Economic Commentary: Public Good, Market Failure Essay

Paper Edition | Page: 5 Jakarta has long been infamous for its repeated floods, such as those that crippled the capital and all its government and economic activities last week. Over 15,000 people were displaced and the material losses from infrastructure destruction and damage inflicted on personal property have reportedly reached Rp 20 trillion (US$ 2 billion). The devastating impact of the disaster on government activities and public services under the central government’s auspices has revived a debate over the need for the country to move its capital from floodridden Jakarta. Even President Susilo Bambang Yudhoyono, according to his aides, has considered relocation of the capital, albeit as a last resort, as part of an all-out, comprehensive effort to solve the problems facing Jakarta. With or without major floods, which strike every five or six years, Jakarta can no longer sustain the population burden with all its consequences. The city no longer has space to provide housing to all of its nearly 10 million citizens or build roads for the 6 million cars and motorcycles thronging the capital. This is quite apart from the city’s lack of infrastructure to protect residents from disasters like the annual floods. Jakarta today is typified by frustrating traffic gridlock, slums that encircle high-rise buildings, makeshift huts built along riverbanks, food stalls and groceries that occupy sidewalks, traditional markets that spill onto public thoroughfares, clogged drains, illegal parking along busy streets and other forms of disorderliness resulting from the state of over-population. Not to mention the city’s crime rate, which tends to increase year-on- year. Every time Jakarta voters chose their leader, they elect a candidate who they consider able to live up to their high expectations, which of course gives them false hope. Jakarta has turned into a megalopolis without enough resources to deal with its gigantic problems and challenges. What the founding fathers failed to anticipate when they chose Jakarta as the capital city was perhaps its evolution as the country’s commercial hub. About 60 percent of the nation’s money circulates in Jakarta, where foreign companies assign their representatives. Many countries have become aware of the problems in developing their capital city as both the center of government and the heart of economic activities. Then they have got to the point where relocating the capital city becomes unavoidable. Brazil did it in 1960 when it moved its capital from densely populated Rio de Janeiro to newly built Brasilia City, our Southeast Asian neighbors Malaysia and Myanmar moved their capitals to Putrajaya and Naypyidaw in 1999 and 2005 respectively. Indonesia moved its capital to Yogyakarta from January 1946 to December 1949 due to the war of independence. In that time Bukittinggi in West Sumatra also briefly served as the capital city when founding president Sukarno established an emergency government prior to his arrest by the Dutch between December 1948 and June 1949. Unless Jakarta takes drastic measures to shore up its increasing burden, Indonesia will have to consider an alternative capital. Sooner or later saying good-bye to Jakarta will no longer be a matter of choice, but of necessity. Commentary: The article tells us about the recent flood in Jakarta, which has brought huge impacts to the nation financial cycle. The flood was happened because many factors, but the most significant factor is because the lack maintenance of the flood controls system in Jakarta. The capacity of the drains has not been maintain to what level it should be. Therefore, due to heavy rain during the rain season the flood control system could not handle the pressure which resulting the massive flood in most of part the city. Public Good is defined as a good that is both non-excludable and non-rivalrous. Nonrivalrous; its consumption by one person does not reduce consumption by someone else; Non-excludable; it is not possible to exclude someone from using the good. Flood in Jakarta happened because the government has created a market failure since they have under provided the flood control system in Jakarta. The flood control system is an example of an environmental public goods: flood cont rol system, which nobody would provide on their own, even though everybody benefits from it being available. This suggests that since flood control system is a public good (because it is over consume, and underprovided based on what is needed for society) it clearly shows that it is an example of a market failure. Since the market fails to allocate resources to the production of the public goods it means that there are external costs. The article mentioned that the flood has resulted massive looses: over 15,0000 people were displaced and material losses from the city infrastructure, damage inflicted on personal property have reportedly reached Rp 20 trillion (US$ 2 billion). About 60 percent of the nation’s money circulates in Jakarta, where foreign companies assign their representatives; the flood has also interrupted the economic activities, as Jakarta is the â€Å"heart of economic activities† Through this tragedy there are different effect resulted. Seeing the disaster, we could clearly see the disadvantages. Most Jakartans living in flood-prone areas will probably answer mud or garbage after the flood, Citizen loss their property, illness such as fever and other water-borne diseases has also spread wildly.It means, there are external cost needed to recover houses and infrastructure as well as for the health care. In the other hand, other stakeholder got more benefit : trash picker and food seller on the street. Local news reported that the trash picker help to picked up motorcycle from one point to another; they got paid for Rp. 20.000/one way. The food seller on the street increases their income as there is increase in consumer,people were trying to see the flood from closed distance. Jakarta’s government must step in to ensure that flood control systems are produced at socially desirable levels. The flood control system should be provided up to the point where MB=MC so the flood would not be happen again and it would not interrupt the economic sector as well as creating disadvantage for the whole citizen. There are many ways to correct the market failure. Government could make an effective legislation to limit number of urbanization. As we know, Jakarta does not have an appropriate city planner. People build shift huts in the area where it is inappropriate such as the riverbanks. These people are not paying for the house tax since their house is also illegal. This will distort the city infrastructure and also decrease government revenue since they are not paying tax. Government could also do implication of direct provision in using economic criteria to determine which public goods and in what quantity of the public good should be produced. To make government direct provision to be happen, tax should be imply. With implying indirect tax government will increase the revenue which could be use for the spending on public goods, in this case is to increase the number the flood control system and maintain its quality. In long run, this issue will add another problem including the nation government and economic sectors. Based on the article, the President of Indonesia has stated there would be a probability of relocation of the capital. This will bring huge cost on all government, public services, and the whole economic activity within the country, unless the flood issue in being solved. Works Citied: â€Å"Editorial: Good-bye Jakarta.† Jakarta Post. N.p., 26 Jan. 2013. Web. 01 Feb. 2013. Tragakes, Ellie. â€Å"Market Failure.† Economics for the IB Diploma. Cambridge: Cambridge UP, 2009. 119+. Print.