15 Dec 2009

Liquid Assets -- The Review

This was supposed to be published at H-Net, but it is caught in some sort of twlight zone of copy-edit hell. So you all get to read it first :)

Liquid Assets (RFF 2005) is an important and useful book. It is important because it addresses a very important topic: the use and allocation of water in Israel, Palestine, and Jordan. It is useful because Franklin Fisher, Annette Huber-Lee, and their nine co-authors not only do a very good job of describing their technical approach but also because they directly and clearly address the political dimensions of water in the region. This book should not only be read by those interested in the political economy of natural resources in the region; it should be read by anyone who wants to understand how to make a thorough analysis of optimal water allocation in any part of the world. (Hear that Californians?)

Here are their main conclusions:
  1. Israeli-Palestinian cooperation over water (not exchange in water rights) can create benefits of about $100 million per year
  2. Most Israeli desalination is not “worth it,” except in drought years.
  3. Without cooperation, desalination is necessary in Gaza.
  4. Recycling plants in Gaza and the West Bank are a good idea.
Note this important implication of their conclusions: Despite the political rhetoric (water rights, water security, human rights, thirsty children, etc.), the authors estimate “that the value of the water in dispute between Israelis and Palestinians is considerably less than $100 million per year. Such amounts ought not to be a bar to agreement between nations” (p. 62). In other words, the “problem of water” is not that big--about ten dollars per person per year, which ensures that economic constraints will not block negotiation. This quantification is useful as a counterbalance to the “life or death” significance that partisans attach to their positions (but see more below).

As many would guess, the story behind the book is fascinating. In the preface, the authors describe how scholars from Israel, Jordan, Palestine, the US, and the Netherlands worked together on the Middle East Water Project. After an early stage of establishing the project (1993–1996), they worked on it until 1999, when the Al Aqsa Intifada (the “Second Intifada”) stopped their work. This book summarizes what they accomplished.

The authors' main goal is to describe the supply and demand for water in the region. They use data and (reasonable) parameters to recreate the physical and economic space under which water is -- and can be -- allocated within and among countries in the region. They then use GAMS (General Algebraic Modeling System) to calibrate and estimate “optimal” water allocations. These allocations are then compared to actual patterns of water use to estimate system inefficiency. The GAMS model also allows them to find bottlenecks in the system--places where high “shadow values” indicate that additional water or infrastructure would be valuable.

GAMS models are tricky to work with, calibrate, and explain, but they are sometimes the only way to see how a complex system works. Although the authors do an excellent job--their writing on water economics and simulations is some of the clearest I've ever read--the complexity of the topic and method of analysis is not for the Freakonomics crowd (I spent 30 minutes trying to understand Table 5.2.2!). Overall, I think that they have used the best tool for the job and done an outstanding job explaining their method, assumptions, and results.

The book is divided into two parts. In part I (chapters 1–4), the authors discuss general methodology, their Water Allocation System Model, an agricultural submodel, and international conflicts and cooperation. In part II (chapters 5–8), they report on water use and efficiency within Israel, Palestine, and Jordan, as well as the value of bi- and multilateral cooperation among these countries. The institutional details of part II are very interesting, but--sadly--they confirm the destabilizing impact of subsidies to agricultural water use. Agricultural water users in Gaza pay only 2–4 cents per cubic meter (m3) of water and consume two-thirds of Gaza’s available water supply. I really wonder what Gaza's leaders are thinking when their policies lead to this outcome. The authors do not necessarily say this; as in many places in this book, they state many facts and then leave the drawing of conclusions to the reader. (The clearest example of this "diplomacy" is when they evaluate water supplies in East Jerusalem, giving that area to Israel in chapter 5 and to Palestine in chapter 6. They also point out that this exercise is mostly political, as the value of water under dispute in East Jerusalem is trivial.) That same situation (subsidized/cheaper agricultural water) is repeated to a lesser degree in Israel (relatively well-managed) and Jordan, a country that has only 191 m3 of water per capita — far below UNEP's 500 m3 threshold of “absolute scarcity.” It is more sad than surprising to me that Jordanian farmers use 70 percent of that country's water, perhaps because they only pay 1.4 cents per m3. (Recall that desalinated water costs $0.60–1.00/m3.) In chapter 8, the authors calculate and estimate the costs and benefits of various infrastructure and cooperation options. Although desalination has been touted as the be-all-end-all for the future, it is merely the solution to a worst case scenario that would be necessary if — as we've seen for too long — politicians continue to fight among themselves and against the best interests of their people.

I hope that more people read this book. Then I hope that they take their copy into the legislatures, newspapers, courtrooms, and palaces and use the analysis to shift the debate away from "unbearable costs" and towards feasible solutions. It's just so obvious that the barrier to an economic, social, and environmental allocation of water is mere will, neither money nor technology. And when they do decide to “fix things,” the first people they should call are the authors of this book.

Bottom Line I give this book FOUR STARS only because they could have improved the display of technical information, making it more accessible.