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Debate: Water privatization

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Should water be considered a public good and not be privatized?

Background and context

Water is the most common substance on earth and constantly renews itself through evaporation and rainfall. But 97% of the world's water is in the oceans and most of what is left is locked up in ice caps and glaciers, etc., leaving just 1% of the world's water available for human consumption.
This water must not only satisfy domestic use, but also industry and agriculture. Water can be an important political issue in the developed world, with arguments about privatisation, water metering and effective regulation in Britain, over the allocation of scarce water resources in Australia and California, about foreign ownership and pricing in Argentina, or about the use of (hugely expensive) desalinated water for agriculture in Saudi Arabia. Water is even more crucial to the developing world. Over a billion people still have no decent water supply and 2.4 billion do not have proper sanitation; over 60% of global ill health can be linked to water. Without tackling these problems, little progress can be made on other development issues (e.g. children required by the family to fetch water several miles cannot attend school, sick people cannot work, infant mortality will remain very high). The UN's International Year of Fresh Water in 2003 focused attention on these issues, and produced commitments to halve the number of people without access to clean water over the next decade. Estimates of the cost of these targets range from $35 billion to $100 billion a year in addition to the c$75 billion already invested in water each year in the developing world at present. Where this money should come from, and how it should be spent remain controversial issues.[1]

Contents

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Rights: Is access to water a right?

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Yes

  • Water is a human right, not a commodity - This argument centers on the notion that the right to life is the most fundamental of all human rights, and that water is fundamental to health and life, making it necessary to preserve water as a right in order to protect the right to life. By extension, it can be argued that water is essential to all of the rights that depend on health and life, such as the right to free speech, freedom of expression, and freedom of religion. This all makes water an exceptional, fundamental part of protecting our rights as individuals. In this way, water can actually be seen as a "negative" right as it protects the violation of our other rights (a counter-argument to the notion that water could only be a "positive" right offered as a premium to citizens). The problem is that companies are not fundamentally able to secure this right, without exception. This is why governments must act to secure it through public ownership and distribution of water resources.
  • Profit companies are inherently incapable of securing the right to water - Some argue that even if water is considered a right, companies can reliably (possibly even more reliably than governments) provide it to those in need. This has not proven to be the case. Companies inherently have an interest in profits over the interests of individuals. This does not mean that companies are evil, but simply that they are profit-maximizing entities that do not have a fundamental interest in ensuring a citizen's right and access to water. Companies have an interest in charging as much as consumers are willing to pay for water. It is common that private companies increase rates dramatically (sometimes as much as two to three times over) in their profit interests. Many can't afford the fees that this entails, and are forced to move, a violation of the right to water. The fundamental problem is that the profit interests of private water utilities lead directly away from the consistent, equatable, affordable protection of the right to water. This is a problem, primarily because anything that is considered a "right" should not be directly subject to fundamentally counter-veiling profit-interests.
  • Private ownership of water can threaten public health and citizen rights. - While many argue that water is most efficiently supplied by private companies, this is not necessarily the case, and there are numerous instances in which privatization lead to serious disasters and public chaos. This argument contends that public health is generally at greater risk with private ownership. Part of this surrounds the nature of international trade agreements that often severely limit "non-tariff trade barriers" such as national safety standards that make the flow of water across borders more difficult. Because privatization of water often leads to the weakening of these standards, privatization also jeopardizes the rights of citizens that are protected by these standards.
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No

  • Water is not a public right What qualifies water as a right? Do people have a right to food or other necessities to sustaining life? No. We would hope that people would be able to afford water so that they can survive, but this need does not qualify water as a right that a government is obligated to provide to its citizens without fail. Need is not a sufficient condition for making something a right. Such "positive" rights, which require a government to give something of value to individuals, are generally illegitimate. Governments should only confer "negative" rights that protect citizens from one-another, such as a right to free speech or a right to one's own property. Such "negative" rights are considered God-given and innate; the essential characteristics of a "right". Positive rights go beyond innate rights and offer something of value to an individual based on need or other illegitimate, generally liberal characteristics. The basic problem is that, in offering "positive" rights, a burden is placed on other individuals to help pay to provide that good. In this way, in order to offer a "positive" right to an individual, the rights of others are necessarily violated.
  • Water can be treated as an economic good **"Water as an economic good". The World Bank. 1996 - "The idea of 'water as an economic good' is simple. Like any other good, water has a value to users, who are willing to pay for it. Like any other good, consumers will use water so long as the benefits from use of an additional cubic meter exceed the costs so incurred. This is illustrated graphically in Figure 1(a), which shows that the optimal consumption is X*. Figure 1(b) shows that if a consumer is charged a price P1, which is different from the marginal cost of supply, then the consumer will not consume X* but X1. The increase in costs (the area under the cost curve) exceeds the increase in benefits (the area under the benefit curve) and there is a corresponding loss of net benefits (called the 'deadweight loss.)"
  • Even if water is considered a right, privatization is the best way to protect that right What is the best way to provide quality water, reliably and efficiently to all that need it? The answer includes private companies, which are generally capable of harnessing market forces more efficiently so that they can reliable provide quality water to those that need it. Free market forces has consistently demonstrated themselves through history of being better able to supply demand, and fewer costs, more efficiently, more reliably, and more productively to an economy. These forces should be harnessed in the supply of water globally.
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Economics: Is government ownership of water utilities economically efficient?

