Bad equilibrium

By webadmin on 08:13 pm Jan 03, 2012
Category Archive

Farid Harianto

Professional life in Jakarta starts with a distressing daily sport: how to navigate the increasingly horrendous traffic. In Jakarta today, kilometers or miles do not measure the distance between two places, but how long it will take one to travel between the two.

Seasoned Jakartans seem to have developed defense mechanism to deal with the ever-increasing problem of transport. During peak hours, many motorists opt out to stay at the office, sip coffee at a café, or work with their iPad in their car, just to escape from the torture of traffic havocs.

Many senior executives have also developed a habit of holding a series of meetings in one place — typically at hotels, business clubs or coffee shops — just to economize their traveling time. Many cars are fully equipped with the latest top-of-the-line car audio systems, so the passengers can enjoy music while they are stuck in the traffic. 

Likewise, passengers are bringing with them their latest smart phones and other gadgets just to keep them occupied while the drivers are busy finding a way through the traffic.

The real sport remains on the streets of Jakarta. Hundreds of motorcyclists will haunt you with their daredevil maneuvers; they calmly cut across your driving trajectory from nowhere without warning. And the real devils are bus drivers who think they own the streets and are licensed to kill.

Yet, as an expatriate observes, Jakarta drivers are patient, they even seem to enjoy their traffic jams. Observers rarely hear honks on the street, despite the chaotic traffic. This is in sharp contrast to other metropolises such as Bangkok, Mumbai or Manila, where motorists tend to abuse the horn of the car to channel their frustration.

The Jakarta traffic represents the famous prisoner’s dilemma: if one driver cheats on the road, ignoring traffic signs while others obediently follow the rule, the cheater is better off, traveling faster while the law-obedient drivers are stuck. If both cheat, then all are stuck and the traffic just gets worst.

The best equilibrium is achieved when all drivers follow the rules. In this case, the traffic would move the fastest. As it happens, people tend to cheat, and the end result is a low equilibrium of very slow traffic if not a total standstill.

Democratic homework

The political system of Indonesia resembles to a certain degree the traffic conditions in Jakarta, in that both have evolved into bad equilibriums. Indonesia has been transformed from an authoritarian regime into a blossoming democracy, and from a centralized into a much more decentralized government.

Compared to our neighboring democracies in South Asia and the Arab Spring nations, Indonesia looks pretty. We had a relatively free and civilized direct presidential election for the second time in 2009. But the shape of our democracy is still in the making. The balance of power between the president and the parliament is still in flux, although we supposedly adopt the presidential system.

In our political system, the initiative to make laws rests with both parliament and the president except for one specific area, the budget initiative, which the constitution stipulates can only be done by the administration and not the parliament.

In the law-making process, Indonesia does not recognize a presidential veto, such as in the US. Under our system, however, the president can still have what legal scholars term an ‘upfront veto’ – effectively a veto before any draft law is deliberated, by refusing to discuss the draft law with the parliament.

Yet, as it happens today, the parliament seems to get the upper hand and has entrenched its domination in the state budget decision. In the process, while the political system has not matured, dealmakers and political brokers flourish. As a result, as the media has reported, there are widespread allegations of money politics that paint a dirty picture of budgetary processes. The corruption court has also now dealt with cases of bribery related to the state budget allocation processes involving members of the parliament.

The practice of money politics is not confined to the central government level. With regional autonomy, with its weak institutional capacity and low human resources quality, money politics have also spread to 500 or so districts and cities. Horror stories about extortion are rampant at the local government level, when businessmen attempt to secure business licenses, such as in the mining and forestry sectors.

This is where the money politics in the parliament (both at the central and local levels) is similar to the Jakarta traffic, as both resemble that of the prisoner’s dilemma. If one fraction within the parliament cheats (extorting payment for favorable budget allocation, for example) while the others do not, the cheater will be better off – in terms of influence and piling up cash for the next election — at the expense of the law-abiding factions.

If all fractions cheat, the whole system fails and we reach a bad political equilibrium. The ideal state is when nobody cheats, and all political fractions — and the whole nation for that matter — are well off.

In Indonesia, no single political party dominates and coalition government becomes imperative. The ruling party and other politicians are grappling with this reality, and learning the ropes on how to make a coalition government work. Here as well, the rules of the game are still in the making and power struggles and money politics become habitual.

