Water

Today is Blog Action Day and the topic for the year is water. Access to fresh water is an increasing problem around the world as the combination of increasing population and climate change leave more people without it. Many people get their fresh water from glacial runoff or from aquifers, and the one is melting away and the other is being drained.

Of course there is no shortage of water in the world. There isn’t even a shortage of fresh water. The problem is one of getting the fresh water where the people are; moving people somewhere else is mostly infeasible.

Jerry Pournelle had a series of short stories in the ’70s which involved moving icebergs to get fresh water for irrigation. I always thought that was a great idea. You would have these huge icebergs slowly moving across the oceans. Unfortunately, I don’t think it pans out. Icebergs are really heavy to move around the ocean, and moving them outside of the ocean is impossible. Any place you can move an iceberg, you have plenty of water; it’s just not fresh. The energy it takes to move an iceberg would be more efficiently used doing desalination. Pournelle’s stories weren’t completely crazy when it wrote them, but desalination technology has come a long way, and the physics of moving an iceberg is never going to change.

The successful use of desalination in places like the United Arab Emirates and Israel shows that the problem of access to fresh water is one of energy and infrastructure. It’s not really a typical scarce resource problem. The problem for the world is the large number of poor people with decreasing fresh water supplies. Transporting water is expensive and requires a lot of infrastructure work, particularly if you have to do it uphill. Poor people have no money to spend on doing it. Nobody is likely to do it for them.

The most efficient way to get people water is likely going to be to significantly increase reuse, and to shift agriculture to areas where water can be provided more cheaply. Increasing reuse also requires infrastructure, but it’s cheaper to build than long pipelines. Shifting agriculture has its own set of issues, but it’s likely to be easier to move food than to move people.

The last thing I have to say about water concerns privatization. There is no substitute for water, and it is needed daily, so people will pay any price to get it. Creating alternative water distribution mechanisms is extremely expensive, and to my knowledge has never been done. Putting a private company in charge of water distribution means granting a monopoly for a price inelastic good to a profit seeking entity. There is an enormous incentive to jack up prices as high as the market will bear, which is to say almost all the money available. There is little incentive to invest heavily in new infrastructure, since the company is already absorbing all the available money. That is admittedly the extreme version of what can happen, but really it can not end well, and in general, when it has been done, it has not ended well. Privatization can work well when it creates a competitive market. Water distribution is never a competitive market. Of course there are roles for private companies in the water system, but only in some sort of public/private partnership.

7 Comments »

  1. fche said,

    October 15, 2010 @ 12:39 pm

    Re. privatization, could you elaborate in what way you view water as essentially different from electricity? In the latter case, different parts of the overall service (generation / transport / delivery) have been privatized here and there, for better or worse.

  2. etbe said,

    October 15, 2010 @ 1:27 pm

    Electricity can be supplied locally more easily than water. Public Private Partnerships are almost always public costs and private profits. Usually corporations won’t touch major infrastructure projects unless their profits are guaranteed by government mandate. It would be much better to have a government department run in a similar manner to a private company and then let the government take the profits.

    Regarding transport over large distances, it’s apparently not that difficult. In Australia water is transported some long distances. One issue however is the number of people who use it, if you have a few users a long way from the water catchment then it becomes really expensive on a per user basis. But if you have many users in an area then it becomes cheaper. Some of the long distance pipeline concepts would be more viable in India than Australia because India has a huge population and the cost can be spread among more people.

    The technical difficulties in water pipelines involve mountains (high pressure), rivers (bridges or difficulties in laying pipe on the bottom) and seas (unsolved so far).

    There is talk of creating a pipeline from Tasmania to mainland Australia. That would have some significant technical difficulties but if it can be done then it will provide more options that can be used in other places.

  3. Paul Clayton said,

    October 16, 2010 @ 2:32 pm

    The engineering and economics (not physics) of moving an fresh water over the oceans can change. With computer controlled wind-powered vessels and satellite-based wind and water current data, the economics might be a little better (I doubt such could match desalinization!). (Water is also likely to retain its value even with slow transport. Unlike oil, less expensive and less reliable containment might be acceptable.)

    Some of the infrastructure cost could probably be merged with road building in many cases.

    One issue not addressed is theft and vandalism. Some poor nations have such problems with oil pipelines. It is easy to imagine people cutting off the water supply of their enemy (much easier for a pipeline than a river) or competing with the government to supply water to the people for monetary profit or good will.

