Thu, 25 Dec 2003

No economy is an island, Jack

B. Herry-Priyono Driyarkara School of Philosophy Jakarta

In early August 2003, when we were still engrossed in collective soul-searching over the absurdity of the Bali bombings, another terror strike hit us. It was the bombing of the J. W. Marriott hotel in the heart of Jakarta. As usual, the solution has been similar to the way many other problems in this country are solved: gone with the wind. Groping in the dark is not a rare condition of life, but very often the way we grope in the dark is of our own making.

There are at least two ways of dealing with such a shock. One is a decisive measure to solve the bombing, for which we know we have no courage to do. The other is to call upon some prophets of doom to cast a spell, in the hope that a similar tragedy will not be repeated. Trapped in the political economy of media hype and armed with a newly acquired financial fixation, the spell took the form of manipulating our collective fear. Even before the dust settled, the air was filled with comments about the impact of the bombing on financial markets, the investment climate and business confidence.

As always, it was through this sort of unscrupulous instrumentalist outlook that the tragedy itself soon disappeared from our collective memory. The hidden agenda was to insulate the economy from the political factors. Those who are trained not only in economics but also in philosophy and the humanities would immediately sense that there is something unhealthy about this tendency. Never has there been a single moment in the history of human species when the economy has been insulated from politics, as much as politics from economy. No economy is an island. This is also true with regard to the link between the economy and other factors.

Let us start with the obvious. In April 2003, when the SARS epidemic began to race across the globe, sales of cell phones in cities such as Guangzhou dropped by 40 percent. Clothing retailer Giordano International Ltd. lost up to 80 percent of normal sales revenue in mainland China. Matsushita Electric Industrial Co, that Japanese electronics giant, saw its stock drop by 5 percent. The Shanghai Auto Show which was expecting to draw 450,000 visitors, pulled in a mere 120,000 and closed on April 24, three days early. This pattern is surely also true for sectors like tourism and the airlines industry. Case proven!

Wait a minute! We should remember that the index of the Jakarta Stock Exchange was never battered by the Marriott bombing. Shaky for a few days, it then regained its vigor to reach 505 points, higher than the 503 where it was before the Marriott blast. Case not proven! The market has no logic.

This seems also true for the World Trade Center/Pentagon tragedy on September 11, 2001. This is not to say that the tragedy had no detrimental impacts on the economy. What it says is that we seem to have acquired an intellectual disease -- so dangerous to be nurtured -- to hastily approach such a colossal humanitarian tragedy not in its own right, but only insofar as it affects our finances.

Instead of looking through the eyes of the tragedy, what we nurture instead is a bogus solution. We may recall how we were so nervous about the devastating impacts of the Sept. 11 tragedy on the stock markets. Yet, as The Economist (Sept. 7, 2002) rightly points out, "equity markets had cracked long before, and firms had already begun laying off staff after nearly two decades of wild expansion". Indeed, "the weakening of the economy' has had more to do with Ken Lay [of Enron], Arthur Andersen and WorldCom [corporate scandals] than with Osama bin Laden or al-Qaeda." In other words, we are, to quote Jesus in the gospel of Luke, so quick in spotting the speck in others' eyes, but pay no attention to the log in our own eyes. The fact that all this is done by the Wall Street "rational" herd does not necessarily lend any validity.

Indeed, if history could be any guide at all, the collective fear, which we keep on playing with every time some shocks befalls us, is like barking up the wrong tree. In truth, financial markets recover quickly after external shocks. The following table gives us some clue of how collective fear could simply be a game of crying wolf.

Affect on Stock Markets

Crisis Decline (%) Upturn begins (months)

Nazis take Paris (1940) 20 48

Pearl Harbor attacked (1941) 25 4

D-Day (1944) 0 -

Cuban Missile Crisis (1962) 4 1

Vietnam War -- Hanoi Bombed (1966) 27 3

Gulf War (1990) 17 3

Sources: Dow Jones Indexes, dollarDEX; FEER, Sept 27, 2001, p. 27).

