006, p. 47). This approach will lead to the transfer of resources to the least developed countries through IPT. Without IPT the costs of mitigation in developed countries will be higher and there will be no resources transfer to the developing countries. The resources transfer, which can be in the form of finance or technology or others, could help developing countries to catch up the developed countries which could result in the economic convergence. Interestingly, the sources of financing for developments support in developing countries can be mainly from private sectors in developed countries rather than from public sectors as that in the development aid.<span style="mso-spacerun:yes"> </span></span><span style="font-size:12.0pt;line-height:150%;font-family:"Times New Roman","serif""></span></p> <p class="MsoNormal" style="margin-bottom:0cm;margin-bottom:.0001pt;text-align: justify;line-height:150%"><span style="font-size:12.0pt;line-height:150%; font-family:"Times New Roman","serif";mso-bidi-font-weight:bold">IPT will self-enforce the low-emission development. Once the IPT is there and the caps are set, every participant countries will have strong incentives to work hard to lowering their emission intensity (of GDP) because it is the only way to optimize benefit from the trading. The more they can maintain or increase their outputs but lowering emission at the same time, the more they can sell their permits to other countries or just hold the excess permits for the future developments. It is even possible for them who highly efficient in GHG emissions to use their excess permits as an asset in international political bargaining since permits will be highly valuable. Carbon price can attract investments in low-carbon developments such as investment in green energy. Since IPT increases carbon price in developing countries, it would attract more investments in developing countries in low-carbon development economic activities.<span style="mso-spacerun:yes"> </span>The promotion of low-emission development can be more explicit in the case of 'joint implementation' where permit trading is conducted through carbon offset projects. The EU ETS claims the promotion of low-carbon development as one of its successes (Carbon Finance 2010, p. 7). </span></p> <p class="MsoNormal" style="margin-bottom:0cm;margin-bottom:.0001pt;text-align: justify;line-height:150%"><span style="font-size:12.0pt;line-height:150%; font-family:"Times New Roman","serif";mso-bidi-font-weight:bold">Domestic trading scheme in developing countries is hardly to be established without IPT. That is because variation of the marginal abatement costs among actors is less in domestic market compared to the global market. This is particularly difficult in developing countries where we can expect to find more sellers than buyers. For example, 180,000 tonnes of voluntary credits in the first auction in Latin America (Brazil) was end up without a single bid (Reuters 2010). </span></p> <p class="MsoNormal" style="margin-bottom:0cm;margin-bottom:.0001pt;text-align: justify;line-height:150%"><span style="font-size:12.0pt;line-height:150%; font-family:"Times New Roman","serif";mso-bidi-font-weight:bold"> </span></p> <p class="MsoNormal" style="margin-bottom:0cm;margin-bottom:.0001pt;text-align: justify;line-height:150%"><b><span style="font-size:12.0pt;line-height:150%; font-family:"Times New Roman","serif"">Cons</span></b></p> <p class="MsoNormal" style="margin-bottom:0cm;margin-bottom:.0001pt;text-align: justify;line-height:150%"><span style="font-size:12.0pt;line-height:150%; font-family:"Times New Roman","serif";mso-bidi-font-weight:bold"> </span></p> <p class="MsoNormal" style="margin-bottom:0cm;margin-bottom:.0001pt;text-align: justify;line-height:150%"><span style="font-size:12.0pt;line-height:150%; font-family:"Times New Roman","serif";mso-bidi-font-weight:bold">IPT might reduce future development possibilities of developing countries and might lead to the emission per capita divergence. If one country sells emission permits to another country, the seller country basically transfer its future development possibilities. When every country adopts a cap and the cap is fixed, the cap reflects the future development possibilities. If the cap is equal to current level of emission of one country, the country would be allowed to produce more economic output only if the emission intensity of output of that country is reduced. Reducing emission intensity, however, is not easy. It does not only require investments in new technology, but also need better public governance. For example, reducing emission intensity in forests activities require better forest management, whereas better forest management needs better public governance (Mayers et al. 2006, p. 101). It also depends on the quality of the global trading governance. If the global trading governance is weak, one poor country might sell its permit just because they need revenue (or because the corrupt leaders need quick cash for their political interests), not because the country has reduced its emission intensity. It is just similar to the case where a poor farmer sold his farm land to a mining company just because he wanted to have a motorcycle. At the end, the emission per capita will diverge, not converge. In this case, although the emission reduction might be well-proven, it does not meet ethical standard.</span></p> <p class="MsoNormal" style="margin-bottom:0cm;margin-bottom:.0001pt;text-align: justify;line-height:150%"><span style="font-size:12.0pt;line-height:150%; font-family:"Times New Roman","serif";mso-bidi-font-weight:bold"> </span></p> <p class="MsoNormal" style="margin-bottom:0cm;margin-bottom:.0001pt;text-align: justify;line-height:150%;mso-layout-grid-align:none;text-autospace:none"><span style="font-size:12.0pt;line-height:150%;font-family:"Times New Roman","serif"; mso-bidi-font-weight:bold">Without a credible government of countries involved in the trade, the IPT might increase the level of GHG and weaken the credibility of the high integrity domestic market scheme. IPT cannot avoid the involvement of government even though the trade might be between private firms. That is because the legal basis of IPT is international agreement which supposed to be made by governments. National government capabilities are needed at least for two important functions: the monitoring, reporting, and verification (MRV) system and the market regulation.<span style="mso-spacerun:yes"> </span>IPT requires reliable MRV which not easy to build internationally. </span><span style="font-size:12.0pt;line-height:150%;font-family:"Times New Roman","serif"">The lesson from the successful acid rain program (ARP) in the U.S. points out that the MRV is central to develop the accuracy and maintaining emission data which lead to the development of public confidence in the program, and has resulted in a high compliance rate (Schakenbach et al. 2006, p. 1576). A weak MRV system could end up raising the level of global emissions if the monitoring in the seller's country is ineffective because the emission of the buyer would rise while the seller's emission would remain unchanged (Nordhaus 2008, p. 160). The market regulator function is important to maintain the trust, not only the trust of the sellers and buyers, but also the tax payers in the participating countries. This is particularly relevant in developed countries where their political concern values the integrity of the mitigation measures (Grubb 2003, p. 166). An international trading system implies that governments in all participating countries would perform the functions with similar competence (Victor 2007, p. 143). <span style="mso-bidi-font-weight:bold">However, the quality of governments around the world is vary which many of them, particularly in developing countries, are still associated with high corruption. One trading scheme with high integrity might be poisoned by other trading scheme in different countries with low integrity. </span></span></p> <p class="MsoNormal" style="margin-bottom:0cm;margin-bottom:.0001pt;text-align: justify;line-height:150%"><span style="font-size:12.0pt;line-height:150%; font-family:"Times New Roman","serif";mso-bidi-font-weight:bold"> </span></p> <p class="MsoNormal" style="margin-bottom:0cm;margin-bottom:.0001pt;text-align: justify;line-height:150%"><span style="font-size:12.0pt;line-height:150%; font-family:"Times New Roman","serif";mso-bidi-font-weight:bold">IPT might make developing countries (sellers) worse-off. </span><span style="font-size:12.0pt; line-height:150%;font-family:"Times New Roman","serif"">The IPT might lead to the increase of production cost of output which could result in the increased cost consumptions and create reduced real wages. The effects would continue to the reduced labour supplies and would end up with reduced tax revenues. These effects chain called 'tax interaction effect' (Goulder et al. 1998, cited in Babiker et al. 2002, p. 4). Theoretically, the effects can be overcome by cutting other distorting taxes, such as social security taxes and corporate income taxes (Parry 1997, p.1). That could happen if the incomes gained from emission trading exceed the efficiency costs from the tax interaction effect (Babiker et al. 2002, p. 5). That means the benefits of IPT for developing countries depend a lot on the level of the carbon price in the global market. <span style="mso-bidi-font-weight:bold"></span></span></p> <p class="MsoNormal" style="margin-bottom:0cm;margin-bottom:.0001pt;text-align: justify;line-height:150%"><span style="font-size:12.0pt;line-height:150%; font-family:"Times New Roman","serif""> </span></p> <p class="MsoNormal" style="margin-bottom:0cm;margin-bottom:.0001pt;text-align: justify;line-height:150%"><span style="font-size:12.0pt;line-height:150%; font-family:"Times New Roman","serif";mso-bidi-font-weight:bold">IPT might harm marginal communities. For example, the high value of carbon could adversely affect indigenous people and local communities when government move them to other place in order to reduce emission from deforestation and forest degradation (Macintosh 2010, p. 2). </span></p> <p class="MsoListParagraph" style="margin-bottom:0cm;margin-bottom:.0001pt; mso-add-space:auto;text-align:justify;line-height:150%"><span style="font-size: 12.0pt;line-height:150%;font-family:"Times New Roman","serif";mso-bidi-font-weight: bold"> </span></p> <p class="MsoNormal" style="margin-bottom:0cm;margin-bottom:.0001pt;text-align: justify;line-height:150%;mso-layout-grid-align:none;text-autospace:none"><span style="font-size:12.0pt;line-height:150%;font-family:"Times New Roman","serif"; mso-bidi-font-weight:bold">IPT might bring 'resource curse' through corruption practices and low productivity. IPT must involve cap which imply the permit limitation and the high value of the permits. That creates scarcity of permits and would invite corruption practices (Cooper 2007: 106). </span><span style="font-size:12.0pt;line-height:150%;font-family:"Times New Roman","serif""><span style="mso-spacerun:yes"> </span>Cap and trade is a rent-creating program which, in the case of weak governments, could easily lead to corrupt practices and low productivity (Nordhaus 2008, p. 159).<span style="mso-spacerun:yes"> </span></span></p> <p class="MsoNormal" style="margin-bottom:0cm;margin-bottom:.0001pt;text-align: justify;line-height:150%;mso-layout-grid-align:none;text-autospace:none"><span style="font-size:12.0pt;line-height:150%;font-family:"Times New Roman","serif""> </span></p> <p class="MsoNormal" style="margin-bottom:0cm;margin-bottom:.0001pt;text-align: justify;line-height:150%"><span style="font-size:12.0pt;line-height:150%; font-family:"Times New Roman","serif";mso-bidi-font-weight:bold">Price volatility cannot be avoided totally because of the nature of the permit trading and also because of its link with the stability of global economy and politics. Price volatile caused by the complete inelasticity of the supply of permits along with the highly inelastic demand for permits in the short run (Nordhaus 2008, p. 153). The stability of politic and economic influences the stability of supply and demand which affect the carbon price (Carbon Finance 2010, p. 7). In addition, since EU ETS began in 2005, it is observed that the stability of carbon price correlates with the stability of energy price since there is high correlation between the two (Harvey 2009). </span></p> <p class="MsoNormal" style="margin-bottom:0cm;margin-bottom:.0001pt;text-align: justify;line-height:150%"><span style="font-size:12.0pt;line-height:150%; font-family:"Times New Roman","serif";mso-bidi-font-weight:bold"> </span></p> <p class="MsoNormal" style="margin-bottom:0cm;margin-bottom:.0001pt;text-align: justify;line-height:150%"><span style="font-size:12.0pt;line-height:150%; font-family:"Times New Roman","serif";mso-bidi-font-weight:bold">The price volatile phenomenon reflects the inability of any national government, particularly government from small countries, to control global carbon price. This is very important because, as discussed earlier, price is matter. Without sufficient price, developing countries can be worse-off and therefore reduce their incentive to participate.<span style="mso-spacerun:yes"> </span></span></p> <p class="MsoNormal" style="margin-bottom:0cm;margin-bottom:.0001pt;text-align: justify;line-height:150%"><span style="font-size:12.0pt;line-height:150%; font-family:"Times New Roman","serif";mso-bidi-font-weight:bold"> </span></p> <p class="MsoNormal" style="margin-bottom:0cm;margin-bottom:.0001pt;text-align: justify;line-height:150%;mso-layout-grid-align:none;text-autospace:none"><span style="font-size:12.0pt;line-height:150%;font-family:"Times New Roman","serif"; mso-bidi-font-weight:bold">The success of IPT depends on the quality of the caps, whereas set-up the right caps is difficult. Since IPT requires binding caps, the plan of make a trading might increase the value of the permit during the negotiation time which will make the permit distribution among countries become difficult and sensitive. Giving more permits than required to one country (i.e. hot air) will attract participation of the country but at the same time will harm the participation of all other countries (Barret & Stavins 2003, p. 360). This can lead to a failed negotiation. The errors in allocating caps—e.g. because of the mistake of baseline making such as the 'hot air' phenomenon—could discourage the abatement and even increase the cost of the abatement (CCAP 2007, p. 5; Gilbertson & Reyes 2009, p. 9). The errors in allocating caps could also discourage wide participation especially when it leads to the reduction of commitment of big player countries which might caused by the perception of unfairly treated. The exit of one country could magnify the pressures for others to exit (Victor 2007, p. 142).<span style="mso-spacerun:yes"> </span></span></p> <p class="MsoNormal" style="margin-bottom:0cm;margin-bottom:.0001pt;text-align: justify;line-height:150%"><span style="font-size:12.0pt;line-height:150%; font-family:"Times New Roman","serif";mso-bidi-font-weight:bold"> </span></p> <p class="MsoNormal" style="text-align:justify;line-height:150%"><b style="mso-bidi-font-weight:normal"><span style="font-size:12.0pt;line-height: 150%;font-family:"Times New Roman","serif"">My proposal</span></b></p> <p class="MsoNormal" style="text-align:justify;line-height:150%"><span style="font-size:12.0pt;line-height:150%;font-family:"Times New Roman","serif"">Considering the pros and the cons, I propose to implement the IPT gradually. That is because the success of IPT requires credible nation state institutions and credible international climate institution. The former is crucial for developing countries, whereas the latter is the main challenge in global level. Institutional development in national and global level is a must to reduce the potential of negative impacts, as well as to optimize the potential benefit, from the IPT.</span></p> <p class="MsoNormal" style="text-align:justify;line-height:150%"><span style="font-size:12.0pt;line-height:150%;font-family:"Times New Roman","serif"">Although the IPT should not be set-up until we have credible institutions, the emission caps must be agreed soon. We can use the pledges that have been agreed in Copenhagen. As being agreed in previous negotiations, arrangement of the IPT must be based on the 'common but differentiated responsibilities and respected capabilities' principle. It implies that, unlike for developed countries, the caps of developing countries are not immediately binding. </span></p> <p class="MsoNormal" style="margin-bottom:0cm;margin-bottom:.0001pt;text-align: justify;line-height:150%;mso-layout-grid-align:none;text-autospace:none"><span style="font-size:12.0pt;line-height:150%;font-family:"Times New Roman","serif"">I would copy the way the successful Montreal Protocol did on dealing with emission limit. That is that all countries must have emission limits which immediately binding the developed countries but allowing grace period to developing countries (Barrett & Stavins 2003, p. 361). We can just adopt the pledges made in Copenhagen which—after compared across different metrics—imply significant efforts and considered to be more equal among developed and developing countries; for example the emission per capita differences are smaller (Jotzo 2010, p. 21). In addition, the Copenhagen pledges (if we can get it) brings a solid foundation to bring the emission down to the 450 trajectories which make the 2<sup>0</sup>C target possible to achieve.<span style="mso-spacerun:yes"> </span>It is important to note that Copenhagen pledges made in bottom-up nature which allow us to expect a stronger commitment because the promises were made without pressure and were according to individual country's interest. The equal per capita emission must be part of the targets by using the 'convergence and contraction' approach. The converged date must be set by considering the sufficient adjustment time and accepted by developed and developing countries, say, 2050, as suggested by Garnaut (2008a, p. 207).<span style="mso-spacerun:yes"> </span></span></p> <p class="MsoNormal" style="margin-bottom:0cm;margin-bottom:.0001pt;text-align: justify;line-height:150%;mso-layout-grid-align:none;text-autospace:none"><span style="font-size:12.0pt;line-height:150%;font-family:"Times New Roman","serif""> </span></p> <p class="MsoNormal" style="margin-bottom:0cm;margin-bottom:.0001pt;text-align: justify;line-height:150%;mso-layout-grid-align:none;text-autospace:none"><span style="font-size:12.0pt;line-height:150%;font-family:"Times New Roman","serif"">The gradual implementation of IPT involves three stages: (a) capacity development; (b) IPT implementation that combined with the project based, caps bind developed countries only, but monitored, reported, and verified in developing countries as well (almost similar to the Kyoto), and (c) full IPT implementation which all caps are binding.<span style="mso-spacerun:yes"> </span></span></p> <p class="MsoNormal" style="margin-bottom:0cm;margin-bottom:.0001pt;text-align: justify;line-height:150%;mso-layout-grid-align:none;text-autospace:none"><span style="font-size:12.0pt;line-height:150%;font-family:"Times New Roman","serif""> </span></p> <p class="MsoNormal" style="text-align:justify;line-height:150%"><span style="font-size:12.0pt;line-height:150%;font-family:"Times New Roman","serif"">The capacity development activities must focus on two targets: (a) developing countries, (b) global regulatory body. The objective of capacity development of developing countries should cover the following issues: low-carbon development; good governance, MRV system, domestic market regulation; market policy making capability e.g. to avoid the tax interaction effect. The global regulatory body capacity development must address the following issues: prioritizing domestic abatement as opposed to trading and offset; market regulation e.g. to avoid human right violation; monitoring and leadership communication to ensure the achievement mitigation target and per-capita basis target; monitor to minimize the price volatility. The costs of capacity building must be paid by developed countries as part, or addition to, development aid. In order to be successful, some lessons from development aid effectiveness can be considered; for example, the three aid effectiveness determinants: the quality of the government of recipient country, the quality of the aid donor, and the way in which aid business is organized (Howes 2011). </span></p> <p class="MsoNormal" style="margin-bottom:0cm;margin-bottom:.0001pt;text-align: justify;line-height:150%;mso-layout-grid-align:none;text-autospace:none"><span style="font-size:12.0pt;line-height:150%;font-family:"Times New Roman","serif"">The low-carbon development must in line with the nationally appropriate mitigation actions (NAMA). NAMA will likely balance the mitigation and development objective of developing countries. The priority of developing countries is more to bring prosperity to the most of their people, not so much about environmental concern. Therefore government of developing countries are unlikely to cap the economy soon. However, <span style="mso-spacerun:yes"> </span>prosperity can be developed under sustainable development approach which includes some elements that support climate mitigation. For example, the policy of government of India called 'perform achieved and trade (PAT)' with the main intention is energy saving, but is contributing to climate change mitigation by reducing or avoiding GHG emissions (Uphadyaya 2010, p. 564). The focus of developing countries in their NAMAs should be on low carbon development strategy which means that they alleviate poverty through low carbon intensity activities. </span></p> <p class="MsoNormal" style="margin-bottom:0cm;margin-bottom:.0001pt;text-align: justify;line-height:150%;mso-layout-grid-align:none;text-autospace:none"><span style="font-size:12.0pt;line-height:150%;font-family:"Times New Roman","serif""> </span></p> <p class="MsoNormal" style="margin-bottom:0cm;margin-bottom:.0001pt;text-align: justify;line-height:150%;mso-layout-grid-align:none;text-autospace:none"><span style="font-size:12.0pt;line-height:150%;font-family:"Times New Roman","serif"">In the second and third stage, buying permit from other countries is allowed only if the domestic price is too high and could harm domestic economy seriously.<span style="mso-spacerun:yes"> </span>In the second stage in particular, selling permit from developing countries must be meet some criteria; for example, the permits to be sold are only that as result from the increased emission efficiency. </span></p> <p class="MsoNormal" style="margin-bottom:0cm;margin-bottom:.0001pt;text-align: justify;line-height:150%;mso-layout-grid-align:none;text-autospace:none"><span style="font-size:12.0pt;line-height:150%;font-family:"Times New Roman","serif""> </span></p> <p class="MsoNormal" style="margin-bottom:0cm;margin-bottom:.0001pt;text-align: justify;line-height:150%;mso-layout-grid-align:none;text-autospace:none"><b style="mso-bidi-font-weight:normal"><span style="font-size:12.0pt;line-height: 150%;font-family:"Times New Roman","serif"">References </span></b></p> <p class="MsoNormal" style="margin-bottom:0cm;margin-bottom:.0001pt;text-align: justify;line-height:150%;mso-layout-grid-align:none;text-autospace:none"><span style="font-size:12.0pt;line-height:150%;font-family:"Times New Roman","serif""> </span></p> <p class="MsoNormal" style="margin-bottom:0cm;margin-bottom:.0001pt;line-height: normal"><span style="font-size:12.0pt;font-family:"Times New Roman","serif"">Aldy, JE & Stavins, RN 2007, 'Introduction: international policy architecture for global climate change', in JE Aldy & RN Stavins (eds), <i style="mso-bidi-font-style: normal">Architectures for agreement</i>: <i style="mso-bidi-font-style:normal">addressing global climate change in the post-Kyoto world</i>, Cambridge University Press, Cambridge, pp. 1-30.</span></p> <p class="MsoNormal" style="margin-bottom:0cm;margin-bottom:.0001pt;line-height: normal"><span style="font-size:12.0pt;font-family:"Times New Roman","serif""> </span></p> <p class="MsoNormal" style="margin-bottom:0cm;margin-bottom:.0001pt;line-height: normal"><span style="font-size:12.0pt;font-family:"Times New Roman","serif"">Australian Academy of Science 2010, <i style="mso-bidi-font-style:normal">The science of climate change: question and answers</i>, Australian Academy of Science, Canberra. <span class="z3988"> </span></span></p> <p class="MsoNormal" style="margin-bottom:0cm;margin-bottom:.0001pt;line-height: normal;mso-layout-grid-align:none;text-autospace:none"><span style="font-size: 12.0pt;font-family:"Times New Roman","serif";color:black"> </span></p> <p class="MsoNormal" style="margin-bottom:0cm;margin-bottom:.0001pt;line-height: normal;mso-layout-grid-align:none;text-autospace:none"><span style="font-size: 12.0pt;font-family:"Times New Roman","serif";color:black">Babiker, MH, Reilly, JM & Viguier, LL 2002, 'Is international emissions trading always beneficial?', MIT Joint Program on the Science and Policy of Global Change, Report Number 93, December 2002, </span><span style="font-size:12.0pt; font-family:"Times New Roman","serif"">Massachusetts Institute of Technology (MIT), Cambridge, MA. <span style="color:black"></span></span></p> <p class="MsoNormal" style="margin-bottom:0cm;margin-bottom:.0001pt;line-height: normal"><span style="font-size:12.0pt;font-family:"Times New Roman","serif""> </span></p> <p class="MsoNormal" style="margin-bottom:0cm;margin-bottom:.0001pt;line-height: normal;mso-layout-grid-align:none;text-autospace:none"><span style="font-size: 12.0pt;font-family:"Times New Roman","serif";color:#231F20;mso-bidi-font-style: italic">Barrett, S & Stavins, R 2003, </span><span style="font-size:12.0pt; font-family:"Times New Roman","serif";color:#231F20">Increasing participation and compliance in international climate change agreements, <i>International Environmental Agreements: Politics, Law and Economics, vol. 3, pp. 349-376. </i></span></p> <p class="MsoNormal" style="margin-bottom:0cm;margin-bottom:.0001pt;line-height: normal;mso-layout-grid-align:none;text-autospace:none"><span style="font-size: 12.0pt;font-family:"Times New Roman","serif";color:#231F20"> </span></p> <p class="MsoNormal" style="margin-bottom:0cm;margin-bottom:.0001pt;line-height: normal;mso-layout-grid-align:none;text-autospace:none"><span style="font-size: 12.0pt;font-family:"Times New Roman","serif"">Bosetti, V, Carraro, C, Sgobbi, A & Tavoni, M 2009, '<span style="color:#131313;mso-bidi-font-weight:bold">Delayed action and uncertain stabilisation targets: how much will the delay cost?', <i style="mso-bidi-font-style:normal">Climate Change</i>, vol. 96, pp. 299-312. </span></span></p> <p class="MsoNormal" style="margin-bottom:0cm;margin-bottom:.0001pt;line-height: normal;mso-layout-grid-align:none;text-autospace:none"><span style="font-size: 12.0pt;font-family:"Times New Roman","serif";mso-bidi-font-weight:bold"> </span></p> <p class="MsoNormal" style="margin-bottom:0cm;margin-bottom:.0001pt;line-height: normal;mso-layout-grid-align:none;text-autospace:none"><span style="font-size: 12.0pt;font-family:"Times New Roman","serif";mso-bidi-font-weight:bold">Carbon Finance 2010, <i style="mso-bidi-font-style:normal">State and trends of the carbon market 2010</i>, Carbon Finance at the World Bank, Washington, DC. </span></p> <p class="MsoNormal" style="margin-bottom:0cm;margin-bottom:.0001pt;line-height: normal;mso-layout-grid-align:none;text-autospace:none"><span style="font-size: 12.0pt;font-family:"Times New Roman","serif""> </span></p> <p class="MsoNormal" style="margin-bottom:0cm;margin-bottom:.0001pt;line-height: normal;mso-layout-grid-align:none;text-autospace:none"><span style="font-size: 12.0pt;font-family:"Times New Roman","serif"">CCAP 2007, <i style="mso-bidi-font-style: normal">A new framework for Reducing Deforestation in Developing Countries: The Dual Markets Approach</i>, Center for Clean Air Policy, Brussels. </span></p> <p class="MsoNormal" style="margin-bottom:0cm;margin-bottom:.0001pt;line-height: normal"><span style="font-size:12.0pt;font-family:"Times New Roman","serif""> </span></p> <p class="MsoNormal" style="margin-bottom:0cm;margin-bottom:.0001pt;line-height: normal"><span style="font-size:12.0pt;font-family:"Times New Roman","serif"">Cooper, RN 2007, 'Alternatives to Kyoto: the case for a carbon tax', in JE Aldy & RN Stavins (eds), <i style="mso-bidi-font-style:normal">Architectures for agreement</i>: <i style="mso-bidi-font-style:normal">addressing global climate change in the post-Kyoto world</i>, Cambridge University Press, Cambridge, pp. 105-115.</span></p> <p class="MsoNormal" style="margin-bottom:0cm;margin-bottom:.0001pt;line-height: normal;mso-layout-grid-align:none;text-autospace:none"><span style="font-size: 12.0pt;font-family:"Times New Roman","serif";color:#131313;mso-bidi-font-weight: bold"> </span></p> <p class="MsoNormal" style="margin-bottom:0cm;margin-bottom:.0001pt;line-height: normal"><span style="font-size:12.0pt;font-family:"Times New Roman","serif"">Frank, RH, Sarah, J & Bernanke, BS 2009, <i>Principles of microeconomics</i>, 2nd edn., McGraw-Hill Australia, North Ryde.</span><span style="font-size:12.0pt; font-family:"Times New Roman","serif";mso-fareast-language:EN-AU"></span></p> <p class="MsoNormal" style="margin-bottom:0cm;margin-bottom:.0001pt;line-height: normal"><span style="font-size:12.0pt;font-family:"Times New Roman","serif""> </span></p> <p class="MsoNormal" style="margin-bottom:0cm;margin-bottom:.0001pt;line-height: normal"><span style="font-size:12.0pt;font-family:"Times New Roman","serif"">Frankel, J 2007, 'Formulas for quantitative emission targets', in JE Aldy & RN Stavins (eds), <i style="mso-bidi-font-style:normal">Architectures for agreement</i>: <i style="mso-bidi-font-style:normal">addressing global climate change in the post-Kyoto world</i>, Cambridge University Press, Cambridge, pp. 31-56.</span></p> <p class="MsoNormal" style="margin-bottom:0cm;margin-bottom:.0001pt;line-height: normal"><span style="font-size:12.0pt;font-family:"Times New Roman","serif""> </span></p> <p class="MsoNormal" style="margin-bottom:0cm;margin-bottom:.0001pt;line-height: normal"><span style="font-size:12.0pt;font-family:"Times New Roman","serif"">Garnaut, R 2008, <i style="mso-bidi-font-style:normal">The Garnaut climate change review: final report</i>, Cambridge University Press, New York. <span class="z3988"> </span></span></p> <p class="MsoNormal" style="margin-bottom:0cm;margin-bottom:.0001pt;line-height: normal;mso-layout-grid-align:none;text-autospace:none"><span style="font-size: 12.0pt;font-family:"Times New Roman","serif";mso-bidi-font-weight:bold"> </span></p> <p class="MsoNormal" style="margin-bottom:0cm;margin-bottom:.0001pt;line-height: normal;mso-layout-grid-align:none;text-autospace:none"><span style="font-size: 12.0pt;font-family:"Times New Roman","serif";mso-bidi-font-weight:bold">—— 2008b, <i style="mso-bidi-font-style:normal">Emissions trading scheme discussion paper</i>, Garnaut Climate Change Review, Interim Report February-2008. </span></p> <p class="MsoNormal" style="margin-bottom:0cm;margin-bottom:.0001pt;line-height: normal"><span style="font-size:12.0pt;font-family:"Times New Roman","serif""> </span></p> <p class="MsoNormal" style="margin-bottom:0cm;margin-bottom:.0001pt;line-height: normal"><span style="font-size:12.0pt;font-family:"Times New Roman","serif"">Gerrad, MB, Sethy, S, Xu, H & Gagliardi, B 2007, 'Climate change: Kyoto's clean development mechanisms in action', <i style="mso-bidi-font-style:normal">New York Law Journal</i>, September.</span></p> <p class="MsoNormal" style="margin-bottom:0cm;margin-bottom:.0001pt;line-height: normal;mso-layout-grid-align:none;text-autospace:none"><span style="font-size: 12.0pt;font-family:"Times New Roman","serif";color:black">Grubb, M 2003, 'The economics of the Kyoto protocol', <i style="mso-bidi-font-style:normal">World Economics</i>, vol. 4, no. 3, pp. 143-189</span></p> <p class="MsoNormal" style="margin-bottom:0cm;margin-bottom:.0001pt;line-height: normal;mso-layout-grid-align:none;text-autospace:none"><span style="font-size: 12.0pt;font-family:"Times New Roman","serif";color:black"> </span></p> <p class="MsoNormal" style="margin-bottom:0cm;margin-bottom:.0001pt;line-height: normal;mso-layout-grid-align:none;text-autospace:none"><span style="font-size: 12.0pt;font-family:"Times New Roman","serif"">Hansen, JE 2009, <i style="mso-bidi-font-style:normal">Carbon tax & 100% dividend vs. tax & trade</i>, Testimony of James E. Hansen to Committee on Ways and Means, United States House of Representatives, Washington, DC. <b><span style="color:#BB093E"></span></b></span></p> <h1 style="margin:0cm;margin-bottom:.0001pt"><span style="font-size:12.0pt; font-weight:normal;mso-bidi-font-weight:bold"> </span></h1> <h1 style="margin:0cm;margin-bottom:.0001pt"><span style="font-size:12.0pt; font-weight:normal;mso-bidi-font-weight:bold">Harvey, F 2009, 'Carbon price fall bad for green investment', Financial Times, FT.com, viewed 5 May 2011, </span></h1> <p class="MsoNormal" style="margin-bottom:0cm;margin-bottom:.0001pt;line-height: normal;mso-layout-grid-align:none;text-autospace:none"><b style="mso-bidi-font-weight: normal"><span style="font-size:12.0pt;font-family:"Times New Roman","serif""><</span></b><span style="font-size:12.0pt;font-family:"Times New Roman","serif"">http://www.ft.com/intl/cms/s/0/3d80d790-f091-11dd-972c-0000779fd2ac.html#axzz1Mhy5Zk00<b style="mso-bidi-font-weight:normal"> >.</b><span style="mso-bidi-font-weight: bold"></span></span></p> <p class="MsoNormal" style="margin-bottom:0cm;margin-bottom:.0001pt;line-height: normal;mso-layout-grid-align:none;text-autospace:none"><span style="font-size: 12.0pt;font-family:"Times New Roman","serif";mso-bidi-font-weight:bold"> </span></p> <p class="MsoNormal" style="margin-bottom:0cm;margin-bottom:.0001pt;line-height: normal;mso-layout-grid-align:none;text-autospace:none"><span style="font-size: 12.0pt;font-family:"Times New Roman","serif";mso-bidi-font-weight:bold">H</span><span style="font-size:10.0pt;font-family:"Times New Roman","serif"">Ö</span><span style="font-size:12.0pt;font-family:"Times New Roman","serif";mso-bidi-font-weight: bold">hne, N, Phylipsen, D, Ullrich, S & Blok, K 2006, <i style="mso-bidi-font-style: normal">Options for the second commitment period of the Kyoto protocol</i>, Ecofys, Cologne. </span></p> <p class="MsoNormal" style="margin-bottom:0cm;margin-bottom:.0001pt;line-height: normal;mso-layout-grid-align:none;text-autospace:none"><span style="font-size: 12.0pt;font-family:"Times New Roman","serif";mso-bidi-font-weight:bold"> </span></p> <p class="MsoNormal" style="margin-bottom:0cm;margin-bottom:.0001pt;line-height: normal;mso-layout-grid-align:none;text-autospace:none"><span style="font-size: 12.0pt;font-family:"Times New Roman","serif";mso-bidi-font-weight:bold">Howes, S 2009, '</span><span style="font-size:12.0pt;font-family:"Times New Roman","serif"">Sustaining growth and mitigating climate change: are the costs of mitigation underestimated?', <span style="color:black">Crawford School of Economics and Government, Australian National University, paper presented to the East-West Centre-Korea Development Institute Conference on “Climate Change and Green Growth: Korea’s National Growth Strategy”, July 2009.</span></span></p> <p class="MsoNormal" style="margin-bottom:0cm;margin-bottom:.0001pt;line-height: normal;mso-layout-grid-align:none;text-autospace:none"><span style="font-size: 12.0pt;font-family:"Times New Roman","serif";mso-bidi-font-weight:bold"> </span></p> <p class="MsoNormal" style="margin-bottom:0cm;margin-bottom:.0001pt;line-height: normal;mso-layout-grid-align:none;text-autospace:none"><span style="font-size: 12.0pt;font-family:"Times New Roman","serif";mso-bidi-font-weight:bold">—— <span style="mso-spacerun:yes"> </span>2011, 'An overview of aid effectiveness determinants and strategies', Discussion Paper 1, Development Policy Centre, Crawford School of Economics and Government, The Australian National University, Canberra.<span style="mso-spacerun:yes"> </span></span></p> <p class="MsoNormal" style="margin-bottom:0cm;margin-bottom:.0001pt;line-height: normal;mso-layout-grid-align:none;text-autospace:none"><span style="font-size: 12.0pt;font-family:"Times New Roman","serif""> </span></p> <p class="MsoNormal" style="margin-bottom:0cm;margin-bottom:.0001pt;line-height: normal;mso-layout-grid-align:none;text-autospace:none"><span style="font-size: 12.0pt;font-family:"Times New Roman","serif"">Gilbertson, T & Reyes, O 2009, <i style="mso-bidi-font-style:normal">Carbon trading: h<span style="mso-bidi-font-style:italic">ow it works and why it fails, </span></i>Critical Currents no.7, Dag Hammarskjöld Foundation, Uppsala </span></p> <p class="MsoNormal" style="margin-bottom:0cm;margin-bottom:.0001pt;line-height: normal;mso-layout-grid-align:none;text-autospace:none"><span style="font-size: 12.0pt;font-family:"Times New Roman","serif";color:black"> </span></p> <p class="MsoNormal" style="margin-bottom:0cm;margin-bottom:.0001pt;line-height: normal"><span style="font-size:12.0pt;font-family:"Times New Roman","serif"">IMF 2008, <i style="mso-bidi-font-style:normal">The fiscal implications of climate change</i>, Fiscal Affairs Department, International Monetary Fund, Washington, DC.</span></p> <p class="MsoNormal" style="margin-bottom:0cm;margin-bottom:.0001pt;line-height: normal;mso-layout-grid-align:none;text-autospace:none"><span style="font-size: 12.0pt;font-family:"Times New Roman","serif""> </span></p> <p class="MsoNormal" style="margin-bottom:0cm;margin-bottom:.0001pt;line-height: normal;mso-layout-grid-align:none;text-autospace:none"><span style="font-size: 12.0pt;font-family:"Times New Roman","serif"">Jotzo, F 2010, '<span style="mso-bidi-font-weight:bold">Comparing the Copenhagen emissions targets', </span><span style="color:black">CCEP working paper 1.10, </span><span style="mso-bidi-font-weight: bold">Centre for Climate Economics & Policy, Crawford School of Economics and Government, The Australian National University, Canberra. </span></span></p> <p class="MsoNormal" style="margin-bottom:0cm;margin-bottom:.0001pt;line-height: normal;mso-layout-grid-align:none;text-autospace:none"><span style="font-size: 12.0pt;font-family:"Times New Roman","serif""> </span></p> <p class="MsoNormal" style="margin-bottom:0cm;margin-bottom:.0001pt;line-height: normal;mso-layout-grid-align:none;text-autospace:none"><span style="font-size: 12.0pt;font-family:"Times New Roman","serif";color:#131313;mso-bidi-font-weight: bold">Keohane, RO & Raustiala, K 2008, 'Toward a post-Kyoto climate change architecture: a political analysis', The Harvard Project on International Climate Agreements, Discussion Paper 08-01, Harvard Kennedy School, Harvard, MA.<span style="mso-spacerun:yes"> </span></span></p> <p class="MsoNormal" style="margin-bottom:0cm;margin-bottom:.0001pt;line-height: normal;mso-layout-grid-align:none;text-autospace:none"><span style="font-size: 12.0pt;font-family:"Times New Roman","serif";color:#131313;mso-bidi-font-weight: bold"> </span></p> <p class="MsoNormal" style="margin-bottom:0cm;margin-bottom:.0001pt;line-height: normal;mso-layout-grid-align:none;text-autospace:none"><span style="font-size: 12.0pt;font-family:"Times New Roman","serif"">Macintosh, A 2010, '<span 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style="margin-bottom:0cm;margin-bottom:.0001pt;line-height: normal;mso-layout-grid-align:none;text-autospace:none"><span style="font-size: 12.0pt;font-family:"Times New Roman","serif"">Parry, I 1997, 'Revenue recycling and the costs of reduction carbon emissions', Climate Economics and Policy Program, Climate Issues Brief Number 2, Resources for the Future, Washington, DC. </span></p> <p class="MsoNormal" style="margin-bottom:0cm;margin-bottom:.0001pt;line-height: normal;mso-layout-grid-align:none;text-autospace:none"><span style="font-size: 12.0pt;font-family:"Times New Roman","serif";color:black"> </span></p> <p class="MsoNormal" style="margin-bottom:0cm;margin-bottom:.0001pt;line-height: normal;mso-layout-grid-align:none;text-autospace:none"><span style="font-size: 12.0pt;font-family:"Times New Roman","serif";mso-bidi-font-weight:bold">Pizer, WA 2002, 'Combining price and quantity controls to mitigate global climate change', <i style="mso-bidi-font-style:normal">Journal of Public Economics</i>, vol. 85, pp. 409-434. </span></p> <h1 style="margin:0cm;margin-bottom:.0001pt"><span style="font-size:12.0pt; color:black;font-weight:normal;mso-bidi-font-weight:bold"> </span></h1> <h1 style="margin:0cm;margin-bottom:.0001pt"><span style="font-size:12.0pt; color:black;font-weight:normal;mso-bidi-font-weight:bold">Reuters 2010,</span><span style="font-size:12.0pt;color:black"> '</span><span style="font-size:12.0pt; font-weight:normal;mso-bidi-font-weight:bold">Brazil carbon credit auction ends without bidders', Reuters, viewed 5 May 2011, </span><span style="font-size: 12.0pt;mso-bidi-font-weight:normal"></span></h1> <p class="MsoNormal" style="margin-bottom:0cm;margin-bottom:.0001pt;line-height: normal;mso-layout-grid-align:none;text-autospace:none"><span style="font-size: 12.0pt;font-family:"Times New Roman","serif";mso-bidi-font-weight:bold"><http: com="" article="" 2010="" 04="" 09="" idustre63809l20100409="">.<span style="color:#131313"></span></http:></span></p> <p class="MsoNormal" style="margin-bottom:0cm;margin-bottom:.0001pt;line-height: normal;mso-layout-grid-align:none;text-autospace:none"><span style="font-size: 12.0pt;font-family:"Times New Roman","serif";color:black"> </span></p> <p class="MsoNormal" style="margin-bottom:0cm;margin-bottom:.0001pt;line-height: normal;mso-layout-grid-align:none;text-autospace:none"><span style="font-size: 12.0pt;font-family:"Times New Roman","serif";color:black">Schakenbach, J, Vollaro, R & Forte, R 2006, 'Fundamentals of successful monitoring, reporting, and verification under a cap-and-trade program', <i style="mso-bidi-font-style:normal">Air & Waste Management Association</i>, vol. 56, pp. 1576-1583. </span></p> <p class="MsoNormal" style="margin-bottom:0cm;margin-bottom:.0001pt;line-height: normal"><span style="font-size:12.0pt;font-family:"Times New Roman","serif""> </span></p> <p class="MsoNormal" style="margin-bottom:0cm;margin-bottom:.0001pt;line-height: normal"><span style="font-size:12.0pt;font-family:"Times New Roman","serif"">Stern, N 2007, <i style="mso-bidi-font-style:normal">The economics of climate change: the Stern review</i>, Cambridge University Press, Cambridge. </span></p> <p class="MsoNormal" style="margin-bottom:0cm;margin-bottom:.0001pt;line-height: normal;mso-layout-grid-align:none;text-autospace:none"><span style="font-size: 12.0pt;font-family:"Times New Roman","serif";color:#131313;mso-bidi-font-weight: bold"> </span></p> <p class="MsoNormal" style="margin-bottom:0cm;margin-bottom:.0001pt;line-height: normal;mso-layout-grid-align:none;text-autospace:none"><span style="font-size: 12.0pt;font-family:"Times New Roman","serif";color:#131313;mso-bidi-font-weight: bold">Stiglitz, J 2007, 'Carbon-taxing the rich', Guardian.co.uk., viewed 10 May 2011, </span></p> <p class="MsoNormal" style="margin-bottom:0cm;margin-bottom:.0001pt;line-height: normal;mso-layout-grid-align:none;text-autospace:none"><span style="font-size: 12.0pt;font-family:"Times New Roman","serif";mso-bidi-font-weight:bold"><http: uk="" commentisfree="" 2007="" dec="" 07="" carbontaxingtherich="">. </http:></span></p> <p class="MsoNormal" style="margin-bottom:0cm;margin-bottom:.0001pt;line-height: normal;mso-layout-grid-align:none;text-autospace:none"><span style="font-size: 12.0pt;font-family:"Times New Roman","serif";color:#131313;mso-bidi-font-weight: bold">Weyant, JP & Hill, JN 1999, 'Introduction and overview', <i style="mso-bidi-font-style:normal">The Energy Journal</i>, pp. vii-xliv. </span></p> <p class="MsoNormal" style="margin-bottom:0cm;margin-bottom:.0001pt;line-height: normal;mso-layout-grid-align:none;text-autospace:none"><span style="font-size: 12.0pt;font-family:"Times New Roman","serif""> </span></p> <p class="MsoNormal" style="margin-bottom:0cm;margin-bottom:.0001pt;line-height: normal;mso-layout-grid-align:none;text-autospace:none"><span style="font-size: 12.0pt;font-family:"Times New Roman","serif"">Upadhyaya, P 2010, Is emission trading a possible policy option for India?, Climate Policy, vol. 10, pp. 560-574.<span style="mso-bidi-font-weight:bold"></span></span></p> <p class="MsoNormal" style="margin-bottom:0cm;margin-bottom:.0001pt;line-height: normal;mso-layout-grid-align:none;text-autospace:none"><span style="font-size: 12.0pt;font-family:"Times New Roman","serif""> </span></p> <p class="MsoNormal" style="margin-bottom:0cm;margin-bottom:.0001pt;line-height: normal;mso-layout-grid-align:none;text-autospace:none"><span style="font-size: 12.0pt;font-family:"Times New Roman","serif"">Victor, DG 2007, 'Fragmented carbon markets and reluctant nations: implications for the design of effective architectures', in JE Aldy & RN Stavins (eds), <i style="mso-bidi-font-style: normal">Architectures for agreement</i>: <i style="mso-bidi-font-style:normal">addressing global climate change in the post-Kyoto world</i>, Cambridge University Press, Cambridge, pp. 132-160.</span></p> <p class="MsoNormal" style="margin-bottom:0cm;margin-bottom:.0001pt;line-height: normal;mso-layout-grid-align:none;text-autospace:none"><span style="font-size: 12.0pt;font-family:"Times New Roman","serif";color:black"> </span></p> <p class="MsoNormal" style="margin-bottom:0cm;margin-bottom:.0001pt;line-height: normal;mso-layout-grid-align:none;text-autospace:none"><span style="font-size: 12.0pt;font-family:"Times New Roman","serif";color:black">Wigley, TML 1998, 'The Kyoto protocol: CO2, CH4 and climate implications', <i style="mso-bidi-font-style: normal">Geophysical Research Letters</i>, vol. 25, no. 13, pp. 2285-2288</span></p>Unknownnoreply@blogger.com0tag:blogger.com,1999:blog-8697904756842250859.post-91716876297697517342011-05-27T01:29:00.000-07:002011-05-27T01:30:36.747-07:00Challenges in Indonesia Infrastructure Development<!--[if gte mso 9]><xml> <w:worddocument> <w:view>Normal</w:View> <w:zoom>0</w:Zoom> <w:trackmoves/> <w:trackformatting/> <w:donotshowcomments/> <w:punctuationkerning/> 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<![endif]--> <p class="MsoNormal" style="text-align:justify;text-justify:inter-ideograph; line-height:150%"><b style="mso-bidi-font-weight:normal"><span style="font-size:12.0pt;line-height:150%;font-family:"Times New Roman","serif"">Introduction </span></b></p> <p class="MsoNormal" style="text-align:justify;text-justify:inter-ideograph; line-height:150%"><span style="font-size:12.0pt;line-height:150%;font-family: "Times New Roman","serif"">Despite the mixed research findings about relationship between infrastructure and economic growth, the majority concludes that there is a positive and significant link between the two particularly in developing countries (Straub 2008, p. 33). In Indonesia, according to some facts, infrastructure affects economic growth through the level of private sector investment and their business development. Japanese companies operating in Indonesia rank the underdeveloped infrastructure as the main problem in investment in manufacturing and non-manufacturing industries (JETRO 2009, p. 27). This supports the perception of more than 12,000 businesses spread out in about half of Indonesia's districts which confirms that the low quality of infrastructure become the primary constraint of business development (KPPOD & TAF 2008, p. 2). As a result, Indonesia's economic growth during the period of 1990 to 2007 was below the average of developing Asia, and certainly below China and India (Garnaut et al. 2009, p. 90). Economic growth is very important for Indonesia because it is the main driver of human development in the country (UNDP 2010, p. 56).<span style="color:red"></span></span></p> <p class="MsoNormal" style="text-align:justify;text-justify:inter-ideograph; line-height:150%"><span style="font-size:12.0pt;line-height:150%;font-family: "Times New Roman","serif"">The five year development plan 2010-2014 states an ambitious infrastructure development plan throughout the country. That requires investments as high as IDR1,429 trillion which is equivalent to nearly one and a half times of the government's annual expenditure (Alisjahbana 2010, p. 5). </span></p> <p class="MsoNormal" style="text-align:justify;text-justify:inter-ideograph; line-height:150%"><b><span style="font-size:12.0pt;line-height:150%;font-family: "Times New Roman","serif""> </span></b></p> <p class="MsoNormal" style="text-align:justify;text-justify:inter-ideograph; line-height:150%"><b><span style="font-size:12.0pt;line-height:150%;font-family: "Times New Roman","serif"">Key Issue</span></b></p> <p class="MsoNormal" style="text-align:justify;text-justify:inter-ideograph; line-height:150%"><span style="font-size:12.0pt;line-height:150%;font-family: "Times New Roman","serif"">The key issue for the national government is the lack of infrastructure funding in Indonesia. The public authorities are faced with the dilemma: either to fully finance the infrastructure facilities—by borrowing more—in order to secure its control, or to attract private financing in order to accelerate infrastructure development. </span></p> <p class="MsoNormal" style="text-align:justify;text-justify:inter-ideograph; line-height:150%"><span style="font-size:12.0pt;line-height:150%;font-family: "Times New Roman","serif"">Indonesia's infrastructure relatively legs behind in terms of quality and quantity in the region.<span style="mso-spacerun:yes"> </span>Among the ASEAN five, Indonesia's infrastructure quality is just better than the Philippines but far below Singapore, Malaysia, and Thailand (Schwab 2010, pp. 18-19). However, in terms of quantity, the length of Indonesia's roads per arable land area in 2003 was even below the Philippines as well as other Asian countries such as Lao PDR, Mongolia, and Vietnam (World Bank 2005, p. 15). </span></p> <p class="MsoNormal" style="text-align:justify;text-justify:inter-ideograph; line-height:150%"><span style="font-size:12.0pt;line-height:150%;font-family: "Times New Roman","serif"">There is a great imbalance between the increase of vehicle number and the expansion of road. At national level, the increase of paved road during 1998-2005 was 28 per cent, whereas the rise of motor vehicle number at the same period was 80 per cent (World Bank 2007, p. 77). The situation is even worse in Jakarta. The growth rate of Jakarta roads is 0.9 per cent a year, whereas vehicle growth rate is nine per cent per year. Unless something is done, this would lead to total gridlock in Jakarta by 2014 (Cochrane 2009).</span></p> <p class="MsoNormal" style="text-align:justify;text-justify:inter-ideograph; line-height:150%"><span style="font-size:12.0pt;line-height:150%;font-family: "Times New Roman","serif"">The poor infrastructure facilities are mainly a result of underinvestment in infrastructure particularly after the 1997/1998 Asian financial crisis (AFC). Investment in infrastructure in Indonesia, both private and public including from the state owned enterprises, fell from 5-6 per cent of gross domestic product (GDP) before 1997 to 1-2 per cent of GDP in 2000, and was stable at 3.4 per cent of GDP in 2007 (World Bank 2007, p. 74). The private sector investment in infrastructure has declined sharply before and after the AFC, from 30-40 per cent to less than a quarter of government spending on infrastructure (World Bank 2007, p. 74). The latest figure shows a small increase in the government budget allocation. In 2010, infrastructure budget allocation was close to two per cent of GDP. That is still below the pre-AFC level (as average of the period 1994 to 1997) which was 2.4 per cent of GDP (World Bank 2007, p. 80).<span style="mso-spacerun:yes"> </span></span></p> <p class="MsoNormal" style="text-align:justify;text-justify:inter-ideograph; line-height:150%"><b style="mso-bidi-font-weight:normal"><span style="font-size:12.0pt;line-height:150%;font-family:"Times New Roman","serif""> </span></b></p> <p class="MsoNormal" style="text-align:justify;text-justify:inter-ideograph; line-height:150%"><b style="mso-bidi-font-weight:normal"><span style="font-size:12.0pt;line-height:150%;font-family:"Times New Roman","serif"">Solution options </span></b></p> <p class="MsoNormal" style="mso-margin-bottom-alt:auto;text-align:justify; text-justify:inter-ideograph;line-height:150%"><span style="font-size:12.0pt; line-height:150%;font-family:"Times New Roman","serif"">Indonesia’s public sector performance is poor relative to private sector counterparts (Arif & Viverita 2004: 22). Therefore, the question is no longer whether private sector should be involved in infrastructure development, but rather which form of private participation suitable in the Indonesian context. This paper is going to outline two possible options.</span></p> <p class="MsoNormal" style="text-align:justify;text-justify:inter-ideograph; line-height:150%"><u><span style="font-size:12.0pt;line-height:150%;font-family: "Times New Roman","serif"">Option-1: Full state financing<span style="mso-spacerun:yes"> </span></span></u></p> <p class="MsoNormal" style="mso-margin-bottom-alt:auto;text-align:justify; text-justify:inter-ideograph;line-height:150%;mso-layout-grid-align:none; text-autospace:none"><span style="font-size:12.0pt;line-height:150%;font-family: "Times New Roman","serif"">The Indonesian government has fair credibility to borrow money either from domestic financial institutions, foreign countries, or multilateral agencies. Indonesia's sovereign credit rating has been improved over time. The Standard & Poor’s rates Indonesia's sovereign credit for local and foreign currency at ‘BB+/positive’ (Standard & Poor’s 2011), while Moody’s just upgraded the Indonesian government’s foreign and local currency bond rating to 'Ba1' (Moody’s 2011). Improved ratings mean a lower country risk premium and thus reduced costs of financing (Wie & Negara 2010, p. 294). The Indonesian government need not to be concerned about borrowing money because its debt to GDP ratio is 27 per cent at the end of 2010, which is less than the average of G20 countries both for the advanced and the emerging economies (Departemen Keuangan 2010, p. 30). By borrowing money, government will declare the debts clearly in its financial statement as opposed to financing partnership which tempts undervaluing the liabilities by not recording them in the balance sheet (Webb & Pulle 2002, p. ii).<span style="mso-spacerun:yes"> </span></span></p> <p class="MsoNormal" style="mso-margin-bottom-alt:auto;text-align:justify; text-justify:inter-ideograph;line-height:150%"><span style="font-size:12.0pt; line-height:150%;font-family:"Times New Roman","serif"">Indonesian government must have strong control over the making and the operation of the infrastructure facilities to secure public value<a style="mso-footnote-id:ftn1" href="#_ftn1" name="_ftnref1" title=""><span class="MsoFootnoteReference"><span style="mso-special-character:footnote"><span class="MsoFootnoteReference"><span style="font-size:12.0pt;line-height:115%; font-family:"Times New Roman","serif";mso-fareast-font-family:SimSun; mso-fareast-theme-font:minor-fareast;mso-ansi-language:EN-AU;mso-fareast-language: ZH-CN;mso-bidi-language:AR-SA">[1]</span></span></span></span></a>. With the full state financing option, government has better power to control the contractors. It will also mean government has full ownership of the facility which provides it the right to use, to change the form and substance, and to appropriate returns from the facilities (Furubotn & Pejovich 1972, p. 1140).<span style="mso-spacerun:yes"> </span></span></p> <p class="MsoNormal" style="text-align:justify;text-justify:inter-ideograph; line-height:150%"><span style="font-size:12.0pt;line-height:150%;font-family: "Times New Roman","serif"">The state full ownership model is also in line with the traditional democratic structure. If the users (which are also citizens at the same time) want to complain about public infrastructure facilities, they can do so through the existing democracy structure—such as the Ombudsman Commission, the Administration Court, or to their representative in the parliament—in addition to the direct complaint to the facility operator. Those institutions can pressure government who own and control the facility directly. That would lead to a more pressure to government to impose citizens' aspirations to its contractors under a principal-agent relation (Teisman & Klijn 2002, p. 199).</span></p> <p class="MsoNormal" style="text-align:justify;text-justify:inter-ideograph; line-height:150%"><span style="font-size:12.0pt;line-height:150%;font-family: "Times New Roman","serif"">There are several options of mode of delivery of public-private cooperation under the full-state-financing approach. The range starts from construction manager at fee (CM-at fee) to the Design-Build-Operate-Maintain (DBOM) (Pakkala 2002, pp. 10-12). The more works are bundled in the contract the more complexity of the contract and therefore the more difficult for the government—as the principal—to control the contractor (Seddon 2004, p. 23). That is because the contract will not be specific enough in determining the result and conditions due to the bounded rationality which lead to the increase of opportunism (Williamson 1985, p. xiii).