I saw the biggest externality in the world… or so it seemed. While in Kuala Lumpur (Malaysia) last week, I didn’t see much blue sky. As an article in The Economist recently explained (see here), loggers and farmers on the islands of Sumatra and Borneo take advantage of the dry season to clear new land by burning the vegetation. This creates a huge haze (which is really smog) that crosses the Malacca Strait into Malaysia and which can last for weeks (of course, now that I have left, the haze is gone). An unintended
consequence is the KL towers shrouded in a mist that makes them glow at night. The haze has a cost, e.g., some of my friends who live in KL have had mild respiratory problems and many people around the region have been hospitalized.
Clearing land by burning it is illegal in Indonesia, but enforcing that rule has not been successful. There exists a “trans-boundary haze pollution” agreement under which countries that are part of the Association of South-East Asian Nations can call for help in case of major fire. However, Indonesia has not yet ratified it. Moreover, some people in KL were telling me that some foreign firms in Indonesia may have an interest in seeing the land cleared…
It was my first visit in KL and I really enjoyed the place. It is pretty vibrant. Malaysia ranks 25 in the Doing Business ’07 database, which is above places such as Israel (26), Austria (30), France (35), and Italy (82). Singapore, its nearest neighbor is No. 1. The goal is for Malaysia to become fully developed by year 2020. This plan includes a lot of government-led infrastructure development but also improvements in regulation and the environment for business. While the Malaysian government would never (officially) take Singapore as a model of economic development, it may be inspired by its successful neighbor. Malaysia is a Muslim nation where people of different ethnic and religious backgrounds cohabit reasonably well, even if the ethnic divide is perhaps sometimes too big for the country’s own good (according to some locals that I spoke to). Malaysia has the potential to become an economic success and should be watched.
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