As Mr. Enzio von Pfeil, the CEO of Hong Kong-based Commercial Economics Asia, concludes: "It is bad policy mixes that make economies falter -- not random events like floods or horrible terrorist attacks" (Far Eastern Economic Review, Sept 27, 2001). As we gradually have discovered, bad policy mixes also include massive fraud cases that last year beset Wall Street and other financial markets. The fraud cases recently led to the arrest of 47 rogue traders and fly-by-night brokerage firms in the foreign- exchange markets on November 18 (The Economist, Nov 22, 2003).

Indeed, face value is often misleading. On closer scrutiny, what all this reveals is less about the link between shocks (be they the Sept. 11 tragedy, the Bali bombing, the Marriott bombing or SARS) and the economy -- which is self-evident anyway -- than about our penchant for abusing many humanitarian tragedies for the sake of our newly acquired financial obsession. It is as if many gravely important areas of our life are there merely to serve our fixation as homo financialis. Or, they exist only as a function of our financial gains.

Thus, to use a simple formula, Y = f(X), where Y could be the Marriott bombing, SARS or other humanitarian tragedies, X stands for our financial gains and f stands for what? The anecdote is, instead of standing for "function", f stands for "f...". We may be trained in the pseudo-scientific cliche instructing us that our measurable financial gain takes priority over less measurable humanitarian tragedies. It is time to look at it the other way around.

That grossly instrumentalist way of approaching humanitarian tragedy seems also to be behind the recent idea of "terror futures". Under the scheme, dubbed Policy Analysis Market (PAM), the U.S. Defense Department planned to launch a futures market in which the financially wealthy and anonymous insiders would bet on the likelihood of occurrences of terror, such as assassination of disliked leaders and other terrorist attacks. As it was stated, "Involvement in this group prediction process should prove engaging and may prove profitable." The initiative was set to begin registering up to 1,000 financial traders by Aug. 1, 2003, and the Bush administration had requested US$8 million to fund the PAM futures market through 2005.

At the heart of the scheme was either a way to solve terrorism through market mechanisms, or it was sheer profiteering from terrorism. It was only after a great outcry that the plan was scrapped. Yet, the scheme unmistakably shows how the idea of making profits from others' demise or human tragedy is unscrupulously being pursued with irrational exuberance. As we know only too well, in the world of human behavior, even lunatic ideas easily turn into self-fulfilling prophecies. Instead of having financial markets solving the problems of terrorism, we may end up having even more terrorists upsetting financial markets.

All these points bring home a lesson that should be quite instructive to our situation in Indonesia. With a series of governments ruling Indonesia like paper tigers -- or if you like, governments that are too busy acting as manic kleptocrats --, the probability is rather high that terrorism, in whatever form, will continue to haunt the life of our Republic.

At the same time, with so many indifferent commentators and prophets of doom on the loose with their penchant for instrumentalizing whatever tragedy befalls us in the name of financial gains, the probability is rather high that our struggle for economic recovery will hardly connect to the solutions for our present predicament.

Indeed, at face value the issue of "terrorism" and "business confidence" may look inimical to each other. But first appearances are often deceptive. Within the raucous contingencies that run through the present malady in this country, we should not be surprised then, if they turn into two forms of fundamentalism that, similar to a love-hate affair, will keep Indonesia groping in the dark. The former is called bigotry, the latter neo-liberalism.

As always, fundamentalism is a form of lunacy. The higher we climb to grasp it, the further we are likely to fall. The calendar is an elusive marker we impose as a thorn in our being. The New Year means little unless we prevent those two forms of fundamentalism from rampaging Indonesia.

* The writer is an alumnus of the London School of Economics (LSE) and works as Lecturer and Head of Postgraduate Academic Programs at the Driyarkara School of Philosophy, Jakarta.