Water Sector Privatization: The Anger and the Analysis

Yesterday I presented my project to a wider audience at the Ecologic Institute. I believe that it was quite well received and there was a lively question and answer session after it was over. Not surprisingly, the privatisation of water sector assets and management came up. This is clearly a burning issue brought up by former colleagues in D.C., the press, and on the ground here in Berlin where the utility is now fully back in public hands. A couple of weeks ago I started digging into the debate and the literature, and I feel like I’m starting to get a handle on this issue.

I started my investigation with a strong critique of the World Bank’s promotion and financial support of private involvement in the water sector. The critique comes from the Corporate Accountability International (CAI), a group that cut its teeth in a boycott of Nestle for its practice of promoting baby formula despite unsafe conditions in developing countries. It’s very clear they’re very upset, and for good reason. As they point out in the report:

  • more people die from unsafe water than from all forms of violence, including even war; and

  • waterborne diseases are a leading cause of death among children under five, killing more infants than HIV/AIDs, malaria and tuberculosis combined. (CAI 2012, p. 2)

And despite these challenges, CAI believes that the World Bank has spent the last two decades promoting privatization as the one and only solution without evidence and often despite strong public resistance in recipient countries. Additionally, despite high profile failures such as with Manila water, where a tidy profit was made despite any significant progress on connecting more households, the World Bank continues to push privatization and take a financial stake in the profitability of such projects through the International Finance Corporation (IFC).

The CAI admits that the World Bank acknowledges that hopes of private investment in water infrastructure, particularly for expanding access, have been largely dashed and that the World Bank has retreated to promoting the operational efficiency that can come from private sector management.

Indeed on the failures of privatization to attract significant private investment in water infrastructure, the World Bank and CAI are largely in agreement. The CAI’s critique largely rests on World Bank documents such as this. Where they differ is whether the term operational efficiency has real meaning or is a cynical cover for promoting continued corporate profit.

I believe that here is where CAI goes to far. They start mocking successes by private management at  the reduction of “non-revenue water” water and enforcing bill collection. Given that non-revenue water is just an industry term for water waste, CAI shouldn’t get so cute. Wasting water, moreover wasting water after it has been treated, is a problem for society as a whole. And the ability of utilities to collect sufficient revenues to sustainably run their operations is an area of significant concern, even in wealthy countries such as the United States.

And so CAI’s critique, while quite well written and informed at many points, can be summarized as a laying out failures of the past that the World Bank acknowledges and ending the appearance of impropriety from the IFC’s taking a financial stake (where they have a point). But ultimately it falls flat, as one can imagine, many systems were public before they were private, and everything wasn’t perfect back then either.

So at this point I started looking for something that could provide a different perspective on this public/private divide. Given my political science background I was quite tickled to try a 2006 article on governance in the water sector by Gordon McGranahan and David Satterthwaite at the International Institute for Environment and Development. Their treatment of the issue certainly has a lot more nuance than those of the CAI and World Bank, pointing out how the urban poor are often underserved under public systems as well as private, the importance of small scale private water entrepreneurs in filling gaps in the system, but also how corruption can even exist between public and private systems as public systems take kickbacks from the small scale entrepreneurs, who in turn gouge the poor. As corruption rears its ugly and very slippery head, we are told to focus on governance, a part of which is comes from improving economic circumstances of the poor, which maddeningly is presumably related to the availability of functioning infrastructure.

Needless to say, this is not a satisfying solution. Suddenly we’re into all the messiness of the world and having to fix multiple issues at the same time  as they all interact with each other in only partially understood ways. At this point one starts to appreciate how exciting the previously grand ideological commitment the World Bank had to privatization must have been. And the clarity of the CAI outrage which is based on very clear wrongs.
Even though one was clearly wrong and the other offers no clear direction beyond an alternative ideology, at least they offer clear guides to action. Which probably explains the continued salience of the private/public debate. It’s clear there are no panaceas in the water infrastructure arena. But the terms themselves awaken memories of intense ideological debates of the past, not least the policies of Reagan and Thatcher and the Washington Consensus. And they no longer stand for any coherent and comprehensive program for fixing our water infrastructure problems so much as they are markers of who one is and where one stands in relation to other people.

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