The World Bank endorses privatization – others aren’t so sure

Ian Kaufman

Features Editor

In 1968, an article called ‘The Tragedy of the Commons’ was published in the journal Science. Its author, Garrett Hardin, proposed that without coercive measures, humanity would soon breed itself into oblivion. He related this tendency of humans to overshoot carrying capacity to the eponymous dilemma, the tragedy of the commons.

In a nutshell, the concept works like so: the benefits of committing acts detrimental to the environment accrue to the individual, while the adverse effects, or costs, are spread amongst everyone in that society. It follows that in a “rational” calculus, the benefits will outweigh the costs for an individual to commit these detrimental acts.

His chosen example was that of a herdsman living in a society with pastures held communally. The profit from adding an animal to one’s herd would go wholly to the individual; the damage to the pasture from overgrazing would be shared by all of the herdsmen. For each herdsman, therefore, the rational decision is to keep adding animals, although it will eventually result in the destruction of that society’s land.

“Each man is locked into a system that compels him to increase his herd without limit - in a world that is limited,” Hardin concluded. “Ruin is the destination toward which all men rush, each pursuing his own best interest in a society that believes in the freedom of the commons. Freedom in a commons brings ruin to all.”

How can this dilemma be resolved, you ask? Private property. Once a person’s livelihood is tied to the land they use, there is an incentive to preserve its value. If you choose to add too many animals to your herd, you will suffer the full cost of overgrazing instead of only a portion of it. Since the institution of private property apparently solved the dilemma of common pastures, Hardin asked, could it resolve contemporary problems as well?

The ultimate commons

While land has been systematically privatized in most parts of the world, there remain other kinds of commons: parks, streets, libraries, the education system, seeds, the internet. There are attempts to privatize all of these around the globe, many of them finding an ideological basis in Hardin’s arguments. The ultimate commons, though, is water. The move to privatize it has been gaining steam in the last few decades. But does water fit into Hardin’s model of the tragedy of the commons, requiring privatization? More importantly, was his model correct in the first place?

These questions could not be more timely, in light of the World Bank’s forecast that two-thirds of the world’s population will run short of clean drinking water by 2025. That there is a global water crisis is beyond debate – how to deal with it is another matter.

Proponents of privatization typically describe its advantages as the ability to leverage capital (which municipalities often have trouble doing), cheaper operating costs, and superior expertise and innovation. In Asia, Africa, and Latin America – home to the majority of the 1.4 billion people with little or no access to clean drinking water – they say that only private capital can create the infrastructure necessary to provide universal access to this basic amenity.

The record, however, tells a different story. Obviously, corporate fuck-ups tend to generate more press than do success stories. But even accounting for this, instances of improved service under privatization are few, whereas the horror stories could easily fill up the rest of this paper – and most of them would be even scarier than ‘Boo-niversity’.

Water privatization worst practices

With the election of the African National Congress in 1994, water services in South Africa were extended beyond white communities. In a country where about a third of the population does not have access to clean water, however, this is a massive challenge. While the government made significant progress, the financial stresses of the undertaking induced it to do two things: seek assistance from the private sector, and try to recoup the costs of water delivery from its citizens.

When many people ignored their water bills, unable to afford them, some municipalities simply cut off their water supply. Others installed water meters that worked with pre-paid cards; the water flowed as long as the card was inserted into the meter, and the card’s value declined accordingly. “The municipality loves it and private sector providers love it because it avoids the hassles and costs associated with trying to collect the money,” South African researcher David Hemson explained to the CBC. “It also deflects the bad publicity… of having to go in and cut [people] off.”

Ultimately, that bad publicity was only deferred. By forcing people to seek water elsewhere, often dirty lakes and rivers, the user pay system resulted in South Africa’s worst cholera outbreak in recent history. Hundreds of thousands of people were affected, and around three hundred died. “The cost has been tremendous,” Hemson reported, “and just imagine if all that money had been spent on providing services in the first place.”

In 1996, just over a year after entering into what the Center for Public Integrity called “the largest public-private partnership of its type in North America”, Hamilton was responsible for one of the worst sewage spills in Ontario history. The company hired to process the city’s wastewater, Phillips Services, had cut about half of the facility’s staff over the first seven months. After denying responsibility for the spill for three years, during which time at least three more serious spills occurred, Phillips eventually settled out of court with the city and affected homeowners.

