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"Water bankruptcy", neo-Malthusians, and a free water market

summer, I began to get nervous that my husband was about to spend two
weeks with a group of global warming deniers. He was headed to an enviropreneur camp hosted by the PERC Institute in Bozeman, Montana and they’d just sent some seemingly right-leaning reading material.

In the first book we pulled from the mail delivery, Free Market Environmentalism,
camp bigwigs Terry Anderson and Donald Leal peppered the introduction
with terms like “modern-day Malthusians” and “neo-Malthusians”-
referring to the British economist who, 2 centuries ago, predicted a
bleak future for humanity- in the same breath as Jimmy Carter and the
Worldwatch Institute (both highly respectable, in my opinion).

Jimmy Carter’s only offense was making the comment, “if present trends
continue… the world in 2000 will be more crowded, more polluted, less
stable ecologically, and more vulnerable to disruption than the world
we live in now.”

My husband, obviously nervous about his upcoming two week sentence,
began to throw the term Malthusian into nearly every conversation that
had to do with anything involving the environment. It helped to joke
about it, but I was seriously concerned he was going to find himself
with people unwilling to consider that our world is changing.

Flipping through the book on my own one evening while sitting on the
bank of Sun Valley’s Wood River (en route to Montana to drop off my
husband in Bozeman), I reached the point where the authors explain the
central tenant of the book, and unsurprisingly, it was an argument for
free markets.

What the “invisible hand” fails to grasp

I had studied economics in college and understand the power of the
“invisible hand”, but I had also come to believe that free markets
don’t always work when there are externalities, like pollution or any
type of environmental degradation, involved.

As the eco-camp authors point out, it was the British economist A.C. Pigou
who helped shape modern environmental policy by arguing for political
intervention in markets because “not all costs are taken into account
by private decision makers”.

They argue they want to challenge this traditional way of thinking,
what they call political environmentalism, and replace it with “a more
realistic way of thinking about natural resource and environmental
policy, thinking based on markets and property rights.”

Their way to get around the “tragedy of the commons”- when many people
acting in their own self interests destroy a resource even if it’s not
in their own longterm best interest- is by establishing property rights
that are “well defined, enforced, and transferable.”

In their view, everything- from wilderness, to fishing, to garbage- can
be privatized or assigned property rights. I remained skeptical through
the chapter on how privatizing national parks could improve efficiency,
but when I reached the section on water, I could see the math.

Desert dwellers pretending “we were Hawaii”

Perhaps because I grew up in Northern California where as a kid when
asked what I thought of Southern Cal my response was, “they take our
water”. I was simply repeating what I had overheard, but as I got older
I began to understand just how mismanaged water was in my home state.

Although many of us in the “golden state” live and work in the desert,
we plant water thirsty crops like alfalfa and rice and install golf
courses, manmade lakes, swimming pools and “mandatory” lawns. As a Palm
Desert council member confessed during a period of water rationing in
2003, “people really believed we could pretend we were Hawaii. There was really no organized group saying the emperor had no clothes.’

So I was ready for the free market capitalists’ argument that due to
government subsidies like the Fed’s 20th Century delivery projects to
“make the desert ‘bloom like a rose'” now “the artificially low prices
for federal water” simply promote waste.

The idea that farmers, and the rest of us, pay too little for our water
and therefore don’t think twice about misusing it was nothing new.
Though I hadn’t realized just how large the subsidies are for farmers
until my reading session.

For example, in the Columbia Basin East farmers are charged
$4.19/acre-foot while it costs the government $41.16 for that water,
and the way they currently use it, the farmers can’t recoup that value:
the way they plant/irrigate, they only get a value of $20/acre-foot
from the water they use. It’s simple economics, but they wouldn’t be
using the water if a free market were allowed to set a fair price.

On a neo-Malthusian witchhunt

It was about this time when Nico received the list of lecturers
speaking at his eco-camp and I noticed a familiar name. James Workman
was an acquaintance we had met at a chilly San Francisco picnic the
previous summer and I remembered being impressed with our conversation
nearly entirely focused on water.

We’d discussed his work in Africa, and I had been struck by his obvious
enthusiasm for not just the humanitarian aspect of his work, but more
for the resource itself. It’s been awhile since that conversation, but
I believe he even declared his love for water.

Curious as to whether he associated with modern day Malthusians, I
googled him and discovered that he has worked with Interior Secretary
Bruce Babbitt and the Clinton/Gore administration, and thus it seemed
had some link to our country’s most famous neo-Malthusian.

Once Nico reached camp, while he found himself to the left of center,
he didn’t hear any denials of global warming, but instead lots of talk
about solving the planet’s problems through property rights.

And Jamie was no exception, giving what Nico considered the camp’s
strongest class on using the market to remove obsolete dams currently
clogging waterways. (In a related article, he discusses allowing “the so-called evildoers” – dam builders and freeway pavers to fund their removal- to offset future projects by participating in deadbeat dam removal.)

Are Navy showers enough?

Lately I’ve begun to feel I’m somehow missing the bigger picture when
it comes to water. My preoccupation with Navy showers, low flow toilet
fixtures and “letting it mellow” (see my entry Toilet Talk“) seems to come up short as a solution for our water crisis.

Remembering Jamie’s passion for water, I decided to see what I could
find from him online (before bothering him with my naivete). On
youtube, I found him talking about how for the first time in 50 or 100 thousand years water is a shrinking resource,
thanks to climate change, and that we need to start getting used to the
idea of “permanent drought”, and not just in places like Africa (where
in 2050 the Sahel region is predicted to run out of water), but in the
American Southwest.

Jamie must have Nico’s sense of humor as once he’d set up the world’s
water situation, he threw in the M-word, apologizing for all the “very
conventional neo-Malthusian doom and gloom”. Then he was careful to
point that he didn’t think we needed to choose between water as a
public or a private good.

