Contrary to the belief that urbanization
is the greatest woe of Africa, it is rather the greatest opportunity for
development. The increase in population associated with urbanization is a
creator of markets and a stimulant of production of goods and services. It is
no surprise that almost every business thinks about the urban centres as
preferred locations; and cities across the globe including London and New York
attract the best of businesses, people and resources. In the parlance of
welfare economics, the upside of urbanization is a positive externality to
urban inhabitants – benefits accruing to a third party who is not privy to the
contract of its provision. However, for most developing economies especially in
Africa, urbanization appears to produce a contrary effect - a lot of negative
externalities (social costs) to the populace. Typical among the list of
negative externalities is the effect of poor waste management which results in
diseases.
In this article, I seek to propose a model that
provides a remedy to the poor waste management problem in Ghana, applicable to
many developing economies from a business perspective through the application
of concepts in welfare economics. The model replaces the monetary charges
associated with private waste management services with labour provision in the
form of waste separation at home by households as the charge. The proposal is
arrived at by modelling the value chain of waste generation, handling and
disposal and lubricated via incentives. This paper is delimited to waste
management, specifically municipal solid waste (household trash/refuse).
At best, the poor waste management
situation in Ghana is analogous to littering – improper disposal of waste. It
is normal in Ghana to see people drop waste anywhere anytime. To have a firm
grasp on the problem, it is important to understand the value chain of waste
management in Ghana and its underlying principles. Typically, household waste is generated
in the house and ends up on a community refuse dump; which could be considered
usually as a public good. Paul Samuelson, the renown economists is usually credited
as the first economist to develop the theory of public goods. In his classic
1954 paper, “The Pure Theory
of Public Expenditure”, he defined a public good, or as he called it in the
paper a "collective consumption
good", as follows: “ ...[goods]
which all enjoy in common in the sense that each individual's consumption of
such a good leads to no subtractions from any other individual's consumption of
that good...”. In other words, a public good is a good that is
both non-excludable and non-rivalrous in that individuals cannot be effectively excluded from
use and where use by one individual does not reduce availability to others.
Examples of public goods include fresh
air, knowledge, lighthouses,
national defense, flood control systems and street
lighting.
In the rural
political economy, dumping refuse at community refuse dump has for most of the
time been free – at no monetary cost. It comes at no cost because the whole
community manages the refuse dumps – community service is compulsory for all,
and the community refuse dump is cleaned by all individuals sometimes in turns.
So the real cost is in labour terms and not in monetary terms. Most often, the
refuse sites is also owned communally. A problem of this public good is that it
is often closely related to the "free-rider" problem, in which people not paying for the good may
continue to access it, or the “tragedy of the commons”, where
consumption of a shared resource by individuals acting in their individual and
immediate self-interest diminishes or even destroys the original resource.
Thus, the good which in this case is the refuse dump may be under-produced,
overused or degraded. However, the rural community always have a way to punish
and to restrict people and households that did not contribute to the management
of the public resource from using it, which ensures some efficiency in their
use.
The transition
from a rural economy into an urban economy has come with increasing difficulty
in mobilizing people to provide the same communal service; perhaps linked with
the cosmopolitan nature of urban areas and the lack of a communal sense. Hence,
public goods such as refuse dumps are usually mismanaged and the free-rider
problem and the tragedy of commons prevail. This is normally associated with
the lost of free labour from community members; hence, refuse dumps are
woefully managed unless the community employs private people and companies to
manage it properly. As a solution to the public good problem, privatization and
commercialization are normally employed to restrict people and households that
do not pay either in labour terms or monetary terms for the management of these
refuse dumps. This approach in welfare economics is referred to as the “Coarse
Theorem” or “Coarsian Solution”. This is the genesis of the evil.
Problem Description: The Gap between Policy Outputs and Outcomes
The
privatization and commercialization approach in itself is a policy and its
effect of restricting people unwilling to pay from enjoying waste management
services is an “output”. However, the ultimate expectation is proper waste
management which we will refer to as the “expected outcome”. So the output is
a deliverable which facilitates the achievement of the outcome. Very often,
there is almost always a gap between outputs and outcomes in policy evaluation.
Now the real problem and cause of this gap is class-related and it is the issue
of “affordability”. Affordability in my opinion is not
merely a monetary issue but also affordability in terms of labour if that can
be made an option or an alternative. However, the latter is rarely an option and
it is also the case that urban people are so-called busy and may not have the
time to contribute labour-wise. It also appears to me that they may feel
embarrassed to pay for it labour-wise; hence, making income or monetary
affordability the sole problem. Thus, structurally, society is designed to
fail. However, we will understand in the next section that labour provision
model in exchange for waste management services is a potential solution to the
poor waste management problem in Ghana.
In an economy of
low-income levels, it should be expected that people would adopted welfare
improving strategies to survive including finding ways not to pay for goods and
services previous considered as public like refuse dumping. This reveals that
the psyche of the people is also very important in the creation of the problem.
