A Free Market for Water

A Free Market for Water June 21, 2008

Both at home:

There are clear gains from having an active market in water rights. It would help solve the problems posed by current water shortages in the West, and it would provide the flexibility necessary to confront the impact of climate change on water supplies in the coming decades. It would be, in a word, fluid.

And abroad:

The solution for the poorer parts of the Third World is deregulation of the market for piped water, combined with the enforcement of property rights. Yes, I’m saying that Third World governments should consider letting private companies sell water at any price they want… And no, I don’t mean a water concession with a price regulated by the government, I mean true laissez faire in water supply. No price regulation, no rate of return regulation, no government ownership of assets, no political pressure to keep prices low.

Many of the world’s poor don’t get good water because they don’t live near a piped water connection. Or if they have a connection, it is often bad and irregular, with backflow putting dangerous and dirty substances into the drinking water. The underlying problem is that many governments artificially hold down the price of water, or they won’t let water companies cut off nonpaying customers. The result is that water companies don’t want to serve these poor customers in the first place, and they certainly don’t want to spend money by adding more water connections for the poorer areas. Deregulation would give water companies a stronger monetary incentive to serve these customers.

Note that it is a self-describe progressive organization that is calling for freer domestic water markets, and that a partial de-regulation compromise for the Third World is supported by Jeffery Sachs, of The End of Poverty fame.

Access to safe drinking water is a basic human right, which is why opening up markets for water is so important. Price controls, regulation, etc. may sound wonderful, but their actual effect is to deny people access to the clean water that markets would provide. The film The Corporation, for example, describes a series of protests in Bolivia against the attempted privatization of the water services of one of its major cities, Cochabamba. Eventually protesters were able to force the government to re-nationalize the utility, and turn control of it over to them. What the film doesn’t tell you, however, is that years later more than half of the city’s population remains without any water service, and many of those who do have service can get water only a couple hours a day. Those who lack water service (mainly the poor) end up paying ten times as much for their water than those who do, and, unsurprisingly, the state run company has had trouble securing the international capital necessary to make improvements. No doubt the intentions of the protesters were noble, but the ultimate result of their actions was to deny people access to cleaner and cheaper drinking water, just as the ultimate result of water regulations in Africa is increased cost and disease and the ultimate result of water regulations in the American West is resource depletion.


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  • Part of the reason so much of the land in the west is public owned is that people would claim rights to water and charge exhorbitant rates to neighboring land owners. Needless to say disputes over water rights weren’t always secured and settled by courts. Water rights are a pretty hot issue here as well with the Great Lakes Compact. As the compact is currectly set, a community must be on the lake-side of the subcontinental divide or the sewage must be pumped back over that portion of the divide. Chicago and some its suburbs have exempted and grandfathered. Presently Waukesha, a suburb west of Milwaukee is having well issues and wants to tap the Lake, and there is significant debate surrounding it.

    While I agree with you that food and water are basic rights, I don’t believe there is an equal commitment make it available for export markets. Communities in particular need to achieve self-sufficiency or necessarily those resources will not be available to support future generations. It is one thing offer bread to the man who comes to your door. It is another thing to argue one must commit to getting the bread to the man 200 miles away as a matter of justice.

    There are of course other issues as well. My water supply that everyone want to get their hands on contributes millions (if not billions) to tourism, shipping, aquaculture, and other purposes.

  • digbydolben

    ANYTHING to tear down community, right?–according to you Protestantized, laissez-faire pseudo-Catholics? Everything and anything to make man less of a civilized, political creature, and more the individualist wolf of the “state of nature.”

    How about let’s sell these benighted creatures who don’t know of the glories of the “market” and the capitalist system OXYGEN?

  • blackadderiv

    A market in oxygen wouldn’t work because it is not a scarce resource. No one is going to pay for oxygen when they can get it for free just by inhaling (well, almost no one). Clean drinking water, by contrast, is a scarce resource, especially in places like Africa and the American west. How exactly providing people who don’t have it with clean drinking water is supposed to tear down community is not quite clear to me. Is paying to have someone pipe water to you directly rather than having to walk miles to get dirty water out of a stream really a return to the state of nature? Doesn’t seem plausible.

  • Mark DeFrancisis

    As Naomi Klein chronicles over and over in Shock Doctrine, the disciples of Friedman have been manufacturing and/or expoliting disasters, in their attempts to privatize everything dowwn to, sadly, even water.

