Who can we trust with our water?

If Selangor’s water operations return to guardianship of the state government, this will be far from the first time we have come full circle, from public to private and back to public ownership. That usually gives an opportunity to learn something.

In the aftermath of the 1997-98 financial crisis and economic funk, a slew of privatized entities were renationalized: Malaysia Airlines, Proton, and Indah Water Konsortium (IWK), to mention a few. These past experiences may be on our minds – or maybe not. If we have forgotten, or succumbed to habitual amnesia, this is a prime time to be reminded.

We do not need to wait for a full-blown crisis. If the basis for a privatized project is flawed, if pre-conditions are not present, or if the objectives are not met, we can and must reconsider its continuing legitimacy, relevance and usefulness.

Moreover, as we think back, we find that Selangor water s bears curious semblances to privatization debacles of the past.

Then, as now, we saw vast wealth accumulation by owners, and awarding of contracts to politically connected persons.

Indah Water, operating sewerage services, is a more appropriate reference point than non-essential airlines and cars. Let’s just say it turned out very badly, leaving aside malodorous metaphors that perhaps best capture the situation.

As meticulously documented in Jeff Tan’s Privatisation in Malaysia: Regulation, Rent-seeking and Policy Failure, IWK underwent numerous switches in ownership. The profits from cashing out undermined long term stakeholding and commitment to service delivery. The company charged high fees; people refused to pay. Rates were subsequently lowered but the monopoly went bust and fell back into government arms.

That’s looking back. Looking ahead and specifically at the water sector, we must weigh heavily the experience of other countries, the essential feature of this commodity, and the credibility of various parties in the current face-off.

Water is a basic necessity, the most vital of all public utilities. The logic of privatization is pay per use, and higher price reflects better service or broader coverage. But setting tariffs is never a market clearing outcome where there is a monopoly in good with no substitutes. It must be negotiated through contract and mediated by government. I personally prefer that the lowest rate would be even a token amount instead of zero, as prevails and as the Selangor government wants to retain. Water may be cheap but we must not forget it is precious.

However, tariff increases in ought to be for widening or improving service and sustainable resource management, emphatically not for socially unproductive private profits. A comprehensive and independent report of the benefits and costs of water privatization and assessment of efficiency of private management is due, but given the unlikelihood of seeign such a document, the safer bet is to leave water management in the hands of publicly accountable institutions credible people.

Water privatization has not gone well in many developing countries. The first thing to note is that many were coerced into adopting such policies as condition for receiving World Bank loans or under intense pressure from the World Trade Organisation. Liberalization policies burst open the floodgates for multinational corporations make money selling water to poor people. A common result in various countries, such as Bolivia and South Africa, has been swelling rates, non-payment and cut supplies.

In advanced economies where water is privately operated, prominently the United Kingdom and France, companies are closely monitored by government. Even then, it is debatable whether private or public ownership of water distribution is more efficient. Note that the private sector may excel in technological innovation of water quality, but this is distinct from distribution and capital investment.

As mentioned above, the intangible yet crucial element trust come enter the frame. In general, I’m sure we would prefer entrusting public matters to people in whom we have faith. But specific to the issue at hand, both federal and state governments, as well as larger private companies proposing takeovers, have entered the fray, magnifying the need to consider each side’s credibility in safeguarding the public interest.

The federal government persists in instituting an authoritative regulatory agency and in continually preserving private concessionaire profits, even as the 2006 Water services Industry Act sought to nationalize water assets.

On the other hand, a number of individuals involved in the Selangor government’s initiative to return water supply to the ultimate accountability of elected rakyat representatives have been steadfast advocates of social concerns and sustainable development.

Let us take note of history and past misdeeds – and take heart in the potential for present and future corrective action.

This article appeared in the Selangor Times, Issue 2, 3-5 December 2010.

Article 153 (yes, THAT one)

53 years on, we are still mired in Article 153

Lee Hwok Aun
Nov 10, 10

COMMENT This year, the 53rd since Malayan Independence, has heard numerous references to the 153rd Article of our constitution. People have weighed in from various angles, but stalemate persists because we keep repeating to the same positions.

A few bear mentioning. In March, the New Economic Model (Part 1) made cursory reference to the bumiputera special position and legitimate interests of other communities.

