The economics of direct local elections<\/p>\n
Awan Wibowo Laksono Poesoro, Jakarta<\/p>\n
We will soon witness direct regional elections -- mayors,
\nregents and governors -- in many regions throughout the country.
\nAfter directly electing their president and vice president last
\nyear, Indonesian voters now will also exercise the same rights to
\nelect their local leaders.<\/p>\n
Will leaders brought to the fore by these democratic fiestas
\nbring leviathan enhancements in the society's welfare? Or, will
\nthey be another deleterious factor hampering the improvements of
\nprosperity?<\/p>\n
To find the answers, we could use economics, as it is often
\nemployed as a tool to aid us to predict human behavior. We shall
\nlearn that some scenarios and roles of the elections' actors have
\nsomewhat resembled economic models and roles of economic agents.<\/p>\n
To make an analogy, first let us view the upcoming elections
\nas markets, political ones. As any common market, a political
\nmarket is a channel through which buyers and sellers make
\ndecisions as to what goods and services to have and produce and
\nin what quantities.<\/p>\n
Next, voters in the elections can be considered as buyers.
\nThey want victorious candidates to supply goods and services to
\nthe product markets, while the candidates -- in their roles as
\ncompany stockholders, or sellers -- will, in response, propose
\nvarious public policies in order to meet the demands.<\/p>\n
Consequently, what will the winning candidates, as sellers,
\nask in return from the voters? The answer is that the candidates
\nask the voters to provide the factor markets with factors of
\nproduction, such as labor for the civil service.<\/p>\n
For day-to-day operations, the elected regional heads will be
\nassisted by regional government institutions, which can be
\nregarded as company managements comprising company executives.<\/p>\n
Nevertheless, there are political parties, whose endorsements
\nof candidates running for office are required by the Law 32\/2004
\non Regional Administration, and interest groups such as NGOs,
\nwhose intention is to guide public policymaking to their causes.
\nWe can classify them as company stakeholders.<\/p>\n
Now that we have the actors, I shall introduce two economic
\nmodels.<\/p>\n
The first one is the neo-classical approach, with proponents
\nincluding the prominent economist Robert Lucas.<\/p>\n
According to the model, agents maximize. This means all the
\nactors in the elections will use all attainable information to
\nproduce optimal decisions. It also assumes that expectations are
\nrational, meaning they are the best forecasts that can be
\ngenerated by using all the attainable information. The last
\nassumption is that markets clear -- which means the actors will
\nadjust to being better off, thereby equating supply and demand,
\nor clearing the markets.<\/p>\n
Under the assumptions, the voters will maximize their
\nutilities from all available policy options offered by the
\ncandidates during their campaigns, incorporating into
\nconsideration all the costs pertaining to each policy, such as
\ntaxation. In return, the candidates will maximize votes from the
\npublic. As a result, candidates with the best policies will come
\nup as the winners, and the welfare of the society will therefore
\nbe improved.<\/p>\n
Meanwhile, neo-Keynesian economists, like Gregory Mankiw,
\nargue that this is not always the case. They contend there are
\ntimes that markets fail and thus do not clear due to imperfect
\ninformation.<\/p>\n
The first type of imperfect information is incomplete
\ninformation, meaning information is randomly insufficient and not
\nmanipulated by any agent in the markets, hindering efficient
\nresource allocation and thus creating welfare losses.<\/p>\n
For example, the voters are not well-informed about the
\ncandidates' aimed policies due to short campaign periods, hence
\njudging candidates only by their physical appearances. Or, some
\ncandidates do not have adequate funds to launch far-reaching
\ncampaign programs, so the voters hardly know them.<\/p>\n
The second type is asymmetric information, which means
\ninformation is purposely incomplete and manipulated by some
\nactors. This will result in misallocation of resources, causing
\nmore welfare losses.<\/p>\n
Two of the most well-known asymmetric information problems are
\nmoral hazards and adverse selections. An example of a moral
\nhazard is when the elected regional heads -- feeling they have
\nfull legitimacy -- do not keep their campaign promises and begin
\nacting in their own benefits, maximizing personal satisfaction
\nrather than improving their people's prosperity.<\/p>\n
And an example of adverse selection is when the people cast
\ntheir votes for candidates with policies that are popular in the
\nshort run -- such as the policy against a fuel price hike -- but
\nactually do not have any comprehensive policies that will
\nconsiderably enhance the society's welfare in the long run.<\/p>\n
Bureaucrats can also be held responsible for political market
\nfailures. As executives who deal with the day-to-day managing of
\ngovernment agencies, they possess more information about things
\nthat are going on in their agencies than their regional heads.<\/p>\n
It will be too costly for any of these candidates to criticize
\nbureaucrats. Ergo, they will have the power to sway the provision
\nof public goods and services, maximizing budgets instead of
\nameliorating efficiencies.<\/p>\n
Market failures are sometimes attributable to stakeholders
\nlike interest groups and political parties as well. They
\noccasionally have different agendas with the regional
\nadministration chiefs, trying to influence public policymaking to
\nmatch with their goals.<\/p>\n
It is now evident that information problems can lead all the
\nactors, including the voters, to actions resulting in market
\nfailure, like the appearance of second-best leaders. Accordingly,
\nas the neo-Keynesians maintain, the government should intervene
\nto ensure smooth information flows.<\/p>\n
Considering the disarray that characterize the preparations
\nfor these elections, it is doubtful that the central government
\ncan do much this time. But in the future, they should introduce
\ncrystal-clear rules, untainted referees, well-organized
\npreparations, as well as better education and competitive
\nprovision mechanisms for public goods and services to minimize
\nthe problems.<\/p>\n
Moreover, our government should improve the quality of their
\nagencies, including the law enforcement agencies, by eradicating
\ncorruption and collusion in the recruitment and promotion systems
\nso that scrupulous bureaucrats will be produced.<\/p>\n
As for now, our only chance to get optimal results from the
\nelections is to hope all the actors, including ourselves, will be
\nmature enough to put the nation's greater interests above of all
\nelse. Is the chance slim? It is for us to decide!<\/p>\n
The writer is a researcher at The Indonesian Institute, Center
\nfor Public Policy Research.<\/p>",
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