    These economic experiments are not going so well in many places–not from the market standpoint, but from that of basic human decency.

  • Mark,

    Jeffery Sachs influence on Russia has been a complete disaster. Many of us in the Bush I administration fought him, but to no avail. As you have rightly indicate, flawed economic policies lead to human tragedy. Actually, the whole post=Cold War era, in foreign policy has been an unmitigated calamity.

  • RR

    The World Bank strongly supports privatization of the water sector but even they acknowledge that:

    “The water sector is not a sector where you make money anyway, it’s very low return. It’s very clear that the cost recovery is very low. This is a sector which over the years was never able to recover the cost.”

    “What’s happening right now is a recognition that the private sector alone will not be enough. The donor community including the World Bank… has to be involved to leverage the private money.”

    http://www.cbc.ca/fifth/deadinthewater/saghir.pdf

    So at the very least, you need subsidies for the poor. In some places, that means subsidies for everyone.

    Also, regulation to, at least, leave the door open to competition, would be desirable. The Forbes article makes a ridiculous claim: “If you’re a poor person, wouldn’t you rather face a private monopolist, selling you water through pipes, than not have any water company at all? Whether we like it or not, those are the real world alternatives.” If you’re a poor person, you wouldn’t be able to afford private monopoly prices!

  • blackadderiv

    Mark,

    I read a bit of the Klein’s book back when it came out. I can’t say I was impressed. The idea Milton Friedman and his acolytes have “manufactured” disasters around the world (as if people in Africa would have had plenty of water if Friedman hadn’t snuck it and stole it all) is more than faintly ridiculous. It’s only a couple of steps removed from people who blame all the world’s problems on the Trilateral Commission, or International Jewry.

  • The idea Milton Friedman and his acolytes have “manufactured” disasters around the world (as if people in Africa would have had plenty of water if Friedman hadn’t snuck it and stole it all) is more than faintly ridiculous.

    That IS a ridiculous idea. Too bad it’s not the idea Klein’s book is about.

  • blackadderiv

    Michael,

    Your argument is with Mark, not me. “[M]anufacturing and/or expoliting disasters” is his description, not mine.

  • Mark DeFrancisis

    Let me be more precise…they create political upheavals, such is Iraq…

  • blackadderiv

    Milton Friedman opposed the Iraq war.

  • Let me be more precise…they create political upheavals, such is Iraq…

    Yes, they exploit natural disasters and create political upheavals. And get chummy with murderers like Pinochet.

    Milton Friedman opposed the Iraq war.

    For what reason(s)?

  • Your argument is with Mark, not me. “[M]anufacturing and/or expoliting disasters” is his description, not mine.

    I would argue with you on that point as well, since you used the word “manufacture” as well, despite the fact that you read some of the book.

  • Mark DeFrancisis

    “Milton Fridam opposed the Iraq War.”

    That is beside the point.

    Did not the U.S. foresee and exploit a post-Hussein situation of upheaval, i.e., offering no-bid contracts to Halliburton et al., and privatizing generally (all major oil companies getting contacts) in a non-competitive, non-democratic climate? For one, the Iraqi people did not vote on these economic moves, or did they?

  • blackadderiv

    Michael,

    Here’s how he put the matter in an interview back in 2006: “I was opposed to going into Iraq from the beginning. I think it was a mistake, for the simple reason that I do not believe the United States of America ought to be involved in aggression.”

    Frankly, I’m not sure I see a lot of daylight between saying that Friedman and his followers manufacture disasters and saying that they create political upheavals. Contrary to what Kelin may suggest, Friedman didn’t bring Pinochet to power (for a rebuttal of Klein’s claims as to Friedman and Chile, see here).

  • blackadderiv

    Did not the U.S. foresee and exploit a post-Hussein situation of upheaval, i.e., offering no-bid contracts to Halliburton et al., and privatizing generally (all major oil companies getting contacts) in a non-competitive, non-democratic climate?

    Depending on who you believe the U.S. didn’t foresee much of anything regarding Iraq. That’s been one of the major criticisms of the Bush administration’s handling of the war, right? The failure to plan for the aftermath?

