#03 development cooperation
Erica Gies

Is there a role for privatization in water services?

In developed countries, we turn on the tap, and clean water flows. Most of us take this service for granted because we consider water, necessary for life, a basic right. In fact, this notion stems back to an ancient Roman legal precedent called the public trust doctrine, which says that crucial natural resources, especially water, belong to everyone.

But, of course, everyone doesn’t have access to clean water. A 2010 report from the World Health Organization estimated that 884 million people (13 percent of the world’s total) still lack access to improved drinking water supplies, and “improved” does not necessarily mean that the water is safe to drink. Furthermore, 2.6 billion people, or 39 percent of the world’s population, lack access to improved sanitation.

In the 1990s, neoliberal ideology canonized privatization as the best solution to myriad woes, including water delivery deficiencies. International aid lenders, including the World Bank, International Monetary Fund, and Inter-American Development Bank, made water privatization a condition of loans, thinking the “invisible hand of the market” would be inherently more efficient than the public sector. As a result, private companies — mostly European multinationals — began assuming management of municipal water systems in countries around the world.

This policy of requiring water privatization as a condition on loans was derided by many public water activists as ideological delusion: misguided, paternalistic, and serving the economic interests of donor countries’ private sectors, rather than meeting developing countries drinking water and sanitation needs.

The issue of water privatization exploded into public view in 2000, when residents of Cochabamba, Bolivia, revolted against soaring water rates. The previous year, Bolivia’s government, pushed by the World Bank, had granted a 40-year water privatization contract to a consortium jointly owned by U.S. engineering giant Bechtel Corporation and the Italian energy company Edison. Rates increased immediately by as much as 200 percent, and many families were paying one-fifth their income for water. The rioting led to government instability and the revocation of the water contract.

But developed countries are not immune to water privatization either: infrastructure is aging, causing leaks and pollution. Budget pressures, increased by the economic recession, have pushed more municipalities to consider privatization in the United States and other developed countries.

In response, anti-privatization groups have organized around the world, arguing that clean water is a basic human right, a tenet codified into modern law in 2002 by the United Nations Committee on Economic, Cultural and Social Rights: “The human right to water entitles everyone to sufficient, affordable, physically accessible, safe and acceptable water for personal and domestic uses.”

Activists say that water is a form of public wealth that should not be taken for private profit. If water instead becomes a commodity, and access is dependent upon people’s ability to pay, some will resort to free, tainted water, causing mounting costs to society: pirated water infrastructure, life-threatening illness, work loss.

And privatization’s record isn’t great. Early adopters have experienced rate increases, poor maintenance and repair, declines in water quality, and a lack of water accessibility. The disenchanted circle the globe, from U.S. cities such as Atlanta, New Orleans, Buffalo, and Stockton (California), to Dar es Salaam, Tanzania; Guayaquil, Ecuador; Buenos Aires, Argentina; Manila, the Philippines; Jakarta, Indonesia; and cities in South Africa and Namibia, just to name a few.

But these failures have not deterred Western policymakers or lenders from promoting it as an answer to water infrastructure problems. Today, privatization requirements for developing countries are no longer a foregone conclusion, but they aren’t banished to history books either, so activists in many countries continue to fight. And the United States continues to push the ideology around the world that privatization is the answer — not just for water but for other public commons as well.

That’s because American policy of the last few decades has absolute faith in capitalism and the “free market.” However, what passes for a free market is anything but. Rather, the market is skewed by money and access, as corporations hew to their legal commitment to put quarterly gains for their stakeholders above all else. At this stage in corporate evolution, there is no motivation for companies to provide for the common good. In fact, there are disincentives.

The U.S. Water Trade Mission to India, which took place February 28–March 4, 2011, is a further example of this U.S. worldview. Its stated objective is to “tap the billion Indian water market,” securing the entry of U.S.-based water corporations into India. Food & Water Watch, a U.S.- and Germany-based consumer advocacy organization, says this mission builds upon years of USAID water sector reforms that encourage private sector participation.

Activists in the Indian state of Karnataka are not pleased. The Peoples’ Campaign for Right to Water-Karnataka circulated a petition, asking the mission to leave, noting, “The deliberate use of words like - water market, water trade - underlines the intention of transforming our traditional idea of water as a natural resource to that of a product that can be traded or which you access depending on your ability to pay for it.”

Whether in a deliberate attempt to sidestep critics or an arrogant assumption that business usurps community control of natural resources, many of these negotiations are happening behind closed doors.

The activists wrote in their petition: “International private companies and their consultants in Karnataka directly influence water policy, assess needs, design infrastructure and manufacture public consent…. None of these decisions are informed, discussed or debated in democratic institutions or in the public realm. Information is suppressed and decisions manipulated.”