The NEM is slouching somewhere between the prime minister's desk and oblivion.

But its proposal for some liberalisation flipped Ibrahim Ali and Perkasa into a rage, and they launched an offensive with Article 153 and "Malay rights" front of the arsenal.

Nurul Izzah Anwar (left), in her excellent "Malaysia or Malaysaja?" Merdeka Day essay, challenged Perkasa to a debate on Malay rights and its connection or lack thereof to Article 153. They declined.

Najib Tun Razak's speech to the UMNO general assembly reiterated the party's notions of social contract and special privileges embodied in a raft of constitutional articles, including 153.

Koh Tsu Koon, at Gerakan's annual convention last weekend, called for a more balanced execution of the dual provisions in Article 153 for special treatment for some, and legitimate interests of others.

Like all the above, I respect the constitution and do not challenge its contents. But I propose that we focus on a critical and more constructive, yet routinely overlooked, element of Article 153, which says that racial quotas may be used if necessary.

Racial quotas

Among thoughtful responses to the assertion that the Constitution guarantees Malay rights or privileges, three stand out.

First, we can emphasise the undisputable fact that it spells out "special position" instead of "special rights" or "special privileges".

What special position means exactly, is hard to say, and best left to legal scholars and philosophers.

Ordinary citizens, however, can sufficiently grasp that the notion of a special position does not necessarily translate into entitlements and supremacy.

I affirm the importance of the distinction, but at the end of the day, we are left with a semantic victory, often topped off with clarification that these provisions were initially intended to expire after 15 years, that fails to inform deeper questions.

The special position of the bumiputera, isolated from the rest of the text, can be taken to be permanent and limitless.

Second, we can focus on the "legitimate interests of other communities" alongside the bumiputera special position. This clause places some constraints on racial quotas, especially in terms of opportunities denied to non-bumiputera.

Again, the point is valid, but inadequate and divisive. It does not address whether quotas and reservations are justified and relevant, and it effectively pits bumiputera against non- bumiputera in perpetual conflict.

Communal battle cry

Some will always be game to refer to the list of richest Malaysians or the access of non-bumiputeras to private education as evidence that "legitimate interests" are accounted for. It's a spurious argument, but a politically useful distraction and communal battle cry.

A third response highlights Article 153's limitation of quotas and reservations to public sector employment, scholarships, permits and licenses.

Thus, equity and property quotas are out - they were never there in the first place.

While technically correct, this is another treacherous path to tread, because it implies that racial quotas are constitutionally permanent as long as they are confined to public universities, public sector employment and licensing.

Yet these are arguably the areas that stifle bumiputera advancement the most, especially with the decline of public education institutions.

I am not calling for elimination of affirmative action, but for a reconsideration of how we can better pursue both equitable racial representation and excellence.

Lamentably, this discussion gets tossed out the window if we take Article 153 to mean bumiputera education quotas forever, or if we remain content to let public bodies be the domain of bumiputera special position while private bodies satisfy other groups' legitimate interests.

So how else can we read the law?

For a start, instead of extracting select bits, let's read in full the section that sets out Article 153 in practice: "the Yang Di-Pertuan Agong shall exercise his functions under this Constitution and federal law in such manner as may be necessary to safeguard the special position of the Malays and natives of any of the States of Sabah and Sarawak and to ensure the reservation for Malays and natives of any of the States of Sabah and Sarawak of such proportion as he may deem reasonable of positions in the public service,... scholarships,... and permits and licenses." (italics added).

No absolute mandate

Article 153 does not confer an absolute mandate or obligation to apply racial reservations and quotas, but establishes those possibilities "in such manner as may be necessary".

In other words, the constitution does not stipulate that quotas must be enforced no matter what, but quotas may be instituted if necessary.

It is implied that this assessment of necessity must be grounded in productive activity, not wealth acquisition.

A further implication is that racial quotas and reservations are contingent on evaluating whether circumstances warrant such measures and whether those programmes have attained a reasonable degree of success rendering them unnecessary.

I believe this is a more constructive focal point for deliberating the relevance and effectiveness of racial quotas.

