Let’s suppose that in early 1997 an analyst had suggested to the governments of Russia, South Korea and Brazil that Thailand’s real estate market posed a systemic risk to their entire economies.  Let’s further suppose that the analyst had gone out on her limb and suggested that if the relatively small Southeast Asian nation began to face a potential market bubble-burst, the three giants should all pump in capital to bail it out in order to save themselves.  It’s not hard to imagine that our hypothetical analyst would’ve become a major laughing stock and even been recommended to seek psychiatric help for delusion.

Russia, South Korea and Brazil were three of the biggest emerging economies in the world at the time. Meanwhile, Thailand’s economy was only about 7 percent that of the three giants combined and its real estate constituted but a fraction of its relatively small economy.  As far as the three giants were concerned, Thailand was neither too big nor too interconnected to fail.  Any reasonable economist or financier at the time would be absolutely certain that Thailand—let alone its real estate market—was not a systemic risk.

Our hypothetical analyst did not, as far as we can tell, exist.  But had she been, she would’ve had the last laugh.  Thailand’s real estate bubble did burst and in an unpredictable chain reaction brought down the entire Southeast Asian economy with it.  The shockwave didn’t stop there; in a few months it destroyed South Korean economy and in a year it imploded Russia’s and pushed Brazil into a crippling economic crisis.

In The Age of the Unthinkable, senior geostrategic advisor Joshua Ramo contended that policy makers, politicians, and economists have been using arcane tools to predict what may or may not happen in today’s world.  They are akin to physicists who try to apply Newtonian physics—a science of certainty—to understand quantum mechanics—a world of probability.

Ramo argued that today’s systems—economic, political, or otherwise—are best described as what physicists refer to as a sandpile model.  The idea is that if you piled sand, grain by grain, until it formed a typical sandpile of a certain size, it would enter a strange “critical” state.  At first take, the sandpile would look like a stable system and you might be tempted to believe that you could predict whether the next single grain of sand would simply make the pile taller or cause an avalanche.  You would be wrong.

As a matter of fact, the sandpile is completely unpredictable.  If you had a thousand identical sandpiles and kept adding one grain of sand at a time on top of each, you would observe that some could hold thousands of grains before the sand started sliding off, some could hold hundreds, some could hold dozens, while others would experience avalanche just by one additional grain.  It is a system so complex that it would be impossible to make absolute predictions.  Such is the difference between Newtonian physics and quantum mechanics—at the quantum level, you can never say, “The particle is here and not there,” you can only say, “The particle has a higher probability of being here than there.”  And such is the difference between the economic system modeled by conventional economics and the actual economic system we are living in.

Unfortunately, it seems that arcane science prevails in Indonesia.  Respectable economists and financiers had claimed with absolute certainty before lawmakers that Bank Century did not pose any systemic risk to Indonesia’s financial sector.  Some gave a clear, black and white assessment that only fifteen banks, and no other, posed systemic risk.  They were absolutely certain—there was no room for unpredictability.   History would beg to differ.  A single grain of sand has caused avalanche plenty of times in this century.

In 1987, an accumulation of small factors—not one was considered a risk—led to a systemic shift that ripped apart the U.S stock market.  It happened again in 1997 in Asia.  And again just last year on a global scale.

Such unpredictability doesn’t stop at the financial sector.  Certainly a small country like Vietnam could never win an all-out war with the mighty United States; it did.  Certainly a small search engine company operating from a small garage could never beat a giant established company like Yahoo; Google did.  Certainly a housewife would never have a fighting chance in a legal battle against a giant hospital chain tens of thousands times as rich as she was; as far as everyone is concerned, Prita has already won.

Now our experts are very confident that Bank Century was neither too big nor too interconnected to fall.  Then again, neither was Thailand’s real estate market in 1997.

It is not our experts’ conclusion that we should be wary about, but rather the degree of certainty they place on the result of their analysis.  They failed to acknowledge that the systems in today’s world are so complex that such absolute prediction is simply ludicrous.  That our lawmakers and their advisers are still under the impression that they can make decisions based on solid predictions is a cause for concern.

Kwik Kian Gie resorted to a crude analogy and called Finance Minister Sri Mulyani a “frog professor;” an allusion to a learned scientist who is detached from the real world.  Yet if we choose to learn from history and sandpiles, one may wonder who the real frog professors are.  Is it those who acknowledge the complexity of today’s systems, adopt the principles of unpredictability in assessing situation, and make a judgment call to take swift action in order to prevent a possible cataclysm; or those who cling on ancient tools and dare to make absolute predictions in today’s world of complex systems?

