Water Management in Malaysia: Liberalizing Public Utilities (Part 2)

In this second and concluding part, we see Why the government harms sustainable usage of water and the harms of privatization.Read Part 1 first!

Second Issue

The second issue in this case is whether or not privatization can lead to an efficient allocation of a scarce resource, water.

It's true that 70% of the Earth is covered in water. 97% is saline water while only 3% is fresh-water. Desalination procedures for heavily concentrated saline water are very expensive. Hence water for consumption and daily usage is very limited.

It is predicted that in 50 years time, wars would rage on access to water. Water conflicts would emerge and be expedited if we do not start conserving water now. In New Zealand, the price of bottled water is more expensive than beer (No kidding).

Based on the premise that water is extremely limited, which party can conserve water better? I vouch for private corporations.

Private corporations would trade water on market price, based on the laws of supply and demand. Over the years with a larger population (demand) and limited water supply, price of water would go up. Price increases and tariff hikes are inevitable.

This is marvellous. Why?

With the rising costs of water, people would reduce their consumption of water. They would be more careful and look for more efficient ways to conserve water. Wash your cars once a month or maybe bath for 5 minutes. The best form of deterrence is the economic deterrence (your wallets).

This ensures that water can be conserved better and creates a buffer zone. This buffer would give us more time to research on cheaper methods of desalination, while water runs out.

What if water was controlled by the government? For starters, governments are political entities as compared to private entities which are apolitical.

Since governments are involved in politics, water management issues can be politicised. Governments are subject to populist pandering and the will of the public, or risk being voted out.

If it would score political points to subsidise water, they would do so. Water would be traded at a lower price via subsidies. The price of water would be distorted and an artificial price would be created.

This artificial price (lower than market price) would make water cheaper. This would drive consumers to use more water, unsustainably. This would harm efforts to conserve water as it is being used up quickly.

When water is being used up quickly (supply dwindles), naturally the price would go up drastically. But since the government is subsidizing water, the government would end up subsidising more, meaning pumping in more taxpayers in the long run.

I disagree with the Selangor Government's policy of subsidising water for the Selangor citizens (even while water is privately managed!). Though its intentions are good, the unintended consequences are harmful in the long-run.

As a conclusion, government control of water would lead to more wastage in the use of water.

Harms of Privatization, Where the Government Needs to Regulate

Though I advocate the privatization of water, I do not ignore that privatization has harms. The free market is harsh. Market considerations normally don't coincide with social considerations.

1. Under private control, water would be traded quite expensively. This would harm the lower income groups which is the lowest common denominator in society and requires protection. That is why, the government needs to subsidise water for these groups.

One of the problems in Malaysia is that welfare doesn't observe demographics. In Malaysia, welfare doesn't discriminate between the rich and the poor.

Oil subsidies are splashed for all income groups, ignoring the fact that poor people uses oil the least. (Another distortion created upon the free market)

In Selangor, water is subsidised for all households, ignoring the fact that the rich consumes more water in washing their luxury cars, having bubble baths etc.

This is a sad form of Lemon Socialism; socialism for the rich, capitalism for the poor. Welfare policies need to be recalibrated to target the poor only. Water subsidies needs to be given to the hardcore poor.

This can be done by observing the amount of water used in households. If the usage is minimal, it can be assumed that the inhabitants are poor people.

2. Another problem, I think would be the tragedy of the commons. This happens when a certain common resource is exploited  unsustainably for the profits of a few until the resource is extinct.

Example, take a field of grass. Everyone can access it. Normally a few goats would eat there. Then one day, a farmer brings in a herd of cows to graze there. In 3 days, the place is barren, the grass unable to repopulate. It has been overused.

This haemorrhage usually happens in an unregulated market. The capitalistic greed of companies in making profits, the ultra-competitive attitude which each company has would lead to a Race to the Bottom.

It is feared that the same thing would happen to water resources. Though in certain instances, companies are smart enough to self-regulate, it is submitted that the government should regulate the use of resources to ensure that it is used sustainably.

Conclusion

What we need is to empower the people, the consumers. Water needs to be correctly priced. Take back our water from the clutches of politicians and cronies and put it into the hands able people. Water is precious to us all, let’s conserve it for our children. You decide.

Water Management in Malaysia: Liberalizing Public Utilities (Part 1)

Exploring the concept of privatization, and its impact on our water.

