The biggest problem with water is the waste of water through lack of charging (World Bank President James Wolfensohn, 12 April 2000, discussing the resolution of the Bolivian water riots, http://www.pbs.org/..., reprinted in http://en.wikipedia.org/...).
Italy’s 2011 referendums put paid to the hopes of the Berlusconi government to enable privatisation of water services in Italy (http://www.nationofchange.org/...; http://ballotpedia.org/...; http://www.epsu.org/...). Irrespective of attempts by neoliberals and mainstream economists to portray this issue as one solely relating to the economics of competitiveness and efficiency, their denial of the political and social implications of water privatisation has meant that the whole discussion of human right to life has been shunted aside in pursuit of an ideological agenda based upon market liberalisation. The pawning off of social responsibility of governments to provide for basic human needs (food, housing, energy, water and sanitation and health care) to private corporations on the basis of the efficiency, increased investment and increased access has done little but place the lives of people in the hands of the profit motives of corporations. To add insult to injury, scant or no evidence exists that the private sector is willing to do the job in a way that offers better services for the citizens of a country as compared to keeping water under public control and management.
This is yet another attempt to allow private provision of human needs that used to be primarily handled by governments. The primary reason for government provision of water, energy, transport is: 1) they require a very high initial capital investment which private sector companies (currently far more concerned with quick turnover of capital and high returns) are loath to undertake; 2) the provision of these things must be such that it is need rather than ability to pay that must take primacy for these services, specifically these things must be guaranteed to all areas (rural and urban, working and wealthy areas) and not solely to areas where profits can be made; 3) the final point relates to the question of efficiency in provision and constant maintenance of these services and their distribution; these are not particularly profitable given the age of the system or the creation of a completely new system.
All in all, for the most part, in the advanced capitalist world historically, provision of clean water fell into the purview of governments initially rather than private companies. There are clear exceptions that have evolved historically: for example, France has always had a combination of municipal public ownership and private maintenance and distribution.
Water privatisation is one of the most contentious of privatisation of public services. This is for very good reason, water is essential for human life, access for all to clean drinking water must be guaranteed independently of ability to pay and income on humanitarian and human rights grounds (on the basis of the right to life, the fundamental human right). Additionally, unlike other things like food provision for large numbers of people, water is a naturally renewing resource.
Privatisation usually takes two forms: 1) the privatisation of water and assets ensuring production and distribution of water in a country, region or city; and 2) the privatisation of supply and maintenance facilities for water provision. Essentially, either full privatisation of assets (including the water itself and not just distribution), public-private partnerships (where assets are transferred by governments to a company which then undertakes the work, revenues and tariffs are guaranteed by the government and often subsidies are offered by the government, see http://en.wikipedia.org/...), or the privatisation of maintenance and services in the form of concessions and licenses are the primary ways in which water privatisation occurs (http://en.wikipedia.org/...).
An additional consideration relating to ideology in support of water privatisation relates to the impact on state workers that are invariably unionised and their replacement by private sector workers that are not; this is again part of the attack on unionised labour in Europe and it is one reason why state workers have led the opposition to privatisation attempts in Europe.
I. Smith’s diamond and water paradox
A wonderful transformation in economic reality comes from looking at an early example of the distinction between use value and exchange value in Smith’s writings.
The word, VALUE, is to be observed, has two different meanings, and sometimes expresses the utility of some particular object, and sometimes the power of purchasing other good which the possession of that object conveys. The one may be called ‘value in use;’ the other, ‘value in exchange.’ The things which have the greatest value in use have frequently little or no value in exchange; and, on the contrary, those which have the greatest value in exchange have frequently little or no value in use. Nothing is more useful than water: but it will purchase scarce any thing; scarce any thing can be had in exchange for it. A diamond, on the contrary, has scarce any value in use; but a very great quantity of other goods may frequently be had in exchange for it (Smith, 1776, The Nature and Causes of the Wealth of Nations, I, 4, pp. 44-5).