An edited version of this article is featured in The Jakarta Globe

It has been over two weeks since the great West Sumatran earthquake.  Bricks, stones and mortars are piling up the ghosts of roads and streets; official death toll is closing in a thousand.   As aids are rushing into the region and rescue workers are still working around the clock, whispers, text messages and sermons are spreading that somehow we—and “we” can mean all Indonesians, West Sumatrans, Padangese, or even just the president, depending on which version you subscribe to—are to blame for the natural disaster.

An understandably grief-stricken and confused chicken-feed factory worker in Padang believed that the quake occurred because many Padangese youths had been engaging in sinful activities by the beach during Ramadan.  A less grief-stricken yet apparently equally confused senior member of a prominent political party blamed the president for being born on his ominous birth date, which “invited” natural disasters.  Chain text messages imply that the disaster was a demonstration of the wrath of a vengeful God.  Chairman of the North Sumatran Indonesian Council of Ulemmas (MUI) declared that the earthquake was a divine warning for the government to eradicate immorality.

It wouldn’t take long for a relatively reasonable person to point out that Indonesia has arguably become more religiously conservative than in the past, or that in the last few years some of the deadliest earthquakes occurred in religiously pious areas, like the 2003 earthquake in the Iranian city of Bam and the 2004 big one off the coast of Aceh, while “places of sin and immorality” like Las Vegas, the island of Ibiza, and even Jakarta, have been spared from any major natural catastrophe.  So either we’ve been misrepresenting God’s warnings, or—here’s a crazy idea—we’re not the reason the earth’s crust trembles.

However, we’re really looking at this the wrong way.  We may not be the reason the earth shook in West Sumatra, but we did cause the disaster.  Bear with me; it’s really not that confusing.

The very term “natural disaster” is truly anthropocentric—it is an entirely human-centered notion.  For hundreds of millions of years this planet has gone through literally countless earthquakes, hurricanes, tornados, meteor impacts, lightning storms, and massive volcanic eruptions.  For hundreds of millions of years, nobody ever called them “natural disaster;” they were simply “natural events.”  It was always business as usual for Mother Nature.

Then enter modern humans.  Upon seeing how natural events might occasionally destroy our homes and take away our lives, we began to see said events as disastrous.  As time passed by, self-centered creatures as humans are, we started to believe that a powerful entity—either nature or an even more powerful being—was deliberately causing disasters because of us.  As such, throughout history we’ve been trying hard to decipher the divine warning and appease whoever causes the disaster appropriately: slaughter a pig, sacrifice a virgin, stop playing at the beach, or elect a president with a better birth date.

Yet the cold hard truth is that were there no humans, there would be no disaster.  The flipside of this truth is that while we may not be able to stop an earthquake, we can take measures to prevent a disaster.  In December 2003, both California and southern Iran were hit by 6.5 Richter-scale earthquakes, separated by only a week.  The death toll in California was 3; in Iran, it was 30,000.  Some might thus conclude that Californians were more pious and God-fearing than the Iranians.  A likelier explanation is the worlds of difference in building codes and constructions in the two areas.

What we do to our environment also matters significantly.  The roots of large trees can strengthen the ground’s structure, decreasing its likelihood to slide even during earthquake.  Take those trees away, and nothing holds back the earth from crumbling down the slope.

Earthquakes are not the only natural event we should be concerned about.  Climate change has led to higher concentrated rainfall in a shorter period of time in Indonesia.  Yet we’re still clogging our rivers with garbage and destroy large patches of our forest.  60 percent of the forest area in Mt. Muria, Central Java, is destroyed.  That’s a disaster waiting to happen; just don’t blame God or Mother Nature when it does.  While we’re at it, let’s keep an eye on those volcanic mountains in our backyard.

So at the end of the day, our actions do matter, but not the way some people like the North Sumatran MUI’s chairman would like to believe.  It has got more to do with our vigilance, preparedness and planning, rather than a certain set of moral virtues.  It’s more pressing for district administrations to impose better building codes than to close down pubs and lounges.  Lawmakers need to extend the role, build the capacity, and provide more funding for the national disaster response agency, instead of wasting public funds on legislating morality.  And it’s more important for parents to teach their children to protect the environment than to forbid them from having fun at the beach.