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Yes

  • For-profit water companies seek to maximize profits at higher cost to consumers Water privatization often leads to price-hikes two or three times higher than the price under public water-utility ownership. This might be the case despite the fact that a for-profit water company is operating more efficiently than a governmen-owned company. The problem is, however, that the for-profit company is pocketing PROFITS off the top of what it is charging the public, whereas a government-owned company would not be pocketing these profits. Therefore, we have to ask, what does "economic efficiency" mean? The reality is that for-profit companies do produce greater "economic efficiency" than government-owned companies, yes, but typically at greater cost to consumers due to the pocketing of profits by these companies. In this way, privatization is more "efficient" for the owners of water utilities, but not necessarily for the general public that pays more than before. This is particularly wrong-headed in the context of water being a right that should be available equally at affordable costs to all socio-economic groups in need of it.
  • Water privatization is at odds with the need to conserve water resources - For-profit water companies sell water at a price per gallon. There is a direct incentive for them to sell as many gallons of water as is possible. Therefore, there is no inherent incentive for them to conserve water resources. This has implications in regards to the environment, but also the economy. If water becomes highly scarce, for example, because water companies are pumping as fast and as much of it as possible, then this may force a major spike in water prices, creating economic shocks. We cannot trust profit-interests to manage scarce water resources appropriately to avoid such problems; government management is necessary that has the public interest more directly at heart.
  • Water supply is infrastructure-intensive, making government involvement in it important - Water is unlike other goods in its weight by volume and the amount of it that is consumed. This makes it more infrastructure-intensive than any other good in the world. Infrastructure is commonly seen as within the jurisdiction of government control and as something of a equal right to citizens. The reason for this is that infrastructure is extraordinarily complex, resource-intensive, and important to the survival and success of citizens. Because water is so infrastructure intensive and vital to the success and livelihood of citizens, it must be under the control and ensured by governments. [2]
  • There is no real competition between water suppliers that gain secure contracts in geographic areas: This means that there are no real "choices" for consumers to switch to alternative suppliers. This is a problem, particularly because it means that there is no incentive for companies to offer more competitive prices than their competitors because there is no risk that they will lose the consumers that are locked into buying their company's water.
  • 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.[3]
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No

  • Water privatization is more economically efficient - For profit companies are managed by individuals with a direct for-profit stake in the efficiency and productivity of their company. If they manage their company poorly, they lose money. If they manage their company well, they profit. It is this direct profit-interest at the managerial level that ensures for-profit companies, in general, perform efficiently. Conversely, there is not profit interest at the managerial level in government-owned companies. If the government-owned company performs highly efficiently or somewhat efficiently, it matters less to managers of these companies because it does not typically affect them monetarily. Therefore, for-profit companies have a greater incentive structure for the efficient operations of its company, and the empirical evidence generally demonstrates this to hold true.
  • Rapid growth of water infrastructure can only be achieved through private investments - Water infrastructure is very complicated and expensive to build and maintain. While the government could be involved in supplying all the resources to create this infrastructure, it is beneficial to allow the infusion of capital investments in such projects. This can allow for greater funding of these projects, and thus a more reliable and quality supply of water. Equally important, private investments can much more rapidly grow a water infrastructure to meet rapidly growing demand often found in emerging economies.
  • Market investments can spur innovation in the water industry: Innovation demands risk-taking, which demands, typically, the incentive of returns on investment. If water infrastructures and systems are to be improved by innovations, private investments must be allowed.
  • Market competition lowers prices for consumers in the water market. The markets are a competitive arena in which there are incentives between suppliers to cut costs to make their services more competitive. Because consumers have a choice between competitors, it is in a water supplier's interest to cut costs to appear more attractive in the eyes of consumers.
  • Politics often prevent elected officials from adjusting prices and investing appropriately in water utilities. It is often unpolitical for elected officials to make tough, bold, sacrificial, or risky moves in regard to water. While the water infrastructure for a city, for example, may desperately need repair, an elected official may be afraid, for numerous reasons, to raise taxes to supply the funds that can repair the city's water infrastructure. As a result, the elected official does not raise the funds through taxes and avoids solving the problem. This is simply an illustration of instances in which public officials take into account considerations that are not in the public interest and prevent proper funding of the water infrastructure. Private investments in the water infrastructure are a very appropriate means to raise funds to solve problems like this, particularly when public officials will not act in the public interest.
  • 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, subsidized 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.[4]
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Private investments: Should private investments be avoided or are they valuable?

