By David Zetland, who worked on water policy for 10+ years and is an assistant professor of economics at Leiden University College in the Netherlands. Originally published at Aquanomics
Let me solve this “puzzle.”
First, there’s no point in making water cheap to help poor people. Cheap water will not make them rich. If you want to help poor people, then give them money.
Second, water utilities are neither charities nor social innovators. Their job is to deliver safe and adequate quantities of water at prices that cover their costs of operations, maintenance and expansion. Utilities that are underfunded (like those in India that lose money on every cubic meter delivered) cannot provide good service.* Utilities that are asked to take care of poor people (like those in England where the government is too stingy to help poor people [pdf]) lose track of their primary mission (good service) as they struggle to identify who is “poor”.**
Third, any politician who claims that water needs to be cheap to help poor people is a lying, lazy incompetent. It’s the politician’s job to tax the rich to help the poor, but US politicians work for the rich. Sad.
Bottom line: Water utilities need money to operate and deliver safe, adequate water to customers who should pay for it. If those customers are too poor, then the government should give them money, not undermine utility finances with counterproductive “affordable water” mandates.
*FYI, I pay about €50 ($60) per month for water, sewer and water security (protecting Amsterdam, and thus my house, from flooding). I provide this figure NOT to show how it’s less than my TV bill (I don’t have a TV) or mobile phone bill (that’s €25/month), but to show how world-class service can be quite cheap. Why is that? Dutch professionals are pro-active and their utilities compete to provide the best value for money, so they avoid many mistakes common in under-funded locations.
** According to Donoso (2017), the government of Chile pays for some share of the cost of water in poorer households, i.e.:
Affordability criteria are met by the provision of subsidies directly to the most vulnerable house- holds. Households are classified based on an annual survey (Encuesta Casen) which estimates household per capita income. In order to qualify for the subsidy, households must not have payment arrears with the service provider. The central government transfers the block subsidy to the municipalities; the latter uses this to pay a share of each of the eligible household’s water bill. The subsidy considers a payment share from 15 to 85% of the water bill, with the poorest families getting the highest share, and covers water consumption up to 15 m3. The WSS providers bill the benefiting households for the consumption cost not covered by the subsidy, but indicate the full consumption cost, and then charge the municipality for the subsidies granted. The advantage of this subsidy scheme is that it does not distort price signals.
DETROIT DWSD DEBT SHOWS WALL STREET NEVER LOSES ON BAD SWAPS
Unforseen changes in interest
rates ? Or fake and shake “own goals”…or have we forgotten all the pay for play investigations and litigation which magically came off the pages of the acela vanity press with the great recession…
Rule g-37 is cute…and their are certain people within the msrb sphere who mean well…but it is as useful as block chain technology…it is often irrelevant how you voted…it only matters who gets to count the votes.
These derivative “losses” are not unforced errors…if one is “hedging” with long term exposures, why was their no tail risk position to insure these magical “losses” could not “appear” ???
There was an interesting comparison on British TV a few years ago comparing a Belgian (public owned) water company and an equivalent size British privatised water company. Since privatisation in Britain the CEO salary had rocketed (along with water bills) and now completely dwarfed the salary of the Belgian equivalent. Another example of the scam that is privatisation. I have no choice of water company at all – the supplier simply depends on the geographic area. Plus the water companies bleat the need for financial subsidies when infrastructure upgrades are necessary, while simultaneously paying out obscene amounts in shareholder dividends.
Yes. Privatization of water is worth talking about!
I saw a documentary years ago, which covered some privatization actions and the, of course, detrimental effects they had. We had the usual players (Suez in France), and you could guess what happened; worse service, higher prices. It was a German documentary, and they covered the parallels with what had happened in France.
Points of note:
Supplying water in a proper way, that is NOT chlorinating water, requires proper maintenance and longer term investments. In the documentary there was a literal statement that the reason for chlorinating water, is that you have to invest less money in proper maintenance of your piping system.
Privatization is always promoted as being cheaper and so on, but it just isn’t. There were some hints at bribing public officials to get a foot in the door as well.
In France, most of the privatization actions were revered later on, especially since the people complained about the effects of these actions.
Typo which I missed; reversed instead of revered. Odd that one character can make such a difference.
I assume you meant ‘reversed’ rather than ‘revered’.