This is Indonesia.  The meeting point of the mighty tectonic plates.  A proud member of the ring of fire.  Depository of the monsoon rain.  Our earth, mountains and seas can be as deadly as they are life-giving.  We’ve known this for millennia; yet we, as had our ancestors, have chosen to live here and call this place home.  Unfortunately, we often forget that as we reap the bounty of this land, we must also be weary of its occasional fury.  Our land demands—and deserves—our respect.  We can’t control nature, but we can choose, through the actions we take and the decisions we make, how nature impacts us.  But to say that we cause the earth to move is not only delusional, it is utter and complete arrogance.

And edited version of this article is featured in Jakarta Globe, 20 October 2009

This post is written by a guest writer, Sherria Ayuandini.  It’s an unabridged account of her experience participating in the International Summer School on Pluralism and Development in Yogyakarta, Indonesia, followed directly by her involvement in a field research where she experienced living for a couple of days with a poor family in a small rural area near Jakarta.

What would be THE litmus test that you just experienced something quite remarkable? Easy. You simply can’t stop blabbering about the incident to the other people around you. Family and friends, colleagues and acquaintances, even strangers and bystanders don’t get to be spared of the story. You can be even more sure of it as you didn’t yet stop yourself even when you received that special look from your friends. A look that if put into verbal expression would fall somewhere along the line of “Puh-leez, enough already!” or “Kill me! Kill me now!”

I lost count of how many times my friends bestowed me of such look that early August, or they, in return, of how many times I went on and on and on about this awesome one month Yogyakartan experience. I grew to be very good at finding whatever obscure connections there was between everything my friends and I talked about with what I then succinctly referred to as “Summer School”. “I don’t feel like having pizza” could be easily followed by me saying “Speaking of pizza, at Summer School…” or “speaking of not feeling like having something, at Summer School…” or simply “yeah, okay, at Summer School…” Seriously, try me. I can connect ANYTHING to Summer School. Even the “don’t” part of the sentence. Well… scrap that; especially the “don’t” part of the sentence…

So to say that I was a bit hung up on the experience of Summer School would be an understatement. Hung over would be a better phrase, I suppose. And it didn’t help my case the fact that merely 3 days after setting foot back in Jakarta again, I had to go back to work immediately. It was this research project that I was on board on as one of the researchers. The project started with a 2 day worth of a workshop, spread over 3 days in total. The set-up of the workshop jogged a very recent, very fond memory of mine. Any takers on what memory? Yeap… if you happened to be part of my circle of friends, insert special look right aboooouuuut…. now.

I was sitting on the right hand side of a U-shape class set-up, half expecting that at any point then someone would walk into the room, sit next to me and asked whether or not I have read the readers intended for the day. But of course, there was no reader and there was no one to ask that question. Instead, there were unfamiliar faces, holding out hands to shake and cards to keep. Here we go again…

And instead of a screen and a projector, there were flipcharts and whiteboard. On the latter three very simple questions were posed: What are the differences between… (1) interview and conversation, (2) visiting and living with and (3) finding out and learning. I smiled as I noticed the questions. “This should be fun,” I thought.

Right then and there the lady that was the head of the research opened the workshop. She next continued on explaining what the intention of the research was all about. To boil it down to one simple sentence: we were to live with the poorest of the poor in a chosen village, learning how they live as some sort of a reality check process. The very first question popped into my mind: whose reality? which was followed closely by the next one: who is checking who? But I kept my mouth shut and paid attention to what the lady was saying next. “We’re using an Anthropological approach,” she said. My heart leaped. Home… finally… “So it is important that we all understand what an Anthropological approach is.” I nodded. Very important of course. So I guess that’s what the workshop is for. Let’s start the lecture! She then pointed to the three questions on the whiteboard. “Let’s divide everybody to three groups. And each can discuss the differences in practice of one of these pairs. We’ll reconvene again in 20 minutes.” I nodded again. Discuss practi… wait what? I did a double take. Did she just say practice?

My group mates were already assembling at that time. And the discussion followed suit. All along the process I couldn’t stop smiling. Such a stark difference! Just a short 3 days ago, in a class set-up uncannily similar, I would have entertained the approach of Anthropology, shall that issue ever come up, from a very different angle. There will be ideas to look at, concepts to delve into, theories to consider and thinkers to heed. But there that day, there were ‘only’ a bunch of practitioners, drawing from past experiences, and knowledge of course, to provide a practical outlook at the questions at hand. To have an opportunity to experience both explorations! I considered myself blessed. My group mates, on the other hand, considered me distracted. “You really like smiling, don’t you?” inquired one of them. I laughed. “Life has been good,” I retorted.

