Indonesia needs haze measures review, productivity growth is path to success

Commentaries and insights from newspapers in the Asia News Network (ANN).

1. Regional haze and questionable efforts to save the forests

Indonesia needs to review measures to reduce deforestation and tackle climate change.

Smoke surrounds fire-fighters as they hose down burnt-off vegetation from forest fires in Siak, Riau Province, Indonesia. PHOTO: BLOOMBERG

Simon Pollock, Canberra

The Jakarta Post/ANN

The annual burning of Indonesian rainforests is an example of the increased clouding of regional-global divides when it comes to environmental problems.

Many Southeast Asians wonder if they will have to withstand another blanket of haze as Indonesia enters its annual dry season. Signs of an impending El Niño weather pattern mean the country's traditional dry period this year could extend from May to August into September.

In the past, Indonesia's dry season has often coincided with extensive fires - many deliberately lit - resulting in palls of smoke that recognise no borders and threaten to foul the lungs of Indonesians and their neighbors, while exacerbating climate change concerns.

The most recent assessment by the Intergovernmental Panel on Climate Change in 2013 estimates the conversion of forests to other land uses is responsible for around 10 percent of net global carbon emissions. Indonesian forest fires are thought to be responsible for about a third of global emissions from tropical deforestation.

While the future effects of untrammeled climate change are projected to be devastating on a global scale, Indonesia's leaders realise they must address this problem in the here and now to assuage regional concerns.

Two years ago, Indonesian forest fires set off the region's worst pollution crisis in a decade, while sparking regional tempers.

While regional efforts continue to search for a coordinated fix to this perennial problem, the potential remains for further disruptions to the famed, polite pursuit of consensus among ASEAN states.

In March this year, Vice President Jusuf Kalla issued a broadside against other ASEAN countries' complaints about the haze.

"For 11 months, they enjoyed nice air from Indonesia and they never thanked us," Indonesian press quoted him as saying. "They have suffered because of the haze for one month and they get upset."

It is obvious amid the vagaries of shifting politics and regional wind patterns, the haze problem must be tackled at its core, at the sites of ignition. As in many cases though, trying to find an equitable path through the sometimes uneasy balance between environmental protection and development is not easy.

Indonesia is a developing country, so any measures that alleviate local poverty and feed into trade-generated national economic growth should not be dismissed out of hand.

Developed countries, many of which have already destroyed the majority of their own virgin forests, should account for international balances of equity in calling for developing countries to avoid similar fates.

The intrusion of climate change concerns into the haze problem is actually advantageous, at least in terms of providing a catalyst for attracting international financing.

During the past few years, the concept of REDD+ has emerged to promote development and environmental protection simultaneously by providing a financial value for carbon left stored in forests.

REDD first saw light in 2005 to help generate payments from outside sources to assist developing countries in Reducing Emissions from Deforestation and Forest Degradation. The + was added in 2007 to signify safeguards that ensure a drive for REDD profits did not come with social and environmental costs.

Indonesia has naturally been a frontline country in aid donors' attempts to introduce REDD+ because of its large forested areas and past, strong climate change stance - as the first developing country to voluntarily pledge emission reductions in 2009.

In another first, former president Susilo Bambang Yudhoyono signed an agreement with Norway in 2010 to reduce forest-based gas emissions, including a moratorium on forest clearing licenses, in return for financial REDD+ support of up to US$1 billion. At the end of 2013, Yudhoyono established the independent National REDD+ Agency, known in Indonesian as BP REDD+.

Ironically, the inauguration mid-last year of Yudhoyono's successor Joko "Jokowi" Widodo - hailed as a progressive political figure - has been followed by a questioning of how serious Indonesia is in reducing deforestation and tackling climate change.

While President Jokowi extended the moratorium on forest clearing in May this year, his earlier decision in January to abolish BP REDD+ has raised eyebrows.

In the stated interests of streamlined bureaucratic efficiency, the functions of BP REDD+ have been subsumed into a new government department, based on the merging of the formerly separate ministries of environment and forestry.