Re privatisation being touted as cheaper, really how could it be? Even a non-rapacious operator has built in costs -ie, shareholder dividends – which are serviced and indeed increased at the expense of all others. This primary factor is absent in public ownership. And rapacity now being a given, the additional bloat in the share paid to executive and management of private concerns is a further cost not imposed by public operators run by government appointees (though its true there has been some bloat there too)
It is impossible, over time, for private operations without significant public subsidy, to be ‘leaner’ and ‘more efficient’ than public operation. Of course, in the initial stages after purchase, there may well be a slight drop in price, so as to appear to fulfil recent promises. But before long it will jack up appreciably in order to realise the gains sold to investors back on the drawing board. My power bills have tripled under privatised provision in the last decade.
When the primary aim and function is private gain, service breadth, quality and cost minimisation must suffer in comparison to public utilities.
It’s that simple. Which is why I’m a bit surprised that this article makes no mention of the role of privatisation if water utilities in cost increases, and focuses on giving poor people more money in order to pay for more expensive water, as if there is no scope for cost reduction.
…see what happened in South and Central America when water resources privatized…became illegal for poor to catch rain water…finally election of indigenous leader ejected foreign privatization:
A hundred years ago there was the concept of the “natural monopoly”. It’s the reason you don’t have 3 sets of pipes providing water to your house, or several sets of power lines. Attempts at applying the “free market” to a natural monopoly (e.g. neoliberalism) only creates more wealth inequality. I guess that’s the plan.
If the”free market” ran the electrical grid 100 years ago most of our farmers and inner cities wouldn’t have electricity (or at least reliable service)
That concept still applies today, it’s a good argument against the free-market claims about deregulation and privatization of services. States do provide many services far more efficiently and cheaply than private enterprise could ever hope to. We now know where the dividing line should be drawn between the public sector and the private sector: it’s defined by those ‘natural monopolies’, which belong in the public, state-managed sector.
Those ‘natural monopolies’ include – the roads, the water supply, the ports, the electricity grid, the fiber-optic grid, central banking, public education, basic health care and emergency services, railways, etc. – areas which, if controlled by the private sector, naturally tend towards monopolies and cartels, and turn into rent-seeking operations that extract wealth from the middle class to enrich billionaires.
There are other areas which just as clearly belong in the private sector – competitive enterprises like manufacturing, farming, commercial banking and credit unions, etc. where there is real competition and innovation can flourish. But clearly the public sector has its place too – otherwise, you end up with gross wealth inequality and the destruction of democracy by bloated capital.
The United States did decide to let the “free market” run the electric grid. The decision produced the likes of Enron and massive power blackouts. Regulation returned post haste.
Listening to the daily black reports while driving in to work was fun. The state developed a schedule and everything. Finding out afterwards that Enron deliberately f@@@@@ uped the entire state’s energy supplies to increase profits, and that state’s governor personally asked President Bush to intervene with his good friend Kenny Boy, but was refused even after some of this was known was just gravy on the rage train.
Remind me, why did California sell itself to Enron? Most states didn’t do that and didn’t have the same problems.
I think it was Pete Wilson’s doing…
Funny, thinking back to the amount that Enron screwed the state of California out of, $30 billion~
It seemed like all the money in the world, @ the time
And it only managed to stall Enron’s inevitable collapse for a few months. Ya, dat free market works great.
The higher rates were bad enough but for a while no Californian had anyway of knowing when, where, or for how long they would last. Rather hard to work, go to school, or the doctor, or cook. The electrical grid’s management was the same. They tried their best but…so a schedule was set based on some code on your bill. When it was your turn, maybe they would not have to sacrifice you, but often they did. And you could do some planning. Look at the code, read the paper, listen the news and you knew when for that day or week. It was f@@@ing fabulous. I could chat with relatives about their time in war zones and third world hell-holes. Except I’m commuting in the richest part of the richest state listening to the radio. They did point-out the bombed ruins or the slums, so it did put it in prospective.
Too bad Kenny Boy died before he could serve his sentence.
