In the 19th century, small private companies in U.S. and European cities supplied water only to those who could pay a premium. Then came epidemics of cholera and other waterborne illnesses, which vividly illustrated the widespread stakes for public health and human life and invigorated the political will needed to make a shared commitment to universal access. As a result, the U.S. saw major waves of public investment in the late 1880s and early 1890s, as well as in the 1930s and after World War II.5 By the early 20th century, most of Europe and North America had abandoned private provision in favor of public water systems. With a small handful of exceptions (France, the UK and Chile, where infrastructure assets are privately held but deeply subsidized by public investment) the private sector failed to gain a lasting foothold.
But in the late 20th century, with new policies in vogue, the lessons of history were ignored and the long-held norm of public water delivery was questioned anew.
So begins a new report Shutting the Spigot on Private Water: The Cast for the World Bank to Divest by Corporate Accountability International. The report quotes a World Bank Vice President about the crucial importance of water in the lives of the global poor. “Denying people water is to deny them the right to life.” And then proceeds to present a powerful argument that the World Bank’s obsession with privatizing water supplies has denied many a life.
The conventional wisdom is that the private is always more efficient and competent than the public. So why not have private companies run water systems? The report notes at least four good reasons.
Public infrastructure requires long-term management but private capital isn’t in anything for the long run. As a 2007 U.N. Policy Note concluded, when privatization “involves assets that require maintenance (e.g., water system, roads), it can lead to the deterioration, or even destruction, of the assets involved.” A 2004 review of the Manila water privatization project by the Asian Development Bank found no “meaningful improvements” to the entire distribution network during the privatized period.
The private sector borrows money at higher prices that the public sector thus increasing the cost of water. Capital costs represent 75 percent or more of total costs of water projects. The report cites an estimate by the accounting firm PricewaterhouseCoopers that the private sector’s weighted cost of finance is “typically between 1 percent and 3 percent higher than the public sector’s.”
Private companies desire to maximize profits leads them not only to skimp on maintenance investments but to substantially raise prices. An extensive survey of 5,000 local water authorities in France in 1998 demonstrated a clear correlation between private participation and price increases while controlling for all other factors.
Private companies need to maximize profits can undermine the social mission. One major strategy adopted by private water companies has been to reduce “non-revenue” water by enforcing bill collections and cutting off unpaid or unauthorized connections. But as the report points out, “In Nairobi and other urban areas of Kenya, the average cost of a connection to the public water network is equivalent of up to six months’ salary for poor families, leaving many to obtain this essential resource through unauthorized connections. This is the human face of so-called “non-revenue” water. The private sector has little incentive to supply those least able to pay, and an increased focus on tightened bill collections leads to shutoffs and regressive enforcement mechanisms.”
And then there is the sociological factor. We identify with what we own in common and our behavior reflects this. During a drought in the U.K. in 1976, when water was under public ownership, conservation messages were popular and widespread, leading to a reduction of about 25 percent of usage. By contrast, during the 1995 drought, when the privatized Yorkshire water made a similar appeal, consumption actually increased; the company was not seen as entitled to public support. “With a private corporation in control, even the discussion of water restrictions provoked widespread bitterness and anticipation of possible rate hikes.”