The jury is still out on whether the restructuring of Indonesia's government agencies dealing with forest management will prove to be advantageous to REDD+.

Some point out the new Ministry of Environment and Forestry will inject further environmental oversight over the management of Indonesia's forests.

Others are concerned the traditionally strong power of Indonesian forestry officials will continue to overshadow decisions made in far flung provinces on whether to clear or preserve tracts of rainforest.

What is clear is that governance reform will remain a crucial issue in curtailing the destruction of Indonesian rainforests.

A University of Maryland study of satellite data last year by an Indonesian forestry employee found that 40 percent of forest clearing in Indonesia was illegal.

But gaining a true appraisal of the extent of illegal logging is always going to be problematic as these activities are clandestine.

What is less contested is that a central part of the solution must involve finding profitable ways to keep trees in the ground. While there have been few indications of new REDD+ funding offers recently, major countries may choose to make strategic announcements around the seminal Paris climate change meeting starting from November.

Whether the regional haze sets a pall over Indonesia's ties with its neighbours this year or not, the imperative of preventing a warming world will continue to focus international attention on ways to help Indonesia keep its forests intact.

The author is an Australian-based climate change writer and journalist

2. Productivity growth is Asia's path to success

Three traps - of middle-income, demographics and natural resources - must be avoided if Asia is to sustain economic progress

A man looks at his mobile phone as he walks past a display window outside a luxury brand store at a shopping district in Tokyo, Japan. PHOTO: REUTERS

Haruhiko Kuroda

The Nation/ANN

It is generally acknowledged that the key to avoiding Asia's three growth traps is productivity growth, or more precisely "total factor productivity growth".

In a recent speech, Janet Yellen, the Chair of the Federal Reserve Board, stated that, "The most important factor determining continued advances in living standards is productivity growth."

I could not agree more.

Take the example of the Malthusian trap. Malthus's dismal prophecy did not materialise because dramatically high productivity growth in the agricultural sector in the 18th century enabled countries to feed vastly increasing populations and hence sustain growth. For instance, when the potato, a plant native to the Americas, was introduced into Ireland, a field of potatoes could feed two or three times as many people as a similar field of grain, so the introduction of the potato resulted in a significant rise in Ireland's agricultural productivity.

Likewise, in the modern world, higher productivity enables an economy to grow even with a smaller working-age population, and hence to avoid the demographic trap.

If a country can maintain a decent productivity growth even after it has exploited imported technology and an under-utilised labour force, that country is likely to succeed in growing its way out of the middle-income trap.

Discussion of the myth of Asian miracles also highlights the importance of total factor productivity.

Well before the Asian currency crisis of 1997-1998, Paul Krugman argued that the rapid growth of the Newly Industrialised Economies (NIEs), or Asian tigers was not sustainable because their high growth was not sufficiently supported by total factor productivity.

History vindicated his assessment: The Asian currency crisis was in part an inevitable transition toward more sustainable and balanced growth.

In the period preceding the Asian currency crisis, the economic growth of NIEs could be explained relatively more by expansion of inputs, such as demographic bonus and investment boom, rather than by total factor productivity growth.

After the Great Financial Crisis, economic growth appears to be more balanced, but it may have also lost some strength, with total factor productivity growth generally lower than it was in the 1990s.

This is a bit disturbing because population ageing is about to accelerate in some countries, with stronger demographic headwinds therefore to be expected.

Remember that once a country falls into demographic onus, it needs to offset negative demographic forces with higher growth in total factor productivity just to maintain per-capita growth, and hence living standards. This is exactly why total factor productivity growth is the crucial issue for a number of Asian economies.

The next question then is, how do we raise total factor productivity growth? The answer may be a pessimistic one if we think that productivity growth is only exogenously determined.

