Water Privatisation

Last updated: June 20, 2016

Should water be treated as an economic good and managed accordingly?

Water Privatisation
Yes because...

Water is a resource subject to supply and demand, and so should be treated as an economic good. It ...

Water is a resource subject to supply and demand, and so should be treated as an economic good. It may fall freely from the skies, but it has to be collected, managed, processed and supplied through an expensive system of reservoirs, channels, processing plants and pipes. Dirty water and human waste also have to be removed and treated in sanitation systems.
No because...
Water is a natural resource, God-given and free as it falls from the sky. It is also essential to all life, including humanity. Lack of good water is the biggest single factor in disease and ill health in the developing world, and without it people cannot grow crops to support themselves. Pollution of water sources or over-extraction has a very damaging environmental impact. For all these reasons water is special and should be seen as a common good, part of the responsibility of governments to their people. Access to clean water is a human right, not something to be traded away or withheld on grounds of cost.

Water Privatisation
Yes because...

When water is not treated as an economic good, it is wasted. On a domestic level, unmetered access ...

When water is not treated as an economic good, it is wasted. On a domestic level, unmetered access to water means that consumers do not pay according to the quantity they use and so they will use it wastefully. At a national level, subsidised water for farmers and industry encourages wasteful methods and inappropriate crops (e.g. growing water-hungry cotton in California or Central Asia, both naturally areas of semi-desert), often with a damaging impact upon the environment. Pricing water according to its true cost would promote more efficient and environmentally-friendly practices, e.g. the use of drip-irrigation or dry farming in agriculture.
No because...
Demand for water increases with population growth, so it does not respond to market signals in the way other resources do. Rich consumers in the developed world also waste water through extravagant use of luxuries such as garden sprinklers, swimming pools, lush golf courses, etc. - a problem which will get worse as income inequality increases, both between and within countries. Demand management is needed to prevent waste and to ensure access for all, including the poor, something which pricing water in a purely economic way will not achieve. This is a job for governments, accountable to their people, not for private companies.

Water Privatisation
Yes because...

Problems of water supply need to be addressed with huge investment, particularly in the developing w...

Problems of water supply need to be addressed with huge investment, particularly in the developing world where many people have no access to decent fresh water. Even in the developed world, much water (up to 50% in Canada) is wasted through leaks in pipes and ageing infrastructure. The public sector has failed to provide the money for this investment so private involvement is essential. For this investment to be attractive to the private sector, water companies must be allowed to make a profit through realistic water charges that reflect the costs of supply. Issues of quality, equity and environmental standards can be handled through effective regulation.
No because...
Large sums are needed to meet global water targets, but the private sector will only provide these in return for a large commercial return, meaning that the true cost of the investment will eventually be much higher than if it were publicly funded. Investment from governments and donors is preferable to privatisation as they can target investment at the most needy, rather than focusing upon the most profitable opportunities. Water supply is also a natural monopoly, so private companies have no competitive pressures to drive up quality and drive down prices.

Even in the developed world, the experience of water privatisation is not encouraging: in England shareholders cashed in and much of the industry ended up in foreign hands while prices went up, yet droughts in the 1990s still led to widespread rationing. Recent electricity supply crises in California have also shown how badly regulation of private utilities can fail. Meanwhile Australia has successfully reformed its water supply system while retaining it in public hands.

Water Privatisation
Yes because...

Treating water as an economic good will be better for the poor. Current regimes in developing count...

Treating water as an economic good will be better for the poor. Current regimes in developing countries often provide a state subsidy to the rich, with water provided to middle-class areas and wealthy farmers at a fraction of its true cost, while poorer areas have no supply at all. It is misleading to argue that privatising the water supply is bad because it will force the poor to pay for their water. The poor are already paying for their water, either directly to entrepreneurs who carry it in tubs and cans up to the shanty towns, or with their time as they spend a large proportion of the family's labour fetching poor quality water from miles away. The poor also pay through ill health caused by poor quality water and bad sanitation; this hits their ability to work and study, and so often keeps them in poverty.
No because...
Treating water as a purely economic good will be bad for the poor. The rich may take advantage of badly targeted subsidies in some developing countries, but that does not mean that these subsidies are not essential to the poor. How would farmers in much of India cope without state-funded irrigation water? South African experience shows that when their village water supply was charged at even a low price, many women chose to fetch dirty river water from a long distance rather than pay the new cost. The Bolivian disaster of privatising water supply in Cochabamba shows the dangers: the American firm Bechtel doubled water tariffs so that some families paid a third of their whole income in water rates, mass protests led to army repression and even death before the scheme collapsed completely.

Water Privatisation
Yes because...

Failing to price water economically is bad for the environment. Proper pricing of water would refle...

Failing to price water economically is bad for the environment. Proper pricing of water would reflect all the costs of providing it, including the environmental ones. Water exchanges (such as Australia's one for the Murray-Darling basin) can start by taking account of the needs of the environment and then trading the remaining water efficiently through the actions of the market. Pricing water according to consumption, e.g. through domestic metering, also discourages wasteful use and so reduces the demands on natural water systems such as rivers and underground aquifers.
No because...
Private companies are unlikely to care for the environment. Their duties are to their shareholders, not to society at large and nature in general. They will seek to reduce costs and maximise profits, most likely at the expense of high environmental standards.

Attempting to use market mechanisms such as water exchanges to protect the environment is also a bad idea. The value of healthy ecosystems and biodiversity is impossible to calculate. Trying to do so makes the environment just another resource to be exploited, rather than protected for its own sake.


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