…bush – cheney “secret energy meetings” all about ENRON…newly minted dem congressman Inslee, invited to participate was informed (by cheney), as he questioned detail, he had no concept of economics…(Inslee was economics grad)…
(“Free Lunch”, David Cay Johnston)
(lest we forget, is how California Gov Gray Davis was deposed-replaced by republican-schwarzenegger)…
Surely the bottom line is that water is part of the commons, is a public necessity, and should, therefore, be managed by the government – ie nationalized. There is a poverty of thought here – or ideological blinkers. The management of water becomes even more pressing in face of climate change given that nations will need to come together to mitigate water shortages. And managing water for profit (because private sector utilities are for profit businesses, not a public sector service) is clearly not a solution given evidence from countries that moved from nationalization to privatization. And finally, the solution offered by this author is simply a recipe for inflation – government gives money to poor people, poor people buy water, private sector puts prices up. Why wouldn’t they? That is the primary purpose of a business, however, some want to dress it up.
“First, there’s no point in making water cheap to help poor people. Cheap water will not make them rich. If you want to help poor people, then give them money.”
Replace “water” with “housing” or “healthcare” and almost the same principal applies. On the flip side giving poor people the “money” for healthcare (via subsidies for insurance) still perverts the system.
Stopped commodifying the commons. Period.
Oops. “Stop” not “stopped”
And health insurance does not equal healthcare. Sorry off topic.
Totally agree with you.
I thought that in most places of the world, certainly here in Massachusetts, water is owned, managed, and sold by municipal/supramunicipal government-owned entities.
But if they didn’t charge at or above cost for water, people would have 0 incentive to conserve and Nestle would set up shop and bottle and sell the “free” water. Healthcare has a built-in disincentive to overconsumption (for most people) and can’t be resold; education can’t be either overconsumed or resold.
Air is a commons, parkland is a commons, but since water is a limited resource that can be turned into a commodity that can be re-sold, we can’t just give it away for free. We have to sell it at the actual cost–and not even “near cost” because then Nestle (or some local equivalent) swoops in again and robs the commons.
Seriously, we don’t let people chop down the trees that line the streets or pollute the air with coal-burning cars. Why would we let them waste the water?
J.G. Boswell, the Ag giant in the state (read The King of California to get up to speed if you’ve never heard of them) ‘owns’ the water emanating from 4 or 5 rivers coming out of the Sierra Nevada, including our river here. That hardly seems fair, but that’s how the deal went down starting a little over a century ago, when J.G. was forced out of the cotton business in the deep south on account of the boll weevil, and came to California where he discovered he could grow the finest quality cotton here, just as the US Army Air Force needed it for covering WW1 airplanes, and an empire was born.
“King of California”
Great article. Nice to know that the neoliberals didn’t completely ruin Chile. Here’s a link to one of the author’s books: http://endofabundance.com/
A few odd thoughts here. First, water is unique. You can get your electricity, your gas, your transport, your internet cut and that can be a real pain. Without water though, you are a goner in only a few days unless you can get hold of alternate supplies. Without water it is literally life-threatening. So how about we forget the consultants and algorithms and fancy calculations and go with this idea. You make water cheap for those who use it little. This is not only a matter of public health but guess what – it is also the right thing to do. Then you do your pricing in tiers so that on each level the costs per unit rise dramatically.
By the time you reach those who are using water on large scales you can give them water bills that would make Jamie Dimon’s eyes water! Industrial users? You would probably find that they can claim water usage on their taxes as necessary business expenditures. Remember when California was in the middle of that crippling water drought last year? And it came out that places like Beverly Hills were using water by the hundreds of thousands of gallons (http://www.latimes.com/local/westside/la-me-beverly-hills-water-20160314-story.html) or even more? Instead of chasing them for fines, just give them crippling water bills since they can afford it. Otherwise you can end up with a mini-war like the Cochabamba Water War (https://en.wikipedia.org/wiki/Cochabamba_Water_War) in Bolivia back in 2000.
Just because you will die horribly within three days without water doesn’t mean the market has failed. It just means you didn’t work hard enough, you lazy bum!
here in west central texas, we used to have peanut farmers(now they are generally into hay and grapes and cows since the peanut program died). that means big bore deep wells, which are regulated(poorly…it’s texas).
a few years ago, during the south texas=saudi arabia shale boom, someone remembered that we sit on an ancient beach, containing a mountain of frac sand, and tried to sneak in a new “sand plant” just up the road.
my neighbors and i raised a big stink, over several years, and the company decided to pull back(for now). one of the bones of contention(aside from dust and noise and trucks) was their proposed usage of our ground water….several giant bore wells, equal to many peanut farmers…water from which they intended to pollute(“cleaning the sand” with chemicals) and then pump back down into our aquifer(after running through what they said was a cleaning system)
while the farmers always had to dicker and cajole to get a new well, this giant company had no problem at all getting the permits.
of course, they had buddies in Austin and DC…
myself, I keep my hundred plus year old hand dug well with the windmill operational…because it’s grandfathered and therefore unregulated, as well as the regular well, and am working on rainwater for the house(i designed the roof for this purpose). triple redundancy…because I’ve been through a drought or two.
folks take water for granted, generally.
and they shouldn’t.