Of course, there is still ambiguity and room for debate on determining "necessity". That's the world for you. Deeply rooted national dilemmas are complex and cannot be completely codified in law or simplistically propagated - except if dictated by powers that be.

The difference in focusing on the "as may be necessary" clause is that it compels the debate to be informed and inclusive, to strive for objectivity and constructiveness.

After all these years, it seems we cannot get over Article 153.

No, not when we haven't even gotten into it.

Strive for the fairest mechanism in wage consultation

Prime Minister Datuk Seri Najib Razak has acknowledged that the era of government knows best is over. Now we need the government to know better.

The government should know better than to declare the end to “government knows best” but then flash a megaproject pageant that we are supposed to agree upon because the government says it’s good for you and me.

The lack of government knowing better is not confined to the hot button topics like the Warisan Merdeka tower only. The formation of a National Wage Consultation Council — before any debate or passage of laws that establish its existence — is another example.

The government has stated that a bill will be tabled in parliament in March next year along with an amount approved by the cabinet. The minimum wage could be implemented from June or July. But shouldn’t these dates be determined by the yet-to-be established council? Moreover, if the council is formed and cabinet endorses a minimum wage amount in the same month, what exactly is the role of the council? Will it consult members in the same way that the rakyat were consulted in drafting the budget?

The Malaysian Employers Federation (MEF) thinks the council is a good idea. The MEF has been the most strident opponent of minimum wage. The response from the Malaysian Trade Union Congress, on the other hand, has been guarded and tepid, and legitimately so. Organised labour’s leeriness towards government overtures on minimum wage is grounded in five decades of broken promises.

If we are going to do minimum wage, let us do it right. For a start, do not name this prospective body the National Wage Consultation Council. There should be more discussion if the body should be in the form of a council or an independent commission. Tentatively, it should be referred as the minimum wage setting body.

Let us also adopt a global perspective and consider the experience of countries that have implemented them before us. We ought to examine minimum wage setting bodies in high-income countries, especially recent entrants like South Korea and Poland.

There are three crucial elements that determine the fairness and efficacy of a minimum wage setting body. First, who will chair it? An independent person or the minister of human resources? Various national councils are also chaired by the prime minister. If so, then political considerations will inescapably come to bear. The extent minimum wage reflects national opinion will hinge on the level of democratic maturity. So it is probably not a good idea for a politician to chair the body.

Second, and related to the above, will it operate independently or under the supervision of the ministry? We owe it to low-wage workers and employers to consider establishing an independent commission to determine minimum wage and to operate without influence of government, though of course with due incorporation of government policy objectives.

We should take a good look at the UK’s Low Pay Commission, which produces detailed annual reports and recommendations, or South Korea’s Minimum Wage Council, which comprises equal numbers of representatives of employers, employees and independent persons — no government seats.

Third, will it set the minimum wage or make recommendations to the government? In most countries, the minimum wage setting body makes recommendations but the government ultimately decides. In some countries, the relevant council, commission or committee determines, directly or indirectly, the legally binding wage floor.

If two-thirds of South Korea’s Minimum Wage Council approve a minimum wage increase, the minister of labour is obligated to accept the proposal even if he or she disagrees.

Poland’s Tripartite Commission operates on the principle of consensus, and once that is reached, a new minimum wage becomes law. If consensus fails, the government still cannot implement minimum wage below the commission’s proposal.

We should approach these questions from the standpoint that, since minimum wage is principally about fairness, we must strive for the fairest mechanism. Start with the case for a fully independent commission that determines the wage floor and work out compromises from there.

We must establish this body first, then let it deliberate parameters and mechanisms for setting minimum wage, then only set the rate. Whether we have a national rate or regional variations should also be up to the body to decide. These discussions take time and energy, but if the government is sincere and fully committed about minimum wage, a thorough and strenuous process is right and necessary.

Rushing the creation of a national wage consultation council and a cabinet-stamped minimum wage guarantees premature birth. Worse still, we might institutionalise mechanisms as ineffective and powerless as the wage councils that have been in existence since the Wage Councils Act of 1947.

The government should know better than to let minimum wage, a vital instrument in our quest to reduce poverty and raise incomes, fall victim to rash policy.

This article was first published in The Edge (November 4, 2010)