Very often, the fee charged by the private waste management firms are expensive
to the low and middle class; hence leading to their under-consumption of
private waste management services. This situation is inefficient and requires
government intervention in the realms of welfare economics, but with the
adoption of pure market economy principles, intervention has been rare. Nonetheless,
there is a cost-free alternative in many developing economies including Ghana because
of the lack of proper community monitoring. Although the low and middle class
largely cannot afford private waste management services, they cannot also
afford to keep the smiling waste in their homes. Thus, the alternative solution
is to resort to indiscriminate littering, where people nicodemusly dump refuse
in open gutters and at public sites especially at night.
With the
expected outcome of proper waste management in perspective, a business case
could be made to align outputs and outcomes. This is possible through the
provision of incentives, subsidies and direct government provision to deal with
the affordability problem facing the low and middle class. However, I will
focus on the business case as a more efficient approach to dealing with the
waste management problem with rippling effects for job creation and employment,
which the nation needs badly. In other words, the business approach provides a
lot of bending effects towards the achievement of other goods at virtually
little cost.
Apart from the
fees associated with waste disposal, the acquisition of refuse bins poses a
challenge to the low and middle class. To deal with this the business way, fees
must be eliminated and refuse bins provided for “free”. This is the easiest way to align the output and outcome but
this measure to many people is foolish and threaten business survival. In fact,
the obvious question is how do waste management firms pay their staff and
remunerate themselves for their services? Quite a genuine question, but the
solution is not easily perceptible by the untrained mind.
Now how can
waste management business survive this policy prescription? With the advent of
waste recycling and treatment business in Ghana, a lot of the waste could serve
as raw materials for many industries particularly in the manufacturing of
plastics. All it takes is ensuring proper separation of liquid and solid waste,
an exercise that waste management firms employ and pay people to do. Companies
could however enjoy this service for free if they attach the waste separation
process by households as condition for free waste collection. Thus, households
and individuals would pay in-kind and indirectly for waste management services
by properly separating their waste for collection by the companies. The
cost-benefit analysis is based on the difference between the sum of the fee
forgone plus cost of providing rubbish bins and the cost companies incur in
separating the waste plus imputed cost of plastic raw materials. The fee
forgone (FF) could be broken down into transportation cost (TC), vehicle
maintenance cost (VMC) and remuneration (Y). Where the waste separation cost
(WSC) plus the imputed cost of purchasing the raw materials (IC) (for say, the
production of plastic chairs and tables) exceeds the fee forgone (FF) plus the
cost of providing rubbish bins (RBC), then the benefit-cost ratio (BCR) will be
greater than one (BCR > 1) indicating viability or profitability and vice
versa. Mathematically, this business decision could be represented and modelled
as:
Ʃ (WSC +IC /
FF+ RBC + TC + VMC + Y) = BCR
Where:
i.
BCR
could take on values ranging from negative to positive.
ii.
Positive
BCR (i.e. BCR > 1) indicates viability and profitability (net gain);
iii.
Unity
BCR (i.e. BCR = 1) indicates break even
iv.
Negative
BCR (i.e. BCR < 1) indicates net loss
Where BCR is
less than unity (BCR < 1), another model in which the cost of transportation
could be reduced is important. For instance, instead of the waste collection
car moving from home to home collecting waste for free, households could be
provided with a community waste container in which households could drop their
waste for free. After all, in the rural political economy, no one was
collecting refuse from households for dumping, individuals executed the
exercise. Therefore, the car only makes a trip or two to collect the waste,
which from hence assuming that it is well separated becomes raw materials for
the production of plastics in particular. Further, cost to waste management
firms in the waste collection process could be reduced through government and
or community subsidies; perhaps, fuel subsidy and or vehicle maintenance
subsidy. Best still, households should provide their own rubbish bins to
enhance profitability for waste firms.
Where the
Internal Rate of Return (IRR) exceeds the Required Rate of Return (RRR), waste
companies could also provide a cash incentive in addition for households that
properly separate their waste and generate volumes of particular waste like
rubber and plastics. The IRR is the project generated return whiles the RRR is
what investors expect from their investments. The later measure is intended to
elicit an external effect, whereby individuals would even collect rubbers and
plastics from the community in order to increase their waste volume for higher
remuneration. Some critics may say that the latter provision could lead to
increasing waste generation, but that is erroneous because increasing waste
generation comes as marginal cost which per the constrains of affordability
would not exact that effect. Rather, it could
make it more attractive for people to collect waste from the community
for “free”. This could be a business opportunity for many people, as is the
case currently. In effect, a new
efficient public good could be created, through private provision and indirect
incentivisation from a business perspective. This public good is the “free”
collection of household waste.
Conclusion
Urbanisation is
definitely a woe to Africa’s development if not properly managed. Proper waste
management within the urban political economy could be achieved from a business
approach at little or no monetary cost to households. Through this approach
waste management policy outputs could be aligned with outcomes. This could be solve
the affordability problem facing the low and middle class who are the main
perpetrators of indiscriminate littering in Ghana and in most developing
economies at large. In effect, introducing and activating the provision of
labour (waste separation at home other than on the refuse dump) as an option
for paying for waste management services could solve the poor waste management
problem in Ghana whiles creating businesses and employment; which requires
innovation. Moreover, although the proposed model is public good, the typical
characteristics associated with it including free-riding and the tragedy of
commons is intrinsically mitigated by the model.
Kenneth A. Donkor-Hyiaman
University of Cambridge
Department of Land Economy
United Kingdom
kwakuhyiaman@gmail.com
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