Themes > Current Issues

07.02.2003

The New Water Wars

Jayati Ghosh

There has never really been a time, at least in recorded human history, when control over water resources has not been an issue. Wars have been fought over water all over the world; states and rulers have spent much time and energy over the allocation of water; dominant forces have always been able to grab more of this precious and indispensable resource and deprived the less powerful. Even Kautilya's Arthashastra, written nearly two millennia ago, talked about the issues involved in the distribution and consumption of water.

Despite this history, it could be true to say that the past few decades have witnessed an accentuation of water tensions across the globe. Part of this is due to the dramatic increase in water demand following upon a certain pattern of economic growth which is being promulgated everywhere. Global water demand is currently estimated to increase at a rate that is more than double the rate of population growth. And while water is a renewable resource, the rate of replenishment of consumable water is substantially below the rate of demand for it. This makes it increasingly scarce.

When something is scarce, the likelihood of a market emerging in it is very likely, especially in our times when all conceivable entities (and even some non-entities!) are being commercialised. This explains the explosion of the "water industry" over the past two decades, and the growing interest of multinational corporations over all aspects of the treatment, distribution and consumption of water.

It would be safe to argue that this is probably one of the fastest growing industries in the world, and – also in keeping with current trends – one of the more concentrated. Private investors find this new area to be one of immense possibility, given the market saturation and relative stagnation of so many other forms of goods and service production. Two major multinationals – Suez Lyonnaise and Vivendi – dominate the world water market, with other companies such as Bechtel also being significant players.

Of course, for this to be an area of private possibility, the role of public providers has to be correspondingly reduced. Thus, there are now private players engaged in the treatment of water to render it "safe" and potable, in the provision of piped water to consumers, in sewage and sanitation works, in the bottling and distribution of packaged water, in controlling and monitoring the access to fishing and various other uses of forms of water which were seen as common property resources such as rivers and lakes, and so on.

The process of creating markets for water has been significantly advanced by the World Bank and the IMF, both of which have included schemes for commercialising and privatising water in their recent conditionalities for loans to developing countries. Even without such pressure, several governments of developing countries and provinces within countries have decided to privatise water resources or at least to hand over effective control to private managers.

The arguments for such privatisation are the standard ones heard in most cases of state withdrawal from service provision. Private agents are supposed to be inherently more efficient and cost-effective than public service providers, and are therefore supposed to imply reduced prices and better services for consumers over time. Private agents are also supposed to be able to charge prices that more closely reflect the "true" value to society of this resource, and thereby compel consumers to be less wasteful and more inclined to conserve water.

The experience of the last decade has given the lie to these arguments quite comprehensively. Consider, first of all, the issue of cost effectiveness. Almost all the studies that have been conducted comparing the relative costs of public and private water utilities, have found that the public providers have lower per unit costs. For example, a study comparing privately run water companies in the U.K. with those run by public municipalities in Sweden, found the public providers to be operating on average at one-third the costs of the private providers!

In any case, the evidence is overwhelming that privatisation tends to increase the prices paid by consumers, often very dramatically. In England, prices rose by 106 per cent between 1989 (the year water was privatised) and 1995, even as the profits of water companies went up by 692 per cent. In Paris, France, the privatisation of water services meant an increase in consumer prices by 300 per cent between 1984 and 1997.

In Bolivia, where the government was forced to sell the public water system to the multinational Bechtel due to World Bank pressure, the experience was even more disastrous. Not only were water prices doubled, local residents were even forced to buy permits to gather rain water on their own property. Water became more expensive than food. Public anger, culminating in the famous protests at Cochabamba, forced the government to backtrack and revoke the privatisation law.

While Bechtel is suing the Bolivian government for breach of contract, a citizen-government partnership in Cochabamba has organised the universal, fair and reliable provision of water. They have managed to bring down prices, build new tanks and pipe water to neighbourhoods that did not receive it earlier. Obviously, all this can be accomplished if there is sufficient political pressure.

Nor is it the case that private water suppliers necessarily provide safer water. While it is the case that worldwide more than 5 million people die annually from diseases resulting from drinking unsafe water, there has been a rise in such incidence recently even in countries that have not experienced such problems for many decades. Thus, deaths of seven persons related to drinking water contaminated with e.coli bacteria were reported in Ontario, Canada in 2000. The testing of the water had been sub-contracted to a private company, which found the bacteria in samples but did not report the finding, claiming "intellectual property”.

In Delhi, a research NGO recently found that all the major suppliers of supposedly safe bottled drinking water provided water that contained unacceptably high levels of pesticides and other chemicals. In response, the companies have typically claimed that they are meeting the government's standards as set by the Bureau of Indian Standards, even though these are substantially more vague than elsewhere, and would not be allowed in other countries where these same companies provide bottled water.

None of this should actually cause much surprise. In fact, it is not unexpected that private agents have delivered socially sub-optimal results, because of the very nature of water. Water is not a pure "public good”, in that it is possible to exclude people from its consumption. Nevertheless, it is perhaps the most important of "merit goods" in society, because it is essential to life and good health. Therefore the social returns from investment and monitoring of water use diverge very substantially from the private returns.

This means that citizens have a right to influence and shape policies regarding water, which will after all affect their lives so dramatically, and that the treatment and distribution of water must be determined by public choices, rather than private profitability. In addition, because water is a renewable resource, inter-temporal choices also matter, and societies have to decide how to use and conserve water. This simply cannot be done in circumstances in which the major providers are motivated by short-term gain, as is necessarily the case with private providers. The latter case will result in water being monopolised by the rich, and used extravagantly in the present without regard to the future.

It used to be thought that private ownership and control combined with state regulation would actually ensure cheaper and more efficient basic services to the people. But the evidence is mounting that state regulation is typically even more expensive than state control, and also typically less effective in ensuring socially desired outcomes. The demand to reverse privatisation in this area is therefore gathering strength in many parts of the world, following the Cochabamba example.

Once again, we in India seem to be behind the times. In spite of all this adverse international experience, the effort to privatise water is actually gaining momentum in India. Several state governments have moved to privatise water supplies in certain municipalities. There are even reports of control over parts of rivers and entire lakes being handed over to private managers in states like Chhattisgarh and Orissa.

It looks as if, once again, we will fail to learn from other examples, and be forced to go through the agony resulting from indiscriminate privatisation of public services and resources like water, before we are also forced to backtrack and reverse it.