</span></p> <p class="MsoNormal" style="text-align:justify;text-justify:inter-ideograph; line-height:150%"><span style="font-size:12.0pt;line-height:150%;font-family: "Times New Roman","serif"">In order to have a strong control over the contract implementation, government must go for the segmented mode of delivery by preparing contract per each work segment and limit the contract period to a relatively short term. That would allow more certainty in predicting the future and therefore reduce the bounded rationality effects. That allows the government to specify results in the contract in order to monitor and control its contractors (Donahue 1989, p. 86). The sharp description on results would simplify the dispute resolution mechanism so that both parties can just rely on court (Williamson 1985, p. 32). </span></p> <p class="MsoNormal" style="text-align:justify;text-justify:inter-ideograph; line-height:150%"><span style="font-size:12.0pt;line-height:150%;font-family: "Times New Roman","serif"">Although government has strong control over the contract implementation in option-1, there is no guarantee it can secure public value. Government will rely on courts in dispute resolution which is often costly and ineffectual (Klein et al. 1978, p. 71). The simple contract may not be helpful because of the bad credibility of Indonesia's justice system (MacIntyre 2003, p. 3). Government is more likely to lose in court because of two reasons: (a) government is strongly requested to behave impeccably (Seddon 2004, p. 14), (b) public officials have less incentive to win the disputes because their private interest will not be much affected. </span></p> <p class="MsoNormal" style="text-align:justify;text-justify:inter-ideograph; line-height:150%"><u><span style="font-size:12.0pt;line-height:150%;font-family: "Times New Roman","serif"">Option-2: Private Financing Initiative (PFI)</span></u><span style="font-size:12.0pt;line-height:150%;font-family:"Times New Roman","serif""><span style="mso-spacerun:yes"> </span></span></p> <p class="MsoNormal" style="text-align:justify;text-justify:inter-ideograph; line-height:150%"><span style="font-size:12.0pt;line-height:150%;font-family: "Times New Roman","serif"">Considering the limitation of fiscal capacity, instead of borrowing more, Indonesian government must go for PFI. Indonesia's public spending is only 17.7 per cent of GDP (Departemen Keuangan n.d, pp. 1-12). Indonesia's tax revenue is among the lowest Asia's non-OECD countries (IMF 2008, p. 11).</span></p> <p class="MsoNormal" style="text-align:justify;text-justify:inter-ideograph; line-height:150%"><span style="font-size:12.0pt;line-height:150%;font-family: "Times New Roman","serif"">Despite some constraints in private sector investment (Kalinova 2010, p. 18; Prasetowo et al 2010, p. 1), various indicators reveal some opportunities. Together with key Asian countries, Indonesia has been constantly registering a more than 30 per cent saving since mid-1980s (Jha et al. 2009, p. 11). The average annual growth of market capitalization in Indonesia's Stock Exchange after the 1997 Asian Crisis is close to 25 per cent (ISE 2010, p. 2).<span style="mso-spacerun:yes"> </span>Indonesia gained 10 places in the Global Competitiveness Index rank of 2010-2011 compared to the 2009-2010 rank (Schwab 2010, p. 29). Moreover, high demand to the pay-facilities can be expected due to the improvement of Indonesian prosperity (Euromonitor 2010; Ahniar 2011).</span></p> <p class="MsoNormal" style="text-align:justify;text-justify:inter-ideograph; line-height:150%"><span style="font-size:12.0pt;line-height:150%;font-family: "Times New Roman","serif"">PFI is one among many forms of public-private partnership. In this case the firms should finance all the construction, operation, and maintenance costs in return for payment from the users and—when eligible—from government subsidy. Government must independently do the design and the plan which represent public interests such as user safety and environment standard. The plan must be made by contractor through a design competition. The plan that represent the public interests the most with the least costs requirement for construction and maintenance should be the winner, to be paid by government. Once the plan is ready, government must put it into a transparent tendering process. The private firm who bids with the lowest user charge rate and lowest guaranteed net sales<a style="mso-footnote-id:ftn2" href="#_ftn2" name="_ftnref2" title=""><span class="MsoFootnoteReference"><span style="mso-special-character:footnote"><span class="MsoFootnoteReference"><span style="font-size:12.0pt;line-height:115%; font-family:"Times New Roman","serif";mso-fareast-font-family:SimSun; mso-fareast-theme-font:minor-fareast;mso-ansi-language:EN-AU;mso-fareast-language: ZH-CN;mso-bidi-language:AR-SA">[2]</span></span></span></span></a> (for the same design of facility) is the most efficient firm therefore should be the winner. The contract between government and the private firm bundles all the building, operation, and maintenance works which will last for 30 to 35 years of the operation before transferring the ownership to government (BOOT).</span></p> <p class="MsoNormal" style="text-align:justify;text-justify:inter-ideograph; line-height:150%"><span style="font-size:12.0pt;line-height:150%;font-family: "Times New Roman","serif"">This partnership approach will allocate the risks efficiently; that is 'to the party that is best able to manage them' (EIU 1999, p. 2).<span style="mso-spacerun:yes"> </span>There are three kinds of risk in public private partnership, being construction risk, availability risk, and demand risk (Blöndal 2005, p. 22). The first two risks should be transferred to the partner because private firms are the best in handling them (U.S. Department of Transportation 2007, p. 21). The government must share the demand risk by paying the gap between the actual and the guaranteed net sales when the former is lower than the latter (the subsidy)<a style="mso-footnote-id:ftn3" href="#_ftn3" name="_ftnref3" title=""><span class="MsoFootnoteReference"><span style="mso-special-character:footnote"><span class="MsoFootnoteReference"><span style="font-size:12.0pt;line-height:115%; font-family:"Times New Roman","serif";mso-fareast-font-family:SimSun; mso-fareast-theme-font:minor-fareast;mso-ansi-language:EN-AU;mso-fareast-language: ZH-CN;mso-bidi-language:AR-SA">[3]</span></span></span></span></a>. In order to attract investments, it is also important for the government to share the pre-construction risk by handling the land acquisition works. At the moment, Indonesia is considered to be high risk in pre-construction which is mainly caused by land acquisition issues (Khan 2009, p. 13; Pisu 2010, p. 5). The public sector can take most of the pre-construction risk because the solution depends more on the political context (Wie & Negara 2010, p. 291). </span></p> <p class="MsoNormal" style="text-align:justify;text-justify:inter-ideograph; line-height:150%"><span style="font-size:12.0pt;line-height:150%;font-family: "Times New Roman","serif"">The level of control of government over the partner under the PFI is not as strong as in option-1. Therefore, there is a potential for the private interests to undermine the public interests (Hodge & Grave 2010, p. s16; Hellowell & Pollock 2010, p. p. s26). One obvious source of the threat is the difficulty to specify results and conditions in a long term contract (Hodge & Greve 2007, p. 549). Partnership needs more flexibility in its contract governance to identify unforseen risks in a sensible way (Seddon 2004, p. 23). It requires private ordering rather than legal centralism (Williamson 1985, p. 31; Birnhack 2004, p. 2).<span style="mso-spacerun:yes"> </span>However, the public sector has limitations in doing private ordering due to its unique accountability system compared to private organizations. </span></p> <p class="MsoNormal" style="text-align:justify;text-justify:inter-ideograph; line-height:150%"><span style="font-size:12.0pt;line-height:150%;font-family: "Times New Roman","serif"">Nevertheless, although the power to control the private partner is lower, a long term PFI partnership has the potential to satisfy public value with a lower transaction cost. Partnership is a collaboration process of cross boundary partners where risks and resources are efficiently shared in mutual trust for collective benefit (O'Flynn 2009, p. 115). In collaboration process, instead of using power to control, government must negotiate and persuade its partner (Pollitt 2003, p. 47). Many infrastructure facilities—such as road and water infrastructure—have asset specificity in terms of location and physical; that is the asset that the benefit can be realized only if the partnership is maintained (Williamson 1979, p. 240). Specific asset enhances trust and cooperative behaviours among partner (Lui et al. 2009, p. 1218). The long term reliance and cooperative behaviours—such as exchange information—are examples of relational norms which reduce transaction costs (Artz & Brush 2000, p. 356). The partnership strengthens contractual relationship through interest alignment (Domberger et al. 1997, p. 777). Therefore, in partnership, private firm executive has interest to satisfy the concern of the public sector manager: that is to create public value (Moore 1994, p. 296)<span style="mso-spacerun:yes"> </span></span></p> <p class="MsoNormal" style="text-align:justify;text-justify:inter-ideograph; line-height:150%"><b style="mso-bidi-font-weight:normal"><span style="font-size:12.0pt;line-height:150%;font-family:"Times New Roman","serif"">Proposal </span></b></p> <p class="MsoNormal" style="text-align:justify;text-justify:inter-ideograph; line-height:150%"><span style="font-size:12.0pt;line-height:150%;font-family: "Times New Roman","serif"">By applying two criteria: a) allocative efficiency, and b) value for money, option-2 is chosen to overcome the infrastructure backwardness in Indonesia.<span style="mso-spacerun:yes"> </span></span></p> <p class="MsoNormal" style="margin-bottom:0cm;margin-bottom:.0001pt;text-align: justify;text-justify:inter-ideograph;line-height:150%;mso-layout-grid-align: none;text-autospace:none"><span style="font-size:12.0pt;line-height:150%; font-family:"Times New Roman","serif"">Option-1 puts the entire financial burden to the government. That could accelerate the infrastructure development—as outlined in the five year development plan 2010-2014—only by sacrificing other government programs including the basic services for human development (such as health and education) or by significantly increasing government debts. Both consequences should not happen in current circumstances.<span style="mso-spacerun:yes"> </span><span style="color: #333333">Indonesia's human development index (HDI) rank in 2010 is still below 100 and is the lowest of the ASEAN Five countries (UNDP 2010, p. 145).</span> <span style="color:#333333">Government debt is highly sensitive in Indonesian politics. This is particularly for foreign debt which embodies sovereignty issue as a result from the Asian crisis experiences when IMF dictated the bad recipe causing the country into a deeper crisis (Radelet & Sachs 1999, p. 14). In contrast, option-2 would allow the government to accelerate infrastructure development neither by disturbing financial support to other important programs nor by putting pressure on the public finance cash flow. That means option-2 not only allocates the risks better but also allocates the resources more efficient than option-1. </span></span></p> <p class="MsoNormal" style="margin-bottom:0cm;margin-bottom:.0001pt;text-align: justify;text-justify:inter-ideograph;line-height:150%;mso-layout-grid-align: none;text-autospace:none"><span style="font-size:12.0pt;line-height:150%; font-family:"Times New Roman","serif""> </span></p> <p class="MsoNormal" style="margin-bottom:0cm;margin-bottom:.0001pt;text-align: justify;text-justify:inter-ideograph;line-height:150%;mso-layout-grid-align: none;text-autospace:none"><span style="font-size:12.0pt;line-height:150%; font-family:"Times New Roman","serif"">In option-1 tax payer money is more likely to be spent for less value either for citizens or clients. That is because in option-1 public funds are used to pay for construction and operation which involves huge risks before the users can really get benefit from the facilities. In contrast, in option-2 government only pays for value: that is to pay the top-up of the rate paid by the clients who gain benefit from the infrastructure facilities. One may argue that option-2 will just satisfy the client/user (private value) but not the citizens (public value). The argument is not convincing because of two reasons: (a) citizens who need but cannot access the facility still enjoy a better access to the ordinary facility—such as public roads (not the toll road)—because less users can be expected, whereas citizens who do not need the facility still enjoy the better economic development as the impact of better infrastructure; (b) Public value concerns such as externalities, public safety and transparency—as commonly argued by scholars (Flinders 2005, p. 232; Hodge & Greve 2007, p. 551; Erridge 2003, p. 94)—still possible to be achieved in option-2 because the private firms have a long term interest for their current and future<span style="mso-spacerun:yes"> </span>investments. Therefore, they will have incentive to build good image and therefore to align their interest into public interest. </span></p> <p class="MsoNormal" style="margin-bottom:0cm;margin-bottom:.0001pt;text-align: justify;text-justify:inter-ideograph;line-height:150%;mso-layout-grid-align: none;text-autospace:none"><span style="font-size:12.0pt;line-height:150%; font-family:"Times New Roman","serif""> </span></p> <p class="MsoNormal" style="margin-bottom:0cm;margin-bottom:.0001pt;text-align: justify;text-justify:inter-ideograph;line-height:150%;mso-layout-grid-align: none;text-autospace:none"><span style="font-size:12.0pt;line-height:150%; font-family:"Times New Roman","serif"">In short, option-2 allocates public resource and risks efficiently and provides better value against public money both for users and citizens. Therefore option-2 is recommended.<span style="mso-spacerun:yes"> </span></span></p> <p class="MsoNormal" style="margin-bottom:0cm;margin-bottom:.0001pt;text-align: justify;text-justify:inter-ideograph;line-height:150%;mso-layout-grid-align: none;text-autospace:none"><span style="font-size:12.0pt;line-height:150%; font-family:"Times New Roman","serif""> </span></p> <p class="MsoNormal" style="margin-bottom:0cm;margin-bottom:.0001pt;text-align: justify;text-justify:inter-ideograph;line-height:150%;mso-layout-grid-align: none;text-autospace:none"><b style="mso-bidi-font-weight:normal"><span style="font-size:12.0pt;line-height:150%;font-family:"Times New Roman","serif"">References </span></b></p> <p class="MsoNormal" style="margin-bottom:0cm;margin-bottom:.0001pt;text-align: justify;text-justify:inter-ideograph;line-height:150%;mso-layout-grid-align: none;text-autospace:none"><b style="mso-bidi-font-weight:normal"><span style="font-size:12.0pt;line-height:150%;font-family:"Times New Roman","serif""> </span></b></p> <p class="MsoNormal" style="margin-bottom:0cm;margin-bottom:.0001pt;line-height: normal"><span style="font-size:12.0pt;font-family:"Times New Roman","serif"; mso-fareast-font-family:"Times New Roman";mso-fareast-language:EN-AU">Ahniar, N 2011, 'Jumlah orang kaya melonjak, RI makin makmur' (Number rich people shoot up, do Indonesians more prosper?', <i>Vivanews</i>, viewed 20 March 2011,</span></p> <p class="MsoNormal" style="margin-bottom:0cm;margin-bottom:.0001pt;line-height: normal"><span style="font-size:12.0pt;font-family:"Times New Roman","serif"; mso-fareast-font-family:"Times New Roman";mso-fareast-language:EN-AU"><http: com="" news="" read="">.</http:></span></p> <p class="MsoNormal" style="margin-bottom:0cm;margin-bottom:.0001pt;line-height: normal"><span style="font-size:12.0pt;font-family:"Times New Roman","serif"; mso-fareast-language:EN-AU"> </span></p> <p class="MsoNormal" style="margin-bottom:0cm;margin-bottom:.0001pt;line-height: normal"><span style="font-size:12.0pt;font-family:"Times New Roman","serif"">Alford, J & O'Flynn, J 2009, 'Making sense of public value: concepts, critiques and emergent meanings', <i>International Journal of Public Administration</i>, vol. 32, no. 3, pp. 171-191. <span class="z3988"> </span></span></p> <p class="MsoNormal" style="margin-bottom:0cm;margin-bottom:.0001pt;line-height: normal"><span style="font-size:12.0pt;font-family:"Times New Roman","serif"; 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mso-hansi-theme-font:major-bidi;mso-bidi-theme-font:major-bidi"> </span></b></p> <p class="MsoNormal" style="margin-bottom:0cm;margin-bottom:.0001pt;text-align: justify;text-justify:inter-ideograph;line-height:150%;mso-layout-grid-align: none;text-autospace:none"><b style="mso-bidi-font-weight:normal"><span style="font-family:"Times New Roman","serif";mso-ascii-theme-font:major-bidi; mso-hansi-theme-font:major-bidi;mso-bidi-theme-font:major-bidi"> </span></b></p> <p class="MsoNormal" style="margin-bottom:0cm;margin-bottom:.0001pt;text-align: justify;text-justify:inter-ideograph;line-height:normal;mso-layout-grid-align: none;text-autospace:none"><b style="mso-bidi-font-weight:normal"><span style="font-size:12.0pt;font-family:"Times New Roman","serif";mso-ascii-theme-font: major-bidi;mso-hansi-theme-font:major-bidi;mso-bidi-theme-font:major-bidi"> </span></b></p> <p class="MsoNormal"> </p> <div style="mso-element:footnote-list"><br /> <hr align="left" size="1" width="33%"> <div style="mso-element:footnote" id="ftn1"> <p class="MsoFootnoteText"><a style="mso-footnote-id:ftn1" href="#_ftnref1" name="_ftn1" title=""><span class="MsoFootnoteReference"><span style="font-family: "Times New Roman","serif";mso-ascii-theme-font:major-bidi;mso-hansi-theme-font: major-bidi;mso-bidi-theme-font:major-bidi"><span style="mso-special-character: footnote"><span class="MsoFootnoteReference"><span style="font-size:10.0pt;line-height:115%;font-family:"Times New Roman","serif"; mso-ascii-theme-font:major-bidi;mso-fareast-font-family:SimSun;mso-fareast-theme-font: minor-fareast;mso-hansi-theme-font:major-bidi;mso-bidi-theme-font:major-bidi; mso-ansi-language:EN-AU;mso-fareast-language:ZH-CN;mso-bidi-language:AR-SA">[1]</span></span></span></span></span></a><span style="font-family:"Times New Roman","serif";mso-ascii-theme-font:major-bidi; mso-hansi-theme-font:major-bidi;mso-bidi-theme-font:major-bidi"> Despite the need to distinguish ‘public value’ and ‘public interest’ (Alford & O’Flynn 2009, p. 176), for the purpose of this paper the two phrases will be used interchangeably. </span></p> </div> <div style="mso-element:footnote" id="ftn2"> <p class="MsoFootnoteText"><a style="mso-footnote-id:ftn2" href="#_ftnref2" name="_ftn2" title=""><span class="MsoFootnoteReference"><span style="font-family: "Times New Roman","serif";mso-ascii-theme-font:major-bidi;mso-hansi-theme-font: major-bidi;mso-bidi-theme-font:major-bidi"><span style="mso-special-character: footnote"><span class="MsoFootnoteReference"><span style="font-size:10.0pt;line-height:115%;font-family:"Times New Roman","serif"; mso-ascii-theme-font:major-bidi;mso-fareast-font-family:SimSun;mso-fareast-theme-font: minor-fareast;mso-hansi-theme-font:major-bidi;mso-bidi-theme-font:major-bidi; mso-ansi-language:EN-AU;mso-fareast-language:ZH-CN;mso-bidi-language:AR-SA">[2]</span></span></span></span></span></a><span style="font-family:"Times New Roman","serif";mso-ascii-theme-font:major-bidi; mso-hansi-theme-font:major-bidi;mso-bidi-theme-font:major-bidi"> That is the annual net sales that guaranteed by the firm. That means the private firm cannot claim subsidy when the actual net sales are equal or exceed the guaranteed level. Government must have power to determine the user charge rate in order to achieve certain level of citizen access over the facilities. </span></p> </div> <div style="mso-element:footnote" id="ftn3"> <p class="MsoFootnoteText"><a style="mso-footnote-id:ftn3" href="#_ftnref3" name="_ftn3" title=""><span class="MsoFootnoteReference"><span style="font-family: "Times New Roman","serif";mso-ascii-theme-font:major-bidi;mso-hansi-theme-font: major-bidi;mso-bidi-theme-font:major-bidi"><span style="mso-special-character: footnote"><span class="MsoFootnoteReference"><span style="font-size:10.0pt;line-height:115%;font-family:"Times New Roman","serif"; mso-ascii-theme-font:major-bidi;mso-fareast-font-family:SimSun;mso-fareast-theme-font: minor-fareast;mso-hansi-theme-font:major-bidi;mso-bidi-theme-font:major-bidi; mso-ansi-language:EN-AU;mso-fareast-language:ZH-CN;mso-bidi-language:AR-SA">[3]</span></span></span></span></span></a><span style="font-family:"Times New Roman","serif";mso-ascii-theme-font:major-bidi; mso-hansi-theme-font:major-bidi;mso-bidi-theme-font:major-bidi"> The rate charged to the users is fixed, but the rate paid to the partner depends on the actual demand which affect to the net sales. If the net sales less than the guaranteed level, government will pay the gap which basically the top-up of the rate paid by the actual users. This kind of flexibility is required in such a long term contract <span style="mso-spacerun:yes"> </span>(Crocker & Masten 1991, p. 96)</span><span style="font-size:11.0pt;font-family:"Times New Roman","serif""> </span></p> </div> </div>Unknownnoreply@blogger.com2tag:blogger.com,1999:blog-8697904756842250859.post-44395932372044448312011-03-23T12:41:00.000-07:002011-03-25T23:08:04.176-07:00SRES Have Passed Their Use-by Date<!--[if gte mso 9]><xml> <w:worddocument> <w:view>Normal</w:View> <w:zoom>0</w:Zoom> <w:trackmoves/> <w:trackformatting/> <w:donotshowcomments/> <w:punctuationkerning/> <w:validateagainstschemas/> <w:saveifxmlinvalid>false</w:SaveIfXMLInvalid> <w:ignoremixedcontent>false</w:IgnoreMixedContent> <w:alwaysshowplaceholdertext>false</w:AlwaysShowPlaceholderText> <w:donotpromoteqf/> <w:lidthemeother>EN-AU</w:LidThemeOther> <w:lidthemeasian>X-NONE</w:LidThemeAsian> <w:lidthemecomplexscript>X-NONE</w:LidThemeComplexScript> <w:compatibility> <w:breakwrappedtables/> 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mso-style-noshow:yes; mso-style-priority:99; mso-style-qformat:yes; mso-style-parent:""; mso-padding-alt:0cm 5.4pt 0cm 5.4pt; mso-para-margin-top:0cm; mso-para-margin-right:0cm; mso-para-margin-bottom:10.0pt; mso-para-margin-left:0cm; line-height:115%; mso-pagination:widow-orphan; font-size:11.0pt; font-family:"Calibri","sans-serif"; mso-ascii-font-family:Calibri; mso-ascii-theme-font:minor-latin; mso-fareast-font-family:"Times New Roman"; mso-fareast-theme-font:minor-fareast; mso-hansi-font-family:Calibri; mso-hansi-theme-font:minor-latin; mso-bidi-font-family:"Times New Roman"; mso-bidi-theme-font:minor-bidi;} </style> <![endif]--> <p class="MsoNormal" style="margin-bottom: 0.0001pt; text-align: justify; line-height: 150%;"><b style=""><span style="line-height: 150%;font-family:";font-size:12pt;" >Introduction </span></b></p> <p class="MsoNormal" style="margin-bottom: 0.0001pt; text-align: justify; line-height: 150%;"><b style=""><span style="line-height: 150%;font-family:";font-size:12pt;" ></span></b><span style="line-height: 150%;font-family:";font-size:12pt;" >The Special Report Emission Scenarios (SRES) was developed by the Intergovernmental Panel on Climate Change (IPCC) since 1996 and was published in 2000. They were made as an input to the 2001 IPCC Third Assessment Report and also to the wider groups such as policy community and scientists on assessing alternative mitigation and adaptation strategies.<span style=""> </span></span></p> <p class="MsoNormal" style="margin-bottom: 0.0001pt; text-align: justify; line-height: 150%;"><span style="line-height: 150%;font-family:";font-size:12pt;" >The unique of the SRES compare to its predecessors is its 'open process' (Nakicenovic et al. 2000, p. 1). This creates a more variety of the scenarios capturing extra (but also relevant) future possibilities and suit the latest reality through a new set of driving forces ranges. Compare to only six scenarios of IS92 (the latest IPCC scenarios before SRES), SRES comprise of 40 scenarios which were built from the six scenario groups under four story lines. The 40 scenarios capture the characteristics of factors drive the future emission growth; for example: economic growth, global population development, energy efficiency, and the gap of development between developed and developing countries (Nakicenovic et al. 2000, pp. 4-5).<span style=""> </span></span></p> <p class="MsoNormal" style="margin-bottom: 0.0001pt; text-align: justify; line-height: 150%;"><span style="line-height: 150%;font-family:";font-size:12pt;" >Despite the strengths of SRES as noted above, this paper will argue that SRES have passed their use-by date. This is because the recent development trend reveals that SRES underestimate two important things; they are: the economic development and emission intensity in key Asian countries and the role of land use changes and deforestation (especially from peat land) in increasing emissions and reducing the land absorptive ability upon emission. Furthermore, because of the characteristic of China and India—the main driving forces—the deviation from the SRES will not only for a short term period, such as 2030, but most likely to be happened along the SRES period. </span></p> <p class="MsoNormal" style="margin-bottom: 0.0001pt; text-align: justify; line-height: 150%;"><b style=""><span style="line-height: 150%;font-family:";font-size:12pt;" >Economic development and emission intensity </span></b></p> <p class="MsoNormal" style="margin-bottom: 0.0001pt; text-align: justify; line-height: 150%;"><span style="line-height: 150%;font-family:";font-size:12pt;" >The average of annual globaleconomic growth of the early of last decade—that is from 2004 to 2007—was more than 5 per cent which exceeded the average of annual economic growth during the 'golden age' from 1950 to 1973 (Garnaut & Huang 2007, p. 9; IMF 2006, p. 2; Callen 2007). The development—which then called 'the platinum age'—was contributed mainly by developing countries particularly China and India. The 'platinum age' development is a new path. Not only because the key Asian countries are the centre of the global output growth, but also because the growth is associated with energy intensive economic activities which fuelled mainly by coal (Sheehan 2007, p. 1). </span></p> <p class="MsoNormal" style="margin-bottom: 0.0001pt; text-align: justify; line-height: 150%;"><span style="line-height: 150%;font-family:";font-size:12pt;" >The global energy intensity (of GDP) increased in 2000 to 2005 compare to the 1990s (Garnaut et al. 2008, p. 83). That may influenced by the increasing trend of manufacturing industries which require more energy for the same level of output (Sandu & Petchey 2009, p. 14). The recent trends of India's economic growth has been associated with the increase of manufacturing industries relative to the overall growth (Sheehan 2007, p. 7), whereas in China the increase of manufacturing industries is in line with the rapid expansion of foreign-invested firms (Chen 2007, p. 214). As a result, the elasticity of energy use to GDP in China was more than one for 2000-2005 which higher compare to that before 2000 (IEA 2007, p. II4-II36). <span style=""> </span></span></p> <p class="MsoNormal" style="margin-bottom: 0.0001pt; text-align: justify; line-height: 150%;"><span style="line-height: 150%;font-family:";font-size:12pt;" >The recent development of world emission intensity (of GDP) is even worst. It is higher not only compare to the 1990s but also to the 1970s and 1980s (Garnaut et al. 2008, p. 83). That is mainly because of the increase of use of coal. Coal’s carbon content is almost double of that of natural gas and about 26 per cent higher than oil (EIA 1998, p. 39; Abrams 2009, p. 9). Although coal represented only one-quarter of the total energy used in 2008, it is responsible for 43 per cent of the global CO<sub>2</sub> emission (IEA 2010, p. 18). The demand on coal from non-OECD countries —which mainly from China—has been more than half of the total global demand since 2000 and predicted to be about three-quarter of the global demand by 2030 (IEA 2008, p. 125). </span><span style="line-height: 150%;font-family:";font-size:10.5pt;" ></span></p> <p class="MsoNormal" style="margin-bottom: 0.0001pt; text-align: justify; line-height: 150%;"><span style="line-height: 150%;font-family:";font-size:12pt;" >Those trends led to the recent emission trend. The annual growth rate of the global fossil-fuel carbon emissions between 2004 and 2006 has exceeded what has been presumed in IPCC scenarios (Garnaut 2007, p. 4). By 2008, the energy-related CO<sub>2</sub> emissions from non-Annex I countries overtake those of the Annex I countries (IEA 2010, p. 7). That affect to a higher projection of developing countries contribution to the global emission (Garnaut 2011, p. 2).</span></p> <p class="MsoNormal" style="margin-bottom: 0.0001pt; text-align: justify; line-height: 150%;"><span style="line-height: 150%;font-family:";font-size:10.5pt;" ></span><b style=""><span style="line-height: 150%;font-family:";font-size:12pt;" >Land use change and deforestation </span></b></p> <p class="MsoNormal" style="margin-bottom: 0.0001pt; text-align: justify; line-height: 150%;"><span style="line-height: 150%;font-family:";font-size:12pt;" >The land use destructions and deforestation play two important roles in emission flow and carbon cycle; they are: to increase GHG emissions (Hurtt et al. 2009, p. 7), and decrease the land ability to absorb GHG emission (Australian Academy of Science 2010, p. 10; Pittock 2009, p. 226; Stern 2008, p. 22). </span></p> <p class="MsoNormal" style="margin-bottom: 0.0001pt; text-align: justify; line-height: 150%;"><span style="line-height: 150%;font-family:";font-size:12pt;" >The GHG emission from the land use changes and deforestation are more extensive than thought earlier; that is because the emission from the peat land just being considered (Garnaut et al. 2008, p. 394). The total CO<sub>2</sub> emission from peat land is around 8 per cent of global emission from fossil fuel (Hooijer et al. 2009, p. 29), whereas the 1997 peat land fire in Indonesia release around 13 to 40 per cent of the average annual global emission from fossil fuel (Page et al. 2002, p. 61). That leads to a significant contribution of emission from land use change and forests (LULUCF) to the global GHG emissions which in 2004 was around 17 per cent (Rogner et al. 2007, p. 104). </span></p> <p class="MsoNormal" style="margin-bottom: 0.0001pt; text-align: justify; line-height: 150%;"><span style="line-height: 150%;font-family:";font-size:12pt;" >The absorptive functions of land and forests have been seriously damaged. Around 42 to 68 per cent of the land surface has changed since 300 years ago (Hurtt et al. 2009, p. 6). The deforestation between 1990 and 2005 was around 13 million hectares per year (FAO 2005, cited in UNFCC n.d.). As a result, the CO<sub>2</sub> emission that remains in the atmosphere each year has increased about 40 to 45 per cent which caused by a decrease of emission absorption by land, forests and ocean (le Quéré et al. 2009, p. 831). The combination of the increase of the emission and the decrease of the absorption ability of the land will accelerate the GHG concentration in the atmosphere significantly.</span></p> <p class="MsoNormal" style="margin-bottom: 0.0001pt; text-align: justify; line-height: 150%;"><span style="line-height: 150%;font-family:";font-size:12pt;" ></span><b><span style="line-height: 150%;font-family:";font-size:12pt;" >Short term versus long term projection</span></b></p> <p class="MsoNormal" style="margin-bottom: 0.0001pt; text-align: justify; line-height: 150%;"><span style="line-height: 150%;font-family:";font-size:12pt;" >Van Vuuren and Riahi argues that the recent trend will not make the long term trend of emissions deviate from the SRES range (2008, p. 246). Among others, their most interesting argument is the ‘catch-up process’. They argue that China and India economic growth will be decline—just like South Korea and Japan—after they complete the catch-up process (van Vuuren & Riahi 2008, p. 244)<a style="" href="http://www.blogger.com/post-edit.g?blogID=8697904756842250859&postID=4439593237204444831#_ftn1" name="_ftnref1" title=""><span class="MsoFootnoteReference"><span style=""><span class="MsoFootnoteReference"><span style="line-height: 115%;font-family:";font-size:12pt;" >[1]</span></span></span></span></a>. Although their argument is relevant, they fail to consider the significant difference of the size of population of China and India compare to that was of Japan and South Korea. At 1971—the latter catch-up period of Japan and the earlier period of South Korea—Japan and South Korea population was 2.8 and 0.9 per cent of global population respectively, whereas now China and India have 19.9 and 17 per cent of global population (IEA 2010, pp. 83-85). The more population the county have the longer the catch-up process. Garnaut Review predicts the peak point of China’s growth will be around 2030 while India will be around 2080 (Garnaut 2008, p. 61). Other scholars predict the growth of energy demand of China will peak between 2030 and 2050 (Rout et al. 2011, p. 8). </span></p> <p class="MsoNormal" style="margin-bottom: 0.0001pt; text-align: justify; line-height: 150%;"><span style="line-height: 150%;font-family:";font-size:12pt;" >While the short term and long term prediction may need to be distinguished, the question is how long the ‘short term’ and the ‘long term’ are. Considering the slow effect of climate processes and the nature of path-dependent in energy economy, a century period of time may not be considered as a long term projection. </span></p> <p class="MsoNormal" style="margin-bottom: 0.0001pt; text-align: justify; line-height: 150%;"><span style="line-height: 150%;font-family:";font-size:12pt;" ></span><b style=""><span style="line-height: 150%;font-family:";font-size:12pt;" >Conclusion </span></b></p> <p class="MsoNormal" style="margin-bottom: 0.0001pt; text-align: justify; line-height: 150%;"><span style="line-height: 150%;font-family:";font-size:12pt;" >Despite the strength of the SRES on its open process making and its wider scenarios variety capturing relevant future possibilities, the scenarios have passed their use-by date. That is mainly because the recent developments on economic growth and emission intensity (of GDP) higher than what expected by the SRES. In addition, the disturbance to the land use and forests create a significant impact, not only by increasing the GHG emissions but also by reducing the ability of the land and forests to absorb the GHG emissions. The combination of both will increase the GHG concentration in the atmosphere more than the most pessimistic scenario of the SRES—that is the A1F1—either for the short period up to 2030 or for the longer period up to the end of this century. </span></p> <p class="MsoNormal" style="margin-bottom: 0.0001pt; text-align: justify; line-height: 150%;"><b style=""><span style="line-height: 150%;font-family:";font-size:12pt;" >References</span></b></p> <p class="MsoNormal" style="margin-bottom: 0.0001pt; line-height: normal;"><span style="line-height: 150%;font-family:";font-size:12pt;" ></span><span style=";font-family:";font-size:12pt;" >Abrams, C 2009, <i style="">America’s biggest polluters: carbon dioxide emissions from power plants in 2007</i>, Environment Oregon Research & Policy Center, Portland. <span class="z3988"> </span></span></p> <p class="MsoNormal" style="margin-bottom: 0.0001pt; line-height: normal;"><span style=";font-family:";font-size:12pt;" >Australian Academy of Science 2010, <i style="">The science of climate change: question and answers</i>, Australian Academy of Science, Canberra. <span class="z3988"> </span></span></p> <p class="MsoNormal" style="margin-bottom: 0.0001pt; line-height: normal;"><span style=";font-family:";font-size:12pt;" >Callen, T 2007, <i style="">World economic outlook: IMF forecasts slower world growth in 2008</i>, IMF Research Department, Washington, D.C., viewed 20 March 2011,</span></p> <p class="MsoNormal" style="margin-bottom: 0.0001pt; line-height: normal;"><span style=";font-family:";font-size:12pt;" ><http: org="" external="" pubs="" ft="" survey="" so="" 2007="" htm="">. <span class="z3988"> </span></http:></span></p> <p class="MsoNormal" style="margin-bottom: 0.0001pt; line-height: normal;"><span style=";font-family:";font-size:12pt;" >Chen, C 2007, 'Foreign direct investment in China: trends and characteristics after WTO accession,” in R Garnaut & L Song (eds), <i style="">China linking markets for growth</i>, ANU E Press, Canberra, ACT, pp. 197-224. <span class="z3988"> </span></span></p> <p class="MsoNormal" style="margin-bottom: 0.0001pt; line-height: normal;"><span style=";font-family:";font-size:12pt;" >EIA 1998, <i style="">Energy information administration natural gas 1998: issues and trends</i>, U.S. Energy Information Administration, Washington, D.C. <span class="z3988"> </span></span></p> <p class="MsoNormal" style="margin-bottom: 0.0001pt; line-height: normal;"><span style=";font-family:";font-size:12pt;" >Garnaut, R 2011, <i style="">Global emissions trends</i>, Garnaut Climate Change Review, Canberra.</span></p> <p class="MsoNormal" style="margin-bottom: 0.0001pt; line-height: normal;"><span style=";font-family:";font-size:12pt;" >—— 2008, <i style="">The Garnaut climate change review: final report</i>, Cambridge University Press, New York. <span class="z3988"> </span></span></p> <p class="MsoNormal" style="margin-bottom: 0.0001pt; line-height: normal;"><span style=";font-family:";font-size:12pt;" > </span></p> <p class="MsoNormal" style="margin-bottom: 0.0001pt; line-height: normal;"><span style=";font-family:";font-size:12pt;" >—— 2007, 'Will climate change bring an end to the platinum age?<i style="">',</i></span> p<span style=";font-family:";font-size:12pt;" >aper presented at the inaugural S.T. 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line-height: normal;"><span style=";font-family:";font-size:12pt;" >Hurtt, G, Chini, LP, Frolking, S, Betts, R, Feddema, J, Fischer, G, Goldewijk, KK, Hibbard, KA, Janetos, A, Jones, C, Kindermann, G, Kinoshita, T, Riahi, K, Shevliakova, E, Smith, S, Stehfest, E, Thomson, A, Thornton, P, van Vuuren, D & Wang, YP 2009, 'Harmonisation of global land-use scenarios for the period 1500–2100 for IPCC-AR5', <i style="">ILEAPS Newsletter</i>, no. 7, pp. 6-8. <span class="z3988"> </span></span></p> <p class="MsoNormal" style="margin-bottom: 0.0001pt; line-height: normal;"><span style=";font-family:";font-size:12pt;" >IEA 2010, <i style="">CO<sub>2</sub> emissions from fuel combustion: highlights</i>, International Energy Agency, Paris. <span class="z3988"> </span></span></p> <p class="MsoNormal" style="margin-bottom: 0.0001pt; line-height: normal;"><span style=";font-family:";font-size:12pt;" >——<span style=""> </span>2008, <i style="">World energy outlook</i>, International Energy Agency, Paris. <span class="z3988"> </span></span></p> <p class="MsoNormal" style="margin-bottom: 0.0001pt; line-height: normal;"><span class="z3988"><span style=";font-family:";font-size:12pt;" ></span></span><span style=";font-family:";font-size:12pt;" >——<span style=""> </span>2007, <i style="">CO<sub>2</sub> emissions from fuel combustion: 1971-2005</i>, International Energy Agency, Paris. <span class="z3988"> </span></span></p> <p class="MsoNormal" style="margin-bottom: 0.0001pt; line-height: normal;"><span style=";font-family:";font-size:12pt;" >IMF 2011, World economic outlook: update, International Energy Agency, Paris. <span class="z3988"> </span></span></p> <p class="MsoNormal" style="margin-bottom: 0.0001pt; line-height: normal;"><span style=";font-family:";font-size:12pt;" >—— 2006, <i style="">World economic outlook: financial system and economic cycle</i>, International Monetary Fund, Washington, D.C. <span class="z3988"> </span></span></p> <p class="MsoNormal" style="margin-bottom: 0.0001pt; line-height: normal;"><span style=";font-family:";font-size:12pt;" >Nakicenovic, N, Davidson, O, Davis, G, Grübler, A, Kram, T, La Rovere, EL, Metz, B, Morita, T, Pepper, W, Pitcher, H, Sankovski, A, Priyadarshi, S, Swart, R, Watson, R & Dadi, Z 2000, <i style="">IPCC special report emissions scenarios: summary for policymakers</i>, Intergovernmental Panel on Climate Change, Geneva.</span></p> <p class="MsoNormal" style="margin-bottom: 0.0001pt; line-height: normal;"><span style=";font-family:";font-size:12pt;" >Page, SE, Siegert, F, Rieley, JO, Boehm, HV, Jaya, A & Linim, S 2002, 'The amount of carbon released from peat and forest fires in Indonesia during 1997', <i style="">Nature</i>, vol. 420, no. 6911, pp. 61-65. <span class="z3988"> </span></span></p> <p class="MsoNormal" style="margin-bottom: 0.0001pt; line-height: normal;"><span style=";font-family:";font-size:12pt;" >Pittock, AB 2009, <i>Climate change</i>, 2nd edn, CSIRO Publishing, Collingwood. </span></p> <p class="MsoNormal" style="margin-bottom: 0.0001pt; line-height: normal;"><span style=";font-family:";font-size:12pt;" >Rogner, H, Zhou, D, Bradley, R, Crabbé, P, Edenhofer, Q, Hare, B, Kuijpers, L & Yamaguchi, M 2007, 'Introduction', in B Metz, O Davidson, P Bosch, R Dave, & L Meyer (eds), <i style="">Climate change 2007: mitigation</i>, Contribution of Working Group III to the fourth assessment report of the Intergovernmental Panel on Climate Change, Cambridge University Press, New York, pp. 97-115. <span class="z3988"> </span></span></p> <p class="MsoNormal" style="margin-bottom: 0.0001pt; line-height: normal;"><span style=";font-family:";font-size:12pt;" >le Quéré, C, Raupach, MR, Canadell, JG & Marland, G 2009, 'Trends in the sources and sinks of carbon dioxide', <i style="">Nature Geosciences</i>, vol. 2, no. 12, pp. 831-836. <span class="z3988"> </span></span></p> <p class="MsoNormal" style="margin-bottom: 0.0001pt; text-align: justify; line-height: normal;"><span style=";font-family:";font-size:12pt;" ></span><span style=";font-family:";font-size:12pt;color:black;" >Rout, UK, Vob, A, Singh, A, Fahl, U, Blesl, M & Gallachóir, BPO 2011, </span><span style=";font-family:";font-size:12pt;" >Energy and emissions forecast of China over a long-time horizon, Energy, vol. 36, pp. 1-11. </span></p> <p class="MsoNormal" style="margin-bottom: 0.0001pt; line-height: normal;"><span style=";font-family:";font-size:12pt;" >Sandu, S & Petchey, R 2009, <i style="">End use energy intensity in the Australian economy</i>, Australian Bureau of Agricultural and Resource Economics, Canberra.</span></p> <p class="MsoNormal" style="margin-bottom: 0.0001pt; line-height: normal;"><span style=";font-family:";font-size:12pt;" >Sheehan, P 2007, <i style="">The new global growth path: implications for climate change analysis and policy</i>, Centre for Strategic Economic Studies: Victoria University, Melbourne.</span></p> <p class="MsoNormal" style="margin-bottom: 0.0001pt; line-height: normal;"><span style=";font-family:";font-size:12pt;" >Stern, N 2008, 'The Economics of Climate Change', <i style="">The American Economic Review</i>, vol. 98, no. 2, pp. 1-37. <span class="z3988"> </span></span></p> <p class="MsoNormal" style="margin-bottom: 0.0001pt; line-height: normal;"><span style=";font-family:";font-size:12pt;" >UNFCC n.d., 'Reducing emissions from deforestation in developing countries', United Nations Framework Convention on Climate Change, viewed 20 March 2011, </span></p> <p class="MsoNormal" style="margin-bottom: 0.0001pt; line-height: normal;"><span style=";font-family:";font-size:12pt;" ><http: int="" methods_and_science="" lulucf="" items="" php="">.</http:></span></p> <p class="MsoNormal" style="margin-bottom: 0.0001pt; text-align: justify; line-height: normal;"><span style=";font-family:";font-size:12pt;" >van Vuran, DP & Riahi, K 2008, ‘</span><span style=";font-family:";font-size:12pt;" >Do recent emission trends imply higher emissions forever?’, <i>Climate Change</i>, vol. 91, pp. 237-248. </span></p> <p class="MsoNormal" style="margin-bottom: 0.0001pt; line-height: normal;"><span style=";font-family:";font-size:12pt;" >World Coal Institute 2009, <i style="">Coal facts: 2009 edition with 2008 data</i>, World Coal Institute, London. </span></p> <div style=""><br /><hr width="33%" align="left" size="1"> <div style="" id="ftn1"> <p class="MsoFootnoteText"><a style="" href="http://www.blogger.com/post-edit.g?blogID=8697904756842250859&postID=4439593237204444831#_ftnref1" name="_ftn1" title=""><span class="MsoFootnoteReference"><span style=";font-family:";" ><span style=""><span class="MsoFootnoteReference"><span style="line-height: 115%;font-family:";font-size:10pt;" >[1]</span></span></span></span></span></a><span style=";font-family:";" > Their argument on catch-up process is mixed with their prediction of slower growth as the effect of the latest global financial crisis. This argument is clearly not proven since China’s growth in 2009 and 2010 was 9.2 and 10.3 per cent respectively, while India was 5.7 and 9.7 per cent respectively (IMF 2011, p. 2). </span></p> </div> </div>Unknownnoreply@blogger.com0tag:blogger.com,1999:blog-8697904756842250859.post-12013262578754203842011-02-26T14:08:00.000-08:002011-02-26T14:29:09.667-08:00Citizenry vs Customer Centric Approach in Public Management<!--[if gte mso 9]><xml> <w:worddocument> <w:view>Normal</w:View> <w:zoom>0</w:Zoom> <w:trackmoves/> <w:trackformatting/> <w:punctuationkerning/> <w:validateagainstschemas/> <w:saveifxmlinvalid>false</w:SaveIfXMLInvalid> <w:ignoremixedcontent>false</w:IgnoreMixedContent> <w:alwaysshowplaceholdertext>false</w:AlwaysShowPlaceholderText> <w:donotpromoteqf/> <w:lidthemeother>EN-AU</w:LidThemeOther> <w:lidthemeasian>X-NONE</w:LidThemeAsian> <w:lidthemecomplexscript>X-NONE</w:LidThemeComplexScript> <w:compatibility> <w:breakwrappedtables/> <w:snaptogridincell/> 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mso-style-noshow:yes; mso-style-priority:99; mso-style-qformat:yes; mso-style-parent:""; mso-padding-alt:0cm 5.4pt 0cm 5.4pt; mso-para-margin-top:0cm; mso-para-margin-right:0cm; mso-para-margin-bottom:10.0pt; mso-para-margin-left:0cm; line-height:115%; mso-pagination:widow-orphan; font-size:11.0pt; font-family:"Calibri","sans-serif"; mso-ascii-font-family:Calibri; mso-ascii-theme-font:minor-latin; mso-hansi-font-family:Calibri; mso-hansi-theme-font:minor-latin; mso-bidi-font-family:Arial; mso-bidi-theme-font:minor-bidi;} </style> <![endif]--> <p class="MsoNormal" style="margin-bottom: 0.0001pt; text-align: justify; line-height: 150%;"><span style="line-height: 150%;font-family:";font-size:12pt;" >(This paper was made as a response to a case called 'The busted DMV')<br /></span></p><p class="MsoNormal" style="margin-bottom: 0.0001pt; text-align: justify; line-height: 150%; font-weight: bold;"><span style="line-height: 150%;font-family:";font-size:12pt;" >Dear Mr. Chief Minister,</span></p> <p class="MsoNormal" style="margin-bottom: 0.0001pt; text-align: justify; line-height: 150%;"><span style="line-height: 150%;font-family:";font-size:12pt;" >I would like to thank you for your trust by reappointing me as the Director of Division of Motor Vehicle (DMV) of the ACT. I understand that my greatest challenge is to please all stakeholders and citizens of the DMV. The immediate concern that I have to deal is the various complain from different stakeholders; for example: <span style=""> </span>the length of queue line and the unpleasant officers on handling the angers of our customers and citizens. These have been attracting media attentions and led to some political issues. </span></p> <p class="MsoNormal" style="margin-bottom: 0.0001pt; text-align: justify; line-height: 150%;"><span style="line-height: 150%;font-family:";font-size:12pt;" >My assessment concludes that one important weakness at the moment is the quality of our communication to our stakeholders. We have been good so far with technological innovations such as information technology and credit card payment which have been running well. <span style=""> </span>Although they were useful for customers, they did not entirely resolve the problems. <span style=""> </span>Our core work, however, is human-to-human interactions which require different kind of innovation. </span></p> <p class="MsoNormal" style="margin-bottom: 0.0001pt; text-align: justify; line-height: 150%;"><span style="line-height: 150%;font-family:";font-size:12pt;" > </span></p> <p style="margin: 0cm 0cm 0.0001pt; text-align: justify; line-height: 150%;"><span style="color:black;"><span style="font-weight: bold;">The key issue</span> here is how we identify our stakeholders and define their values. <span style=""> </span>The weakness in communication will never resolved unless we understand to whom and for what we should interact. Similarly, we will never make everybody happy except we know who they are and what would make them fulfilled.<span style=""> </span></span></p> <p style="margin: 0cm 0cm 0.0001pt; text-align: justify; line-height: 150%;"><span style="color:black;">Stakeholders are those outside of but are affecting or can affect the organization (Freeman 1991, p. 5). A public organization, such as the DMV, must deal with different kinds of stakeholders with 'very different statuses in terms of their moral right to make claims' (Moore 1994, pp. 300-301). A failure on understanding the DMV stakeholders would lead to a mishandling. For example, those who supposed to be the highest status to make claims—i.e. either because they sacrifice their liberty and privacy for government/public or because they have authority to make the claims—become the least to be listened. This may induce some ethical issues.</span></p> <p class="MsoNormal" style="margin-bottom: 0.0001pt; text-align: justify; line-height: 150%;"><span style="line-height: 150%;font-family:";font-size:12pt;" >In the quest of maximising values, any organizations must satisfy the interests of its stakeholders (Jensen 2000). But for public organizations 'safeguarding interests' is not enough, they must 'adding values' actively (Alford & O'Flynn 2009, p. 176). </span></p> <p class="MsoNormal" style="margin-bottom: 0.0001pt; text-align: justify; line-height: 150%;"><span style="line-height: 150%;font-family:";font-size:12pt;" >In short, understanding stakeholders is a key to be able to deliver values for stakeholders and citizens. But there are many kinds of them with different kind of preferences. The ability to distinguish them in creating values is crucial for improving the DMV's performance. </span></p> <p class="MsoNormal" style="margin-bottom: 0.0001pt; text-align: justify; line-height: 150%;"><span style="line-height: 150%;font-family:";font-size:12pt;" >In response to the key issue, there are two <span style="font-weight: bold;">alternative solutions</span>: </span></p> <p class="MsoNormal" style="margin-bottom: 0.0001pt; text-align: justify; line-height: 150%;"><span style="line-height: 150%;font-family:";font-size:12pt;" ><span style="font-weight: bold;">Option-1</span>: The DMV must focus to customer. I should perceive 'customer' as citizens the DMV encounters as its business end (Moore 1995, p. 37). Therefore, the motorists are the customer. In more precisely, they are our ‘client’ because they are ‘paying customers’ (Alford 2002, p. 340). </span></p> <p class="MsoNormal" style="margin-bottom: 0.0001pt; text-align: justify; line-height: 150%;"><span style="line-height: 150%;font-family:";font-size:12pt;" >I will start by doing a client survey to understand the motorists’ preference of what things they would value. The survey should cover information on client’s current perception to the DMV’s performance, and what things should be achieved or done for improvement. I will also ask our clients to compare the DMV’s performance with other similar organization in other states or country. This is called ‘two-dimensional survey’ to benchmark our performance with respect to our “competitor” (Jablonski 1992, p. 113). </span></p> <p class="MsoNormal" style="margin-bottom: 0.0001pt; text-align: justify; line-height: 150%;"><span style="line-height: 150%;font-family:";font-size:12pt;" >The understanding on the DMV’s clients that gained from the survey will be used to redefine our strategy. The strategy should cover vision statement and goal, policy, and operational plan which includes communication plan (Allison 1982, p. 17; Jablonski 1992, pp. 75-83). The strategy must guarantee the achievement of client satisfaction. The change in strategy should lead to the adjustment of the internal organizational components. This should include, when necessarily, the changes in organization structure (units and positions), procedure, and staffing (Allison 1982, p. 17). I will reassess our business processes to find out how we can make it shorter and simpler but still able to achieve our clients’ desires. That would change our working procedures which may lead to a modification of units and positions. I will review the staffing to ensure that all job descriptions and the staff capability support our clients’ expectation and to make it in line with the new organization structure. These changes should shorten the processing time to cut the lengths of the queue line. The improved staffing and provision of needed trainings will create capable staffs to handle the angers' clients. <span style=""> </span>Parallelly, I will review our financial plan to secure the implementation of the new strategy and the changes in the internal organizational components. Finally, I will figure out if I need more authority and budget from the ACT government. <span style=""> </span></span></p> <p class="MsoNormal" style="margin-bottom: 0.0001pt; text-align: justify; line-height: 150%;"><span style="line-height: 150%;font-family:";font-size:12pt;" >Although this option looks likely will lead us to have better client satisfaction, I will rely on you to resolve any bottleneck I may find such as need for more authority and fund. </span></p> <p class="MsoNormal" style="margin-bottom: 0.0001pt; text-align: justify; line-height: 150%;"><span style="line-height: 150%;font-family:";font-size:12pt;" ><span style="font-weight: bold;">Option-2</span>: The DMV must focus to the citizenry. The fundamental difference with the first option, in terms of actions, is on redefining the strategy and managing the external constituency. Instead of doing client survey, I will do an integrated stakeholder communication. This should include citizens who do not need any DMV’s products and services. That is because government, particularly public manager, must help stakeholders and citizens at large to define and produce values (Moore 2000, p. 190). But the values must be in the form of 'shared values', rather than an aggregation of individual self-interests (Denhardt & Denhardt 2000, p. 555).<span style=""> </span></span></p> <p class="MsoNormal" style="margin-bottom: 0.0001pt; text-align: justify; line-height: 150%;"><span style="line-height: 150%;font-family:";font-size:12pt;" >In the communication with all motorists in the ACT, I should understand how they can be more motivated to register their motor vehicles and making—or renew—their license in timely manner beside the fact that they are obliged to do so by law. It is also important to understand how they can cooperate better by being well-prepared for the required paperwork and payments before coming to the DMV office. Customers in public sectors are often clients and obligatees at the same time where we need their support not only for their compliance but also for their cooperation (Alford 2002, p. 341). In addition, the complaint-handling system must be improved to be more proactive and transparent. </span></p> <p class="MsoNormal" style="margin-bottom: 0.0001pt; text-align: justify; line-height: 150%;"><span style="line-height: 150%;font-family:";font-size:12pt;" >I will talk to the Police Department to make them aware that their enforcement function is very important for the DMV. The motorists would have more motivation to comply their obligation on registering their vehicles and updating their license if the Police Department enforce the rules properly. I must advocate that to be the value of the Police Department. In social exchange theory, the coercion transaction—such as what happened in the DMV—will be more effective when the punishment administered contingently and consistently (Molm 1997, p. 269). </span></p> <p class="MsoNormal" style="margin-bottom: 0.0001pt; text-align: justify; line-height: 150%;"><span style="line-height: 150%;font-family:";font-size:12pt;" >Tax payers, politicians and media are also important stakeholders to be engaged with. For example, if the only solution to improve the satisfaction required more resources and authority, instead of relying on you, I will take a role to convince them to provide support. For example, citizens may need to sacrifice their liberty more by bestowing their private money for taxes. Alternatively, I would ask for legitimacy from politicians, citizens and media to increase the payment rate of our service to be charged to our clients. This is my role, as a public manager, to mediate the collaborative efforts to achieve the shared values (Denhardt & Denhardt 2000, p. 555). </span></p> <p class="MsoNormal" style="margin-bottom: 0.0001pt; text-align: justify; line-height: 150%;"><span style="line-height: 150%;font-family:";font-size:12pt;" >All of these efforts—on improving the management of external constituency to gain more supports and legitimacies from more stakeholders other than clients—will help to redesign the DMV's strategy and reshaping the internal component of the organization. The actions to do should be similar to the option-1, the difference is that the basis of the redesigning strategy and reshaping the internal organizational components should not based only on the clients' aspiration, rather according to different stakeholders and citizens at large as elaborated earlier. </span></p> <p class="MsoNormal" style="margin-bottom: 0.0001pt; text-align: justify; line-height: 150%;"><span style="line-height: 150%;font-family:";font-size:12pt;" >Although this approach would be more successful due to the better civically engagement (Putnam 1995, p. 66), this will increase the potential of organizational instability due to the wider exposes to the outsiders. </span><span style=";font-family:";color:black;" ></span></p> <p class="MsoNormal" style="margin-bottom: 0.0001pt; text-align: justify; line-height: 150%;"><span style="line-height: 150%;font-family:";font-size:12pt;" ><span style="font-weight: bold;">Assessing the two solution options by applying the following criteria: (a) political equality, and (b) time-wise, option-2 is the most plausible solution.