Let’s put aside, the lack of social recognition of the cause of exchange value in Smith’s analysis for the moment and the idea of fetishism of commodities where exchange of commodities is viewed as an exchange of disparate goods rather than the exchange of social labour embodied in these goods. Let’s take for granted the idea of human agreement that something that is produced requires the application of human labour in production of a thing to fulfill human needs.
What Smith was trying to explain was the reason that those things that are essential to human needs often have the lowest exchange value and why others that do nothing to satisfy human needs often have the highest exchange value. Smith’s diamond and water paradox distinguishes use value (the usefulness of a thing which is an essential quality for a thing to be deliberately produced by humans) and exchange value (what a thing can be sold for as compared to another thing) based upon the difficulty of obtaining said thing. Hence diamonds are expensive as they are scarce (limited in quantity) and need to be mined (which requires a lot of labour and capital investment); while water is cheap as it is easily accessible and plentiful (in an arid area Smith does recognise that water has a high exchange value). If something can be gotten simply by going to a river or collecting rainwater, then it will probably cost nothing to get.
Once we require the deliberate application of human labour beyond the simple collection of a free good that good is most probably no longer a free good (unless it is a community project and remains free by community agreement). In the simplest case of water provision (e.g., digging a well for community use rather than individual use) to create said well actually requires both the use of labour and tools. That does not remove water from the public or social sphere, because these things can be done by a group of people working cooperatively or a local or national government. Once we get to the level of provision beyond a small lightly populated area and look at urban centres and the connection between areas in the country, we are discussing a major endeavour requiring investment, research and development and the use of capital and human labour.
The possibility of turning something easily accessible into that which can be sold at a price that makes its worthwhile to produce and sell (as you can earn a profit on its production and distribution), that is be made into a commodity, requires several things. On the one hand, limiting free access to that thing in the hopes of actually being able to charge for provision is the first stage in this process. Private ownership of land, rivers and the water itself, takes something initially in the public domain and makes it inaccessible. People now have to pay for something that they previously could collect for themselves.
Sometimes, economic, political and social transformations can enable the possibility of a free good becoming a commodity; that is something deliberately produced for exchange. Local wells that could serve a small community become insufficient for water provision due to increased concentration of people. The concentration of humans into large cities that arose with the rise of the capitalist industrialisation process is a perfect example of how a thing which is desperately needed for human survival becomes scarcer relative to the numbers that need to access it. This could be provided (as it was in Ancient Rome) for free (in which case, it is not a commodity) depending on the size of the city; however, the question of supplying this need becomes relevant as urban centres increase in size. The question arises at this point on the role of the state in ensuring the subsistence and lives of the population, that is, can something be treated as a social or public good, versus production of said good by the private sector.
This brings a second issue into the discussion. Increased scarcity of water arising from both the concentration of people into urban centres and the impact of pollution means that new sources of water must be found and accessed by those in cities. Water often needs to be supplied from outside of urban areas. Additionally, water pollution (either by human waste, think of cholera epidemics that plagued large cities, or industrial pollution) means that water now needs to be cleansed before use; as it is no longer immediately fit for human consumption. Ironically, the damage caused by industrial pollution in a capitalist system that has increased the scarcity of clean water now means that provision of this now scarcer commodity becomes more profitable. Clean water for consumption now costs time and labour (and hence capital investment) to produce. At this point, something that was free now has obtained the status of a commodity.
In the case of water, there is not a need to manufacture demand; water is essential to human life. Increased scarcity of clean water enables a price to be charged for access and its use. Production for exchange, the earliest form of capitalist relations and which is embodied in provision of water then with the consolidation of capitalism, becomes production for profit with privatisation. Moreover, ensuring the profitability of these private ventures becomes relevant where it was not previously; privatisation has meant invariably increased tariffs for water provision as profits become a major consideration.
