A modest proposal, really?

8 Nov

“Water is life’s mater and matrix, mother and medium. There is no life without water.”

 Albert Szent-Gyorgyi quotes (Hungarian Biochemist, 1937 Nobel Prize for Medicine, 18931986)

I recently read an article ‘A modest proposal’ in the Economist (Oct 28, 2006) suggesting that China should follow market-driven prices to solve its problem in providing water for its rural northen  China. He pointed that more money will help reducing pipe leakage and may help combating environment problem. He said that although the water prices in cities have risen around 10%, it is still one third of world average.  

However, I can’t understand his arguments. He used world average water price as comparison, but the problem of this calculation is that the world average does not reflect the real wealth of the world. In 2005, G7 countries accounted for 43% of world GDP which means few countries were much wealthier than the rest of the world. I would expect that these countries are charging more at home, which may drive up the world average price. However the higher prices charged are actually consume much smaller proportion of their wealth in comparison to the proportion of what poorer people in other countries have to pay. The price comparison, therefore, should had been done using relative-calculation method.

Another problem of market-driven suggestion is exactly because it is market-driven; the company is there for profit. In the poor rural area where the population is sparse, the investment for infrastructure is high and there is little money to be made. It’s exacerbated by the huge investment needed to get the water there from other parts of China. Lighting up a city of 500,000 people and lighting up a rural area three times bigger than the city may cost the same, yet the city is generating much more revenue because of higher number of users and consumption.  If there is, eventually, any company willing to go into that market, they must pass their cost directly to their customers, i.e. the rural people who can’t afford to pay.  These people usually are agricultural society; without water, they can hardly be any good crops to earn money. People cannot demand private company to provide with water based on social obligation. Under these circumstances, the market-driven proposal is not modest but unrealistic one.

Reflection on Indonesia’s history

His suggestion made me reflect on Indonesia’s experience during 1997 financial crisis when IMF forced Indonesian government to reform – follow market price, stop subsidizing its people – in order to borrow money to save its currency. The argument at that time was also that Indonesia’s fuel, water and electricity prices were below world market price and kept at that level because of government subsidies. But see it from another point of view, on average, Indonesian people were not as wealthy as the so-called world economy. In 1995, G7 countries accounted for 67% of world GDP. It’s simply unreasonable to equate the price affordable by Indonesia to the price affordable by G7 countries.The situation was worsened by soaring USD that had forced many companies into bankrupcy. The struggling ones must cut down its scale and sack its employees. The prices of essential products such as rice and sugar skyrocketed. When government yielded to the external pressure and reduced its subsidies, people got so frustrated because they could not afford even to light up their house at night. The results of the frustration was the chaotic and violence period leading to the removal of Indonesian dictatorial president and reformation of government system.

Water is so important that losing it is so frustrating that it may lead people to crime. BBC reported:

Mona El Kody, the chair of the National Water Research Unit in Egypt, told delegates that living without an adequate level of access to water created a “non-human environment” which led to frustration, and from there terrorism.“A non-human environment is the worst experience people can live with, with no clean water, no sanitation,” Ms El Kody said.

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