(an aside: during the fight with the sand company, i got to instruct my redneck neighbors in the concept of “direct action” if all else failed.
caltrops and such.
Interesting story…it seems there’s always a need for more ‘sacrifice zones’.
There’s an ongoing fight here in MA over nat gas pipelines. The opposition has been impressively well organized. They’ve won over local pols, but the state level officials really don’t want to hear it.
ya. my neighbors were really organised(we’re in the northern, historically democratic/planter/grange part of the county).
I could only contribute my john henry and a lot of moral support, and a pittance. The head guy at the water districtis a former state senator and well connected to oil/gas/etc, and tried to ram rod it all through. he was taken aback at the resistance.
we tied them up for two years, and then the boom was fading, and it wasn’t worth it, I guess, because they pulled out.
when we moved here, 20+ years ago, there was rumor of folks well to our north selling sand to saudi arabia, but we had no inkling just how far that ancient beach ran, or how much of a thing fracking would be.
part of the reason we picked this far place was that there wasn’t anything anybody wanted(oil,timber,etc)
never even considered that frelling sand would be at issue.
in other local water news, the county and (single) city gov have made a big, public deal about how our isolated and distinct aquifer has a lot of radon in it(takes 70 years of leaving water in the sink all night to have an effect, near as i can tell)…in order to scare the big cities away.
otherwise they’d be maneuvering to capture it.
but with regular updates about “alpha particles” in the local paper, the constituents in the big city don’t want it.
(texas has serious issues with water law, too much to go into in this space)
One of the many reasons we’re here, is there is no industry whatsoever above us-only wilderness, and during the long and punishing drought, none of our 4 rivers went dry.
I remember in the thick of it, a friend called from L.A. and asked how we were doing with the drought?
I told him we had more water than we could shake a stick at, and then turned the question on him?
He had scant idea where his water came from, atypical of the SoCalist movement.
“Dutch professionals are pro-active and their utilities compete to provide the best value for money, so they avoid many mistakes common in under-funded locations.”
Well, yes, if that were the rule rather than the exception, then one would have a strong argument never to privatize. Privatization is generally a catastrophe, but in most cases it comes along after the initial catastrophes of government mismanagement and corruption have so poisoned the dialogue that people are sympathetic to the privatization’s appeal.
Uhh, I think you missed that was the substance of the plan…crapify government, so privatization can suck us dry.
I would only add that the first chapter of the playbook is to de-fund the service in order to make the crapification inevitable.
No. Mismanagement and corruption, long preceded the privatization boom, and would continue to thrive without it.
that can be one way, but some things are just corruption, even when the money spigot pours and sometimes especially when it does.
I’m glad to see all the comments here, but a few things:
(1) I’m not talking about privatization. There are plenty of good private utilities as well as terrible public ones (most poorer countries). What matters is how good the regulators are.
(2) Don’t mix up “I need water to live” with “I need cheap water for my lawn”. The same pipe can deliver water of different values, so it’s not crazy to think about using prices to prioritize use (reduce waste).
(3) If you want to know more about these issues, then download my book (free) at: http://livingwithwaterscarcity.com/LwWS_Free.pdf
(4) If you want to know more about water management in the UK or NL or US, then grab one of my papers here: http://kysq.org/pubs.html
OK – apologies, I misunderstood your argument. But I am now confused by the idea that you can use prices to prioritize use with the argument that giving money to poor people is the solution to the problem. Is the argument give poor people enough money for water but not too much to discourage wasteful use of water? Or perhaps regulate water prices so that people who are profligate with water pay more? Either way, water management is an increasingly important topic. And it is also important to discuss equitable distributions of income and wealth.
