March 11, 2003
Globalization's next big brawl could well be about water. Across the world, the push is on to privatize cities' water services. Extreme caution is warranted before letting private companies provide something so essential. But there are cases where privatizing has helped hundreds of thousands of the poorest. The key is strong public regulation and rate increases for those who can afford them.
Water privatizations have caused widespread protests. Nearly 200 people were hurt and one boy was shot dead in protests in 2000 in Cochabamba, Bolivia, where a subsidiary of Bechtel substantially raised water rates.
In the view of many, water is a kind of natural right that no one should control. But while water may have come from God, it came without pipes. The cities of the developing world are ringed by slums that have no access to the water system and either use unclean river water or buy water from private sellers at exorbitant prices.
A top priority of every city should be getting water to those outside the water system. This means hooking up poor areas and providing the destitute with subsidies. But that requires money. American water systems are heavily subsidized by taxpayers. This is unrealistic in the developing world, where tax collection is very low. The only realistic solution is to subsidize the poor by charging industrial, wealthy and middle-class users much higher rates.
Private systems, common in Europe, are still fairly rare in the developing world. When well managed, they can work well. Unfortunately, the rush to privatize has greatly outstripped the public interest. This is in part because of pressure from the water industry, which is largely European. At the behest of these companies, Europe is asking for rules at the World Trade Organization that would make it harder for governments to keep public control of services, including drinking water - a bald industry-protection measure that has no business in a trade agreement. The World Bank has also conditioned loans for water reform on private-sector participation.
If allowed, private water companies will favor richer customers, shift risks back to the government and invest as little as possible. In too many cases, companies have repeatedly renegotiated their original contract to increase rates or get out of requirements to connect poor neighborhoods. Governments that turn to privatization will need a lot of help from international institutions if they are to play the strong regulatory role required to make a privately run system a success.
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