A Brief look at Water Privatization
In 2002, the United Nation recognized water as a human right in the General Comment 15. As such, water should be universally available, affordable, and safe. As true as this philosophy may be, the General Comment 15 is little more than an altruistic guideline that countries could follow to ensure their populations have access to safe drinking water, not a means of actually accomplishing such a feat (Varghese 2007). Outside of the industrialized Global North, private water companies have recently, (within the last twenty years) gained significant influence over the water supply systems in countries without the resources or capital to build and maintain necessary infrastructure of their own. Unfortunately, private interests have proven largely incapable of acting in the spirit of the UN’s GC15, raising costs and cutting of access to populations of people unable to pay. Despite a largely unsuccessful trend, public water services continue to be turned over to foreign private corporations in the hopes that capitalism will devise a more efficient and affordable, albeit socially indifferent, means of water distribution. The privatization of water services, driven by the rise of neoliberalism, pressures from the IMF and World Bank, and the financial interests of multinational corporations, is affecting populations all across the economic spectrum and in many respects failing to provide people with their human right to safe and affordable water.
Image Source: On The Ground
An important fact to realize is that there are many ways in which private interests can influence water services. The term privatization of water refers to the transfer of ownership and/or decision making power to a non-state entity, generally controlled by private interests, that is given partial or total control of infrastructure maintenance, water quality control, and water distribution costs (McDonald and Ruiters 2005). These costs, as well as the profits being made, become the burden of the consumers. The complete transfer of ownership and control is referred to as divestment. Aside from the controversial divestment of water services in the UK during the 1980’s (where everything from water collection, to reticulation, to waste-water treatment was sold to private firms), there have been no major cases of complete divestment anywhere else in the world (Ogden 1995) (Hall 2005). Another alternative to publicly owned and operated water services is ‘public-private partnerships.’ Under the PPP model, the state continues to own the infrastructure and facilities. This ownership allows the government to oversee the water distribution practices and continue to hold the primary decision making power. A private company is hired to plan, operate, and maintain the water system (McDonald and Ruiters 2005). This partnership presumes that a private entity will be capable of operating the water services with such greater efficiency that customers will be provided for and that a profit can still be made.
The third form of water service privatization, a slightly different form of the PPP model, occurs in countries that formerly had no public water system, provided incomplete or inconsistent access to safe water and/or is no longer capable of financing and operating a public water service. These countries generally lack the economic resources to operate a public water service and are refused loans by international financial entities (most notably the IMF and World Bank) (Hall 2005). These financial institutions pressure countries into pursuing PPPs with the attitude that their (the IMFs and WBs) investments will be safer if the project is under the control of private rather than public interests (Ogden 1995). In these cases, the government has minimal influence over the actions of the private company. Regardless of the direction that privatization takes, the economic practice represents a shift in focus as water services are changed from a “public resource” to a “private interest.”
Before delving into the complicated and entangled arguments surrounding the control of water systems, it is necessary to recognize the significance of privatization, particularly divestment, as a state practice. Until the middle of the 1980s, network utilities (telecommunication, electricity, and water) were state-owned monopolies in almost every country in the world (Varghese 2007). With the rise of neoliberal economics came a new attitude toward public services. In the U.S., regulatory and legal restrictions used to prohibit private operation of publicly owned utilities and infrastructure until these restrictions began to be dismantled under the first Bush administration and later under the Clinton administration (Varghese 2007). In the last 30 years, the U.S., U.K., France, and governments around the world have developed the practice of privatizing transportation systems (toll ways and railroads), public transit (trains, bus systems, and airports), health facilities, network utilities, prison systems, military companies, and various other formerly public services by selling facilities or transferring control to (often multinational) private firms and corporations (McDonald and Ruiters 2005). In the case of water services, privatization does not necessarily take the form of large multinationals like Suez, Vivendi, Bechtel, and RWE Thames. Though large corporations tend to attract the most attention, the hiring of small management firms instead of city workers represents a significant role in the debate (McDonald and Ruiters 2005).
Image Source: Great Lakes Echo
The privatization of services and the mentality of entrepreneurial capitalism supported by Western society have fostered a belief that private companies will operate more efficiently and with greater success than similar public endeavors. The catch is that private corporations are for-profit; investors want a return on their capital and decision making practices are ultimately driven by the intent to operate below cost (Hall 2005). Consequently, corners will be cut and the quality of service diminished. Inevitably, the privatization of services leads to increased state regulation as citizens demand better service and price controls. The UK remains one of the most significant examples; the government’s outright divestment of all water related assets lead to greater state involvement in water services than was previously necessary (Bakker 2003). The initial deregulation resulted in flagrant abuse in the form of price hikes and cutoffs, at which point the public demanded change in the form of regulation and oversight (Bakker 2003). The irony is clear; privatization does not mean less work for governments.
