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The Bengaluru March and the Tragedy of Commons

June 24, 2012

**** This post will be edited in the near future. It is not as clear as I intended it to be ****

 

http://mangaloretoday.com/mt/index.php?action=mn&type=6193

notes that some citizens concerned about water management are organizing a march to claim it as commons. Their main focus is that the government is making water a private property and this should be opposed and water, like air and forests is for commons (i.e, a public good).  The terms public good, tragedy of commons are a bit deeper but that is beside the point of this post. I will add some references to read later in this post that throw some light on these economic terms.

The question is, is this right? Should we support it or oppose it? Note that these people are well-intentioned. They are concerned about the mismanagement of water resources and assume that privatization can cause more harm than good.

It is good to have a basic understanding of  “The Tragedy of Commons” while we address this question. Please refer to

http://www.sciencemag.org/content/162/3859/1243.full for the original essay on this by Garrett Hardin. Simply put, this illustrates that overuse of a public resource (common resource) will eventually lead to its extinction (or reduce its utility value to a bare minimum) as all users of the resource would be driven by the incentive to use it to maximize their own benefit without realizing the negative externality that they end up causing (which is eventual extinction of the resource).

It may be argued that water is a natural resource and everyone should have free access to it. As Hardin suggests in his paper, this cannot be the case always as population increases but the resource is always finite. Considering the increase in population of India in the last 60 years (from 300 million to 1.2 billion), we must admit that the limited resources may not be enough to sustain the high numbers of population. Therefore private ownership and regulation can help efficient use of it.

Reading that essay, from a theoretical standpoint it would make sense to oppose this march and support the government in allowing the privatization of water resources in India (or Karnataka in this particular context).  I would oppose the march and support privatization. However, how much ever well-intentioned this move also is, in the case of India it is not as easy at it seems for what I believe are the following reasons:

1. Culturally Indians have considered water resources, land, education as something sacred and public goods. One cannot privatize or profit from the utilization of these resources. This is deeply ingrained in the Indian mind. So, an explanation of tragedy of commons, advantages of property rights, etc would not be appealing to the general populace. The idea of property rights is still a bit unpalatable to the Indian psyche.

2. Partha Dasgupta, in the second chapter of his book, A brief introduction to Economics mentions a very profound truth: “That any well intentioned policy will not benefit the society unless there are institutions that implement it” which is why institutions are important (more on this later when I get time). So, even if we assume that privatization of water resources should be supported, the corrupt system in India (the institution) would not allow for an efficient outcome of the policy even though it is clear (from the tragedy of commons) that private regulation can in fact benefit the society by preventing scarcity, reducing wastage and/or overuse of a particular resource.

This move to privatize can only complicate the matters given the venal motives of the politicians who would want to maximize their own profits. Note that this is not very obvious. The march announcement says that the government will auction the resource to the highest bidder. Besides, the system in general does not favor a level playing field. So, there will always be some players who would want to own the resource (monopolize) and buy out the politicians. They would eventually pass these costs onto the consumers who would have to pay a premium for the procuring the water. This is not like an ideal institution where competition is favored in a level playing field and the producer who guarantees the distribution of the water to the consumer at lowest prices will be given the ownership. Ideally the government should efficiently provide clean drinking water and maintain the resources as a public good from the tax payers money (like it is for defense) but it would be too naive to expect that from a political system as corrupt as in India.

3. So, what is the solution? Cynical as I may sound, there is no clear solution unless there is a paradigm shift in thinking and approaching the problem with regards to both points above. That it is ok to privately own natural resources, land and education, and that the consumption of a finite common resource can eventually lead to scarcity. This is not as straightforward as it may seem due to conflicting motives at play. As long as government still controls who is to own the resource without letting the market decide it, consumer will not benefit. The government should just facilitate the transaction and support the legal rights of both the producer and the consumer. This of course means asking for a good institution. Wishful thinking eh? Unless the motives of the political class are to make sure the society benefits, whichever course we take, opposing the privatization or supporting privatization of water management would be of not much benefit.

References:

1. Garret Hardin’s essay in Sciencemag (link listed above)

2. A brief introduction to Economics by Partha Dasgupta. This is part of the brief introduction series on all subjects being compiled by the Oxford publications.

3. Tyler Cowen’s article on public and private goods: http://www.econlib.org/library/Enc/PublicGoods.html

4. Another on public and private goods: http://are.berkeley.edu/courses/EEP101/spring05/Chapter07.pdf

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