Political insulation? No economy is an island

Political insulation? No economy is an island

B. Herry-Priyono

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.