So that was how it went for the rest of the day: me going back and forth from practicality to a more fundamental concept in my head, sometimes, even out loud. At one time when we were discussing the differences between finding out and learning, I pointed out how we as researchers need to be careful. I mentioned that learning would entail us seeing ourselves as the point of reference hence putting the Other as a utility for our growth. As soon as that sentence was out of my mouth, silence enveloped the room. Blank faces greeted me. I thought, “Ah well… at least it’s better than the ‘puh-leez’ look.” So I inhaled and tried again, “we should remember that we are not there so that we can personally increase our knowledge or come in contact with something new, but we’re there simply to experience their life first hand. It is new to us, but for them, it’s just regular life. We should remember that.” Ahhs and ohhs filled the room. Then people started to talk about attitude and behavior in encountering something that is different than what we are used to. I reprimanded myself silently, “Language Sherria Ayuandini! Fit it with the context already!”

But isn’t that what pluralism is all about? It’s about language. It’s about engagement and reciprocity, hence the use of language to create such arbitration. And for me, that’s what Summer School has really taught me: to be aware of the language you use. You can understand pluralism from many angles, as a theoretical construct, as practical implication, as you sit in the classroom or a reality on the field. But unless we start to realize that the language that we use sometimes separate us from one another, pluralism would remain an ideal. Language is the bridge that we all have been looking for, the one that would connect two differences and create an engagement.

So, when I finally set my backpack down on the plywood floor of my host family’s house in the village by the end of that first week away from Summer School, I was ready to let go of my language and immerse myself in the ones the villagers are accustomed to. Language in all kind of sense, verbally as strings of words and sentences, as well as everything else: gesture, posture, expression or impression—the whole nine yards: the entire experience. A woman singing and dancing seductively while at the same time being handed out money bill by bill embodied respect and independence. Babysitting and cooking traditional cakes to be sold at the local market constituted holiday and spare time. And fitting in? Burnt fingers from packaging snacks and a sore arm from heaving a bucket full of water to use at the outside semi open latrine. Pluralism indeed…

Now, what to take from all of this? Well… it has always been the duality of theory and practice that was seen as the biggest challenge for Summer School. Then, why not allow the participants to experience both, to be conversant in both languages? Let the practitioners study a more conceptual idea of what pluralism is in the classroom and at the same time, let the academicians learn how the concept plays in reality by actually going to the field. Both would undoubtedly feel uncomfortable: the first restless from sitting too long, the second awkward from the close encounter. But the discomfort would allow them to experience the language of the other, with a lowercase ‘o’ this time. And as they start to speak each other’s language, that’s when the first stake of the bridge is planted. The rest… are just stones falling into places.

An edited version of this article will be featured in one of Hivos’ publications.  Hivos is the Dutch donor agency that sponsored Sherria’s participation in the summer school.

Special thanks to my best friend, Sherria Ayuandini, who gave me some great insights on the issue and provided one of the major arguments for this piece.

When it comes to identifying the root cause of terrorism, many are compelled to point fingers on poverty and lack of education.  The argument, in a nutshell, goes somewhat as follows: Poor, uneducated people are easily lured to promises of heaven and blowing other people up to attain them.

However, such theory does not stand its ground when confronted with facts.  Marc Sageman of Foreign Policy Research Institute compiled the background data of around 400 Al-Qaeda members and discovered that three quarters of his sample belonged to the middle or upper class.  He further noted that, “[T]he vast majority –90 percent—came from caring, intact families.  Sixty-three percent had gone to college, as compared with the 5-6 percent that’s usual for the third world.  These are the best and brightest of their societies in many ways.”

Economists Efraim Benmelech of Harvard University and Claude Berrebi of RAND Corporation also came to the same conclusion when they gathered data on Palestinian suicide bombers in Israel from 2000 to 2005.  They discovered that education is very much valued in the “terrorism market.”  Better educated individuals are more likely to be successful in carrying out large-scale terrorist attacks and have lower chances of getting caught.

It should also be noted that the alleged leader of the 9/11 attack, Mohammed Atta, had a graduate degree, while both Azahari and Noordin Top, masterminds of the major terrorist attacks in the last decade in Indonesia, were skilled engineers and scientists.  None of them were poor; all three came from affluent families.

