Category: Economics

The Tragedy of the Commons could be seen as a story of personal responsibility. Or rather, the lack of it. When consumption of finite resources is not associated with its relevant cost, individuals will overuse it with gross disregard to scarcity. In the end, individuals will exhaust the resources and leave none behind. The Selangor state government will have to brace itself to face this scenario sooner or later.

Selangor under the new Khalid administration recently announced its intention to provide the residents of the state with 20m³ of free water supply. The intention is noble but the sustainability of the policy is in doubt. While Selangor does indeed experience water abundance, drought is not uncommon. Last year, water levels at various dams throughout Peninsular Malaysia, including Selangor, were something we all should be worried about. In fact, the previous administration has projected that the Klang Valley will experience severe water shortage beyond 2010 and to overcome the projected problem, the federal government has rolled out a plan to transfer raw water from rivers in Pahang to Selangor.^[1]

In Malaysia where drought is closely linked to high temperature, water reservoirs face a combination of factors that contribute to water shortage. In the upstream, absence of rain prevents reservoirs from replenishing its supply while high temperature encourages evaporation. In the downstream, in fighting the heat, consumers would demand large volume of water to cool down. With higher rate of output compared to input rate, it is not hard to imagine what the ultimate consequence will be. Any inefficiency that exists within the local water distribution system only makes matter worse.

There is not much we can do to fight drought from appearing from time to time at the moment. I do not believe that we have the knowledge to consciously manipulate the climate effectively. What we can do however is to encourage conservation by instilling responsible usage of water. Responsible water usage does not come through slogans and songs unfortunately. It requires a system of carrot and stick that promotes conservation and the market does just that. By enforcing free water policy, the state government not only interfering with market mechanism, the state also goes against everything that is associated with conservation.

By providing free water, the state breaks the link between action and responsibility. A person is free to utilize water for whatever reason without considering its effect on the society. What makes the detachment between action and responsibility possible is the elimination of prices as signals.

Prices signal scarcity. Flexible pricing mechanism will fluctuate according to demand and supply. When demand increases relative to constant supply, prices will go up to signal scarcity; when demand goes down relative to constant supply, prices go down to signal abundance. Higher prices will demand greater appreciation of the resources from consumers; it encourages consumers to be more thoughtful when consuming resources.

Without prices as signals, many consumers will be unable to appreciate the very real idea of scarcity. Even in dire times when water should be priced as high as gold but offered free instead, do not be surprised to find somebody washing their car or watering their lawn. News of impending shortage will not change his behavior because he does not feel the pain. He does not or unable to read the signal of scarcity clearly because he has been insulated from the real world.

Under free water policy, the state effectively transfers the responsibility of conservation from individuals to the state. Individuals will not practice responsible usage of water because of the reason mentioned earlier. When the ultimate signal comes — water shortage — it may be already too late to begin to conserve. With the state taking the responsibility of conservation away from individuals, the state effectively creates a commons as described in the Tragedy.^[2] Thus, the course is set.

Without a good pricing mechanism, the only way to overcome the Tragedy of the Commons from reaching its sad conclusion is to ration water at one stage or the other. Suffice to say, I do not think highly of any policy that leads to rationing when flexible pricing mechanism offers better solution.

^[1] — KUALA LUMPUR, Nov 21 (Bernama) — The project involving supply of raw water from Pahang to Selangor is expected to be completed on schedule by the middle of 2013, the Dewan Rakyat was told Wednesday.

[…]

Shaziman said it was anticipated that the project would be able to resolve the problem of raw water supply which Selangor would begin to face over the next five years. [Pahang-Selangor Raw Water Project Ready By 2013. Bernama. November 21 2007]

^[2] — For further but brief explanation of the Tragedy of the Commons, see Wikipedia.