15 January 2010

8 Water Myths

GZ sent this, and it's worth reading.

Myth #1: Water is a public good.

Water is essential to life. Therefore, some argue, it should be considered public. Food is also essential to life, but one rarely hears an argument that food and farmland are, or should be, public property. In fact, if farmland and food production systems were owned by the state, one could expect food shortages, high prices, and limited variety. Food and the means of producing it are privately held. These interests sell their food in a moderately competitive market, which is what allows the system to work as it does.

To be sure, water is different from farmland in at least one respect. In its natural state, water moves. It flows from place to place, in surface lakes and streams, and underground below both private and Crown land. In this form, it is indeed “public.” However, if and when water is collected, the collector acquires private property rights over it. In some provinces, surface water is subject to the private interests of riparian land owners, who have certain rights to access, quality and quantity. Such characteristics do not support a conclusion that water is exclusively a public good.

Myth #2: Everybody uses too much water.

Water is never used up. It simply changes form and location. Water used for drinking, cleaning, irrigation or industrial purposes remains within the water cycle. As long as the amount in use at any particular moment does not impede natural ecosystem functions, no shortage exists. In some parts of Canada, there is plenty of water. Some locations in southern Ontario, for example, have access to more than enough water for everyone. In those places, what may be in short supply is clean water. Since Canadians are in the habit of polluting their water, that water must be treated before it is used for drinking and other domestic purposes. Since treating and transporting water requires energy, using an excessive amount of treated water is a “waste” of energy, not a waste of water. A better way to increase the supply of clean water is to avoid polluting it.

Myth #3: The best water treatment system is a public system, or a private system, or a public-private partnership.

Water treatment and supply systems are regarded as “natural monopolies” because constructing multiple sets of parallel pipes underneath cities to compete with each other is not feasible. Competing sources of clean, municipal drinking water are unlikely to emerge. However, monopolies do not work well, regardless of whether the monopoly is public or private. Monopolies are seldom efficient, effective or responsive to their customers’ desires. Private monopolies charge high prices for their goods because there is no competition to set a market price. Public monopolies are often influenced by political considerations. Public-private partnerships are vulnerable to having all the disadvantages of public and private monopolies—unrestrained profit-taking, inefficient management, use of public monies for private purposes, and little or no recourse for the citizen customer.

If competition is not possible, the alternative is to legislate citizens’ rights to the provision of drinking water of a certain quality, enforceable against the water monopoly. If there is no market to set price, rules can require price to reflect cost of provision and scarcity, thereby coming as close to possible to reproducing the dynamics of supply and demand. Regulation of drinking water should be arm’s-length and free from conflicts of interest. In an ideal system, the operation of water treatment plants and pipelines is separate from the supervision of the system, which in turn is separate from the setting of standards that the system is expected to meet. If those who set the standards also have the job of achieving the standards, then they will set standards that are within their capacity to meet even if that means water of questionable quality. If those who enforce standards also operate facilities, then enforcement will be lax or non-existent. These different functions should ideally be carried out by different levels of government; or, at the very least, by different government agencies willing to censure each other.

Myth #4: Drinking water should be free.

It is sometimes said that since drinking water is essential to life, it should be free. The converse can also be stated: since drinking water is so important, it should be expensive. Neither statement makes sense. The “proper” price of goods is established through the interaction of supply and demand. Supply and demand do not necessarily reflect utility, such as in the case of diamonds, which are relatively useless but very expensive, reflecting their scarcity. The proper price for water is the price that would be generated in a competitive marketplace—and if no such marketplace can be maintained because of water’s “natural monopoly,” a price that reflects the cost of production of clean water may be the next best thing. In simple economic terms, price is the incentive to reduce consumption. People limit their consumption when the price of the next litre exceeds the value they place on the good. Therefore, where water is scarce, it is a poor strategy to make it free.

Myth #5: The solution to water problems is better technology, or alternatively, better management practices.

The most important feature of water policy is governance. Technology is important, as is the quality of management. But without a properly constituted system of governance that lays out who has legal responsibility for what, and who has the right to ensure that those responsibilities are met, then nothing can be counted on to work. What are the rules? Who has control? Who is accountable for failure? Who sets the price? Who enforces the standards? Without clear answers to these questions, no amount of technology can produce ideal results, and no resort to management strategies can rescue the enterprise.

