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.