Obviously, the majority of terrorists in the world don’t fit the poor and uneducated profile.  As such, simply expanding education and eradicating poverty would unlikely affect terrorist recruitment.  We need to look deeper.  In that light, there are at least three issues that are often overlooked, each bearing a consequence in how public policies should be shaped and how we as the community should act in countering the seeds of terrorism.

First, it’s not a coincidence that many terrorist masterminds come from countries with repressive government, like the Arab states and, arguably, Malaysia.  Repressive governments tend to bar legal venues of voicing dissent, thus making extreme demonstration of opposition more attractive.  When the cost of legal dissent increases—due to threat of legal repercussions—the relative cost of illegal dissent is lowered.  Hence terrorism becomes a viable venue.

Therefore, it’s within our interest to allow dissent.  Specifically for Indonesia, we need to allow organizations like Hizbut Tahrir and the Islamic Defenders Front to exist.  It doesn’t mean we should let them do whatever they want.  They still have to be legally accountable for their actions; if and when they employ violence or thuggery, they have to pay for their actions to the fullest extent of the law.  We should also continue voicing opposition to their radical stances and gospel of hatred.  However, their right to association and voicing dissent should be recognized and upheld.  Perhaps it’s worth to remind ourselves that virtually none of the major Indonesian terrorists are affiliated to these legal organizations.

Second, acts of terrorism and suicide bombing require the breaking of the fear of the pain involved in the act and the reservation of hurting other people.  An effective way of doing this is by psychological enforcement, most notably by an authority or peers.  A common trait shared by terrorists is that they have a figure of authority that they fully and unquestionably respect. It’s also very common for prospective terrorists to join a perverse cause through preexisting social bonds with people who are already terrorists or had decided to join.

So here’s what we need to understand: An education system that puts a very high premium on respect for authority and discourage freethinking would produce individuals that are highly susceptible to psychological enforcement.  So while simply more education may not be effective in countering the roots of terrorism, how we educate matters significantly.  We need to push, not discourage, our children to question the authorities—their teachers and parents—and the majority—their friends.  We need to make them comfortable to be different and to disagree.  This will make them significantly less vulnerable to “brainwashing” by radicalism.

Lastly, we should heed the statistics found by Mr. Sageman in his research: An overwhelming majority of the educated individuals in his sample of Al-Qaeda members are engineers, architects, civil engineers, and scientists.  People with backgrounds in humanities are grossly underrepresented.  Is there anything in humanities that make its students less susceptible to radical, narrow-minded, chauvinistic ideas?  In short, the answer is yes.

Students of humanities make a conscious effort to learn different cultures, religions, and values.  This leads them to respect people of all walks of life, even if they don’t necessarily agree with the values those other people hold.  It’s this spirit of humanities that should be integrated in our education system.  Indonesian youth needs to learn, and perhaps even experience, different values.  The many live-in programs already conducted by various local NGOs, bringing in students of different religious and cultural backgrounds to stay with families in Aceh, Lombok and Papua, should be expanded.  It’s high time for us to not only tolerate diversity, but embrace it.

At the end of the day, it’s really more complex than simply poverty and lack of education.  If we’re really serious about addressing the root of terrorism, we need to uphold civil liberty, teach our children that it’s alright to question the authority, and expose them to different values.  That’s going to be a challenge not only for the government, but for all of us—parents, teachers, and the community.  But nobody ever said addressing the roots of terrorism is easy.

An edited version of this article (with some colorful comments, I might add) is available at Jakarta Globe.

This is the third in a series of articles on the economics of Ramadan.  The other two are on Ramadan-induced inflation and how charity can hurt the poor.

When I was little, Ied Al-Fitri was always one of the most fun days of the year, mostly because my entire extended family would all gather in one place to celebrate it.  The minimum set would be eighteen cousins, brothers and sisters, eight adults, and the matriarch, my grandmother.  As with a typical West Sumatran family, mine was all over the place and it always took quite an effort to move ourselves to a designated place.

That was about twenty years ago, when the Indonesian population was around three-quarters of today’s and urbanization was relatively limited.  At the time, while the traffic might increase during the ritual homebound exodus of Ied, it never reached the extent of what we experience today, where cars line up bumper to bumper, with swarms of motorcycles zigzagging wildly, mortally threatening everything in their paths, and where the length of a trip can quadruple that of any other given day.