    I would also object that the provider alternatives are limited to a centralized government and traditional business. A cooperative would probably make a lot of sense for this kind of public good. With centralized democratic government management, the resource pool is shared by many interests making decisions more complex (more wasteful and less responsive) and subject to tyranny of the majority. (I also dislike having a centralized unified authority for everything, especially one with the power of the sword.) A coop also encourages ownership by the people depending on the service, and even a large coop is more likely to be responsive to the people (avoiding the ‘why bother trying to change things’) and less intimidating (aside from the issue of force, many governments have trappings of ‘honor’ that can constrain criticism, having control over multiple areas also makes government more intimidating). The resource pooling issues might perhaps be handled with mechanisms like bonds and insurance.

    (Just some thoughts–thank you for encouraging some thinking.)

  4. Simetrical said,

    October 17, 2010 @ 10:09 am

    In light of this, I guess Google’s blog post on this issue is pretty absurd:

    http://googleblog.blogspot.com/2010/10/clean-water-for-those-who-need-it.html

    They talk all about their efforts to conserve water . . . in Mountain View, California, where conserving water is unnecessary. I hope no one responsible for that blog post actually believes in the logical leap from “some people don’t have reliable access to water” to “we should use less water”, without the essential intermediate step of “if we use less water they’ll have more” (which is false). Although I guess the alternative interpretation is to say that it’s deliberate greenwashing.

    I don’t think there’s a big difference between electricity and water here. In both cases, you don’t want to privatize completely — an essential part of competition is low barriers to market entry, and those don’t exist when you need huge amounts of infrastructure. There’s no case for privatization unless it will result in more competition, or unless you’re ideologically (and not just pragmatically) opposed to government control. (Which apparently Paul Clayton is, but I’m not, and nor does it seem Ian is.)

    etbe, public-private partnerships involve public costs because they occur in cases where there will be public costs anyway, and they involve private profit because private companies don’t exist without profit. There’s nothing wrong with that — the question is whether the partnership can cut public costs (as well as, necessarily, increasing private profit). Sometimes it can.

    You could argue that the government could just be run like a business, but businesses aren’t more efficient than governments because of how they’re run. They’re more efficient because if they’re too inefficient, they fail. It’s much harder for government agencies to fail, because of taxpayer support and many other privileges, so they can be vastly more inefficient before failing. So businesses are run more efficiently due to natural selection, not due to a different basic approach.

    Businesses are also more efficient because the owners and management get a cut of company profit, so they have much more incentive to cut costs. Government officials spend only other people’s money, so they have no marginal incentive to cut costs — they only need to keep them low enough that they don’t get people so angry as to kick them out of office. This is a drastically weaker incentive.

    But, of course, these business efficiencies vanish in the case of a monopoly for goods with inelastic demand. The monopoly has no competition, so it can’t fail. It can raise prices to cover any costs. Unfortunately, this is hard to fix in a market where sellers have extremely large fixed costs and low marginal costs. If you have multiple sellers, then you’ve greatly increased the fixed costs without making much difference to the marginal costs (which were low anyway), so you wind up with lower efficiency overall due to the duplicated fixed costs. If buyers are split among n sellers, they have to each pay n times their share of the fixed cost compared to if there was one seller. They don’t have to pay extra for marginal costs, but that doesn’t help much if those were low to begin with.

    What you can do is encourage competition in as many parts of the market as possible. For instance, if water production were privatized but distribution were still public, you might encourage lower production costs. It would be possible for a small startup to create a small reservoir and profit, if it were much more efficient than the existing reservoirs, and the public maintainers of the water grid could buy at any moment from whoever’s selling water most cheaply. The same should be true for electricity. I’d think it wouldn’t cost much for a private company to hook its water or electricity production station up to the existing publicly-maintained grid, so it seems like you could have plenty of competition here.

  5. etbe said,

    October 17, 2010 @ 12:59 pm

    From Google’s post it seems that they are doing one thing which is a clear benefit, reducing the use of bottled water and therefore reducing the waste of oil and the pollution that is involved when used bottles end up in rivers and the sea.

    Can you cite some examples of PPPs where the companies involved have actually failed? When the government guarantees a profit for the company then it’s just a matter of the company taking our tax money (and the politicians usually getting a good payout at some later time).

    Having management get a cut of the profit doesn’t make a company more efficient, the best psychological research shows that bonuses actually results in less efficient work!

    You can’t just create a reservoir for profit. The biggest cost in creating a new dam is acquiring the land and then destroying whatever was there. Any time you allow corporations to either seize private land or destroy public land for profit then things tend to fail badly.

    A problem with electricity supply is the massive variation in wholesale price that distorts the market. The price difference between periods of peak demand (EG summer afternoons in warm parts of the world) and minimal demand (EG midnight) can be a factor of 10,000 or more. Until we get smart meters and expose the price difference to consumers this is going to be a strange and distorted market where distributors sell at a fixed price regardless of production cost. That doesn’t fit well with a corporate way of doing things.