Myth #6: Private water companies should act in the public interest (corporate social responsibility).

Private companies are private. They are created for the purpose of pooling private capital and making profit. Corporate governance is based upon the central proposition that those who manage the corporation (the officers and directors) are distinct from those who own the corporation (the shareholders). Therefore the officers and directors owe a fiduciary duty to act in the best interests of the corporation, first and primarily, rather than in the public interest. The directors and officers are not at liberty to use the corporation’s assets to promote public welfare unless those actions also have the effect of promoting the corporation’s bottom line. Corporate social responsibility (CSR) is really a marketing strategy. It serves to enhance the corporation’s image and increase market share. CSR policies that do not have these ultimate aims are probably illegitimate because they breach the fiduciary duty owed to the corporation. Private water companies have a mandate to make profits. They can achieve that mandate by providing safe, clean, dependable water to satisfy their customers.

Myth #7: Bans on bottled water promote safe, well-run municipal drinking water systems.

Bottled water is often the only source of competition for municipal systems. Sometimes its price is criticized as too high because it is vastly more expensive per litre than municipal drinking water. But the price is also attacked as too low because it does not include the environmental cost of the plastic containers. Ideally, bottled beverages and goods of all kinds should include the environmental costs of the products—the environmental cost should be “internalized” rather than thrown onto the public. It would be nonsensical to ban plastic bottles of water but not to ban plastic bottles of Pepsi. Bottled water is not subject to rigorous regulatory standards in Canada but the quality of municipal and rural drinking water is not consistent across the country either. The main effect of banning bottled water is to eliminate choice for consumers.

Myth #8: Canada should support international declarations that establish a human right to water.

In the recent past, the Canadian government has wisely resisted calls for an international agreement to recognize clean water as a human right. Clean water is essential to life and ideally all people should have access to a reliable supply. However, to declare it as an international human right has at least three flaws. First, like numerous other declarations of universal rights, it is unlikely to make much of an improvement to the situation on the ground. Second, the declaration could be interpreted as obligating governments to supply their populations with clean water for free—which in arid areas of the world is the best way to ensure that there is not enough to go around. Third, it could be seen to create or reflect an international obligation on the part of water-rich countries to supply others. Countries like Canada might thus face new threats to control over water resources within their territories. In Canada, those who advocate endorsing an international right to clean water often also promote a ban of bulk water exports. On environmental grounds alone, the case for such a ban is strong. However, advocating a ban on water exports is not consistent with endorsing universal rights to water in international declarations.

Bruce Pardy is a professor in the Faculty of Law at Queen’s University in Kingston, Ontario.


Anonymous said...

DZ -- It's literally incredible to me that this kind of free-market orthodoxy masquerading as novel and critical heterodox thought can get any traction with someone as well-informed as you are.

Items like Myth #6 read like direct lifts from Uncle Milt's playbook -- despite the author's contentions, I don't think it's too much to ask that corporations (which we afford individual rights to) don't act like sociopaths. Here's the logical extension of Myth #6: a water company, discovering that their water contains a contaminant that gradually accumulates and causes cancer over 30 years, decides to conceal it from their ratepayers to avoid investing in a massive remediation project. Squeals about long-term rationality and maintaining reputation to the contrary (which squeals should be thoroughly discredited by the recent financial crisis and what it reveals about the effect of individuals' discount rates on aggregate corporate behavior), this strikes me as an undesirable outcome.

I'll let Keynes take it from here, even though I can infer that you aren't a fan. This is pretty apposite:

It must have been due to a complex of suitabilities in the doctrine to the environment into which it was projected. That it reached conclusions quite different from what the ordinary uninstructed person would expect added, I suppose, to its intellectual prestige. That its teaching, translated into practice, was austere and often unpalatable, lent it virtue. That it was adapted to carry a vast and logical superstructure, gave it beauty. That it could explain much social injustice and apparent cruelty as an inevitable incident in the scheme of progress, and the attempt to change such things as likely on the whole to do more harm than good, commended it to authority. That it afforded a measure of justification to the free activities of the individual capitalist, attracted to it the support of the dominant social force behind authority.

