Tom Pepinsky

Category: Economics

  • The Economics of Taxis

    One difference between life in Malaysia one year ago and life in Malaysia today is with regards to taxis.  Since we’ve arrived, we’ve noticed a big change in negotiations with taxi drivers.  It used to be that in Kuala Lumpur, if you flagged down a cab, the driver would *almost* always take you where you wanted to go, and use the meter.  There was an exception for the really touristy area of KL known as Bukit Bintang or in front of the Petronas Towers, but besides that, the driver would take you and use the meter, no questions asked.

    That is not the case now.  Now, almost everywhere that we go after around 3PM or with the exception of when we get cabs actually at our hotel, taxi drivers refuse to use their meters.  Instead, they insist on negotiating some absurd price–often about four or five times the metered fare–for the trip.  This is a real problem.  You can often negotiate the price down to about twice the metered fare, but besides that, the drivers refuse to budge.

    We cannot figure this one out.  In essence, this has produced an annoying feature of KL life that all over the city, their are cab drivers sitting around with no passengers, just hanging out at taxi stands and refusing to take people who don’t pay inflated prices.  The reason that this doesn’t make sense is that they are not making any money by just sitting around.  Taxis in KL operate on concessionary bases, like in New York, where they have to pay a fee for the right to use the cab and then they make any take-home pay after that cost.  So by sitting around at taxi stands and refusing to take passengers, or driving around, pulling over, and then refusing to pick you up, they are shooting themselves in the foot. 

    There are two things that explain why there could be a difference between now and a year ago.  (1) Government-mandated gasoline prices have risen, but government-mandated metered taxi fares have not.  (2) Downtown KL is experiencing a construction boom that creates more traffic.  But neither of these can explain why cabbies would be willing to forgo all income by offering absurd prices that price passengers out of the market.  Remember, KL does have pretty good mass transit, so people have options even if they would prefer to take a taxi.  And we know that the market isn’t clearing because there is a surplus
    of cab drivers waiting around and doing nothing as well as a surplus of
    passengers complaining that cabs are too expensive and therefore taking
    the subway even though they would prefer to take a cab.  Furthermore, Indonesia and Singapore have experienced the same construction booms, gas price rises, and steady taxi prices, yet in both countries, taxi drivers will pick you up and use the meter, no problem.

    Any Malaysian readers who can explain this to us?

  • Unnamed Economist

    I met this morning with a truly fascinating character.  He is an economist and a long-time advisor of Soeharto, a 1961 graduate of UC-Berkeley in economics who was personally responsible with four other members of the "Berkeley Mafia" for showing Soeharto how to bring the country out of disaster after he replaced Sukarno as President in 1966.  I’ve decided not to just post his name up here.  If you’re curious, you’ll just have to read my dissertation.  Indonesianists could probably guess anyway; one of the five is dead, two don’t give interviews, and I’ve already spoken to the other remaining one.  Anyway, I was speaking face to face with one of the five people really responsible for putting Indonesia on a high-growth, export-oriented economy that led to the country’s rapid development and drastic reductions in poverty.

    (NB: Part of what Soeharto did, of course, was to kill between 500,000 and 1,500,000 "communists" to rid the country of the main organized political group aside from the military, but that’s not what we discussed.)

    It was so interesting to hear this guy talk about what went wrong and what went right with Indonesia’s development.  The introduction of market principles into most aspects of the economy was absolutely responsible for growth.  For example, in 1964, inflation was running at something like 650% per year, and by the early 1970s this was all under control due to what the economist liked to tell Soeharto was "debureaucratization" of the economy.  Of course, the areas of the greatest slippage and the ultimate undoing of the country’s economy was in the places where market principles ran amok–simply put, all financial systems require close supervision, and this supervision was lacking.

    The economist had some great insights.  Why was Soeharto so adamant about letting his children go crazy with corruption?  Because he felt like a bad father for always being away invading West Papua and leading the country.  Why didn’t Soeharto resign in March 1998, when he was elected to serve a seventh five-year term?  Because he was a general, and generals do not surrender when facing a crisis like Indonesia was facing.  How did you get Soeharto to listen to you?  Soeharto was a good Javanese, so the solution is to be gentle with him, to suggest ideas very softly and make him think that he came up with them himself.  All of these little tidbits really help me to give texture to the subject that I’m studying.  And thankfully, on the big important international political economy points that lie at the heart of my dissertation, his other comments on capital movement, interest rates, and exchange rate management support my own work.  That’s always nice.

    Anyway, it was a great chance to meet with a fascinating guy.  His house is also beautiful, and his servant served some great tea.