Is the privatization of water the right thing to do?

Public water systems promote waste and deprive the poor

The market solutionBack in 1999, when Bolivia decided to privatize water services in Cochabamba, the country’s third-largest city, it didn’t bargain for the backlash that would unleash. Mobs of angry Bolivians, some armed with Molotov cocktails, took to the streets in protest. Martial law was declared, and in the ensuing violence one person was killed and several others were injured. Eventually the government withdrew the private water contract, and Bechtel, the U.S. engineering giant overseeing the water system, was run out of the country. Since then, documentaries such as The Corporation, Blue Gold and Flow have used footage of the riots to highlight the perils of water privatization. But it’s too bad the filmmakers didn’t stick around to see how things turned out.

Since water delivery has been returned to the state-run utility, things haven’t improved at all. Fully 80 per cent of the new management is “not qualified to perform their responsibilities,” according to one former senior staffer. Two directors of the water authority have since been sacked for corruption, several managers have been fired for similar charges, and the utility is now hobbled by inefficiencies, nepotism and “blatant company corruption,” according to a recent study by the Transnational Institute. Now, party politics and electoral concerns determine “who gets service and when,” and the “fragmented hodgepodge” of expansion projects is neither coherent nor technically viable. Fully half of Cochabamba’s people are still without water, and those who have service only have it sporadically—for some, as little as two hours a day. “I would have to say we were not ready to build new alternatives,” admitted Oscar Olivera, who led the Bolivian protests that forced Bechtel out.

Running Dry - Part 4 of a seriesIt has long been assumed that privatizing water services is bad for the poor, bad for the environment, and leads to the inequitable distribution of water. The usual argument is that private companies will put profits ahead of people, cutting off the supply of fresh water to those who can’t afford it. However, new evidence has emerged showing that the opposite may be true. Right now, more than 90 per cent of the world’s local water distribution systems are state-controlled, and in many countries, they’re doing a terrible job. Currently, 1.1 billion people—one-sixth of the world’s population—do not have access to clean running water. Meanwhile, in wealthy countries such as Canada, the massive subsidization of the systems leads to enormous waste. That was fine when water was cheap and plentiful, but it’s becoming less so, and the subsidies are creating a dangerous illusion. Some say privatization could lead to more realistic pricing, less waste, and better distribution—even to the world’s poor.

Over the next four decades, water use is expected to triple as the world’s population grows by a predicted three billion people to 9.5 billion. At the same time, global warming appears to be speeding up the hydrologic cycle, making wet areas wetter, and dry areas drier. By 2030, nearly half of the world’s population will inhabit areas of severe water stress, according to the Organisation for Economic Co-operation and Development. In short, more water will soon be required to slake the thirst of a world that many say is already using too much.

But right now we’re still using fresh water at such a high rate that “groundwater supplies and major aquifers throughout the world are dropping rapidly,” says Boston-based trade analyst Michael Locascio of Lux Research Inc. “Infrastructure is collapsing and people aren’t willing to pay, nor are utilities willing to raise the price high enough to pay for repairs. We’re treating it irresponsibly—not as the asset that it really is.”

The problem is that in some parts of the world, such as Canada, fresh water is cheap and plentiful, so it gets wasted, while in areas where it’s scarce, governments often have little incentive to get it to the people who need it the most. “Scarcity is not a quantity issue: it’s a distribution issue,” says law professor Gabriel Eckstein of the Texas Tech School of Law. “We have enough fresh water globally to provide every person on earth a hundred times over.” Private water markets, he says, could get it to the people who need it. For instance, Singapore has been buying water from Malaysia, and Israel has considered a similar agreement with Turkey. Greenland, newly flush with glacial runoff thanks to global warming, is looking to export surplus supplies, according to its deputy minister of foreign affairs. It has 10 per cent of the world’s fresh water reserves and a population that barely tips 57,000.

If water distribution was privatized, prices for individual consumers would likely increase with use, which would have the positive side effect of encouraging conservation. Prices for industry and agriculture, which use 20 and 70 per cent respectively, would likely use a tiered system. But it would be “very efficiently” implemented by the market, says Eckstein. “At some point, you let the market come up with its own price,” he says, which it is well-equipped to do.

Some worry that charging market prices for water could lead to humanitarian concerns: the poor, who don’t have the money to pay for it, could be cut off. But that assumes the poor haven’t been cut off already, which in many countries is not true. In the developing world, only the economically powerful—industry, agriculture and elites—have access to running water, says Ashok Gadgil, senior staff scientist with the Lawrence Berkeley National Laboratory. People living in slums and rural areas do without.

The truth is that many of the world’s poorest people are, perversely, already paying three to 10 times the global average price for water, due to the failure of public utilities to provide any access at all, says Caroline Boin, a director at London think tank the International Policy Network. In Kibera, a sprawling Nairobi slum—the biggest in Africa—the only way to get water is through a network of porters that provide water to 500,000 people a day, hauling it in canisters on their backs or by donkey. By some estimates, more than half the population of cities in the developing world get their water this way.

Activists who warn against the dangers of privatization are right to be wary. Trading water is not like trading oil or softwood lumber: there are no substitutes. Because of this, the idea that water can be sold for private gain is still considered “unconscionable” by many, says James M. Olson, one of the top environmental lawyers in the U.S. But scarcity and the lure of extraordinary profits, he says, may “overwhelm ordinary public sensibilities.” The solution may lie not in banning private markets in water altogether, but allowing freely functioning markets, held to account by tight government regulation.

Because of increased competition for water, “humanity is converging on the need to make public policy trade-offs that have never had to be made before,” says Robert Sandford, chair of the UN water initiative in Canada. “In many parts of the world, cities are competing—with one another, with agriculture, and nature—for water, and we’re going to have to make some very difficult choices.” Given their flexibility and capacity to collar economic incentives and technological innovations, market-based institutions are well suited to address the precarious water future. “No matter where you stand on privatization,” says Boin, “nobody should be happy with the status quo.”