  6. Simetrical said,

    October 18, 2010 @ 10:33 am

    Saving water is useful just like any reduction in waste is useful, but it’s disingenuous to imply (as the Google blog post does) that it has anything to do with the people who actually need water.

    I didn’t say that businesses in public-private partnerships are likely to fail. To the contrary, government contracts are unlikely to fall through for the same reasons governments are unlikely to fail. If the government institutes a regulated private monopoly, then of course that company will not fail as long as it retains government support. And partly for this reason, it will not perform as well as the same company would in a competitive market: it will charge more and offer lower-quality goods and services. In fact, it probably won’t do much better than a public monopoly.

    Companies do better than governments when they face serious competition, i.e., they risk failing if they don’t do well enough. That condition is essential. If you have a government agency, or a government-supported private agency, then it can’t easily fail and so will be less efficient. Thus it is not enough to just have a government department “run in a similar manner to a private company” — you have to replicate the incentives that an efficient private company faces, and competition is the essential part of it.

    Any incentive can backfire if used improperly, but that doesn’t mean incentives don’t work. I’d be interested in what psychological research you’re talking about — I strongly suspect that it isn’t nearly as simple as “bonuses actually result in less efficient work”. They have an effect, it’s just a matter of whether you want the effect. For instance, if you give bonuses based on some metric that’s only correlated with doing good work, people will try to maximize the metric you’re rewarding and might do worse work as a result. But they’ll usually do better at whatever you’re directly awarding bonuses for. (There are exceptions I can think of, like the overcompensation effect, but that’s probably not relevant.)

    Likewise, executives and managers try to maximize profitability (since they get a cut), regardless of the consequences. The entire idea of capitalism is predicated on this, really. Managers of government agencies have no such incentives. They don’t usually get more or less reward based on exactly how well they do, so they don’t have much incentive to do really well. Just well enough not to get fired.

    I didn’t say a dam, I was thinking of rainwater reservoirs. You’d need to buy the land, it’s true — is that too expensive? I didn’t look into the issue. I’d have thought you could buy up a bunch of land that people don’t want, on inconveniently high land that gets too much rain. Overall, though, I don’t see much need to privatize the water supply where I am, since it works about as well as I’d want. Water is cheaply and reliably available, so no need to rock the boat.

    The inability to adjust electricity costs based on demand is a problem, yes. Ideally, prices could fluctuate minute-by-minute, and outlets could be configured to shut off if the price gets too high. If you combined this with allowing private companies to sell to the grid at a dynamically-negotiated price, it would eliminate blackouts (except those caused by grid failures, like storms knocking down above-ground lines). Of course, it might also mean that things like air conditioning would become more expensive, but they already are expensive — the full cost just isn’t passed to the consumer.

  7. Paul Clayton said,

    October 18, 2010 @ 10:38 am

    Simetrical said,
    “There’s no case for privatization unless it will result in more competition, or unless you’re ideologically (and not just pragmatically) opposed to government control. (Which apparently Paul Clayton is, but I’m not, and nor does it seem Ian is.)”

    My objection is to concentration of power. I do not like Microsoft’s monopolies, but I would be even more discouraged if Microsoft had a contract with the U.S. that provided all its software for ‘free’–every citizen merely had a moderate fraction of their income automatically deducted. If Microsoft then branched out into a dozen areas outside of software using similar mechanisms, I would judge this to be very bad. (I admit that Microsoft seems to be much more vicious than the U.S. government–I suspect in large part because so many U.S. government ‘managers’ are elected.)

    “They’re more efficient because if they’re too inefficient, they fail. It’s much harder for government agencies to fail, because of taxpayer support and many other privileges, so they can be vastly more inefficient before failing.”

    I very much agree. Unfortunately, the size of many businesses also isolates them from failure somewhat (even without the government declaring them “too big to fail”). I am also concerned about the impact of shareholder pressure on large publicly traded companies–the lack of commitment (from ease of trading stock) of shareholders gives incentives toward very short term profit–or even just the appearance of such–(only monetary profit as a motive is bad enough, only short-term monetary profit as a motive is worse). Democracy seems to encourage mediocrity, especially at large scales where the individual is more likely to feel disenfranchized; but rule by stock traders is almost certainly worse.

    It seems that the coop model–where the investors/tax payers are the users (to a large degree)–has significant benefits. Unlike large centralized government, the scope of the cooperation is limited so the interest is more likely to be focused and the scale is likely to be smaller.

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