When the political system is still in flux and has not reached equilibrium, economic and social policy making will be subverted and even the second best solution will be out of the question. The exercise of maximizing social welfare as the objective of policy making will be forever contested, providing room for bad transactional politics.

The real question then, is what is the root cause of bad equilibriums, and how can we move from bad to good equilibriums?
 
Adaptability, and the rule of law

Carol Graham of the Brookings Institute makes a powerful argument that the very virtue of human beings, their ability to adapt to inhospitable conditions, is a good thing for the individual’s psychological perspective but at the same time facilitates collective tolerance that leads to bad equilibrium.

Human beings can adapt to almost anything, from poverty, unemployment, bad health, and high levels of crime and corruption. Some psychologists believe that individuals can adapt back from almost any negative event to their natural cheerfulness. Adaptation is seemingly a very good thing – a human defense mechanism under unfavorable conditions.

The danger arises when this adaptability leads to surrendering to the external condition. Rather than attempting to change the intolerable condition, people collectively assume, and expect, that such a condition is merely a constraint that they have to live with.

Tolerance, such as we witness in the dreadful daily traffic of Jakarta, has led us to a bad equilibrium. While individually one can develop a human defense mechanism to beat traffic jams (good sound systems, the most current mobile gadgets, or changing hours of work), the social costs of traffic jams are enormous.

Every year, billions of dollars are wasted burning fuel during traffic jams, and in lost working time in Jakarta alone. That excludes the costs associated with the stress of urban life caused by the traffic havoc.

The key to direct human adaptability to move from bad equilibrium toward good equilibrium is to invoke strong (dis)-incentives and to create collective expectation regarding what are good and bad behaviors. In particular, socially bad behaviors should be codified and harsh punishment consistently applied to offenders. The essence of such a situation is that the rule of law is strongly observed and enforced across the board without exception.

In the case of traffic jams in Jakarta, the rule of law is very necessary but will never be sufficient by itself to promote good equilibrium. As transportation problems involve the physical characteristics of infrastructure and vehicles, we have to have a clear idea of the carrying capacity of Jakarta’s streets and public transport.

Whether we like it or not, to achieve certain objectives — say, the actual traveling speed during peak hour — then we have to adapt and adjust to what will be the maximum number of vehicle to be allowed, and how we can provide good public transport that is socially more desirable.

Bad public transport is a cardinal sin for the government and allowing millions of motorcycles to terrorize Jakartans at any time is a disaster.

Once the physical planning is done properly, then rules of laws are to be observed and enforced. The local government’s attitude to let traffic offenders go free with minimal punishment is effectively a blessing for the offender, and the offense will persist.

Likewise is the lackluster attitude toward the notorious bus drivers. A more effective approach would be to impose huge penalties for bus operators (billion rupiah fines and revocation of licenses) whose drivers are repeat offenders.

In the absence of a clear rule of law and strong enforcement, people tend to dig into their comfort zone and adapt to the harsh environment of traffic jams. As a result, bad equilibrium obtains.

In the realm of politics, parallel conclusions remain. Homo politicus has the capacity to adapt to any adverse condition. Without strong rule of law and tangible punishment for offenders, people tend to accept many ills such as bad governance, corruption or bad politics as ‘a fact of life.’ Such collective tolerance will lead to bad equilibrium in politics. In short, this is a strong endorsement of the old adage: there is no (good) democracy without the rule of law.

Our politicians are not of the same quality as bus drivers. But they respond and behave to external threats similarly: they adapt, and without strong rule of law, they cheat and collectively develop tolerance for cheating. This is the recipe for bad equilibrium.

The ongoing, massive socio-political experimentation in Indonesia will take years if not generations to settle and reach equilibrium. Learning from the experience of other emerging democracies, democracy entails risk and, often, it is very messy.

The current government has all the opportunity to shape the direction of our democracy, and to instill the foundations of good democracy. The key is to shape public expectations, create clear visions about the way our democracy goes and, above all else, to instill and enforce the rule of law. Otherwise, Indonesian politicians will adapt quickly, and we will fall into the trap of bad equilibrium of bad governance and corruption for a prolonged period of time.

The current government still has a chance in the next three years to build a legacy by setting the foundation for good equilibrium in our political realms.