Waste and optimality
By: Faisal Bari

From being a water-abundant country some decades back, we are well on the way to becoming a water-deficient country.

Given the way we waste and misuse water it might appear that we have an abundance of the resource; however, there are now constraints on its availability.

It is not only in agriculture that we are starting to see the problems; the latter are also evident when it comes to drinking water.

And yet, the fact that we need to change the way we use the resource has not fully sunk in.

Not making optimal use of a resource is tantamount to wastage. Economists argue that where property rights are well assigned and markets work, the relative prices of goods and services can enforce optimal use or at the very least move us towards that goal. If a good or service becomes relatively scarce, its price will rise.

As the price rises, people will start using it more carefully and frugally and they will also look for alternatives. The net effect, other things remaining the same, of a rise in price should be a reduction in demand for a good or service.

The fact that we need to change the way we use water has not fully sunk in.But prices only work when certain prior conditions are met.

Property rights over the good or service in question have to be clearly established so that we can know who has the right to sell or buy the good or service.

Markets have to have some desirable properties. These include the presence of a large number of buyers or sellers and good information flows between the players.

In the case of water, where there is legislation on who should have access to river or canal water and when, and where there is even a tax system, there does not seem to be any jurisprudence on basic rights in Pakistan.

Who does the water under the land I live on belong to? Does the water belong to the owner of the land? But aquifers are usually connected and under land that might belong to many different people.

Does groundwater belong to whoever can pump it? But if that is the case, and water is a scarce commodity, there will be a tendency for people to over-pump it to make as much money as possible, before others can, and this individual over-mining will lead to collective over-mining (tragedy of the commons).

Ronald Coase, the Nobel laureate, had argued that we should assign property rights unambiguously in all cases so that we can then have the development of the relevant market.

Without the assignment of rights we will not be able to price such a product or service.

We do see over-pumping of water in many localities across the country. Companies pump water and sell it in bottled form for profit. Individuals pump it excessively at times and waste large portions of it.

Who should water belong to? In most other jurisdictions, there is wisdom in assigning the right to the local people, with the right for trade being vested in local governments.

Locals have the most to lose in case the aquifer is damaged or destroyed. They have the best incentives to preserve their resource, ensure its sustainability, manage it optimally and work out its best use.

If local government had the right to sell/buy water, it could a) ensure the aquifer is not depleted by overuse, b) the right price for extracted water is charged, and c) the revenue from selling the water perhaps used for maintenance of the aquifer as well as other local needs (water/sewerage systems, schools, hospitals, local roads, etc).

But prices are just one way in which our behaviour is shaped.

Our moral and social outlook, whatever its basis, also has a significant role to play. We have to have internal systems that tell us when we are misusing or wasting a resource. Even if water is free, we should not be wasting it.

If we leave taps open or do not get running taps repaired in time, use running water when a mug or bucket could do, wash our car every day, water the garden excessively, allow others to waste water, whatever our social system, it would be unacceptable.

We live in societies. We live in social contexts. Whether one is a Humean (David Hume’s moral philosophy rests on the community of humans in society for its moral force and to provide a basis for its imperatives) or not, it is our interactions with others that determine the quality of life for everyone.

And this dependence creates moral obligations, rights and responsibilities.

Irrespective of whether the law, institutions and even the norms of a society are comprehensive and encompassing enough, moral obligations remain.

If we are going to behave properly only if there is a policeman looking over our shoulders, or if markets are going to force us to behave in a certain way, we are not great examples of our species.

We, as individuals and as a society, need to internalise the calls of moral imperatives.

What has been said of water applies to a lot of other products. Water is just a special case as even the markets for it do not work.

But in other cases, irrespective of markets, we have to give weight to moral issues: we should not waste electricity even if we can afford to.

With 200 million people to feed and provide basic services to and with the task of creating opportunities for a meaningful life, with the aim of leaving behind a decent society for future generations, we have our work cut out for us.

If we are to move beyond self-interested behaviour and the current zero-sum type equilibria in our socio-economic life, we need to think not only in terms of institutional, organisational and market reforms.

The larger task is to reflect on the moral transformation that is needed at the individual and societal level.

December, 2014

Source: Dawn News