There’s a simple solution – a tiered rate structure with a free minimum supply (on the order of say, 5-10 gallons of water per person in the household per day). As someone who loves taking trips to desert wilderness areas, that’s almost luxury levels – enough for cooking and washing, anyway. Actual usage rates are much, much higher:
What pays for this free minimal usage? Local, state and federal taxes. Above this, a tiered usage payment plan, with higher per gallon costs at each successive tier, both limits water usage and allows the water utility to continue to meet salary and maintenance budgets. Specific projects (like new water treatment facilities) are funded separately via government bonds.
I don’t believe private corporations have any business at all in public water and sewage systems, other than in supplying manufactured goods (pipe, pumps, solar panels, batteries, chemicals, etc.) via competitive bidding to the utility. It’s a natural monopoly, and any private management will always go for rent-seeking behavior – and they tend to oppose water conservation, since they make more money the more water residents use.
Note also that during the California drought, even public water utilities often had to lay off staff or take other cost-cutting measures as water usage was drastically cut back by the public and revenues fell steeply. These should not be profit-driven operations.
Of course a big issue is that agriculture, I believe, uses the majority of water and not households. Fair enough in that you need water to grow food but then you can get monstrosities like Cubbie Station (https://timalderman.com/2017/03/01/cubbie-station-water-allocation-abuse/) in Australia which had this massive dam of water which they built up and maintained by starving the river systems of three states so that they could grow cotton(!) in the middle of a desert. And I am not going to even mention water use by industry except to say that until a few years ago, the mines in northern Australia were using so much water that that actually suggested building a dam in Papua New Guinea (another country) and then piping it to the mines in Australia. This was a serious idea.
The Netherlands mentioned here I could call almost a unique case as there is no great population and the country is a compact 40,000 square kilometers. Thus the infrastructure does not need long pipelines (40% of that country comes from groundwater in any case) for example. The Dutch also have the luck of a solid body of professionals to do with water management as historically there was very little that other countries could teach the Dutch about water considering where they lived what with their history with the North Sea.
A small, correction. The Netherlands has a population of 16.5 million, which is quite a lot for such a small country area wise. There is also a lot of agriculture believe it or not. The Netherlands is the second biggest food exporter in the world. Both population density and intensive agriculture use a lot of water. We have the advantage that there is quite a bit of rainfall though.
All of which speaks to the one feature of “health care reform” that actually makes sense. It provides subsidies to those who cannot afford health insurance. It is otherwise a massive failure, in that it actually “reforms” nothing and leaves health care provision in private hands, but it does, at least, provide subsidies to allow a few citizens to have insurance who otherwise would not.
For Californians interested in H20, The Great Thirst-by Norris Hundley, is 800+ pages of how things came to be in the state, recommened!
I’d start with Cadillac Desert: The American West and Its Disappearing Water, Marc Reisner, (New York: Viking, 1986), 564 pp. But the reviews of The Great Thirst look pretty good, I’m going to have to dig into it.
Currently, there’s the push for desalination in California to consider, a questionable effort at best, on going for about two decades now:
Cadillac Desert is a must read if you live in the west, or anywhere.
I remember reading it in London in the late 80’s mesmerized that somebody could make water so damned interesting, but somehow Marc Reisner pulled it off…
His follow up book is much less known, and pertains largely to what would happen if there was a large earthquake centered somewhere near the California Delta. The consequences for SoCal & the vast orchards of the Central Valley would be huge.
“A Dangerous Place: California’s Unsettling Fate”
I don’t think that the rich were ever intellectually honest about what they were doing when they pushed for privatization of the commons and natural monopolies.
They wanted to drive up the prices and get rich. That’s all this was about. Everything else was intellectual cover.
I think that one of the biggest questions is how we restrict the greed of the rich. I believe that our civilization will not survive unless we can address this question.
The Inuit would push them off the ice…
For many I thinks it is worse. They are honest with themselves, so they are true believers in neo-Liberalism, or Libertarianism, or Social Darwinism, Meritocracy, or other similar ideas. This ideas, and the belief that they got what they have because they earned it, and that others are users is a foundational belief.
I encounter this attitude all the time even among people who really should know better. It goes along with their belief that “it could never happen to me/us” even if they are already in a very precarious situation.
Bingo. Poverty is an inevitable byproduct of capitalism and must therefore never be honestly and openly discussed. A message the IdPol/Neolib “left” has internalized and taken to heart.
And well run water systems are not that expensive. It’s when you start deferring maintenance, or making short cuts like Flint that costs sky rocket.