</span><span style=""><span style="font-weight: bold;"> </span> </span></span></p> <p class="MsoNormal" style="margin-bottom: 0.0001pt; text-align: justify; line-height: 150%;"><span style="line-height: 150%;font-family:";font-size:12pt;" >The DMV, as a government organization, must not only provide private value to its customer but also public value to the citizens (Alford 2002, p. 340). The client-focus approach will create private value only. Moreover, public organizations must create both instrumental and intrinsic values (Moore and Braga 2004, p. 4). The instrumental value is more meaningful for citizens. For example, Although citizens without motor vehicles do not served directly by the DMV, they still expect the DMV acts justly to its customers. Citizens do not only concern to their self-interest but also to the ‘concern for the whole’ (Denhardt & Denhardt 2000, p. 552). Customer-oriented approach applied by government may lead to increased political inequality (Fountain 2001, p. 54); that is because the clients are the only to be served (as external constituency) while other stakeholders are mistreated. Option-2 could create a better political equality because the DMV will engage more stakeholders in defining and creating the shared-values. </span></p> <p class="MsoNormal" style="margin-bottom: 0.0001pt; text-align: justify; line-height: 150%;"><span style="line-height: 150%;font-family:";font-size:12pt;" >Option-2 is more possible to resolve the DMV's problem within one year period. The citizenry-focus would attract more cooperation from the clients. They will be well-prepared as they come to the DMV office, for example. That could happened not only because they aware that they are obligatees but also because the DMV communicate better to clients and citizens (which includes motorists who have not become the DMV's client yet). Other stakeholders, such as the general citizens, media, and politicians, would be more fulfilled—at least for some instrumental values—because they engaged on defining values to be created by the DMV. </span></p> <p class="MsoNormal" style="margin-bottom: 0.0001pt; text-align: justify; line-height: 150%;"><span style="line-height: 150%;font-family:";font-size:12pt;" >In conclusion, by applying option-2, we will make the stakeholders and citizens fulfilled through the improvement of our communications and other operational capabilities and a better management on external constituencies. </span></p> <p class="MsoNormal" style="margin-bottom: 0.0001pt; text-align: justify; line-height: normal;"><span style="line-height: 150%;font-family:";font-size:12pt;" ></span><span style=";font-family:";font-size:12pt;" >Sincerely yours, Ade Cahyat </span></p> <p class="MsoNormal" style="text-align: justify; line-height: 150%;"><span style="line-height: 150%;font-family:";font-size:12pt;" > </span><b><span style="line-height: 150%;font-family:";font-size:12pt;" >References</span></b></p> <p class="MsoNormal" style="margin-bottom: 0.0001pt; line-height: normal;"><span style=";font-family:";font-size:12pt;" ><span style=""> </span></span><span style=";font-family:";font-size:12pt;" >Alford, J 2002, 'Defining the client in the public sector: a social-exchange perspective', <i>Public Administration Review</i>, vol. 62, no. 3, pp. 337-346. <span class="z3988"> </span></span></p> <p class="MsoNormal" style="margin-bottom: 0.0001pt; line-height: normal;"><span style=";font-family:";font-size:12pt;" > Alford, J & O'Flynn, J 2009, 'Making sense of public value: concepts, critiques and emergent<br />meanings', <i>International Journal of Public Administration</i>, vol. 32, no. 3, pp. 171-191. <span class="z3988"> </span></span></p> <p class="MsoNormal" style="margin-bottom: 0.0001pt; line-height: normal;"><span style=";font-family:";font-size:12pt;" > Allison, G 1982, 'Public and private management: are they fundamentally alike in all unimportant respects?', in FS Lane (ed.), <i>Current issues in public administration</i>, St. Martin's Press, New York, pp. 13-33. <span class="z3988"> </span></span></p> <p class="MsoNormal" style="margin-bottom: 0.0001pt; line-height: normal;"><span style=";font-family:";font-size:12pt;" > Denhardt, RB & Denhardt, JV 2000, 'The new public service: serving rather than steering', <i>Public Administration Review</i>, vol. 60, no. 6, pp. 549-559. <span class="z3988"> </span></span></p> <p class="MsoNormal" style="margin-bottom: 0.0001pt; line-height: normal;"><span style=";font-family:";font-size:12pt;" > Fountain, J 2001, 'Paradoxes of public sector customer service', <i>Governance</i>, vol. 14, no. 1, pp. 55-73. <span class="z3988"> </span></span></p> <p class="MsoNormal" style="margin-bottom: 0.0001pt; line-height: normal;"><span style=";font-family:";font-size:12pt;" > Freeman, RE 1992, <i>Business ethics: the state of the art</i>, Oxford University Press, New York.</span></p> <p class="MsoNormal" style="margin-bottom: 0.0001pt; line-height: normal;"><span style=";font-family:";font-size:12pt;" > Jablonski, JR 1992, <i>Implementing TQM: competing in the Nineties through total quality management,</i> 2nd ed., Pfeiffer, Amsterdam. <span class="z3988"> </span></span></p> <p class="MsoNormal" style="margin-bottom: 0.0001pt; line-height: normal;"><span style=";font-family:";font-size:12pt;" > Jensen, M 2000, 'Value maximization and stakeholder theory', <i>HBS Working Knowledge</i>, viewed 21 February 2011,</span></p> <p class="MsoNormal" style="margin-bottom: 0.0001pt; line-height: normal;"><span style=";font-family:";font-size:12pt;" ><http: edu="" item="" html="">.</http:></span></p> <p class="MsoNormal" style="margin-bottom: 0.0001pt; line-height: normal;"><span style=";font-family:";font-size:12pt;" > Molm, LD 1997, <i>Coercive power in social exchange</i>, Cambridge UniversityPress, Cambridge, UK. <span class="z3988"> </span></span></p> <p class="MsoNormal" style="margin-bottom: 0.0001pt; line-height: normal;"><span style=";font-family:";font-size:12pt;" > Moore, MH 2000, “Managing for value: organizational strategy in for-profit, nonprofit, and governmental organizations.” <i>Nonprofit and Voluntary Sector Quarterly</i>, vol. 29, no. 1, pp. 183-204. <span class="z3988"> </span></span></p> <p class="MsoNormal" style="margin-bottom: 0.0001pt; line-height: normal;"><span style=";font-family:";font-size:12pt;" > ——1995, <i>Creating Public Value: Strategic Management in Government</i>, Harvard University Press, Cambridge, Mass. <span class="z3988"> </span></span></p> <p class="MsoNormal" style="margin-bottom: 0.0001pt; line-height: normal;"><span style=";font-family:";font-size:12pt;" > ——1994, “Public value as the focus of strategy.” <i>Australian Journal of Public Administration</i>, vol. 53, no. 3, pp. 296-303. <span class="z3988"> </span></span></p> <p class="MsoNormal" style="margin-bottom: 0.0001pt; line-height: normal;"><span style=";font-family:";font-size:12pt;" > Moore, MH & Braga, A 2004, “Police performance measurement: a normative framework.” <i>Criminal Justice Ethics</i>, vol. 23, no. 1, pp. 3-19. <span class="z3988"> </span></span></p> <p class="MsoNormal" style="margin-bottom: 0.0001pt; line-height: normal;"><span style=";font-family:";font-size:12pt;" > </span><span style="line-height: 115%;font-family:";font-size:12pt;" >Putnam, R 1995, “Bowling alone: America's declining social capital.” <i>Journal of Democracy</i>, vol. 6, no. 1, pp. 65-78.</span></p>Unknownnoreply@blogger.com0tag:blogger.com,1999:blog-8697904756842250859.post-23680456897171752062011-02-18T12:58:00.000-08:002011-02-26T14:08:38.441-08:00New Public Management vs Public Value Management(This paper was made as a response to a case called 'The education of the police police commissioner')<this><span style="font-style: italic;"><this></this></span><span style="font-weight: bold;"><br /><br />Introduction </span><br />The most obvious result to be expected from a police department is to have a reduced number of crimes. That was also what expected by the President to Mayerbeer who appointed to become the new Chief Executive Officer (CEO) of the National Police Force (NPF) in 1997. In addition, the new country's constitution demanded for improvement of political accountability of the NPF and to make it subject to government and civilian oversight.<br />Mayerbeer brought his knowledge and experiences from his previous assignment in a brewery company called NAB which was moving to be the second largest brewery in the world. The new assignment was a great challenge for him, not only because he came from private sector but also because the NPF was in a transition of a major organizational reforms. Unfortunately, at the end of his term in office, he was end up with a failure. Number of serious crime was significantly increased. But the most shocking one is that he even failed to improve the operational capacity of the NPF. Many police stations were running with insufficient facilities and resources such as pen and papers and patrol cars. Operational capacity is something that Mayerbeer should have as his strength as a former CEO of a success big company.<br /><br /><br /><span style="font-weight: bold;">Critical issue</span><br /><br />The critical issue of the failure of the NPF under Mayerbeer's leadership is a lack of public sector management and leadership approach.<br /><br />The public administration has been evolved from the ancient kingdoms with increasing demand for reorganizations following the changes on jurisdiction, functions, and political civilization which led to the transformation from the kingship to the traditional model of government administration in the 19th century (Caiden 1982, pp. 7-11). In the early 1980s, the bureaucracy reform began and developing what we now know as New Public Management (NPM) (Hughes 2003, pp. 2-4). Among of major characteristics of the NPM are performance based and customer-centred (Stoker 2006, p. 50; Borins 2002, p. 191).<br /><br />Over the last decade or so, the NPM has been under serious attack from many scholars. Jouke de Vries concludes that NPM, although not really dead, is in trouble (2010, p. 5).<br />The latest, and still developing, idea on public management and leadership is public value management (PVM). One major characteristic is that the PVM encourage more public organizations and managers to get exposed to political marketplace (Moore 1994, p. 297). The aim is to maintain support and legitimacy which would help to create public value directly as well as indirectly through the improvement of the public organization operational capability (Moore 1995, pp. 22-23). Another difference is that under the PVM public manager required to be more adaptive in terms of determining the means to achieve the broader ends of public organization; that is public value (O'Flynn 2007, p. 360-363).<br /><br />The pressure to public organizations to be more effective and efficient has been increasing in line with the growing of public sectors size and better quality of democracy. But at the same time people have bad perceptions on public bureaucracies such as red-tape seeker, unpleasant officials, poor service and corrupt practices (Caiden 1991, p. 74). By contrast, the private sector performance is considered to be better than public sector (Vigoda-Gadot & Kapu 2005, p. 261).<br /><br /><br /><span style="font-weight: bold;">Alternative solutions</span><br /><br />Option-1: Apply the NPM model<br /><br />Mayerbeer should focus on the NPF's customers. The most obvious ‘customers’ for a police department such as the NPF are those who seek for the police assistance (Moore & Braga 2004, p. 6). He would talk to elected politicians but only to the senior ones, included the President as his boss, to help him to set the NPF’s performance targets. In order to make the targets easy to be measured, he must prefer to have outputs rather than outcomes .<br />Mayerbeer should concentrate on management to achieve his performance target with the available resources and authority permitted by the elected politicians. He must concern on things outside of his organization, but it should be limited to their customers, competitors and things that would shift their customer’s value in the future time (Moore 1995, p. 65-7)<br />Mayerbeer should charge some of the NPF’s products which are excludable, such as the driver license, to his customers. This must provide the NPF economic profit and help the NPF to get financial surplus.<br />He must ensure all standard procedures and expenditure plans are set to achieve the performance target. Flexibility might be possible to some extent but certainly not to anticipate the change in the political environment. All managers under him must be committed to cost-efficiency. Therefore, the structure of the organization must be slim as much as it can.<br />Although this approach could produce a neat strategic plan, it would lead the NPF to create things valueless to the public. Moreover, there is no guarantee at all that all activities will be implemented and all outputs will be achieved. Without sufficient political support and legitimacy, the NPF would suffer with limited resources.<br /><br />Option-2: Apply the PVM model<br /><br />Mayebeer must manage the NPF to provide values to the citizens of his nation. He should not limit his work in internal component of his organization, rather to expose himself to the political context of his organization. He must continuously interact not only with politicians in different levels but also with citizens from different interest groups. The interaction aims to understand what things citizens would value most—both for individual desires and political aspiration—which the NPF could or should achieve, and also to gain supports and authority for the NPF to act on behalf of the nation.<br />Mayerbeer must concern on performance targets of the NPF, but they must be on outcome level which meaningful for citizens. The performance target must be subject to change according to the changing environment.<br />Mayerbeer must define carefully who the customers, clients, subjects and different kind of stakeholders of the NPF . He should not work for citizens who seek for the NPF assistance only, but also with those who have obligations to contribute to the creation of a safe environment as well as to understand the political aspiration of the general citizens. He thus set a stakeholder management strategy to maintain an effective network to to achieve citizens' desired values.<br />When necessary, Mayerbeer should be able to convince citizens to pay more taxes and advocate politicians to provide more resources and authority if he believes that what currently available do not sufficient to create public values in the most efficient way the NPF could do. He must be able to make citizens understand that they still would get higher value compare to the money they should pay for taxes. It is also important to ask support from citizens to be able to sacrifice some part of their liberty and privacy for the achievement of public value.<br />In regard to a the driver license service, as an example, he should concerns more on the objective to have a safe traffic environment rather than number of driver licenses they produce and amount of money they collect. Therefore, he should make sure that the driver licence service works effectively which should assure that all people with the license will most likely behave well on the roads. Time to spend of license processing is important, but that is not the ultimate objective. There is no point of the NPF to produce a license for every 15 minutes, for example, if most of the drivers with license drive crazy on the roads.<br />Although the interactions with citizens and political actors are more intensive in this approach, the possibility of the NPF lost its way is still there. This option requires more flexibility in planning and performance targets. Therefore, without capable managers on applying an adaptive management approach, the NPF would go everywhere and will not achieve public values.<br /><br /><br /><span style="font-weight: bold;">Proposal </span><br /><br />By applying the following criteria: (a) possibilities to meet public expectation; (b) resiliency on dealing with democracy and management at the same time, option-2 is more plausible to make the NPF works better.<br />The first criterion is important because the aim of public management is to meet public expectation. As a public organization, the NPF acts on behalf of public, consuming public resources, and the benefits or the losses they made would directly affect public (Rainey 1991, p. 24). Option-1 may achieve their performance targets, but it does not necessarily meet public expectation. That is because in option-1, the NPF would work mostly on its own way without continuously consulting to its stakeholders. By contrast, option-2 would have more possibilities to be in line with citizens’ aspiration because the NPF maintain the network to achieve the public expectation. The network would not only help the NPF work on the right direction but also to help the NPF to strengthen its operational capacity.<br />The second criterion is crucial and unique to public management. And it is particularly important because the NPF was on the process of a major organizational reforms which involve different interest groups included ethnicity. In order to achieve its objective, public management must be succeeded on dealing with both democracy and management at the same time. Option-1 tends to work very minimal in politic. This could make the NPF either as a victim of politicians (if the NPF weaker than the politicians) or take control the politicians for its own interests. Option-2 would make the democracy and management go hand in hand through maintaining the stakeholder network to achieve public values and strengthening the operational capacity of the NPF. In short, option-2 would make the NPF more effective and efficient.<br /><br /><span style="font-weight: bold;">References </span><br /><br />Alford, J & O'Flynn, J 2009, 'Making sense of public value: concepts, critiques and emergent<br />meanings', International Journal of Public Administration, vol. 32, no. 3, pp. 171-191.<br /><br />Borins, S 2002, 'New public management, North American style', in K. McLaughilin, S.P. Osborne, & E. Ferlie (eds), New Public Management: Current Trends and Future Prospects, Routledge, London, pp. 181-194.<br /><br />Caiden, GE 1982, Public administration, Palisades Publishers, Pacific Palisades, Calif.<br /><br />—— 1991, Administrative reform comes of age, W. de Gruyter, Berlin, New York.<br />Hughes, OE 2003, Public management and administration: an introduction, Palgrave, New York.<br /><br />Mintzberg, H 1996, 'Managing government, governing management-balancing the private and public sectors', Harvard Business Review, vol. 74, no. 3, pp. 75-83.<br /><br />Moore, MH 1995, Creating public value: strategic management in government, Harvard University Press, Cambridge, Mass.<br /><br />—— 1994, 'Public value as the focus of strategy', Australian Journal of Public Administration, vol. 53, no. 3, pp. 296-303.<br /><br />Moore, MH & Braga, AA 2004, 'Police performance measurement: a normative framework', Criminal Justice Ethics, vol. 23, no. 1, pp. 3-19.<br /><br />O'Flynn, J 2007, 'From new public management to public value: paradigmatic change and managerial implications', Australian Journal of Public Administration, vol. 66, no. 3, pp. 353-366.<br /><br />Rainey, HG 1991, Understanding and managing public organizations, Jossey-Bass, San Francisco.<br /><br />Stoker, G 2006, 'Public value management', The American Review of Public Administration, vol. 36, no. 1, pp. 41 -57.<br /><br />Vigoda-Gadot, E & Kapun, D 2005, 'Perceptions of politics and perceived performance in public and private organisations: a test of one model across two sectors', Policy and Politics, vol. 33, no. 2, pp. 251-276.<br /><br />de Vries, J 2010, 'Is new public management really dead?', OECD Journal on Budgeting, vol. 2010, no. 1, pp. 1-5.</this>Unknownnoreply@blogger.com0tag:blogger.com,1999:blog-8697904756842250859.post-54848376787479847182010-12-24T01:28:00.000-08:002010-12-24T01:31:28.400-08:00Oil Price Forecast (made in May 2010)<!--[if !mso]> <style> v\:* 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Emphasis"> <w:lsdexception locked="false" priority="21" semihidden="false" unhidewhenused="false" qformat="true" name="Intense Emphasis"> <w:lsdexception locked="false" priority="31" semihidden="false" unhidewhenused="false" qformat="true" name="Subtle Reference"> <w:lsdexception locked="false" priority="32" semihidden="false" unhidewhenused="false" qformat="true" name="Intense Reference"> <w:lsdexception locked="false" priority="33" semihidden="false" unhidewhenused="false" qformat="true" name="Book Title"> <w:lsdexception locked="false" priority="37" name="Bibliography"> <w:lsdexception locked="false" priority="39" qformat="true" name="TOC Heading"> </w:LatentStyles> </xml><![endif]--><!--[if gte mso 10]> <style> /* Style Definitions */ table.MsoNormalTable {mso-style-name:"Table Normal"; mso-tstyle-rowband-size:0; mso-tstyle-colband-size:0; mso-style-noshow:yes; mso-style-priority:99; mso-style-qformat:yes; mso-style-parent:""; mso-padding-alt:0cm 5.4pt 0cm 5.4pt; mso-para-margin-top:0cm; mso-para-margin-right:0cm; mso-para-margin-bottom:10.0pt; mso-para-margin-left:0cm; line-height:115%; mso-pagination:widow-orphan; font-size:11.0pt; font-family:"Calibri","sans-serif"; mso-ascii-font-family:Calibri; mso-ascii-theme-font:minor-latin; mso-hansi-font-family:Calibri; mso-hansi-theme-font:minor-latin; mso-bidi-font-family:"Times New Roman"; mso-bidi-theme-font:minor-bidi;} </style> <![endif]--> <p class="MsoNormal" style="text-align: justify; line-height: 150%;"><span style="line-height: 150%;font-family:";font-size:12pt;" >The world economy is highly dependent on oil as the main energy source. Level of accessibility to oil sources determines the strength and weakness of a nation in domestic and international sphere. Not all countries are able to produce all the oil they need. There are only thirty-two net-exporters (countries) most of which are member of Organization of the Petroleum Exporting Countries (OPEC) (Nationmaster n.d.; OPEC n.d.). Both importers and exporters depend on trading for selling and buying, and price is a key component of trading. This is because price has rationing and allocating function of the scarce resources. This paper will argue that by the end of 2010 the price of oil will reach US$83 per barrel.</span></p> <p class="MsoNormal" style="text-align: justify; line-height: 150%;"><span style="line-height: 150%;font-family:";font-size:12pt;" >Price is determined by demanded and supplied quantity and non price determinants. The non price determinants of demand are: income, buyer preference, price of substitutes, price of complement, price expectation, and number of buyers. In terms of income, the response of price depends on the type of good whether it is normal or inferior good, this paper assumes that oil is a normal good. The non price determinants of supply are: price of production factors, technology, number of producers, price expectation, and change in weather particularly for agriculture (Frank et al. 2009, pp. 74-77). While a change in quantity demanded and supplied will change the price along the demand and supply curve, a change in non price determinants will shift the demand and supply curve either to left or right depending on the circumstances. Shift right means quantity demanded or supplied is higher at any level of price, while shift left means at every price the quantity demanded or supplied is lower than before. In the market of one particular product such as oil, however, there will be only one price at one quantity level at a particular time; that is known as equilibrium price and quantity. </span></p> <p class="MsoNormal" style="text-align: justify; line-height: 150%;"><span style="line-height: 150%;font-family:";font-size:12pt;" >In addition to non price determinants, the price elasticity of the demand and supply curve will determine the magnitude of change in price and quantity. Price elasticity reflects the response of buyer (quantity demanded) and producer (quantity supplied) to a change in price for particular products (Frank et al. 2009, pp. 92). In the case of oil, although there is an indication that demand is elastic (The Economist 2008a), stronger evidence from an academic research shows that both oil demand and supply are price inelastic (Hamilton 2009, p. 218; Askari & Krichene 2010, p. 2013); that is what this paper will assume. </span></p> <p class="MsoNormal" style="text-align: justify; line-height: 150%;"><span style="line-height: 150%;font-family:";font-size:12pt;" >In this paper, the relationship between price (P) and demanded and supplied quantity (Q) of oil illustrated on supply (S) and demand (D) curve. <span style=""> </span>The curves represent the global oil market situation during December 2008 to December 2010 where all (potential) buyers and sellers and other influencing actors have been interacting with each other. The curves assume that except oil price and relevant non-price determinants (which will be identified later), other factors that could affect the quantity demanded and supplied of oil stay the same (<i style="">ceteris paribus</i>). </span></p> <p class="MsoNormal" style="text-align: justify; line-height: 150%;"><span style="line-height: 150%;font-family:";font-size:12pt;" >The equilibrium price and quantity in the last quarter of 2008 was at E, which the price was US$54.8 per barrel (EIA 2010) at Q barrel per day. That situation is illustrated in diagram 1. <span style=""> </span></span></p> <p class="MsoNormal" style="text-align: justify; line-height: 150%;"><span style="line-height: 150%;font-family:";font-size:12pt;" > </span><span style="line-height: 150%;font-family:";font-size:12pt;" ></span></p> <p class="MsoNormal" style="text-align: justify; line-height: 150%;"><span style="line-height: 150%;font-family:";font-size:12pt;" >The average oil price and quantity during the first six months of 2009 fell because OPEC, which supplies around 40 per cent of world oil production, realized their intention to cut production. At the same time, the combination of the (then) current economic crisis and the growing environmental concern led to a decrease in oil demand (The Economist 2008a; The Economist 2008b; Musante 2009). The economic crisis decreased people's income, while environmental concerns had change people's preference and then consumed less petrol. This shifted the demand curve left (D'). <span style=""> </span>The production cut by OPEC, because of price expectation (The Economist 2008b), shifted the supply curve left (S') which led to a new equilibrium at E'. It was where price was US$49.8 per barrel (EIA 2010) and quantity was Q' barrel per day. This change is illustrated in diagram 2.</span></p> <p class="MsoNormal" style="text-align: justify; line-height: 150%;"><span style="line-height: 150%;font-family:";font-size:12pt;" > </span></p> <p class="MsoNormal" style="text-align: justify; line-height: 150%;"><span style="line-height: 150%;font-family:";font-size:12pt;" > </span><span style="line-height: 150%;font-family:";font-size:12pt;" ></span></p> <p class="MsoNormal" style="text-align: justify; line-height: 150%;"><span style="line-height: 150%;font-family:";font-size:12pt;" >The oil demand and supply during the last six months of 2009 was rose. The increase in demand happened because of the improvement in economy in the U.S. and China (The Economist 2009a). This increased people's income which led the demand curve shifted right (D''). Meanwhile, the supply side was relatively secured because of the sea (tanker) storage and OECD stock which was equal to 62 days of consumption. Other important factors were the fall in price of production costs and a new oil field in Saudi which will increase OPEC's spare capacity to about 8 per cent of oil world consumption (The Economist 2009a). This shifted the supply curve right (S") which led to a price increase to US$70.7 per barrel (EIA 2010) and a quantity increase to Q'' (a new equilibrium at E"). This change can be seen in diagram 3.</span></p> <p class="MsoNormal" style="text-align: justify; line-height: 150%;"><span style="line-height: 150%;font-family:";font-size:12pt;" > </span><span style="line-height: 150%;font-family:";font-size:12pt;" ></span></p> <p class="MsoNormal" style="text-align: justify; line-height: 150%;"><span style="line-height: 150%;font-family:";font-size:12pt;" >During all of 2010, the demand and supply of oil will keep increasing. The world economy will keep growing following the improvement of the U.S. economy (Businessweek 2010). The crisis in Greece will not spread because European Union member countries have agreed on 600 billion Euro loan (Toyer & Wissenbach 2010). This will increase global oil demand because the income of people will be increasing. As a result, the demand curve will shift right (D'''). Meanwhile, on supply side, there are two factors which will increase supply: the fall of production cost and failure of Copenhagen climate agreement (The Economist 2009b). These will shift the supply curve right (S"'). By the end of 2010, the new equilibrium will be at E"'. Oil price will reach US$83 per barrel at Q"' barrel per day. This can be seen in diagram 4.</span></p> <p class="MsoNormal" style="text-align: justify; line-height: 150%;"><span style="line-height: 150%;font-family:";font-size:12pt;" > </span><span style="line-height: 150%;font-family:";font-size:12pt;" ></span></p> <p class="MsoNormal" style="text-align: justify; line-height: 150%;"><span style="line-height: 150%;font-family:";font-size:12pt;" >In conclusion, oil price is determined by demanded and supplied quantity and non-price determinants. Both demand and supply of oil are price inelastic. While the increase of demand will increase the price significantly, there will be a smaller increase in quantity. This is because the magnitude of change in demand will greater than supply, and also because of the price inelastic. The increase of demand since mid 2009 happened mainly because of the improvement of world economy particularly in the U.S., after the global financial crisis. The increased of supply secured mainly because of the fall of production costs and additional production from the new oil field. This paper predicts that oil price will reach US$83 per barrel by the end of 2010. </span></p> <p class="MsoNormal" style="text-align: justify; line-height: 150%;"><span style="line-height: 150%;font-family:";font-size:12pt;" > </span></p> <p class="MsoNormal" style="text-align: justify; line-height: 150%;"><span style="line-height: 150%;font-family:";font-size:12pt;" > </span></p> <p class="MsoNormal" style="text-align: justify; line-height: 150%;"><span style="line-height: 150%;font-family:";font-size:12pt;" > </span></p> <p class="MsoNormal" style="text-align: justify; line-height: 150%;"><span style="line-height: 150%;font-family:";font-size:12pt;" > </span></p> <p class="MsoNormal" style="text-align: justify; line-height: 150%;"><span style="line-height: 150%;font-family:";font-size:12pt;" > </span></p> <p class="MsoNormal" style="text-align: justify; line-height: 150%;"><span style="line-height: 150%;font-family:";font-size:12pt;" > </span></p> <p class="MsoNormal"><b><span style="line-height: 115%;font-family:";font-size:12pt;" >References</span></b></p> <p class="MsoNormal" style="margin-bottom: 0.0001pt; line-height: normal;"><span style=";font-family:";font-size:12pt;" >Askari, H & Krichene, N 2010, ‘An oil demand and supply model incorporating monetary policy’, Energy, no. 35, pp. 2013-2021. <span class="z3988"> </span></span></p> <p class="MsoNormal" style="margin-bottom: 0.0001pt; line-height: normal;"><span class="z3988"><span style=";font-family:";font-size:12pt;" > </span></span></p> <p class="MsoNormal" style="margin-bottom: 0.0001pt; line-height: normal;"><span style=";font-family:";font-size:12pt;" >Businessweek 2010, ‘U.S. economy: unemployment unexpectedly falls to 9.7% (update3)’, Businessweek (online edition), 5 February, viewed 20 May 2010,</span></p> <p class="MsoNormal" style="margin-bottom: 0.0001pt; line-height: normal;"><span style=";font-family:";font-size:12pt;" ><http: com="" news="" 05="" html="">.</http:></span></p> <p class="MsoNormal" style="margin-bottom: 0.0001pt; line-height: normal;"><span style=";font-family:";font-size:12pt;" > </span></p> <p class="MsoNormal" style="margin-bottom: 0.0001pt; line-height: normal;"><span style=";font-family:";font-size:12pt;" >EIA 2010, ‘Weekly all countries spot price FoB weighted by Estimated export volume (dollars per barrel)’, <i>U.S. Energy Information Administration</i>, viewed 20 May 2010, <http: gov="" dnav="" pet="" hist="" n="pet&s=wtotworld&f=w">.</http:></span></p> <p class="MsoNormal" style="margin-bottom: 0.0001pt; line-height: normal;"><span style=";font-family:";font-size:12pt;" > </span></p> <p class="MsoNormal" style="margin-bottom: 0.0001pt; line-height: normal;"><span style=";font-family:";font-size:12pt;" >Frank, RH, Sarah, J & Bernanke, BS 2009, <i>Principles of microeconomics</i>, 2<sup>nd</sup> ed., McGraw-Hill Australia, North Ryde. </span></p> <p class="MsoNormal" style="margin-bottom: 0.0001pt; line-height: normal;"><span style=";font-family:";font-size:12pt;" > </span></p> <p class="MsoNormal" style="margin-bottom: 0.0001pt; line-height: normal;"><span style=";font-family:";font-size:12pt;" >Hamilton, J 2009, ‘Causes and consequences of the oil shock of 2007-08/comments and discussion’, <i>Brookings Papers on Economic Activity</i>, no. 1, pp. 215-283. <span class="z3988"> </span></span></p> <p class="MsoNormal" style="margin-bottom: 0.0001pt; line-height: normal;"><span style=";font-family:";font-size:12pt;" > </span></p> <p class="MsoNormal" style="margin-bottom: 0.0001pt; line-height: normal;"><span style=";font-family:";font-size:12pt;" >Musante, K 2009, ‘Oil rises as OPEC cuts production’, <i>money.cnn.com</i>, viewed 20 May 2010, <http: com="" 2009="" 02="" 03="" markets="" oil="" htm="">.</http:></span></p> <p class="MsoNormal" style="margin-bottom: 0.0001pt; line-height: normal;"><span style=";font-family:";font-size:12pt;" > </span></p> <p class="MsoNormal" style="margin-bottom: 0.0001pt; line-height: normal;"><span style=";font-family:";font-size:12pt;" >Nationmaster n.d., ’Energy statistics oil exports net(most recent) by country.” <i>NationMaster.com</i>. viewed 20 May 2010, </span></p> <p class="MsoNormal" style="margin-bottom: 0.0001pt; line-height: normal;"><span style=";font-family:";font-size:12pt;" ><http: com="" graph="" net="">.</http:></span></p> <p class="MsoNormal" style="margin-bottom: 0.0001pt; line-height: normal;"><span style=";font-family:";font-size:12pt;" > </span></p> <p class="MsoNormal" style="margin-bottom: 0.0001pt; line-height: normal;"><span style=";font-family:";font-size:12pt;" >OPEC n.d.,’Member countries’, <i>OPEC.org</i>, viewed 20 May 2010,</span></p> <p class="MsoNormal" style="margin-bottom: 0.0001pt; line-height: normal;"><span style=";font-family:";font-size:12pt;" ><http: org="" opec_web="" en="" about_us="" htm=""></http:></span></p> <p class="MsoNormal" style="margin-bottom: 0.0001pt; line-height: normal;"><span style=";font-family:";font-size:12pt;" > </span></p> <p class="MsoNormal" style="margin-bottom: 0.0001pt; line-height: normal;"><span style=";font-family:";font-size:12pt;" >The Economist 2008a, ‘Down it goes’, <i>The Economist</i>.</span></p> <p class="MsoNormal" style="margin-bottom: 0.0001pt; line-height: normal;"><span style=";font-family:";font-size:12pt;" > </span></p> <p class="MsoNormal" style="margin-bottom: 0.0001pt; line-height: normal;"><span style=";font-family:";font-size:12pt;" >The Economist 2008b, ‘Plumbing the depths’, <i>The Economist</i>.</span></p> <p class="MsoNormal" style="margin-bottom: 0.0001pt; line-height: normal;"><span style=";font-family:";font-size:12pt;" > </span></p> <p class="MsoNormal" style="margin-bottom: 0.0001pt; line-height: normal;"><span style=";font-family:";font-size:12pt;" >The Economist 2009a, ’Meek oil’, <i>The Economist</i>.</span></p> <p class="MsoNormal" style="margin-bottom: 0.0001pt; line-height: normal;"><span style=";font-family:";font-size:12pt;" > </span></p> <p class="MsoNormal" style="margin-bottom: 0.0001pt; line-height: normal;"><span style=";font-family:";font-size:12pt;" >The Economist 2009b, ’Oil to spare’, <i>The Economist</i>.</span></p> <p class="MsoNormal" style="margin-bottom: 0.0001pt; line-height: normal;"><span style=";font-family:";font-size:12pt;" > </span></p> <p class="MsoNormal" style="margin-bottom: 0.0001pt; line-height: normal;"><span style=";font-family:";font-size:12pt;" >Toyer, J & Wissenbach, I 2010, ‘EU to fend off market "wolves" in Greek crisis’, <i>Reuters, viewed 20 May 2010,</i></span></p> <p class="MsoNormal" style="margin-bottom: 0.0001pt; line-height: normal;"><i><span style=";font-family:";font-size:12pt;" ><</span></i><span style=";font-family:";font-size:12pt;" >http://www.reuters.com/article/idUSTRE6400PJ20100509>.</span></p> <p class="MsoNormal" style="margin-bottom: 0.0001pt; line-height: normal;"><span style=";font-family:";font-size:12pt;" > </span></p> <p class="MsoNormal" style="margin-bottom: 0.0001pt; line-height: normal;"><span style=";font-family:";font-size:12pt;" > </span></p> <p class="MsoNormal" style="margin-bottom: 0.0001pt; line-height: normal;"><span style=";font-family:";font-size:12pt;" > </span></p> <p class="MsoNormal" style="text-align: justify; line-height: 150%;"><span style="line-height: 150%;font-family:";font-size:12pt;" > </span></p> Unknownnoreply@blogger.com0tag:blogger.com,1999:blog-8697904756842250859.post-5801459078440542322010-11-12T14:18:00.001-08:002010-11-14T00:47:52.841-08:00World Bank, Chad Oil Project, and Resource Curse<!--[if gte mso 9]><xml> <w:worddocument> <w:view>Normal</w:View> <w:zoom>0</w:Zoom> <w:trackmoves/> <w:trackformatting/> <w:punctuationkerning/> <w:validateagainstschemas/> <w:saveifxmlinvalid>false</w:SaveIfXMLInvalid> <w:ignoremixedcontent>false</w:IgnoreMixedContent> <w:alwaysshowplaceholdertext>false</w:AlwaysShowPlaceholderText> <w:donotpromoteqf/> 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</w:LatentStyles> </xml><![endif]--><!--[if gte mso 10]> <style> /* Style Definitions */ table.MsoNormalTable {mso-style-name:"Table Normal"; mso-tstyle-rowband-size:0; mso-tstyle-colband-size:0; mso-style-noshow:yes; mso-style-priority:99; mso-style-qformat:yes; mso-style-parent:""; mso-padding-alt:0cm 5.4pt 0cm 5.4pt; mso-para-margin:0cm; mso-para-margin-bottom:.0001pt; mso-pagination:widow-orphan; font-size:11.0pt; font-family:"Calibri","sans-serif"; mso-ascii-font-family:Calibri; mso-ascii-theme-font:minor-latin; mso-fareast-font-family:SimSun; mso-fareast-theme-font:minor-fareast; mso-hansi-font-family:Calibri; mso-hansi-theme-font:minor-latin; mso-bidi-font-family:Arial; mso-bidi-theme-font:minor-bidi;} </style> <![endif]--> <p class="MsoNormal" style="text-align: justify; line-height: 150%;"><b style=""><span style="line-height: 150%;font-family:";font-size:12pt;" >Introduction</span></b></p> <p class="MsoNormal" style="text-align: justify; line-height: 150%;"><span style="line-height: 150%;font-family:";font-size:12pt;" >Chad is one of the poorest countries in the world with income per capita in 1985 only $120 per year (Day-Viaud & Joffe 1995, p. xvii). A consortium of oil companies discovered oil field with the reserves of 917 million barrels to be last until 2032. Considering the high risk investment in the country, the consortium will not sponsor this project unless the World Bank involved providing political risk protection (Esty 2006, pp. 1-5). This indicates that both the Chad government and the consortium are highly dependent on the Bank. This is a great opportunity for the Bank to control the loan contract negotiation by enforcing conditionality to ensure the oil windfall will bring welfare to Chadians. </span></p> <p class="MsoNormal" style="text-align: justify; line-height: 150%;"><b style=""><span style="line-height: 150%;font-family:";font-size:12pt;" > </span></b></p> <p class="MsoNormal" style="text-align: justify; line-height: 150%;"><b style=""><span style="line-height: 150%;font-family:";font-size:12pt;" >Key issue</span></b></p> <p class="MsoNormal" style="text-align: justify; line-height: 150%;"><span style="line-height: 150%;font-family:";font-size:12pt;" >The key issue is how to create and maintain economic growth during and after the oil windfall. While oil mining will increase government revenues dramatically, many evidences suggest resources-abundance countries have stagnated in economic growth and underperform the resource-poor countries. This phenomenon called ‘resource curse’ (Auty 1993, p. 1; Sachs & Warner 1995, p. 2). </span></p> <p class="MsoNormal" style="text-align: justify; line-height: 150%;"><span style="line-height: 150%;font-family:";font-size:12pt;" >Chad has serious growth impediments both in economic and institution aspects. Chad has low capital investment and improvement, low productivity labours and lack of skill improvement opportunities, low technological input, lack of physical and human capital development, inconsistent economic policies, and ‘anti-development fiscal policy’ (Azevedo 1988, pp. 68-73). </span></p> <p class="MsoNormal" style="text-align: justify; line-height: 150%;"><span style="line-height: 150%;font-family:";font-size:12pt;" >Chad's political institution is not conducive for investment. The president has excessive power with ability to control the legislative and judicative </span><span style="line-height: 150%;font-family:";font-size:12pt;" >(Kneib 2007, p. 32). This is a highly concentrated decision-making power which create uncertain and potentially volatile policy environment that bad for the welfare of citizens and investors (MacIntyre 2003, p. 29). </span><span style="line-height: 150%;font-family:";font-size:12pt;" >Natural resources economy without good quality institution will create negative effect on growth (Sala-i-Martin & Subramanian 2003, p. 12).</span></p> <p class="MsoNormal" style="text-align: justify; line-height: 150%;"><b style=""><span style="line-height: 150%;font-family:";font-size:12pt;" > </span></b></p> <p class="MsoNormal" style="text-align: justify; line-height: 150%;"><b style=""><span style="line-height: 150%;font-family:";font-size:12pt;" > </span></b></p> <p class="MsoNormal" style="text-align: justify; line-height: 150%;"><b style=""><span style="line-height: 150%;font-family:";font-size:12pt;" >Solution options</span></b></p> <p class="MsoNormal" style="text-align: justify; line-height: 150%;"><u><span style="line-height: 150%;font-family:";font-size:12pt;" >Option-1: Non-mining industries development</span></u></p> <p class="MsoNormal" style="text-align: justify; line-height: 150%;"><span style="line-height: 150%;font-family:";font-size:12pt;" >The Bank must direct its loan conditionality to support the non-mining sector. The sustainable development of natural resources economies lies in successful diversification into non-mining sector (Auty 1993, p. 258). </span></p> <p class="MsoNormal" style="text-align: justify; line-height: 150%;"><span style="line-height: 150%;font-family:";font-size:12pt;" >The oil revenue allocation and economic policy should be strictly designed to stimulate the non-mining sector. <span style=""> </span>The revenue management plan (RMP) must give specific details regarding permissible expenditures to prioritize improvements on growth drivers; they are: saving and investment, physical and human capital, and technological improvement (Helpman 2004, pp. 10-12). For example, Chad government must develop transportation infrastructures, free basic and vocational education and job training to be linked and matched with the need of non-mining industries. Valuable incentives must be given to private sectors to improve their productivity through technological change such as free import tax for machineries. Incentives to start-up the non-mining firms such as temporary energy subsidy, efficient entry licence, and employee trainings support would attract domestic entrepreneurs and foreign direct investments.</span></p> <p class="MsoNormal" style="text-align: justify; line-height: 150%;"><span style="line-height: 150%;font-family:";font-size:12pt;" >The non-mining industries development should focus on areas where Chad has (potential) comparative advantages—for example from the availability of raw materials, labour's characteristic and geographical position—and relatively simple to begin. </span></p> <p class="MsoNormal" style="text-align: justify; line-height: 150%;"><span style="line-height: 150%;font-family:";font-size:12pt;" >While this option could create some results in a relatively short-term period, its success rely on the commitment of Chad leaders to implement the RMP and the economic policy. However, as economic improvement will increase the president's popularity, the president would have intrinsic motivation to support. </span></p> <p class="MsoNormal" style="text-align: justify; line-height: 150%;"><u><span style="line-height: 150%;font-family:";font-size:12pt;" >Option-2: Change the institutional architecture <span style=""> </span></span></u></p> <p class="MsoNormal" style="text-align: justify; line-height: 150%;"><span style="line-height: 150%;font-family:";font-size:12pt;" >The Bank must maximize the use of its strong power during the negotiation phase by forcing the Chad leaders to democratize its state's institution and promote good governance. The combination of democracy and good governance is a significant determinant of total factor productivity (Rivera-Batiz 1999, p. 32).</span></p> <p class="MsoNormal" style="text-align: justify; line-height: 150%;"><span style="line-height: 150%;font-family:";font-size:12pt;" >The conditionality must force the Chad leaders, particularly the president, to change their constitution to balance the power structure by creating constraint on executive government and improve the bureaucracy efficiency. This will improve the credibility of the government on ensuring the quality and certainty of its policies. This can be done, for example by, (a) strengthening the power of the National Assembly to be able to monitor the president and to have more power on legislation making, (b) making the Supreme Court independent from the president, (c) preventing the involvement of military forces in civil war and politics, and (d) promoting transparency and some initial measures on bureaucracy reform. However, the idea is not to swing from the severely concentrated to the severely dispersed, rather to make it in the middle of the range. For example, the president should still have a space to respond to policy challenges which require an immediate action. Country with political power structure located in the centre of the decision-making power ranges is unlikely to suffer from significant governance problems (MacIntyre 2003, p. 36). </span></p> <p class="MsoNormal" style="text-align: justify; line-height: 150%;"><span style="line-height: 150%;font-family:";font-size:12pt;" >Although this option has potential to improve Chad's government credibility, there is no significant constraint for the president to revoke the agreement. The president will still able to maintain his strong power after the agreement and bring back the old constitution. The political leaders<span style=""> renege on promises once the aid is delivered and their problems are resolved (Smith 2005, p. 566).</span></span></p> <p class="MsoNormal" style="text-align: justify; line-height: 150%;"><b style=""><span style="line-height: 150%;font-family:";font-size:12pt;" > </span></b></p> <p class="MsoNormal" style="text-align: justify; line-height: 150%;"><b style=""><span style="line-height: 150%;font-family:";font-size:12pt;" >Proposal </span></b></p> <p class="MsoNormal" style="text-align: justify; line-height: 150%;"><span style="line-height: 150%;font-family:";font-size:12pt;" >By considering the following criteria, (a) time to see impact, and (b) resources availability, option-1 is the most plausible solution</span></p> <p class="MsoNormal" style="text-align: justify; line-height: 150%;"><span style="line-height: 150%;font-family:";font-size:12pt;" >Time to see impact is crucial to maintain the motivation and spirit of the Chadian on supporting the solutions. Option-1 would provide tangible and visible improvements faster than option-2 because option-1 will directly increase the quality of life through better livelihood by creating more jobs and other opportunities. If the improvement takes so long, or not really tangible and visible, people will get frustrated with the reform which lead to the increase of social and political problems, and end up with lower growth.<span style=""> </span></span></p> <p class="MsoNormal" style="text-align: justify; line-height: 150%;"><span style="line-height: 150%;font-family:";font-size:12pt;" >Resource availability is a precondition to make the solution work. Chad has resources to support option-1, at least for the start-up phase. For example, Chad's productivity on cotton production has been increasing from time to time (Azevedo 1998, p. 30). This is an excellent resource to start the textile industry serving the African region. By contrast, option-2 requires relatively strong human freedom—that is the individual freedom to effectively shape his/her own destiny (Sen 1999, p. 11)—which Chad is lack of. Chad's human development index in 1995 was only 0.324 which give the country a rank of 175 out of 182 countries (UNDP 2009). It is difficult to have strong institution without human freedom because most of individual tend to rely his/her life on other person rather than on the rule of law. Human freedom development takes more times because it is not just about skills to work in a factory. Therefore, option-2 is more potential to create and maintain economic growth during and after the oil windfall. </span></p> <p class="MsoNormal" style="margin-bottom: 0.0001pt; line-height: normal;"><b style=""><span style=";font-family:";font-size:12pt;" > </span></b></p> <p class="MsoNormal" style="margin-bottom: 0.0001pt; line-height: normal;"><b style=""><span style=";font-family:";font-size:12pt;" > </span></b></p> <p class="MsoNormal" style="margin-bottom: 0.0001pt; line-height: normal;"><b style=""><span style=";font-family:";font-size:12pt;" >References </span></b></p> <p class="MsoNormal" style="margin-bottom: 0.0001pt; line-height: normal;"><span style=";font-family:";font-size:12pt;" > </span></p> <p class="MsoNormal" style="margin-bottom: 0.0001pt; line-height: normal;"><span style=";font-family:";font-size:12pt;" >Auty, RM 1993, <i>Sustaining development in mineral economies: the resource curse thesis</i>, Routledge, London. <span class="z3988"> </span></span></p> <p class="MsoNormal" style="margin-bottom: 0.0001pt; line-height: normal;"><span style=";font-family:";font-size:12pt;" > </span></p> <p class="MsoNormal" style="margin-bottom: 0.0001pt; line-height: normal;"><span style=";font-family:";font-size:12pt;" >Azevedo, MJ 1998, <i>Chad: a nation in search of its future</i>, Westview Press, Boulder, Colo. <span class="z3988"> </span></span></p> <p class="MsoNormal" style="margin-bottom: 0.0001pt; line-height: normal;"><span style=";font-family:";font-size:12pt;" > </span></p> <p class="MsoNormal" style="margin-bottom: 0.0001pt; line-height: normal;"><span style=";font-family:";font-size:12pt;" >Day-Viaud, V & Joffe, G 1995, <i>Chad,</i> Clio Press, Oxford. <span class="z3988"> </span></span></p> <p class="MsoNormal" style="margin-bottom: 0.0001pt; line-height: normal;"><span style=";font-family:";font-size:12pt;" > </span></p> <p class="MsoNormal" style="margin-bottom: 0.0001pt; line-height: normal;"><span style=";font-family:";font-size:12pt;" >Esty, B 2006, <i>The Chad-Cameroon petroleum development and pipeline project</i>, Harvard Business School, MA.</span></p> <p class="MsoNormal" style="margin-bottom: 0.0001pt; line-height: normal;"><span style=";font-family:";font-size:12pt;" > </span></p> <p class="MsoNormal" style="margin-bottom: 0.0001pt; line-height: normal;"><span style=";font-family:";font-size:12pt;" >Helpman, E 2004, <i>The mystery of economic growth</i>, Belknap Press of Harvard University Press, Cambridge, Mass. <span class="z3988"> </span></span></p> <p class="MsoNormal" style="margin-bottom: 0.0001pt; line-height: normal;"><span style=";font-family:";font-size:12pt;" > </span></p> <p class="MsoNormal" style="margin-bottom: 0.0001pt; line-height: normal;"><span style=";font-family:";font-size:12pt;" >Kneib, M 2006, <i style="">Cultures of the world: Chad</i>, Marshall Gavendish Benchmar, New York. </span></p> <p class="MsoNormal" style="margin-bottom: 0.0001pt; line-height: normal;"><span style=";font-family:";font-size:12pt;" > </span></p> <p class="MsoNormal" style="margin-bottom: 0.0001pt; line-height: normal;"><span style=";font-family:";font-size:12pt;" >MacIntyre, AJ 1003, <i>The power of institutions: political architecture and governance, </i>Cornell University Press, Ithaca.<span class="z3988"> </span></span></p> <p class="MsoNormal" style="margin-bottom: 0.0001pt; line-height: normal;"><span style=";font-family:";font-size:12pt;" > </span></p> <p class="MsoNormal" style="margin-bottom: 0.0001pt; line-height: normal;"><span style=";font-family:";font-size:12pt;" >Rivera-Batiz, F 1999, 'Democracy, governance and economic growth: theory and evidence', paper presented at the conference: Democracy, Participation and Development, New York City, sponsored by the Program in Economic Policy Management at Columbia University, April 1999, viewed 29 October 2010,</span></p> <p class="MsoNormal" style="margin-bottom: 0.0001pt; line-height: normal;"><span style=";font-family:";font-size:12pt;" ><http: edu="" cu="" economics="" discpapr="" pdf="">. </http:></span></p> <p class="MsoNormal" style="margin-bottom: 0.0001pt; line-height: normal;"><span style=";font-family:";font-size:12pt;" > </span></p> <p class="MsoNormal" style="margin-bottom: 0.0001pt; line-height: normal;"><span style=";font-family:";font-size:12pt;" >Sachs, JD & Warner, AM 1995, <i>Natural resource abundance and economic growth</i>, National Bureau of Economic Research, Cambridge, MA.</span></p> <p class="MsoNormal" style="margin-bottom: 0.0001pt; line-height: normal;"><span style=";font-family:";font-size:12pt;" > </span></p> <p class="MsoNormal" style="margin-bottom: 0.0001pt; line-height: normal;"><span style=";font-family:";font-size:12pt;" >Sala-i-Martin, X & Subramanian, A 2003, <i>Addressing the natural resource curse: an illustration from Nigeria</i>, National Bureau of Economic Research, Cambridge, MA.</span></p> <p class="MsoNormal" style="margin-bottom: 0.0001pt; line-height: normal;"><span style=";font-family:";font-size:12pt;" > </span></p> <p class="MsoNormal" style="margin-bottom: 0.0001pt; line-height: normal;"><span style=";font-family:";font-size:12pt;" >Sen, A 1999, <i>Development as freedom,</i> Knopf, New York.</span></p> <p class="MsoNormal" style="margin-bottom: 0.0001pt; line-height: normal;"><span class="z3988"><span style=";font-family:";font-size:12pt;" > </span></span><span style=";font-family:";font-size:12pt;" ></span></p> <p class="MsoNormal" style="margin-bottom: 0.0001pt; line-height: normal;"><span style=";font-family:";font-size:12pt;" >Smith, A 2005, 'Why international organizations will continue to fail their development goals', <i>Perspectives on Politics</i>, vol. 3, no. 3, pp. 565-567. <span class="z3988"> </span></span></p> <p class="MsoNormal" style="margin-bottom: 0.0001pt; line-height: normal;"><span style=";font-family:";font-size:12pt;" > </span></p> <p class="MsoNormal" style="margin-bottom: 0.0001pt; line-height: normal;"><span style=";font-family:";font-size:12pt;" >UNDP 2009, 'Human development index trends',<span style=""> </span><i>Human Development Reports, </i><span style="">viewed 30 October 2010, </span></span></p> <p class="MsoNormal" style="margin-bottom: 0.0001pt; line-height: normal;"><span style=";font-family:";font-size:12pt;" ><http: org="" en="" indicators="" html="">.</http:></span></p> <p class="MsoNormal" style="margin-bottom: 0.0001pt; line-height: normal;"><span style=";font-family:";font-size:12pt;" > </span></p> <p class="MsoNormal" style="text-align: justify; line-height: 150%;"><span style="line-height: 150%;font-family:";font-size:12pt;" > </span></p>Unknownnoreply@blogger.com0tag:blogger.com,1999:blog-8697904756842250859.post-46674481520978330842010-11-12T14:12:00.000-08:002010-11-12T14:16:35.286-08:00Transformational leadership<span style="font-weight: bold;">Introduction </span><br />This is a review of a paper by Janet Denhardt and Kelly Campbell titled 'the roles of democratic values in transformational leadership' published in the Administration & Society journal, volume 38, year 2006. The paper starts with reviewing the development of transformational leadership theory. The review compares the original concept of transformational leadership as set forth in Burns (1978) with the recent concepts that mostly influenced by Bass (1985). Denhardt and Campbell argue that the recent transformational leadership concept narrowed to ‘transformational as change’ which create problematic in its application in public sector (2006, p. 559). This led them to build an alternative model according to the Burns’s conception of transformational leadership as moral elevation and combined with normative public administration theories which include democratic values (Denhardt & Campbell 2006, pp. 567-568). I will argue that the public transformational leadership model introduced by the authors could: (a) contribute to a better public management, and (b) more relevant to a complex situation. At the end, as I learn from the model, I will suggest that effective leaders need strong relations and changes behaviours orientation, in addition to moderately strong task-oriented behaviours. <br /><br /><span style="font-weight: bold;">Contribute to a better public management </span><br />The paper emphasizes the importance of addressing the democratic values and, therefore, strengthening the role of citizen and the assertion of public interest (Denhardt & Campbell 2006, p. 562). This suggestion could overcome the weakness of the market-oriented government approach that being promoted through the new public management (NPM).