In search of a benevolent dictator

By Ari A. Perdana

JAKARTA (JP): Robin Hood may have never existed. If he had, he would have died centuries ago anyway. But the legend of Robin Hood is eternal, given the classical dichotomy of the poor and the rich.

The dream of a hero who punishes the greedy and raises the poor from poverty lives on.

In economic terms, this is an issue of welfare redistribution, in which two main interests play a role. First, those in the higher income group who demand that their share, at least, remains the same.

Second, the lower income group who demand a greater share of the pie. A solution offered by the market mechanism is to simply let the market work. The outcome from this free market system is considered just distribution.

Of course, the market does not always work. Even when it does, it is possible that such a mechanism results in the poor compensating the rich in exchange for a greater share of the pie.

To solve this problem, government intervention is justified in which the government acts as a "benevolent dictator" to solve equality in redistribution.

However, government intervention does not always solve problems, and instead creates more distortions and unfairness. This happens because every time a government enters the economy, it is almost impossible for it to behave free of interests.

A government may undertake populist-type policies if it considers there will be larger support from the lower income group. On the contrary, policies can also be prorich if the rich are, for instance, politically more organized and more active in lobbying.

Currently, the question about justice is surrounded by debate around two recent policies. The first is the reduction of the fuel subsidy. The second is the restructuring agreements between the government and some high-profile debtors, especially the troubled Texmaco company.

Scholars have explained at length the reduction in the fuel subsidy. Most economists -- although not all -- agree that the fuel subsidy has been unfair. The higher income group benefited more than those in the lower income group.

They claim it would be better to directly give aid to those in need, in which case questions include those regarding the distribution mechanism to ensure the funds reach their target.

The debt restructuring decision is harder to explain. Some economists view the decision as no more than a government bailout policy. The government, as represented by Coordinating Minister for the Economy Rizal Ramli, argues that it is not bailing out debts. Instead, it is simply a debt-restructuring program, based on a company's prospects.

Therefore, the government says it would be beneficial if a company returned to business and paid its debts rather than close down.

Such controversy has shown that government credibility, specifically the economic team, has not yet returned. People remain deeply suspicious of deals with Texmaco and some other debtors. And several things remain unclear which cannot be disregarded.

First, Texmaco is the same company that made headlines last year because of a credit scandal. Second, skepticism surrounded the judicial system when the same company's case was dismissed. Third, there has never been public transparency on debt restructuring decisions.

It is not clear what the basics of judgment are in determining that a company has good prospects, and so forth. And such judgment should certainly be applied to all debtors.

Fourth, the emotional reaction of minister Ramli to the International Monetary Fund and the World Bank, when he asked why they were only concerned about Texmaco and not other debtors like the Salim Group, was counterproductive.

The public may ask, "What is actually going on?"

Telling the well-off that justice is when the rich should pay more for fuel is one uneasy task. As well as convincing them that the government is facing budgetary problems so that funds saved from the reduction in the fuel subsidy is only Rp 800 billion.

But it is much more difficult to explain why there seems to be a lot of money available for the restructuring scheme. Especially since the money -- and favors -- are being extended to those who are already rich.

The government is now challenged to become a "benevolent dictator" in the sense of ensuring fair redistribution. Otherwise people may start dreaming of Robin Hood.

The writer is a researcher at the Centre for Strategic International Studies and a lecturer at the School of Economics at the University of Indonesia.