Introduction

I love water. It's just beautiful. It has its own tasteless taste that is unique. It purifies, cleanses and is a valuable source of life. Everyone needs water and we use it on a daily basis. It is the most crucial thing that mankind needs.

In Malaysia (greatest country, not so great government), we are experiencing a seismic shift in terms of water management. There seems to be a high degree of animosity among the Malaysian public with regards to water being managed by private entities.

The campaign to nationalize water is spearheaded by the Selangor State Government (via the Air Untuk Rakyat Campaign) to nationalize SYABAS.

Governments face a choice: either to assume control of the monopoly of water or leave it to the vicissitudes of the invisible hand. This article would like to demonstrate the merits of the privatization of water.

Situasi

The first problem would be how water is managed by private corporations in Malaysia under status quo. Not very good.

The privatization of water in Malaysia didn’t create much competition among the service providers. The concept of competition is to ensure no one would hold a monopoly of resources (which under the government, there is a monopoly).

Shady dealings to supply and treat water were given to politically connected firms. What the Federal Government dubbed “privatization” was merely a transfer of monopoly from the government to a private company (like SYABAS). So the monopoly remains and the element of competition is absent.

What we have is a form of pseudo-privatization or crony capitalism. Evidence of this can be seen in the form of the SYABAS' Executive Chairman earning RM500, 000 a month. I'm very angered by this.

The second problem would be about scarcity of resources and how scarce water is. Water is a very very very scarce resource. The World Bank estimates that demand for water will exceed supply by 40% by 2030, with up to half of the world's population would be experiencing some degree of water stress. Water security has therefore become an important component of sustainable development.

So how do we ensure an efficient allocation of resources? Can privatization benefit the public?

First Issue

Having established two premises, let's argue the case for privatization first. The aim of liberalizing the market is to get rid of monopolies by forcing producers to compete. Competition is good because it would force service providers to be on their toes and work as hard as they can for fear of losing out.

This would lower down tariffs, increase quality and productivity. In order to achieve this, there must be more than one service provider. We should have the choice of which service provider we want to buy from, not being ordered around by politicians who think they know best (they don't really).

This concept of consumerism thrives in a private sphere, not in a government controlled sphere. So instead of SYABAS, we need to have another one or two service providers.

Accountability thrives in the private sphere. Private corporations are more accountable to the consumers than governments to the rakyat. Why? First, is the profit motive. Simply put, if the private companies provide poor service, the people would choose another service provider.

Secondly, public complaints (or censure by the FREE media) would damage the image of the company. Companies wouldn’t want this (look at how much they spend on PR). So, they would try their best to ensure excellent quality of service. An excellent incentive! You can even sue them in the worst case scenarios.

What if the water is managed by the government? First, there would be a monopoly of resources by the state. The state has absolute control of water. Since the state is elected by the people, they are subject to populist pandering, which is harmful. I would explore this more in the second issue.

It is not the government's business to do business. One of the reasons why is because the government is inefficient at doing business.

There lacks a proper incentive scheme for public officials. Wages are constant and stagnant and since it is the public sector, funded by taxpayers. Complacency sets in because wages are not dependent on performance. Hence, productivity decreases.

I remember the days when we had lots of rationed (catu) water when the public sector was in control. Brown water was a common predicament.

I agree that the government is accountable directly to the people (ballot box). But this accountability is muddled 

when most voters aren't single issue voters. There are many issues put as premium before water management.

Thus, it is very hard to ensure direct accountability in terms of water management as compared to private entities, where it's very existent is harmed if it provides poor quality service. It can even end up bankrupt.

Assuaging Concerns

Q: But water is a human right so shouldn't it be controlled by the public?

A: I understand your concern that water is a human right. Private entity or government controlled, these two bodies are just a medium to distribute water to the public. The public are still in firm control of water even if it was managed by private entities. There are measures to prevent abuse ranging from boycotting that service provider to lawsuits, in the most atrocious of cases.

Q: Water is a common resource. It is the property of no one and the property of everyone, at the same time. Why must certain pockets of society make profit out of it?

A: On face value, I would agree that people shouldn't make profit out of public utilities. But when we analyse the role of water service providers, it's not just distributing water per se. It’s also treating water making it safe for consumption through sedimentation and desalination techniques. And the costs can be quite expensive.  So pay as you use lah.