In this episode about water economics (around 45:45):
David Zetland: ... a new general manager was appointed to the Phnom Pehn Water Authority in Cambodia. And Cambodia is not only one of the poorest countries in the world but also one of the most corrupt countries in the world. And this guy basically said, 'I'm going to have a professional system.' And he insisted on getting paid for the water.
So, the army had not paid its bill for years. It was a very big customer. The manager went to collect the bill and the guy put a gun to his head and said, 'The army doesn't pay.' And the guy said, 'I'm a good Buddhist; do what you have to.' And then the guy rolled, and he paid.
And that payment set an example for other customers. So they started collecting money. They started firing staff that were incompetent or corrupt; and they started rewarding staff who were competent. And not only did they expand that system to the slums in Phnom Pehn, but they also lowered the price of water, especially to the people who were under-served. Because they were buying water off of trucks at 10 times the official price, but they had no official service. And when they got connected to the official system, the poorest people of Phnom Pehn suddenly saw their quality improve and their price drop.
And that was – it's widely cited as a success. And it's based on, essentially, a guy doing the right thing.
Russ Roberts: Which is hard to rely on, unfortunately. But it's glorious when it happens.
Zetland: Right. No, you shouldn't rely on it. But it does show that things can be fixed, sometimes.
Roberts: ... as an economist I always love the Milton Friedman quote ... something like: "Instead of trying to find good people to run things you want to have a system where the incentives are such that even bad people do the right thing." And here's a case where the incentives were to do the wrong thing; and this one person overcame those incentives. And I always like to point out – it's not irrational to be moral. Some people think that, 'Well, all the incentives were for him to be corrupt and get rich, too. So that would have been rational on his part.'
Well, okay, fine. It would have been. But it would have been a horrible thing to do. And he showed that you can rise above that. Which is lovely.