He believes it’s a right, but not an inalienable right; that is, we
should be able to trade our rights. It’s something that exists right
now in South Africa. Residents there have the right to 50
liters/day/person that they can then sell if they so choose.

Last month we went out for dinner with Jamie and his wife in San
Francisco and I had so many questions for him about water, but we never
got past discussing how the free market could help save our waterways
from being overfished.

So I emailed him a few days ago with a laundry list of questions. He
replied from Davos where he was working at the World Economic Forum. He
didn’t have much time to respond, but simply to say “water is a hugely
complex issue” and had been important to the conference for the past 6
years and that we should talk more once he was back in the States.

“The oil of this century”

Intrigued by headlines coming out of Davos that the “World heads for water bankruptcy”, I wanted to know more about what the masters of the universe were considering for a solution.

On youtube, I found the conference discussion “Time is Running Out for Water”
where bigwigs like Coca-Cola CEO Neville Isdell, Dow Chemical’s CEO
Andrew Liveris and Nestle Chairman & CEO Peter Brabeck-Letmathe
talked free markets in urgent terms.

Dow’s Liveris, who admitted that as head of an industrial company
“maybe I seem like a strange bedfellow here”, declared: “Water is
today’s issue. It is the oil of this century.”

But panelists were quick to point out that while it’s an important part
of the climate change debate, there are solutions. They all pointed to
this idea of freeing up the market for water, or as Nestlé’s CEO
declared, “There is an absolute need that water again gets a price.”

Of course, he was quick to defend every individual’s need to a certain
amount of water for drinking and hygiene as a human right (again using
South Africa as an example), but stipulated that “to fill up your
swimming pool, this is no human right, this should have a price”.
Besides swimming pools he added water for industry, agriculture and car
washing as needing to be a part of the free market.

Even the only non-corporate panelist, US Environmental Defense Fund
head Fred Krupp, agreed with letting the invisible hand return some
equilibrium to our water markets. “Absolutely we can not hold poor
people hostage to a market price… but for industrial users and
massive residential users for swimming pools and the like we need a
market price. That will get tremendous efficiency and will be a key to
solving this problem.”

Nestlé’s chief looks to Oman

I wanted to dislike Nestlé’s Brabeck-Letmathe (see my post “Starbucks as fairtrade-lite and Nestlé on the blacklist“),
but he seemed truly affected by the topic and the potential for solving
our water crisis, and he gave, not- as Dow’s CEO did- an example of his
company’s good deed (apparently Dow recycles 95% of their water), but
instead talked about a 4,500 year old water stock exchange in Oman.

“Every farmer can buy more or sell. From all of this a certain
percentage goes to the mosque in order to supply the poor people with
water. You have a system that is 4,500 years old. It’s tradeable. It
fixes a fair price.. and the needs of the poor are taken care…”

Brabeck-Letmathe pointed out that Oman’s Aflaj irrigation system is now a UN World Heritage Site
not as an architectural treasure, but for the system they’ve developed.
As the Un site points out: “Aflaj, is the plural of falaj which, in
classical Arabic means to divide into shares and equitable sharing of a
scarce resources to ensure sustainability remains the hallmark of this
irrigation system.”

Only “20% of people really care about water”

Thinking about this system for water management that has survived
millennia got me wondering what it is that scares me so much about
allowing our water to go private. Why do the majority of Americans, a
people normally reticent to nationalize anything, believe this is an
area best left to Washington (according to a national poll, 86% of
Americans believe that clean and safe water is a national issue that deserves federal investment)?

Leaving it up to Washington has only gotten us into a crisis situation:
36 of the U.S. states now face serious water shortages. In California-
which produces about half the country’s fruits and vegetables-, farmers
are having their water cut back and being forced to let their fields
lay fallow, resulting in $308 million in lost income for 2008.

Economist and blogger David Zetland (thanks to Jamie for cluing me into the blog aguanomics) argues that what is happening with the water market in California is very similar to our international credit crunch.

“There is “not enough” water for everyone, so the Bank (i.e., the
Drought Water Bank that DWR [Department of Water Resources] has set up)
is trying to ration its water among many “borrowers” — all who claim
to deserve the water… As a result, water (like credit) is not flowing
to those who value it most, but to those who have the best political
connections, bureaucratic friends, and/or ability to manipulate the
“allocation formulae” in their favor.”

According to Zetland, the problem with giving away water for a below
market price is waste and inefficiency and thus shortages because no
matter how much you try to moralize that we should conserve water, you
won’t ever reach the majority of the population.

“Twenty percent of people really care about water… the other 80% don’t care,
and they don’t even notice the amount of water they’re using. So for
the other 80%, I’m the one who says the price of water should be higher
and if water’s more expensive than people will pay attention. That’s
how you get to those people. You do not get to them by giving them
moral arguments because they don’t care.”

Public water to drink, private water to waste

Now that we are using more water than we have, in part due to global
warming and in part because we’re tapping too much non-renewable
groundwater (in the U.S., this accounts for 50% of our daily use),
maybe it’s now becoming essential that we lose our fear of water

No one is arguing we should have to pay to drink- Zetland, like those
on the Davos panel, agree that everyone should get some water for
free-, but simply we should have to pay to waste.

Perhaps by letting some water flow on the free market we can actually
help to redistribute wealth a bit. Once water becomes a source of
currency, the quantity we’re all given for free could be personally
rationed and turned into dollars/euros/pounds/rands/yuans. Water savers
could become wealthier while squanderers a bit poorer.

Or as Jamie put it a bit more poetically: “It helps me to think of
water as the ultimate currency and source of wealth — living
ecological wealth as well as the tangible monetary kind.”