Probably the most famous instance of water privatization took place in Cochabamba, Bolivia. Weeks after a multinational consortium took over responsibility for the city’s water in 1999, prices tripled or quadrupled in some areas. For many citizens, this meant spending more than a quarter of their income on water.

In response to the privatization, the workers of Cochabamba staged a four-day general strike and occupations of the city’s central plaza. In clashes with the police and the army, hundreds were injured and at least one person killed. Only after months of civil unrest was the consortium was ousted and water put back in the public sphere. Many journalists and other commentators allege that the World Bank named water privatization as a precondition for loans, as it has done with other countries.

Mutual coercion

Despite these examples – a few among many - policy wonks, politicians, and organizations like the UN, the World Bank, and the IMF still tend to advise water privatization, or at the very least a user pay system. Take the National Round Table on the Environment and the Economy, a Canadian group appointed by the Prime Minister to play an advisory role to the government. In order to create a “more rational” water system, they suggest, water shouldn’t be subsidized with tax dollars. Instead, they endorse a “full cost, user pay” principle.

Their reasoning is reminiscent of Hardin’s: “Canadians use excessive amounts of water due to subsidized prices… Water infrastructure is deteriorating, maintenance is being deferred, service delivery is less efficient, and ecosystems are stressed in various ways.” As long as water is a commons, they believe, people will continue to abuse it.

It’s true that Canadians use excessive amounts of water – more per capita than any other country besides the United States. According to the Council of Canadians, the average North American uses almost six hundred litres of water a day; the average African uses six. And it’s not just in comparison to developing countries that our water use seems profligate – we use more than eight times as much as Denmark.

According to Hardin, though, that information won’t guilt you into reducing your consumption. At the end of ‘The Tragedy of the Commons’, he asserts that appeals to morality will never convince people to change the way they act. It is only coercive and enforceable measures that will have any effect - “mutual coercion, mutually agreed upon by the majority of the people affected”.

To wit: In 1994, Canadians paying for water by volume used 263 litres per day, compared to the 450 litres used by those paying a flat rate, according to Canadian Geographic. In other words, where appeals to morality may or may not have played a part in the three or four percent reduction in Canadian water use over the last decade or so, the coercive device of the “user pay” system reduced it by 39%. “Bam,” as the kids say.

Where this system fails, though, is precisely where reform is most needed – places where people have a hard time accessing or affording water. As we’ve seen, attempts to introduce user pay water systems in poor areas generally don’t go very well. The user pay system seems to work very well as a coercive measure only in middle class or well-off areas that are consuming too much water. Involving the private sector, on the other hand, doesn’t seem to be effective anywhere.

A self-fulfilling prophecy

Much of the privatization of water began in the 1980s, spurred by the Thatcher and Reagan regimes. While these governments touted the private sector’s supposed ability to provide services more cheaply and effectively, economist Harry Shutt believes the real reason for privatization was simply a shortage of public capital: “Growing public-sector deficits had reduced the state’s capacity to provide the necessary investment – although it should have been obvious that this was largely a self-fulfilling prophecy.”

Shutt’s “self-fulfilling prophecy” plays out like this: State revenues are reduced by tax-cutting, resulting notably in increased corporate profits. With reduced revenues, the state finds itself no longer able to keep up with the cost of public utilities and services. The resulting financial gap must be filled by private investment, which is possible in part because of increased profits from corporate tax cuts. In short, water privatization was part of a wider transfer of public wealth into private hands that quickly became a vicious cycle.

The testimony of Oscar Olivera, one of the leading protesters in Cochabamba, would seem to confirm Shutt’s analysis. “The privatization hasn’t benefited the country much,” he told the Multinational Monitor. “Services are more and more expensive. As a result, now that the state no longer has money for public services, what it wants to do is privatize the public service sector.”

What’s wrong with the commons?

Many scholars have called the legitimacy of Hardin’s paper into question. Many cultures, including the English pasture system to which he alludes, have had common property systems that worked just fine. As economist Carl Dahlman points out, “similar conditions existed for many hundreds of years all over northern Europe, and the open field system was quite similar and very stable across cultures and time.”

There is one idea in particular about which we can hope he was mistaken: our “natural tendency to do the wrong thing.” Small movements around the globe are trying to prove him wrong by working to restore the commons (for more information on these movements, visit onthecommons.org).