A Cold Shower for World Water Day

"Democratic" water distribution won't quench anybody's thirst

A global water crisis is looming. More than a billion people worldwide lack access to clean and safe water. Some 12 million people die annually as a result, and millions more are struck by diseases associated with the lack of sanitary water. Last year, more people likely died from lack of water than from armed conflicts.

Today is World Water Day and the launch of the United Nation's international water decade, aimed at promoting the UN Millennium Goal of halving the number of people without access to clean, safe water. This is not the first time the UN has made bombastic declarations about water for everyone. It did so in 1977, when governments of member states promised to provide their populations with water. In fact the first international water decade actually took place in the 1980s, to little practical effect.

There may be a solution to what had been an insoluble problem. In recent years, a small number of developing country governments have turned to the private sector for help and have introduced market-oriented reforms in the water sector. Overall, the results have been encouraging.

The reforms have had limited scope—97 percent of all water distribution, after all, is still in government hands—but millions of new households in such diverse locations as Argentina, Cambodia, Guinea, Morocco, and the Philippines have been connected to water networks as a result of private investment. In developing countries with private investment in water infrastructure, 80 percent of the population now has access to an improved water source. Countries that don't allow private investment in water distribution have lagged behind their entrepreneurial rivals.

The attempts at privatization have met vociferous resistance. A coalition of non-governmental organizations, trade unions for public employees, and international organizations such as the United Nations have done all they can to limit the role of the market and the business community. And they have had some success. The pace of privatization has slowed down, and the World Bank, one of the major advocates of privatization, has gone on the defensive. Global water companies are less and less inclined to invest in developing countries, for fear that their efforts may be nationalized.

This is a tragic development, and all the more so since the anti-privatization lobby is wrong on almost every count. What they denounce as "privatization" is not at all about complete deregulation and liberalization of services. Rather, what we have seen are different forms of tightly regulated cooperation between cash-strapped developing country governments and skilled and experienced water companies.

The most common argument against privatization is that it will lead to rate hikes, making it impossible for the poor to pay for their water. This is a gross oversimplification: There are cases where prices have gone up after privatization, but there are also cases where rates have been lowered.

But grant the point for a minute. Artificially low prices are one of the main causes behind the shortage of good water. When operators know that they are going to lose money on each new household that they connect, they have no incentives to extend networks. If water companies do not get enough capital to lay down new pipes or to maintain the infrastructure, people suffer.

Millions of women and children therefore spend many hours per day (the estimate is 10 million man-years per annum) fetching bad water from remote sources. They cannot work or go to school during this time, which helps to keep them in poverty. Too-low prices also lead to waste and misallocations in agriculture, where most water is used—and generally used inefficiently.

Most importantly, the billion people who are not connected to any water network are forced to buy water—usually of bad quality—that costs on average 12 times more than network water. These people will gain, not lose, from higher prices, when operators get capital and incentives to reach them. Since the poor are not connected to the networks, they do not gain from subsidized water; they pay for it with their taxes, financing cheap water for the better off.

Members of the anti-privatization movement claim that water is a human right that only governments can provide. The problem is that, for whatever reason, many governments simply will not provide this water. It is not surprising that water companies with skills, incentives, capital and technology are far better equipped to provide water. No matter how many documents declare that access to water is a fundamental right, people can't drink paper or rights; they need actual water.

Some people also argue that since water is necessary for life, it needs to be distributed "democratically"—i.e., by the government. That is nonsense. Food is also necessary for humans to survive. And in countries where food is produced "democratically," there tends to be neither food nor democracy.

There is a solution to the water crisis. Companies and markets can save millions of lives—if they are allowed. Let us hope that the United Nations recognizes this today.