If this is the case, all we can do is hope that some exogenous shock, or just pure luck, will raise productivity. We would have to admit that there is an element of truth in this explanation if we look at the history of prosperous cities, as highlighted by Enrico Moretti, an expert in urban economics.

For instance, the reason why Seattle, Washington, became a high-tech industry hub depended to a large extent on the fact that the founders of Microsoft had grown up there and wanted to relocate their company to a place familiar to them.

Similar stories can be found for other US high-tech cities. If these cases provide a complete explanation of productivity growth, all we can do is wait and hope for a genius like Bill Gates or Steve Jobs to be born by chance in our country.

Fortunately, however, economic literature is much more hopeful in this respect: productivity is largely endogenous.

How to raise productivity

In the economic literature, there is a long list of factors that are thought to have a positive impact on productivity growth. I do not intend to go through all of them but, instead, I would like to focus on three things that I think are of particular importance.

The first is human capital.

Measuring human capital is a difficult task, but one of the simplest indicators often used is the number of school years.

In Chart 7, the greater the number of years spent in school, the darker the shade of the country. In Asia, there are a number of dark areas, such as Japan, South Korea, Malaysia and Sri Lanka.

As you would expect, Hong Kong and Singapore also belong to this group, although it is not shown clearly on this map. One may get the impression that Asia as a whole is not as dark as North America or Europe, and is more or less similar to South America. This would indicate that there remains significant potential for further accumulation of human capital in the region.

At the same time, there are some interesting figures relating to US universities, which are generally acknowledged as providing the highest standard of education, attracting talented people from all over the world.

If you look at the data for US university students by their country of origin, you can see that students from Asian countries dominate, as shown in Chart 8.

Those students returning to their home countries will no doubt have a profound impact on the human capital there. It is well known that Bangalore, the IT hub of India, benefited from returnees from Silicon Valley. Moretti's study shows that innovative, highly skilled workers contribute not only directly to the higher quality of human capital, but they also have a positive effect on the skills of those around them - a sort of positive externality.

It is also encouraging to see that an increasing number of Asian universities have become recognised as top-tier at a global level.

According to some recent university rankings, more than 10 universities in Asia are among the best 100. Remember that the success of Bangalore also lies in the fact that local IT firms were able to recruit many highly skilled graduates from nearby universities.

Against these backdrops, Asian has made larger contributions to the development of science.

For instance, the share of Asian-born Nobel Prize winners in scientific fields doubled to more than 10 per cent after the turn of the millennium. These truly top academic scholars have influenced the development of human capital in their own countries in various forms as exemplified by Professor Amartya Sen himself in front of us.

The second key to higher productivity is a market-friendly business environment.

For example, a critical precondition for market functioning such as property rights protection, or the rule of law more generally, is an indispensable ingredient for an innovative environment, which in turn is the basis for productivity growth. I firmly believe, as many economists do, that healthy competition and appropriate incentives are essential for a well-functioning market mechanism, through which sustainable and robust economic growth is made possible.

On this score, deregulation is to be strongly encouraged as well. I think that Asian economies are making steady progress in this regard, although I also believe that much more needs to be done.

While the importance of market mechanisms cannot be exaggerated, it does not mean that we can turn a blind eye to income inequality.

As a matter of fact, some academics argue that inclusiveness is conducive to economic growth in the long run. Furthermore, a recent empirical study shows that lower inequality is correlated with faster and longer economic growth. Chart 9 compares inequality in income across countries.

According to Thomas Piketty, inequality in the United States is alarmingly high and hence coloured in dark red in this chart. Compared with the United States, inequality in Asia is generally low, albeit with some exceptions.

The third element which plays an important role in raising productivity is a strong financial sector. I am completely convinced by arguments for creative destruction as a source of Nobel prizes in the areas of physics, chemistry, physiology or medicine and economic sciences.

As pointed out by Joseph Schumpeter, financial inter-mediation is an important catalyst to support innovative entrepreneurs and value creators generally.

A modern example of this can be found in venture capitalists, who provide not only financial resources, but also business advice for growth-oriented companies.