Yet these days, under such excursion nightmare, hundreds of thousands still mobilize themselves every single year.  They are willing to wait in line for hours to get tickets; get cramped in busses, trains and ships, many without air conditioning; get completely stuck on the road; and literally risk serious injuries—and even death—due to accidents.

Irrational?  Actually we are observing quite a rational behavior.

Individuals take action after considering the personal cost and benefit.  For many of us, the cost of the annual homebound trip—which includes not only the actual fare but also the long hours, exhaustion, and risks—is worth the benefit of celebrating Ied with family.   When said individuals bear all the cost and reap all the benefit themselves, then whatever they decide is their own business.  The thing is, as we shall see, this is not the case with the annual homebound exodus.

Every time an individual decides to take the long trip home, they contribute to the traffic jam, which in turn put tremendous strain on the roads, which are built and maintained by our tax money, and inject tons of toxins and carbon into the atmosphere, poisoning the air and increasing global temperature.  Said individual would also significantly increase the risk of accidents happening, since with each additional bus, car or motorcycle on the street, the probability of collisions increases proportionately.  In 2008, the exodus saw over 1,300 road accidents with more than 600 fatalities, all occurred within a week, which constitutes about 100 deaths per day—had this been due to terrorist attack, drastic measures would’ve been taken.  These costs are not incurred on the individual deciding to join the exodus bandwagon, but on innocent bystanders.  And this is where the problem starts.

The additional costs of the Ied exodus that are borne on other people are more commonly known as negative externalities.  Exodus travelers only cover for the cost of tickets, fares, gas, personal time and physical exhaustion; while the rest of us cover for the cost of traffic jams, road damages, poisonous air, increased global temperature, and risk of fatalities.  These externalities should have been accounted for by the respective individuals when they weigh the cost and benefits of taking the homebound exodus; unfortunately, they are not.

In order to address the problem, the real cost incurred on the individuals taking the exodus must be increased, taking into account all the externalities.  This can mean taxing tickets and fares, setting up temporary toll booths on major roads, and even temporarily increasing gas price for several days before, during and after Ied.  The additional revenue should then be channeled to road maintenance, clean air campaigns, and deployment of additional police personnel.

Now you might protest because some people would then not be able to afford taking the trip home.  Well actually that’s the entire point.  Many people should decide that the cost—the true cost—of going home outweighs the benefit and choose to stay put.  Thus we would have less poison in the air and fewer deaths.  What is truly scandalous is the fact that not only the government—with our support—decides not to increase the personal cost of Ied exodus, it actually decreases it, by minimizing hikes in tickets and fares.  Since the cost of exodus is set considerably lower than it should be, there are significantly more people than it should be out there on the road.

The idea that there should be less people taking the Ied exodus is actually quite popular, especially if you’re one of the unfortunate ones who have ever experienced accidents on what is supposed to be a joyous occasion.  In 2008, the Indonesian Council of Ulemmas (MUI) considered making the exodus makruh—an action that is divinely discouraged.  Unfortunately, most people respond better to worldly incentive than divine sanctions.

I will not downplay the benefit of celebrating Ied with our loved ones.  Being able to share the love, joy, and a sense of triumph after a month fasting with the people you call home is truly a blessing.  But then again, is it worth 600 lives?

My extended family now numbers more than fifty.  Today we’ve made a conscious decision not to make it necessary anymore to have a big gathering during Ied.  Again, this is a rational decision—the cost, and risk, of having such familial exodus during the traffic peak of the year outweighs its benefit for us.  So we celebrate Ied in different places, making use of the wonder of today’s information technology to share our love and happiness with each other.  We do, however, agree to have a family gathering four times a year, scheduled deliberately outside Ied.  And we always have as much fun as we did twenty years ago.

An edited version of this article is featured in Jakarta Globe

This is the second in a series of articles on the economics of Ramadan.  The other two focus on Ramadan-induced inflation and the externalities of Ied exodus.

Begging on the street is haram—forbidden by divine sanction—and beggars will be cracked down by the authority.  At least that is what’s going to happen if the Indonesian Council of Ulemmas (MUI) and the Indonesian government can have it their way.

It appears that only several days into the holy month of Ramadan, major cities all over Indonesia are already flooded with seasonal beggars.  Seemingly as a response to that, the government announced that they endorsed all efforts to take beggars off the streets, including MUI’s move to declare begging haram.