<br />New public management could fail to create public value because it tends to leave some people behind the development. While NPM improve the efficiency and performance-focus of public organizations (OECD 2005, p. 10), it has resulted in an emergence of a "new poor" in some developing countries (Batley & Larbi 2004, cited in Haque 2007, p. 182). Efficiency and performance are two important NPM's doctrine that could be achieved, for example, by imposing the performance based finance management. However, the performance focus in NPM heavily associated with “service user” or “customer” as contrast to “citizen” which cover ‘unwilling customers’ (Borins 2002, p. 191). That is because citizens play a multi-function role in society. NPM approach could exclude non-customer citizens (such as tax payers who are not directly benefit by public service) from the attention of a public sector leader. This shortcomings could be sustained because NPM 'hinders any return to substantive democracy and limits the degree to which citizens can meaningfully affect policy and administration’ (Box et al. 2001, p. 613).<br />Democratic values are essential for public transformational leadership in the process of creating public value. In their search for performance, public sector leaders seek for public value rather than narrowing at 'customer' value. To achieve public value, they cannot just rely on the feasibility of their operation and administration, they must be legitimate and politically sustainable (Moore 1995, p. 71). The legitimacy and the operational capability can be simultaneously achieved if public leaders apply a 'substantive democracy'; that is the democracy which involves the revitalization of the role of public administrator and citizen in shaping the future (Box et al. 2001, p. 611). Democracy in internal would empower the public servants, while democracy in external would empower as well as gaining legitimacy from the citizens.<br /><br /><span style="font-weight: bold;">More relevant to a complex situation</span><br />In a complex situation, public leaders could not focus only on managing their administration. Indonesian public sector is a good example for a complex situation. Indonesian government is strong in terms of its authority power given by the constitution where government almost could or should do anything related to people’s life. However, Indonesian government has limited resources to implement its wide-range authority. For example, the ratio of tax revenue to GDP was only 9.9 per cent compared to an average of 14.0 per cent among non-OECD countries in Asia (IMF 2008, p. 11). This situation forces Indonesian government to encourage private sectors to contribute to public services including social welfare program. In this situation, public leaders should manage different stakeholders with different interests and different level of power, and also to ensure that the powerless have opportunity to contribute to the process of creating public value.<br />Public transformational leadership model introduced by the authors is more relevant in the complex situation. The authors argue that transformational leadership is not only about creating a change, but also to ensure that the process of change should involve moral elevation; that is a normative model of public leadership based on democratic values, citizenship, and service in the public interest (Denhardt & Campbell 2006, p. 558). The model will force the public leaders to create changes in participatory way by involving all important stakeholders. The process of changes is equally, if not more, important than the change itself. This will create a sustainable change in the complex situation because all stakeholders own the idea and the result which will make them committed to maintain and continuously improve the change in the future. In “transformation as change” model, by contrast, the leader would just focus on the effectiveness and efficiency of the change which can be done through unilateral way, but the impact would not sustainable.<br /><br /><span style="font-weight: bold;">Overall learning from the article</span><br />This paper shows me the comparison of two different model of transformational leadership; those are the ‘transformation as change’ and ‘transformation as moral elevation’. The two categories could be related to the current discussion about public sector model which can be contrasted to “market-oriented” and “public value-oriented”. The moral elevation model which preferred more by the authors has more potential to work to create public value in a complex situation.<br />The comparison of the two models generates idea about leadership behaviours for effective leaders in a complex situation. Yukl introduces a ‘metacategories’ of leadership behaviours into three dimensions: they are: task-oriented, relations-oriented, and changes-oriented behaviours (2010, pp. 117-130). As I learn from the paper, I argue that the moral elevation model of public transformational leadership requires strong relations-oriented and changes-oriented behaviours, and moderately strong need for task-oriented behaviours. This is because the process of change equally, if not more, important than the change itself. My argument is in line with Yukl’s argument on traits characteristic of effective manager; that is high socialized power orientation, a moderately strong need for achievement, and a relatively weaker need for affiliation (Yukl 2010, p. 74).<br /><br /><span style="font-weight: bold;">References</span><br /><br />Bass, BM 1985, Leadership and performance beyond expectations, Free Press, New York.<br /><br />Borins, S 2002, 'New public management, North American style', in K. McLaughilin, S.P. Osborne, & E. Ferlie (eds), New Public Management: Current Trends and Future Prospects, Routledge, London, pp. 181-194.<br /><br />Box, RC, Marshall, GS, Reed, BJ & Reed, CM 2001, ‘New public management and substantive democracy’, Public Administration Review, vol. 61, no. 5, pp. 608-619.<br /><br />Burns, JM 1978, Leadership, Harper & Row, New York.<br /><br />Denhardt, JV & Campbell, KB 2006, ‘The role of democratic values in transformational leadership’, Administration & Society, vol. 38, pp. 556-572.<br /><br />Haque, MS 2007, 'Revisiting the new public management', Review of The changing role of government: the reform of public services in developing countries by R. Batley and G. Larbi, Public Administration Review, Jan-Feb, pp. 179-182<br /><br />IMF 2008, 'Tax administration reform and fiscal adjustment: the case of Indonesia (2001-07)', IMF Working Paper WP/08/129, International Monetary Fund, Washington, D.C., viewed 10 October 2010,<br /><http: org="" external="" pubs="" ft="" wp="" 2008="" pdf="">.<br /><br />Moore, MH 1995, Creating public value: strategic management in government, Harvard University Press, Cambridge, Mass. <br /><br />OECD 2005, Modernising government: the way forward, Organisation for Economic Co-operation and Development, Paris.<br /><br />Yukl, GA 2010, Leadership in organizations, 7th edn, Pearson, Upper Saddle River, N.J. <br /><br /><br /></http:>Unknownnoreply@blogger.com0tag:blogger.com,1999:blog-8697904756842250859.post-72022710875890572632010-11-12T14:02:00.000-08:002010-11-12T14:11:22.751-08:00Managing Government Performance in a Changing Environment<span style="font-weight: bold;">Introduction</span><br /><br />Any organization exists because society needs its service function. Therefore, an organization must regularly reshape its system to adjust to the continuously changing society. Governments, similar to other organizations, are organs of society (Drucker 1973, p. 39). Although society's expectation in general is to have wellness, perception of wellness is changing over time. And factors influencing wellness are also changing. If the government wants to perform, which means fulfilling society's expectation, its organization must be open to changes to be adaptive to its environment. The performance supports the continuity, which is important to balance the change. Innovation is required to make the resources work efficient in achieving high performance. Indeed, innovation creates resources from something valueless (Drucker 1993, p. 30), it is the one that makes one society more productive and richer than another (Helpman 2004, pp.36-46). Peter Drucker, in many of his works, emphasized the importance of well performing government. This paper will argue that organization can perform in changing society if they manage their capacity to be adaptive to the changing organization's environment.<br />Government Organization<br /><br />Peter Drucker had many critics. He argues that government organizations, in general, lack performance, are inefficient and ineffective, budget rather than performance oriented, are managed by less capable people (compared to the private sector), and are unclear in result orientation (Drucker 1973, pp. 137-147; Drucker 1988, pp. 131-141; Drucker 1992, pp. 212-218). He applied that argument not only to developing countries, but also developed countries particularly the United States where he spent most of his life. He believes that government is an organ of society, and should not be an end in themselves. The objectives and results of government must lie in its customer in society, outside of organization (Drucker 1973, p. 158; Drucker 1988, pp. 56-57; Drucker 1999, p. 29;38).<br /><br /><span style="font-weight: bold;">Elements of Institutional Capacity</span><br />Every government has functions to be delivered to society and its environment. It is the institutional capacity which enables government organizations to perform. As society and the environment are continuously changing, government must manage their capacity to be adaptive. Managing capacity requires an understanding of capacity elements. Capacity elements are factors, within and outside organizations, which work interactively to build the institutional capacity of the organization. Institutional capacity is more than personnel capacity. A government with high skill and knowledge of people will not be able to perform its function without stakeholder support and effective leadership. That means capacity elements must extend beyond skill and knowledge of people. This essay will suggest seven capacity elements; they are: stakeholder support, strategic cycle, job and organization structure, work procedures, facilities and information systems, competency and motivation of people, and leadership.<br /><br /><span style="font-style: italic;">Stakeholder support</span><br />Stakeholders' needs, preferences, and priorities are the basis of how government should adapt their capacity. Changes in perception, mood, and meaning are a source of innovation (Drucker 1993, p. 35). Similar to an organism, government interacts with the stakeholders in its environments, who can influence or are influenced by the achievement of government objectives (Freeman 1984, p. 46). In order to ensure the achievement of its objective, government must define who its stakeholders are. Government's stakeholders are not limited to citizens although citizens are legitimate stakeholders who play a multifunction role in society, either as the owner or the customer of the state. Those who have no legitimacy but hold power and possess urgency are also stakeholders with a range of different qualities (Mitchell et al. 1997, pp. 854-874). Ignoring any stakeholder would result in government's failure to achieve their objectives. Government must manage each of its stakeholders in a correct manner according to their interests and potential impact on the objective's achievement. Therefore, customer focus does not mean the customer is the only concern. Without support from all stakeholders, with various importance levels depending on their characteristics, the objective of government will never be achieved.<br /><br /><span style="font-style: italic;">Strategic cycle</span><br />Strategy defines the 'theory of business' of government—such as customers and customer expectations, objectives, and results—and plans to convert that into performance (Drucker 1999, p. 43; Drucker 1973, p. 122). Defining 'theory of business' is important to identify the scope of the government business. This is because government should not do everything. Some public issues can be done better by other institutions in society. The main role of government is to 'govern', not to do. Some functions can be better implemented if 'decentralized' to other institution (Drucker 1992, p. 233-5).<br /><br />Once the scope is clarified, the next step is to develop an action plan (as part of the strategic plan). That will determine programs and services necessary to achieve government's objectives and results. Results must be about change, and describe how government wants a better society in the future. Result formulation must consider opportunities to innovate. Drucker mentions seven sources for innovative opportunity, they are: the unexpected, the incongruity, the process need, changes in industry or market structure, changes in demographics, changes in perception, mood, and meaning, and change in knowledge (1993, p. 35). In order to make a judgment about results achievement, the strategic plan must be equipped with a set of performance indicators. These indicators should help reveal the extent of achievement (effectiveness) and also show how many resources will be used when delivering the program or services (efficiency) (Palfrey et al. 1992, p. 86; Department of Treasury and Finance 2003, pp. 9-10). Organizations can be efficient but do the wrong thing. They can also be effective but do things incorrectly resulting in cost (Drucker 1988, p. 44). Drucker suggested that a strategic plan should not avoid risk because higher risk means higher performance (Drucker 1973, p. 125). However, it is important to identify the risks and to have a plan to overcome these risks. Another important element of the strategy is a budget plan. The budget plan must be integrated and fully coordinated with the action plan. Similarly, the action plan must adjust to financial objectives, such as target on fiscal deficit/surplus.<br /><br />There is no fixed plan for the future that will be valid forever. Any strategic plan must be treated as an adaptive plan. Regular evaluation and re-planning is necessary. Drucker argues that service institutions need a discipline of 'planned obsolescence' and 'planned abandonment' (1988, p. 149). Therefore the performance indicators are important, and this is why this essay calls the capacity element 'strategic cycle' rather than strategic package.<br /><br /><span style="font-style: italic;">Job and organization structure</span><br />The structure of jobs and organization must fully support the strategy. Strategy follow mission and structure follow strategy (Drucker 1999, p. 8). When a strategy has been defined, organization divisions, job titles, and number of jobs can be identified. A good design of jobs and divisions will provide the correct size organization; not too big and not too small. Government organizations must develop their own structure according to their strategy and conditions to be effective and efficient. Effectiveness could be achieved if all required tasks are allocated to all jobs. Efficient structure is indicated by clear job description and optimum work load in all positions. This will also ensure that each job is unique and no unnecessary task overlap.<br /><br />The concern on effectiveness and efficiency also applies to divisions. Division is required to decentralize the management within an organization. This is useful to implement a number of different services or functions to produce different outputs or products. Management should be decentralized into autonomous units such as departments or agencies. This is what Drucker calls 'federal decentralization' (1954, p. 207). Decentralization helps organizations shorten the decision making span and reduce the possibility of miscommunication. It will also eliminate resistance from employees and lower level managers over management decisions. Decentralization improves effectiveness through shaping organization resources to accomplish particular tasks and achieve particular results within autonomous units. Therefore, each unit must be responsible and authorized to manage their resources, design and implement their strategy, and also accountable to achieve their results as contribution to the total government. The right size and appropriate description of jobs and divisions of a government organization determines the success of its strategy implementation.<br /><br />Because the strategy is subject to change, job and organization structure must be adaptive. There is no one right organization structure (Drucker 1999, p. 11). It is necessary to conduct regular evaluations in order to fully support the organization's changing strategy. However, it is also important to guarantee certainty to a certain extent to allow people to have good orientation about their organization. This is because change and continuity need to be balanced (Drucker 1999, pp. 90-93).<br /><br /><span style="font-style: italic;">Work procedures</span><br />Any government organization, as a service institution, needs to clarify and publish the work procedure of all services they deliver. Procedure clarification and transparency is not only important for creating effectiveness and efficiency, but also important to disseminate the service information as the basic right of customers. Each particular service must be equipped with standard operating procedures (SoP). SoP determines the process chain within the service. One link is one unit of processing. It describes how output is produced from input. Each link involves materials, equipment, people, and other resources over a certain time period. Inputs are delivered by people from the previous link, while outputs are delivered to people in the next link.<br />The people who provide inputs and receive outputs could be from inside or outside the organization. This process will clarify who to coordinate with, for what and when. The end output is the result of the autonomous division and will contribute to the overall government objectives.<br />By capturing the work process in SoP, each government division could assess their efficiency or productivity by calculating how much output they get per input, or how much output per time or per employee. This is also a way to create service delivery standards such as cost, time and quality of service. Governments from different states who deliver identical services could compare their efficiency and effectiveness. This is a chance to create competition among service institution which could boost their innovation. For example, in business permit services, all 584 local governments in Indonesia could compete on the time needed to process one business permit. Government should regularly update their procedures with new knowledge and technology (innovation) to improve efficiency. This means procedure should not make government organization static—by limiting themselves only to follow the procedure (Drucker 1992, p. 231). Procedure must be treated as a tool to develop sustainable innovation.<br /><br /><span style="font-style: italic;">Facilities and information system</span><br />Without support of appropriate facilities, even organizations with the most knowledgeable peoples may achieve results, but certainly will not be efficient. Therefore, it is important for any organization to catch up with the latest technology which can boost their efficiency. Otherwise the organization must find their own innovation to compete with others who better equipped. The reason for being equipped is to be efficient, nothing more than that. Worker with facilities and equipment must prove that they are able to produce results with appropriate quality faster than those who do without. Facilities must be provided appropriately. For example, it is not necessary for the boss to be equipped with an expensive computer suitable for graphic design when she/he only has a need to monitor numerical data and create written reports. Conversely, the cost of providing overhead projectors to teachers which can be significantly help students understand the lecture, should not be a deterrent when compared to length of teaching time would suitable enhancing equipment. The challenge here is to be able to identify appropriate facilities for each job.<br /><br />Information systems (IS) are a type of work facility. IS enables government organizations to interact well both within their organization and with stakeholders outside. This facility is a necessary requirement to maintain the adaptability of government organization against the changing environment. 'Continuous work on information' is a requirement 'to balance the changes and the continuity' (Drucker 1999, p. 91). Moreover, IS also helps government to decentralize their functions (Dean et al. 1992, p. 220). IS is not just a facility, it is a compulsory organ of government organization.<br /><br /><span style="font-style: italic;">Competency and motivation of people</span><br />Good government requires more than personnel management. Government will only perform if people in the organization are recognized as human resources. They must be seen as assets rather than liabilities. That is what Drucker calls "people management" (Drucker 1973, p. 108). Among other things in people management, managing people's competency and motivation is critical to an organization's performance. Competency is about ability which consists of knowledge, skill and attitude. Motivation enables that ability to work and perform functions.<br /><br />The aim of managing the competency of people is to ensure that all jobs that are required in order to execute the strategy are filled by the right people. This involves performance and competence evaluation, competency development, and promotion. Recruitment must be well-planned. The manager must know the required qualifications of people for a particular<br />job. Performance and competence evaluation will identify who is performing and who is not and what the issues are. When there are competency issues, the manager could improve the competency or replace the person by moving the person to a more suitable job. The purpose of organization in people management is to utilize the strength of the people and to make their weakness not relevant (Drucker 1973, p. 307).<br /><br />Government has a unique characteristic compared to private institutions in terms of managing motivation. Unlike the private sector whose income is derived from the willingness of customers to purchase their products or services, governments gain their revenue mainly from taxes. They are a budget-based institution (Drucker 1988, p. 135). This is a challenge to make them performed. The challenge is how to create motivation in institutional and personnel level. At institutional level, a stable open society and democratic government would help to create motivation. This will enable smooth but critical interaction between society and government. Bad policy will be criticized and good policy will be supported. Motivation at institutional level influences the motivation at individual level. However, that is mainly at upper managerial level. Creating motivation in lower managerial levels, and in the front line employees, is a tricky thing. 'Carrot and stick' is not only insufficient but can be dangerous. It is insufficient because people are not motivated only by reward and punishment, but also by values and culture. It could be dangerous because for knowledge employees, the fear from the 'stick' becomes a demotivator (Drucker 1973, p. 176). 'Carrot' (reward) is important, but defining the most valuable and lowest at cost reward is even more important. This could be different things for different people. Creating motivation for government institution and public servants is not only about increasing salary; it must also be managed in a systemic approach which includes organization culture, leadership, quality and openness of society, and transparency of government.<br /><br /><span style="font-style: italic;">Leadership</span><br />Good leadership will make all capacity elements and their interaction work to build institutional capacity. The focus of leadership is performance of function which is intended to overcome any of society's major issues. Therefore, managers require specific skills such as the ability to communicate within the organization, make decisions under conditions of uncertainty, and undertake strategic planning (Drucker 1973, p. 17). Communication skills are essential in leadership to motivate people to achieve their results. It is also important to gain stakeholders support particularly when the organization needs resources and political support from outside. Managers must also be able to make decisions in a changing environment. Managers must lead to find opportunities for innovation from symptoms assessed within and outside organization (Drucker 1993, pp. 30-129).<br /><br />Good government leaders will not spend all their time behind the desk, assessing finance and writing report. Controlling the organization's resources is important, that is indeed the manager's responsibility. However, managing performance is more than that. Leaders must divide themselves between organization and society. This is how they will be able to identify the 'right changes' (Drucker 1999, p. 73).<br /><br /><span style="font-weight: bold;">Conclusion</span><br />'The only thing that is constant is change'. That expression was written about 100 years before Plato (thedailyphilosopher n.d.). All government organizations are in the middle of a changing environment and changing society. However, at the same time, they require continuity which will be achieved if the government performs well. Managing performance in a changing environment requires understanding of capacity elements; that is all the factors which interact to build institutional capacity. Innovation is essential in most of the elements to improve the value of resources which are often limited, and also to exploit any opportunities which often not seem important for common people. This essay has discussed seven institutional capacity elements. Any government organization which systematically employs these elements and ensures their effectiveness will be able to manage performance in a continuously changing environment and society.<br /><br /><span style="font-weight: bold;">References</span><br />Dean, JW, Se Joon Yoon & Susman, GI 1992, 'Advanced manufacturing technology and organization structure: empowerment or subordination?', Organization Science, vol. 3, no. 2, pp. 203-229.<br />Drucker, PF 1954, The practice of management, Harper & Brothers Publishers, New York.<br />—— 1973, Management: tasks, responsibilities, practices, Heinemann, London.<br />—— 1988, Management: tasks, responsibilities, practices, Butterworth-Heinemann, London.<br />—— 1992, The age of discontinuity: guidelines to our changing society, Transaction Publisher, New Brunswick.<br />—— 1993, Innovation and entrepreneurship: practice and principles, 1st edn, Harper Business, New York.<br />—— 1999, Management challenges for the 21st century, Butterworth-Heinemann, Oxford.<br />Department of Treasury and Finance 2003, Outcome based management: guideline for use in the Western Australian public sector, Department of Treasury and Finance, Government of Western Australia, Perth.<br />Freeman, RE 1984, Strategic management: a stakeholder approach, Pitman, Boston.<br />Helpman, E 2004, The mystery of economic growth, Belknap Press of Harvard University Press, Cambridge, Mass.<br />Mitchell, RK, Agle, BR & Wood, DJ 1997, 'Toward a theory of stakeholder identification and salience: defining the principle of who and what really counts', The Academy of Management Review, vol. 22, no. 4, pp. 853-886.<br />Palfrey, C 1992, Policy evaluation in the public sector: approaches and methods, Avebury, Aldershot, Hants, England.<br />Thedailyphilosopher n.d., Essay: the only thing that is constant is change, viewed 3 August 2010,<br /><http: org="" daily="" php="">.<br /></http:>Unknownnoreply@blogger.com0tag:blogger.com,1999:blog-8697904756842250859.post-47267207793455302432010-11-12T13:59:00.000-08:002010-11-12T14:12:27.518-08:00Indonesia and Trans-Boundary Haze<!--[if gte mso 9]><xml> <o:officedocumentsettings> <o:relyonvml/> <o:allowpng/> </o:OfficeDocumentSettings> </xml><![endif]--><!--[if gte mso 9]><xml> <w:worddocument> <w:view>Normal</w:View> <w:zoom>0</w:Zoom> <w:trackmoves/> <w:trackformatting/> <w:punctuationkerning/> <w:validateagainstschemas/> <w:saveifxmlinvalid>false</w:SaveIfXMLInvalid> <w:ignoremixedcontent>false</w:IgnoreMixedContent> <w:alwaysshowplaceholdertext>false</w:AlwaysShowPlaceholderText> <w:donotpromoteqf/> <w:lidthemeother>EN-AU</w:LidThemeOther> <w:lidthemeasian>X-NONE</w:LidThemeAsian> <w:lidthemecomplexscript>X-NONE</w:LidThemeComplexScript> <w:compatibility> <w:breakwrappedtables/> <w:snaptogridincell/> <w:wraptextwithpunct/> <w:useasianbreakrules/> <w:dontgrowautofit/> <w:splitpgbreakandparamark/> 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Emphasis"> <w:lsdexception locked="false" priority="21" semihidden="false" unhidewhenused="false" qformat="true" name="Intense Emphasis"> <w:lsdexception locked="false" priority="31" semihidden="false" unhidewhenused="false" qformat="true" name="Subtle Reference"> <w:lsdexception locked="false" priority="32" semihidden="false" unhidewhenused="false" qformat="true" name="Intense Reference"> <w:lsdexception locked="false" priority="33" semihidden="false" unhidewhenused="false" qformat="true" name="Book Title"> <w:lsdexception locked="false" priority="37" name="Bibliography"> <w:lsdexception locked="false" priority="39" qformat="true" name="TOC Heading"> </w:LatentStyles> </xml><![endif]--><!--[if gte mso 10]> <style> /* Style Definitions */ table.MsoNormalTable {mso-style-name:"Table Normal"; mso-tstyle-rowband-size:0; mso-tstyle-colband-size:0; mso-style-noshow:yes; mso-style-priority:99; mso-style-qformat:yes; mso-style-parent:""; mso-padding-alt:0cm 5.4pt 0cm 5.4pt; mso-para-margin-top:0cm; mso-para-margin-right:0cm; mso-para-margin-bottom:10.0pt; mso-para-margin-left:0cm; line-height:115%; mso-pagination:widow-orphan; font-size:11.0pt; font-family:"Calibri","sans-serif"; mso-ascii-font-family:Calibri; mso-ascii-theme-font:minor-latin; mso-fareast-font-family:SimSun; mso-fareast-theme-font:minor-fareast; mso-hansi-font-family:Calibri; mso-hansi-theme-font:minor-latin; mso-bidi-font-family:Arial; mso-bidi-theme-font:minor-bidi;} </style> <![endif]--> <p class="MsoNormal" style="text-align: justify; line-height: 150%;"><b style=""><span style="line-height: 150%;font-family:";font-size:12pt;" >Introduction </span></b></p> <p class="MsoNormal" style="text-align: justify; line-height: 150%;"><span style="line-height: 150%;font-family:";font-size:12pt;" >Transboundary haze pollution (THP) in Southeast Asia—which mainly caused by Indonesia—is a regional recurring environmental problem (Qadri 2001, p. 54; Orangutanfoundation 2010). The THP can be resolved if there is support and cooperation of international stakeholders. Members of Association of Southeast Asian Nations (ASEAN) countries signed the 2002 Agreement on Transboundary Haze Pollution treaty ('The Treaty'). One of the principles in the treaty is to get support and cooperation among key stakeholders in domestic and international level (ASEAN Secretariat 2002, a. 3)</span></p> <p class="MsoNormal" style="text-align: justify; line-height: 150%;"><b style=""><span style="line-height: 150%;font-family:";font-size:12pt;" >Key Issue</span></b></p> <p class="MsoNormal" style="text-align: justify; line-height: 150%;"><span style="line-height: 150%;font-family:";font-size:12pt;" >The key issue to end this recurring problem is how to create incentive for international stakeholders to cooperate and support Indonesia. The common cause of transnational problem is self-interested pursuits (Sandler 1997, p. 2). Nevertheless, 'cooperative solution' is still possible to be reached even if the stakeholders assumed to have individually rational behaviour (Finus 2001, p. 11). The key determinant to make the transnational public good achieved is the proper incentive for the individual contributors (Sandler 2004, p. 98). Indeed, the main reason of why Indonesia would not ratify the treaty is the lack of economic incentive which associated with the inadequacy of resources at the local level to address the challenges of haze pollutions (Tacconi et al. 2008, pp. 6-9). The adequate resources are very important for Indonesia to create alternative solutions for local stakeholders; for example: alternative technology for oil palm and logging companies in doing land clearing, or to provide alternative livelihood for local people. <span style=""> </span></span></p> <p class="MsoNormal" style="text-align: justify; line-height: 150%;"><span style="line-height: 150%;font-family:";font-size:12pt;" >The proper incentive for international stakeholders is to have good quality air and environment (collective good) and/or to meet their international commitment. <span style=""> </span>This will never be achieved unless all parties cooperate. The cooperation is important because Indonesia needs economic resources from international stakeholders, while international stakeholders need Indonesian commitment. This meets characteristic of 'assurance game'; that is the benefit will only flow if both parties contribute to the cooperation (Sandler 1997, p. 35; Finus 2001, p. 32). <span style=""> </span></span></p> <p class="MsoNormal" style="text-align: justify; line-height: 150%;"><b style=""><span style="line-height: 150%;font-family:";font-size:12pt;" > </span></b></p> <p class="MsoNormal" style="text-align: justify; line-height: 150%;"><b style=""><span style="line-height: 150%;font-family:";font-size:12pt;" > </span></b></p> <p class="MsoNormal" style="text-align: justify; line-height: 150%;"><b style=""><span style="line-height: 150%;font-family:";font-size:12pt;" >Solution options</span></b></p> <p class="MsoNormal" style="text-align: justify; line-height: 150%;"><span style="line-height: 150%;font-family:";font-size:12pt;" >Option 1: Isolate the cooperation within ASEAN</span></p> <p class="MsoNormal" style="text-align: justify; line-height: 150%;"><span style="line-height: 150%;font-family:";font-size:12pt;" >Indonesia should isolate the cooperation within ASEAN. This is because the affected countries of THP are ASEAN countries (Quah 2002, p. 429). The most effective way to resolve transboundary environmental problem such as THP is by involving the affecting and affected countries (Uitto & Duda 2002, p. 365). Indonesian leadership is important because Indonesia plays a dominant role both in ASEAN as well as in the THP (Tay 2002, p. 61). Leadership is a key to get an optimal outcome in an 'assurance game' (Sandler 2004, p. 27). </span></p> <p class="MsoNormal" style="text-align: justify; line-height: 150%;"><span style="line-height: 150%;font-family:";font-size:12pt;" >Indonesia must provide commitment to ratify and implement the treaty. This will send a strong signal of incentive for other ASEAN countries which will attract them to cooperate.<span style=""> </span>In return, Indonesia should demand ASEAN members to contribute to the Transboundary Haze Control Fund (Haze-Fund) that has been initiated since 2007 (ASEAN Secretariat 2007). </span></p> <p class="MsoNormal" style="text-align: justify; line-height: 150%;"><span style="line-height: 150%;font-family:";font-size:12pt;" >Although the Haze-Fund is potential as resources for alternative solutions for Indonesian domestic stakeholders, it is difficult to get sufficient amount of it. As per October 2008, the ASEAN members were still struggling to achieve their initial target of $500,000 (ASEAN Secretariat 2008). That target is far from sufficient for alternative solutions of THP problem which involve large economic activities. </span></p> <p class="MsoNormal" style="text-align: justify; line-height: 150%;"><span style="line-height: 150%;font-family:";font-size:12pt;" > </span></p> <p class="MsoNormal" style="text-align: justify; line-height: 150%;"><span style="line-height: 150%;font-family:";font-size:12pt;" >Option 2: Enlarge the cooperation to global level </span></p> <p class="MsoNormal" style="margin-bottom: 0.0001pt; text-align: justify; line-height: 150%;"><span style="line-height: 150%;font-family:";font-size:12pt;" >Indonesia must relate the haze issue to the climate change. This will enlarge the scope of the cooperation into the global level. Effective collective action is more likely to be achieved by addressing global exigencies simultaneously (Sandler 1997, p. 19; Finus 2001, p. 2). <span style=""> </span>Besides being a major contributor to the THP, the 1997 Indonesian peat-land fire released carbon to the atmosphere which estimated equivalent to 13-40 per cent of the mean annual global carbon emissions from fossil fuels (Page et al. 2002, p. 61). <span style=""> </span>Addressing haze production from the peat-land fire will create global benefit in mitigating climate change (Tacconi et al. 2008, p. 2). This is a window to get more resources from global partnership through Reducing Emissions from Deforestation and Degradation (REDD) scheme. </span></p> <p class="MsoNormal" style="margin-bottom: 0.0001pt; text-align: justify; line-height: 150%;"><span style="line-height: 150%;font-family:";font-size:12pt;" >The incentive for international stakeholders is the possibility to use the partnership as a source of offsets to meet their emission reduction target as promised in the Kyoto Protocol (Fogarty & Creagh 2010). In fact, there are two global partnerships that have been running so far; they are: cooperation with Australia on Kalimantan Forests Climate Partnership with a value of $30 million (Australian Government 2009), and cooperation with Norway on Norway-Indonesia REDD-Plus Parnership with a value of $1 billion (Norway Embassy-Jakarta 2010). The ability to provide alternative solutions allows Indonesian government to gain support from domestic stakeholders to implement the treaty. <span style=""> </span></span></p> <p class="MsoNormal" style="margin-bottom: 0.0001pt; text-align: justify; line-height: 150%;"><span style="line-height: 150%;font-family:";font-size:12pt;" >While this option can create strong incentive for international stakeholders and support of domestic stakeholders to implement the treaty, it depends a lot on the global economic stability. The stability of global economy enables industrialized countries to contribute to the global emission reduction efforts. </span></p> <p class="MsoNormal" style="margin-bottom: 0.0001pt; text-align: justify; line-height: 150%;"><span style="line-height: 150%;font-family:";font-size:12pt;" ><span style=""> </span></span></p> <p class="MsoNormal" style="text-align: justify; line-height: 150%;"><b style=""><span style="line-height: 150%;font-family:";font-size:12pt;" >Proposal</span></b></p> <p class="MsoNormal" style="text-align: justify; line-height: 150%;"><span style="line-height: 150%;font-family:";font-size:12pt;" >By applying the following criteria: (a) the cost to Indonesia, and (b) the perception of responsibility, option-2 is the most plausible one. <span style=""> </span><span style=""> </span></span></p> <p class="MsoNormal" style="text-align: justify; line-height: 150%;"><span style="line-height: 150%;font-family:";font-size:12pt;" >The cost to Indonesia is an important criterion because Indonesia needs fund for its development and economic activities to create jobs. The best THP solution is the one that create little economic cost to Indonesia. Option-1 is likely will end up with low amount of Haze-Fund. If Indonesia committed to apply the treaty, Indonesia must pay most of the costs. And if government decides to close oil palm and logging companies who unable to find solutions to their land clearing but burning (because of a lack of alternative solution such as appropriate technology), Indonesian economy will suffer. This is a disincentive for domestic stakeholders to support the treaty. <span style=""> </span>Option-2 is more promising because it could attract more resources from international stakeholders which enable Indonesian government to find more alternatives for solutions to manage the interests of domestic stakeholders. <span style=""> </span></span></p> <p class="MsoNormal" style="text-align: justify; line-height: 150%;"><span style="line-height: 150%;font-family:";font-size:12pt;" >The perception of responsibility drives the incentive to cooperate which is central to achieve optimal outcome in an assurance game. In the THP issue frame (option-1), ASEAN countries (other than Indonesia) do not have strong responsibility of the issue because THP is a unilateral externality where Indonesia is the the main cause. By contrast, in climate change issue frame (option-2), almost all countries contribute to the greenhouse gas emissions (multilateral externality) where the industrialized countries are among the main cause. This explains why ASEAN countries have weak incentive to cooperate (option-1), while industrialized countries at global level have a stronger incentive (option-2) although both of them have similar interest to the collective good. Therefore, option-2 is more potential to make the international cooperation happen.</span></p> <p class="MsoNormal" style="text-align: justify; line-height: 150%;"><b style=""><span style="line-height: 150%;font-family:";font-size:12pt;" > </span></b></p> <p class="MsoNormal" style="text-align: justify; line-height: 150%;"><b style=""><span style="line-height: 150%;font-family:";font-size:12pt;" >References</span></b></p> <p class="MsoNormal" style="margin-bottom: 0.0001pt; line-height: normal;"><span style=";font-family:";font-size:12pt;" >Australian Government 2009, 'Indonesia-Australia forest carbon partnership', </span><span style=";font-family:";font-size:12pt;" >Australian Government Agency for Overseas Aid Program (Ausaid),</span><span style=";font-family:";font-size:12pt;" > viewed 14 October 2010, <http: au="" hottopics="" pdf="">.</http:></span></p> <p class="MsoNormal" style="margin-bottom: 0.0001pt; line-height: normal;"><span style=";font-family:";font-size:12pt;" > </span></p> <p class="MsoNormal" style="margin-bottom: 0.0001pt; line-height: normal;"><span style=";font-family:";font-size:12pt;" >ASEAN Secretariat 2002, <i style="">ASEAN agreement on transboundary haze pollution</i>, Association of Southeast Asian Nations (ASEAN), viewed 29 September 2010,</span></p> <p class="MsoNormal" style="margin-bottom: 0.0001pt; line-height: normal;"><span style=";font-family:";font-size:12pt;" ><http: org="" docs="" 1128506236="" pdf="" view="">.</http:></span></p> <p class="MsoNormal" style="margin-bottom: 0.0001pt; line-height: normal;"><span style=";font-family:";font-size:12pt;" > </span></p> <p class="MsoNormal" style="margin-bottom: 0.0001pt; line-height: normal;"><span style=";font-family:";font-size:12pt;" >—— </span><span style=";font-family:";font-size:12pt;" >2007, 'Joint media release of the ASEAN ministerial meetings on transboundary haze pollution', <span style="">ASEAN Environment, Association of Southeast Asian Nations (ASEAN), viewed 14 October 2010, </span></span></p> <p class="MsoNormal" style="margin-bottom: 0.0001pt; line-height: normal;"><span style=";font-family:";font-size:12pt;" ><</span><span style=";font-family:";font-size:12pt;" >http://environment.asean.org/index.php?page=media:jps:haze>.</span></p> <p class="MsoNormal" style="margin-bottom: 0.0001pt; line-height: normal;"><span style=";font-family:";font-size:12pt;" > </span></p> <p class="MsoNormal" style="margin-bottom: 0.0001pt; line-height: normal;"><span style=";font-family:";font-size:12pt;" >—— </span><span style=";font-family:";font-size:12pt;" >2008, '11th Informal ASEAN ministerial meeting on the environment', ASEAN Transboundary Haze Pollution Control Fund,<span style=""> Association of Southeast Asian Nations</span> (ASEAN), viewed 30 September 2010,</span></p> <p class="MsoNormal" style="margin-bottom: 0.0001pt; line-height: normal;"><span style=";font-family:";font-size:12pt;" ><http: org="" htm=""></http:></span></p> <p class="MsoNormal" style="margin-bottom: 0.0001pt; line-height: normal;"><span style=";font-family:";font-size:12pt;" > </span></p> <p class="MsoNormal" style="margin-bottom: 0.0001pt; line-height: normal;"><span style=";font-family:";font-size:12pt;" >Finus, M 2001, <i>Game theory and international environmental cooperation</i>, Edward Elgar, Cheltenham. <span class="z3988"> </span></span></p> <p class="MsoNormal" style="margin-bottom: 0.0001pt; line-height: normal;"><span style=";font-family:";font-size:12pt;" > </span></p> <p class="MsoNormal" style="margin-bottom: 0.0001pt; line-height: normal;"><span style=";font-family:";font-size:12pt;" >Fogarty, D & Creagh, S 2010, 'REDD forest offset demand 3-7 years away', <i>Reuters</i>, 11 October, viewed 19 October 2010, <span style=""> </span><http: com="" article="" idustre69a1ci20101011="">. </http:></span></p> <p class="MsoNormal" style="margin-bottom: 0.0001pt; line-height: normal;"><span style=";font-family:";font-size:12pt;" > </span></p> <p class="MsoNormal" style="margin-bottom: 0.0001pt; line-height: normal;"><span style=";font-family:";font-size:12pt;" >Norway Embassy-Jakarta 2010, 'Norway-Indonesia REDD+ partnership—frequently asked questions', <span style="">Royal Norwegian Embasssy Jakarta</span>, viewed 19 October 2010, <http: id="" norway_in_indonesia="" environment="">. </http:></span></p> <p class="MsoNormal" style="margin-bottom: 0.0001pt; line-height: normal;"><span style=";font-family:";font-size:12pt;" > </span></p> <p class="MsoNormal" style="margin-bottom: 0.0001pt; line-height: normal;"><span style=";font-family:";font-size:12pt;" >Orangutanfoundation 2009, 'Fires still burn in Borneo', <span style="">Orangutan Foundation</span>. Viewed 28 September 2010, </span></p> <p class="MsoNormal" style="margin-bottom: 0.0001pt; line-height: normal;"><<span style=";font-family:";font-size:12pt;" >http://orangutanfoundation.wildlifedirect.org/2009/10/08/fires-still-burn-in-borneo/</span>>.<span style=";font-family:";font-size:12pt;" ></span></p> <p class="MsoNormal" style="margin-bottom: 0.0001pt; line-height: normal;"><span style=";font-family:";font-size:12pt;" > </span></p> <p class="MsoNormal" style="margin-bottom: 0.0001pt; line-height: normal;"><span style=";font-family:";font-size:12pt;" >Page, SE, Siegert, F, Rieley, JO & Boehm, HV 2002, 'The amount of carbon released from peat and forest fires in Indonesia during 1997', <i>Nature</i>, vol. 420, no. 6911, pp. 61-65. <span class="z3988"> </span></span></p> <p class="MsoNormal" style="margin-bottom: 0.0001pt; line-height: normal;"><span style=";font-family:";font-size:12pt;" > </span></p> <p class="MsoNormal" style="margin-bottom: 0.0001pt; line-height: normal;"><span style=";font-family:";font-size:12pt;" >Qadri, S 2001, <i>Fire, smoke, and haze: the ASEAN response strategy</i>, Association of Southeast Asian Nations (ASEAN) and Asian Development Bank (ADB), Manila.</span></p> <p class="MsoNormal" style="margin-bottom: 0.0001pt; line-height: normal;"><span style=";font-family:";font-size:12pt;" > </span></p> <p class="MsoNormal" style="margin-bottom: 0.0001pt; line-height: normal;"><span style=";font-family:";font-size:12pt;" >Quah, E 2002, 'Transboundary pollution in Southeast Asia: the Indonesian fires', <i>World Development</i>, vol. 30, no. 3, pp. 429-441. <span class="z3988"> </span></span></p> <p class="MsoNormal" style="margin-bottom: 0.0001pt; line-height: normal;"><span style=";font-family:";font-size:12pt;" > </span></p> <p class="MsoNormal" style="margin-bottom: 0.0001pt; line-height: normal;"><span style=";font-family:";font-size:12pt;" >Sandler, T 1997, <i>Global challenges: an approach to environmental, political, and economic problem</i>, Cambridge University Press, Cambridge.<span class="z3988"></span></span></p> <p class="MsoNormal" style="margin-bottom: 0.0001pt; line-height: normal;"><span style=";font-family:";font-size:12pt;" > </span></p> <p class="MsoNormal" style="margin-bottom: 0.0001pt; line-height: normal;"><span style=";font-family:";font-size:12pt;" >—— </span><span style=";font-family:";font-size:12pt;" >2004, <i>Global collective action</i>, Cambridge University Press, Cambridge. <span class="z3988"> </span></span></p> <p class="MsoNormal" style="margin-bottom: 0.0001pt; line-height: normal;"><span style=";font-family:";font-size:12pt;" > </span></p> <p class="MsoNormal" style="margin-bottom: 0.0001pt; line-height: normal;"><span style=";font-family:";font-size:12pt;" >Tacconi, L, Jotzo, F & Grafton, RQ 2008, 'Local causes, regional co-operation and global financing for environmental problems: the case of Southeast Asia Haze pollution', <i>International Environmental Agreements: Politics, Law and Economics</i>, vol. 8, no. 1, pp. 1-16. <span class="z3988"> </span></span></p> <p class="MsoNormal" style="margin-bottom: 0.0001pt; line-height: normal;"><span style=";font-family:";font-size:12pt;" > </span></p> <p class="MsoNormal" style="margin-bottom: 0.0001pt; line-height: normal;"><span style=";font-family:";font-size:12pt;" >Tay, S 2002, 'Fires and haze in Southeast Asia', in PJ Noda (ed), <i>Cross-Sectoral Partnerships in Enhancing Human Security</i>, Japan Center for International Exchange, Tokyo, pp. 53-80. <span class="z3988"> </span></span></p> <p class="MsoNormal" style="margin-bottom: 0.0001pt; line-height: normal;"><span style=";font-family:";font-size:12pt;" > </span></p> <p class="MsoNormal" style="margin-bottom: 0.0001pt; line-height: normal;"><span style=";font-family:";font-size:12pt;" >Uitto, JI & Duda, AM 2002, 'Management of transboundary water resources: lessons from international cooperation for conflict prevention', <i>The Geographical Journal</i>, vol. 168, no. 4, pp. 365-378. <span class="z3988"> </span></span></p> <p class="MsoNormal" style="text-align: justify; line-height: 150%;"><span style="line-height: 150%;font-family:";font-size:12pt;" > </span></p> <p class="MsoNormal" style="text-align: justify; line-height: 150%;"><span style="line-height: 150%;font-family:";font-size:12pt;" > </span></p> Unknownnoreply@blogger.com0tag:blogger.com,1999:blog-8697904756842250859.post-83597813231431893322010-11-12T13:58:00.001-08:002010-11-12T13:58:52.465-08:00G-20 and Global Financial Crisis<!--[if gte mso 9]><xml> <o:officedocumentsettings> <o:relyonvml/> <o:allowpng/> </o:OfficeDocumentSettings> </xml><![endif]--><!--[if gte mso 9]><xml> <w:worddocument> <w:view>Normal</w:View> <w:zoom>0</w:Zoom> <w:trackmoves/> <w:trackformatting/> <w:punctuationkerning/> <w:validateagainstschemas/> <w:saveifxmlinvalid>false</w:SaveIfXMLInvalid> <w:ignoremixedcontent>false</w:IgnoreMixedContent> 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name="Bibliography"> <w:lsdexception locked="false" priority="39" qformat="true" name="TOC Heading"> </w:LatentStyles> </xml><![endif]--><!--[if gte mso 10]> <style> /* Style Definitions */ table.MsoNormalTable {mso-style-name:"Table Normal"; mso-tstyle-rowband-size:0; mso-tstyle-colband-size:0; mso-style-noshow:yes; mso-style-priority:99; mso-style-qformat:yes; mso-style-parent:""; mso-padding-alt:0cm 5.4pt 0cm 5.4pt; mso-para-margin-top:0cm; mso-para-margin-right:0cm; mso-para-margin-bottom:10.0pt; mso-para-margin-left:0cm; line-height:115%; mso-pagination:widow-orphan; font-size:11.0pt; font-family:"Calibri","sans-serif"; mso-ascii-font-family:Calibri; mso-ascii-theme-font:minor-latin; mso-fareast-font-family:"Times New Roman"; mso-fareast-theme-font:minor-fareast; mso-hansi-font-family:Calibri; mso-hansi-theme-font:minor-latin; mso-bidi-font-family:"Times New Roman"; mso-bidi-theme-font:minor-bidi;} </style> <![endif]--> <p class="MsoNormal" style="text-align: justify; line-height: 150%;"><b style=""><span style="font-size: 12pt; line-height: 150%; font-family: "Times New Roman","serif";">Introduction </span></b></p> <p class="MsoNormal" style="text-align: justify; line-height: 150%;"><span style="font-size: 12pt; line-height: 150%; font-family: "Times New Roman","serif";">The recent global financial crisis (GFC), mainly caused by the U.S. subprime crisis, is the deepest recession since World War II (IMF 2009, p. xvi). The global growth is now recovering (IMF 2010a, p. xi), but the next crisis is always on its way. Rapid globalization increases the risk of a new financial crisis globally because of the high economic interconnection among countries. One fundamental problem is the imbalance between reach of markets and their supporting institutions at the global level (Rodrik 2009). The global growth recovery and financial stability can be achieved only through an international coordination. That is the essence of the 2008 Washington Action Plan, hereafter called "collective action", which was agreed on by the G-20 leaders during the 2009 London Summit. <span style=""> </span></span></p> <p class="MsoNormal" style="margin-bottom: 0.0001pt; text-align: justify; line-height: 150%;"><b style=""><span style="font-size: 12pt; line-height: 150%; font-family: "Times New Roman","serif";">Key Issue </span></b></p> <p class="MsoNormal" style="margin-bottom: 0.0001pt; text-align: justify; line-height: 150%;"><span style="font-size: 12pt; line-height: 150%; font-family: "Times New Roman","serif";">The key issue to enact the international coordination is how to ensure all G-20 member countries implement the collective action. While all members have common interest to recover the global growth and to have global financial stability, hereafter called "collective good", the rational individual members tend to maximise their own benefit which can act contrary to the group's interest (Olson 1965, p. 9). This is commonly known as "free rider" problem. The potential for free riding can be found, for example, in the agreement to strengthen the financial regulation </span><span style="font-size: 12pt; line-height: 150%; font-family: "Times New Roman","serif";">(G-20 2008). Although strengthened regulations could create financial stability, this also could hamper capital inflow especially from the high risk investors. A country with a need of high capital inflow could disobey the action plan. If this is the case, an excess supply of capital might occur in the free rider country which could lead to asset bubble and could end up with another GFC </span><span style="font-size: 12pt; line-height: 150%; font-family: "Times New Roman","serif";">(Stiglitz 2002, p. 101)</span><span style="font-size: 12pt; line-height: 150%; font-family: "Times New Roman","serif";">. <span style=""> </span></span><span style="font-size: 12pt; line-height: 150%; font-family: "Times New Roman","serif";"></span></p> <p class="MsoNormal" style="margin-bottom: 0.0001pt; text-align: justify; line-height: 150%;"><span style="font-size: 12pt; line-height: 150%; font-family: "Times New Roman","serif";"> </span></p> <p class="MsoNormal" style="margin-bottom: 0.0001pt; text-align: justify; line-height: 150%;"><b style=""><span style="font-size: 12pt; line-height: 150%; font-family: "Times New Roman","serif";">Solution Options</span></b></p> <p class="MsoNormal" style="margin-bottom: 0.0001pt; text-align: justify; line-height: 150%;"><span style="font-size: 12pt; line-height: 150%; font-family: "Times New Roman","serif";">Option-1: Internalize the externality </span></p> <p class="MsoNormal" style="margin-bottom: 0.0001pt; text-align: justify; line-height: 150%;"><span style="font-size: 12pt; line-height: 150%; font-family: "Times New Roman","serif";">The G-20 should internalize the externality of the collective action by forming sub-groups in regions. That is the collective action that carried out by, and affected only, the members in the region (the subset) (Coleman 1972, cited in Liao 1994, p. 52). For example, if East Asia is a subgroup, economic resources and financial exchanges must be localized in East Asia only. Therefore, when East Asian members commit to the collective action they are the one who will benefit the impact. Similarly, when they are, or any one of the member is, not committed to the action plan, it is only them who will suffer. There will be no contagion effect because the economic exchange is localized. </span></p> <p class="MsoNormal" style="margin-bottom: 0.0001pt; text-align: justify; line-height: 150%;"><span style="font-size: 12pt; line-height: 150%; font-family: "Times New Roman","serif";">Besides internalizing the externality, this approach also reduce the size of the group. </span><span style="font-size: 12pt; line-height: 150%; font-family: "Times New Roman","serif";">In a small group, any member will receive larger fraction of the total group benefit which lead to the increase of reward for any group-oriented action (Olson 1965, p. 48). Smaller group tends to increase individual member's influence on shaping the collective goods which lead to a stronger incentive to contribute to the collective action (Olson 1982, p. 24).</span></p> <p class="MsoNormal" style="margin-bottom: 0.0001pt; text-align: justify; line-height: 150%;"><span style="font-size: 12pt; line-height: 150%; font-family: "Times New Roman","serif";">The combination of smaller size and localizing the impact will raise the incentive for all members in the region to implement the collective action accordingly. Not only because each of them worry about the impact, but also because they will be more active to look after each other. </span></p> <p class="MsoNormal" style="margin-bottom: 0.0001pt; text-align: justify; line-height: 150%;"><span style="font-size: 12pt; line-height: 150%; font-family: "Times New Roman","serif";">While this option can overcome the free rider problem, this will disrupt the global growth (as part of collective good) because of the exchange restriction. Global growth requires external openness in trade and economic exchanges (IMF 1997, p. 84; Stiglitz 1998, p. 36).