16 Mar 2009

Have You Seen the Chile Article?

Many people sent me the NYT's "Chile's water privatization gone wrong" article (awesome!). It says:
Quillagua is among many small towns that are being swallowed up in the country’s intensifying water wars. Nowhere is the system for buying and selling water more permissive than here in Chile, experts say, where water rights are private property, not a public resource, and can be traded like commodities with little government oversight or safeguards for the environment.

Private ownership is so concentrated in some areas that a single electricity company from Spain, Endesa, has bought up 80 percent of the water rights in a huge region in the south, causing an uproar. In the north, agricultural producers are competing with mining companies to siphon off rivers and tap scarce water supplies, leaving towns like this one bone dry and withering.
Here are my comments:
  1. Make sure that some water rights are held in situ.
  2. Limit annual exports from a basin.
  3. Relax (1) and (2) as people figure out what's happening.
Do you have further thoughts?

Bottom Line: "Market failure" means that markets deliver the "wrong" results (e.g., pollution from driving cars), but some markets fail because of "government failure." Don't blame markets when governments (through incompetence, ideology or corruption) screw up.


Philip said...

Best I could tell from the article (which focused on the economic and environmental disaster, but was short on its origins) it was not so much "privatization" that caused the problems, but plain old corrupt oligarchies acting out the same old South American morality play.

Raționalitate said...

"Market failure" means that markets deliver the "wrong" results (e.g., pollution from driving cars), but some markets fail because of "government failure."

It boggles my mind that people can say with a straight face that pollution from cars is an example of a market failure, when in fact the road/car system that we have in America today (and nearly everywhere else in the world) is clearly a government creation rather than a creation of the private market. Does nobody remember the extensive private system of mass transit that existed around the turn of the century? Or has the government paved over your memory, too?

Chris Brooks said...

I have talked to Carl Bauer (quoted in the article) about the situation in Chile. One remarkable aspect of their "free market" in water is that very little water has actually been moving in the market. I believe this result is from the fact that most water rights were already concentrated in the hands of the rich and powerful. So as noted already, it's just not enough to create a market and let efficiency happen - there needs to be regulation to the market.

David Zetland said...

@Rationalitate -- you are using a different definition of "market failure." The economic definition refers to problems resulting when prices do not reflect ALL costs, which can happen with private OR public mass trans, etc. (Read this: http://en.wikipedia.org/wiki/Market_failure)

Of course, not all market failures need to be fixed by gov'ts and gov't makes the situation worse sometimes...

Eric said...

Thanks for reminding me.

The interstate highway system led to long distance driving by cars and trucks which led to bigger cars which led to more CO2 emissions which led to ...

The interstate highway system, I think, was first implemented to allow Americans to drive out of cities in the case of a Communist nuclear attack (in case hiding under school desks did not work).

So, part of America's transportation generated increase in GHG's comes from the government pretending to fight the Commies in the '50s and creating a new market for cars and trucks covering long distances.

Where can I find information on the government's unintentional creation of the problems that they now blame on others? And (blind hope at work here) where can I find the government taking responsibility for what they have done, as the Marines did recently in San Diego (WSJ last week)?

Damian said...

Rationalitate makes a very good point about private mass transit. A system of jitneys sprung up in major cities in the early 1900s, only to be legislated out of existence by the streetcar lobbying forces. Jitneys (flexible route, shared ride service) still have a place too. Imagine if this were in major cities today and we did not have to constantly subsidize the massive bus systems that are unresponsive to customer needs.

This podcast is also a great listen. They discuss how Chile went from a working system of jitneys to a much worse and much more expensive system of big buses. Parts of it are very funny, and in a sense, sad.

David Zetland said...

I'm with Damian (and rationalite) on the efficiency of private over public transit. To get WAY more on that, visit coyote and search for light rail (oy vey!)


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