The Wisdom of MS Kaban

In recent weeks, Singapore has been blanketed by a cloud of smoke from Indonesia.

The Indonesian politicians in Jakarta are authentically puzzled by all the fuss. The haze is seasonal. The burning lasts only for a couple of weeks, and then the rains come and wash everything away. Then we are back to normal. So the solution is to wait. Indonesia's sees policing as a cost, and they see no reason to act when mother nature will solve this in weeks. So interesting statements have been made.

None so colourful as those made by MS Kaban, the Minister of Forestry. He has said:

a. that his Ministry is helpless to solve the problem. All they can do is to put out the fires once they are detected. [Even this they are not doing.]

b. that the extreme haze has been caused by the typhoon, leading to all the dry air that has fanned the flames. [So really, it is because of the typhoon. So just like countries suffer damage because of the typhoon, we are all suffering from the effects of the typhoon. Someone forgot to remind him that it actually takes human beings to start forest fires, and it takes no one to start typhoons.]

c. that people have to be fair. Indonesia's forest have been producing oxygen for the region, and no one is grateful. But once the haze comes, there is resentment towards Indonesia. [This statement by the way has been repeated by the Vice President himself .]

The last statement is laughable in many ways. But on deeper thought, the whole issue is nothing but a case of externalities. Fresh air is a commodity all of us desire. We can put a value on this. But the thing is - like all things - it only has a price if it is scarce and if you can capture the value. Fresh air for the most part is not scarce. But even if it was, you cannot capture the value. You cannot turn off the forests if people don't pay, you cannot segment the people who breath your air and those that do not, and certainly, we do not know what proportion of the oxygen we breathe comes from Papua New Guinea and how much comes from Indonesia. This is therefore a POSITIVE EXTERNALITY that cannot be captured by markets.

But conversely, starting fires to clear land results in a NEGATIVE EXTERNALITY. By blanketing the entire region with choking haze, the plantation owners are imposing costs on others (health costs, cancellation of flights etc) . This is tremendously unfair. The costs are real and can be captured. So it is right that we ask Indonesia to recognise that there is a cost imposed on all of us by selfish individuals.

But our incentives are not aligned. Policing is a cost for Indonesia and while they get some of the benefit, we also get some of the benefit. So there is a logic to getting all the neighbours to chip in to assist.