29 April 2013

Water, corruption and development

I'll be speaking at the Water Integrity Forum (5-7 June in Delft, free to register)

Here are some "big picture" thoughts on water, corruption and development that I'll discuss:
  1. There is no clear line dividing rich, developed countries from poor, less-developed countries when it comes to water management. A good manager in a dirt-poor slum may deliver better water quality than a team of MBAs and PEs with gold-plated budgets in a rich country. Water management succeeds through the "art" of balancing different interests, not pipe fitting.

  2. Most water providers have a local monopoly over the water their customers (from irrigators to households) use. Some water providers depend on non-customer resources (e.g., international aid, soft loans from the national government, or municipal staff). Monopolists can be lazy, corrupt or biased towards their own ideas; dependent monopolists are subject to the whims and corruption of their sugar-daddies. Real customers, in either case, do not get the service they want or deserve.

  3. Initial water allocations result from a political process. Subsequent reallocations (if any) are usually economic, but sometimes they occur through political force, i.e., water is taken for "higher purposes." (Re)allocations can be distorted by corruption or bias.
These problems show up again and again in failed water management.  Some (e.g., monopoly or bias) are permanent, but others can be avoided. For example:
  1. Managers should not just "listen" to customers; they should explain how prices, costs and outcomes are related. Customers should be able to understand why there's no free lunch -- or allowed to complain (potentially firing managers) when there is.

  2. Providers of water for economic use (i.e., tap, irrigation, etc.) should cover their costs with user fees. A human right to water can be funded by income transfers; loans should be made on commercial terms, with viable penalties for non-repayment. Managers will serve customers when customers pay their salaries.

  3. Political allocations may have been corrupt or mistaken, but they should not be cancelled as "mistakes," since strong property rights are important in the long run. Use markets or budgets to reallocate rights, since value is created in reallocation.
Bottom Line: Fair and efficient water management results when customers get what they pay for and penalize those who fail to provide good service. Customers with such a role will neither tolerate nor need to endure corruption.

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