Depending on the country, the majority of those in Europe began with private provision of water in the 19th century; these historically moved towards greater government control whether at the national or municipal level during the early part of the 20th century; this was so until the late 1980s-early 1990s forward. As such, for the most part water remained in the public domain. Maintenance and cleanliness are ensured through tariff payments or surcharges to share in the costs of provision but this has differed between countries. We have seen increasing pressure for water privatisation as part of the spread of neoliberal economic arguments which has impacted the capitalist periphery as well as the advanced capitalist world.
II. Water privatisation as a project of neoliberal economic thinking
As with most neoliberal free market arguments, a strong part of the insistence on private sector control is purely ideological. According to this argument, free markets ensure efficiency and competitiveness. However, there is little evidence that privatisation of water supply increases efficiency and access to water in any way more than public ownership and management.
The ideological nature of the argument in support of water privatisation is obvious. Think about it this way: the argument on water privatisation has never been about the introduction of competition (the usual deus ex machina on the part of free-marketeers) in water provision (that would be far too dangerous in terms of risk to consumer health). The only so-called competition relates to the bidding process and that is often not made by many producers. Instead, they are arguing that a private monopoly is better than a public monopoly. Why would this be the case? Private monopolies are not known as innovators or high investors; their only concern is their profits. At least in the case of a public monopoly there is a responsibility on the part of the government to meet the needs of their citizens.
Moreover, the increase in water tariffs means that rather than increasing access (especially in the peripheral capitalist economies), the poor can no longer pay the tariffs for something that previously they had for free. The loss of access to water due to non-payment of tariff is literally a threat to health and life of citizens. The fact is that underinvestment, water loss through leakage and spillage, and no particular evidence of increased efficiency remains a continual problem in countries that have undergone privatisation in the advanced capitalist world. Quite honestly, a large of free market opposition to public water supply has little to do with the efficiency of provision but more to do with the opportunity to destroy state sector unions. Invariably, large investment projects require government intervention either through subsidies of private companies or outright funding of these projects due to high capital outlays. In countries in the capitalist periphery where full water supply for the country needs to be still developed, pressure from the World Bank and the IMF for this to be done under private (and foreign MNC) control remains a serious problem leading to higher tariffs, insufficient investment and lack of access both in urban and rural areas especially for the poor. Moreover, lack of local input, and lack of local benefit in terms of jobs, development, and meeting the needs of all citizens in these countries remains a problem (see the work of David Hall of PSIRU, the Public Services International Research Unit http://www.google.co.uk/... for an excellent discussion on problems with water privatisation in terms of efficiency, investment and access and this for case studies on private sector management: http://www.google.co.uk/...).
A. England and Wales
"For fuck sake, we live in Manchester and they charge us for water” (Frank Gallagher, Shameless, http://www.google.co.uk/...
In 1989, Margaret Thatcher privatised all water and sewage provision in England and Wales (both Scotland and Northern Ireland remained in public hands) using a process known as Divestiture where the government (or public authority) awards full ownership and responsibility of the water system including the water source to a private operator under a regulatory regime.
In 1975, Regional Water Authorities were created to place the various local water authorities under a single regional control which were then oversaw at the national level (http://en.wikipedia.org/...). In the 1980s, only 25% of water was in private hands (1860: 40% of water was in private hands, 10% by 1900). Thatcher’s privatisation was purely ideological following neoliberal economic arguments (http://en.wikipedia.org/...). Not only was the provision of water privatised, but the asset itself. In a 2001 report by the Public Service International Research Unit, it was reported that:
• tariffs increased by 46% in real terms during the first nine years,
• operating profits have more than doubled (+142%) in eight years,
• investments were reduced
• public health was jeopardised through cut-offs for non-payment (http://en.wikipedia.org/...)
Additional statistics demonstrate that water tariffs have increased 44% from 1989 to 2008-9. For a comparison between tariffs in England and Wales and other European countries see (http://en.wikipedia.org/...), in England and Wales, water tariffs are higher than Germany, France and Italy.