<span style=""> </span></span></p> <p class="MsoNormal" style="margin-bottom: 0.0001pt; text-align: justify; line-height: 150%;"><span style="font-size: 12pt; line-height: 150%; font-family: "Times New Roman","serif";"> </span></p> <p class="MsoNormal" style="margin-bottom: 0.0001pt; text-align: justify; line-height: 150%;"><span style="font-size: 12pt; line-height: 150%; font-family: "Times New Roman","serif";">Option-2: Selective incentive </span></p> <p class="MsoNormal" style="margin-bottom: 0.0001pt; text-align: justify; line-height: 150%;"><span style="font-size: 12pt; line-height: 150%; font-family: "Times New Roman","serif";">The G-20 must apply a selective incentive. That is an additional gain, beside the collective good, that applies only to the member that contribute to the provision of the collective good (Olson 1982, p. 23). Selective incentive could stimulate a rational member to support the collective action (Olson 1965, pp. 133-134). </span></p> <p class="MsoNormal" style="margin-bottom: 0.0001pt; text-align: justify; line-height: 150%;"><span style="font-size: 12pt; line-height: 150%; font-family: "Times New Roman","serif";">The source of selective incentive could come from the IMF's loan and technical assistance (the IMF facilities). The G-20 leaders pledged to increase the IMF's lending capability to serve their members (Alfaro & Kim 2009, p. 5). IMF and the G-20 leaders must agree that any G-20 member who fully supports the action plan has a special access to the loan and technical assistance. <span style=""> </span></span></p> <p class="MsoNormal" style="margin-bottom: 0.0001pt; text-align: justify; line-height: 150%;"><span style="font-size: 12pt; line-height: 150%; font-family: "Times New Roman","serif";">There is a concern that IMF facilities may not so attractive because of the experiences during the late 1990s Asian crisis (Alfaro & Kim 2009, p. 5). However, the fact shows that number of IMF member countries keeps increasing. As of now, member of IMF is 187 countries (IMF 2010b). </span></p> <p class="MsoNormal" style="margin-bottom: 0.0001pt; text-align: justify; line-height: 150%;"><span style="font-size: 12pt; line-height: 150%; font-family: "Times New Roman","serif";">In order to make the IMF facilities become more attractive for the G-20 members, IMF must loosen the loan conditions while in the same time improve its credibility on its advisory function. </span></p> <p class="MsoNormal" style="margin-bottom: 0.0001pt; text-align: justify; line-height: 150%;"><span style="font-size: 12pt; line-height: 150%; font-family: "Times New Roman","serif";">Furthermore, the selective incentive must be extended to non G-20 countries once the collective action among the members runs well. The extension is important to prevent a threat of global financial stability from non G-20 countries. Once the coverage is extended, the IMF lending capacity must be enlarged. This is because the incentive diminishes as the group size increases (Olson 1982, p. 31). </span></p> <p class="MsoNormal" style="margin-bottom: 0.0001pt; text-align: justify; line-height: 150%;"><span style="font-size: 12pt; line-height: 150%; font-family: "Times New Roman","serif";"> </span></p> <p class="MsoNormal" style="margin-bottom: 0.0001pt; text-align: justify; line-height: 150%;"><b style=""><span style="font-size: 12pt; line-height: 150%; font-family: "Times New Roman","serif";">Proposal </span></b></p> <p class="MsoNormal" style="text-align: justify; line-height: 150%;"><span style="font-size: 12pt; line-height: 150%; font-family: "Times New Roman","serif";">By applying the following criteria: (a) individual-group interest alignment, and (b) in line with the collective good achievement, option-2 is the most plausible one. <span style=""> </span></span></p> <p class="MsoNormal" style="text-align: justify; line-height: 150%;"><span style="font-size: 12pt; line-height: 150%; font-family: "Times New Roman","serif";">The alignment of the individual and group interest is central to eliminate the free riders. The more alignment, the less free riding practices will happen. Option-1 creates the alignment by increasing pressure to each member through localizing the impact of the collective action. Option-2 improves the alignment by providing the committed member a special access to the IMF facilities. It can be argued that option-2 will improve the alignment better because the IMF facilities are valuable enough for G-20 members to direct the rational individual interest to be aligned with the group interest. Option-1 creates strong alignment as well. However, the alignment is based on the region. Since the region is so independent, it is quite possible the region will change the collective action to meet their interest. This means the alignment to the G-20 as a (mother) group is uncertain. </span></p> <p class="MsoNormal" style="text-align: justify; line-height: 150%;"><span style="font-size: 12pt; line-height: 150%; font-family: "Times New Roman","serif";">There is no doubt that option-1 will secure the financial stability. However, it could impede the global growth because of the restriction of financial and resources exchange. Whereas option-2 does not limit the globalization and in the same time support the global financial stability through reducing the free riders. In short, option-2 is more in line with the collective good achievement. <span style=""> </span></span></p> <p class="MsoNormal" style="text-align: justify; line-height: 150%;"><span style="font-size: 12pt; line-height: 150%; font-family: "Times New Roman","serif";"> </span></p> <p class="MsoNormal" style="text-align: justify; line-height: 150%;"><b style=""><span style="font-size: 12pt; line-height: 150%; font-family: "Times New Roman","serif";">Reference </span></b></p> <p class="MsoNormal" style="margin-bottom: 0.0001pt; line-height: normal;"><span style="font-size: 12pt; font-family: "Times New Roman","serif";">Alfaro, L & Kim, R 2009, <i style="">The first global financial crisis of 21st century</i>, Harvard Business School, Boston. </span></p> <p class="MsoNormal" style="margin-bottom: 0.0001pt; line-height: normal;"><span style="font-size: 12pt; font-family: "Times New Roman","serif";"> </span></p> <p class="MsoNormal" style="margin-bottom: 0.0001pt; line-height: normal;"><span style="font-size: 12pt; font-family: "Times New Roman","serif";">G-20 2008, <i style="">Washington action plan</i>, viewed 3 September 2010, <http://www.londonsummit.gov.uk/en/summit-aims/washington-follow-up/washington-action-plan1/>.</span></p> <p class="MsoNormal" style="margin-bottom: 0.0001pt; line-height: normal;"><span style="font-size: 12pt; font-family: "Times New Roman","serif";"> </span></p> <p class="MsoNormal" style="margin-bottom: 0.0001pt; line-height: normal;"><span style="font-size: 12pt; font-family: "Times New Roman","serif";">IMF 1997, <i>World economic outlook October 1997</i>, International Monetary Fund, Washington, D.C. <span class="z3988"> </span></span></p> <p class="MsoNormal" style="margin-bottom: 0.0001pt; line-height: normal;"><span style="font-size: 12pt; font-family: "Times New Roman","serif";"> </span></p> <p class="MsoNormal" style="margin-bottom: 0.0001pt; line-height: normal;"><span style="font-size: 12pt; font-family: "Times New Roman","serif";">——</span><span style="font-size: 12pt; font-family: "Times New Roman","serif";"> 2009, <i>World economic outlook April 2009: crisis and recovery</i>, International Monetary Fund, Washington, D.C. <span class="z3988"> </span></span></p> <p class="MsoNormal" style="margin-bottom: 0.0001pt; line-height: normal;"><span style="font-size: 12pt; font-family: "Times New Roman","serif";"> </span></p> <p class="MsoNormal" style="margin-bottom: 0.0001pt; line-height: normal;"><span style="font-size: 12pt; font-family: "Times New Roman","serif";">——</span><span style="font-size: 12pt; font-family: "Times New Roman","serif";"> 2010a, <i>World economic outlook April 2010: rebalancing growth</i>, International Monetary Fund, Washington, D.C. <span class="z3988"> </span></span></p> <p class="MsoNormal" style="margin-bottom: 0.0001pt; line-height: normal;"><span style="font-size: 12pt; font-family: "Times New Roman","serif";"> </span></p> <p class="MsoNormal" style="margin-bottom: 0.0001pt; line-height: normal;"><span style="font-size: 12pt; font-family: "Times New Roman","serif";">——</span><span style="font-size: 12pt; font-family: "Times New Roman","serif";"> 2010b, <i style="">Tuvalu joined the IMF on June 24, becoming the institution’s 187th member</i>, viewed 7 September 2010, <span style=""> </span></span></p> <p class="MsoNormal" style="margin-bottom: 0.0001pt; line-height: normal;"><span style="font-size: 12pt; font-family: "Times New Roman","serif";"><http://www.imf.org/external/pubs/ft/survey/so/2010/new062410a.htm>.</span></p> <p class="MsoNormal" style="margin-bottom: 0.0001pt; line-height: normal;"><span style="font-size: 12pt; font-family: "Times New Roman","serif";"> </span></p> <p class="MsoNormal" style="margin-bottom: 0.0001pt; line-height: normal;"><span style="font-size: 12pt; font-family: "Times New Roman","serif";">Liao, T 1994, “A theoretical framework of collective action for the evaluation of family planning programs.” <i>Population Research and Policy Review</i>, no. 13, pp. 49-67. <span class="z3988"> </span></span></p> <p class="MsoNormal" style="margin-bottom: 0.0001pt; line-height: normal;"><span style="font-size: 12pt; font-family: "Times New Roman","serif";"> </span></p> <p class="MsoNormal" style="margin-bottom: 0.0001pt; line-height: normal;"><span style="font-size: 12pt; font-family: "Times New Roman","serif";">Olson, M 1965, <i>The logic of collective action: public goods and the theory of groups</i>, Harvard University Press, Cambridge, Mass. <span class="z3988"> </span></span></p> <p class="MsoNormal" style="margin-bottom: 0.0001pt; line-height: normal;"><span style="font-size: 12pt; font-family: "Times New Roman","serif";"> </span></p> <p class="MsoNormal" style="margin-bottom: 0.0001pt; line-height: normal;"><span style="font-size: 12pt; font-family: "Times New Roman","serif";">——</span><span style="font-size: 12pt; font-family: "Times New Roman","serif";"> </span><span style="font-size: 12pt; font-family: "Times New Roman","serif";">1982, <i>The rise and decline of nations: economic growth, stagflation, and social rigidities</i>, Yale University Press, New Haven. <span class="z3988"> </span></span></p> <p class="MsoNormal" style="margin-bottom: 0.0001pt; line-height: normal;"><span style="font-size: 12pt; font-family: "Times New Roman","serif";"> </span></p> <p class="MsoNormal" style="margin-bottom: 0.0001pt; line-height: normal;"><span style="font-size: 12pt; font-family: "Times New Roman","serif";">Rodrik, D 2009, Capitalism 3.0, LSE Space for Thought Lecture Series 16 June 2009, The London School of Economics and Political Science, viewed 7 September 2010,<span style=""> </span><http://www2.lse.ac.uk/publicevents/events/2009/20090311t1914z001.aspx>.</span></p> <p class="MsoNormal" style="margin-bottom: 0.0001pt; line-height: normal;"><span style="font-size: 12pt; font-family: "Times New Roman","serif";"> </span></p> <p class="MsoNormal" style="margin-bottom: 0.0001pt; line-height: normal;"><span style="font-size: 12pt; font-family: "Times New Roman","serif";">Stiglitz, JE 1998, <i style="">Towards a new paradigm for development: strategies, policies,<br />and processes</i>, 1998 Prebisch Lecture, UNCTAD, Geneva.</span></p> <p class="MsoNormal" style="margin-bottom: 0.0001pt; line-height: normal;"><span style="font-size: 12pt; font-family: "Times New Roman","serif";"> </span></p> <p class="MsoNormal" style="margin-bottom: 0.0001pt; line-height: normal;"><span style="font-size: 12pt; font-family: "Times New Roman","serif";">—— </span><span style="font-size: 12pt; font-family: "Times New Roman","serif";">2002, <i>Globalization and Its Discontents</i>, Penguin Books, London. <span class="z3988"> </span></span></p> <p class="MsoNormal" style="margin-bottom: 0.0001pt; line-height: normal;"><span style="font-size: 12pt; font-family: "Times New Roman","serif";"><span style=""> </span></span></p>Unknownnoreply@blogger.com0tag:blogger.com,1999:blog-8697904756842250859.post-10488145525804461272010-11-11T12:49:00.000-08:002010-11-11T12:52:40.300-08:00Corruption and Anti-Corruption<span style="font-weight: bold;">Introduction </span><br />History is full with story about corruption scandals but the academic study of corruption is mainly a twentieth century phenomenon (Doig & Williams 2000, p. ix). The academic study on corruption which started since 1950s/1960s revealed negative impacts of corruption particularly as they become significant development impediments. In addition to the traditional recipes, this paper will argue that anti-corruption measures must put serious attention on the promotion of personal intrinsic value that support anti-corruption measures. <br /><br /><span style="font-weight: bold;">Why corruption is bad<span style="font-weight: bold;"></span></span>?<br />Although there are many logical explanations rationalize the negative correlation between corruption and economic growth, the data analysis lead to a puzzle. Analysis of investment, economic growth and corruption (bureaucracy efficiency) data from 67 countries shows that corruption found to lower investment and thereby lowering economic growth (Mauro 1995, p. 705) . However, the subsequent analysis with updated data conducted by Svensson suggests that at macro level corruption does not affect growth (2005, p. 39). One possible explanation of this puzzle is that the type of patron-client network within which the corruption located influences the effect of corruption to growth (Khan 1998, p. 15). <br />Apart of the puzzle of corruption-economic growth relationship, economic growth is not the only thing that matters for society (Rose-Ackerman 2006, p. xvi). Other important aspect for society apart of economic growth, for example, is inequality. Corruption is clearly bad for equality. Income inequality has expanded most in corrupt countries (World Bank 2000, p. 21). This could happen because corrupt bureaucracy tends to neglect the poor and the powerless who cannot offer material benefit to bureaucrats and politicians. One concrete example from Indonesia shows there were 71 per cent of service users indicate differences treatment from service providers at the service units (KPK 2009, p. 55). Other negative impacts of corruption include increasing poverty (Kaufmann & Dinino 2006, p. 15; World Bank 2000, p. 20), reduce the government credibility (Rose-Ackerman 1999, p. 26; World Bank 2000, p. 23), and reduction of government expenditure on education (Mauro 1998, p. 277). <br /><br /><span style="font-weight: bold;">Why anti-corruption? </span><br />Public sector must fight corruption even it is costly. This is because public sector business involved tax payers’ money and public mandate. Petty corruption is still bad in morality and could reduce government's credibility which could end up with something much more serious impact such as public disobedience to public rules. In public sector, bureaucrats and politicians are demanded not only to be effective, but also to be clean (Harris 2003, p. 201). <br /><br /><span style="font-weight: bold;">Analysing corruption </span><br /><br /><span style="font-style: italic;">Behavioural approach </span><br />People could be tempted to corrupt when they perceive they are not treated equally. Societies with more economic inequality are less trusting which lead to high corruption (Uslaner 2004, p. 14). However, what Uslaner means with trust is a general trust as contrast to in-group trust. In-group trust supports corrupt conducts thorough the establishment of bonds of reciprocity (Uslaner 2004, p. 9). This explains why corruption is associated with multiculturalism particularly when it comes to 'affirmative action' program (Larmour 2008, p. 235). Equity issue brings to the concern on the role of low incomes in causing corruption (see, for example, Montinola & Jackman 2002, p. 147; Banfield 1975, p. 600; World Bank 2007, p. 104; Kaufman & Dininio 2006, p. 16).<br />Corruption conducts happen because rational calculation suggests to do so. Corrupt practices in public service units in Indonesia are associated with low anti-corruption measures (KPK 2009, p. 55). The major considerations of political corruption are the likelihood of apprehension and the penalty if caught (World Bank 1997, p. 104; Harris 2003, p. 202)<br />Culture plays important roles in social acceptance. That is because culture influences people's decision (Larmour 2008, p. 237). Culture is a standard values and a pattern of shared assumption which influence the group members of their perception, thinking, and feeling towards their behaviour (Schein 1993, pp. 373-374). Corruption survey in Indonesia shows 59 per cent of public service unit clients stated that giving additional charges was a common practice in procuring services (KPK 2009, p. 55).<br /><br /><span style="font-style: italic;">Organizational approach </span><br />The bigger the government means the higher corruption risk because of more transactions. However, research findings are inconclusive; see for example Montinola & Jackman (2002, p. 147) and Gerring & Thacker (2005, p. 233). One possible explanation is that the small government has fewer resources which would bids up the ‘decision price’ and increase corruption temptation (Rose-Ackerman 1997, p. 41). Another possibility is that reducing government size that made through not-credible-privatization will increase corruption (Black et al. 2000, p. 1747). <br />Organization with unclear line of responsibility or lack of sufficient monitoring increases corruption risk. That is because the loose monitoring creates opportunity. This may explain why decentralization and federation has positive correlation with level of corruption (Goldsmith 1999, p. 879; Kunicova and Rose-Ackerman 2005, p. 597). The decentralization and federation have a fragmented organization; this support corruption conducts because the potential corruptor needs to influence only a segment of the government, and because in fragmented system there are fewer centralized forces on monitoring and enforcement (Banfield 1975, p. 600).<br />The corruption risk is higher in an organization where its work processes are ambiguous or not clearly understood. This is because employee may be able to manipulate the process for his/her own benefit particularly in a high risk job such as procurement. Unclear procedure could be used by the public servants to delay the service time, which then attract the clients to bribe (Rose-Ackerman 2006, p. xviii).<br /><br /><span style="font-style: italic;">Political approach</span><br />The politic institution architecture and the quality of policy and regulations determine the corruption risk. The more power the public officials have, the more space for discretion, the higher risk for corruption (Klitgaard 1998, p.75). One characteristic of political corruption is the dominant of executive that combined with weak of judiciary (Harris 2003, pp. 202). Quality of policy and regulation are also important determinant. Corruption is more prevalent in countries with highly distorted policies (World Bank 1997, p. 103). Country with complicated regulation has high corruption risk because complicated regulation requires interpretation which leads to centralization of power to person in charge rather than to the regulation itself.<br />Democracy is like two-sided sword. On one hand it forces the politicians (agent) to follow the interest of their principal (the citizen) (Lambsdorff 2006, p. 10), on the other hand election requires resources which could force the politicians to corrupt (Moe 1984, p. 762). Therefore, democracy will only inhibit corruption in country with complete democratization which reflected by the nature of the election and the effectiveness of the elected legislators (Montinola & Jackman 2002, p. 147). Complete democratization may require experiences. Country with long exposure to democracy predicted lower corruption (Treisman 2000, p. 399).<br /> <br /><span style="font-weight: bold;">Anti-corruption framework</span><br /><br />1. Promote intrinsic anti-corruption values<br />This is a foundation of all anti-corruption measures. The obsessively admiration to wealth is one inner factor that support corrupt behaviour of individual (Watson 2006, p. 50). Economists and criminal sociologist believe that human being is a rational actor who making choice according to cost and benefit analysis (Keel 2005). Therefore some scholars have ideas to apply penalties (cost) and rewards (benefit) in order to prevent people commit in corruption conducts (Rose-Ackerman 1997, pp. 46-50; Harris 2003, p. 202; Klitgaard 1998, pp. 69-71). While this "carrot and stick" approach makes sense according to the rational choice way of thinking, that will not sustainable in the long run. That is because the value of rewards will be diminished from time to time and people will learn how to use certain tactics to avoid detection and "stick”. Explicit incentives schemes may sometimes backfire because it undermines people's confidence (Bénabou & Tirole 2003, p. 516).<br />For a long term effect, it is important for everyone in a nation to embrace certain values which in line with anti-corruption. The individual must embrace the value as intrinsic value; that is something that could make particular attitude conducive and productive (Lemos 1994, p. 5). The idea is how to make personal values are more than just materialistic things.<br />Anti-corruption measures must convince people to embrace anti-corruption values. This must be beyond religion. Some religions will not succeed on promoting intrinsic values because they apply "carrot and stick" approach (external force) by threatening bad people with hell and awarding good people with heaven. The promotion must be laid on the basis of self-determination. Self-determination can effectively create intrinsic motivations (Choi et al. 2010, p. 967). Self-determination can be created through promoting rationality (high internal locus of control) behaviour, improving competency, and relatedness (Ryan & Deci 2000, p. 68). Those self-determination drivers could be achieved through improving the quality of education, public services, and national leaderships.<br /><br /><br /><span style="font-style: italic;">2. Political institutionalization </span><br />The state institution architecture must be sufficiently power-balanced, not too dispersed but also not too concentrated. The credible institution is most likely found in the country whose political architecture is located toward the center of the dispersal decision making range (MacIntyre 2003, pp. 32-36). Horizontal accountability is important which can be created by making institutional restraints through creating the separation and independence of the three branches of power i.e. executive, legislative, and judicative (Kaufmann & Dininio 2006, p. 19). In addition, vertical accountability is also important. This can be developed through the strengthening of civil participation and watchdog institutions, whistleblower protection, freedom of information, and strengthening the role of media (World Bank 1997, pp. 106-108; Macdonell & Pesic 2006, pp. 111-116; Kaufmann & Dininio 2006, p. 19).<br />The regulations must be streamlined and clarified and avoid conflict among them. It must be allow some flexibility but also effective to restrain corruption. Anti-corruption measures are often creating a multi-layer monitoring which not only increase inefficiency but also make the monitoring itself not effective (Anechiarico & Jacobs 1996, p. 28). 'The fundamental challenge is to devise institutional arrangements that sustain a workable balance between flexibility and restraint' (World Bank 1997, p. 108).<br />A series of check and balance procedures must be established. Code of conducts must be applied to all public officials. An experience from the House of Commons in the United Kingdom shows the effectiveness of code of conduct application in reducing corruption (Mawer 2006, p. 212). Asset declaration is also important to enable public to watch the development of personal assets of public officials during their period of power. Reversal of the burden of proof is another idea to overcome the issue of the difficulty to proof corruption crime (GTZ 2007, p. 10).<br />Political parties must strengthen their membership. They must rely on their members, rather than depending on the lobbyists, for their financial need. The legislator and party members must apply ethical standard and code of conduct on campaign fund raising through party institutionalization (Pelizzio 2006, p. 181)<br /><br /><span style="font-style: italic;">3. Bureaucracy reform </span><br />Bureaucracy reform must be conducted in integrated way. Three pillars from the Ministry of Finance of Indonesia can be used as a reference; they are: organizational restructuring, business process improvement, and human resources development (MoF 2010).<br />The aim of organizational restructuring is to make the organization structure fully support the the strategic of the organization. The structure must be efficient by slashing all positions that irrelevant to the strategic. This may help to cut unnecessary authority which would reduce corruption risks.<br />Business process improvement aims to clarify all the work processes particularly of those with high corruption risks such as procurement. Analysing work process and creating standard operation procedure (SoP) would increase certainty on procedure and clarify responsibility, not only for the public officials but also for the clients. Automatization of some particular work processes (e.g. through computerizing) would help to reduce corruption risks (Perrow 1979, p. 23; KPK 2006, p. 82). <br />Human resources development aims to increase competency and motivation of agents and reducing corruption motivation. This can be done through education and training. However, for public officials in developing countries where the salary is usually low compare to private sector, education and training would not be sufficient. Apart of intrinsic value promotion as suggested before, improvement of salary/income is also important to reduce corruption risk. The rise of income must be combined with performance assessment and credible monitoring (KPK 2007, p. 49; World Bank 1997, p. 104)<br /><br /><span style="font-style: italic;">4. International support </span><br />Corruption is part of economic issues which cannot be separated from globalization. The characteristic of corruption in natural resources abundance countries is associated with multi-national corporations who work on extraction business. The money laundering practices and international drug trafficking are few examples of why corruption cannot be viewed simply or even mainly as bounded by the nation state (Harris 2003, p. 199). The availability of international lenders with integrity would help to provide alternative sources of financing for free-corruption international business (Rose-Ackerman 1997, p. 53). And finally, the presence of international anti-corruption campaigner, such as Transparency International, helps to break the circle of corrupt power. 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mso-style-priority:99; mso-style-qformat:yes; mso-style-parent:""; mso-padding-alt:0cm 5.4pt 0cm 5.4pt; mso-para-margin-top:0cm; mso-para-margin-right:0cm; mso-para-margin-bottom:10.0pt; mso-para-margin-left:0cm; line-height:115%; mso-pagination:widow-orphan; font-size:11.0pt; font-family:"Calibri","sans-serif"; mso-ascii-font-family:Calibri; mso-ascii-theme-font:minor-latin; mso-hansi-font-family:Calibri; mso-hansi-theme-font:minor-latin; mso-bidi-font-family:Arial; mso-bidi-theme-font:minor-bidi; mso-fareast-language:EN-US;} </style> <![endif]--> <p class="MsoNormal" style="text-align: justify; line-height: 150%;"><b style=""><span style="font-size: 12pt; line-height: 150%; font-family: "Times New Roman","serif";">Introduction</span></b></p> <p class="MsoNormal" style="text-align: justify; line-height: 150%;"><span style="font-size: 12pt; line-height: 150%; font-family: "Times New Roman","serif";">International development began after the World War II. Its main intention is reducing inequality through improving the prosperity of nations around the globe. Debates on the effectiveness of international development led to the concept formulation of capacity development (CD). This literature review will discuss the origin of CD from various sources, the CD definition, CD and aid effectiveness, CD framework, and the incremental change of CD. Those five topics are shaping the current understanding of CD and its relation to aid effectiveness.</span></p> <p class="MsoNormal" style="text-align: justify; line-height: 150%;"><b style=""><span style="font-size: 12pt; line-height: 150%; font-family: "Times New Roman","serif";">The origin of capacity development </span></b></p> <p class="MsoNormal" style="text-align: justify; line-height: 150%;"><span style="font-size: 12pt; line-height: 150%; font-family: "Times New Roman","serif";">Capacity development aims to increase the effectiveness of international development on enhancing life quality of people around the globe. Industrial revolution and economic development has improved the average income of people globally. However, at the same time, the disparity of the average income per capita among nations has been rising and has expanded most during the last 100 years (Helpman 2004, p. 2). In 1990, mortality rate of under-five year old children per 1000 live birth was 11 in developed countries, yet in Sub Saharan Africa the number was more than 16 folds (United Nations 2008, p. 14). </span></p> <p class="MsoNormal" style="text-align: justify; line-height: 150%;"><span style="font-size: 12pt; line-height: 150%; font-family: "Times New Roman","serif";">The awareness of global welfare in reducing inequality through international development and development cooperation is not new. The public in U.S. and Britain were concerned about the devastated impact of World War II right after the war was over. <span style=""> </span>They wondered how to bring development to the developing countries. That led to the establishment of international trustees, such as Food and Agriculture Organization (FAO), United Nations (UN), World Bank (WB), and International Monetary Fund (IMF) (Arndt 1987, pp. 43-45). Following the success of the Marshal Plan in the reconstruction of Europe which was in 1951, some developed countries established particular departments to administrate their development assistance. For example, the U.S. department was started since 1953 which later on established the United States Agency for International Development (USAID) in 1961 (USAID n.d.).</span></p> <p class="MsoNormal" style="text-align: justify; line-height: 150%;"><span style="font-size: 12pt; line-height: 150%; font-family: "Times New Roman","serif";">The international trustees and development assistance's organizations, hereafter called 'international development organizations' (IDOs), started their operations through technical assistance (TA) approach. They supplied foreign experts and provide some training to the 'recipient' countries. As the TA was being practised, the IDOs recognized that the TA did not help improve human and institutional capacity. <span style=""> </span>That led WB to conduct 'a radical reappraisal' of TA in Africa and came up with the idea of 'capacity building' (CB) in 1991 (Edoho 1998, p. 233). The concern of CB emerged since the mid-1980s which evolved from 'institutional building' in the 1950s and the 1960s, 'institutional strengthening' in the 1960s and 1970s, and 'development management' and 'institutional development' in the 1980s (Trostle et al. 1997, p. 63). </span></p> <p class="MsoNormal" style="text-align: justify; line-height: 150%;"><span style="font-size: 12pt; line-height: 150%; font-family: "Times New Roman","serif";">The term ‘capacity building’ was slowly changed to ‘capacity development’ in the late 1990s and the early 2000s. The term ‘capacity development’ has been officially used since the 2005 Paris Declaration which mentions the term 14 times in its 21 page document (OECD 2005). There are several explanations of how to distinguish CB and CD. For example, CB means the capacity does not exist at all and therefore needs to be built. Capacity development, on the other hand, means strengthening the existing capacity (Grindle 1997, p. 6). ‘Capacity development’ connotes long term process and ensuring national ownership and sustainability (Brown 2002, p. 1). </span></p> <p class="MsoNormal" style="margin-bottom: 0.0001pt; text-align: justify; line-height: 150%;"><span style="font-size: 12pt; line-height: 150%; font-family: "Times New Roman","serif";">Capacity development becomes a mainstream of many IDOs' business particularly after the 2005 'Paris Declaration on Aid Effectiveness'. The German technical cooperation (GTZ) declares that CD is their 'core competence' and 'the key to sustainable development' (GTZ n.d.). Asian Development Bank (ADB) adopts CD as 'a key development priority' to be integrated into its own operations and its partners' strategies (ADB 2009). UNDP positions CD as 'the organization's core contribution to development' (UNDP n.d.). <span style="">Finally, the WB also admits the importance of CD to achieve the MDGs (Constantinou 2007, p. 1). </span></span></p> <p class="MsoNormal" style="text-align: justify; line-height: 150%;"><span style="font-size: 12pt; line-height: 150%; font-family: "Times New Roman","serif";"> </span></p> <p class="MsoNormal" style="text-align: justify; line-height: 150%;"><b style=""><span style="font-size: 12pt; line-height: 150%; font-family: "Times New Roman","serif";">Definition of capacity development </span></b></p> <p class="MsoNormal" style="margin-bottom: 0.0001pt; text-align: justify; line-height: 150%;"><span style="font-size: 12pt; line-height: 150%; font-family: "Times New Roman","serif";">After the 2005 Paris Declaration on Aid Effectiveness, some IDOs adopt CD definition from the Organization for Economic Co-operation and Development (OECD); that is '<span style="">the process whereby people, organisations and society as a whole unleash, strengthen, create, adapt and maintain capacity over time (OECD 2006, p. 12)'.</span> <span style=""> </span>'Capacity' is understood as <span style="">'the ability of people, organisations and society as a whole to manage their affairs successfully' (OECD 2006, p. 12). </span>IDOs that adopt these definitions include German Federal Ministry on Economic Cooperation and Development (BMZ) (BMZ 2008, p.<span style=""> </span>2) and ADB (Bolger 2008, p. 9). For others, such as CIDA and UNDP, CD definition has a similar meaning (CIDA 2000, p. 2; UNDP 2009, p. 5). The World Bank's definition emphasizes the importance of 'change agent' to manage the changes in CD process (Otoo et al. 2009, p. 3). <span style=""> </span><span style="">Although UNDP has a similar definition with OECD, it asserts the importance of beneficiaries' empowerment. UNDP affirms that without change in the beneficiaries, any effort could not be said to have enhanced capacity, even if it has achieved the objectives (UNDP 2009, p. 5). </span><span style=""></span></span></p> <p class="Default" style="text-align: justify; line-height: 150%;"><span style="">Concern about the importance of the change agent's role is central to CD. IDOs could push the development objective achievement without the role of the beneficiary, but this will not create ownership. Without ownership, beneficiaries will be dependent on aid (Riddell 2010, p. 224). This will not sustain the impact of the development achievement.</span></p> <p class="Default" style="text-align: justify; line-height: 150%;"><span style=""><span style=""> </span></span></p> <p class="MsoNormal" style="margin-bottom: 0.0001pt; text-align: justify; line-height: 150%;"><b style=""><span style="font-size: 12pt; line-height: 150%; font-family: "Times New Roman","serif";">Aid effectiveness </span></b></p> <p class="MsoNormal" style="text-align: justify; line-height: 150%;"><span style="font-size: 12pt; line-height: 150%; font-family: "Times New Roman","serif";">Concern about aid effectiveness occurs because of some failure facts and concerns about scarce resources. It is hard to find evidence of where country with large inflow of aid and technical assistance succeeded in development. Many successful countries in East Asia and Africa received little aid as a percentage of GDP (Easterly 2007, p. 329). The series of global financial crisis, especially the Asian and the latest U.S. mortgage crisis, has been raising a concern about the future sustainability of aid resources. Development aid decreased during Asian crisis (Shanta 2008). In addition, some donor countries, particularly the U.S., have been devoting development aid far from their ability (Sachs 2005, p. 85). These call for a concern that aid resources are limited which led to the global commitment on aid effectiveness. There were 91 countries participating on the 2005 Paris Declaration on Aid Effectiveness (OECD 2005, p. 12). </span></p> <p class="MsoNormal" style="text-align: justify; line-height: 150%;"><span style="font-size: 12pt; line-height: 150%; font-family: "Times New Roman","serif";">The signatory countries of the Paris Declaration conceptualize aid effectiveness through five commitments, which are measured by 12 indicators. The commitments are ownership, alignment, harmonization, managing for results, and mutual accountability. The main idea of all the commitments is to have stronger roles of partner (beneficiary) countries and to emphasize the result based management. Ownership is about the partner's leadership over their development policies, and strategies and co-ordinate development actions. Alignment encourages donors to base their support on partners' strategies and procedures. Harmonization promotes harmonization, transparency and effective cooperation between partner and donor as well as among donors. Managing for results urges partners and donors to be results oriented on managing resources and doing decision making. Mutual accountability advocates accountability for both donors and partners (OECD 2005, pp. 3-8). </span></p> <p class="MsoNormal" style="text-align: justify; line-height: 150%;"><span style="font-size: 12pt; line-height: 150%; font-family: "Times New Roman","serif";">The signatory countries believe that aid effectiveness will be improved if the five commitments are implemented. While there is no doubt about the importance of <span style=""> </span>the result based concern, the intention to rely more on partner's countries could hamper the development achievement if the partner is a corrupt country with ineffective government. However, ignoring the role of the partner will endanger the impact sustainability. Therefore, these commitments are the most plausible strategy, although the implementation will be not easy in partner with high corruption rate and the achievement process could be very slow in partner with ineffective government. </span></p> <p class="MsoNormal" style="text-align: justify; line-height: 150%;"><span style="font-size: 12pt; line-height: 150%; font-family: "Times New Roman","serif";">Capacity development is the key to aid effectiveness. As discussed earlier, CD is about changes at the individual, organization, society, and institutional level. There are cases where economic growth can be achieved mainly because of institutional change without development aid. History tells us that the change in political and economic institution is central to economic development (North 1991, p. 98). In Vietnam, for example, the significant increase of rice production was mainly because of institutional change (Kompas et al. 2009 p. 2).<span style=""> </span></span></p> <p class="MsoNormal" style="text-align: justify; line-height: 150%;"><b style=""><span style="font-size: 12pt; line-height: 150%; font-family: "Times New Roman","serif";">Capacity development framework </span></b></p> <p class="MsoNormal" style="margin-bottom: 0.0001pt; text-align: justify; line-height: 150%;"><span style="font-size: 12pt; line-height: 150%; font-family: "Times New Roman","serif";">In order to understand the CD concept, it is important to clarify the capacity framework. The framework elaborates the capacity dimensions, components, or elements. It is important to structure the CD need assessment and action plan appropriately. Without an appropriate need assessment, projects will not achieve their objectives (World Bank 2005, p. xv). Indeed, need assessment is the most challenging step in CD process (Kay & Renault 2004, p. 42). A proper CD action plan will guide CD measures effectively and efficiently. <span style=""> </span></span></p> <p class="MsoNormal" style="margin-bottom: 0.0001pt; text-align: justify; line-height: 150%;"><span style="font-size: 12pt; line-height: 150%; font-family: "Times New Roman","serif";"> </span></p> <p class="MsoNormal" style="margin-bottom: 0.0001pt; text-align: justify; line-height: 150%;"><span style="font-size: 12pt; line-height: 150%; font-family: "Times New Roman","serif";">UNDP's CD framework is covered by three dimensions. T</span><span style="font-size: 12pt; line-height: 150%; font-family: "Times New Roman","serif";">hey are: (a) the three levels at which capacity is nurtured (enabling environment, organizations, and individuals), (b) the five functional capacities (<span style="">capacity to engage stakeholders; capacity to assess a situation and define a vision; capacity to formulate policies and strategies; capacity to budget, manage and implement; and capacity to evaluate),</span> and (c) the four core issues (<span style="">institutional arrangements, leadership, knowledge, accountability) (UNDP 2009, pp. 11-45). This framework is the most comprehensive one compared to other IDOs.<span style=""> </span>The level explains where the change should be targeted. The functional capacities concern on what capacity must be developed. The issues describe CD's topics that appeared in any CD measures.<span style=""> </span><span style=""> </span><span style=""> </span></span></span></p> <p class="MsoNormal" style="margin-bottom: 0.0001pt; text-align: justify; line-height: 150%;"><span style="font-size: 12pt; line-height: 150%; font-family: "Times New Roman","serif";"> </span></p> <p class="MsoNormal" style="text-align: justify; line-height: 150%;"><span style="font-size: 12pt; line-height: 150%; font-family: "Times New Roman","serif";">Compared to UNDP, ADB's framework covers only the level of CD. That is organization, network, and institutional context (Bolger 2008, pp. 11-12)<a style="" href="#_ftn1" name="_ftnref1" title=""><span class="MsoFootnoteReference"><span style=""><span class="MsoFootnoteReference"><span style="font-size: 12pt; line-height: 115%; font-family: "Times New Roman","serif";">[1]</span></span></span></span></a>. The individual level is not specifically mentioned although it is understood as a part of the organizational level (Bolger 2008, p. 96). ADB identifies 'network' as a particular dimension which is positioned between the organization and institutional context. While individuals alone will not change the functional performance, the individuals play important roles in CD process. The individual within the organization will change the organization. Individuals in the society play important roles in the change of institutional context. Therefore, it is important to specify individual in CD level. Specifying 'network' as a particular level in CD framework makes sense. Capacity development on a certain function of government's department will always need support from other departments (for example, from the finance department for a financial support improvement) and relevant stakeholders (for example, from financial institutions to support business development). Without an effective network support, CD measures will never succeed. </span></p> <p class="MsoNormal" style="text-align: justify; line-height: 150%;"><span style="font-size: 12pt; line-height: 150%; font-family: "Times New Roman","serif";">The World Bank conceptualizes its CD framework through three factors which contribute on the resource use effectiveness and efficiency. They are: c<span style="">onduciveness of the socio-political environment, efficiency of policy instruments, and effectiveness of organizational arrangements. For WB, CD means a process to change the three factors to enable the change agent's organization to use the resources effectively and efficiently (Otoo et al. 2009, pp. 4-10). The three factors are similar to the 'level' in UNDP's concept. In UNDP's perspective, the 'socio-political' could be included in the 'enabling environment'. The ‘policy instrument’ could be a part of the 'enabling environment' or the 'organization' depends on the basis of the CD measure. </span></span></p> <p class="MsoNormal" style="text-align: justify; line-height: 150%;"><span style="font-size: 12pt; line-height: 150%; font-family: "Times New Roman","serif";">GTZ's framework covers the three levels of CD. That is individual, organization, and system (GTZ 2003, p. 14). GTZ defines 'system' similar to UNDP's ‘enabling environment’. While UNDP elaborates the four core issues, GTZ mentions four pillars as the core topic of CD in public sectors. That is participatory governance, planning and budgeting, human resources management, and public finance management. </span></p> <p class="MsoNormal" style="text-align: justify; line-height: 150%;"><b style=""><span style="font-size: 12pt; line-height: 150%; font-family: "Times New Roman","serif";">Incremental change</span></b></p> <p class="MsoNormal" style="text-align: justify; line-height: 150%;"><span style="font-size: 12pt; line-height: 150%; font-family: "Times New Roman","serif";">Capacity development is about the change process from individual up to institutional level. Scholars suggest that change must be set as an incremental rather than fundamental change. The scope and intensity of institutional change is not something totally free to define, 'yesterday institutional framework provides the opportunity set to today's organization and individual entrepreneurs' (North 1991, p. 109). This is even more relevant in public sector because public institutions embody important social ideals which lead the public sector leaders to conserve those institutions (Denhardt, pp. 198-199). The awareness to have a realistic objective (change target) is important for the success of CD measures. </span></p> <p class="MsoNormal" style="text-align: justify; line-height: 150%;"><b style=""><span style="font-size: 12pt; line-height: 150%; font-family: "Times New Roman","serif";">Summary </span></b></p> <p class="MsoNormal" style="text-align: justify; line-height: 150%;"><span style="font-size: 12pt; line-height: 150%; font-family: "Times New Roman","serif";">"Capacity development" is the latest invention of the international development's approach which has been evolving after the World War II. It is now believed that CD will improve the development's effectiveness. Many IDOs adopt CD as the main approach of their service delivery. Definitions of CD do not differ from one IDO to another due to the common commitment on aid effectiveness through 2005 Paris Declaration. Aid effectiveness is conceptualized as more roles for partner countries and managing development by the result oriented way. Understanding the CD framework is important for CD need assessment and action planning. It is crucial to have an effective and efficient CD measure.<span style=""> </span>UNDP's CD framework is the most comprehensive one. It seems that UNDP's model has influenced some IDOs (such as ADB, GTZ and WB). Scholars have found that institutional change, particularly in the public sector, must be expected as an incremental process rather than fundamental change. This awareness is important so as to have a realistic objective in CD measures. </span></p> <p class="MsoNormal" style="text-align: justify; line-height: 150%;"><b style=""><span style="font-size: 12pt; line-height: 150%; font-family: "Times New Roman","serif";"> </span></b></p> <p class="MsoNormal" style="text-align: justify; line-height: 150%;"><b style=""><span style="font-size: 12pt; line-height: 150%; font-family: "Times New Roman","serif";">References </span></b></p> <p class="MsoNormal" style="margin-bottom: 0.0001pt; line-height: normal;"><span style="font-size: 12pt; font-family: "Times New Roman","serif";">ADB 2009, Capacity development: a key development priority, Asian Development Bank, ADB, viewed 20 August 2010, </span></p> <p class="MsoNormal" style="margin-bottom: 0.0001pt; line-height: normal;"><span style="font-size: 12pt; font-family: "Times New Roman","serif";"><http://www.adb.org/capacity-development/default.asp>.</span></p> <p class="MsoNormal" style="margin-bottom: 0.0001pt; line-height: normal;"><span style="font-size: 12pt; font-family: "Times New Roman","serif";"> </span></p> <p class="MsoNormal" style="margin-bottom: 0.0001pt; line-height: normal;"><span style="font-size: 12pt; font-family: "Times New Roman","serif";">Arndt, HW 1987, <i>Economic development: the history of an idea</i>, University of Chicago Press, Chicago. <span class="z3988"> </span></span></p> <p class="MsoNormal" style="margin-bottom: 0.0001pt; line-height: normal;"><span style="font-size: 12pt; font-family: "Times New Roman","serif";"> </span></p> <p class="MsoNormal" style="margin-bottom: 0.0001pt; line-height: normal;"><span style="font-size: 12pt; font-family: "Times New Roman","serif";">BMZ 2008, <i>Capacity development and aid effectiveness: discussion paper in preparation for the high level forum on aid effectiveness in Accra</i>, German Federal Ministry on Economic Cooperation and Development, BMZ, Bonn.</span></p> <p class="MsoNormal" style="margin-bottom: 0.0001pt; line-height: normal;"><span style="font-size: 12pt; font-family: "Times New Roman","serif";"> </span></p> <p class="MsoNormal" style="margin-bottom: 0.0001pt; line-height: normal;"><span style="font-size: 12pt; font-family: "Times New Roman","serif";">Bolger, J 2008, <i>Pacific choice: learning from success</i>, Asian Development Bank, ADB, Manila. <span class="z3988"> </span></span></p> <p class="MsoNormal" style="margin-bottom: 0.0001pt; line-height: normal;"><span style="font-size: 12pt; font-family: "Times New Roman","serif";"> </span></p> <p class="MsoNormal" style="margin-bottom: 0.0001pt; line-height: normal;"><span style="font-size: 12pt; font-family: "Times New Roman","serif";">Brown, S 2002, <i>Developing capacity through technical cooperation: country experiences</i>, United Nations Development Programme, UNDP, New York. <span class="z3988"> </span></span></p> <p class="MsoNormal" style="margin-bottom: 0.0001pt; line-height: normal;"><span style="font-size: 12pt; font-family: "Times New Roman","serif";"> </span></p> <p class="MsoNormal" style="margin-bottom: 0.0001pt; line-height: normal;"><span style="font-size: 12pt; font-family: "Times New Roman","serif";">CIDA 2000, <i>Capacity development: why, what and how</i>, Canadian International Development Agency, CIDA, Gatineau. <span class="z3988"> </span></span></p> <p class="MsoNormal" style="margin-bottom: 0.0001pt; line-height: normal;"><span style="font-size: 12pt; font-family: "Times New Roman","serif";"> </span></p> <p class="MsoNormal" style="margin-bottom: 0.0001pt; line-height: normal;"><span style="font-size: 12pt; font-family: "Times New Roman","serif";">Constantinou, N 2007, <i>Capacity development in the world bank group: a review
<br />of nonlending approaches</i>, World Bank Institute, The World Bank, Washington, DC.</span></p> <p class="MsoNormal" style="margin-bottom: 0.0001pt; line-height: normal;"><span style="font-size: 12pt; font-family: "Times New Roman","serif";"> </span></p> <p class="MsoNormal" style="margin-bottom: 0.0001pt; line-height: normal;"><span style="font-size: 12pt; font-family: "Times New Roman","serif";">Denhardt, RB 2009, <i>Managing human behaviour in public and nonprofit organizations,</i> 2nd edn., SAGE Publications, Los Angeles. <span class="z3988"> </span></span></p> <p class="MsoNormal" style="margin-bottom: 0.0001pt; line-height: normal;"><span style="font-size: 12pt; font-family: "Times New Roman","serif";"> </span></p> <p class="MsoNormal" style="margin-bottom: 0.0001pt; line-height: normal;"><span style="font-size: 12pt; font-family: "Times New Roman","serif";">Easterly, W 2003, ‘“Can foreign aid buy growth?”’, <i>The Journal of Economic Perspectives</i>, vol. 17, no. 3, pp. 23-48. <span class="z3988"> </span></span></p> <p class="MsoNormal" style="margin-bottom: 0.0001pt; line-height: normal;"><span style="font-size: 12pt; font-family: "Times New Roman","serif";"> </span></p> <p class="MsoNormal" style="margin-bottom: 0.0001pt; line-height: normal;"><span style="font-size: 12pt; font-family: "Times New Roman","serif";">Easterly, W 2007, ‘“Was development assistance a mistake?”’, <i>The American Economic Review</i>, vol. 97, no. 2, pp. 328-332. <span class="z3988"> </span></span></p> <p class="MsoNormal" style="margin-bottom: 0.0001pt; line-height: normal;"><span style="font-size: 12pt; font-family: "Times New Roman","serif";"> </span></p> <p class="MsoNormal" style="margin-bottom: 0.0001pt; line-height: normal;"><span style="font-size: 12pt; font-family: "Times New Roman","serif";">Edoho, F 1998, ‘Management capacity building, a strategic imperative for African development in the twenty-first century’, in V James (ed), <i>Capacity Building in Developing Countries: Human and Environmental Dimensions</i>, Praeger, London, pp. 228-251. <span class="z3988"> </span></span></p> <p class="MsoNormal" style="margin-bottom: 0.0001pt; line-height: normal;"><span style="font-size: 12pt; font-family: "Times New Roman","serif";"> </span></p> <p class="MsoNormal" style="margin-bottom: 0.0001pt; line-height: normal;"><span style="font-size: 12pt; font-family: "Times New Roman","serif";">Grindle, M 1997, ‘The good government imperative: human resources, organizations, and institutions’, in M Grindle (ed), <i>Getting Good Government: Capacity Building in the Public sectors of Developing Countries</i>, Harvard Studies in International Development, Harvard Institute for International Development, Cambridge, MA, pp. 3-30. <span class="z3988"> </span></span></p> <p class="MsoNormal" style="margin-bottom: 0.0001pt; line-height: normal;"><span style="font-size: 12pt; font-family: "Times New Roman","serif";"> </span></p> <p class="MsoNormal" style="margin-bottom: 0.0001pt; line-height: normal;"><span style="font-size: 12pt; font-family: "Times New Roman","serif";">GTZ n.d., <i>Our core competence: capacity development</i>, <i><span style=""> </span>Deutsche Gesellschaft für Technische Zusammenarbeit GmbH</i>, German Technical Cooperation, GTZ, viewed 14 August 2010, </span></p> <p class="MsoNormal" style="margin-bottom: 0.0001pt; line-height: normal;"><span style="font-size: 12pt; font-family: "Times New Roman","serif";"><http://www.gtz.de/en/29771.htm></span>. <span style="font-size: 12pt; font-family: "Times New Roman","serif";"></span></p> <p class="MsoNormal" style="margin-bottom: 0.0001pt; line-height: normal;"><span style="font-size: 12pt; font-family: "Times New Roman","serif";"> </span></p> <p class="MsoNormal" style="margin-bottom: 0.0001pt; line-height: normal;"><span style="font-size: 12pt; font-family: "Times New Roman","serif";">GTZ 2003, ‘Guidelines capacity building need assessment (CBNA) in the regions (version 1.0) module A, the concept of capacity building and the process of assessing capacity building needs', Indonesian-German Technical Cooperation: Support for Decentralization Measures (SfDM) Report 2003-3, </span><i><span style="font-size: 12pt; font-family: "Times New Roman","serif";">Deutsche Gesellschaft für Technische Zusammenarbeit</span></i><span style="font-size: 12pt; font-family: "Times New Roman","serif";"> (GTZ) GmbH, Jakarta.<b> </b></span></p> <p class="MsoNormal" style="margin-bottom: 0.0001pt; line-height: normal;"><span style="font-size: 12pt; font-family: "Times New Roman","serif";"> </span></p> <p class="MsoNormal" style="margin-bottom: 0.0001pt; line-height: normal;"><span style="font-size: 12pt; font-family: "Times New Roman","serif";">Helpman, E 2004, <i>The mystery of economic growth</i>, Belknap Press of Harvard University Press, Cambridge, Mass.</span></p> <p class="MsoNormal" style="margin-bottom: 0.0001pt; line-height: normal;"><span style="font-size: 12pt; font-family: "Times New Roman","serif";"> </span></p> <p class="MsoNormal" style="margin-bottom: 0.0001pt; line-height: normal;"><span style="font-size: 12pt; font-family: "Times New Roman","serif";">Hilderbrand, ME & Grindle, MS 1997, ‘Building sustainable capacity in the public sector: what can be done?’, in M Grindle (ed), <i>Getting Good Government: Capacity Building in the Public sectors of Developing Countries</i>, Harvard studies in international development, Harvard Institute for International Development, Cambridge, MA, pp. 31-62. <span class="z3988"> </span></span></p> <p class="MsoNormal" style="margin-bottom: 0.0001pt; line-height: normal;"><span style="font-size: 12pt; font-family: "Times New Roman","serif";"> </span></p> <p class="MsoNormal" style="margin-bottom: 0.0001pt; line-height: normal;"><span style="font-size: 12pt; font-family: "Times New Roman","serif";">Kay, M & Renault, D 2005, ‘Capacity development engineering – a way forward for capacity building in irrigation and drainage?’, in FAO (ed), <i>Capacity Development in Irrigation and Drainage: Issues, Challenges and the Way Ahead</i>, Proceedings of the International Workshop held in 16 September 2003 during the International Commission on Irrigation and Drainage Fifty-fourth International Executive Council Meeting, Food and Agriculture Organization of the United Nations, Rome, pp. 25-52. <span class="z3988"> </span></span></p> <p class="MsoNormal" style="margin-bottom: 0.0001pt; line-height: normal;"><span style="font-size: 12pt; font-family: "Times New Roman","serif";"> </span></p> <p class="MsoNormal" style="margin-bottom: 0.0001pt; line-height: normal;"><span style="font-size: 12pt; font-family: "Times New Roman","serif";">Kompas, T, Che, TN, Nguyen, TMH & Nguyen, QH 2009, <i style="">Productivity, net returns and efficiency: land and market reform in Vietnamese rice production</i>, IDEC Working Paper, Crawford School of Economics and Government, Australian National University, Canberra. </span></p> <p class="MsoNormal" style="margin-bottom: 0.0001pt; line-height: normal;"><span style="font-size: 12pt; font-family: "Times New Roman","serif";"> </span></p> <p class="MsoNormal" style="margin-bottom: 0.0001pt; line-height: normal;"><span style="font-size: 12pt; font-family: "Times New Roman","serif";">Linnell, D 2003, <i>Evaluation of capacity building: lessons from the field</i>, Alliance for Nonprofit Management, Washington, DC. <span class="z3988"> </span></span></p> <p class="MsoNormal" style="margin-bottom: 0.0001pt; line-height: normal;"><span style="font-size: 12pt; font-family: "Times New Roman","serif";"> </span></p> <p class="MsoNormal" style="margin-bottom: 0.0001pt; line-height: normal;"><span style="font-size: 12pt; font-family: "Times New Roman","serif";">North, DC 1990, <i>Institutions, institutional change, and economic performance</i>, Cambridge University Press, Cambridge. <span class="z3988"> </span></span></p> <p class="MsoNormal" style="margin-bottom: 0.0001pt; line-height: normal;"><span style="font-size: 12pt; font-family: "Times New Roman","serif";"> </span></p> <p class="MsoNormal" style="margin-bottom: 0.0001pt; line-height: normal;"><span style="font-size: 12pt; font-family: "Times New Roman","serif";">North, DC 1991, ‘Institutions’, <i>The Journal of Economic Perspectives</i>, vol. 5, no. 1, pp. 97-112. <span class="z3988"> </span></span></p> <p class="MsoNormal" style="margin-bottom: 0.0001pt; line-height: normal;"><span style="font-size: 12pt; font-family: "Times New Roman","serif";"> </span></p> <p class="MsoNormal" style="margin-bottom: 0.0001pt; line-height: normal;"><span style="font-size: 12pt; font-family: "Times New Roman","serif";">OECD 2005, <i>The Paris declaration on aid effectiveness and the Accra agenda for action</i>, Organization for Economic Co-Operation and Development, OECD, Paris. <span class="z3988"> </span></span></p> <p class="MsoNormal" style="margin-bottom: 0.0001pt; line-height: normal;"><span style="font-size: 12pt; font-family: "Times New Roman","serif";"> </span></p> <p class="MsoNormal" style="margin-bottom: 0.0001pt; line-height: normal;"><span style="font-size: 12pt; font-family: "Times New Roman","serif";">OECD 2006, <i>The challenge of development: working towards good practice</i>, Organization for Economic Co-Operation and Development, OECD, Paris. <span class="z3988"> </span></span></p> <p class="MsoNormal" style="margin-bottom: 0.0001pt; line-height: normal;"><span style="font-size: 12pt; font-family: "Times New Roman","serif";"> </span></p> <p class="MsoNormal" style="margin-bottom: 0.0001pt; line-height: normal;"><span style="font-size: 12pt; font-family: "Times New Roman","serif";">Otoo, S, Agapitova, N & Behrens, J 2009, <i>The capacity development results framework</i>, World Bank Institute, The World Bank, Washington, D.C. <span class="z3988"> </span></span></p> <p class="MsoNormal" style="margin-bottom: 0.0001pt; line-height: normal;"><span style="font-size: 12pt; font-family: "Times New Roman","serif";"> </span></p> <p class="MsoNormal" style="margin-bottom: 0.0001pt; line-height: normal;"><span style="font-size: 12pt; font-family: "Times New Roman","serif";">Riddell, B 2010, ‘Ending aid dependence’, <i>African Studies Review</i>, vol. 53, no. 1, pp. 223-224. <span class="z3988"> </span></span></p> <p class="MsoNormal" style="margin-bottom: 0.0001pt; line-height: normal;"><span style="font-size: 12pt; font-family: "Times New Roman","serif";"> </span></p> <p class="MsoNormal" style="margin-bottom: 0.0001pt; line-height: normal;"><span style="font-size: 12pt; font-family: "Times New Roman","serif";">Sachs, JD 2005, ‘The development challenge’, <i>Foreign Affairs</i>, vol. 84, no. 2, pp. 78-90. <span class="z3988"> </span></span></p> <p class="MsoNormal" style="margin-bottom: 0.0001pt; line-height: normal;"><span style="font-size: 12pt; font-family: "Times New Roman","serif";"> </span></p> <p class="MsoNormal" style="margin-bottom: 0.0001pt; line-height: normal;"><span style="font-size: 12pt; font-family: "Times New Roman","serif";">Shanta, D 2008, “Will the financial crisis reduce foreign aid?.” <i>Africa Can...End Poverty</i>, world bank blogs, The World Bank, viewed 13 August 2010, </span></p> <p class="MsoNormal" style="margin-bottom: 0.0001pt; line-height: normal;"><span style="font-size: 12pt; font-family: "Times New Roman","serif";"><http://blogs.worldbank.org/africacan/will-the-financial-crisis-reduce-foreign-aid>.</span></p> <p class="MsoNormal" style="margin-bottom: 0.0001pt; line-height: normal;"><span style="font-size: 12pt; font-family: "Times New Roman","serif";"> </span></p> <p class="MsoNormal" style="margin-bottom: 0.0001pt; line-height: normal;"><span style="font-size: 12pt; font-family: "Times New Roman","serif";">Trostle, JA, Sommerfeld, JU & Simon 1997, ‘Strengthening human resource capacity in developing countries: who are the actros? what are their actions?’, in M Grindle (ed), <i>Getting Good Government: Capacity Building in the Publicsectors of Developing Countries</i>, Harvard studies in International Development, Harvard Institute for International Development, Cambridge, MA, pp. 63-96. <span class="z3988"> </span></span></p> <p class="MsoNormal" style="margin-bottom: 0.0001pt; line-height: normal;"><span style="font-size: 12pt; font-family: "Times New Roman","serif";"> </span></p> <p class="MsoNormal" style="margin-bottom: 0.0001pt; line-height: normal;"><span style="font-size: 12pt; font-family: "Times New Roman","serif";">United Nations 2008, <i>The millennium development goals report:2008</i>, United Nations, New York. </span></p> <p class="MsoNormal" style="margin-bottom: 0.0001pt; line-height: normal;"><span style="font-size: 12pt; font-family: "Times New Roman","serif";"> </span></p> <p class="MsoNormal" style="margin-bottom: 0.0001pt; line-height: normal;"><span style="font-size: 12pt; font-family: "Times New Roman","serif";">UNDP n.d., Our approach, United Nations Development Programme, UNDP, viewed 16 August 2010, </span></p> <p class="MsoNormal" style="margin-bottom: 0.0001pt; line-height: normal;"><span style="font-size: 12pt; font-family: "Times New Roman","serif";"><>.</span></p> <p class="MsoNormal" style="margin-bottom: 0.0001pt; line-height: normal;"><span style="font-size: 12pt; font-family: "Times New Roman","serif";"> </span></p> <p class="MsoNormal" style="margin-bottom: 0.0001pt; line-height: normal;"><span style="font-size: 12pt; font-family: "Times New Roman","serif";">UNDP 2009, Capacity development: a UNDP premier, United Nations Development Programme, UNDP, New York. <span class="z3988"> </span></span></p> <p class="MsoNormal" style="margin-bottom: 0.0001pt; line-height: normal;"><span style="font-size: 12pt; font-family: "Times New Roman","serif";"> </span></p> <p class="MsoNormal" style="margin-bottom: 0.0001pt; line-height: normal;"><span style="font-size: 12pt; font-family: "Times New Roman","serif";">USAID n.d., About USAID: USAID history, United States Agency for International Development, USAID, viewed 16 August 2010,</span></p> <p class="MsoNormal" style="text-align: justify; line-height: 150%;"><<span style="font-size: 12pt; line-height: 150%; font-family: "Times New Roman","serif";">http://www.usaid.gov/about_usaid/usaidhist.html</span>>. <span style="font-size: 12pt; line-height: 150%; font-family: "Times New Roman","serif";"><span style=""> </span></span></p> <p class="MsoNormal" style="margin-bottom: 0.0001pt; line-height: normal;"><span style="font-size: 12pt; font-family: "Times New Roman","serif";">World Bank 2005, <i>Capacity building in Africa: an OED evaluation of World Bank support</i>, World Bank Operations Evaluation Department, World Bank, Washington, D.C. </span></p> <p class="MsoNormal" style="text-align: justify; line-height: 150%;"><span style="font-size: 12pt; line-height: 150%; font-family: "Times New Roman","serif";"> </span></p> <div style="">