    Iraq’s economy under Saddam was run for the benefit of himself and his cronies. Should the U.S. have left these failed policies in place? We tried that in Germany after WWII, with little success. It was only after Ludwig Erhard went on the radio (without telling the Americans or Brits) and abolished price controls that the economic recovery started. You say that the repeal of state controls wasn’t done democratically. Well, okay, but the state controls weren’t imposed democratically either. If the Iraqi government wanted to reinstitute such failed policies now, they could do so, but I haven’t heard much of a call to do so.

  • Overlooked in this post, of course, is any sort of examination of the causes of world water scarcity. This enables one to suggest a free-market solution to what is, largely, a very un-natural crisis.

  • Mark DeFrancisis

    “If the Iraqi government wanted to reinstitute such failed policies now, they could do so, but I haven’t heard much of a call to do so.”

    Again, you miss the point.

    Things have already happened with respect to U.S. and Western businesses,in a situation in which the people had very little input or say, in a significant degree due to the political chaos all around them.

  • Daniel H. Conway

    The occasion of big investment in water supply by the virtuous paragonsof entrepreneurialism, those folks always looking out for Chrsit in the poor and God’s will, should be noted. It is in some way, a good way to judge the likelihood of climate change and its impact on that basic of human needs: water. Water supply in such models is usually under threat. Rich people trying to make a bucjk is a very predictable bestial behavior. And as investment moves into this field, which it quietly has, use this to predict the likelihood of the scarcity of this necessity of life (think of he Gospel of John’s use of the Water metaphor and all the marketting potential!)

    Water is thought to be the new oil in 25 years by some investors’ forecasts.

    Discussing investing in water makes me recognize that truly economics is a study of animal behavior-its predictability like that of watching migratory birds-suggesting fairly bestial-pre-Fall inclinations are the underpinnings of the observed behaviors.

    Paying enormously for water-think of the image of “the woman at the well”…We now see she has done nothing but barter for her soul. Christ in that image, the image of water for sale, is presented as needy-the Christ in the poor, and then is served by an entrepreneur-who will come to be the model of all entrepreneurs-a bit of a prostitute-a woman of ill repute.

    The image of water for sale has such fantastic theological value.

    Can’t wait-invest now!

  • SB

    Overlooked in this post, of course, is any sort of examination of the causes of world water scarcity.

    Can you explain precisely what those causes are? I doubt that you have any idea what you’re talking about, but I’m willing to be pleasantly surprised.

  • Mark DeFrancisis

    Oh those Harvard graces…

  • Can you explain precisely what those causes are? I doubt that you have any idea what you’re talking about, but I’m willing to be pleasantly surprised.

    “Precisely”? No. I’m not a scientist, and there are many causes of water scarcity. But I’ve read enough to know that water scarcity is not natural. It’s caused by unsustainable living practices, pollution, etc. A good source on this is Vandana Shiva’s book Water Wars.

    Essentially, Blackadder and the folks he cites are suggesting a market solution to a problem that is exacerbated if not caused by capitalism. A free market “solution” will not solve anything. It will only enable the rich to continue wasting water that they can afford while the poor are gouged for one of the basic ingredients of life.

  • An interview with Dr. Shiva about the book Water Wars:
    http://www.inmotionmagazine.com/global/vshiva3.html

  • blackadderiv

    I would agree that water scarcity is in a sense un-natural, though not perhaps in the sense Michael means. For the most part, water scarcity is a function of population growth: just under 70% of water today is used for growing food, and another 15% is used for things like drinking, bathing, and other household purposes. Population growth, in turn, is due to advances in medicine and sanitation over the last few hundred years. And as these advances are themselves un-natural, in the sense that they do not naturally occur but are the result of human ingenuity, the current scarcity of water is, to that extent, an un-natural phenomenon.

  • Blackadder – That’s a very simplistic explanation… essentially that human ingenuity (of course, propelled by capitalism, right?) means more human beings and therefore less water to go around. You point to population growth but say nothing of the increasing gap between the rich and the poor, distribution of resources, or overconsumption in the global North. The ingenuity we should be tapping into (pardon the pun) is indigenous wisdom related to water use (among other things).

  • blackadderiv

    Michael,

    I don’t say that that population growth is the only factor involved, but it would seem to be a major one. And Dr. Shiva’s proposed solution (which is that water ownership should be collectivized) is a sure fire way to lead to water depletion and more shortages. You accuse me of advocating policies that will “enable the rich to continue wasting water.” Yet part of the reason water resources in the west are being depleted is that the price is being kept artificially low by government.