B. Latin America
i) Argentina under Menem (1992) saw a wave of privatisations of state services and industry. Both water and sewers management were privatised during the period of 1991-9; as such concessions for 28% of the countries municipalities serving 60% of the population were granted. These included the granting of concessions for water management to private corporations, many of which were terminated under the Kirchner government; e.g., the one in Buenos Aires (1993) was revoked under Kirchner in 2006 (http://en.wikipedia.org/...)).
“The privatization of water is emblematic in this respect with regard to the overall privatization spree. The state-run National Sanitation Service (Obras Sanitarias de la Nación, OSN) created in the late 19th Century, provided water services until they were privatized in 1993. The OSN functioned relatively well throughout its history until in recent years it suffered technical deterioration and a lack of government funding which caused a dramatic drop in the quality of its services in the mid-1970s. But prior to presenting the company to potential bidders, rates were increased several times: 25% in February 1991, 29 percent two months later, 18 percent in April 1992, and another 21% when the VAT was introduced, and just prior to privatization another 8%. The terms of the bidding process stipulated that the concession go to the bidder offering the lowest base rate along with an investment plan for improved and expanded services. The government promised the population healthy and environmentally sound water and sewage services at the cheapest possible rates.
The concession was won by Aguas Argentinas, who leading owners were Suez Lyonaise de Eaux-Dumez and Vivendi. Nevertheless, the new company solicited an ‘extraordinary revision’ of rates only eight months after the concession because of ‘unforeseen operating costs.” Thereafter rates continued increasing much beyond contractual arrangements. Nor did the company implement expanded services and investments providing for additional potable water and sewage services to the extent promised in the contracts signed. The profitability of the company was shown to be much greater than those of equivalent firms in Europe and elsewhere (http://www.hawaii.edu/....”
In Brazil, a similar problem resulted to what happened in Argentina. Despite promises of increased investment and increased access, investment actually decreased, tariffs have risen, and outreach to the poor has not improved.
Water and sanitation investment by public and private utilities has dropped by an average of 30% since 1998. Projections of future capital requirements vary. One source estimates a minimum need of US$60 billion over the next 20 years.
One justification for privatization has been that it would increase investments. For example, the Brazilian Association of Private Water and Sewage Operations (ABCON) promotes privatization primarily by arguing that it is the only way to acquire necessary infrastructure investments. Between 1990 and 2006, the Brazilian water and sewage sector produced 52 private projects, received US$3.069 billion in private capital (http://en.wikipedia.org/...)
.
In terms of increased access for the poor:
[…] PSIRU—which is financed by Public Services International, a global federation of public sector trade unions—in Manaus, Suez-Lyonnaise des Eaux backtracked on promises to expand access to 95% of the population immediately after receiving a 30-year concession in June 2000 (http://en.wikipedia.org/...).
Most importantly, rising tariffs have meant a clear decrease in both public and private water usage with people resorting to drinking rainwater and contaminated water sources (http://en.wikipedia.org/...). Changes introduced under Lula have instituted regulations and attempted to ensure coverage for the poor, especially those living in urban areas. (http://en.wikipedia.org/...).
ii. One of the most egregious water privatisation campaigns took place in Bolivia (late 1990s) under pressure from the World Bank. Water provision had been provided and was highly subsidised by the national water company SEMAPA; but the World Bank made the next renewal of a $25m loan contingent upon privatisation of SEMAPA and the elimination of subsidies of water in 3 cities: La Paz, Santa Cruz de la Sierra and Cochabamba.
So the Bolivian government privatised the national water company which was sold to a consortium Aguas del Tunari, (the only company to bid on the project) composed of Bechtel, Edison (Italy), International Water Ltd (England) and two Bolivian firms. This deal included a $2.5bn 40 year concession to provide water, generate electricity and crop irrigation. In exchange for the contract, payment of a $30m debt of SEMAPA, expansion of the water system was guaranteed, maintenance on the existing system was to be done and the Misicuni dam project was to be completed. Returns were guaranteed a minimum 15% annual return pegged to the US consumer price index. Tariffs were increased 35% on average to $20/month in a country where the minimum wage is $70/month.
