Optimizing The Trickle Down Effect Policy (2)

With the ideal scheme, the trickle down effect policy has been placed inappropriately in terms of implementation. Various researches have been done but it fails to reach the true answer. The basic accusation for the flaws in policy seems to lead to an inaccurate subject: Corruption. Yes, corruption is being accused as an antithesis of the policy in which functions to drain the resource that goes trickle up and more to become a paradox in growth. This is a result from an exclusive economic growth which leads to a widening in gap between rich and poor. It is agreeable that corruption would go against all norms, as it will impede development by the dysfunction of a political system or institution in which government officials, political officials or employees seek illegitimate personal gain through actions such as bribery, extortion, cronyism, nepotism, patronage, graft, and embezzlement.

But it is important to note that the above evil description of corruption would be true if the funds from the corruption flows outside from the country, the result would be different if the funds were invested domestically. This goes with the assumption of the trickle down effect idea about domestic investment. In an extreme scale, it can be said that a person who does mega corruption would not make the state runs into bankruptcy as long as they invest the funds within the country since in this way the ideal scheme of trickle down effect would work. Again, this is not a technical justification of corruption since I agree that corruption is a moral crime that should have the most menace compensation. But, the war against corruption in Indonesia still accounts as revolutionary and needs some political consideration. The question is how long the sustainability of economic development could withstand the pressure of political uncertainty? A most widely known word of John Maynard Keynes could be set as a background: “How long is the long run? In the long run we are all dead.”

The optimal solution to barricade the flowing funds in the country from going outside is through system of incentive, good governance is one of the ways. There are four main barriers that impede a sound investment climate in Indonesia: inefficiency in bureaucracy, the lack of labor regulation, the lack of tax incentive and the unprepared infrastructure facilities to support investment activities. The lack of investment is also caused by the high cost economy, the lack of government support to provide stimulus and the lack of bank financing. The government has to pay major role to tackle this problems so that the policy would function effectively.

Optimizing The Trickle Down Effect Policy (1)

The discourse about trickle down effect policy often headed to a social stigma in which proclaims unanimous decision. Every topic about this policy must have lead to an unfair trial. The one who lean towards this policy would be condemned by the post development activists and to be judged inappropriately.

Words contain abusive meaning such as pro status quo and anti poor are becoming day to day activity.

This reaction might be a rational justification since the history has told us about the incapability of the policy to make leverage towards people well being. Instead of creating the distribution of income, the policy creates a large sum of capital accumulation towards an elite group which is widely known as the conglomerates. The fact creates another term of the trickle down effect policy: conglomeration. The term used in political rhetoric to classify economic policies perceived to benefit the wealthy and then "trickle-down" to the middle and lower classes. Efforts to lead people opinion are justifiable as log as it has some basic proof. The efforts would be unjustifiable if it is only based from sentiments.

The ideas derided as "trickle-down economics" are often seen as a major rhetorical variant of "what's good for business and the rich is good for the country." In this form they have been ridiculed by Franklin Delano Roosevelt as "toryism." The economist John Kenneth Galbraith noted that "trickle-down economics" had been tried before in the United States in the 1890s under the name "horse and sparrow theory": "if you feed enough oats to the horse, some will pass through to feed the sparrows." Galbraith claimed that the horse and sparrow theory was partly to blame for the Panic of 1896. In the principle, the policy places the haves as the main class to be considered to accelerate economic growth. The theory states that if the top income earners invest more into the business infrastructure and equity markets, it will in turn lead to more goods at lower prices, and create more jobs for middle and lower class individuals

This scheme operates from a basic idea in which describes that income can be functioned from three main aspects: tax, domestic demand and savings. Income empowerment through tax would accelerate public investment sector. The public investments could have the form as tourism development, social capital stock enrichment (roads, railways, ports, and electricity), agricultural investment (irrigation, consolidation, mechanization) and energy resource development. Investment in these sectors would attract investors to join the development activity due to the complete temptation from the industries in which being supported by advanced facilities that will boost business activities.

