Privatize Water!

In recent days reports have been coming out about authorities’ struggle to battle a water shortage in Brazil’s two major cities of Rio de Janeiro and São Paulo. Ostensibly caused by a severe drought, the crisis has even sparked fears of an impending “water war”. Measures taken earlier this month to reduce the water flow at a major dam were unsuccessful to say the least, cutting off running water to families in some neighborhoods for as long as 12 hours a day.

Unsurprisingly, the vast majority of the water system is government-run without much debate. After all, for all its ubiquity, government incompetence does not always overtly affect people’s daily lives. Now that it does, it might be an opportune time for Brazilian freedom advocates to voice their opinions.

While some market reform has taken place in recent years, the process has been severely stifled by jurisdictional conflicts fueled by Constitutional as well as other regulations. Besides establishing a national system of water resources management the Constitution also defines criteria for granting rights of use, and it regards surface water and groundwater as property of the states. The National Water Resources Policy even specifies many uses of water that require government permission.

A World Bank publication analyzing market reform in urban water supplies in Santiago de Chile found “surprisingly large” net benefits in economic welfare despite significant price hikes. After years of losses largely imposed by regulatory obstacles the Santiago Metropolitan Works Enterprise had become so underfunded it could no longer perform basic maintenance on its systems. Some of the positive results included almost 100 percent coverage of expanding demand, better water pressure, fewer interruptions of service and higher wages for employees. The outcomes were so positive, in fact, that full privatization of the entire urban water supply and sanitation sector was eventually implemented.

Studies on market reform of the water sector in other South American countries have also found positive results. In Argentina the privatization of local water companies – covering approximately 30 percent of the country’s municipalities – reduced child mortality on average 5 to 7 percent, preventing 375 child deaths per year. It is worth noting also that the effect was most pronounced (24 percent) in the poorest areas, offering empirical evidence that runs contrary to oft-heard claims about increased inequality. Overall the number of households connected to the water network increased by nearly 12 percent.

In Bolivia privatization was shown to increase water access relative to both the existing trend and the non-privatized areas. The results also concurred with the aforementioned that the relative benefits of were larger for the poorest segments of the population, who gained from the largest increases in access. Some of the same findings have been reported in Brazil, if only on a small scale.

Notwithstanding those positive results generated by market reform, the current legal framework is a severe impediment. These obstacles will have to be dealt with if Brazilians are to reap the full benefits of voluntary – rather than compulsory – human action in the provision of such a basic need as water. Empirical evidence clearly confirms it can be done, giving liberals and libertarians plenty of arrows in their quiver to build a convincing case for liberty and against statists’ fear mongering. If successful that could be a big step toward a freer Brazil.