In response to drought conditions in parts of northern Taiwan,government officials have imposed water rationing. There is also considerable discussion about "cloud seeding," dispersing chemicals into the atmosphere to induce more rain. However, this sort of pie-in-the-sky approach will do little to cope with long-term water-supply problems.
Even if the coming monsoon season brings some relief, water shortages will continue to plague Taiwan. One of the basic problems is that water is being treated differently to other resources by not allowing market prices determine its usage. For example, water use is distorted by the application of subsidies for some agricultural and industrial users.
Providing zero or low-priced water has led to the predictable consequences of wasteful use and inefficient provision. Commodities priced below market values will always be used excessively.
Some of these problems might be helped if the administration of water provision were consolidated. However, more important than reforming bureaucracies or focusing upon dams and reservoirs to resolve future water needs, there is a need for a complete change in approach.
A good place to start might be to think about garbage. Despite the distasteful image, the point is that governments have discovered that the incentives that exist in the private sector can solve many problems. For example, private collection of rubbish and waste disposal has a good record in reducing costs and increasing efficiency. Many people are uncomfortable with the notion of privatization. However, citizens should examine the motives of those who are most vocal in opposing such steps. Directors, employees and suppliers of state-owned water enterprises are likely to block privatization because their personal interests are being threatened.
For others who would protest putting water provision into private hands, they might find it less offensive to think of the process as depoliticizing decisions concerning water provision and distribution. In all events, what is needed is a new set of incentives to encourage greater efficiency in both the production and use of water.
In sum, public-sector provision of water tends to be under-funded and inefficient. Over-extraction and misuse cause environmental problems because of weak or inappropriate pricing mechanisms.
It might come as a surprise that most of the benefits from water provided by governments do not go to the poor. In developing economies, the poor seldom have access to water mains or sewerage.
The bulk of the global public subsidies for water provision, worth between US$30 billion and US$40 billion, are received by the agricultural sector. Yet in rich economies it is the relatively well-off farmers and corporate farms that gain most from access to subsidized water. Privatization can work if prices are allowed to provide the means to discover the real value of water to a given community. There are a variety of approaches to "full-cost pricing" that might also include a form of "peak-load" pricing. When markets create valuations, it becomes apparent whether inadequate supplies result from scarcity or mismanagement by public-sector officials.
Privatization not only raises funds for governments, it also helps eliminate inefficiency. This is because state-owned enterprises are often a drag on the economy and they open opportunities for corruption. By contrast, the profit motive would induce private water firms to be diligent in collecting bills, reducing leakages or thefts and upgrading infrastructure. Traditional methods of rainwater harvesting also offer a low cost method for replenishing water supplies.
Direct income grants will provide more efficient aid than the current system of subsidized water production. First, cash grants to individuals place the burden of choice upon them to select consumption within their own budget constraints. Second, such grants can be targeted to specific sectors on the basis of income or geography.
Objections might be raised against allowing private interests and profit to guide the disbursement of something as necessary to life as water. There are many instances where privatization has been unpopular or has brought disappointment. However, the principal failure has been the method chosen by public officials and not the goal of privatization.
In any case, private-sector initiatives supply water to over 360 million people. In Buenos Aires, for example, US$1 billion was spent to improve equipment and increase supplies to over 1.5 million people. In La Paz, the local government undertook a joint effort with private firms to provide water to the urban poor.
In Jakarta roughly half the population has no access to the municipal water supply, while only about 2 percent are connected to a sewerage system. Two private companies, PT PAM Lyonnaise Jaya of France and Thames Water PLC of Britain, have been contracted to provide drinkable water to residents.
When comparing the records of governments and private enterprise, it becomes apparent that privatizing water will be more rational, efficient and equitable. In light of these improvements, opponents of privatization are guided by an uninformed ideology or out of promoting their own self-interest while blocking benefits to the wider community.
Waste and inadequate recycling of polluted supplies cause most shortages. Many of these problems can be resolved by treating water as an economic commodity whereby market forces instead of political considerations set prices.
Christopher LINGLE is Global Strategist for eConoLytics.com and author of The Rise and Decline of the Asian Century.
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