Activists around the world chant the slogan that "water is a human right." Yet more than a billion poor people in the world today lack access to safe drinking water. Twelve million of them die each year from drinking disease-contaminated water.
Among things that would most benefit the world, safe, clean drinking water is clearly a high priority, as pointed out by the Copenhagen Consensus organized by skeptical environmentalist Bjorn Lomborg in 2004.
In 2003 the U.N.'s World Water Development Report estimated an annual shortfall of $110 billion to $180 billion in investments needed to provide access to safe water to the poor in the developing world. The U.N.'s Millennium Development Project has a target of reducing by half the proportion of people without access to safe drinking water by 2015. The economic benefits of halving the number of people without access to safe water—in terms of disease avoided, lives lengthened, and time wasted fetching it—add up to $300 billion to $400 billion annually.
Displaying a surprising lack of imagination, the summary of the Copenhagen Consensus paper on water adopted the conventional wisdom that "water service provision has generally been seen as a government responsibility. This is largely because water is regarded as a public good and its availability as a basic human right, best administered by the public sector." Given the fact that so many of the governments in developing countries have somehow failed to recognize their citizens' supposed right to water, perhaps there is a better way to go?
In his excellent new monograph, Water for Sale: How Business and the Market Can Resolve the World's Water Crisis, Swedish analyst Fredrik Segerfeldt makes the case that water privatization can go a long way toward quenching the thirst of the poor. Segerfeldt points out that public water systems in developing countries generally supply politically connected wealthy and middle class people, whereas the poor are not hooked up to municipal water mains. Segerfeldt cites one study of 15 countries that found that in the poorest quarters of their populations, 80 percent of the people were not hooked up to water mains. Of course, the poor don't just die of thirst; they just pay more—generally a lot more—for their water.
"Contractors often drive tankers to poor districts, selling water by the can, in which case the very poorest of the world's inhabitants are already exposed to market forces but on very unfair terms, because water obtained like this is on average twelve times more expensive than water from regular water mains, and often still more expensive than that," notes Segerfeldt. A survey of major cities in developing countries found that the poor in Lagos, Nigeria pay four to 10 times more for their water than people who are hooked up to water mains do; in Karachi, Pakistan they pay 28 to 83 times more; in Jakarta, Indonesia, four to 60 times; and in Lima, Peru, 17 times more. Essentially, the rich get cheap tap water while the poor pay the moral equivalent of Perrier prices.
So now some countries have turned to the private sector and multinational companies for help in providing their thirsty poor citizens with water. Privatization can mean selling entire water supply and treatment systems to private owners; long-term leases of water supply systems; or contracts to manage public water systems. In practical terms, the usual arrangement is a long-term lease. So far, only 3 percent of the poor in developing countries get their water from private-sector water systems. However, these initial projects have provoked an outcry by anti-privatization activists around the world against a "global water grab" by giant corporations.
Segerfeldt shows that even imperfect privatization efforts have already successfully connected millions of poor people to relatively inexpensive water where government-funded efforts have failed. For example, before privatization in 1989, only 20 percent of urban dwellers the African nation of Guinea had access to safe drinking water; by 2001 70 percent did. The price of piped water increased from 15 cents per cubic meter to almost $1, but as Segerfeldt correctly notes, "before privatization the majority of Guineans had no access to mains water at all. They do now. And for these people, the cost of water has fallen drastically. The moral issue, then, is whether it was worth raising the price for the minority of people already connected before privatization in order to reach the 70 percent connected today." In Cartagena, Colombia privatization boosted the number of people receiving piped water by 27 percent. Even the conflicted privatization in Buenos Aires saw the number of households connected to piped water rise by 3 million and 85 percent of the new customers lived in the poor suburbs of the city. Segerfeldt cites other successful privatizations in Gabon, Cambodia, Indonesia, and Morocco.
But given the often corrupt governments with which corporations must deal, it's not surprising that privatization can be done very badly. Probably the most spectacular case of privatization gone wrong occurred in Cochabamba, Bolivia. Cochabamba is to anti-privatization activists what the Alamo is to Texans. Between 1989 and 1999, the proportion of households connected to the public water system fell from 70 percent to 60 percent. Water was only sporadically available. In the wealthier neighborhoods 99 percent of households were receiving the subsidized water, while in some poorer suburbs less than 4 percent were connected.
The activist myth is that the poor rose up when the evil multinational Bechtel raised the price of water by 43 percent to 60 percent, depending on the customer's income. While it is true that the lucky few of the poorest who were connected to municipal water supplies did see big increases in their water bills, the majority of the poor who stood to be connected for the first time would have paid much less than they were already paying to water vendors. Segerfeldt calculates that piped water prices were already so low that this would mean the poorest 5 percent of the population would be spending 5.4 percent of their incomes on water. Segerfeldt reports that the opposition to privatization was actually lead by middle class and industrial users who had been receiving subsidized water. Opponents also included local water vendors and small farmers who wrongly believed that they were forbidden to access well water.
Under pressure, Bechtel pulled out and Cochabamba's water supply system is once again being run by the old public utility. Segerfeldt claims that water is now available only four hours per day and that no new households at all have been connected to the network since 2000. Meanwhile, the poor are paying 10 times more for their water than are the rich households connected to the system. This is a victory for the poor?
Privatization is not a panacea, but Segerfeldt shows that, when properly done, it can play a huge role in bringing safe clean drinking water to the hundreds of millions of people who still lack it. In the meantime, Segerfeldt wonders, "why anti-privatization activists do not expend as much energy on accusing governments of violating the rights of 1.1 billion people who do not have access to water as they do on trying to stop its commercialization." Good question.