Anonymous said...

I think the movement might make more progress if it changed the term "privatization" to something a little less evil-sounding (think "1984", Monsanto, Enron, or "big oil") to something that better reflects the nature of the change you seek (perhaps something that captures the essence of public utilities)...that is, unless you are advocating full ownership of water resources by corporations, which does fit with the term "privatization" and does come off to most people as inherently evil. Deservedly so, I think. I think the term "privatization" is holding things back in terms of public perception.

David Zetland said...

@Ray (WS/WB) -- Your comments are off topic. if you want to talk about Haiti, then comment on the post I just put up.

@Anon 1 -- That Keynes quote is incomprehensible to me (what is "it"?), and I agree with the OP on CSR. I know that corps can/will misbehave, but I place the burden more on regulators and politicians. Of course, more information/transparency will make misbehavior harder.

@Anon 2 -- good point. That's why there are "private-public partnerships," etc. Activists are loath to concede a middle ground, unfortunately. :(


The myth I find most difficult to comprehend is how "we" ... living, breathing human beings ... ever allowed the status of person to be legally bestowed upon any artificial structure such as a "corporation"...? By definition this artificial person is designed to be amoral, to act solely and only in its self-interest. It is not allowed to even consider any impact upon "human beings" either positively or negatively.

So why would any water purveyor (especially corporate) be even remotely predisposed to DISCLOSING there is anything physically, mentally, emotionally harmful with the water you are forced to purchase from them...?

WaterSourceWaterBank said...

My comments regarding factual pre-earthquake info on Haiti were not off topic ...

They were inserted to counter the many myths about to be presented.

Ahead of the curve ...

Bruce Pardy said...

DZ – I’m the author of the posted Myths piece, thought I would respond to a couple of the comments. One of the anonymous writers objects to Myth #6 because he or she believes it would authorize corporations to act like sociopaths. This extrapolation reflects a misapprehension of the Corporate Social Responsibility proposition and my objection to it. The CSR proposition is that corporations should act in the public interest above and beyond what they are required to do by law, in a manner that hurts their long-term bottom line. It has nothing to do with whether corporations should break the law, or whether they should be punished for doing so. Whether a company should comply with requirements in its certificate of approval for discharging effluent into a body of water is not a CSR question – of course it should comply, not just because those are the legal requirements, but also because if it doesn’t, it could well suffer legal penalties and do great harm to its reputation.

The CSR question is whether the company should seek to achieve more than the law requires, if doing so costs the company more than it gains. I have argued that for the directors and officers of the company to take this route could breach their duty to the corporation. In “Asking the Dog to Guard the Puppy Chow: Three Objections to Environmental Voluntarism” (2003) 12 Journal of Environmental Law and Practice 129, I put it this way:

"Assume that the management of a corporation is considering making a substantial donation towards the construction of a hockey rink for the local community. One proposal is to make the donation publicly, in exchange for having the rink named after the company. Another is to make the donation anonymously, so that the public does not know the source of the funds.

Of these two proposals, the first might be permissible. The second probably is not. The first appears to be altruistic, but of course is not, because the donation would enhance the public image of the company, would provide an ongoing source of advertising, and might assist with marketing and other commercial interests. The company would reap the goodwill of the community and the act of making the donation might indeed be “in the best interests of the corporation”. The second proposal, however, would provide no benefit to the company. No goodwill would result. No advertising or company promotion would be achieved. The donation would be purely altruistic and would be ultra vires the directors because it would not be in the financial interests of the corporation. A shareholder could rightfully object to the second proposal on the grounds that the directors have not fulfilled their duty.

The same principle applies to environmental voluntarism. Consider a corporation in the practice of legally polluting a river (the company is not in violation of any environmental laws or regulations). If reducing the pollution would increase company costs and reduce profit, to do so arguably would be a breach of the directors’ duty. In order for the directors to be allowed to reduce the pollution voluntarily, some link to the financial betterment of the corporation must be found. For example, ongoing pollution of the river might create a negative impression of the company in the mind of the consuming public, and thus harm the company’s goodwill and decrease its sales. Under such circumstances, decreasing the pollution and conducting an advertising campaign to promote the company as a good environmental citizen might serve the best interests of the corporation. Such a strategy would be legally and financially appropriate because it would not amount to environmental voluntarism."