Of course, the role of financial inter-mediation is not limited to supporting start-ups. As a matter of fact, the seamless availability of a wide range of financial functions would best serve innovation-led economic growth.

In the Asian context, channelling the region's abundant savings to the vast demand for infrastructure is also an important challenge in which I myself was deeply involved when I was president of the Asian Development Bank. Developing bond markets has been one of the successful initiatives in terms of intra-regional matching between savings and investment.

Bond markets in Asia, especially those denominated in local currencies, have grown significantly since the mid-2000s, thanks to the efforts of the relevant financial authorities and other bodies. At the end of 2013, outstanding bond issuances amounted to US$3.5 trillion, which is about five times the figure for 2005.

Turning to retail financial services, inclusiveness, which I mentioned a little while ago, is again an important issue. We should note that a significant number of people in Asia still do not have their own bank accounts. Less than half the population in India has a bank account.

China fares better, with the proportion of account holders being two-thirds of the population, but that is still far from the situation in advanced economies where almost everybody has access to a bank account. I believe that the Asian financial landscape, and therefore the prospects for further strong economic growth, will be completely different once the issue of limited availability of banking services is addressed.

I have emphasised that productivity growth is crucial to sustaining hitherto robust economic growth in Asia.

Among many other things, in my view, the continued accumulation of human capital, market-friendly institutional set-ups and strong financial sectors, all play an important role in productivity growth. We have seen many positive developments in this respect in Asia, but much more needs to be done.

What I have discussed today could be broadly categorised as structural reforms.

Generally speaking, structural reforms are always and everywhere difficult to implement in the face of vested interests. Depending partly on where you are in the business cycle, there is often a strong temptation to defer them to a later date. This is because of concerns about short-term negative impacts on the economy.

Despite all those downsides, however, I still believe that there is no better time than now to put necessary reforms in motion. Short-term negative impacts are often overstated.

They should not be used as an excuse to oppose reforms. If structural reforms are well designed, they will increase rather than decrease current demand, because they improve the prospects of future profits for businesses and hence permanent income for households.

Once I have completed my assignment to talk about growth in Asia, I need to put on my central bank governor's cap again. If I may use Professor Lucas's quote again with a slight modification, "Once one starts to think about deflation or inflation, it is hard to think about anything else." Therefore, please give me your comments and questions before I put my central banker's cap back on.

This is part of the speech Bank of Japan Governor Kuroda delivered for the Amartya Sen Lecture in Bangkok on Tuesday.

3. Tapping the world's largest population

Crowdfunding not only helps to finance projects but also provides a way of ganging future support. 

Tiananmen Square gate entrance of the Forbidden City in Beijing, China. PHOTO: EPA

Tho Xin Yi

The Star/ANN

When Shen Bolun's ex-girlfriend Wu Xia gave birth to their baby girl in June, a fine of 43,910 yuan (S$9,665) was awaiting them, together with the new-found responsibilities of parenting.

The penalty was imposed by the government for children born out of wedlock as part of the population control policy in China.

The sum, known as a "social fostering fee", was a burden to the former couple, and an idea came to their mind - create crowdfunding to raise money from the public. Crowdfunding websites are gaining momentum in China. They provide a platform to match initiators of creative projects and supporters.

The initiators pitch their ideas and receive backing in terms of monetary contribution (and morale booster, knowing there are people interested in their campaigns) to turn their dreams into reality, while the investors receive rewards as promised by the creators.

Shen and Wu's campaign, how­ever, was taken down from Dreamore 16 hours after it was published. The 9,581 yuan pledged, which was 22% of their goal, was returned to the 312 supporters.

"When we were seeking crowdfunding platforms to launch our campaign, many declined politely to work with us because the issue dealt with political policy and was deemed too sensitive. They were worried about the public backlash that might ensue," Shen, 25, wrote on his WeChat official account.

