Privatizing the Tap

It has become axiomatic that America's infrastructure -- its roads, bridges, electrical grid, water and sewer systems -- is in trouble, suffering from the inevitable ravages of age and neglect. Foremost among the problem areas is the nation's supply of drinking water, which is being delivered by increasingly decrepit networks of reservoirs, pumping stations, and pipelines, some of them dating back a century or more. Simultaneously, a steadily growing population is demanding increased volumes of that most precious of fluids.

The upshot is that repair and expansion of waterworks across the country is emerging as a top public priority, one necessitating massive investment over the coming years. An accompanying dilemma is how to pay for what needs to be done, especially in a time of stressed government budgets at the state and local level. Democratic presidential candidate Dennis Kucinich, an advocate of job-creating public works on the New Deal model to spur the lagging US economy, proposes a Federal Bank for Infrastructure Maintenance that would, among other things, direct $120 billion in interest-free loans to states and municipalities over a 20-year period to renew their water systems.

Implicit in the Kucinich plan is that the delivery of drinking water will properly remain a government function, as it has been throughout most of our national existence. This is in line with the congressman's position that access to affordable water, both here and abroad, is a basic human right. All water, he believes, should be permanently considered part of the public domain; it should be community owned and subject to municipal control.

Until the last 15 or so years, few would have argued with that proposition; it would have seemed self-evident on its face. Since the Reagan years, however, an alternative view has emerged, one that sees water as just another commodity to be bought and sold on the open market. Over the same period, multinational corporations, the chief purveyors of this new vision of marketable water, have entered the business with a vengeance, spreading their gospel worldwide -- first in Europe, then in underdeveloped Asia and Latin America, and now in the United States, formerly the almost exclusive preserve of municipal ownership and distribution.

As of late last year, 28,000 US municipal water systems (14% of the national total) had converted to private operation. American Water Works, owned by the German multinational RWE, was active in 23 states; two other subsidiaries of foreign water giants, USFilter (controlled by France's Veolia) and United Water (a branch of the French firm Suez), were close behind. Although the myth of private-sector efficiency doubtless played a role, the motive for privatization on the part of American communities was largely budgetary: the desire to avoid taxpayer-funded replacement of old, decayed systems.

The question, of course, is whether the privatization cure will prove worse than the disease in the long run. The fact is publicly owned and operated waterworks are, by their nature, comparatively less expensive to run; they don't have to pay dividends to shareholders, and they are able to borrow at lower interest for routine upkeep. By operating at cost, they also don't necessitate such added public expenses as government vouchers to enable poor consumers to pay higher privatized water bills, an expedient proposed by advocates of water for profit.

Furthermore, while the water privatizers talk a good game, their track record is checkered. This has been particularly true in the Third World, where the IMF and the World Bank have been pressuring debtor nations since the 1990s to sell off their water systems to corporate owners as part of economic structural readjustment. There, privatization (either forced as a condition for obtaining international loans or merely encouraged as a presumed means of solving supply shortfalls) has led to drastically higher water prices, as well as cut-offs of water when customers are unable to pay. The reaction in impoverished regions has been predictable. Since the high point of their penetration of the Southern Hemisphere circa 1999, the transnational water corporations have faced a political backlash that has forced them out of several Latin American countries and cut their overall level of contracts in half.

Affluent Europe, where some conservative governments have been able to sell higher rates as a plausible trade-off for greater conservation and supposedly higher quality, has proven to be a less immediately contentious venue for marketplace water. Great Britain fully privatized most of its water delivery systems in 1989 under Margaret Thatcher by selling off all government-owned utility assets outside of Scotland. The pattern replicated other questionable Thatcherite privatizations, such as that of rail transportation; private firms were given generous government subsidies, forgiven their debts, and allowed to raise prices, providing initial shareholders with vast, unjustifiable windfall profits. Privatization also led to periodic water cutoffs during drought periods. (So much for private efficiency.) In the end, after a decade of mismanagement and constantly shifting ownerships, even proponents were admitting that the market-based system could only work under a strong regulatory regime.

The model for American water privatization, however, is not Great Britain, but France, home of the world's largest private water companies, Veolia and Suez, which have subsidiaries in over 150 countries. The longstanding French system retains water assets in public hands and franchises out operations, investment, and maintenance. This is the primary format exported to the US, where the city of Atlanta, for example, contracted for a time with Suez.

Communities inclined to follow Atlanta's lead should consider that the city quickly cancelled its 1998 privatization contract over such issues as poor maintenance, excessive staff cuts, and faulty financial statements. Something else to contemplate about the private water market: Enron was involved in it through its short-lived water division Azurix (a prominent player in the flawed British privatization scheme), and before its ignominious fall, Enron always displayed an eager eye for the main chance. History also provides a lesson. Almost a century ago, the great muckraking journalist Lincoln Steffens documented, in The Shame of the Cities (1904), that a prime objective of the profiteers of his time (like those of ours) was the commodification of water. The exploiters of the Progressive era were unsuccessful, but the wheel is turning again.

Wayne O'Leary is a writer in Orono, Maine.

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