Should we encourage more private involvement in public water systems? Is it just a wealth transfer to corporations, or an innovative approach to finance and management of public infrastructure? Folks are all across the map on this and what it boils down to is answering the question, "Can, and should, infrastructure be democratically owned and operated?". That question is really two questions in one, and both questions have been answered differently across the United States over the last 200 years, at least.
For now, if we extend the discussion to all infrastructure systems, everything starts out as privately owned in the US. Roads, bridges, water, canals, aqueducts, communications--everything! These private lifeline networks facilitate local economic and social activities, achieving technological momentum, and requiring harmonization of standards and access within and between these localities. These localities then become connected across regional boundaries, and once this happens the economies of scale require a transition from predominantly private ownership to public ownership. Many of these systems however, such as oil/gas, communications, and electric power systems, do not make the full transition to public ownership. Instead, public involvement takes the form of regulation and oversight (e.g., public utility commissions, antitrust laws, etc.) while the infrastructure remains in private hands. Public investment in these private systems intensifies if that are substantial disparities in access that can not be solved within these regulated markets (e.g., rural electrification). So the first point that I want to make is that critical infrastructure ownership and investment trends are dynamic!
Second, for whatever reason water went from being almost exclusively privately owned everywhere, to being mostly publicly owned. The quality of service was good initially, then declined until public ownership in the large cities which restored the reliability and quality of service. In fact, while many industrialists promote private ownership as the impetus for innovation, advances in materials science, pumping technologies, and population growth required much greater levels of public investment and ownership in water systems. Now, as federal, state, and municipal budgets are strained at the same time as renewal, rehabilitation, and public health concerns converge, some public water systems are comparing the risks of continued public ownership and management against the risks of private water involvement (or at least external ownership/involvement; see here for an example). Water is one of the few lifeline infrastructures that is dominated by public ownership (if we look at this on a population served basis; see this and this), so it is unique in that regard. There are advantages and disadvantages to both types of ownership, and I am not going to settle this debate today. It is interesting, though, to revisit this debate periodically to hear what folks are saying.
Here are a few pieces that reflect current perspectives in my opinion (click on the bold title to link to the underlying article/resource):
- There's a secret war being waged over your drinking water. Huffington Post. Actually, the war is not so secret. States are making private involvement in water systems easier because, while in some cases it can be slightly more expensive, it can be easier for private groups to access the necessary capital to revive, operate, and manage these systems. This article sets the view of two leaders from Corporate Accountability International-who believe water privatization is a way to circumvent democratic processes in water governance-against the view of the executive director of the National Association of Water companies-who argues that private water involvement be considered as an effective alternative to be used to provide efficient water service in the face of increasing investment requirements.
- Ownership and Financing of Infrastructure: Historical Perspectives. World Bank Policy Working Papers. While this paper encompasses all infrastructure systems, I think this quote says it all: "The range of choices that has historically been made with respect to the ownership, financing, and operation of different infrastructures has been far too varied to be encompassed by simple distinctions between public and private." In fact, I am using the term private water involvement precisely because there is no clean distinction. Most of the opposition to private water involvement (it is, in fact, mostly opposition) is due to the perception that private corporations would enrich themselves at the expense of ratepayers. However, one might argue this is already true, given that most of the design, construction, and a large part of operations work at publicly owned utilities is already delivered by private companies.
- Are We Better Off Privatizing Water? Wall Street Journal. While this article is a bit older, it effectively and succinctly gives the most accurate account of the tensions in this debate--fiscal responsibility vs. affordability. On the one hand, private water involvement is needed because under public ownership [we have had] "artificially low rates the public utilities have charged for years. These rates, kept low for political purposes, don't come close to supporting the long-range capital investment we would expect of any well-run business... With privatized water, there is a new emphasis on fiscal responsibility—and measurable efficiency gains." On the other hand, private water involvement should be opposed because of the Averch-Johnson effect which states that private water utilities face "pressure to deliver high rates of return for shareholders drives them to cut corners when they are operating under contracts, and to drive up costs when they are operating as regulated utilities. ...[Moreover,] elected leaders should absolutely respond to public concern about the affordability of their water service. The provision of water service is a natural monopoly, and the public can exercise choice only at the ballot box through the election of the officials who oversee the service. How government-run utilities decide to allocate costs among different users is a local decision that should be made in an open and democratic manner."
What do you think? Does private involvement in public water constitute a transfer of wealth to corporate stakeholders, or can it be an effective solution to municipal budget problems and water quality challenges?