Meanwhile from the other side, the increase in income would raise the proportion of domestic demand that would contribute to the economic growth. This functions naturally as we already recognize that consumption is the major supporting actor in promoting economic growth in Indonesia over the last decade or so.

Aside from tax and domestic demand another aspect from the policy scheme is saving. The increase in income would have a positive relationship with an increase in saving due to the increasing proportion of income that can be saved. As a result the funds from the saving could be functioned by the banking system to be channeled for the private investment needs. The increase in private investment will accelerate economic growth through the increase in business activities.

As a conclusion, the transmition mechanism explicitly accounts the merit of the conglomerate in supporting the economic growth. Thus, in a trickle down economics context, the economic growth would increase the total welfare of the people.

In Memoriam: Reform's Activists

Hari ini 10 tahun yang lalu
Tercecer darah dihujam peluru
Tentara bengis merenggut kibaran asa
Pekik tangis menyentak kalbu pertanda tutup usia

Impian di pendamkan selongsong peluru
Idhin sang ustad ingin bergelar Insinyur
Ditanya sang ibu 10 tahun yang lalu
Kapan engkau pulang nak?
Idhin menjawab, akan pulang hari Rabu
Idhin pun pulang tapi sudah terbujur kaku

Elang sang pelukis ingin bergelar arsitek
Ditembak dihalaman gedung
Peluru berlaku algojo
Pengoyak kanvas masa depan

Hendri berujar pada sang kakek
Pantang aku mundur dari garis terdepan
Peluru mengoyak sang komandan
Sapu tangan merah ditinggal untuk sang pacar

Heri bermimpi jadi pengusaha
Proposal ratusan juta sudah di depan mata
Nyawa pun terenggut
Usaha tak pernah terwujud

Hendri merantau hendak menjadi ekonom
Elang bersusah ingin jadi arsitek
Heri bergumam jadi saudagar
Idhin ingin jadi tukang insiyur
Kini arsitek, ekonom, saudagar dan insinyur berkonferensi di liang kubur

Tentara bengis entah siapa yang komando
Merobek, mengoyak, merampas mimpi sang muda

Catatan kuliah, sepatu, pakaian dan topi
Saksi bisu perjuangan
Hidup pun diakhirkan
Oleh sebutir peluru
Hari ini 10 tahun yang lalu

Trade Institutionalization

From the above figure we might say that China is posing a threat to the Japanese Economy by its intense competition. The intensity more or less came from the import substitution strategy in China. With this policy, China eventually learn to produce the imported goods domestically in which threatened the sustainability of the Japanese Economy, or to make it simple: Chinese products are everywhere in Japan! This might lure the Japanese Economy wouldn't it?

With the precedent fact, will the triangular agreement between Japan, Korea and China in the form of EPA (Economic Partnership Agreement) give benefit to Japan?

To answer this question, I made a projection based from series of quarterly data ranging from 1985 to 2004. The variables in the research consist of the Japanese GDP, the Japanese Export to China and the Japanese Export to Korea.

In the case of Korea, there is a positive impact both in the short and the long run. The export to Korea will boost the Japanese GDP in a one way or another for a stable period of time.

What about China then?

In the short run, the Japanese Export to China leads to an overshoot in the Japanese GDP, suggesting that in the long run the Japanese Export to China will loose its significance to the Japanese GDP due to the rapid learning curve of the Chinese production capacity in which eventually leads to a lesser dependency from the Japanese products.

But, it is important to note that the adjustment rate from the equilibrium error ,that concludes the overshoot in the short run, is very small suggesting that the positive effect from the export will last in a considerable time.

The same positive effect is true from the Chinese and the Koreans point of view

Thus, the institutionalization of trade among Japan, Korea and China is a very constructive way to built fundamental growth in the region. This preliminary study serves as a complementary research with regards to the previous one.

Another question might be raised based one the Bhagwati's spaghetti bowl effects. The EPA might serve as a form of Preferential Trade Agreement, which according to him is a stumbling block toward integration. But, as you can see from the EPA, it is initially driven from the GATT and the WTO and it is even moving towards beyond it. So The EPA is not even a PTA because of the uniqueness. So, would you　mind cherish the EPA?