What CSR really puts in question is - who has ultimate responsibility for setting environmental standards, corporations or government? The answer is the government, because government is the entity designed to act in the public interest. Corporations were not created for that purpose.

David Zetland said...

@Bruce -- thanks for the great additional thoughts. I totally agree with what you've said so well...

The Pasadena Pundit said...

Re: Here's the logical extension of Myth #6: a water company, discovering that their water contains a contaminant that gradually accumulates and causes cancer over 30 years, decides to conceal it from their ratepayers to avoid investing in a massive remediation project. - Anonymous

I don't know where anonymous lives but in California we have the reverse of the above. We have quasi-regulation of perchlorate and chromium 6 in drinking water that provides no discernible benefit to public health.

Perchlorate does not cause cancer, is not a poison, but is alleged to block absorption of iodine needed by infants and children for normal growth. But there are no studies showing areas with drinking water with no perchlorate have fewer cases of retardation or slow learners than those that have low levels of perchlorate in their drinking water. In Chile, perchlorate is natural and the population has been drinking moderate levels forever and studies show no higher incidence of retardation or poor learners than elsewhere.

We once managed the POTENTIAL health threat of perchlorate by cheaply putting iodized salt in the diet. Today we spend billions on perchlorate clean up plants with no health benefit.

Soy, broccoli, brussels sprouts and many other "healthy" foods also block iodine absorption.

A recent study by a state epidemiologist showed lower incidence rates of cancer in Hinkley, California, (of Erin Brockovich fame) than elsewhere.

What we are experiencing in California is Bruce Pardy's proposition about bureaucracy. In California much, but not all, environmental regulation of drinking water is hollow and can only be seen as existing for political purposes.

California has issued five water bonds since 2000 totaling about $19.7 billion that auditors reveal has produced mainly land acquisitions for open space and greenbelt around wealthy residential enclaves. With the new proposed consolidated water bond for the 2012 ballot, the total in water bonds will reach about $73 billion, but this staggering sum still will not result in the construction of the Peripheral Canal. Once again, back to the bureaucracy proposition.

The Pasadena Pundit said...

Anonymous wrote that private water companies are sociopathic and may have an incentive to conceal a contaminant in their drinking water to avoid investing in massive remediation projects.

This is exactly the opposite of what we have in California where there is unofficial overregulation of so-called contaminants such as perchlorate and chromium 6 with no health benefit.

For example, perchlorate does not cause cancer and is not a poison. It is alleged to block iodine absorption in infants and young children resulting in retardation and slow learners. But there is no double blind scientific study with a control group showing that the incidence of retardation or poor learners is lower in areas that do not have perchlorate in their drinking water. In Chile, the population has been drinking moderately high levels of perchlorate-laced water forever with studies showing no higher rates of retardation than anywhere else.

Low level perchlorate is no worse an endocrine gland blocker than soy, broccoli, or brussels sprouts which are deemed "natural" or "organic" foods.

We once managed the POTENTIAL health threat of perchlorate by putting iodine in table salt (iodized salt) which was a cheap solution. Today we spend mega billions on perchlorate clean up treatment plants for no demonstrable health benefit.

Recently, a state epidemiologist reported that the cancer rate in Hinckley, California (of Erin Brockovich fame for chromium 6) was lower than elsewhere in the state.

California has issued five water bonds since 2000 totaling $19.7 billion for mainly acquisition of land for open space and greenbelt around wealthy residential enclaves with no significant development of new water resources. If the proposed new Consolidated Water Bond for the 2012 ballot is approved, California will spend $73 billion on bond financed water projects and will still not have built the needed Peripheral Canal.

What we seem to have here are "sociopathic" bureaucracies that at best overreached or at worst are self-serving. So we're back to Bruce Pardy's comments about the problem of having to get water from bureaucracies. Can you get water out of a stone, or a bureaucracy?