Have the French shown that water privatization is dead?

Some time ago, @ModeledBehavior has requested comment on this article.  Excerpt:

Across the nation cash-strapped municipalities are considering the sale of their public-utility systems. These moves are intended to raise cash and rid the municipalities of expensive liabilities such as debt service and pension obligations. But officials considering this approach might do well to look to France and other nations that are rapidly moving in the opposite direction with a “remunicipalization” of their utility systems. In 2010, Paris, in the best known case of remunicipalization, ended contracts with the world’s two biggest water service companies, Suez and Veolia, bringing an end to their 100-year private duopoly. The reversal of a century-old practice in Paris was an acceleration of an international movement away from private control.

So what’s up?  I see it this way.  For advanced water systems, there is no cost advantage to having a privatized system.  It is a regulated monopoly and over time it acquires skill in manipulating the political process, most of all its regulators.  Why expect lower costs and prices?  A wide variety of studies of this topic, including studies by “market-oriented” economists, find no cost advantage for the private sector in this setting.

For very poor countries, very often water privatization would in principle be a good idea, since the public sector is not supplying much piped water at all.  Monopoly is better than carrying a bucket on your head, and you still can carry the bucket if you wish.  Yet privatization also won’t get very far in many of these cases.  One reason is that there is no way to make people — many of whom are non-registered and lacking in assets — pay their water bills, and not enough legal infrastructure to prevent them from cutting into the pipes or otherwise going rogue.  You shouldn’t “blame” privatization here, but still it may not be a useful option.

Finally, there is a sweet spot in the middle, often for reforming or middle-income countries.  In those cases water privatization can mobilize private capital rapidly and expand water coverage.  It often brings higher quality water, higher quality connections, lower rates of unaccounted-for-water, and higher prices.  Not all cities desire that trade-off, but it is there for the taking.  Some of these privatizations are done fairly well, others are done very poorly, such as in Cochabamba, where the “privatization” gave the company property rights over previously privately held, decentralized water sources of the poor, such as collected rain.

As long as there are countries in this middle income range, water privatization is not dead nor should it be.


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