This resistance to water privatization in India underscores a critical element in the privatization question: each country, each state, each municipality is a separate case, with varied strength in belief of water as commons and openness toward privatization. Therefore, boilerplate solutions are unlikely to succeed. Rather, open-door, democratic participation in decision making about how water resources are managed is critical to privatization success. Private companies that bribe public workers behind closed doors to win contracts are unlikely to enjoy such victories for long.

To make smart business decisions, water corporations should instead focus efforts on communities with a cultural openness to privatization. And they should recognize that many communities around the world simply do not accept that principle; they want water safeguarded as a human right, not a commodity.

Beyond the public-private debate, many poor people today remain without critical water services. There is a marked urban-rural divide among those who have access to improved drinking water and sanitation services and those who do not because both private and public water utilities tend to focus on urban areas. Seventy percent of people without sanitation services live in rural areas, and 84 percent of people who lack improved drinking water live in rural areas, according to WHO.

All of these issues are further complicated by oncoming climate change, coupled with population increases, which are already causing regional water scarcity, a problem expected to grow in the coming decades. Water managers — public or private — are therefore foolhardy if they focus primarily on obtaining new water sources by building new infrastructure, such as longer pipelines or desalination plants. A more sustainable approach, which also happens to be cheaper, is to the soft path: conservation.

Here, again, private companies are unlikely to work for the common good because they have little incentive to encourage conservation; after all, when water use falls, revenue declines. In most markets, private profits are tied to how much companies spend on building new infrastructure.

But water scarcity could cause problems with public investment as well. Ceres, a U.S. nonprofit organization that works with investors, environmental organizations, and other public interest groups to address sustainability challenges, looked at U.S. municipal bond markets for water projects. Its 2010 report found that few players in the bond market — investors, bond-rating agencies, and utilities — are considering water scarcity, legal conflicts, and other threats in their analyses. Some are even encouraging risk by rewarding perverse incentives to increase water use.

The topic of conservation inevitably brings calls to increase the cost of water. Of course, basic economics holds that increasing the price of a resource makes it more dear and gives people an incentive to conserve. The 1992 Dublin Statement on Water and Sustainable Development expressed this idea: “Past failure to recognize the economic value of water has led to wasteful and environmentally damaging uses of the resource. Managing water as an economic good is an important way of achieving efficient and equitable use, and of encouraging conservation and protection of water resources.”

While certainly water is grossly undervalued — and wasted — in some markets, such as the western United States, water is not just any commodity; it is vital for life. There must be different pricing for people who are capricious water users, such as U.S. citizens who use 380 liters per capita per day, and people in developing countries who are using barely the 20 to 30 liters per capita per day that the United Nations considers a minimum to meet basic human needs.

Some cities in the United States and elsewhere have begun to introduce tiered pricing structures in an attempt to conserve water, charging a lower price for the first chunk of water used, and a higher price for use beyond that. This strategy could work in the developing world as well, if the first several liters used are free or nearly so. Billions of people around the world earn less than a day and cannot afford to pay anything for water. When water prices are introduced, they revert to free, often contaminated, water sources. Diseases like cholera have increased after price hikes in poor areas of countries such as Tanzania, Mali, South Africa, and Ghana. Higher prices also the encourage sabotage of water infrastructure in poor areas, where people punch holes in pipes to extract water for free.

Nearly 20 years of experience in privatization of water works has shown us there are many inherent conflicts in private companies delivering basic water services. So is there a more natural role for private companies in the water sector?

The San Francisco Bay Area has a legacy of venture capitalism for computer technology, the Internet, and renewable energy technologies. Now some venture capitalists here are beginning to turn their attention toward solving water problems. These technological solutions take many forms that address problems in both developed and developing countries. This type is innovation is exactly where private enterprise most excels. It is also a better fit for corporations who want to capitalize on human-water issues, allowing them to neatly sidestep the argument that water is a human right.

However, in all the ways that corporations insinuate themselves into water service, we must have vigilant market checks — regulation — in this crucial sector to ensure the public good. The 2008 real estate and financial market collapse in the United States has shown us, yet again, the folly of the argument that regulation is bad because it hinders economic growth.

The truth is that corporations, by their very charter, are self-serving, and they can only serve the public good if it doesn’t conflict with that mandate. If we invite the private sector into water service, we should remember the fable of the scorpion and the frog: The scorpion asks the frog to carry him across the river. The frog is afraid, but the scorpion assures him that he will not sting because it would mean mutually assured destruction. Mid-river, the scorpion stings the frog, dooming them both. When the frog asks why, the scorpion says, "I'm a scorpion; it's my nature."