The government passed a law (Law 2029) to legalise the deal with Aguas del Tunari. People began to become alarmed that the consortium had been given monopoly power over water itself and its provision, far more power than initially belonged to SEMAPA specifically agricultural production and community based resources that were never under SEMAPA’s control.
By Law 2029, if Aguas del Tunari had wanted to, not only could it have installed meters and begin charging at independently built communal water systems, but it could have also charged residents for the installation of those meters. The broad nature of Law 2029 led many to claim that the government would require a license be obtained for people to collect rainwater from their roofs. The first to raise concerns over the scope of the law was the new Federación Departamental Cochabambina de Regantes (FEDECOR) and its leader Omar Fernandez. FEDECOR was made up of local professionals, including engineers and environmentalists. They were joined by a federation of peasant farmers who relied on irrigation, and a confederation of factory workers' unions led by Oscar Olivera. Together these groups formed Coördinator for the Defense of Water and Life, or La Coordinadora which became the core of the opposition to the policy (http://en.wikipedia.org/...).
Needless to say, the privatisation and Law 2029 to legalise it did not go over very well with the urban working class and poor and the campesinos (as crop production became much more expensive). Rising tariffs and increasing numbers of people being cut off due to non-payment of water bills increased tensions further. Mass protests began in January 2000 following another rate hike one week after taking control over the water system supposedly to finance the Misicuni dam.
The demonstrators consisted of regantes (peasant irrigators) who entered the city either under village banners, or carrying the wiphala (http://en.wikipedia.org/...) ; they were joined by jubilados (retired unionized factory workers) under the direction of Olivera and cholitas (traditionally dressed Aymara women). Young men began to try to take over the plaza and a barricade across incoming roadways was set up. Soon they were joined by pieceworkers, sweatshop employees, and street vendors (a large segment of the economy since the closure of the state-owned tin mines). Self-styled anarchists from the middle-classes came from the University of Cochabamba to denounce the World Bank and International Monetary Fund and neoliberalism. The strongest supporters of the demonstration were drawn from the city's growing population of homeless street children (http://en.wikipedia.org/..., my clarifications).
When the middle class lost their subsidies they joined the urban poor and peasants in demonstrations and civil unrest in 2000; a General strike shut down the city for 4 days (http://en.wikipedia.org/...). In fact, we can credit the rise of a successful grass-roots peasant and workers party directly to World Bank intervention and the sheer greed, arrogance and quest for profits on the part of MNCs at the expense of the needs of the majority who they thought would simply lie down and take what was shoved down their throats (for a 10 year review of the Cochabamba water wars, see:http://www.wdm.org.uk/...).
III. The role of the World Bank and IMF
Unlike what was envisaged by Keynes when he proposed the World Bank and the IMF where he argued in support of assistance for economic development and the development of domestic markets to ensure world capitalist domination through coherent economic development and infrastructure, the World Bank and the IMF have instead been serving the role of ensuring the ideological precepts of neoliberal economic policy. With its opposition to food subsidies and subsidisation of national industries and guarantors of clean water, the World Bank and IMF have essentially enforced an economic ideology that has little or no demonstrable ability to ensure economic development. Historically, there is no country in which free market agendas have existed properly and never have they enabled coherent economic development. Even in countries where export-led growth has been the successful dominant tool of economic development, economic policy has been planned and coordinated by the government (this is clearly the case with the so-called Asian tigers, see Alice Amsden). In underdeveloped capitalist economies, export–led growth regimes have left countries agricultural and raw material sectors dependent upon foreign demand for their commodities rather than ensuring domestic food self-sufficiency (see Egypt under Sadat for example); the elimination of food subsidies have led to rapid increases in food prices and food riots.