    Also, from what I gather, the problem in places like Africa and Bolivia is not scarcity (in the since of their not being enough water to go around) as water access and quality. People can still get water in these places, but they have to walk to wells or rivers to get it (as opposed to turning on a tap), and the water they get doesn’t meet modern sanitary standards. Neither of these are new problems. They are, in fact, problems faced by the great majority of mankind throughout most of history, and it is only because we now have the technology and resources to improve water quality and access that it has become an issue.

  • Shiva’s solution is not “collective ownership” of water by the government. It’s the decommodification of water. In Shiva’s view, water cannot be owned.

    Treating water more and more like a commodity, as you propose, is hardly a way to improve access to water. And theologically speaking, the commodification of water is an atheistic move.

  • blackadderiv

    Michael,

    Whether you call it collective ownership or no ownership matters little. In either case the effect will be to encourage overconsumption and remove incentives for people to improve water access and quality.

    You say that “[t]reating water more and more like a commodity… is hardly a way to improve access to water.” But that’s exactly what it is. Treating books as a commodity – allowing them to be bought and sold for a profit – increases access to books. The same goes for food, clothing, shelter, all of which are pretty basic to human survival. Why water is supposed to be exempt from the laws of economics is beyond me.

    And, fwiw, I think the theological issue is basically a red herring. Were you to become convinced that privatization was the best way to keep people from dying of thirst or from diseases contracted through dirty water, any theological objection you had against doing so would evaporate (pardon the counter-pun).

  • SB

    Blackadder and the folks he cites are suggesting a market solution to a problem that is exacerbated if not caused by capitalism. A free market “solution” will not solve anything.

    That’s ideology talking, not reason.

    You point to population growth but say nothing of the increasing gap between the rich and the poor, distribution of resources, or overconsumption in the global North.

    Since we’re not consuming African water, I don’t think this is relevant at all.

    In Shiva’s view, water cannot be owned.

    That’s absurd. If ownership rights are not determinable and enforceable, in practice this will mean that whoever is upstream will be able to use as much as they want, without any limitations at all that would give downstream users some degree of ownership or rights. Might would make right.

  • Whether you call it collective ownership or no ownership matters little. In either case the effect will be to encourage overconsumption and remove incentives for people to improve water access and quality.

    You can keep saying that. Shiva’s book shows that it can be otherwise.

    The same goes for food, clothing, shelter, all of which are pretty basic to human survival. Why water is supposed to be exempt from the laws of economics is beyond me.

    Laws law laws. Said like a true believer in capitalism. Them are faith statements, bro.

    And, fwiw, I think the theological issue is basically a red herring.

    The theological issue is central. Exclusion of the theological is the capitalist move.

    SB – Go back to sleep.

  • blackadderiv

    One needed have faith to see that markets provide access to things like food. You only have to visit your local supermarket.

    That people will tend to consume less of something the more they have to pay for it is also an easily observable fact, which applies to H2O as much as to anything else. For example, houses where water use is metered use about half as much as houses where payments are made on a flat monthly rate, even though the price of water in either case is relatively small.

    Suppose, though, that we accept your idea, and say that water can’t be owned, can’t be bought and sold, etc., such that I (and everyone else) can stop paying our water bills. Under this scenario, who is going to be paying the people who run the water treatment plants? Who will come out and fix busted pipes, or expand pipelines into new areas? How exactly, under Dr. Shiva’s system, is water supposed to get from its source to your house? In the olden days (i.e. until quite recently), you would have had to walk to get it. Now, at least, people are able to drive, but it seems like forcing everyone to transport their own water from the nearest source (assuming this would even be feasible) would be an enormous waste of time and energy for no apparent purpose.

  • Read her book.

  • blackadderiv

    Tell you what, I’ll read her book if you’ll agree to read a book of my choosing. Then we can compare notes. Deal?

  • No, in all honesty I cannot commit to doing that. Unless the book you want me to read is Empire by Hardt and Negri, Augustine’s tractates on the Gospel of John, or Freedom Made Flesh by Ignacio Ellacuria, in which case, sure.

    I do recommend Shiva’s book if you want to get beyond caricatures and misunderstandings.