I’m quite certain there will be people who would highlight how the MUI and government are misguided with their plans.  So allow me to focus instead on what I believe to be one of the main reasons—although most certainly not the only one—why we have the whole problem with beggars, especially the seasonal ones, in the first place: ourselves and our perverse sense of charity.

Let’s start from the beginning and make one thing clear: begging is a job.  Beggars may be officially referred to as the unemployed, but by all economic definitions, they are service providers.  Begging requires capital, time, and hard labor.  If you don’t believe me, try waiting on the side of the street for eight to ten hours a day in the baking sun, inhaling toxic fumes, while soliciting potential “clients.”  It also provides service; beggars supply us with a venue to delude ourselves that we’re helping the poor, compensate our sense of guilt for not helping enough, and—this is my personal favorite—help us secure a nice spot in heaven.  Ramadan allegedly doubles that last benefit; this perception, as we’ll soon see, pushes behavior with some unintended consequences.

Individuals choose jobs based on their personal cost-benefit analysis.  Beggars choose begging because it’s the “best” job for them; the job provides them with the highest return per unit time, taking into account the condition of the job market, the resources available to them, and the skills that they have.  The higher the return gets, the higher the attractiveness of begging as a job.  And many of us have done plenty to make that return really high.

While academic research is lacking, various journalistic investigations indicate that begging can bring up to Rp. 100,000 in one day. That’s about Rp. 2,500 per 15 minutes for a ten-hour day of work, which is quite a reasonable figure.  That income generation can increase dramatically during Ramadan, in which somehow a lot of people believe their alms are more valuable than in the rest of the months in the lunar calendar.  As a comparison, a car mechanic earns about Rp. 50,000 in average per working day.  Even if a person has other employable skills, begging would still be a very lucrative job.  So you can stop wondering why we have hordes of beggars, seasonal or otherwise; you might very well contribute to the phenomenon.

If that’s all there is to it, there should be no problem.  If begging is a legitimate job, let beggars beg.  But there are at least two serious consequences of seasonal begging.  First, they crowd out the urban poorest, who unlike the seasonal beggars have absolutely no alternative but begging.  Second, there is an increased use of children, either as beggars or as props, thus denying them of time for education and exposing them to extremely hazardous condition.  Many people’s tendency to give more alms to children and baby-carrying beggars is certainly not helping either.  Your alms during Ramadan, even if they really do increase your chance of going to heaven, end up depriving the poorest of the poor and endangering children back here on earth.

At this point I wish to make a disclaimer that I’m not making a case against giving.  Rather, I’m making a case against giving incorrectly.  My real contention is that it’s almost always better to channel your alms through respectable charity organizations than to give the same amount of money directly to beggars—at least if your intention is to really help the poor.

Charity organizations that channel alms can do so more effectively than individual alms-givers.  The pooled alms that they manage are significantly large that they can use them to fund well-planned programs, both short and long-term, that are more sustainable.  Most of such organizations do more than simply help the poor survive day by day; they also have an eye on the horizon, providing financial assistance for education and even capital to start small businesses.

If you still prefer giving directly to beggars because they’d get all your money without having to pay the service of a middle man, think again.  Like any underground economic sector, seasonal beggars are organized.  And they have to pay a fee for the “organizers.”  Under such arrangement, a beggar would typically get a meager 30 percent of what they earn.  An accountable charity organization would spend most of your alms on their targeted beneficiaries; and they would show you their financial report to prove it if you asked for it.  Give directly to beggars and you’d most likely give less.

At the end of the day, perhaps the best litmus test is your own conscience.  So the next time you feel the impulse of giving small change to street beggars instead of giving the same amount of money to a respectable charity organization, ask yourself, “Am I doing this because I really want to help them and I’m certain that my petty coins would bring a significant impact to them, or am I doing this simply to make me feel good about myself and perhaps increase the probability of securing a nice place in the afterlife?”

Then again, if MUI and the government push forward with their respective plans, we might not have the opportunity to ask that question at all.

An edited version of this article is featured in Jakarta Globe

This is the first in a series of articles on the economics of Ramadan.  The other two discuss how charity can harm the poor and the externalities of Ied exodus.

I started fasting at a very young age. Not necessarily out of extreme piousness, but rather because I wasn’t much of an eater and was only too grateful to be allowed not to have lunch for an entire month. On top of that, by a five year-old’s logic, I believed I was doing my parents a big favor by cutting down expenses for food.