If one would think that the World Bank had learned a valuable lesson in Bolivia and abandoned their demands for privatisation of water supply you would be grossly mistaken. Forced water privatisation in exchange for loan agreements were imposed on 12 countries alone in 2001 (Angola, Benin, Guinea-Bissau, Honduras, Nicaragua, Niger, Panama, Rwanda, Senegal, San Tome and Principe, Senegal, Tanzania and Yemen), the vast majority under the “Poverty Reduction and Growth Facility Program” (see, http://www.ratical.org/... and this for more detailed information: http://www.citizen.org/... which also addresses the General Agreement on Trade in Services -- GATS).
In November 2010, the International Finance Corporation or IFC (the world bank’s private sector funding arm, http://www1.ifc.org/...), here is an example of their work on water: http://www.ifc.org/...) gave $139m to Veolia Voda to push for water privatisation in Eastern Europe (http://www.alternet.org/...).
From the mess in Ghana (2001, http://en.wikipedia.org/..., http://multinationalmonitor.org/...) to a particularly atrocious privatisation in Tanzania (2003) by Biwater (http://en.wikipedia.org/...), to nightmares in India (http://www.all4all.org/..., http://www.stwr.org/...), water privatisation has been the agenda pushed by the World Bank both through debt relief and lending and also through the IFC which provides funds for private investment to “fight poverty” through privatisation and public-private partnership (http://www.alternet.org/...).
Even worse, the UN’s main projects are often carried out by the World Bank, IMF and smaller regional banks, all of whom are strong proponents of water privatisation. This then compromises most of the positive impact of these campaigns due to the delegation of power and control to these intergovernmental agencies (see: http://www.alternet.org/...).
IV. The Fightback:
Hoping to end on a positive note, there is an international fight-back promoting both public-public partnerships in terms of sharing information between countries on public water control and management, public control of water, and remunicipalisation of water (having municipalities reclaim both ownership and management of water resources).
For example, in 2007, African anti-water privatisation activists joined to form the new African Water Network with 3 main aims:
strengthening co-operation and co-ordinating efforts to ‘oppose water privatization in all its forms’; to work for a participatory model of public control over water; and to assert that water is a fundamental human right (http://www.newint.org/blog/editors/2007/01/25/privatization-brings-the-rain/).
Stressing the importance of public-public partnerships (rather than public-private partnership) the group stressed community management of water supply and the remunicipalisation of water.
In 2008 in Johannesburg, South Africa a major victory against water privatisation occurred. The high court struck down forced prepayment water metres in Phiri, Soweto. Instead, voluntary credit metres should be offered. Additionally, they forced the increase of the free water provision guaranteed per person from 25litres/day to 50litres/day (http://www.newint.org/...).
In a ground-breaking judgment – the first in which the constitutional right to water has explicitly been raised – Judge MP Toska criticised the municipality for its discriminatory approach to the provision of water. The Judge found that: “the underlying basis for the introduction of prepayment meters seems to me to be credit control. If this is true, I am unable to understand why this credit control measure is only suitable in the historically poor black areas and not the historically rich white areas. Bad payers cannot be described in terms of colour or geographical area (http://www.newint.org/...).
This is part of a global fightback against water privatisation that stretches throughout the advanced capitalist world and the capitalist periphery. One primary aim which has been increasingly successful is the remunicipalisation of water (http://www.brettonwoodsproject.org/...; this site keeps track of remunicipalisation efforts: http://www.remunicipalisation.org/ and http://www.tni.org/... which keeps track of deprivatisation of water in Europe).
This has been successful in Paris, France where the contracts of MNCs Suez and Veolia had actually expired after 25 years of control over the Parisian water supply (http://waterblog.world-psi.org/...; for some history of the battle for control over Paris’s water supply see: http://www.epsu.org/...; for an inspirational retelling of this victory, see: http://www.tni.org/...).