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Yes

  • The problem with private investments in water supply is that large returns are demanded: 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.[5]
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No

  • 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.[6]
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Environment: Is the privatization of water better for the environment?

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Yes

  • 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.[7]
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No

  • 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.[8]
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Trade agreements: Is public water possible within international trade agreements?

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Yes

  • The public interest in water nationalization should not be constrained by international trade agreements that are corrupted by corporate interests. International trade agreements were dramatically influenced by and are in large part controlled by multinational corporations. These international agreements have wrongly limited non-tariff barriers to trade, such as safety standards or rights-based considerations, in order to satisfy multinational corporate interests in freeing up the flow of goods and maximizing profits. Therefore, international trade agreements are illegitimately alligned with profit interests over the public interest to see water considered a right. Therefore, the constraints these agreements place on nationalization of water resources should be seen as illegitimately influenced by these corporate interests and rejected.
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No

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Supply the poor: Is public or private water the best way to supply the poor?

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Yes

  • 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.[9]
  • Movie "Flow" demonstrates how water privatization is bad for poor. This movie shows how privatization attempts have not been successful in supplying water for the poor but instead have made water even more dirty, less accessible, and taxing on the ways of life for the poor. In some cases, millions are displaced with no where to go and empty promises from investors.
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No

  • Treating water as an economic good will make water cheaper: 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.[10]
  • Documentary Film: Think Big - Makes the argument that wealthy corporations should be viewed positively in the poor world on issues of resource sustainability and management.
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Employees: Would workers benefit more from public or private water?

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Yes

  • Public involvement in water will help provide stable employment. This is a broad advantage of government involvement in industry. The private sector is obviously much more vulnerable to market fluctuations and the potential for layoffs. Investing in public-sector industry helps create a more stable base of employment. This is particularly important in times of national difficulty or recession.
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No

  • Water industry employees fair much better in the private sector: "Water: To privatize or not to privatize?. The South Asian". February 27, 2004 - "A 1999 report by the city of Indianapolis on the performance of the public-private partnership in running the city's water system for five years said that employee wages and benefits have risen between 9 and 28 percent, accident rates have dropped 91%, and grievances are down 99%"
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Public-private partnership: Are public-private partnerships on water resources inappropriate?

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Yes

  • Okke Braadbaart has revealed high rates of failure for public-private partnerships (PPPs) in the 1990s. Braadbaart, O. (2005). Privatizing water and wastewater in developing countries : assessing the 1990s' experiments. Water policy ; vol. 7, no. 4 ; p. 329-344. Abstract and ordering details - [11]
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No

  • A mixture of public and private industries is ideal. There is a good case for maintaining a balanced mixture of private and public water utilities. The heart of this case is to maximize participation in common-interest projects.
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Case studies: What are the case studies on water privatization, both the successes and the failures?

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Yes

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No

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Organization pro and con

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Yes

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No

Cato Institute – Free markets American think tank.

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Pro/con bibliography and links

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Yes

  • Ann-Christin Sjölander Holland (2005), The Water Business: Corporations versus People, Zed Books, ISBN 1-84277-564-2
  • Barlow, M. (2003), Blue Gold – The Fight to Stop the Corporate Theft of the World’s Water (p. 4). London:Earthscan.
  • Hall, D. (1999, July) “Privatisation, Multinationals and Corruption”, Public Services International Research Unit, Report No. 9909-U-U-Corrup.doc, July 1999.
  • Jain, S. (2003, Apr. 13) “A River gone private is drying up” The Sunday Express.
  • "Community-managed water supply system changes lives"
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No

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YouTube videos pro and con:

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Yes

"Water Warriors", May 4th, 2007.

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No

"Suez's Thinks Long-term About Providing Water Services" February 8, 2007

See also

External links and resources

http://www.mail-archive.com/bdcom@envirolink.org/msg05776.html”

Citizen Website. “http://www.citizen.org/cmep/Water/cmep_Water/reports/india/articles.cfm?ID=8 109”

Books

2004)"][[Category:International politics

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