A Free Market for Water

Both at home:

There are clear gains from having an active market in water rights. It would help solve the problems posed by current water shortages in the West, and it would provide the flexibility necessary to confront the impact of climate change on water supplies in the coming decades. It would be, in a word, fluid.

And abroad:

The solution for the poorer parts of the Third World is deregulation of the market for piped water, combined with the enforcement of property rights. Yes, I’m saying that Third World governments should consider letting private companies sell water at any price they want… And no, I don’t mean a water concession with a price regulated by the government, I mean true laissez faire in water supply. No price regulation, no rate of return regulation, no government ownership of assets, no political pressure to keep prices low.

Many of the world’s poor don’t get good water because they don’t live near a piped water connection. Or if they have a connection, it is often bad and irregular, with backflow putting dangerous and dirty substances into the drinking water. The underlying problem is that many governments artificially hold down the price of water, or they won’t let water companies cut off nonpaying customers. The result is that water companies don’t want to serve these poor customers in the first place, and they certainly don’t want to spend money by adding more water connections for the poorer areas. Deregulation would give water companies a stronger monetary incentive to serve these customers.

Note that it is a self-describe progressive organization that is calling for freer domestic water markets, and that a partial de-regulation compromise for the Third World is supported by Jeffery Sachs, of The End of Poverty fame.

Access to safe drinking water is a basic human right, which is why opening up markets for water is so important. Price controls, regulation, etc. may sound wonderful, but their actual effect is to deny people access to the clean water that markets would provide. The film The Corporation, for example, describes a series of protests in Bolivia against the attempted privatization of the water services of one of its major cities, Cochabamba. Eventually protesters were able to force the government to re-nationalize the utility, and turn control of it over to them. What the film doesn’t tell you, however, is that years later more than half of the city’s population remains without any water service, and many of those who do have service can get water only a couple hours a day. Those who lack water service (mainly the poor) end up paying ten times as much for their water than those who do, and, unsurprisingly, the state run company has had trouble securing the international capital necessary to make improvements. No doubt the intentions of the protesters were noble, but the ultimate result of their actions was to deny people access to cleaner and cheaper drinking water, just as the ultimate result of water regulations in Africa is increased cost and disease and the ultimate result of water regulations in the American West is resource depletion.