<br /> <hr width="33%" align="left" size="1"> <div style="" id="ftn1"> <p class="MsoFootnoteText"><a style="" href="#_ftnref1" name="_ftn1" title=""><span class="MsoFootnoteReference"><span style=""><span class="MsoFootnoteReference"><span style="font-size: 10pt; line-height: 115%; font-family: "Calibri","sans-serif";">[1]</span></span></span></span></a> The model is very similar to a concept introduced by Hilderbrand & Grindle (1997, p. 36)</p> </div> </div> <http: org="" development="" asp=""><http: de="" en="" htm=""><http: org="" africacan="" aid=""><http: gov="" about_usaid="" html=""></http:></http:></http:></http:>Unknownnoreply@blogger.com0tag:blogger.com,1999:blog-8697904756842250859.post-45199500247490654452010-06-30T19:10:00.000-07:002010-06-30T19:32:25.890-07:00Two Ways to Understand the Logic of Carbon TradingCurrent debate among the pros and the cons on carbon trading spread out in wide range from the pessimistic to optimistic views, from the full of prejudice to the full of trust opinions. Carbon trading (as part of climate change discussion) supposes not to be a talk among certain groups of people, rather it must be discussed by every single person on earth because we are all contributing to the emission and (potentially) affected by the global warming. Therefore it is important to provide idea about the logical basis of carbon trading so then we can always back to the origin of the idea when we have different views. I would offer two logical bases to understand the carbon trading. All of them based on three assumptions; these are: we agreed that climate change is real and bad, trees or forests are able to remove carbon and other green house gases, and most importantly is that emission reduction is our common objective. <br />The first logic is the externality. That is the external cost or benefit of any human activity. This is not new for economists but very important to understand by people who had not chance to study economics. Externality can be positive or negative from demand or supply side; it depends on the gap between the private marginal cost/benefit with the social marginal cost/benefit. If the social marginal cost is higher than private marginal cost, we call it negative externality. Positive externality occurs when private marginal benefit is greater than social marginal benefit. For example, when we ride a car for certain distance which make us burn one litre of gasoline, the private marginal cost is exactly the cost of one litre of gasoline (market price), say IDR5,000. The social marginal cost of burning additional one litre of gasoline, however, is the air pollution that contributes to the climate change. The exact cost of the pollution made by one litre of burned gasoline is most likely much more than IDR5,000. Meanwhile, for positive externality, we can take tree growing as an example. If someone grows a tree, his or her marginal benefit is the tree itself, which can be the wood, the fruit or other parts of the tree. The social benefit of having another tree, however, is more than that because the tree removes the carbon emission in the air which contributes on climate change mitigation. <br />The gap between the private and social marginal benefit/cost is the reason of carbon trading. Those who create negative externality must pay more than his or her private cost (market price of the product i.e. one litre of gasoline). The additional payment must be transferred to the tree growers who create positive externality; this will close the private and social gap. Furthermore, this is an effective market instrument because it provides disincentive to the polluters and, in the same time, offers incentive to the carbon removers. <br />The second logic is incentive and disincentive on achieving the carbon quota. To make it simple, let say total global emission is 1000 tonnes per year in 2009. All countries agreed to decrease the emission down to 800 tonnes per year by 2010. Let say we agreed to oblige all countries decrease their emission by 20 per cent of their 2009 baseline by the end of 2010, and we only have two countries in the world. For example, County A produced 800 tonnes, while Country B produced 200 tonnes in 2009. This means Country A must lower their emission to 640 tonnes, while Country B is 160 tonnes by 2010. If Country A believes that it cannot lower that much and only commit to 720 tonnes, while Country B plans to decrease more to only produce 80 tonnes by 2010, then total world emission will be 800 tonnes, which means meet the target. However, Country A must pay the additional opportunity cost of Country B for the extra 80 tonnes. At the end, the world creates more social surplus in the short run and, in the same time, invests more for the long run global welfare. <br />The implementation, however, is not as simple as it is. It needs standards (e.g. of how to measure the emission of different human activities, and how to define the price of carbon), strong willingness to pay for the long run benefit, clear and transparent organization and procedures including who and how to use the money gained from carbon trading, and so on and so forth. It is possible to find the evil when it comes into the detail, however, this should not make us oppose the idea of carbon trading because the idea itself is fair and promising to make our earth better in the future. What we have to do is to move on working in the details and make it transparent to public so then there is no space for the evil to hide its face.Unknownnoreply@blogger.com0tag:blogger.com,1999:blog-8697904756842250859.post-22358721687992974462010-06-30T19:07:00.000-07:002010-06-30T19:41:14.153-07:00Kita Perlu Pagu Anggaran Wilayah, Bukan Dana AspirasiMencermati debat terkait usulan Golkar tentang dana aspirasi, kita perlu mendukung pendapat Presiden yang disampaikan di Istana Cipanas untuk tidak menciptakan jalur baru dalam proses perencanaan dan penganggaran.<br /><br /><span style="font-weight: bold;">Praktek Saat Ini</span><br />Usulan Golkar ini bukan hal baru di daerah-daerah, anggota DRPD di beberapa daerah secara tidak resmi memiliki 'hak veto' dalam penganggaran sampai dengan jumlah tertentu. Saat ini ada dua jalur konsultasi perencanaan dan penganggaran, yaitu musyawarah perencanaan pembangunan (Musrenbang) dan penjaringan aspirasi pada masa reses. Jalur pertama cenderung digunakan oleh eksekutif, sedangkan jalur kedua mutlak milik legislatif. Keduanya memiliki tim anggaran atau panitia anggaran yang pada akhir masa perencanaan saling bertemu untuk menyepakati rencana anggaran terakhir yang kemudian disahkan oleh kepala daerah dan DPRD di daerah, atau Presiden dan DPR di pusat.<br />Dua jalur perencanaan dan penganggaran itu merupakan penyakit berbahaya. Dengan adanya dua jalur itu, yang paling dilemahkan adalah Musrenbang yang justru paling legitimate dari sisi proses karena basisinya adalah kewilayahan bukan kepartaian seperti halnya masa reses. Memang harus diakui bahwa lemahnya Musrenbang bukan hanya karena jalur aspirasi, tetapi juga karena eksekutif tidak memiliki format diskusi yang memadai dalam Musrenbang sehingga usulan-usulan yang keluar dari Musrenbang dipandang tidak berkualitas.<br /><br /><span style="font-weight: bold;">Pagu Anggaran Wilayah</span><br />Jika tujuan Golkar adalah keadilan penganggaran dalam kewilayahan, maka yang kita perlukan adalah pagu anggaran wilayah, bukan dana aspirasi. Dalam sistem penganggaran kita saat ini yang kita kenal adalah pagu anggaran sektoral baik itu untuk departemen atau lembaga teknis di pusat maupun Satuan Kerja Pemerintah Daerah (SKPD) di daerah. Kita tidak mengenal pagu anggaran wilayah. Artinya sistem perencanaan dan penganggaran saat ini tidak menyeimbangkan antara pertimbangan sektoral dengan pertimbangan kewilayahan.<br />Pertimbangan sektoral tanpa kewilayahan akan dapat menciptakan ketimpangan wilayah. Pertimbangan sektoral membantu menjawab pertanyaan 'apa yang harus dilakukan?', tetapi tidak dapat menjawab 'di mana harus dilakukan?'. Pertanyaan kedua hanya dapat dijawah lewat pertimbabngan kewilayahan. Jika sistem kita menyeimbangkan keduanya maka kita dapat menjawab kedua pertanyaan tersebut yang sangat penting dalam perencanaan. Hal itu kemudian dilanjutkan dengan pertanyaan penganggaran 'berapa besar anggaran yang diperlukan?'. Dengan demikian, setelah menjawab pertanyaan ketiga maka kita dapat mensortir kebutuhan anggaran baik per sektor maupun per wilayah, dimana jika kita jumlahkan hasilnya sama yaitu total anggaran pembangunan.<br />Pagu anggaran wilayah dapat dibuat dengan cara mempertimbangkan variable-variabel penting yang mempengaruhi tinggi rendahnya kebutuhan kegiatan pembangunan. Sebagai contoh, kita bisa mempertimbangkan jumlah penduduk, jumlah penduduk miskin, luas wilayah, indeks ketimpangan infrastruktur dan lain-lain. Pagu juga dapat digunakan sebagai instrument insentif bagi daerah yang efekftif dan efisien menggunakan anggarannya dengan cara membadingkannya dengan capaian-capaian pembangunan misalnya PDRB, jumlah pekerjaan yang diciptakan, jumlah orang miskin yang dientaskan dan lain-lain.<br /><br /><span style="font-weight: bold;">Musrenbang Sebagai Jalur Satu Pintu Untuk Semua Pihak</span><br />Pagu anggaran wilayah akan membantu Musrenbang, sebagai mekanisme resmi perencanaan dan penganggaran, dihormati oleh semua pihak. Akan jauh lebih baik lagi jika jalur penjaringan aspirasi digabung dengan Musrenbang dengan cara mengkoordinasikan jadwal Musrenbang dengan jadwal reses. Musrenbang seharusnya menjadi pintu bagi semua pihak untuk bermusyawarah dalam menentukan prioritas pembangunan. Prioritas pembangunan adalah kegitan-kegiatan yang kita percaya memiliki efek multiplier yang paling tinggi dalam peningkatan kesejahteraan masyarakat.<br />Dengan adanya pagu anggaran wilayah, forum Musrenbang dapat langsung menentukan prioritas karena mereka memiliki tiga informasi penting dalam perencanaan, yaitu: bagaimana keadaan saat ini, apa yang harus dicapai, dan berapa anggaran atau sumberdaa yang dimiliki. Dalam proses Musrenbang saat ini, informasi ketiga tidak diketahui sehingga peserta musyawarah membuat daftar panjang untuk diserahkan kepada pemerintah. Daftar panjang ini sering memusingkan pihak pemerintah sehingga akhirnya pihak pemerintah, lewat Tim Anggaran, membuat daftar sendiri. Ini yang membuat Musrenbang menjadi tidak dihormati lagi.<br />Penggunaan dana pembangunan akan lebih efektif jika rencananya dihasilkan lewat diskusi yang transparan dalam forum Musrenbang. Dengan semua pihak mengandalkan forum Musrenbang, maka forum ini dapat menjadi media untuk saling beragumentasi dan saling belajar untuk mengetahui intervensi pembangunan yang paling efisien. Yang dimaksud semua pihak di sini termasuk politisi di DPR atau DPRD, birokrat dari departemen, lembaga teknis atau SKPD, wakil-wakil masyarakat terpinggirkan, para pengusaha, organisasi-organisasi sosial masyarakat dan lain-lain. Untuk membuat forum Musrenbang efektif tentu diperlukan pengorganisasian forum yang lebih baik dari yang ada saat ini.<br />Dana aspirasi hanya akan membuat elit-elit politik menjadi lebih berkuasa tanpa harus berkonsultasi dengan masyarakat di wilayahnya, terutama yang bukan pemilih partainya. Sedangkan pagu anggaran wilayah dan penguatan Musrenbang akan membuat pengambilan keputusan dalam proses perencanaan dan penganggaran lebih transparan dan objektif sehingga akan lebih memperhatikan pertimbangan teknokratis dan sekaligus lebih adil dari sisi kewilayahan. Mau pilih yang mana?.Unknownnoreply@blogger.com0tag:blogger.com,1999:blog-8697904756842250859.post-47676528490460666482010-06-10T12:02:00.000-07:002010-06-10T12:22:00.835-07:00Unconditional Cash Transfer Policy in IndonesiaPolicy Description <br /><br />This paper discusses the unconditional cash transfer (UCT) policy which was implemented in Indonesia in 2005, 2008 and 2009 as a package with the fuel subsidy reduction policy. This is an example of targeted social policy with income transfer where economists and scholars, as will be explained later, believe as an effective and efficient way both for economic development as well as social welfare.<br /><br />Together with debt payment, fuel subsidy takes the most significant proportion of government spending in Indonesia. From 1999 to 2004, the energy subsidy was 8 to 28 per cent of total government expenditures (Yusuf & Resosudarmo 2008, p. 3). <br /><br />Apart from fiscal concerns, fuel subsidy may also lead to justice issue. More than 70 per cent of the subsidy was enjoyed by the top 40 per cent of citizens, the bottom 40 gets less than 14 per cent (Departemen Sosial 2008b, p. 15). This is because most of the fuel is used for private vehicles. <br /><br />The approach of the policy was providing cash directly to households without any conditions. Direct cash transfer means that government provides cash rather than service such as free health care. No conditionality means that recipient households can spend the money as they like without any obligation such as to bring their children to school (Cueto 2009, P. 1952). <br /><br />The Policy Purpose <br /><br />The main purpose of the policy was to mitigate the impact of fuel price increase, caused by the fuel subsidy reduction, on poverty. This is a case where social policy is to correct the 'diswelfares' that created by economic policy (Hill 2006, p. 7). <br /><br />The implication at process level is that government must ensure that the poor use the money for purchasing basic necessities or investing in any other productive activities. The poor should not merely save the money. Economic growth and job creation need the increase of aggregate demand which can be achieved through the increase of consumption and investment (Keynes 1936, p. 325).<br /><br />The implementation implication is a need to ensure that the cash go to right hand, and only the poor get the cash. Cash transfer has been practiced by developed countries where reliable household income data is available, however, in Indonesia, particularly during UCT implementation, this is not the case. Poor households determined by National Bureau of Statistics (BPS), field checked by post office officers and village officers (Departemen Sosial 2008a, pp. 10-31). Without reliable household income data, the BPS officers rely only on physical assessments such as quality of house, or merely on the judgement of village officers. This creates potential for under coverage where some poor households are not identified, and leakage where some ineligible households are included on the recipient list (SMERU 2006, p. 37). If the number of under coverage and leakage is high, the purpose of poverty mitigation will not be achieved. <br /><br />It is important for the government to classify the 'victims' of the increased fuel price. Those who suffer the most must be prioritized than the rest, and probably receive more cash. In the case of 2005, urban poor had suffered the most because the kerosene price increase 185.7 per cent, which make it the highest compare to gasoline and diesel (Yusuf & Resosudarmo 2008, p. 33). Urban poor rely on kerosene to fuel their stoves for cooking. <br /> <br />The Policy's Synchronisation to Indonesian Social Welfare System <br /><br />Indonesia cannot fit into three social welfare's regime as identified by Esping-Anderson. The nearest regime might be the conservative where government is responsible to social welfare only when the market fails (residual), which social policy is delivered through targeted (instead of universal) program (Esping-Anderson 1990, pp. 18-29). However, there are 49.2 per cent of Indonesian citizens who do not have any health insurance (Kompas 2010). This means that state is not responsible when the market fails. That is because Indonesian public budget is limited to cover social welfare costs. In 2009, for example, total government revenue was only 16.1 per cent of national Gross Domestic Product (GDP) (Departemen Keuangan n.d., pp. 1-12). Furthermore, social policy in Indonesia is positioned to support economic development (Bappenas 2010, p. II.3-1). In 2009, social expenditures which include health, education, subsidies other than fuel, and social protection were just 6.8 per cent of GDP (Departemen Keuangan n.d., pp. 1-12; Departemen Keuangan 2007). Therefore, government's policy is always to keep tax low and allow people to spend their money for their own welfare. As a result, ratio of tax revenue to GDP was only 9.9 per cent compared to an average of 14.0 per cent among non-OECD countries in Asia (IMF 2008, p. 11). These characteristics match with 'productivist' or East Asian model (Holiday 2000, p. 709; Jacobs 2000, pp. 2-4; Aspalter 2006, p. 297). However, compared to other East Asian countries, Indonesia has the highest corruption rate. The corruption perception index was 2.4 in 2008, in contrast to South Korea, for example, which was 5.6 (Transparency International 2009, pp. 397-400). This makes Indonesian government more difficult to create social welfare. <br /><br />Indonesian social welfare characteristic calls for a process implication to improve social solidarity and private sector participation on poverty mitigation. In 2005, poor households only received IDR300,000 which was equal to around US$30 (Widjaja 2009, p. 3). That might be sufficient to help the near-poor to improve their purchasing power, but the amount was too small for the poor. Social solidarity will improve the social safety net of the poor. Private sector, through corporate social responsibility, should participate by improving poor people livelihood. For example, they can help to grow small scale and micro entrepreneurs which could create jobs at micro level. <br /><br />In the long term, as an implementation implication, government must create more jobs in formal sector. In 2006, there was more than 50 per cent of Indonesian worked in informal sector (Hermanto et al. 2010, p. 5), which most of them did not pay income tax. This makes government revenue become small, not only because the low tax, but also because the number of tax payers are small. Government believed that there were about 25 to 30 million more people are eligible to pay taxes out of 6 million that have been registered by 2008 (The Jakarta Post 2008). <br /><br />Key Actors and Their Roles <br /><br />At political decision level, the key actors were the President with support from the Ministers of Finance, Social Welfare, and Energy. Their roles were to initiate and make a final and official decision of the policy. All of them are politicians with strong interests on political gain. As a process implication, it needs checks and balances procedure on political decision process. Other political interest groups and independent experts must involve in decision making process. Without check and balance, the ruling party in government could be just prioritize the urban poor and neglect the poor households in remote area. By doing so, the ruling party could have political gain from the majority of the poor, and at the same time possible to alleviate poverty. This would satisfy their political interest. The implementation implication is that government must consult public sector and support their UCT policy by scientific evidence; for example, reliable poverty data. This is in line with what Jeremey Bantham called 'expert bureaucracy' (Bessant et al. 2006, p. 15). <br /><br />At implementation level, the key actors were Ministry of Social Welfare (DEPSOS), BPS, post office, and village officers. The DEPSOS played a central role in the implementation as it is they who manage the UCT budget, prepare the guidelines, coordinate other actors, and presents the accountability report. BPS was important to produce accurate ‘poor household’ list. Post office carried out a significant role by checking accuracy of BPS data, distributing the household poor cards (the card) and undertaking payment. Village officers were, in many cases, the key figures who determined the success and failure of the implementation. That is because the accuracy of ‘poor household’ list depended on them as they help BPS and post office officers on field investigation and data verification. In addition, village officers' role was also important in organizing cash collection in remote areas. <br /><br />The implementation implication of including DEPSOS is to attain support from the local government for ensuring the performance of village officers. Under decentralization policy, DEPSOS has limitation in controlling implementation at field level. They just can rely on local governments because of decentralization. There are 584 local governments in Indonesia and the leaders not necessarily from the ruling party (Departemen Dalam Negeri 2010). Therefore, they need to have an effective coordinating and communication role. That creates a process implication, that is a need for a detail and clear implementation guidelines which organize all actors. The guideline must be able to help all actors from national to village level to perform their tasks well. <br /><br />BPS needs additional enumerators due to the limitation of BPS officers. At the moment, number of BPS officers is only half of their need (BPS n.d.). That is still far than enough to conduct survey in around 72,000 villages (Kominfo-Newsroom 2009). If they rely on the village officer, the outcome could be biased because the village officers may have vested interest in selecting his or her relatives or prioritizing his or her ethnic group and neglecting others. However, the increase of the enumerator number is not enough. The process implication to ensure accurate data is a need of transparent and objective mechanism to determine the poor. If the reliable mechanism does not exist, there will be conflict and tension during implementation. This was happened during UCT implementation of 2005 where there were number of protests, threats to BPS and village officers, vandalism to public facilities, and conflict among villagers (Widjaja 2009, p. 12)<br /><br />The process implication to allow post office to handover the cash is to have additional arrangement helping the poor from remote areas to pick up their cash. Post office branches are only available down to sub-district level. Without a different arrangement for collecting the cash, the value of the cash will be offset by the transport cost. DEPSOS reported that during the first instalment of 2005 eligible households received only 94.1 per cent of the total payment. In the second instalment it was only 89.6 per cent. One cause of the payment deduction was the payment cut did by village officers to cover the transport and fee cost to pick up the cash collectively (Departemen Sosial 2008b, p. 13). Furthermore, the post officers have no specialization on checking the accuracy of poor household list. Therefore, as an implementation implication, they need a special training on field verification. <br /><br />The Change Drivers<br /><br />The combination of oil price, government budget stability, and number of poor households will determine whether or whether not the UCT policy will be implemented again in the future. This indicates that the government must monitor all those variables. However, in the long term, government has to decrease the poverty at the level where public budget able to support the poor. In the case of fuel price subsidy, number of poor must be decreased significantly before government eliminate all fuel subsidies. <br /><br />An election and other short term political interest could initiate the UCT policy because it can increase the popularity of the ruling party on poor people. This was the suspicion of the opposition parties when the UCT policy was enacted in 2009. This is not happened in Indonesia only, the conditional cash transfer policy in Mexico and Brazil were also used for political gain (Sewall 2008, p. 175). This creates a process implication to balance the power during decision making process as discussed previously. For long term purpose, the implementation implication is a need to improve the political awareness, particularly among poor people, so they aware that any kind of subsidy come from public budget, not from the politicians' pocket. <br /><br />Availability of reliable socioeconomic data on individual citizens will increase the use of the cash transfer policy regardless of whether it is conditional or unconditional. Reliable data makes it easy to do eligibility testing. It may improve effectiveness of any social policy with targeting approach. Apart from several issues as discussed previously, The World Bank concludes that the UCT of 2005 was successful to mitigate the poverty (World Bank 2006, p. x). Cash transfer approach, as contrast to service provision approach such as free health care, is more effective to mitigate the short term impact of the increased fuel price (Yusuf & Resosudarmo 2008, p. 45). The conditional cash transfer in Mexico and Brazil was successful to alleviate poverty in the short term, with potential for sustainable impact in the long term (Sewall 2008, p. 185). Moreover, economists have proved that income transfer will create more economic surplus than subsidy (Frank et al. 2009, pp. 181-182). The wider use of (un)conditional cash transfer approach in social policy create a process implication; that is to strengthen the eligibility testing system which include a need of reliable data and information technology as well as a well-trained assessors and analysts. This also calls for an implementation implication where government must educate the recipients on how to use the cash in order to support the policy objective. <br /><br /><br />References<br /><br />Aspalter, C 2006, 'The East Asian welfare model', International Journal of Social Welfare, vol. 15, pp. 290-301.<br /><br />Bappenas, see Ministry of National Development Planning.<br /><br />Bessant, J, Watts, R, Dalton T & Smyth, P 2006, Talking policy: how social policy is made, Allen & Unwin, Sydney.<br /><br />BPS, see National Statistics Bureau. <br /><br />Cueto, S 2009, 'Conditional cash-transfer programmes in developing countries', The Lancet, vol. 374, pp. 1952-1953.<br /><br />Departemen Dalam Negeri 2010, Basis data Depdagri (Database of Ministry of Home Affairs), Ministry of Home Affairs of Republic of Indonesia, Jakarta, viewed 30 May 2010, <br /><http://www.depdagri.go.id/basis-data/2010/01/28/daftar-provinsi>. <br /><br />Departemen Keuangan 2007, Data APBD tahun 2007 (Local government budget plan year 2007), Ministry of Finance of Republic of Indonesia, Jakarta, viewed 31 May 2010, <br /><http://www.djpk.depkeu.go.id/linkdata/data/belanja_2007_per_fungsi.htm>.<br /><br />—— n.d., Data pokok APBN 2005-2010 (Data base of national government budget plan of 2005-2010), Ministry of Finance of Republic of Indonesia, Jakarta.<br /><br />Departemen Sosial 2008a, Petunjuk teknis penyaluran bantuan langsung tunai untuk rumah tangga sasaran (Technical guidance of unconditional cash transfer for targeted households), Ministry of Social Welfare of Republic of Indonesia, Jakarta.<br /><br />Departemen Sosial 2008b, Efektifitas bantuan langsung tunai 2008 (Effectiveness of unconditional cash transfer of 2008), Ministry of Social Welfare of Republic of Indonesia, Jakarta.<br /><br />Esping-Anderson, G 1990, The three worlds of welfare capitalism, Princeton University Press, Princeton NJ.<br /><br />Frank, RH, Sarah, J & Bernanke, BS 2009, Principles of microeconomics, 2nd edn, McGraw-Hill Australia, North Ryde. <br />Hermanto, B, Ali, AZ, Derina, R, Agus, AA & Wibowo, SS 2010, 'Revitalising social security via growth in the micro insurance industry', Policy Briefs 11, Australia Indonesia Governance Research Partnership, Crawford School of Economic and Government, ANU College of Asia and the Pacific, The Australian National University, Canberra. <br /><br />Hill, M 2006, Social policy in in the modern world: a comparative text, Blackwell, Malden, MA.<br /><br />Holliday, I 2000, ‘Productivist welfare capitalism: social policy in East Asia’, Political Studies, vol. 48, pp. 706-723.<br /><br />IMF 2008, 'Tax administration reform and fiscal adjustment: the case of Indonesia (2001-07)', IMF Working Paper WP/08/129, International Monetary Fund, viewed 4 June 2010,<br /><http://www.imf.org/external/pubs/ft/wp/2008/wp08129.pdf>.<br /><br />Jacobs, D 2000, 'Low public expenditures on social welfare: do East Asian countries have secret?', International Journal of Social Welfare, vol. 9, pp. 2-16. <br /><br />Keynes, JM 1936, The general theory of employment interest and money, Macmillan and Co, London. <br />Kominfo-Newsroom 2009, 'Menkominfo: tahun 2010 seluruh desa di Indonesia terkoneksi' (Minister of Communication and Information: all villages in Indonesia are connected by 2010), Kominfo-Newsroom, viewed 2 June 2010,<br /><http://www.depkominfo.go.id/berita/bipnewsroom/menkominfo-tahun-2010-seluruh-desa-di-indonesia-terkoneksi/>. <br /><br />Kompas 2010, 'Baru 50,8 persen masyarakat punya jaminan kesehatan' (It is only 50.8 per cent of people with health insurance), Kompas.com, viewed 3 June 2010, <br /><http://kesehatan.kompas.com/read/2010/02/15/17483224/Baru.50.8.Persen.Masyarakat.Punya.Jaminan.Kesehatan>. <br /><br />Ministry of National Development Planning 2010, Lampiran peraturan Presiden Republik Indonesia nomor 5 tahun 2010 tentang rencana pembangunan jangka menenangah nasional (RPJMN) tahun 2010-1014 (National medium development plan 2010-2014 appendix), Ministry of National Development Planning (Bappenas), Jakarta.<br /><br />National Statistics Bureau n.d., 'Rencana strategis' (Strategic plan), Indonesian National Bureau of Statistics, Jakarta, viewed 3 June 2010, <http://www.bps.go.id/aboutus.php?renstra=1&id_rens=61> .<br />Sewall, RG 2008, 'Conditional cash transfer programs in Latin America', SAIS Review, vol. 28, no. 2, pp. 175-187.<br /><br />SMERU 2006, 'Kajian cepat pelaksanaan subsidi langsung tunai tahun 2005 di Indonesia: studi kasus di Provinsi DKI Jakarta' (Rapid assessment of unconditional cash transfer implementation of 2005 in Indonesia: a case study in the Province of DKI Jakarta), SMERU Research Report 361.05/DDC 21, SMERU Research Institute, Jakarta. <br /><br />The Jakarta Post 2008, 'Tax office aims boost number taxpayers', TheJakartaPost.com, viewed 4 June 2010, <br /><http://www.thejakartapost.com/news/2008/02/24/tax-office-aims-boost-number-taxpayers.html>. <br /><br />Transparency International 2009, Global corruption report 2009, Transparency International, Berlin, viewed 29 May 2010, <br /><http://www.transparency.org/publications/gcr/gcr_2009>.<br /><br />Widjaja, M 2009, 'An economic and social review on Indonesian direct cash transfer program to poor families year 2005', paper presented to Association for Public Policy Analysis and Management International Conference, Singapore, 7-9 January.<br /><br />World Bank 2006, 'Making the new Indonesia work for the poor: overview', The World Bank, Jakarta, viewed 30 May 2010,<br /><http://siteresources.worldbank.org/INTINDONESIA/Resources/Publication/280016-1152870963030/2753486-1165385030085/Overview_standalone_en.pdf >.<br /><br />Yusuf, AA & Resosudarmo, BP 2008, 'Mitigating distributional impact of fuel pricing reform: the Indonesian experience', ASEAN Economic Bulletin, vol. 25, no. 1, pp. 32–47.Unknownnoreply@blogger.com1tag:blogger.com,1999:blog-8697904756842250859.post-70785228347646775122010-06-10T11:59:00.000-07:002010-06-14T17:47:13.893-07:00What has been the effect of the Global Financial Crisis upon thinking about the role of the state?<meta equiv="Content-Type" content="text/html; charset=utf-8"><meta name="ProgId" content="Word.Document"><meta name="Generator" content="Microsoft Word 12"><meta name="Originator" content="Microsoft Word 12"><link rel="File-List" href="file:///C:%5CUsers%5CADECAH%7E1%5CAppData%5CLocal%5CTemp%5Cmsohtmlclip1%5C01%5Cclip_filelist.xml"><o:smarttagtype namespaceuri="urn:schemas-microsoft-com:office:smarttags" name="country-region"></o:smarttagtype><o:smarttagtype namespaceuri="urn:schemas-microsoft-com:office:smarttags" name="place"></o:smarttagtype><!--[if gte mso 9]><xml> <o:officedocumentsettings> <o:relyonvml/> <o:allowpng/> </o:OfficeDocumentSettings> </xml><![endif]--><link rel="themeData" 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mso-hansi-font-family:Calibri; mso-hansi-theme-font:minor-latin; mso-bidi-font-family:Arial; mso-bidi-theme-font:minor-bidi;} </style> <![endif]--> <p class="MsoNormal" style="text-align: justify; line-height: 150%;"><b style=""><span style="font-size: 14pt; line-height: 150%; font-family: "Times New Roman","serif";" lang="EN-US">Introduction <o:p></o:p></span></b></p> <p class="MsoNormal" style="text-align: justify; line-height: 150%;"><span style="line-height: 150%; font-family: "Times New Roman","serif";" lang="EN-US">A global financial crisis, hereafter called GFC, is a crisis related to liquidity of financial institutions and/or the volatility of the value of money, which happens in one or more countries and affect other countries. The role the state plays in global financial market, in regard to the concern of preventing and resolving the GFC, has been the focus of ongoing debate among economists and policy makers. For the purpose of this essay, state will be defined as a nation-state and international trustee. Nation-state includes government and 'the lender of last resort', while international trustee includes international institutions such as the World Bank and International Monetary Fund (IMF). This essay will argue that GFC has led to a shift in thinking and calls for measures to strengthen the role of the state.<o:p></o:p></span></p> <p class="MsoNormal" style="text-align: justify; line-height: 150%;"><u><span style="line-height: 150%; font-family: "Times New Roman","serif";" lang="EN-US"><o:p><span style="text-decoration: none;"> </span></o:p></span></u></p> <p class="MsoNormal" style="text-align: justify; line-height: 150%;"><b style=""><span style="font-size: 14pt; line-height: 150%; font-family: "Times New Roman","serif";" lang="EN-US">Comparing Theories: Middle Way is Necessary <o:p></o:p></span></b></p> <p class="MsoNormal" style="text-align: justify; line-height: 150%;"><span style="line-height: 150%; font-family: "Times New Roman","serif";" lang="EN-US">Economists and policy makers have different view on the role of the state in regard to financial market and GFC. This paper limits the discussion into three groups; these are the Left (Marxist), the Middle (Keynesian), and the Right (Neoliberalists). The last two groups can be identified as liberal, which have been dominating the debate since great depression of 1930s. Marxists believe that the state must do full-control to economic development as well as capital. They argue that credit, means of production, and means of communication (and transport) must be centralized under the state (Marxist n.d.).<span style=""> </span>On the other hand, the liberals (both Keynesian and Neoliberal) believe in the power of the free-market especially in terms of allocating scarce resources. However, they disagree on how far the state should intervene in the market. F.A.Hayek, as the central figure of Neoliberal beside Milton Freidman, argued that the advances or growth or progress could be achieved mainly because of 'spontaneous forces' from free market, therefore the state control must be limited (Hayek 1960, p. 38). On the other hand, John Maynard Keynes, although he was a liberalist and free-trade believer, argued that the spontaneous process through <i style="">laissez faire</i> will create instability; therefore the state must play an active role in certain circumstances on economy (Keynes 1936)<span class="MsoFootnoteReference"> <a style="" href="#_ftn1" name="_ftnref1" title=""><span style=""><!--[if !supportFootnotes]--><span class="MsoFootnoteReference"><span style="font-size: 12pt;" lang="EN-US">[1]</span></span><!--[endif]--></span></a></span>.<o:p></o:p></span></p> <p class="MsoNormal" style="text-align: justify; line-height: 150%;"><span style="line-height: 150%; font-family: "Times New Roman","serif";" lang="EN-US"><o:p> </o:p></span></p> <p class="MsoNormal" style="text-align: justify; line-height: 150%;"><span style="line-height: 150%; font-family: "Times New Roman","serif";" lang="EN-US">As a result, the three groups share different view in financial market and GFC. Marxists believe that financial (capital) market must be fully controlled by the state in order to maximize the benefit for the proletarians. This is because Marxists believe that state is an instrument of 'political domination with specific effects on the class struggle' (Jessop 1990, p. 28). By contrast, Neoliberalists believe that the state must limit its intervention to monetary policy. One important part in monetary policy is to control the rate of interest indirectly through managing the supply of money, buying or selling securities, and increasing or decreasing the quantity of reserves available to banks (Friedman 1960, pp. 30-35)<a style="" href="#_ftn2" name="_ftnref2" title=""><span class="MsoFootnoteReference"><span style=""><!--[if !supportFootnotes]--><span class="MsoFootnoteReference"><span style="font-size: 12pt;" lang="EN-US">[2]</span></span><!--[endif]--></span></span></a>. On responding to GFC, instead of prioritizing the demand side, Neoliberalists recommend securing the supply side by lending to firms early and freely (Friedman 1963, p. 407)<a style="" href="#_ftn3" name="_ftnref3" title=""><span class="MsoFootnoteReference"><span style=""><!--[if !supportFootnotes]--><span class="MsoFootnoteReference"><span style="font-size: 12pt;" lang="EN-US">[3]</span></span><!--[endif]--></span></span></a>. Neoliberalists do not like fiscal policy because it is costly, and they believe it is not an effective way to resolve a crisis. Neoliberalists also believe that unemployment during a crisis will only happen in the short term; in the long term those who lose their job will return to the workforce although they will get lower wages. This means there will always be a full-employment level of output to meet the Long Run Aggregate Supply Curve (LRSS)<a style="" href="#_ftn4" name="_ftnref4" title=""><span class="MsoFootnoteReference"><span style=""><!--[if !supportFootnotes]--><span class="MsoFootnoteReference"><span style="font-size: 12pt;" lang="EN-US">[4]</span></span><!--[endif]--></span></span></a> as long as there are no disturbances to the free-market; for example, minimum wages or demands from trade unions. Keynesians, on the other hand, believe that intervention in monetary policy alone will not be enough to promote aggregate demand and aggregate supply. Therefore, unemployment would be permanent in the long term without direct state intervention. This means deeper recession. Keynes argued that the state must act on more than monetary policy by actively stimulating aggregate demand and aggregate supply with focus on fiscal policy. He also argued that the state budget not necessarily balanced. During crisis the deficit budget is needed to allow state intervention through fiscal policy, while during conducive economy the state can make surplus because few state interventions are needed (Keynes 1936)<a style="" href="#_ftn5" name="_ftnref5" title=""><span class="MsoFootnoteReference"><span style=""><!--[if !supportFootnotes]--><span class="MsoFootnoteReference"><span style="font-size: 12pt;" lang="EN-US">[5]</span></span><!--[endif]--></span></span></a>. <span style=""> </span><o:p></o:p></span></p> <p class="MsoNormal" style="text-align: justify; line-height: 150%;"><span style="line-height: 150%; font-family: "Times New Roman","serif";" lang="EN-US"><o:p> </o:p></span></p> <p class="MsoNormal" style="text-align: justify; line-height: 150%;"><span style="line-height: 150%; font-family: "Times New Roman","serif";" lang="EN-US">It can be argued that the Keynesian theory is more plausible. All decisions about resource allocation cannot be given to the state as suggested by Marxists. Giving all resource allocation decisions to the state will make the state a super power which will lead to an increase in corruption. Furthermore, whoever is in charge of managing that super-power state will not be able to control all the complex relationships associated with resource allocation even if their intentions are good. This is simply because of the 'bounded rationality' which is the limitation of human being in dealing with complex environment (Simon 1991, p. 132).<span style=""> </span>On the other hand, all economic development and recession recovery cannot be left to the market's 'invisible hand'<a style="" href="#_ftn6" name="_ftnref6" title=""><span class="MsoFootnoteReference"><span style=""><!--[if !supportFootnotes]--><span class="MsoFootnoteReference"><span style="font-size: 12pt;" lang="EN-US">[6]</span></span><!--[endif]--></span></span></a> as argued by Neoloberalists. In the long term, the free-market combined with <i style="">laissez faire</i> will not be efficient for the whole society. For example, free market will leave incapable people out of market which will lead them in extreme poverty and create high divergence<a style="" href="#_ftn7" name="_ftnref7" title=""><span class="MsoFootnoteReference"><span style=""><!--[if !supportFootnotes]--><span class="MsoFootnoteReference"><span style="font-size: 12pt;" lang="EN-US">[7]</span></span><!--[endif]--></span></span></a>. The divergence and poverty will trigger social disorder which could be ended with the collapse of the entire social and economic system. A middle way is necessary because the society can get benefit from the efficiency of free-market but in the same time the state play an active role to prevent instability as well as to improve the capability of the "losers". <o:p></o:p></span></p> <p class="MsoNormal" style="text-align: justify; line-height: 150%;"><span style="line-height: 150%; font-family: "Times New Roman","serif";" lang="EN-US"><o:p> </o:p></span></p> <p class="MsoNormal" style="text-align: justify; line-height: 150%;"><span style="line-height: 150%; font-family: "Times New Roman","serif";" lang="EN-US">The Keynesian will also work better in financial market compare to Marxists and Neoliberalism. The centralization of 'financialisation' to the state will make 'financial market' not efficient. There will be many potential buyers (investors) who cannot participate in the market because the supply will be limited, while potential sellers (firms) cannot supply the market because of the monopoly by the state. <span style=""> </span>By contrast, the Neoliberal who emphasis more on the long term will not satisfy those people who are concerned only with short term problems during crisis. If the state relies only on monetary policy and increases the supply of money to decrease interest rates, it may increase consumption and investment (as components in aggregate demand); however, the change may be slower than the impact of fiscal policy. Leaving the market with low aggregate demand and low employment will trigger social and political crisis which will lead to a deeper economic recession. By adopting Keynesian theory, the financial crisis can be recovered relatively quickly because the intervention is mainly on the demand side through fiscal policy supported by appropriate monetary policy (particularly to ensure the balance of aggregate supply in response to the progress of aggregate demand). The increase of aggregate demand will lead to increases in employment and economic output. The cost of fiscal policy can be financed by the state's saving gained during economic surplus. However, the increase of aggregate demand toward the full-employment level of output will create inflation (Bruno & Sachs 1985, pp. 26-29), this is why fiscal policy must be balanced by monetary policy which would help to increase the aggregate supply to mitigate the inflation in the short term during crisis recovery. <o:p></o:p></span></p> <p class="MsoNormal" style="text-align: justify; line-height: 150%;"><span style="line-height: 150%; font-family: "Times New Roman","serif";" lang="EN-US"><o:p> </o:p></span></p> <p class="MsoNormal" style="text-align: justify; line-height: 150%;"><b style=""><span style="font-size: 14pt; line-height: 150%; font-family: "Times New Roman","serif";" lang="EN-US">Key Measures to Strengthen the Role of the State<o:p></o:p></span></b></p> <p class="MsoNormal" style="text-align: justify; line-height: 150%;"><span style="line-height: 150%; font-family: "Times New Roman","serif";" lang="EN-US">In addition to fiscal and monetary policy, the state must take an active role in ensuring the free and accurate information for financial market actors, particularly the 'Main Street' group<a style="" href="#_ftn8" name="_ftnref8" title=""><span class="MsoFootnoteReference"><span style=""><!--[if !supportFootnotes]--><span class="MsoFootnoteReference"><span style="font-size: 12pt;" lang="EN-US">[8]</span></span><!--[endif]--></span></span></a>. Hayek argued that an important component in individual liberty is 'knowledge'. Any individual will use their 'knowledge' to make the best decision for his or her self, and no one (including the state) knows what is best for them (Hayek 1960, p. 95). Efficiency in free-market is based on the assumption that all market actors are 'well-informed' (Frank et al. 2009, p. 150)<a style="" href="#_ftn9" name="_ftnref9" title=""><span class="MsoFootnoteReference"><span style=""><!--[if !supportFootnotes]--><span class="MsoFootnoteReference"><span style="font-size: 12pt;" lang="EN-US">[9]</span></span><!--[endif]--></span></span></a>. The information asymmetry has caused GFC<a style="" href="#_ftn10" name="_ftnref10" title=""><span class="MsoFootnoteReference"><span style=""><!--[if !supportFootnotes]--><span class="MsoFootnoteReference"><span style="font-size: 12pt;" lang="EN-US">[10]</span></span><!--[endif]--></span></span></a>. <span style=""> </span>For example, in the case of Enron crisis in 2001 and the subprime crisis that started in 2007, even with the role of independent auditors, the U.S. government failed to uncover the truth and sufficient information for investors (BBC News 2002; Fooks 2003, pp. 21-22; Randle 2010). As a result, investors have low trust in the information given out by corporate executives and brokerage firms (Fooks 2003, p. 23). This will reduce number of investors in the market, particularly of those who are committed for medium or long term investment. What will remains are mostly 'gambler' investors who are only interested on a high gain from short term investment which could trigger crisis. Free and accurate information for all market actors will only be possible if the state play an active role because information is a public interest, therefore it cannot be given to the market or private sector. <o:p></o:p></span></p> <p class="MsoNormal" style="text-align: justify; line-height: 150%;"><span style="line-height: 150%; font-family: "Times New Roman","serif";" lang="EN-US"><o:p> </o:p></span></p> <p class="MsoNormal" style="text-align: justify; line-height: 150%;"><span style="line-height: 150%; font-family: "Times New Roman","serif";" lang="EN-US">The state can avoid the bubble in asset price by providing "reference price" information as addition to the free and truth information. Reference price reflects the 'real' value of the asset. For the stock price, the reference could relate to information about return on equity (RoE) and return of asset (RoA); for property the reference could be inflation rate. This information could be shown side by side with market price on an information board. <span style="">Investors will be then alerted to possible bubble when there</span> is a significant gap between market and reference price. <o:p></o:p></span></p> <p class="MsoNormal" style="text-align: justify; line-height: 150%;"><span style="line-height: 150%; font-family: "Times New Roman","serif";" lang="EN-US"><span style=""> </span><o:p></o:p></span></p> <p class="MsoNormal" style="text-align: justify; line-height: 150%;"><span style="line-height: 150%; font-family: "Times New Roman","serif";" lang="EN-US">In the context of globalization, the state must apply capital control policy. Capital control aims to protect the country from the volatility caused by large in and out flows of money in a relatively short time. According to Keynesian theory, capital control can help to control the marginal efficiency of capital. The state must ensure that the marginal efficiency is not lower than the interest rate in order to prevent the high fluctuation of marginal efficiency (Keynes 1936, pp. 135-137). One of the causes of Asian crisis was that the Japanese, European and North American banks withdraw their money in short time, not only from Thailand, but also from other Asian countries. The money was then used to increase lending to Latin America and Eastern Europe which then prevented the crisis spread to other regions (Allen & Gale 2007, pp. 260-261). Malaysia reacted to crises by applying capital control policy through lowering interest rates and applying an exit tax. As a result, they suffered less and recovered quickly compared to neighboring countries (Stiglitz 2002, pp. 93; 124-125)<a style="" href="#_ftn11" name="_ftnref11" title=""><span class="MsoFootnoteReference"><span style=""><!--[if !supportFootnotes]--><span class="MsoFootnoteReference"><span style="font-size: 12pt;" lang="EN-US">[11]</span></span><!--[endif]--></span></span></a>. With capital control, the state can prevent an excess supply of capital which in Asian crisis became the cause of bubble (Stiglitz 2002, p. 101). A bubble can happen when an excess supply of capital combined with a progressive advertising campaign of one corporate or brokerage firm leads to concentration of large amounts of capital in few assets (Harman 2009, pp. 152-153). <span style=""> </span>This will inflate the price of those particular assets thus creating a bubble price. This was the case in the Asian Crisis and also during subprime crisis in the U.S. (Gowan 2009, pp. 17-21). These demonstrate that capital control policy will prevent one country from suffering a financial crisis and also prevent the contagion effect with the result that a crisis in one country will be relatively easy to keep localized. Moreover, capital control also helps a country to utilize the capital for the most productive purposes which will increase economic output and create employment. <o:p></o:p></span></p> <p class="MsoNormal" style="text-align: justify; line-height: 150%;"><span style="line-height: 150%; font-family: "Times New Roman","serif";" lang="EN-US"><o:p> </o:p></span></p> <p class="MsoNormal" style="text-align: justify; line-height: 150%;"><span style="line-height: 150%; font-family: "Times New Roman","serif";" lang="EN-US">In order to strengthen the role of the state, support is needed from international trustee, particularly IMF and the World Bank. They role is important, not only as the international lender of last resort, but also to ensure and promote the stability of global financial market. The focus of financial market stabilization is to prevent the worldwide financial market from 'gambling investment' (created by firm, broker, and investor speculators) by promoting a better regulations that provides incentive for the real investors; that is investors who expect to gain from the firms' profit or the real value of the asset rather than from the 'artificial' price of the stocks or asset. The basic idea is to bring back the function of financial market as instrument to support investments, where firms can collect cheap funds and investors have opportunity to make their surplus more productive than just make a bank deposit. Therefore, international trustee must promote regulations to prevent the practice of alternative investments such as the hedge funds. Another necessary role in global level to create stabilization is the GFC early warning system (Reinhart & Rogoff 2009, pp. 277-278). The system must be able to detect any crisis symptoms so then international trustee and nation-states can react quickly to fix the issues. One practical example is to monitor the bubble in financial market. <o:p></o:p></span></p> <p class="MsoNormal" style="text-align: justify; line-height: 150%;"><span style="line-height: 150%; font-family: "Times New Roman","serif";" lang="EN-US"><o:p> </o:p></span></p> <p class="MsoNormal" style="text-align: justify; line-height: 150%;"><span style="line-height: 150%; font-family: "Times New Roman","serif";">Although state intervention is important, it must be carried out in a proper and careful way. For example, during great depression of 1930s and stagflation of 1970s, many economists debated the role of the lender of last resort<a style="" href="#_ftn12" name="_ftnref12" title=""><span class="MsoFootnoteReference"><span style=""><!