For the past six months I’ve been working at the new Heriot-Watt University Campus in Malaysia. It’s certainly been an interesting experience which has given me a fresh perspective on the world. I’ve also developed a taste for Beef Rendang.
You’ve probably heard about the haze covering Singapore and parts of Malaysia over the past couple of weeks, generated by forest fires on the Indonesian island of Sumatra. The haze can be seen not only as a scientific phenomenon, but as an economic one too. It’s an elementary lesson in externalities.
This photo was taken at 6.30pm on Wednesday 26th June
The haze is caused by the burning of vegetation in order to clear land for cultivation. Despite the fact that this practice is illegal under various laws, there is a strong economic incentive to set the fires. It costs around 40 times more to clear land using labour and machinery than setting fire to vegetation. So there is a clear benefit to using the so-called slash and burn method over other land clearing techniques.
But what about the costs?
Well of course there is the possibility of a large fine for the company or landowner who is caught clearing land in this way, but we can adjust this down by the probability of being caught. For the individual farmer the benefits of using slash and burn far outweigh the costs, but this doesn’t take into account the societal costs of slash and burn.
This photo was taken at 6.30pm on Thursday 27th June
While the private cost is relatively low, the societal cost is very high. Apart from the output lost from closed businesses, schools and government offices in the worst-affected areas, there is lost revenue for restaurants and businesses which rely on passing trade, and of course the potential fall in tourist numbers to the region.
Some kind of collective action is required to stop the haze being an annual recurrence, but everything done so far seems to have fallen short. This is not a new problem. However collective action can be hard enough to coordinate when only one government is concerned, but when several are involved things can be very difficult indeed.
Thankfully the skies were clear yesterday evening when I got home – the second photo here was taken exactly 24 hours after the first one!