Saturday, October 23, 2010

Economic ignorance

The recent move by BML to block foreign account holders from using debit card overseas has sparked some criticism towards BML as well as towards the foreign workers here in Maldives.

There were some in the comment section in favour of prohibiting foreigners from taking USD out of the country as a supposed solution to the problem (emphasis mine):
Adam on Wed, 20th Oct 2010 8:19 AM

This is a good move by the bank, Maldives being a very small country (actually the smallest country in the region) needs to protect itself from going bankrupt… By allowing forigners who are paid in MRF to withdraw in USD or any other currency is just insane…and frankly the bank was stupid to tie the forign issue to this very practical issue… ie they should have made it impossible for people who have MRF accounts to deal in other currencies…. lets take the example …in Maldives almost all major currencies including (the ruppes from neighbours) are accepted…but the same recognition is not given to MRF… so unless we can actually go to Lanka or India and change our MRF to thier Rupees why should Maldives become bankrupt because rich forigners drain the dollars out of maldives !!!

@ibrahim Mohamed on Wed, 20th Oct 2010 9:30 AM

I guess its time that we control the sending of money out of the country. We should find out the actual pay for teachers and doctors and should only allow what they earn to be send out of the country. However it is found that most teachers earn more than their pay through private tuition services to students which should be made illegal. Similarly foreign doctors work in private clinics in spite of the pay they get from government hospitals and health centers. Such malpractices hog up lot of foreign currency which should stay in the country. Teachers and doctors who want to do private tuition service and private practice should leave their job if they want to be in private practice. We can only control foreign currency leakage by monitoring money laundering in the country and allowing only the amount of pay entitled to foreigners to be taken out of country. Now we have a fury of leakage of dollars as we don’t control money laundering. I know some foreign countries which have strict rules on money laundering. For a small country with a crippled economy, which heavily depends on foreign labor such control is vital.
Well, thats just pure nonsense. I sent a comment a follows:
@Adam on Wed, 20th Oct 2010 8:19 AM
@ibrahim Mohamed on Wed, 20th Oct 2010 9:30 AM

What an utter ignorant economic nonsense!

“By allowing forigners who are paid in MRF to withdraw in USD or any other currency is just insane”
What you are suggesting is that we pay the foreigners in our own printed MRF (which is useless to anyone outside of this country btw), and STOP them from converting it to goods and services via an intermediate currency. The only reason a paper currency is valuable is people accept it for exchange. So if you deny them the convertibility, you are denying them their hard earned wages (because they are foreigners)!! The only one insane here is you.

ibrahim mohamed:
If you don’t want them to earn by private practice, government could always sign a contract with them that states as such. No need to make it illegal (meaning applying the same broad stroke to everyone).

You say: “…allowing only the amount of pay entitled to foreigners to be taken out …”
Who determines this ‘entitled’ amount? If they are earning that money by providing a services of which they public is willingly paying, then the public is saying they are entitled to that money. It is not you, me or the government who determines what someone is entitled to earn, as long as they earn it with honest work.

“…strict rules on money laundering…”
Do you even know what money laundering is? Are you suggesting that the foreigners who earn and work here, who are only seeking to exchanged mrf to goods and services are money laundering?
“…which heavily depends on foreign labor such control is vital…”
We depend on foreign labour, but we should have policies that discourages them from coming. Nice logic!

Why only foreigners? By what logic is BML targeting them? There will always be a scapegoat, usually the foreign workers here. Social problems? blame foreigners. Currency problem? blame foreigners. Economic problem? blame foreigners!!

The problem is very simple. Just like any other good, high demands raises the market price. Whether you look at clothing, food, housing, oil, services etc. The same is true for currency. High demand for USD has raised the real market value of dollar relative to the MRF, or MRF value has dropped due to inflation. So by putting a price control on currency, you create a shortage. No amount of rationing, or harsh penalties on foreigners/locals will solve the problem (unless you want to confiscate their earnings). Let go of the currency peg, or at least devalue MRF to a value more near to market price. Black markets are created precisely because of aggressive price controls, whether on currency or any other good. Economic history witnesses this fact.
Well, unless ofcourse the resort owners are hoarding the dollars for some reason. This could very well be a reason too, but it does not explain why dollars are available in plenty from black market at about MRF 14. Why do they not hoard it until price reaches 18, 20 or 25 even?

The truth is BML lacks credibility now. Even ordinary people who used to have dollar accounts do not keep their dollars in their account. Why should they? It is impossible to get that dollars back if you deposit it! People would rather keep their money under their mattress (well, not literally).

But blaming that on foreigners who are rightfully sending their hard earned money to their families is ignorant and absurd. As one famous economist Murray N. Rothbard said:
"It is no crime to be ignorant of economics, which is, after all, a specialized discipline and one that most people consider to be a ‘dismal science.’ But it is totally irresponsible to have a loud and vociferous opinion on economic subjects while remaining in this state of ignorance."

Friday, October 8, 2010

Co-education & privatization

The recent uproar over the supposed co-education policy (mixed boy/girl) has got me thinking.

The issue is whether the public schools should have mixed boy/girl classes. The way I see it is that the problem comes only regarding 'public' school, ie the ones managed and run by (hopefully representative) government.

It is apparent that some people want co-education, while others object to it. The 'correct policy' has to be decided, preferably by debating it in the public. But even then, its impossible to get all to one side. By putting it to public vote, we are in effect asking to find a one-size-fits-all solution to the problem. Rarely one does come across a such a solution in trivial problems either, let alone a complex issue like this.

One way around this problem is to actually semi-privatize most (if not all) schools and to introduce a school voucher system. A voucher is equivalent to the amount the government currently spends per pupil in public school system. Each student (well, the parents actually) will get a voucher, and the parent can decide to which school they want to send their children. This way it increases diversity and choice available to parents, while still retaining the public funding.

Thus, some schools will offer co-education, while others will offer single sex schools. Some will try different methods/mediums of teaching, while others will offer non-mainstream subjects. The schools (rather their management) will have to compete to attract more students by offering better facilities that parents like. The voucher is entitled to the parent, not the school. This is akin to the existing schools getting budget funds allocated by attracting more students.

The schools should be as much independent from government as possibly can. If Ministry of Education is to dictate hours/gender/subjects, then there won't be much of a choice. Government can still retain some basic control if thats what the people want.

By privatization, I don't mean just changing the management to a private party. The school should decide which hours/uniforms/methods of teaching and curriculum too. Curriculum is especially relevant, because it is too important to be left to be decided as a one-size-fits-all thing.

I think in the not so distant future, the question will come whether to teach the theory of evolution to students. Understandably, that will be even a bigger uproar. There is no reason to think that all schools should or would follow one policy. Each school can decide for themselves, and parents can send their child to one that teaches evolution or not. After all, evolution is just a theory. So is relativity.