That five year-old’s logic is turned completely upside down by reality. As a matter of fact, households’ expenses in Indonesia, as well is in other predominantly Muslim economies, increase quite significantly during Ramadhan. Apparently, during the holy month, the overwhelming majority of Indonesian households increase their consumption, which pushes up demand, thus increases price. So not only do households buy more stuff, they buy them at higher prices.

If there are still people out there who are skeptical that Ramadhan induces higher inflation, governments of predominantly Muslim countries all over the world are certainly not. From Indonesia to Jordan, governments recognize the immense increase in demand and are already rushing to intervene the market by either upping supply or imposing ceiling price. However, even with such relatively massive intervention, the demand shift is usually too significant and higher inflation is inevitable. Indonesian Trade Minister Pangestu already found 11 to 33 percent increase in price of foodstuff in Bandung a day before Ramadhan started.

That price increases because of rising demand is basic economics; that demand increases during what is supposed to be the month of frugality is nothing short of an irony.

The major culprits behind this demand shift are likely to be the middle and upper classes, who have the means to consume more. What really causes the consumptive behavior is up for grabs. One explanation is that we are all too sensitive to our loss of utility—loosing meals during the day—and overcompensate it by consuming more in the evening and during Ied. A more common term used for this hypothesis is balas dendam—avenging for our loss.

Or perhaps it is impulse buying and herding movement—we see everybody else eating out, having feasts with friends and family, and we are compelled to join the wagon. It’s quite easy to justify these impulses by saying that it’s all in the spirit of strengthening silaturahmi or bonds among the ummat.

Regardless of what really caused demand-pushing behavior, what we really need to understand is that the significantly higher inflation during Ramadhan hurts the poor tremendously. Most of them do not work as traders and would not feel the benefit of the inflation. Yet they would certainly feel the impact of increased price, especially of basic goods. Cutting down both quantity and quality of food is often the only option.

Worse still, in the effort to reap benefit from the inflation, some traders would be compelled to sell damaged goods at lower price; and they would certainly find buyers. Nearing Ramadhan, officials from Jakarta had raided a number of stalls in traditional markets that sold spoiled chicken and meat. It is the poor who would most likely buy and consume these damaged goods, and later suffer the consequences.

To be fair, demand shift and inflation are not the only Ramadhan-induced economic phenomena. While an in-depth analysis of aggregate data is required to validate the following statement, anecdotal evidence indicates that the holy month also brings about increased redistribution of wealth. It is after all the month of charity.

However, increased alms-giving, be it compulsory like the zakat or voluntary like the sadaqoh, would only significantly benefit the poor in a low-inflation economy; and as we have seen, this is not the norm during Ramadhan. Coupled with inflation, alms would most likely only help the poor maintain their purchasing power, but not increase it.

Furthermore, while inflation affects the entire population, alms tend to be targeted to only small pockets of the same population. Hence, though there would indeed be poor households who received assistance in coping with the inflation, most of the lower class population would only feel the full-blown effect of increased price without receiving significant support from the redistributed wealth.

In the light of everything, the middle and upper classes would actually help the poor more by not spending than by giving.

So all this leads the Muslim middle and upper classes to two options. If we really wish to help the poor during the holy month, we should increase expenses for alms and decrease—or at least maintain—consumption by refraining ourselves from hosting or going to feasts at the daily break of fasting, as well as during Ied. We should also decrease consumption by avoiding eating out and refraining, or at least deferring, expenses to buy new clothes.

This would help lessen the demand shift, thus lowering inflation, and at the same time increase the poor’s purchasing ability. This would also—and perhaps this is the most important thing—be more consistent with the spirit of Ramadhan, in which frugality is supposed to trump extravagance and contentment wins over dissatisfaction.

The second option is to give in to our impulses and oversensitivity to loss of utility. We can continue increasing our spending for food during the holy month. We can go from one feast to the next and host one in between. We can, in effect, significantly increase demand and raise price, and justify that by saying that it’s all in the name of strengthening silaturahmi and bonds with family and friends.

During all that, we can make us feel good about ourselves by increasing alms and providing meals for a small group of poor families in the evening. Opt for this, and we would at best maintain the utility of a small group of poor people at the same level, while making life harder for most lower class households in the country.

Sadly enough, in this holiest month of the year, we would most likely observe the latter scenario.

An edited version of this article was featured in Jakarta Globe