--[if !supportFootnotes]--><span class="MsoFootnoteReference"><span style="font-size: 12pt;">[12]</span></span><!--[endif]--></span></span></a>. Some scholars, such as Freidman, argued that monetary policy taken by the lender of last resort who reduced the money supply was the cause of the great depression. That was because the officers in charge were incapable to handle the situation (Freidman 1963, pp. 354-363)<span class="MsoFootnoteReference"> <a style="" href="#_ftn13" name="_ftnref13" title=""><span style=""><!--[if !supportFootnotes]--><span class="MsoFootnoteReference"><span style="font-size: 12pt;">[13]</span></span><!--[endif]--></span></a></span>. Moreover, the challenge to make balance interventions on demand and supply clearly need capable policy makers. <span style=""> </span>Therefore, it is very important to have highly capable decision makers in the lender of last resort and also in the Ministry of Finance<a style="" href="#_ftn14" name="_ftnref14" title=""><span class="MsoFootnoteReference"><span style=""><!--[if !supportFootnotes]--><span class="MsoFootnoteReference"><span style="font-size: 12pt;">[14]</span></span><!--[endif]--></span></span></a>. People in those positions must be neutral from politics but possess high integrity, capability and knowledge in managing monetary and fiscal policy. In other words, the strengthening of the role of the state must be supported by good and capable government. <o:p></o:p></span></p> <p class="MsoNormal" style="text-align: justify; line-height: 150%;"><span style="line-height: 150%; font-family: "Times New Roman","serif";" lang="EN-US"><o:p> </o:p></span></p> <p class="MsoNormal" style="text-align: justify; line-height: 150%;"><b style=""><span style="font-size: 14pt; line-height: 150%; font-family: "Times New Roman","serif";" lang="EN-US">Conclusion<o:p></o:p></span></b></p> <p class="MsoNormal" style="text-align: justify; line-height: 150%;"><span style="line-height: 150%; font-family: "Times New Roman","serif";" lang="EN-US">More participatory role of the state is important, not only for the recovery, but also to prevent GFC. Information asymmetry has caused the bubble which lead to crisis in the past. This information asymmetry has violated the fundamental assumption of liberalism that all market actors must have equal information. However, free flow supply of information is not enough. A stronger role by the state is needed to ensure honest and accurate information, including reference price information, and basic skills are available to small investors to enable them to make use of information for their best decision. The state, particularly those in developing countries, must apply capital control policy to avoid volatility and bubble price in financial market as well as to ensure that capital is mostly used for real investment rather than just another form of gambling. The role of international trustee is important to ensure stabilization of global financial market through promotion a better regulations and facilitating an early warning system. Too much state intervention will create inefficiency whereas, too little will create many losers and divergence and make the crisis stay longer. Therefore, the middle way would be the best solution. However, the middle way needs highly capable and honest persons in fiscal and monetary authority. In short, the middle way needs good governance. <span style=""> </span><o:p></o:p></span></p> <p class="MsoNormal" style="text-align: justify; line-height: 150%;"><span style="line-height: 150%; font-family: "Times New Roman","serif";" lang="EN-US"><o:p> </o:p></span></p> <p class="MsoNormal" style="text-align: justify; line-height: 150%;"><b style=""><span style="line-height: 150%; font-family: "Times New Roman","serif";" lang="EN-US"><o:p> </o:p></span></b></p> <p class="MsoNormal" style="text-align: justify; line-height: 150%;"><b style=""><span style="line-height: 150%; font-family: "Times New Roman","serif";" lang="EN-US">References<o:p></o:p></span></b></p> <p class="MsoNormal" style="text-align: justify; line-height: 150%;"><span style="line-height: 150%; font-family: "Times New Roman","serif";" lang="EN-US"><o:p> </o:p></span></p> <p class="MsoNormal"><span style="font-family: "Times New Roman","serif";" lang="EN-US">Allen, F & Gale, D 2007, <i>Understanding financial crisis</i>, Oxford University Press, New York. <span class="z3988"> <o:p></o:p></span></span></p> <p class="MsoNormal"><span style="font-family: "Times New Roman","serif";" lang="EN-US"><o:p> </o:p></span></p> <p class="MsoNormal"><span style="font-family: "Times New Roman","serif";" lang="EN-US">Bagehot, W 1873, <i>Lombard street: a description of the money market</i>, Henry S. King and Co., London. <span class="z3988"> <o:p></o:p></span></span></p> <p class="MsoNormal"><span class="z3988"><span style="" lang="EN-US"><o:p> </o:p></span></span></p> <p class="MsoNormal"><span style="font-family: "Times New Roman","serif";" lang="EN-US">BBC News 2002, 'Enron auditor fined $500,000', <i>BBC News World Edition</i>, viewed 16 May 16 2010<o:p></o:p></span></p> <p class="MsoNormal"><span style="font-family: "Times New Roman","serif";" lang="EN-US"><</span><span lang="EN-US"><a href="http://news.bbc.co.uk/2/hi/business/2334761.stm"><span style="font-family: "Times New Roman","serif"; color: windowtext; text-decoration: none;">http://news.bbc.co.uk/2/hi/business/2334761.stm</span></a></span><span style="font-family: "Times New Roman","serif";" lang="EN-US">>.<span style=""> </span><o:p></o:p></span></p> <p class="MsoNormal"><span style="font-family: "Times New Roman","serif";" lang="EN-US"><o:p> </o:p></span></p> <p class="MsoNormal"><span style="font-family: "Times New Roman","serif";" lang="EN-US">Bruno, M & Sachs, J 1985, <i>Economics of worldwide stagflation</i>, Harvard University Press, Cambridge, Mass. <span class="z3988"> <o:p></o:p></span></span></p> <p class="MsoNormal"><span style="font-family: "Times New Roman","serif";" lang="EN-US"><o:p> </o:p></span></p> <p class="MsoNormal"><span style="font-family: "Times New Roman","serif";" lang="EN-US">De Walle, NV 2004, 'The economic correlates of state failure: taxes, foreign aid, and policies', in R Rotberg (eds), <i>When state fail: causes and consequences</i>, Princeton University Press, Princeton, pp. 94-115. <span class="z3988"> </span><o:p></o:p></span></p> <p class="MsoNormal"><span style="font-family: "Times New Roman","serif";" lang="EN-US"><o:p> </o:p></span></p> <p class="MsoNormal"><span style="font-family: "Times New Roman","serif";" lang="EN-US">Fooks, G 2003, 'Auditors and the permissive society: market failure, globalisation and financial regulation in the U.S.', <i>Risk Management</i>, vol. 5, no. 2, pp. 17-26. <span class="z3988"> <o:p></o:p></span></span></p> <p class="MsoNormal"><span class="z3988"><span style="" lang="EN-US"><o:p> </o:p></span></span></p> <p class="MsoNormal"><span style="font-family: "Times New Roman","serif";" lang="EN-US">Frank, RH, Sarah, J & Bernanke, BS 2009, <i>Principles of microeconomics,</i> 2nd edn, McGraw-Hill Australia, North Ryde. <span class="z3988"> <o:p></o:p></span></span></p> <p class="MsoNormal"><span style="font-family: "Times New Roman","serif";" lang="EN-US"><o:p> </o:p></span></p> <p class="MsoNormal"><span style="font-family: "Times New Roman","serif";" lang="EN-US">Friedman, M 1960, <i>A program for monetary stability</i>, Fordham University Press, New York. <span class="z3988"> <o:p></o:p></span></span></p> <p class="MsoNormal"><span style="font-family: "Times New Roman","serif";" lang="EN-US"><o:p> </o:p></span></p> <p class="MsoNormal"><span style="font-family: "Times New Roman","serif";" lang="EN-US">Friedman, M 1963, <i>A monetary history of the United States, 1867-1960</i>, Princeton University Press, Princeton. <span class="z3988"> <o:p></o:p></span></span></p> <p class="MsoNormal"><span style="font-family: "Times New Roman","serif";" lang="EN-US"><o:p> </o:p></span></p> <p class="MsoNormal"><span style="font-family: "Times New Roman","serif";" lang="EN-US">George, S 2000, 'A short history of neoliberalism: twenty years of elite economics and emerging opportunities for structural change', in W Bello, N Bullard, & K Malhora (eds), <i>Global finance: new thinking on regulating speculative capital markets</i>, Zed Books, London, pp. 27-41. <span class="z3988"> <o:p></o:p></span></span></p> <p class="MsoNormal"><span style="font-family: "Times New Roman","serif";" lang="EN-US"><o:p> </o:p></span></p> <p class="MsoNormal"><span style="font-family: "Times New Roman","serif";" lang="EN-US">Gowan, P 2009, 'Crisis in the hinterland: consequences of the New Wall Street System', <i>New Left Review</i>, vol. 55, pp. 5-29. <span class="z3988"> <o:p></o:p></span></span></p> <p class="MsoNormal"><span style="font-family: "Times New Roman","serif";" lang="EN-US"><o:p> </o:p></span></p> <p class="MsoNormal"><span style="font-family: "Times New Roman","serif";" lang="EN-US">Harman, C 2009, <i>Zombie capitalism: global crisis and the relevance of Marx</i>, Bookmarks Publications, London. <span class="z3988"> <o:p></o:p></span></span></p> <p class="MsoNormal"><span style="font-family: "Times New Roman","serif";" lang="EN-US"><o:p> </o:p></span></p> <p class="MsoNormal"><span style="font-family: "Times New Roman","serif";" lang="EN-US">Hayek, FA 1960, <i>The constitution of liberty</i>, University of Chicago Press, Chicago. <span class="z3988"> <o:p></o:p></span></span></p> <p class="MsoNormal"><span style="font-family: "Times New Roman","serif";" lang="EN-US"><o:p> </o:p></span></p> <p class="MsoNormal"><span style="font-family: "Times New Roman","serif";" lang="EN-US">Jessop, B 1990, <i>State theory: putting capitalist state in their place</i>, Polity Press, Cambridge. <span class="z3988"> <o:p></o:p></span></span></p> <p class="MsoNormal"><span style="font-family: "Times New Roman","serif";" lang="EN-US"><o:p> </o:p></span></p> <p class="MsoNormal"><span style="font-family: "Times New Roman","serif";" lang="EN-US">Keynes, JM 1936, <i>The General Theory of Employment Interest and Money</i>, Macmillan and Co, London. <span class="z3988"> <o:p></o:p></span></span></p> <p class="MsoNormal"><span style="font-family: "Times New Roman","serif";" lang="EN-US"><o:p> </o:p></span></p> <p class="MsoNormal"><span style="font-family: "Times New Roman","serif";" lang="EN-US">Khor, M 2000, 'Why capital control and international debt restructuring mechanisms are necessary to prevent and manage financial crises', in W Bello, N Bullard & K Malhora (eds), <i>Global finance: new thinking on regulating speculative capital markets</i>, Zed Books, London, pp. 140-158. <span class="z3988"> </span><o:p></o:p></span></p> <p class="MsoNormal"><span class="z3988"><span style="" lang="EN-US"><o:p> </o:p></span></span></p> <p class="MsoNormal"><span style="font-family: "Times New Roman","serif";" lang="EN-US">Kindleberger, CP 1996, <i>Manias, panics and crashes: a history of financial crisis,</i> 3rd edn, John Wiley & Sons, Toronto. <span class="z3988"> <o:p></o:p></span></span></p> <p class="MsoNormal"><span style="font-family: "Times New Roman","serif";" lang="EN-US"><o:p> </o:p></span></p> <p class="MsoNormal"><span style="font-family: "Times New Roman","serif";" lang="EN-US">Marxist n.d., 'Manifesto of the Communist Party 1848: chapter II', <i style="">Marxist.org</i>, viewed 18 May 2010, <o:p></o:p></span></p> <p class="MsoNormal"><span style="font-family: "Times New Roman","serif";" lang="EN-US"><http://www.marxists.org/archive/marx/works/1848/communist-manifesto/ch02.htm>.<span style=""> </span><o:p></o:p></span></p> <p class="MsoNormal"><span style="font-family: "Times New Roman","serif";" lang="EN-US"><o:p> </o:p></span></p> <p class="MsoNormal"><span style="font-family: "Times New Roman","serif";" lang="EN-US">Phelps, ES 1968, 'Money-wage dynamics and labor-market equilibrium', <i>The Journal of Political Economy</i>, vol. 76, no. 4, pp. 678-711. <span class="z3988"> </span><o:p></o:p></span></p> <p class="MsoNormal"><span style="font-family: "Times New Roman","serif";" lang="EN-US"><o:p> </o:p></span></p> <p class="MsoNormal"><span style="font-family: "Times New Roman","serif";" lang="EN-US">Phillips, AW 1958, 'The relation between unemployment and the rate of change of money wage rates in the United Kingdom, 1861-1957', <i>Economica</i>, vol. 25, no. 100, pp. 283-299. <span class="z3988"> <o:p></o:p></span></span></p> <p class="MsoNormal"><span style="font-family: "Times New Roman","serif";" lang="EN-US"><o:p> </o:p></span></p> <p class="MsoNormal"><span style="font-family: "Times New Roman","serif";" lang="EN-US">Polanyi, K 1944, <i>The great transformation</i>, Rinehart & Company, New York. <span class="z3988"> <o:p></o:p></span></span></p> <p class="MsoNormal"><span style="font-family: "Times New Roman","serif";" lang="EN-US"><o:p> </o:p></span></p> <p class="MsoNormal"><span style="font-family: "Times New Roman","serif";" lang="EN-US">Randle, J 2010, 'US regulators charge Goldman Sachs with Fraud', <i>www1.voanews.com, </i><span style="">viewed 16</span> May 2010 <o:p></o:p></span></p> <p class="MsoNormal"><span style="font-family: "Times New Roman","serif";" lang="EN-US"><http://www1.voanews.com/english/news/usa/us-regulators-charge-goldman-sachs-with-fraud--91047789.html>. <o:p></o:p></span></p> <p class="MsoNormal"><span style="font-family: "Times New Roman","serif";" lang="EN-US"><o:p> </o:p></span></p> <p class="MsoNormal"><span style="font-family: "Times New Roman","serif";" lang="EN-US">Reinhart, CM & Rogoff, KS 2009, <i>This time is different: eight centuries of financial folly</i>, Princeton University Press, Princeton. <span class="z3988"> <o:p></o:p></span></span></p> <p class="MsoNormal"><span class="z3988"><span style="" lang="EN-US"><o:p> </o:p></span></span></p> <p class="MsoNormal"><span style="font-family: "Times New Roman","serif";" lang="EN-US">Simon, HA 1991, 'Bounded rationality and organizational learning', <i>Organization Science</i>, vol. 2, no. 1, pp. 125-134. <span class="z3988"> <o:p></o:p></span></span></p> <p class="MsoNormal"><span style="font-family: "Times New Roman","serif";" lang="EN-US"><o:p> </o:p></span></p> <p class="MsoNormal"><span style="font-family: "Times New Roman","serif";" lang="EN-US">Snodgrass, DR 2004, 'The economic correlates of state failure: taxes, foreign aid, and policies', in R Rotberg (eds), <i>When state fail: causes and consequences</i>, Princeton University Press, Princeton, pp. 256-268. <span class="z3988"> </span><o:p></o:p></span></p> <p class="MsoNormal"><span class="z3988"><span style="" lang="EN-US"><o:p> </o:p></span></span></p> <p class="MsoNormal"><span style="font-family: "Times New Roman","serif";" lang="EN-US">Stiglitz, J 2002, <i>Globalization and its discontents</i>, Allen Lane: The Penguin Press, London. <span class="z3988"> <o:p></o:p></span></span></p> <p class="MsoNormal"><span style="font-family: "Times New Roman","serif";" lang="EN-US"><o:p> </o:p></span></p> <p class="MsoNormal"><span style="font-family: "Times New Roman","serif";" lang="EN-US">Tucker, P 2009, 'The repertoire of official sector interventions in the financial system: last resort lending, market-making, and capital', paper presented to the Bank of Japan 2009 International Conference: Financial System and Monetary Policy Implementation, Tokyo, 27-28 May 2009.<o:p></o:p></span></p> <div style=""><!--[if !supportFootnotes]-->
<br /> <hr width="33%" align="left" size="1"> <!--[endif]--> <div style="" id="ftn1"> <p class="MsoFootnoteText"><a style="" href="#_ftnref1" name="_ftn1" title=""><span class="MsoFootnoteReference"><span lang="EN-US"><span style=""><!--[if !supportFootnotes]--><span class="MsoFootnoteReference"><span style="font-size: 10pt;" lang="EN-US">[1]</span></span><!--[endif]--></span></span></span></a><span style="font-family: "Times New Roman","serif";" lang="EN-US"> </span><span style="font-family: "Times New Roman","serif";">In the "General Theory", Keynes declared that he was 'brought up' in and influenced by 'classical economists'. However, "The General Theory" was made to 'contrast' his arguments with classical economists (Keynes 1936, p. 3). See page 333-335 about free trade, and page 217-210 and 268-269 about price and marginal efficiency of capital in regard to instability. <o:p></o:p></span></p> </div> <div style="" id="ftn2"> <p class="MsoFootnoteText"><a style="" href="#_ftnref2" name="_ftn2" title=""><span class="MsoFootnoteReference"><span lang="EN-US"><span style=""><!--[if !supportFootnotes]--><span class="MsoFootnoteReference"><span style="font-size: 10pt;" lang="EN-US">[2]</span></span><!--[endif]--></span></span></span></a><span style="font-family: "Times New Roman","serif";" lang="EN-US"> </span><span style="font-family: "Times New Roman","serif";">This is why they also called as "Monetarist".</span></p> </div> <div style="" id="ftn3"> <p class="MsoFootnoteText"><a style="" href="#_ftnref3" name="_ftn3" title=""><span class="MsoFootnoteReference"><span lang="EN-US"><span style=""><!--[if !supportFootnotes]--><span class="MsoFootnoteReference"><span style="font-size: 10pt;" lang="EN-US">[3]</span></span><!--[endif]--></span></span></span></a><span style="font-family: "Times New Roman","serif";" lang="EN-US"> </span><span style="font-family: "Times New Roman","serif";">This is what we now call "bailout". This approach follows Bagehot dictum, see more in "Lombard street" (Bagehot 1873), also in Tucker (2009, p. 8). More about bailout policy can be seen in "A short history of neoliberalism: twenty years of elite economics and emerging opportunities for structural change (George 2000, pp. 27-41). </span></p> </div> <div style="" id="ftn4"> <p class="MsoFootnoteText"><a style="" href="#_ftnref4" name="_ftn4" title=""><span class="MsoFootnoteReference"><span lang="EN-US"><span style=""><!--[if !supportFootnotes]--><span class="MsoFootnoteReference"><span style="font-size: 10pt;" lang="EN-US">[4]</span></span><!--[endif]--></span></span></span></a><span style="font-family: "Times New Roman","serif";" lang="EN-US"> </span><span style="font-family: "Times New Roman","serif";">LRSS also called Non-Accelerating Inflation Rate of Unemployment (NAIRU). NAIRU curve is vertical at full-employment level output which means in the long run there will be no trade-off between unemployment and inflation (Phelps 1968, pp. 704-705). NAIRU is further development of Philips curve which the name after the inventor Alban William Philips who study the relation between unemployment and the rate of change of money wages in the <st1:country-region st="on"><st1:place st="on">United Kingdom</st1:place></st1:country-region> between 1861-1957 (Philips 1958)</span></p> </div> <div style="" id="ftn5"> <p class="MsoFootnoteText"><a style="" href="#_ftnref5" name="_ftn5" title=""><span class="MsoFootnoteReference"><span lang="EN-US"><span style=""><!--[if !supportFootnotes]--><span class="MsoFootnoteReference"><span style="font-size: 10pt;" lang="EN-US">[5]</span></span><!--[endif]--></span></span></span></a><span style="font-family: "Times New Roman","serif";" lang="EN-US"> This conclusion come from page </span><span style="font-family: "Times New Roman","serif";" lang="EN-US">25-29; 98; 134-136; 164; 219-221; 236; 318-320. </span><span style="font-family: "Times New Roman","serif";" lang="EN-US">F</span><span style="font-family: "Times New Roman","serif";">iscal policy aims to increase aggregate demand through increasing government spending and tax cuts (particularly income tax) which expected to increase consumption. </span></p> </div> <div style="" id="ftn6"> <p class="MsoFootnoteText"><a style="" href="#_ftnref6" name="_ftn6" title=""><span class="MsoFootnoteReference"><span lang="EN-US"><span style=""><!--[if !supportFootnotes]--><span class="MsoFootnoteReference"><span style="font-size: 10pt;" lang="EN-US">[6]</span></span><!--[endif]--></span></span></span></a><span style="font-family: "Times New Roman","serif";" lang="EN-US"> </span><span style="font-family: "Times New Roman","serif";">Invisible hand is a term introduced by Adam Smith and refers to the two functions of price, rationing and allocating function. Both are related to the basic of economic science which is allocating scarce resources (Frank et al. 2009, p. 233) </span><span style="font-family: "Times New Roman","serif";" lang="EN-US"><o:p></o:p></span></p> </div> <div style="" id="ftn7"> <p class="MsoFootnoteText"><a style="" href="#_ftnref7" name="_ftn7" title=""><span class="MsoFootnoteReference"><span lang="EN-US"><span style=""><!--[if !supportFootnotes]--><span class="MsoFootnoteReference"><span style="font-size: 10pt;" lang="EN-US">[7]</span></span><!--[endif]--></span></span></span></a><span style="font-family: "Times New Roman","serif";" lang="EN-US"> T</span><span style="font-family: "Times New Roman","serif";">he losers or incapable people are not necessarily because they are lazy, it can be also a result of illness, age, pregnancy, perceived failure or simply because of economic circumstances (George 2000, pp. 31-32)</span><span style=""><span style=""> </span><o:p></o:p></span></p> </div> <div style="" id="ftn8"> <p class="MsoFootnoteText"><a style="" href="#_ftnref8" name="_ftn8" title=""><span class="MsoFootnoteReference"><span lang="EN-US"><span style=""><!--[if !supportFootnotes]--><span class="MsoFootnoteReference"><span style="font-size: 10pt;" lang="EN-US">[8]</span></span><!--[endif]--></span></span></span></a><span style="font-family: "Times New Roman","serif";" lang="EN-US"> </span><span style="font-family: "Times New Roman","serif";">The "Main Street" group, as a contrast to Wall Street, is referred to investors (particularly individual and household investors) who invest their money in stock exchange or property by using financial services such as banks or other financial institutions.</span><span style=""><span style=""> </span></span></p> </div> <div style="" id="ftn9"> <p class="MsoFootnoteText"><a style="" href="#_ftnref9" name="_ftn9" title=""><span class="MsoFootnoteReference"><span lang="EN-US"><span style=""><!--[if !supportFootnotes]--><span class="MsoFootnoteReference"><span style="font-size: 10pt;" lang="EN-US">[9]</span></span><!--[endif]--></span></span></span></a><span style="font-family: "Times New Roman","serif";" lang="EN-US"> </span><span style="font-family: "Times New Roman","serif";">After Asian crisis, the constitution of Thailand guarantee information for citizen through 'right to know' policy which include information in financial market (Stiglitz 2002, pp. 131-132)</span></p> </div> <div style="" id="ftn10"> <p class="MsoFootnoteText"><a style="" href="#_ftnref10" name="_ftn10" title=""><span class="MsoFootnoteReference"><span style="font-family: "Arial","sans-serif";" lang="EN-US"><span style=""><!--[if !supportFootnotes]--><span class="MsoFootnoteReference"><span style="font-size: 10pt; font-family: "Arial","sans-serif";" lang="EN-US">[10]</span></span><!--[endif]--></span></span></span></a><span style="font-family: "Times New Roman","serif";">Information asymmetry is referred to situation where sellers and buyers do not have equal information. In this case, the Wall Street dominates information while the Main Street has not sufficient information. This means the Wall Street, who is mainly the seller, is price setter, not price taker. This violates the basic assumption of "perfect competition" (</span><span style="font-family: "Times New Roman","serif";" lang="EN-US">Frank et al. 2009, p. 150)</span><span style="font-family: "Times New Roman","serif";">.<span style=""> </span></span></p> </div> <div style="" id="ftn11"> <p class="MsoFootnoteText"><a style="" href="#_ftnref11" name="_ftn11" title=""><span class="MsoFootnoteReference"><span lang="EN-US"><span style=""><!--[if !supportFootnotes]--><span class="MsoFootnoteReference"><span style="font-size: 10pt;" lang="EN-US">[11]</span></span><!--[endif]--></span></span></span></a><span style="font-family: "Times New Roman","serif";" lang="EN-US"> </span><span style="font-family: "Times New Roman","serif";">More observation about Malaysia's capital control can be learned from "Why capital control and international debt restructuring mechanisms are necessary to prevent and manage financial crises" (Khor 2000, pp. 140-158)</span></p> </div> <div style="" id="ftn12"> <p class="MsoFootnoteText"><a style="" href="#_ftnref12" name="_ftn12" title=""><span class="MsoFootnoteReference"><span lang="EN-US"><span style=""><!--[if !supportFootnotes]--><span class="MsoFootnoteReference"><span style="font-size: 10pt;" lang="EN-US">[12]</span></span><!--[endif]--></span></span></span></a><span style="font-family: "Times New Roman","serif";" lang="EN-US"> The lender of last resort function aims to ensure the solvability and liquidity of banks. During crisis they lend money to the banks with low solvability and liquidity. To do this function, in many countries, they need back up from government, particularly the Ministry of Finance. Ministry of Finance is usually the one who responsible for fiscal policy that must be well coordinated with monetary policy taken by the lender of last resort. <span style=""> </span></span></p> </div> <div style="" id="ftn13"> <p class="MsoFootnoteText"><a style="" href="#_ftnref13" name="_ftn13" title=""><span class="MsoFootnoteReference"><span lang="EN-US"><span style=""><!--[if !supportFootnotes]--><span class="MsoFootnoteReference"><span style="font-size: 10pt;" lang="EN-US">[13]</span></span><!--[endif]--></span></span></span></a><span style="font-family: "Times New Roman","serif";" lang="EN-US"> Other comprehensive study on global financial crises argues that, </span><span style="font-family: "Times New Roman","serif";">although the failure of the lender of last resort was recognized, but without that function the depression would stay longer (Kindleberger, p. 190). Polanyi argued that the cause of great depression of 1930s was the absent of the state intervention (</span><span style="font-family: "Times New Roman","serif";" lang="EN-US">1944, pp. 73;201;249)</span></p> </div> <div style="" id="ftn14"> <p class="MsoFootnoteText"><a style="" href="#_ftnref14" name="_ftn14" title=""><span class="MsoFootnoteReference"><span lang="EN-US"><span style=""><!--[if !supportFootnotes]--><span class="MsoFootnoteReference"><span style="font-size: 10pt;" lang="EN-US">[14]</span></span><!--[endif]--></span></span></span></a><span style="font-family: "Times New Roman","serif";" lang="EN-US"> </span><span style="font-family: "Times New Roman","serif";">Similar to this argument can be found in "When state fail: causes and consequences", particularly in chapter written by Snodgrass (pp. 256-268), and De Walle (pp. 94-115). </span></p> </div> </div> Unknownnoreply@blogger.com0tag:blogger.com,1999:blog-8697904756842250859.post-31127782512727200472010-04-25T17:39:00.000-07:002010-04-25T17:50:04.747-07:00Power Determinants among Policy Community MembersIntroduction<br /><br />Policy community is a group of specialists (organizations and/or individuals) that are considered to be the key policy actors in a specific field of government activity or policy area from both through and outside of government (Pross 1985, p. 253; Kingdon 1984, p. 123). Power is the capacity to influence others’ behaviour and to prevent one’s own behaviour from being modified in an unwanted manner (Smith 1976, p. 16).<br /><br />Some scholars in policy and politic<a onblur="try {parent.deselectBloggerImageGracefully();} catch(e) {}" href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEjBAm7oZ8SjMVbig-OrELRQfB1XTuCF3x1NYBtkbgQffk1maalFt3-pxt4A2PHRlYraEQ5UJq5Vcr3mzO-76zY_FEonnuDW8iU67KTUTRy5jKkMqrD5ucSCH5fNBITIYetHSzhEZ2OiYRE/s1600/figure_1.jpg"><img style="float: left; margin: 0pt 10px 10px 0pt; cursor: pointer; width: 146px; height: 203px;" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEjBAm7oZ8SjMVbig-OrELRQfB1XTuCF3x1NYBtkbgQffk1maalFt3-pxt4A2PHRlYraEQ5UJq5Vcr3mzO-76zY_FEonnuDW8iU67KTUTRy5jKkMqrD5ucSCH5fNBITIYetHSzhEZ2OiYRE/s400/figure_1.jpg" alt="" id="BLOGGER_PHOTO_ID_5464240610208680866" border="0" /></a>al and economic science have identified factors that determine power of policy community members. These are: the linkage to authority, control on economic resources, the stake in the political outcome, knowledge and expertise, the strength of policy network, capability to organize effective political influence, and the share in the dominance of 'mainstream' idea.<br /><br />This paper will argue that although power in policy making process is not equally distributed among the policy community members, the degree of power dispersion – is influenced by power determinants mentioned above – varies from one society to another depending on their social and political pattern.<br /><br /><br />Power Determinants<br /><br />Policy community does not only exist in a pluralist country but also in an elitist country such as China. However, the influence of the leadership (authority) on policy community has diminished from time to time as the Chinese State structure has become more pluralist (Halpern 1989, p. 39). From this it could be concluded that power determinants that have more influence on authority, hereafter called "vertical determinants" are more important in an elitist society, while those which have more effect on horizontal actors i.e. other policy community members and public in general, hereafter called "horizontal determinants", are more significant in a pluralist society.<br /><br />This typology will be used throughout this paper along with Colebatch’s two dimensions of policy; these are vertical and horizontal (Colebatch 2002, pp. 23-24).<br /><br />Vertical power determinants:<br />• The linkage to authority<br />Public policy is a decision of public authority. Therefore, it highlights hierarchy. In terms of policy style, there are many variations in the way of doing policy. One of the styles was argued by Heclo and Wildavsky (1974, cited in Colebatch 2002, p. 14) in their study on Treasury control in Britain. They found that policy work rested on personal links and trust. The personal linkage to authority can result from the control of capital in the economy. Those who control capital have more opportunity to contribute financially to party funds (Smith 1976, p. 182).<br /><br />• Control of economic resources.<br />In many cases, actors who control economic resources, particularly capital, are those who enjoy more power in policy community. This happens because it is a common perception that the business sector which controls capital is more representative of ‘national interest' than other actors such as labour groups (Smith 1976, p. 181). In addition, in rent-seeking economy, the business sector that controls capital can easily cooperate with authority to set and enforce certain policy economy to derive rent. Therefore, the business sector is a strong force in determining economic policy (Levaux, pp. 24-30)<br /><br />• The stake in the political outcome<br />Policy instrument aims to achieve political outcome. The group with similar and strong interests in regard to certain policy issues will be more likely to organize themselves as well as contribute their resources to policy debate, particularly in relation to their influence to authority. Therefore, power of policy community is not determined by the number of members, rather it is determined by their per capita stakes (Komesar 1994, p. 55)<br /><br />Horizontal power determinant:<br />• Knowledge and expertise<br />Colebatch argues that expert groups can claim responsibility for policy in any given area (Colebatch 2002, pp. 25-30). This is in line with other scholars’ arguments that knowledge is power in policy making (Richardson 2000, p. 1019; Haas 1992, p. 2; Smith 1976, p. 19). Epistemic community (expert network) has important role in defining and framing issues as well as advising policy makers of possible policy solutions. Moreover, epistemic community also has important role in international policy coordination because their new ideas and information can lead to new patterns of behaviour which is important in policy coordination (Haas 1992, pp. 2-3).<br /><br />• The strength of policy network<br />Policy community works within a particular issue cluster. Each members may work with their own policy network consists of people and organizations with similar interests. The power of each member depends on the strength of their network. For example, policy makers and experts with centre-left political ideology manage an effective network facility in the form of an international thinktank called "policy network" -dedicated to promoting progressive policies and the renewal of social democracy (Policy Network n.d.). Whilst in U.S. foreign policy making, groups with a strong network, such as human rights groups, can dominate the policy making process (Hersman 2000, pp. 47-50).<br /><br />• Capability to organize effective political influence<br />Members of policy community with capability to organize political influence (of those who are within and outside their network) have more power in policy making process (Komesar 1994, p. 56). The case of devaluation policy from Ghana in 1970s show that the negative reaction from public – which then triggered a military coup – resulted in failure of the policy (Grindle & Thomas 1990, p. 1168).<br /><br />• The share in the dominance of 'mainstream' idea.<br />Colebatch argues that the powerful protect their interests through the dominance of 'mainstream' ideas and symbols (2002, p. 46). This dominance controls the policy agenda setting. Power is not only about deciding something, but also about ignoring something (Bachrach & Baratz 1962, p. 949). Members whose ideology is in line with the 'mainstream' will enjoy more power.<br />Those power determinants and their effect on power of policy community members confirm the argument of Parsons (1995, p. 125) and Davis et al (1993, p. 157) that power is not equaly distributed.<br /><br />Conclusion<br /><br />Those who have better links to authority, more control of economic resources, more stakes in political outcome, better knowledge and expertise, more capability to organize political influence, and are stronger in their policy network and better alignment to the mainstream will enjoy more power in policy community.<br /><br />The distinction between vertical and horizontal determinants in relation to social and political pattern of a society made in this paper does not mean that any determinant is only relevant to its typology, but rather, indicates the tendency. For example, "the stake in the political outcome" works in both a pluralist and elitist society, but its influence is more significant in an elitist society. In other words, those in vertical dimension are more significant in influencing authority, while others in horizontal are more significant to horizontal actors.<br /><br /><br />References<br /><br />Bachrach, P & Baratz, MS 1962, 'Two faces of power', The American Political Science Review, vol. 56, no. 4, pp. 947-952.<br /><br />Colebatch, HK 2002, Policy, 2nd edn, Open University Press, Philadephia.<br /><br />Davis, G. et al. (eds) 1993, Public policy in Australia, 2nd edn, Allen & Unwin, Melbourne.<br /><br />Grindle, MS & Thomas, JW 1990, ‘After the decision: implementing policy reforms in developing countries’, World Development, vol. 18, no. 8, pp. 1163-1181.<br /><br />Haas, PM 1992, 'Introduction: epistemic communities and international policy coordination', International Organization, vol. 46, no. 1, pp. 1-35.<br /><br />Halapern, NP 1989, 'Policy communities in Leninist State: the case of the Chinese economic policy community', Governance, vol. 2, no. 1, pp. 23-41.<br /><br />Hersman, RKC 2000, Friends and foes: how Congress and the President really make foreign policy, The Bookings Institution, Washington DC.<br /><br />Kingdon, JW 1984, Agendas, alternatives and public policies, Little, Brown & Company, Boston.<br /><br />Komesar, NK 1994, Imperfect alternatives: choosing institutions in law, economics, and<br /><br />Levaux, HP 1999, Commercial power centers in Indonesia: A new paradigm to analyse the role of business groups in policy making, RAND Graduate School, Washington DC.<br /><br />Parsons, W 1995, Public policy, Edward Elgar, Cheltenham.<br /><br />Policy Network n.d., 'About Policy Network', Policy Network.net, viewed 11 April 2010,<br />< id="56"><br /><br />Pross, AP 1985, 'Parliamentary influence and the diffusion of power', Canadian Journal of Political Science, vol. 18, no. 2, pp. 235-266.<br /><br />Richardson, J 2000, ‘Government, interest groups and policy change’, Political Studies, vol. 48, pp. 1006-1025.<br /><br />Smith, B 1976, Policy making in British Government: an analysis of power & rationality, Rowman and Littlefield, New Jersey.Unknownnoreply@blogger.com0tag:blogger.com,1999:blog-8697904756842250859.post-82281313220741506612010-03-26T12:20:00.000-07:002010-03-26T12:44:07.673-07:00Social Policy Case Study: Corporate Social Responsibility (CSR) in IndonesiaDescription and Purpose of CSR Policy
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<br />CSR concept was generated in Europe and United States in response to the excess power of corporations (Kemp 2001, p.1). Although the CSR has been practiced since 1990s in Indonesia, the first legal basis was only issued in 2007 through Limited Liability Company Law (Law Number 40 Year 2007) and Investment Law (Law Number 25 Year 2007).
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<br />The above laws assert the purpose of CSR policy as follows: (1) to optimize the role of private sector in building a welfare society, and (2) to reduce the potential for social gap between “company community” and “local community” who live in area surrounding the company’s operation area (Law Number 40 Year 2007, s. 5; Law Number 25 Year 2007, s. 4).
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<br />CSR policy reflects the limitation of the State to secure the welfare of society. The State urges corporations to become the source of welfare, not only for their workers (companies must register their workers for insurance according to Law Number 40 Year 2004 Concerning National Social Security System), but also for local communities and society in general. Considering this case study and the typology of social welfare system by Esping-Anderson, Indonesia is near to, but does not exactly follow the conservative model. In conservative model, government will still intervene to help vulnerable families when corporations fail (Esping-Anderson 1990, p. 20; Hill 2006, p. 27). In the case of Indonesia, this is questionable. In many cases, every individual or family who is not working in reliable formal sectors must struggle by themselves for their own social welfare.
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<br />The social welfare system of East Asian countries cannot readily be fitted into Esping-Anderson’s typology (Holiday 2000, p. 706). The East Asian model, also called ‘productivist’, considers social policy subordinate to ‘economic growth’ (Holiday 2000, p. 709).
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<br />Indonesia has similar characteristics with East Asian model. Economic growth has been the basis of legitimacy since New Order Regime in late 1960s (Crouch 1998, p.168). After the national reform of the late 1990s, and even in the current national development plan 2010-2014, growth and economic stability are still regarded as the key for the improvement of social welfare (Bappenas 2010, p. II.3-1). The proportion of public social expenditure to Gross Domestic Product (GDP) is low (see Table 1). The country focuses on economic growth with low public social expenditure. This makes CSR policy relevant for Indonesian context.
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<br />Factors Determine the Nature of CSR Policy
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<br />Combination of low tax revenues compared to GDP, and high corruption (see Table 1) make the State have less power and public budget to secure social welfare.
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<br />Privatisation and promotion of foreign direct investment (FDI) makes Indonesian economy rely on big corporations. The strong role of Trans National Companies (TNC) has existed since Dutch colonial era (Kemp 2001, p. 2). In the mid-1980s, the privatisation policy began to make the private sector ‘the engine’ of Indonesian economic growth (Schwarz 2004, p. 60). This privatisation policy continues in the (current) Yudhoyono administration (Xinhua News 2006).
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<br />The power of local people and local governments determines their relationship with private sectors operating in their area. The national reform and decentralisation policy which began in 2001 has improved political participation and self-determination rights (Haug 2007, p. 38).
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<br />Indonesian culture is very much influenced by religion, particularly Islam, which urges generosity of the wealthy to the poor. Islam sharia specifies that the fruits of productivity should benefit the community (Kemp 2001, p. 9).
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<br />The Key Actors of CSR Policy
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<br />National and local government regulate and monitor the CSR policy and its implementation. For natural resources extraction sector, such as mining, the company must report their CSR progress to the mining ministry in Jakarta. Local governments are supposed to coordinate the CSR program in order to harmonize with local government’s agenda. However, the effectiveness of this coordination role ‘requires the machinery of an effective democratic government and civil society’ (Kemp 2001, p. vii).
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<br />TNC and domestic corporations are the implementers of CSR policy. The dynamics of power relation between corporations, local people and government (especially local government) will reach a point where they can agree on how to distribute the CSR resources.
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<br />Local people are very often in coalition with local government to face corporations that are considered outsiders. They are basically the beneficiaries of CSR. Their main challenge is to maintain their power so they can influence the decision of how the CSR should be implemented.
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<br />The Drivers of Changes of CSR Policy
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<br />Change in economic output and the productivity of private sectors will determine the number of resources that are available for CSR.
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<br />Ability of government to control politics and public policy will influence who controls the CSR implementation and its resources distribution. It is possible that the implementation of CSR policy will be reduced when:
<br />• the government gets more trust from the people
<br />• the national economy improves
<br />• productive age people dominate the demographic structure
<br />• government collects more revenue in proportion to its GDP
<br />• people want the government to be more responsible on social welfare.
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<br />Change of power of local people and local governments will change how the CSR resources are distributed, and how CSR policy is implemented.
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<br />Change of composition of the size of corporation dominating national economy will determine the demand and supply of CSR services. The demand to CSR will be less when:
<br />• more people become entrepreneurs managing small scale companies
<br />• small scale companies dominate the national output rather than the big corporation
<br />• number of big corporations diminishes; for example the government policy prioritise domestic and small scale companies to play role in economy.
<br />At the same time, the supply also decreases because small scale companies will not be able to devote enough of their resources for CSR.
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<br />References
<br />Bappenas, see Ministry of National Development Planning.
<br />Crouch, H 1998, ‘The rise or fall of Soeharto’s general’, Third World Quarterly, vol. 10, no. 1, pp. 160-175.
<br />Departemen Keuangan 2007, Data APBD Tahun 2007 (Local government budget plan year 2007), Ministry of Finance of Republic of Indonesia, Jakarta, viewed 15 March 2010,
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<br /></http:></http:></http:></http:></http:>Unknownnoreply@blogger.com0tag:blogger.com,1999:blog-8697904756842250859.post-29448174205980449242010-02-16T14:48:00.000-08:002010-02-18T15:42:23.934-08:00More Aid Wouldn't Necessarily Make Less Poverty<meta equiv="Content-Type" content="text/html; charset=utf-8"><meta name="ProgId" content="Word.Document"><meta name="Generator" content="Microsoft Word 12"><meta name="Originator" content="Microsoft Word 12"><link rel="File-List" href="file:///C:%5CUsers%5CADECAH%7E1%5CAppData%5CLocal%5CTemp%5Cmsohtmlclip1%5C01%5Cclip_filelist.xml"><link rel="themeData" href="file:///C:%5CUsers%5CADECAH%7E1%5CAppData%5CLocal%5CTemp%5Cmsohtmlclip1%5C01%5Cclip_themedata.thmx"><link rel="colorSchemeMapping" href="file:///C:%5CUsers%5CADECAH%7E1%5CAppData%5CLocal%5CTemp%5Cmsohtmlclip1%5C01%5Cclip_colorschememapping.xml"><!--[if gte mso 9]><xml> <w:worddocument> <w:view>Normal</w:View> <w:zoom>0</w:Zoom> <w:trackmoves/> <w:trackformatting/> 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mso-bidi-theme-font:minor-bidi;} </style> <![endif]--><b style=""><span style="line-height: 150%;font-size:14px;" > <o:p></o:p></span></b> <p class="MsoNormal" style="margin-bottom: 0.0001pt; text-align: justify;"><b style=""><span style="line-height: 150%;font-size:14px;" >Jeffrey Sachs and His advocacy on More Development Aid
<br /></span></b></p><p class="MsoNormal" style="margin-bottom: 0.0001pt; text-align: justify;"><span style="line-height: 150%;">The world has agreed to bring prosperity to all people on earth as can be seen on Millennium Development Goals (MDGs). Sachs (2005a) examines the amount of ODA provided by the United States (U.S.) from 2002 to 2004 by analysing data from Organization for Economic Cooperation and Development (OECD) to understand the relevance of U.S. con</span><a onblur="try {parent.deselectBloggerImageGracefully();} catch(e) {}" href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEh24CoShz84iWEUiB2f6GNJPkUyyTudTrELwtFmF2nEoieGbwjCjH_tnYzJrEzt4-F4w9TRqO28ux1W0ZQCH_GlOOvJlOV0muxzaWRvblAYMpT8YTtZDto5KokZyWdsrwn3z5vFLW3mp-A/s1600-h/Sachs+paper.jpg"><img style="margin: 0pt 10px 10px 0pt; float: left; cursor: pointer; width: 309px; height: 304px;" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEh24CoShz84iWEUiB2f6GNJPkUyyTudTrELwtFmF2nEoieGbwjCjH_tnYzJrEzt4-F4w9TRqO28ux1W0ZQCH_GlOOvJlOV0muxzaWRvblAYMpT8YTtZDto5KokZyWdsrwn3z5vFLW3mp-A/s320/Sachs+paper.jpg" alt="" id="BLOGGER_PHOTO_ID_5438977409219906882" border="0" /></a><span style="line-height: 150%;">tribution providing global fund for MDGs achievement, particul</span><span style="line-height: 150%;">arly in comparison to other Development Assistance Committee (DAC) countries. He argues that U.S. ODA in proportion to Gross National Income (GNI) was insufficient and far from its commitment. He suggests U.S. to increase their ODA more than three ti</span><span style="line-height: 150%;">mes by 2006 and more than four times by 2015 compared to the level in 2003. He also suggests a rough structure of how the U.S. ODA must be allocated which mainly aims to increase its effectiveness. This paper will argue that, while more aid and better</span><span style="line-height: 150%;"> allocation is truly important for development in impoverished countries, but there are some more issues that have to be considered to make the aid effective in achieving the goals. Sachs maintains his line of thinking that more aid will create growth, and growth will result in less poverty. By maintaining that linier thinking, he will not convince his audiences, particularly the U.S. Government, to devote more development aid. <span style=""> </span><span style=""> </span><o:p></o:p></span></p> <p class="MsoNormal" style="margin-bottom: 0.0001pt; text-align: justify;"><span style="line-height: 150%;"><o:p> </o:p></span></p> <p class="MsoNormal" style="margin-bottom: 0.0001pt; text-align: justify;"><span style="line-height: 150%;">This paper will start by reviewing Sachs’s linier thinking<span style=""> </span>which can be divided into two parts i.e. more aid creates growth, and growth makes</span><span style="line-height: 150%;"> less poverty. Followed by examination of those two parts of linier thinking by confronting with ar</span><span style="line-height: 150%;">guments from other experts. Before come to conclusion, this paper will discuss the broader perspective on understanding poverty, to </span><span style="line-height: 150%;">contrast it to Sachs’s linier thinking.
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<br /><span style="line-height: 150%;"><o:p></o:p></span></p> <p class="MsoNormal" style="margin-bottom: 0.0001pt; text-align: justify;"><span style="line-height: 150%;"><o:p> </o:p></span></p> <p class="MsoNormal" style="margin-bottom: 0.0001pt; text-align: justify;"><b style=""><span style="line-height: 150%;font-size:14px;" >Sachs’s Linier Thinking <o:p></o:p></span></b></p> <p class="MsoNormal" style="margin-bottom: 0.0001pt; text-align: justify;"><span style="line-height: 150%;">The U.S. is one among other 191 MDGs signatory countries and one among 24 DAC countries who assist partners to alleviate poverty and achieve MDGs. The U.S. provided between 21 to 26 percent of total DAC ODA from 2002 to 2008 which made them the highest contributor (OECD 2008). However, the United Nations (U.N.) does not measure the donor countries contribution from its proportion to total ODA, it is measured by the proportion of ODA to the GNI of the respective donor country. The U.N. targets for developed countries to devote 0.7 percent of their GNI to ODA (OECD 2009). In this point Sachs argue that U.S. and DAC countries provide inadequate ODA from its commitment as well as from the actual need to achieve MDGs. According to his calculation, the world needs double amount of ODA by 2006 and almost triple by 2015 compared to the level in 2003.<o:p></o:p></span></p> <p class="MsoNormal" style="margin-bottom: 0.0001pt; text-align: justify;"><span style="line-height: 150%;"><o:p> </o:p></span></p> <p class="MsoNormal" style="margin-bottom: 0.0001pt; text-align: justify;"><span style="line-height: 150%;">Sachs believes more aid is needed to close the “financing gap” in impoverished countries, the aid would create growth which in the end will alleviate poverty (Sachs 2005a, pp.85-89). This typical way of thinking can be observed from other Sachs publications (e.g. 2009, 2007, 2005b). Sachs argues that poverty trap happened because impoverished countries are poor on human capital and infrastructure. However, their household and the government do not have sufficient funds to close the gap. They can barely ensure their survival and do not have addional funds to invest for the future. They face the problem of a “financing gap”, the development aid can fill that gap. The development aid can be used to close the financing gap for investment on infrastructure and human capital, that investment will empower people and create more economic opportunities which then will take poor households out of the poverty trap.
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<br /><span style="line-height: 150%;"><o:p></o:p></span></p> <p class="MsoNormal" style="margin-bottom: 0.0001pt; text-align: justify;"><span style="line-height: 150%;"><o:p> </o:p></span></p> <p class="MsoNormal" style="margin-bottom: 0.0001pt; text-align: justify;"><b style=""><span style="line-height: 150%;font-size:14px;" >More Aid Doesn’t Necessarily Create Economic Growth<span style=""> </span><o:p></o:p></span></b></p> <p class="MsoNormal" style="margin-bottom: 0.0001pt; text-align: justify;"><span style="line-height: 150%;">Sachs may make his point that investment in physical infrastructure will create growth. Studies conducted by </span><span style="line-height: 150%;">Ghosh and De (1998) and their other publication <span style="">(</span>Ghosh and De 2004) tell us that physical infrastructure attract more factors of production to work to create higher level of outputs, income, and/or employment and it become <span style="">highly significant factors in contributing to development.</span> In economic theory, the higher level of output is identical to economic growth. Similar finding also come from Alicia H. Munnell who examined the impact of infrastructure on economic growth. She concludes that ‘<span style="">public infrastructure investment has a significant, positive effect on output and growth’</span> (Munnell 1992, p.197).</span></p><p class="MsoNormal" style="margin-bottom: 0.0001pt; text-align: justify;"><span style="line-height: 150%;">However, an earlier study by Cassen (1986) which assessed the impact of development aid for World Bank and International Monetary Fund, concludes that different studies come to quite different conclusions. ‘They range from positive to strongly negative affects’ (Cassen 1986, p.25). <o:p></o:p></span></p> <p class="MsoNormal" style="margin-bottom: 0.0001pt; text-align: justify;"><span style="line-height: 150%;"><o:p> </o:p></span></p> <p class="MsoNormal" style="margin-bottom: 0.0001pt; text-align: justify;"><span style="line-height: 150%;"><o:p> </o:p></span></p> <p class="MsoNormal" style="margin-bottom: 0.0001pt; text-align: justify;"><span style="line-height: 150%;">The sharpest critic to Sachs linier thinking on “aid creates growth” is probably William Easterly. Easterly (2001, pp.34-44) argued that the approach of “closing the financing gap” simply create perverse incentives for recipient country. They will not devote the aid inflow for investment, the recipient countries will just use aid to buy more consumption goods, and they will maintain the gap as it later on will be closed by donors any way. If the recipient countries would not make investment from their own resources then they will treat the aid inflow in the same way. Therefore the aid would not create growth because it would not be used for investment. The real challenge here is how to create right incentives to ensure that the aid inflow is used for investment. </span><span style="line-height: 150%;"><o:p></o:p></span></p> <p class="MsoNormal" style="margin-bottom: 0.0001pt; text-align: justify;"><span style="line-height: 150%;"><o:p> </o:p></span></p> <p class="MsoNormal" style="margin-bottom: 0.0001pt; text-align: justify;"><span style="line-height: 150%;">In his book, Easterly calls this phenomenon “the financing gap forever”. Easterly’s argument on financing gap forever makes the case in Indonesia. Indonesia maintains its position in top five on DAC ODA recipient countries since 1986 to 2007 as can be seen from OECD statistical data (OECD 2009). Anis Chowdhury and Iman Sugema examined the impact of aid effectiveness in Indonesia. They found positive correlation between the aid inflows with the economic growth though it was low. However, Indonesia becomes an aid-dependence country that always wants to follow the balanced budget principle by seeking foreign aid to close the financing gap. The “closing financing gap” approach has made government lazy to be creative on domestic resources mobilization (Chowdury and Sugema 2005, p.186)<o:p></o:p></span></p> <p class="MsoNormal" style="margin-bottom: 0.0001pt; text-align: justify;"><span style="line-height: 150%;"><o:p> </o:p></span></p> <p class="MsoNormal" style="margin-bottom: 0.0001pt; text-align: justify;"><span style="line-height: 150%;">More evidence come from Kraay and Raddatz (2007) who examined the cause of poverty trap by testing the </span><span style="line-height: 150%;">two canonical mechanisms: low saving and low levels of productivity at low levels of development in Africa</span><span style="line-height: 150%;">. They found little evidence of the existence of poverty traps based on the two mechanisms. It tells us that the argument that more aid will create sustained increases in growth is doubtable. <o:p></o:p></span></p> <p class="MsoNormal" style="margin-bottom: 0.0001pt; text-align: justify;"><span style="line-height: 150%;"><o:p> </o:p></span></p> <p class="MsoNormal" style="margin-bottom: 0.0001pt; text-align: justify;"><span style="line-height: 150%;">It can be concluded here that it is true that growth need more investment on infrastructure and human capital. However, the development aid is not necessarily used for those productive investments if there is no right incentive for recipient countries to use it in a proper way.
