The Unseen Role of the Property Sector

Big cities such as Jakarta tend to have more buildings and space to let than there are prospective business tenants. New buildings are being erected, and yet more will be built.

I remember asking a senior corporate banker, a few years ago now, why new malls, high rise buildings and fancy apartments continued being built despite the bearish economy. This man, now one of the vice-presidents with the country's largest bank, answered: it must have been due to double counting, or miscalculating of some sort.

I believe it is more than just some kind of entrepreneurial error. It is quite the contrary.

Though not immediately perceivable, the answer lies closely related with monetary-policy expansionism. By this I mean that, rather than only serving as one of the consequences, the property sector is also an important part of the mechanism. Why is such the case?

Property is a business sector whose characteristics are apt for that very purpose, an area where state of the art technologies, latest architectural frenzies, and ego-boosting personal expressions can collaborate with as most outrageous extravagance as one can dare imagine.

In terms of resource requirements, the sector is intensive. Building a decent apartment, for instance, is usually time-consuming; no building tall enough can be erected within months.

What’s more, there is no fixed valuation standard for pricing buildings, especially when a few elements hinging upon subjective tastes can shield the originators away from accounting or auditing scrutiny. Not to mention that the eventual products are durables. They are legally certified, liquid, and collateralizable.

If actual sales turn out to be poor, it will only be known in some distant future. And since most high rises are built to fail anyway, who really cares?

Why Privatization in Indonesia Has Been Resisted

In trying to come up with an answer, many have maintained the view that since state owned enterprises are cash cows to political parties, partisans do tend to prefer status quo to unknown future ownership.

But isn’t it true that the people at large also have the same tendency to reject privatization, out of personal preferences rather than political propaganda. If it is so, this aspect is not addressed by such an answer.

A better view may be that privatization cannot work well in an environment with weak protection of property rights and low regards of legal contracts such as under a corrupt judiciary system. Privatization is no mere simple transfer of property rights from the hands of the state into the private. It cannot be achieved just by changing the composition of ownership of individual economic institutions. There is supposed to be a coherent thinking explaining a country’s economic orientation, stated clearly or otherwise, and the extent to which it relates with the market economy. There must be consistent justification of what the nation wants to achieve. Without consistency, it would be perceived as shifting one precarious circumstance to another situation as risky.

Rothbard in Indonesian

I have, yes, been away from the blogosphere for quite a while, but am back now with this piece of exciting news:

I just finished translating and editing what will be the first book on Austrian economics ‘officially’ published in the country. It is a book in which Murray Rothbard will speak Indonesian, and where I will take the honor of briefly introducing to the Indonesian readership some of the first things about the Austrian school: its history, prominent figures, and important features. This first Rothbard’s book in Indonesian is on monetary issues. It will be made available within 2 months by PT. Granit of Yayasan Obor Indonesia.

The book is titled: Apa yang Dilakukan Pemerintah Terhadap Uang Kita?. Further info will be duely provided.