|They're Not Making More of It|
Much of the world faces a crisis of the supply of fresh water, and the
allocation systems in the world currently seem to be quite unfair, with some
12% of the world's population apparently consuming 85% of the available fresh
water. What is the best system to improve the situation? Is this an issue
of inequality, or just lack of clear thought in finding the optimal (and fair)
Typical analyses only consider two alternatives.
- A totally socialist model, where water use is completely controlled by
a perfect, uncorrupt and efficient government with everyone's best interests
at heart; or
- A totally corporatized model in which the water is privately owned, and
the resource is run for the profit of the owners, with no consideration given
to consumer welfare.
For the sake of argument, lets consider a third alternative, a water-market.
- Every citizen is entitled to an equal share of the available water (lets
say this is 50 liters a day).
- Anyone has the right to sell any of their share of the water for any price
mutually agreed on.
- Anyone has the right to buy as much water as they like, provided the price
is mutually agreed on.
Why is this better than the 'socialist collective' solution? Because people
have more choice.
- They can choose to consume exactly their 50 liters;
- They can choose to consume less than their 50 liters, and sell some.
Then they can keep the money for something else, like health care or education;
- They can choose to buy more, and use it for running their factory,
or irrigating their farm or whatever. They can only buy this from people who have
chosen to consume less. They presumably will use the water for producing
some good, and will buy the water with profits from selling farm produce or
manufactured components or suchlike;
- They can choose to buy more, and also use extra water for washing their car, or having 3 hour
showers. Not too bright perhaps, but if other people want to sell their water
for this (because it makes them better off), and someone values their 3 hour
showers that much, both parties are better off.
No-one is worse off as a result of this, and people can use trade to make
themselves better off. If 12% of the people consumed 85% of the water in such a
market, it wouldn't be a problem, because the redistribution made every single
person better off. Anyone who was putting their health at risk through lack of
water could just choose to stop selling their share.
People would literally buy and sell water-rights in a market:
'I'll sell you 20 liters of my quota for next Thursday for 0.21 cents per liter'
'I'll buy up to 300 liters of water for next Thursday at 0.22 cents per liter'.
(Those two people are about to cut a deal).
Many (or most) people would choose to buy or sell through brokers, and would
over time choose the broker who gave them the best price, and a
kind of stock-exchange would evolve. Some brokers would be corrupt, but they
wouldn't stay in business for long, because their customers would just go
elsewhere to get a better deal.
The only government
involvement required is to make sure that people weren't stealing water (which
they have to do under any system).
So the optimal solution is found, not by allowing governments to choose
allocation systems based on their own bribe-taking pork-barreling corrupt and
incompetent agendas, but to use the power of the market to increase choice, and
optimize the resource to everyone's benefit.
The issues in privatization of water are not to do with the market. They
- What should the initial allocation be, and should that be based on historical usage?
- Should you be able to stop someone selling their water allocation in-perpetuity?
Sadly, these important issues are usually lost in anti-market rhetoric and
By the way - water in Australia has a system a bit like this. The big sticking
point in Australia is who gets the initial allocation. Big farmers already have
big water right allocations, they bought their farms with the water rights as
part of the package and regard the rights as their property.
Another side effect is 'how much for conservation'?
Something such a water-market does is to give an estimate of how much it costs to
continue to channel water into wetlands (the teraliter of water
sunk into the wet-lands which had a value of $AU33M on the open market probably
cost that in productivity and standard of living).
Conservationists are very touchy about this because it allows a
rational argument of the actual worthfulness of conservationist policies,
which they believe are harder to win than arguments based on emotive slogans.