11 Dec 2014

The government-business nexus

Governance is complex (from Bakker 2014)
I criticize discussions of the "energy-water nexus" as too superficial in their focus on that particular junction when other factors (e.g., population, carbon, environment, policies) play a far larger role in either. I cannot say the same about the "government-business" -- or state-market -- nexus.* Governments can make or break markets. Markets can have a big influence on (usually corrupt) governments.

It's in this context that I answered this email from G:
The Irish government recently introduced austerity measures that included water metering. I think this trend will affect other countries. My question to investment managers is, therefore "Do you think that the austerity measures (e.g., increasing taxes, implementing water meters, etc. will change you business model?"
To G's question, I answered:
This is an important question to ask, as government policies can really "move the market," as we saw with feed-in tariffs on renewables and cap & trade policies. That factor, btw, also explains why businesses lobby for particular "reforms," as some are more profitable than others...
These ideas will not surprise anyone worried about state or regulatory capture, nor those familiar with the "grabbing hand" of government. Indeed, those phrases describe exactly the same phenomena: the over-reach of market or state, respectively, into each other's legitimate action space.

I took those perspectives into account when organizing both of my books into Parts I (economic water) and II (social or political water) as a means of addressing both sides of the issues. For those of you who have read my book (everyone, no doubt, since it's free to download :), I recommend taking some time with this excellent review, "The Business of Water" [pdf], in which Karen Bakker (no friend of "neoliberals"**) carries out a measured and thorough investigation of this, more interesting, nexus. Bakker may more glass half-empty than half-full, as far as the benefit of business participation in the water sector, but she is far more objective and balanced in her analysis. Read it.

* I wrote a paper -- "When worlds collide: business meets bureaucracy in the water sector" -- on these matters. I need to dust it off and get it published.

** She defines neoliberalism as "the doctrine that the market can, and indeed should, act as a guide and medium for all human action," a definition that probably 95% of economists would disavow, so it's often a strawman.

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