While the Global North has recently had some misadventures and temporary inconveniences, it is the Global South that has experienced the worst affects of recent privatization. In undeveloped countries with privately owned and operated water services, it is not uncommon to experience price hikes, water quality deterioration, water cutoffs, cholera outbreaks, and the diverting of water sources away from subsistence agriculture (Varghese 2007). Herein lays a second irony; the conditions in much of the Global South are representative of those in the U.S. two hundred years ago. Private water companies dominated U.S. cities during most of the nineteenth century. During this period, U.S. private water companies were largely unwilling to make the necessary investments in infrastructures and therefore unable to make universal access to water a reality. Cities suffered significantly from waterborne pathogens and frequent epidemics. This generated a public outcry for the government to step in and improve conditions for the sake of public health (Varghese 2007). In the 1830s, New York City took control of its water supply in response to the cholera outbreak of 1832 and to the inadequate water supply during fires (Galusha 1999). The local and state governments began investing substantially in improved infrastructure and wastewater treatment across the country. By the start of the 20th century, public water services greatly outnumbered and outworked the private systems. An EPA survey of water services in 1986 showed that publicly owned systems accounted for 45.5%, investor owned 14.7%, and the remainder was independently owned or self-supplied (e.g. rural communities, mobile homes, school, hospitals) (Varghese 2007). Water services remain publicly owned in almost every major city in the country and total approximately 155,000 nationwide (EPA 2010).
The natural question is then: Why is privatization being brought back into favor after it initially failed to provide safe water? The answer is quite simple: economic downturns and the rise of neoliberal policy lead to decreased spending on public services. Among all the public services in the U.S. and around the world, water services (water collection, reticulation, and waste-water treatment) is perhaps one of the most maintenance intensive of them all and requires indefinite investment; pipes and mains are all buried and adversely affected by temperature conditions, ever expanding populations require continuous increases in capacity and infrastructure development, and regional demands do not necessarily reflect natural resources (ex. Las Vegas and southern California) (Ogden 1995). Soon, “experiences of water scarcity, water-related disputes, wasteful use of water resources, and lack of finances – all were ascribed to public management of water resources” (Varghese 2007). As the public water systems around the world began to deteriorate due to underfunding, multilateral lending agencies, most notably the World Bank and International Monetary Fund, began to conclude that the private sector and market forces might provide the solution to the real and perceived inefficiencies of the public systems (Hall 2005). It is this ideological shift in the role of public finances and the replacement of government control with government regulation that lead to the formation of PPPs. Southern governments without the capital to build public systems are then refused loans from the WB and IMF unless they pursue privatized water and sanitation services through PPPs (Varghese 2007). All of these conditions combined, the crisis in public finances, WB and IMF push for PPP, and the neoliberal ideology of country’s elite, have left southern governments with two options; pursue privatized water and risk creating an inadequate system or do nothing.
Even after two centuries of water privatization, the kinks remain in the system. Since 2000, protests concerning water privatization have begun in Asia, Africa and parts of South America (Varghese 2007). In response, many companies, most notably German energy company RWE, now steer clear of unstable markets and focus instead on efforts to increase the acceptance of private water in markets where public services have existed for some time (Bakkar 2003). Despite strong campaigns against water privatization, Chile, Philippines, and the UK have all experienced dramatic changes in their water services as facilities and payment practices have been turned over to the control of private companies (Hall 2005). In the U.S., efforts to convince the public that the public water system is inadequate have been spearheaded by bottled water companies. Nestle, Coke, and Pepsi have successfully convinced the public that their bottled water is healthier than the public drinking water supply. This is despite the fact that the U.S. standard for drinking water, regulated by the EPA, is one of the strictest in the world while bottled water remains unregulated (Varghese 2007). Private water systems were attempted in the U.S. cities of Atlanta and Birmingham, but eventually terminated due to poor service and management (Hall 2005). Other world government to terminate their water privatization practices include Tucuman, Argentina, Cochabamba, Bolivia, Grenoble, France, and Potsdam, Germany, representing the failure of water privatization in both Northern and Southern cities (Hall 2005).
Zamboangenos protest privatization of Water District. Image Source: Water For the People Network
Ultimately, the privatization of the water supply means the commodification of a life sustaining natural resource. This is a significant distinction from other formerly public services like telecommunication, power, transportation, etc. Safe drinking water is essential to the survival of entire populations. The practice of placing control of this natural resource under the control of private interests, particularly in the most impoverished areas of the global South, is misguided and economically detrimental. Social and political movements in opposition to water privatization have had a significant impact in countries around the world and have contributed to the rejection of proposals and the termination of existing private systems (Hall 2005). For water to become universally available, affordable, and safe, as proposed by the GC15, it is necessary to turn away from the neoliberal economic practices of the past three decades and to realize that PPPs do not address the needs of economically deprived countries. As long as socially responsible economic practices are unprofitably, water privatization will fail to provide drinking water to the world.
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“EPA Public Drinking Water Systems: Facts and Figures.” US Environmental Protection Agency. Web. 09 Apr. 2010. <http://www.epa.gov/safewater/pws/factoids.html>.
Galusha, Diane. Liquid Assets: a History of New York City’s Water System. Fleischmanns (N.Y.): Purple Mountain, 1999. Print.
Hall, David, Lobina Emanuele, and Robin Motte. “Public Resistance to Privatisation in Water and Energy.” Development in Practice 15.3/4 (2005): 286-301. Jstor. Web. 20 Apr. 2010.
McDonald, David A., and Greg Ruiters. The Age of Commodity: Water Privatization in Southern Africa. London: Earthscan, 2005. Print.
Ogden, S. G. “Transforming Frameworks of Accountability: the Case of Water Privatization.” Accounting, Organizations and Society 2nd ser. 20 (1995): 193-218. Web.
Varghese, Shiney. Privatizating U.S. Water. Publication. Minneapolis, Minnisota: Institute for Agriculture and Trade Policy, 2007. Print.