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<br /><span style="line-height: 150%;"><o:p></o:p></span></p> <p class="MsoNormal" style="margin-bottom: 0.0001pt; text-align: justify;"><b style=""><span style="line-height: 150%;font-size:14px;" >Economic Growth Doesn’t Necessarily Make Less Poverty <o:p></o:p></span></b></p> <p class="MsoNormal" style="margin-bottom: 0.0001pt; text-align: justify;"><span style="line-height: 150%;">In this second part of Sachs’s linier thinking of “economic growth makes less poverty”, Sachs has more supporters from development economist even including William Easterly. Although Easterly criticises “aid create economic growth” but he agrees very much with Sachs on “economic growth make less poverty”.<span style=""> </span>Easterly influenced by data collection by his World Bank’s colleagues Martin Ravallion and Shaohua Chen on spells of economic growth and changes in poverty covering the years 1981 to 1999. After summarizing the data, Easterly concluded that ‘fast growth went with fast poverty reduction, and overall economic contraction went with increased poverty’ (2001, p.13).<o:p></o:p></span></p> <p class="MsoNormal" style="margin-bottom: 0.0001pt; text-align: justify;"><span class="owner"><span style="line-height: 150%;"><o:p> </o:p></span></span></p> <p class="MsoNormal" style="margin-bottom: 0.0001pt; text-align: justify;"><span class="owner"><span style="line-height: 150%;">Before having further discussion on “economic growth makes less poverty”, this paper will clarify the definition of “economic growth”.<span style=""> </span>Encyclopaedia Britannica Online (2010) defines economic growth as the growth of total output of goods and services. Thus, if there are more goods and services produced and exchanged in the market, does that necessarily result in the less poor? Economic growth is something happening in the market while poverty is in the household. It is true that households are player in the market, but which households are in the market and which are still remining outside the market which means remaining poor?. It is very clear here that economic growth can not detect poverty.<span style=""> </span><o:p></o:p></span></span></p> <p class="MsoNormal" style="margin-bottom: 0.0001pt; text-align: justify;"><span style="line-height: 150%;"><o:p> </o:p></span></p> <p class="MsoNormal" style="margin-bottom: 0.0001pt; text-align: justify;"><span style="line-height: 150%;">Thus, how about the data examined by Easterly that convinces him that economic growth has correlation to less poverty, Paolo Verme has better explanation for this. Verme (2010) examined macro and micro regional data related to high rate economic growth and household income in Kazakhstan of 2001 and 2002. Verme distinguish between output growth which identical with economic growth and household income growth. He concluded that household income growth is the one that contribute to poverty alleviation, not the output growth.<span style=""> </span>He found no positive and significant correlation between output growth and poverty reduction. Verme can come to this plausible conclusion because he didn’t rely to macro data of GDP only. He prepared GDP data disaggregation by sector and by regions as addition to micro data of household income. He argues that household income growth is the pro poor growth with contributing sectors that are different from contributing sectors to output growth. Pro poor growth means that the growth happened in household and it has been higher for poorer households, which explains why poverty has declined and why it has declined more for the poorest among the poor.<o:p></o:p></span></p> <p class="MsoNormal" style="margin-bottom: 0.0001pt; text-align: justify;"><span style="line-height: 150%;"><o:p> </o:p></span></p> <p class="MsoNormal" style="margin-bottom: 0.0001pt; text-align: justify;"><span style="line-height: 150%;">The concern of growth should no longer to “if” but rather to how the growth trickles down the poor, while output growth does not always trickle down the poor (Verme 2010, p. 19). The growth can happen without the poor involved in production and market, while the output can grow with or without the poor. Therefore, the future economic policy should not focus only to output growth. It should commit to the pro-poor growth policy.
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<br /><span style="line-height: 150%;"><o:p></o:p></span></p> <p class="MsoNormal" style="margin-bottom: 0.0001pt; text-align: justify;"><b style=""><span style="line-height: 150%;font-size:14px;" ><o:p> </o:p></span></b></p> <p class="MsoNormal" style="margin-bottom: 0.0001pt; text-align: justify;"><b style=""><span style="line-height: 150%;font-size:14px;" >Poverty Covers Multidimensional Spheres <o:p></o:p></span></b></p> <p class="MsoNormal" style="margin-bottom: 0.0001pt; text-align: justify;"><span style="line-height: 150%;">Sachs (2005, p.88) emphasizes two major investments to achieve the MDGs, they are: infrastructure and human capital. It is nice that he mentions human capital and not too narrow to infrastructure. Sachs defines human capital as ‘healthy population with adequate levels of literacy, education, and job skills’ (2005, p.85). The explanation is very clear that infrastructure without human capital will not optimally work as production factors in economy, and after all, human capital is a basic human right. <o:p></o:p></span></p> <p class="MsoNormal" style="margin-bottom: 0.0001pt; text-align: justify;"><span style="line-height: 150%;"><o:p> </o:p></span></p> <p class="MsoNormal" style="margin-bottom: 0.0001pt; text-align: justify;"><span style="line-height: 150%;">However, poverty is not only about lack of human capital and lack of infrastructure. It is broader than that. The Nobel Prize-winning Amartya Sen has strong argument on this with his “capability” theory. Sen defines capability as ‘a person has, that is, the substantive freedoms he or she enjoys to lead the kind of life he or she has reason to value’ (Sen 1999, p.87). Therefore he defines poverty as </span><span style="line-height: 150%;">capability deprivation rather than merely as lowness of incomes, let alone economic growth. </span><span style="line-height: 150%;"><o:p></o:p></span></p> <p class="MsoNormal" style="margin-bottom: 0.0001pt; text-align: justify;"><span style="line-height: 150%;"><o:p> </o:p></span></p> <p class="MsoNormal" style="margin-bottom: 0.0001pt; text-align: justify;"><span style="line-height: 150%;">Goenner et al. (2007, pp.2-5) elaborate Sen’s capability theory combined with other model such as the sustainable livelihood approach (SLA) on multidimensional poverty assessment model called nested spheres of poverty (NESP). They argue that poverty is a lack of many things, starting from insufficient income, vulnerability in basic needs, up to the lack of freedom and options for a better future. In other sense, poverty can be very subjective such as the feeling of deprivation. The NESP’s spheres reflects causal link from the most out layer into the very core within its disc model. The bottom line is again that poverty cannot be handled only by economic growth and/or income improvement.
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<br /><span style="line-height: 150%;"><o:p></o:p></span></p> <p class="MsoNormal" style="margin-bottom: 0.0001pt; text-align: justify;"><b style=""><span style="line-height: 150%;font-size:14px;" ><o:p> </o:p></span></b></p> <p class="MsoNormal" style="margin-bottom: 0.0001pt; text-align: justify;"><b style=""><span style="line-height: 150%;font-size:14px;" >Conclusion <o:p></o:p></span></b></p> <p class="MsoNormal" style="margin-bottom: 0.0001pt; text-align: justify;"><span style="line-height: 150%;">More aid funding is important, but aid funds alone will not help to alleviate world poverty. Aid inflow can be simply used by recipient countries for consumption expenditures rather than investment without any clear incentive policy, which means that aid inflow would no create growth. However, even if it is used for investment and it creates growth, it does not necessarily means less poverty if we do not pay attention to the multidimensional spheres affecting poverty. Poverty alleviation and MDGs achievement in general need comprehensive intervention. </span><span style="line-height: 150%;">An effective pro poor policy must be applied. Donors and recipient countries must understand the characteristic of the poor so they can design an effective policy which will provide turmendous opportunities for the poor to get out from the trap by them self. A searcher attitude is more useful than the planner.
<br /></span></p> <p class="MsoNormal" style="margin-bottom: 0.0001pt; text-align: justify;"><span style="line-height: 150%;"><o:p> </o:p></span></p> <p class="MsoNormal" style="margin-bottom: 0.0001pt; text-align: justify;"><span style="line-height: 150%;">Sachs will have more opportunity to convince his audiences, not only the U.S. government as his main target, but also his critics and peoples who work as grass roots development activists to support him to advocate for more development aid if he broadens his arguments on aid effectiveness and strategy to achieve MDGs and alleviate world poverty. <o:p></o:p></span></p> <p class="MsoNormal"><span style="line-height: 150%;"><o:p> </o:p></span></p> <p class="MsoNormal" style="margin-bottom: 0.0001pt; line-height: normal;"><b style=""><span style="">References <o:p></o:p></span></b></p> <p class="MsoNormal" style="margin-bottom: 0.0001pt; line-height: normal;"><b style=""><span style=""><o:p> </o:p></span></b></p> <p class="MsoNormal" style="margin-bottom: 0.0001pt; line-height: normal;"><span style="" lang="EN-US">Cassen, R 1986, <i style="">Does aid work?</i>, Clarendon Press, Oxford. <o:p></o:p></span></p> <p class="MsoNormal" style="margin-bottom: 0.0001pt; line-height: normal;"><span style="" lang="EN-US"><o:p> </o:p></span></p> <p class="MsoNormal" style="margin-bottom: 0.0001pt; line-height: normal;"><span style="" lang="EN-US">Chowdhury, A & Sugema, I 2005, ‘How significat and effective has foreign aid to Indonesia been?’, <i>ASEAN Economic Bulletin, v</i><span style="">ol. 22, no. 2</span>, pp. 186-216.<o:p></o:p></span></p> <p class="MsoBibliography" style="margin-bottom: 0.0001pt; line-height: normal;"><span style="" lang="EN-US"><o:p> </o:p></span></p> <p class="MsoBibliography" style="margin-bottom: 0.0001pt; line-height: normal;"><span style="" lang="EN-US">Easterly, W 2001, <i>The elusive quest for growth: economists' adventures and misadventures in the tropics,</i> MIT Press, Massachusetts .<o:p></o:p></span></p> <p class="MsoNormal" style="margin-bottom: 0.0001pt; line-height: normal;"><span style=""><o:p> </o:p></span></p> <p class="MsoNormal" style="margin-bottom: 0.0001pt; line-height: normal;"><span style="">Encyclopaedia Britannica Online 2010, ‘Economic growth’, Encyclopaedia Britannica eb.com, viewed 14 February 2010,<o:p></o:p></span></p> <p class="MsoNormal" style="margin-bottom: 0.0001pt; line-height: normal;"><span style=""><<a href="http://www.britannica.com/EBchecked/topic/178400/economic-growth">http://www.britannica.com/EBchecked/topic/178400/economic-growth</a>>. <span style=""> </span><o:p></o:p></span></p> <p class="MsoNormal" style="margin-bottom: 0.0001pt; line-height: normal;"><span style="" lang="EN-US"><o:p> </o:p></span></p> <p class="MsoNormal" style="margin-bottom: 0.0001pt; line-height: normal;"><span style="" lang="EN-US">Ghosh, B & De, P </span><span style="">1998, ‘Role of infrastructure in regional development: a study over the plan period’, <i style="">Economic and Political Weekly</i>, vol. 20, no. 3, pp. 3039-3043.<o:p></o:p></span></p> <p class="MsoBibliography" style="margin-bottom: 0.0001pt; line-height: normal;"><span style="" lang="EN-US"><o:p> </o:p></span></p> <p class="MsoBibliography" style="margin-bottom: 0.0001pt; line-height: normal;"><span style="" lang="EN-US">Ghosh, B & De, P 2004, ’ How do different categories of infrastructure affect development? evidence from Indian States’, <i>Economic and Political Weekly, </i><span style="">vol. 39, no.3, pp.</span> 4645-4657.<o:p></o:p></span></p> <p class="MsoNormal" style="margin-bottom: 0.0001pt; line-height: normal;"><span style=""><o:p> </o:p></span></p> <p class="MsoNormal" style="margin-bottom: 0.0001pt; line-height: normal;"><span style="">Gönner, C, Haug, M, Cahyat, A, Wollenberg, L, De Jong, W, Limberg, G, Cronkleton, P, Moeliono, M & Becker, M <span style=""> </span>2007, ‘Capturing nested spheres of poverty: a model for multidimensional poverty analysis and monitoring’, Occasional Paper No. 46, Center for International Forestry Research, Bogor.<o:p></o:p></span></p> <p class="MsoNormal" style="margin-bottom: 0.0001pt; line-height: normal;"><span style="" lang="EN-US"><o:p> </o:p></span></p> <p class="MsoNormal" style="margin-bottom: 0.0001pt; line-height: normal;"><span style="" lang="EN-US">Kraay, A & Raddatz, C 2007, ‘ Poverty traps, aid, and growth’, <span style=""> </span><i>Journal of Development Economics, <span style=""> </span></i><span style="">vol. 82, no. 2</span>, pp. 315-347 .<o:p></o:p></span></p> <p class="MsoNormal" style="margin-bottom: 0.0001pt; line-height: normal;"><span style="" lang="EN-US"><o:p> </o:p></span></p> <p class="MsoNormal" style="margin-bottom: 0.0001pt; line-height: normal;"><span style="" lang="EN-US">Munnel, AH 1992, ‘Infrastructure investment and economic growth’,<span style=""> </span><i>Journal of Economic Perspectives,<span style=""> </span></i><span style="">vol. 6, no. 4</span>, pp. 189-198.<o:p></o:p></span></p> <p class="MsoNormal" style="margin-bottom: 0.0001pt; line-height: normal;"><span style=""><o:p> </o:p></span></p> <p class="MsoNormal" style="margin-bottom: 0.0001pt; line-height: normal;"><span style="">OECD 2008, Net official development assistance in 2008: preliminary data for 2008, <span style="color:black;">Organization for Economic Co-Operation and Development, viewed 13 February 2010,<o:p></o:p></span></span></p> <p class="MsoNormal" style="margin-bottom: 0.0001pt; line-height: normal;"><span style=""><span style=""> </span><<a href="http://www.oecd.org/dataoecd/48/34/42459170.pdf">http://www.oecd.org/dataoecd/48/34/42459170.pdf</a>>. <span style=""> </span><o:p></o:p></span></p> <p class="MsoNormal" style="margin-bottom: 0.0001pt; line-height: normal;"><span style=""><o:p> </o:p></span></p> <p class="MsoNormal" style="margin-bottom: 0.0001pt; line-height: normal;"><span style="">OECD 2009, <span style="color:black;"><a href="http://titania.sourceoecd.org/vl=5740630/cl=15/nw=1/rpsv/factbook2009/index.htm"><span style="color:black;">OECD factbook 2009: economic, environmental and social statistics</span></a>, Organization for Economic Co-Operation and Development, viewed 13 February 2010,<o:p></o:p></span></span></p> <p class="MsoNormal" style="margin-bottom: 0.0001pt; line-height: normal;"><span style=""><<a href="http://lysander.sourceoecd.org/vl=4785723/cl=18/nw=1/rpsv/factbook2009/10/03/03/index.htm">http://lysander.sourceoecd.org/vl=4785723/cl=18/nw=1/rpsv/factbook2009/10/03/03/index.htm</a> >.<o:p></o:p></span></p> <p class="MsoBibliography" style="margin-bottom: 0.0001pt; line-height: normal;"><span style="" lang="EN-US"><o:p> </o:p></span></p> <p class="MsoBibliography" style="margin-bottom: 0.0001pt; line-height: normal;"><span style="" lang="EN-US">Sachs, JD 2005a, ‘<span style="">The development challenge’<i>, Foreign<span style=""> </span>Affairs, </i></span></span><span style="">vol. <span class="italic">84, no. </span>2, pp.78-90. </span><span style="" lang="EN-US"><o:p></o:p></span></p> <p class="MsoBibliography" style="margin-bottom: 0.0001pt; line-height: normal;"><span style="" lang="EN-US"><o:p> </o:p></span></p> <p class="MsoBibliography" style="margin-bottom: 0.0001pt; line-height: normal;"><span style="" lang="EN-US">Sachs, J 2005b, <i>The end of poverty, </i>Penguin Press,<span style=""> </span>New York.<o:p></o:p></span></p> <p class="MsoNormal" style="margin-bottom: 0.0001pt; line-height: normal;"><span style=""><o:p> </o:p></span></p> <p class="MsoNormal" style="margin-bottom: 0.0001pt; line-height: normal;"><span style="">Sachs, JD 2007, ‘Take the guesswork out of aid to African countries’, <span class="italic"><i style="">Financial Times</i>, 2 March, p.</span>17. <o:p></o:p></span></p> <p class="MsoNormal" style="margin-bottom: 0.0001pt; line-height: normal;"><span style=""><o:p> </o:p></span></p> <p class="MsoNormal" style="margin-bottom: 0.0001pt; line-height: normal;"><span style="">Sachs, JD 2009, ‘Homegrown aid’, <span class="italic"><i style="">International Herald Tribune</i>, 10 April, p.</span>6. <o:p></o:p></span></p> <p class="MsoNormal" style="margin-bottom: 0.0001pt; line-height: normal;"><span style="" lang="EN-US"><o:p> </o:p></span></p> <p class="MsoNormal" style="margin-bottom: 0.0001pt; line-height: normal;"><span style="" lang="EN-US">Sen, A 1999, Development as freedom, Alfred A. Knopf, New York. <o:p></o:p></span></p> <p class="MsoNormal" style="margin-bottom: 0.0001pt; line-height: normal;"><span style=""><o:p> </o:p></span></p> <p class="MsoNormal" style="margin-bottom: 0.0001pt; line-height: normal;"><span style="">Verme, P 2010, ‘ A structural analysis of growth and poverty in the short-term’, <i style="">T<span class="italic">he Journal of Developing Areas</span></i><span class="italic">,</span> vol. <span class="italic">43, no. </span>2, pp.19-39.</span>
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<br />Unknownnoreply@blogger.com2tag:blogger.com,1999:blog-8697904756842250859.post-87865387542466056372010-02-06T01:25:00.000-08:002010-02-07T12:51:38.630-08:00The Connectivity Policy and Its Relevance to East Kalimantan ContextWhen I was in GTZ national staff exchange to Himachal Pradesh (HP), India, I heard about “connectivity policy” applied by Indian government. It is the policy that aims to ensure all villages are connected to the capital of the state by road. I visited a small settlement located in the couple of hills behind the capital of HP, Shimla, which was connected by road. I should explain here that the level of difficulty of road construction is high as it is in the high side of hill, and interestingly, it is a small settlement where only few households are there, which we might think that it is not economically efficient for the road construction. However, the road is still constructed though it is just a gravel road.<br />At that time I thought that it is an interesting policy, particularly for East Kalimantan where some villages are even not connected to the capital of district. In terms of outcome based management, instead of keep talking about road construction only, let’s measured that effectiveness by counting the percentage of villages that connected by road to the capital of district.<br />Now I started to learn about economic in introductory program in ANU. The lesson is actually just the basic of economic way of thinking. But I just realized that I wasn’t aware about that before.<br />The main lessons is that when society create larger market which indicated by more quanityty demanded and supplied in ‘relatively’ free market, the benefit to society (or in economic jargon called as “total surplus”) will be increase although that the new equilibrium price may higher than the previous one. Why is it like that? The answer is simple: because more consumers who able purchase the products and services they need, and more producers who produce and able to sell their products and services. Both producers and consumers (society) are in better off.<br />Thus, how to make more demand and supply? The very basic theory of demand and supply said it is “price” that whill change the quantity demanded and supplied, and what they call as “non price determinant” that will change the demand and the supply. In demand, there are six non price determinant i.e. income, consumer taste, price of substitute, price expectation, price of complement, and number of customers. Meanwhile, there are five non price determinant factors in supply i.e. technology, price of factors, price of alternative goods, price expectation, and number of producers.<br />Now I come to the main point which is connectivity. I believe that connectivity is the most influencing factors to those non price determinants both for supply and demand. Connectivity as part of the public infrastructure outcome can create more investment, employment and private sector output (Munnell, 1990), and more public infrastructure can help to alleviate poverty (Buddhadeb & De, 1998). President Yudoyono also believe that if he make double spending in infrastructure, to $140 billion during his second presidency, it will help him boost economic growth to 7% by 2014 from an estimated 4.3% last year (Kate & Sukarsono, 2010). It means connectivity can create more income and more number of consumers, which at the end increase consumer demand. Connectivity can decrease the transport cost of producers (price of factors) and it can also increase the number of producers coming to the market, which at the end increase the supply.<br />If we look at the geographic of East Kalimantan connectivity can be achieved either by road, water or air. However, the most reliable and efficient way is road because it cost peoples less and relatively independent from the weather. Although road construction is more expensive in the investment but it will cost society less than air and water.<br />Public infrastructures such as roads and bridge demand a lot of money. However, East Kalimantan region has more than US$ 200 million per annum beside deconsentration and assistance fund from central government. Therefore, it is very difficult to accept the fact that from time to time local governments in East Kalimantan, included the province government, spent the budget much less than the plan. In 2007, governement spending was just 78% from its planned, while in 2009 most likely not reach 70% because the report per mid of December 09 shows the spending was just 65%. Whereas there are many villages are still not well-connected to the centre and the poverty is still more than 15% (I even beleive the figure is more than 30% particularly in districts). I would suggest to the governor and all mayors in East Kalimantan to prove to public that they are capable to spend the public budget wisely which means spend the planned amount for the strategic activities and programs which will bring the welfare to the society. Only by that way, East Kalimantan can push central government to review the fiscal decentralization policy in order to have more public budget in the region.<br /><br />Bibliography<br />Buddhadeb, G., & De, P. (1998). Role of Infrastructure in Regional Development: A Study over the Plan Period. Economic and Political Weekly , Vol. 33, No. 47/48 , 3039-3043+3045-3048.<br />Kate, D. T., & Sukarsono, A. (2010). INDONESIA: UNFINISHED HIGHWAY TO GROWTH. New York: Business Week.<br />Munnell, A. H. (1990). How Does Public Infrastructure Affect Regional Economic Performance? New England Economic Review , 11-22.<br />Badan Pemeriksa Keuangan Republik Indonesia/Indonesia's Supreme Audit Institution (2008). Audit Report to Financial Statement of The Province Government of East Kalimatan Fiscal Year 2007.Unknownnoreply@blogger.com0tag:blogger.com,1999:blog-8697904756842250859.post-91478935253821967012010-02-02T10:42:00.000-08:002010-02-02T10:47:02.959-08:00The Development Challenge: A SummarySachs argued the role of United States wasn’t sufficient to help poor countries to meet their Millennium Development Goals (MDGs). It was not only because inadequate amount of Official Development Aid (ODA) fund provided, but also because the allocation didn’t support the MDGs directly. Sachs found that $11.8 billion out of $14.6 billion of total U.S. bilateral aid in 2003 were allocated for things that are not directly build long term economic change in impoverished countries. Of the remaining $2.8 billion very little used for transformational development that he believes would support poor countries to escape dependence on outside aid. Ironically, the perception of U.S. peoples about their development aid was much more than what actually they give. Moreover, the U.S. government often couldn’t meet their own promise to provide adequate amount of ODA fund. <br /><br />Sachs argued that the poor countries will meet the MDGs if they invest more in infrastructure and human capital. However, the ability of their households and government budget is far from sufficient. <br /><br /> Sachs suggested four steps to make U.S. become the world leader on international development to achieve MDGs: make U.S. peoples realize the actual amount of money they spent for ODA, increase the U.S. fund to contribute to achieve MDGs according to international agreement, restructure the ODA allocation so the proportion is directly support MDGs, transformational development, and the Millennium Challenge Account scheme, and finally to adjust the U.S. development assistance program so they can synergize their development aid and national security concern. <br /><br />Detail of paper:<br />Title: The Development Challenge<br />Author: Jeffrey D. Sachs<br />Journal: Foreign Affairs (March/April 2005)Unknownnoreply@blogger.com0tag:blogger.com,1999:blog-8697904756842250859.post-41275116710809650892010-01-30T19:04:00.000-08:002010-01-30T19:14:36.939-08:00Australia: Ekologi dan Migrasi<meta equiv="Content-Type" content="text/html; charset=utf-8"><meta name="ProgId" content="Word.Document"><meta name="Generator" content="Microsoft Word 12"><meta name="Originator" content="Microsoft Word 12"><link rel="File-List" href="file:///C:%5CUsers%5CADECAH%7E1%5CAppData%5CLocal%5CTemp%5Cmsohtmlclip1%5C01%5Cclip_filelist.xml"><link rel="themeData" href="file:///C:%5CUsers%5CADECAH%7E1%5CAppData%5CLocal%5CTemp%5Cmsohtmlclip1%5C01%5Cclip_themedata.thmx"><link rel="colorSchemeMapping" href="file:///C:%5CUsers%5CADECAH%7E1%5CAppData%5CLocal%5CTemp%5Cmsohtmlclip1%5C01%5Cclip_colorschememapping.xml"><!--[if gte mso 9]><xml> <w:worddocument> <w:view>Normal</w:View> <w:zoom>0</w:Zoom> <w:trackmoves/> <w:trackformatting/> <w:punctuationkerning/> 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{mso-style-name:"Table Normal"; mso-tstyle-rowband-size:0; mso-tstyle-colband-size:0; mso-style-noshow:yes; mso-style-priority:99; mso-style-qformat:yes; mso-style-parent:""; mso-padding-alt:0cm 5.4pt 0cm 5.4pt; mso-para-margin:0cm; mso-para-margin-bottom:.0001pt; mso-pagination:widow-orphan; font-size:11.0pt; font-family:"Calibri","sans-serif"; mso-ascii-font-family:Calibri; mso-ascii-theme-font:minor-latin; mso-fareast-font-family:"Times New Roman"; mso-fareast-theme-font:minor-fareast; mso-hansi-font-family:Calibri; mso-hansi-theme-font:minor-latin; mso-bidi-font-family:"Times New Roman"; mso-bidi-theme-font:minor-bidi;} </style> <![endif]--> <p class="MsoNormal">Australia merupakan salah satu negara ekonomi maju yang menempati peringkat ke 11 untuk<span style=""> </span>Produk Domestik Bruto (PDB) per kapita, terutama jika dibandingkan dengan Indonesia yang berada di peringkat 127. Seperti negara-negara ekonomi maju lainnya, sektor jasa mendominasi ekonomi Australia (sekitar 70% dari total GDP) selain pertanian, pertambangan dan industry.<span style=""> </span></p> <p class="MsoNormal">Negara dengan jumlah penduduk k<a onblur="try {parent.deselectBloggerImageGracefully();} catch(e) {}" href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEhEDlO-3v2MNsPQnOI4cdnsMQEhVKdEgPvpQtDQy0ahYTjw9MbsbA_c_DiGTnZW4kuH58FHGrGzE4sXH62bSk7DfxlTv6OwsBKMJJjE_itEg9crG1E7qiNdl6OTVjCBJwzcOFtKgGOWoMY/s1600-h/Aus+rain+fall.jpg"><img style="margin: 0pt 10px 10px 0pt; float: left; cursor: pointer; width: 320px; height: 194px;" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEhEDlO-3v2MNsPQnOI4cdnsMQEhVKdEgPvpQtDQy0ahYTjw9MbsbA_c_DiGTnZW4kuH58FHGrGzE4sXH62bSk7DfxlTv6OwsBKMJJjE_itEg9crG1E7qiNdl6OTVjCBJwzcOFtKgGOWoMY/s320/Aus+rain+fall.jpg" alt="" id="BLOGGER_PHOTO_ID_5432736554092531650" border="0" /></a>urang dari sepersepuluh penduduk Indonesia ini memiliki luas daratan lebih dari enam kali lipat luas daratan Indonesia. Walaupun demikian, tidak seperti Indonesia yang subur, <span style=""> </span>hanya sedikit saja tanah di Australia yang subur dan mendukung pertanian untuk produksi pangan mereka. Australia merupakan benua dengan tanah paling tidak produktif dimana tingkat pertumbuhan tanaman alami paling lambat. Ini terjadi karena tanah di sini sudah sangat tua dan terus menerus dicuci oleh hujan selama milyaran tahun. Oleh karena itu masih lebih ekonomis menanam jeruk di Brazil dan membawanya ke Australi dalam bentuk jus dibandingkan menanam jeruk di Australi sendiri. </p> <p class="MsoNormal">Australia merupakan benua kering. Curah hujan di bagian tengah kurang dari 600 mm per tahun. Curah hujan agak tinggi hanya ada di sebagian kecil daerah di wilayah pesisir yang bisa mencapai 2000 mm per tahun terutama pesisir timur dan pulau Tasmania. Dari sebagian kecil wilayah pesisir itu, hanya sebagian kecil lagi yang bisa mencapi lebih dari 3000 mm per tahun. Bandingkan dengan Indonesia yang rata-rata curah hujan tahunannya lebih dari 3100 mm per tahun. Oleh karena itu kota-kota di sini dilengkapi dengan danau-danau buatan yang menampung air hujan untuk jangka panjang. <span style=""> </span>Dan kota-kota hanya mungkin dibangun di pesisir dg curah hujan cukup, oleh karena itu kota-kota besar Australia berada di pesisir timur ditambah Adelaide di selatan dan Perth di barat dan Darwin di utara.<span style=""> </span></p> <p class="MsoNormal">Penduduk asli Australia adalah bangsa Aborigin. Orang kulit putih pertama kali mendiami benua ini pada tahun 1788 setelah James Cook tiba di sini pada tahun 1770. Orang kulit putih pertama di sini adalah orang Inggris yang teridiri dari para tahanan dan penjaganya. <span style=""> </span>Pengiriman tahanan ini terjadi karena membludaknya jumlah tahanan pada abad 18 yang didominasi oleh para pencuri dari kalangan orang miskin di Inggris. Kerajaan Inggris khawatir akan terjadi pemberontakan kalau para tahanan ini tidak dipindahkan. Sampai dengan tahun 1783, masalah kelebihan tahanan ini dapat diselesaikan dengan mengirim mereka ke Amerika Utara.<span style=""> </span>Tetapi revolusi Amerika membuat pengiriman tahanan terhenti. Pengiriman tahanan ke Australia terus berlangsung sampai dengan tahun 1868. </p> <p class="MsoNormal">Migrasi dan kependudukan di Australia selalu menjadi isu penting. Krisis di Asia dan peluang ekonomi di<span style=""> </span>Australia membuat banyak migran dari Asia yang ingin tinggal di Australia. Per tahun 2009 lalu, pertumbuhan penduduk Australia mencapai 2,1 persen, tetapi 64 persennya merupakan pertumbuhan akibat migrasi. Saat ini sekitar seperempat warga negara Australia lahir di luar Australia, artinya mereka adalah migran yang berhasil menjadi warga negara. Pernah ada pendapat kuat di<span style=""> </span>para politis untuk meningkatkan jumlah penduduk sampai dengan 50 juta (dari 20 juta saat ini) agar Australia dapat menjadi negara super power mengimbangi Amerika. Tetapi mereka juga sadar bahwa daya dukung lingkungan di sini tidak memungkinkan, krisis air dan lahan produktif untuk pertanian merupakan masalah besar Australia. Oleh karena itu Indonesia merupakan negara penting karena kita merupakan ‘pagar’ dari para imigran Asia lainnya. Tentu akan sangat menjadi masalah bagi Australia kalau ‘pagar’ ini tidak stabil karena bukan hanya tidak dapat mencegah migran dari luar tetapi orang Indonesia sendiri malah akan menjadi migran di sini.</p> <p class="MsoBibliography">Catatan:
<br /></p><p class="MsoBibliography">- Referensi penting tulisan ini adalah: <span style="">Diamond, J. (2005). <i>Collapse: How Societies Choose to Fail or Success.</i> New York: Viking.</span></p><p class="MsoBibliography">- Gambar peta didapat dari http://www.bom.gov.au/jsp/ncc/climate_averages/rainfall/index.jsp
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class="MsoNormal">Apa itu “birokrasi”? Dari beberapa definisi yang saya tahu, saya cenderung mengutip definisi dari “wikipedia” versi Bahasa Inggris” yang mengartikan birokrasi sebagai “Kumpulan struktur organisasi, prosedur, protokol, dan peraturan-peraturan untuk mengelola kegiatan, biasanya pada organisasi skala besar dan pemerintahan”. Saya setuju dengan definisi ini karena birokrasi tidak diartikan sempit sebagai “birokrat” atau “pegawai”, dimana definisi sempit ini akhir membawa “reformasi birkrasi” hanya terbatas pada “perbaikan gaji”. </p> <p class="MsoNormal">Gaji memang penting untuk membangun motivasi, tapi perbaikan gaji tanpa didukung oleh usaha lain maka motivasi tidak akan terjadi, atau bahkan akan menjadikam motivasi yang mengarah pada tujuan yang salah.</p> <p class="MsoNormal">Inti dari usulan saya adalah: “Reformasi Birokasi Harus Mengarah Pada Perbaikan Kinerja (Hasil)”. Berikut 7 tahap yang harus dibangun dalam reformasi birokasi terutama untuk pemerintahan daerah:</p> <p class="MsoNormal"><o:p> </o:p></p> <p class="MsoListParagraph" style="margin-left: 18pt; text-indent: -18pt;"><!--[if !supportLists]--><b style=""><span style="line-height: 115%;font-size:13pt;" ><span style="">1.<span style=";font-family:";font-size:7pt;" > </span></span></span></b><!--[endif]--><b style=""><span style="line-height: 115%;font-size:13pt;" >Bangun Sistem Usulan dan</span></b><b style=""><span style="line-height: 115%;font-size:13pt;" > </span></b><b style=""><span style="line-height: 115%;font-size:13pt;" >Peman</span></b><b style=""><span style="line-height: 115%;font-size:13pt;" >tauan Hasil </span></b><b style=""><span style="line-height: 115%;font-size:13pt;" >Pembangunan antara </span></b><b style=""><span style="line-height: 115%;font-size:13pt;" >Masyarakat dan Struktur Pemerintahan <o:p></o:p></span></b></p> <p class="MsoNormal">Karena tujuan reformasi birokrasi adalah perbikan kinerja, sedangkan kinerja dituntut oleh “pemilik” maka yang harus pertama kita perbaiki adalah hubungan <a onblur="try {parent.deselectBloggerImageGracefully();} catch(e) {}" href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEgJHJ6y1TECOfWw2ZuVwjQCZE4i-W8leSSxlFitto0puzmvPCF6peY0ZIvMy-Ke3SDQzkLgv-5iWDzC27vPFYnHKQZpVKJajQe5_mS_wArYx3KstrR2WR75WC2ZFBv0m6rXUpDFBBcE1tQ/s1600-h/Reformasi+Birokrasi.bmp"><img style="margin: 0pt 0pt 10px 10px; float: right; cursor: pointer; width: 400px; height: 263px;" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEgJHJ6y1TECOfWw2ZuVwjQCZE4i-W8leSSxlFitto0puzmvPCF6peY0ZIvMy-Ke3SDQzkLgv-5iWDzC27vPFYnHKQZpVKJajQe5_mS_wArYx3KstrR2WR75WC2ZFBv0m6rXUpDFBBcE1tQ/s320/Reformasi+Birokrasi.bmp" alt="" id="BLOGGER_PHOTO_ID_5380651034094565426" border="0" /></a>antara masyarakat sebagai “pemilik” dan struktur pemerintahan sebagai “operator”.<span style=""> </span>Fokus diskusi kita di sini adalah hubungan terkait dengan mekanisme aspirasi/usulan kinerja dan mekanisme monitoring kinerja.</p> <p class="MsoNormal">Yang harus dihasilkan pada tahap pertama ini adalah satu mekanisme<span style=""> </span>hubungan yang efektif antara masyarakat termasuk kelompok masyarakat sipil, DPRD dan pemerintah dalam mengelola aspirasi masyarakat ke dalam bentuk “mandat” dan memonitor pencapaian dari mandat tersebut. Mandat harus dirumuskan dalam bentuk hasil atau kinerja!.</p> <p class="MsoNormal">Untuk itu ada beberapa hal yang harus dilakukan: (1) Memperbaiki tata tertib DPRD agar lebih transparan; (2) Memperbaiki hubungan DPRD dengan “konstituennya” sehingga lingkup konstituen menjadi kewilayahan bukan pada “kelompok yang memilih saya”. (3) Penguatan kompetensi DPRD dalam menjalankan peran perencanaan dan monitoring kinerja yang partisipatif; (4) Penguatan kelompok masyarakat sipil dan kelompok kepentingan lainnya agar dapat mandiri dan juga menjalankan peran fasiltiasi perencanaan dan monitoring kinerja secara partisipatif; (5) Membangun transparansi yang proaktif di pemerintahan; (6) Memperbaiki hubungan antara unit-unit pelayanan publik danpara pelanggannya terutama agar aspirasi dan keluhan pelanggan diperiksa setiap waktu dan dijadikan masukan untuk perbaikan pengelolaan uni t pelayanan publik secara terus menerus. </p> <p class="MsoNormal"><o:p> </o:p></p> <p class="MsoListParagraph" style="margin-left: 18pt; text-indent: -18pt;"><!--[if !supportLists]--><b style=""><span style="line-height: 115%;font-size:13pt;" ><span style="">2.<span style=";font-family:";font-size:7pt;" > </span></span></span></b><!--[endif]--><b style=""><span style="line-height: 115%;font-size:13pt;" ><span style=""> </span>Definisikan Hasil dan Anggaran untuk Mencapai Hasil dalam RPJMD/Renstra <span style=""> </span><span style=""> </span><o:p></o:p></span></b></p> <p class="MsoNormal">Sebelum PP 6/08 dan PP 8/08, perencanaan daerah bersifat perencanaan kegiatan/program. Hal ini membuat sistem birokrasi sibuk dengan kegiatan dan program tetapi tidak tau apa yang dicapai. Pendekatan ini bukan hanya berpotensi membelanjakan dana publik untuk hal yang tidak perlu, tetapi juga membuat struktu birokasi tidak tau persis apa yang harus dilakukan. Semua hal terlihat penting. </p> <p class="MsoNormal">Pendekatan ini harus diubah!. Setelah PP 6/08 dan PP 8/08 pemerintahan daerah harus berpikir HASIL. <span style=""> </span>Merencanakan HASIL, menganggarkan untuk HASIL, memonitor HASIL dan melaporkan HASIL. Pemilik (baca: rakyat) tidak terlalu pusing dengan apa yang dilakukan oleh birokrat, para pembayar pajak lebih mementingkan pencapaian hasil. Mereka ingin agar pasar tidak kumuh lagi, jalanan tidak macet lagi, semua anak bersekolah, semua orang yang sakit dapat perawatan, mudah dapat modal usaha dll.<span style=""> </span></p> <p class="MsoNormal">Rumusan hasil harus datang dari warga masyarakat lewat satu mekansime tertentu yang menjamin keterwakilan dan transparansi. </p> <p class="MsoNormal">Anggaran harus dirancang untuk mencapai hasil, bukan hanya untuk melaksanakan kegiatan. Pada akhirnya setiap hasil harus didelegasikan kepada jabatan-jabatan yang ada di Pemda dalam bentuk kontrak kinerja. </p> <p class="MsoNormal"><o:p> </o:p></p> <p class="MsoListParagraph" style="margin-left: 18pt; text-indent: -18pt;"><!--[if !supportLists]--><b style=""><span style="line-height: 115%;font-size:13pt;" ><span style="">3.<span style=";font-family:";font-size:7pt;" > </span></span></span></b><!--[endif]--><b style=""><span style="line-height: 115%;font-size:13pt;" >Bangun Tata Organisasi, Tata Laksana dan Deskripsi Jabatan yang Mendukung Pencapaian Hasil-Hasil<o:p></o:p></span></b></p> <p class="MsoNormal">Atas dasar RPJMD/Renstra, Biro/Bagian Organisasi bersama dengan setiap SKPD menyusun: (a) struktur organisasi, (b) tata laksana atau <i style="">standard operating procedure</i> (SoP), (c) uraian jabatan yang mencakup standar kompetensi dan target kinerja (hasil). <span style=""> </span></p> <p class="MsoNormal">SoP harus memberikan kepastian tercapainya hasil-hasil yang telah dimandatkan oleh masyarakat. SoP juga menjelaskan tugas dan capaian dari setiap jabatan yang ada di SKPD berdasarkan RPJMD/Renstra. Uraian jabatan, terutama standar kompetensi, mendefinisikan dengan jelas indikator-indikator kompetensi yang harus dimiliki oleh orang yang akan menempati jabatan. Selain itu, uraian jabatan juga secara tegas menetapkan hasil-hasil yang harus didapat oleh setiap pemegang jabatan. </p> <p class="MsoNormal">Pada akhirnya, Biro/Bagian Organisasi siap menyampaikan paket deskripsi jabatan berikut kontrak kinerja untuk setiap jabatan kepada BKD. Untuk selanjutnya BKD mencari orang yang tepat untuk menduduki jabatan tersebut. </p> <p class="MsoNormal"><o:p> </o:p></p> <p class="MsoListParagraph" style="margin-left: 18pt; text-indent: -18pt;"><!--[if !supportLists]--><b style=""><span style="line-height: 115%;font-size:13pt;" ><span style="">4.<span style=";font-family:";font-size:7pt;" > </span></span></span></b><!--[endif]--><b style=""><span style="line-height: 115%;font-size:13pt;" >Pastikan Setiap Pegawai Menempati Posisi yang Tepat untuk Mencapai Hasil-Hasil <o:p></o:p></span></b></p> <p class="MsoNormal">Selanjutnya BKD mencari orang yang tepat untuk menduduki jabatan sesuai uraian jabatan yang dibuat oleh Biro/Bagian Organisasi. Berdasarkan deskripsi jabatan juga, BKD dapat menyusun pola karir pegawai agar sistem promosi dan mutasi pegawai dikelola secara profesional sesuai dengan potensi yang dimiliki setiap pegawai. </p> <p class="MsoNormal">Rekrutmen pegawai baru dilakukan lewat analisis kebutuhan pegawai yang profesional dengan mempertimbangkan hasil ananlisis jabatan tadi. Sebagai hasilnya, pegawai yang direkrut adalah orang-orang yang benar-benar atau paling paling mendekati standar kompetensi yang diharapkan. </p> <p class="MsoNormal">Promosi jabatan juga dilakukan secara profesional. Pertimbangan politik sangat minim. Lewat informasi pola karir dan sistem informasi kepegawaian dan sistem promosi yang terbuka, pemda akan mendapatkan pegawai yang paling tepat menduduki jabatan struktural atau fungsional uang kosong. </p> <p class="MsoNormal"><o:p> </o:p></p> <p class="MsoListParagraphCxSpFirst" style="margin-left: 18pt; text-indent: -18pt;"><!--[if !supportLists]--><b style=""><span style="line-height: 115%;font-size:13pt;" ><span style="">5.<span style=";font-family:";font-size:7pt;" > </span></span></span></b><!--[endif]--><b style=""><span style="line-height: 115%;font-size:13pt;" >Pastikan Setiap Pegawai Memiliki Kompetensi Memadai Untuk Mencapai Hasil-Hasil <o:p></o:p></span></b></p> <p class="MsoListParagraphCxSpLast" style="margin-left: 18pt;"><o:p> </o:p></p> <p class="MsoNormal">BKD juga melakukan pengkajian kompetensi pegawai secara reguler. Hasilnya berupa kebutuhan pengembangan kompetensi dibahas bersama dengan Badan Diklat. Seluruh kebutuhan diklat dikerjakan oleh Badan Diklat sesuai dengan analisis kebutuhan diklat sebagai tindak lanjut dari analsisi kompetensi yang dilakukan BKD. </p> <p class="MsoNormal">Badan Diklat tidak melakukan kegiatan diklat kecuali yang memang dibutuhkan oleh para pegawai untuk memenuhi target kinerjanya sesuai dengan kontrak kinerja yang sejalan dengan Renstra/RPJMD dan tuntutan warga masyarakat.</p> <p class="MsoNormal">Upaya-upaya pengembangan kompetensi lainnya selain pelatihan (misalnya: magang, studi banding, bimtek, dll) dilakukan bersama dengan BKD dan SKPD-SKPD terkait. <span style=""> </span></p> <p class="MsoListParagraphCxSpFirst" style="margin-left: 18pt;"><o:p> </o:p></p> <p class="MsoListParagraphCxSpLast" style="margin-left: 18pt; text-indent: -18pt;"><!--[if !supportLists]--><b style=""><span style="line-height: 115%;font-size:13pt;" ><span style="">6.<span style=";font-family:";font-size:7pt;" > </span></span></span></b><!--[endif]--><b style=""><span style="line-height: 115%;font-size:13pt;" >Lengkapi Fasilitas dan Peralatan Kerja Pegawai Sesuai Kebutuhan untuk Mencapai Hasil-Hasil<o:p></o:p></span></b></p> <p class="MsoNormal">Dinas Pendapatan dan Pengelolaan Keuangan dan Aset (DP2KA)membuat analisis kebutuhan peralatan dan fasilitas kerja, dan bersama dengan dinas komunikasi dan informasi juga mengkaji kebutuhan teknologi informasi. <span style=""> </span>Seluruh belanja barang yang terkait dengan fasilitas dan peralatan kerja dilakukan oleh DP2KA atas konsultasi dengan SKPD terkati dengan didasarkan atas analisis kebutuhan yang profesional. Proses pengadaan dilakukan lewat prosedur standar seperti diatur dalam aturan pengadaan. </p> <p class="MsoNormal">Dengan demikian, tidak ada satu pun pegawai yang tidak memiliki peralatan dan fasilitas kerja minimal. Tetapi juga tidak ada pegawai yang memiliki fasilitas yang berlebihan dan tidak diperlukan untuk menjalankan tugasnya. </p> <p class="MsoNormal"><o:p> </o:p></p> <p class="MsoListParagraph" style="margin-left: 18pt; text-indent: -18pt;"><!--[if !supportLists]--><b style=""><span style="line-height: 115%;font-size:13pt;" ><span style="">7.<span style=";font-family:";font-size:7pt;" > </span></span></span></b><!--[endif]--><b style=""><span style="line-height: 115%;font-size:13pt;" >Bangun Sistem Pemeliharaan Motivasi Pegawai: <i style="">Prosperity Follow Performance</i> <o:p></o:p></span></b></p> <p class="MsoNormal">Salah satu hal yang sangat mempengaruhi motivasi adalah struktur dan besaran remunerasi. Di sini saya bilang struktur dan besaran, bukan hanya besaran. Ada banyak contoh kasus dimana remunerasi besar tidak bisa mendorong motivasi jika tidak diatur oleh struktur yang cocok. Lebih lengkap tentang ini dapat dilihat di <a href="http://cahyat.blogspot.com/2009/03/struktur-ideal-remunerasi-pegawai.html">http://cahyat.blogspot.com/2009/03/struktur-ideal-remunerasi-pegawai.html</a> </p> <p class="MsoNormal">Selain itu, Pemda dan seluruh SKPD juga harus mengatur ulang sistem nilai organisasi agar mendorong pencapaian kinerja daerah. Pimpinan harus benar-benar memberikan contoh<span style=""> </span>hidup tentang sistem nilai yang disepakati bersama sehingga setiap orang merasa ada motivasi untuk juga menerapkannya. <span style=""> </span></p> <p class="MsoNormal"><o:p> </o:p></p> Unknownnoreply@blogger.com2tag:blogger.com,1999:blog-8697904756842250859.post-45628440342758868542008-05-29T19:21:00.000-07:002008-07-02T19:33:52.807-07:00Elemen Kapasitas<p class="MsoNormal" style=""><span style="" lang="EN-US">Bayangkan Anda berada <span style=""> </span>di ruang lobby Bank BCA, </span><span style="" lang="EN-US">kemudian bandingkan dengan suasana di tempat pengurusan KTP di kelurahan. Apa yang Anda lihat dan rasakan? Tentu akan tera</span><span style="" lang="EN-US">sa perbedaan yang cukup kontras, bukan hanya tentang ruangan ber-AC versus ruangan panas, tetapi juga tentang kecepa</span><span style="" lang="EN-US">tan pelayanan, keramahan petugasnya, teknologi yang digunakan dll.</span><br /></p><p class="MsoNormal" style=""><br /></p><p class="MsoNormal" style=""><a onblur="try {parent.deselectBloggerImageGracefully();} catch(e) {}" href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEid6WTUj4YWAnQ_1isrr4gaS7HR9Fsh6_dBlQqIPly1A5MN8ZWRdLZeFn227j6WYkuriNCqdcrFYlR1-C2-psycgTCv5wYnaPU0tgXX7y27p47OVjQ5D5wdoUvt-0FXw5dyq1H3Ot62z5U/s1600-h/capacity+element.bmp"><img style="margin: 0pt 10px 10px 0pt; float: left; cursor: pointer;" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEid6WTUj4YWAnQ_1isrr4gaS7HR9Fsh6_dBlQqIPly1A5MN8ZWRdLZeFn227j6WYkuriNCqdcrFYlR1-C2-psycgTCv5wYnaPU0tgXX7y27p47OVjQ5D5wdoUvt-0FXw5dyq1H3Ot62z5U/s320/capacity+element.bmp" alt="" id="BLOGGER_PHOTO_ID_5206326708353776002" border="0" /></a><br /><span style="" lang="EN-US">Menga</span><span style="" lang="EN-US">p</span><span style="" lang="EN-US">a b</span><span style="" lang="EN-US">egit</span><span style="" lang="EN-US">u</span><span style="" lang="EN-US"> berbeda? Mungkin reaksi Anda pertama adalah: “Jelas dong, bank punya duit banyak, sedangkan kelurahan miskin”. Coba Anda terka, apa yang akan terjadi kalau kelurahan itu kita kasih budget yang sama besarnya dengan bank, apakah Anda yakin bahwa pelayanannya akan sebaik yang diberikan Bank BCA? Saya TIDAK YAKIN. Lihat saja data-data saat ini di Kaltim, tidak ada korelasi antara jumlah APBD suatu dareah dengan tingkat kesejahteraan masyarakat, baik dilihat dari angka kemiskinan BPS maupun Human Development Index (HDI). Artinya uang bukan hal yang paling menentukan dalam perbaikan kinerja!!.</span><span style="" lang="EN-US"> </span><span style=""><o:p></o:p></span></p> <p class="MsoNormal" style=""><span style="" lang="EN-US">Menurut saya yang membuat mereka berbeda adalah faktor-faktor yang mempengaruhi kapasitas internal dan eksternal mereka. Faktor-faktor itu saya sebut sebagai Elemen Kapasitas!.</span><span style=""><o:p></o:p></span></p> <p class="MsoNormal"><span style="" lang="EN-US">Dalam pengalaman saya, ada beberapa hal yang menjadi elemen kapasitas, yaitu:</span><span style=""><o:p></o:p></span></p> <p class="MsoNormal" style=""><u><span style="" lang="EN-US">A. Sistem<br /></span></u></p><p class="MsoNormal" style=""><u><span style="" lang="EN-US">1. Fungsi, Visi dan Nilai-Nilai</span></u><span style=""><br /></span><span style="" lang="EN-US">Apa pun yang ingin Anda wujudkan, mulailah dengan memperjelas apa yang Anda inginkan. Gambarkan satu kondisi atau situasi tentang proses, interaksi antar pihak atau dampak dari fungsi atau layanan yang Anda berikan. Yang paling penting adalah bahwa visi ini bukan merupakan visi Anda sebagai pribadi tetapi harus menjadi visi dari organisasi dan stakeholder organisasi Anda yang terkait dengan fungsi atau layanan yang ingin Anda tingkatkan kapasitasnya. Oleh karena itu sangat penting untuk mengkomunikasikan dan membangun konsensus antar pihak tentang visi fungi atau pelayanan. </span><span style=""><o:p></o:p></span></p> <p class="MsoNormal" style=""><u><span style="" lang="EN-US">2.Kerangka hukum</span></u><span style=""><br /></span><span style="" lang="EN-US">Kerangka hukum menjamin kepastian visi serta pelaksanaan prosedur dan dukungan keuangan.</span></p> <p class="MsoNormal" style=""><u><span style="" lang="EN-US">3. Dukungan stakeholder </span></u><span style=""><br /></span><span style="" lang="EN-US">Dukungan stakeholder menjamin lingkungan yang kondusif di luar organisasi untuk menjalankan fungsi atau layanan tersebut.</span></p><p class="MsoNormal" style=""><u><span style="" lang="EN-US"></span></u><span style="" lang="EN-US">B. Organisasi<br /></span></p><p class="MsoNormal" style=""><span style="">1. Strategi, rencana kerja, anggaran dan monitoring/evaluasi<br /></span><span style="" lang="EN-US">Strategi adalah pendekatan atau cara untuk mencapai visi. Ketepatan pilihan strategi akan menentukan keberhasilan kita mencapai visi termasuk seberapa besar sumberdaya yang harus disediakan serta keberlanjutan (sustainability) dampak yang akan diciptakan. </span><span style=""><o:p></o:p></span></p> <p class="MsoNormal" style=""><u><span style="" lang="EN-US">2. Prosedur kerja </span></u><span style=""><br /></span><span style="" lang="EN-US">Prosedur kerja menjamin setiap personil, peralatan, bahan dan dana yang terlibat dalam pelaksanaan sesuai dengan strategi yang dipilih untuk mencapai visi yang telah disepakati. </span><span style=""><o:p></o:p></span></p> <p class="MsoNormal" style=""><u><span style="" lang="EN-US">3. Struktur jabatan/organisasi</span></u><span style=""><br /></span><span style="" lang="EN-US">Ketepatan struktur jabatan akan menjamin prosedur kerja dapat dilaksanakan secara efisien.</span></p><p class="MsoNormal" style=""><u><span style="" lang="EN-US">4. Perlengkapan dan fasilitas kerja</span></u><span style=""><br /></span><span style="" lang="EN-US">Perlengkapan kerja yang memadai akan membantu personil menjalankan tugasnya secara efisien.</span></p> <p class="MsoNormal" style=""><u><span style="" lang="EN-US">5. Dukungan keuangan </span></u><span style=""><br />Dukungan keuangan menjamin setiap komponen organisasi memiliki bahan bakar untuk menjalankan tanggungjawabannya masing-masing sesuai strategi dan prosedur kerja.</span></p><p class="MsoNormal" style=""><u><span style="" lang="EN-US">6. Budaya organisasi </span></u><span style=""><br />Budaya organisasi mempengaruhi prilaku, cara pikir, interaksi baik didalam organisasi maupun dengan stakeholder, nilai-nilai yang diyakini dan lain-lain. Hal ini akan mempengaruhi prilaku setiap personil dalam organisasi.</span></p><p class="MsoNormal" style=""><u><span style="" lang="EN-US">C. Individu/Personil<br /></span></u></p><p class="MsoNormal" style=""><u><span style="" lang="EN-US">1. Kualifikasi personil</span></u><span style=""><br /></span><span style="" lang="EN-US">Kualifikasi personil yang sesuai dengan kebutuhan akan menjamin prosedur kerja dapat dilaksanakan secara efektif. </span><span style=""><o:p></o:p></span></p><span style=""><o:p></o:p></span> <p class="MsoNormal" style=""><u><span style="" lang="EN-US">2. Motivasi pegawai</span></u><span style=""><br /></span><span style="" lang="EN-US">Sistem pemeliharaan motivasi menjamin setiap personil di organisasi memiliki moral yang kuat untuk menjalankan tanggungjawabnya dan juga untuk bersama-sama menjamin ketercapain visi sehingga mereka juga terbuka untuk menjalankan hal-hal yang melebihi tanggungjawabnya jika memang diperlukan.</span><span style=""><o:p></o:p></span></p> <p class="MsoNormal"><o:p> </o:p></p>Unknownnoreply@blogger.com3