Even though their attempt received a setback, they have utilised the crowdfunding platform to their advantage, raising awareness and mobilising public opinion on the punishment inflicted on "unplan­­ned births". If the fine is not paid, the baby cannot get a hukou (household registration).

Shen said they felt it was unreasonable to bind the rights of childbearing and marriage together.

"We would have started this fundraiser regardless of our financial ability. This is not about money, but attitude."

The crowdfunding campaigns on the Chinese platforms, usually running on an all-or-nothing format, cover big and small projects on art, technology, music, gaming, etc. Unless the goals are met before the deadline, the creators will not get the contribution pledged.

Kaistart, a project to fund a traditional Liaonan shadow puppetry tour performance, has raised 195 per cent of its goal ahead of its Aug 15 deadline. Music related projects, including gigs and albums, can be found on Musikid. E-commerce giants Alibaba and JD also have their own crowdfunding services.

Other forms of crowdfunding, in­cluding real estate crowdfunding, equity crowdfunding, donation-based crowdfunding and crowdlending, each have a place in the market.

A 2013 World Bank report estimated that crowdfunding in China could reach US$50 billion by 2025, but noted that user beha­viour and weak intellectual property protection could be a hindrance to the industry.

Chinese users, it said, were more inclined to invest in campaigns that promise tangible products, instead of supporting entrepreneurial and inventions. It added that innovative ideas, especially tech-related ones, pale in comparison with their United States counterparts when it comes to quality and quantity.

Independent filmmaker Sam Voutas recently launched separate crowdfunding projects on either side of the Great Firewall of China (the country's extensive website-blocking system) to reach out to audiences from the east and west.

The campaigns on Brooklyn-based Kickstarter and Beijing-based Zhongchou have successfully reached - and exceeded - their combined goals of about 372,800 yuan to fund the production of King of Peking.

"A crowdfunding campaign is very much like a political campaign. You need to convince people that you're worth it," Voutas, an Austra­lian who grew up in Beijing, said.

"If neither of the campaigns succeeds, then we'd know there wasn't a built-in audience for the movie."

Set in 1998, King of Peking centres on movie piracy and fatherhood. The absence of cinemas back in those days gave birth to the occupation of film projectionists, who travelled within the country to screen movies for the people. The introduction of DVD then forces one projectionist to launch a pirated movie business from home so that he can keep custody of his son.

Voutas, who had earlier written and directed a Beijing-set sex shop comedy, Red Light Revolution, agreed that crowdfunding was a great way to create publicity.

"You end up reaching out to every one you know, so that in the end a lot of people have heard of the movie."

Besides high-definition downloads of their movies, the fun rewards promised by the team included a 20-minute Skype call on film education or filming in China, a hotpot dinner, a signed copy of the shooting script and an opportunity to participate in the casting. They used WeChat to spread word about their campaign in China.

Voutas believed the supporters comprised both film enthusiasts and Beijing enthusiasts, who are cu­­rious to peek behind the scenes or who will "simply like to support a dra­medy about ordinary Beijingers".

"The great thing about a crowdfunding campaign is that you really do get to know your backers. You write to every one, you communicate on a one-to-one level."

Now that their cameras are ready to roll, the team is focused on ma­king a film that their supporters will be happy and excited to see.

"We absolutely have an obligation to them. They are the reason we are making the film!" Voutas said. "Many of our backers have lived or spent time in Beijing, and want to revisit the city via our film, which is why the film's look and art will be paramount to us. Hopefully, this hits a nostalgic chord for many of our backers."

The team will screen the film overseas when it is ready and Voutas said he'd very much like to bring it to Malaysia too.

Shen, meanwhile, has now taken to his WeChat official account to run his own crowdfunding. The rewards he offers are sharing the hukou registration process and keeping the backers updated on his baby's growth and development within six months upon completion of the campaign.

He said he had raised about a quarter of the sum since posting the appeal a month ago.

"We didn't assume that we must gather all of 44,000 yuan through crowdfunding. We'll take whatever that is pledged."