Water Markets, Commodification, and Sustainable Management

Introduction: The Appeal and Dangers in the Commodification of Water

The world is in a water crisis. Even in those parts of the world not facing problems with access to clean water, persistent drought, or other conditions that reduce water availability, climate change looms on the horizon, threatening future water shortages that will plague all societies. Facing this challenge head-on has been a major focus for many nations, international groups such as the World Bank, and many private organizations. One strategy that is not without passionate supporters and detractors is the commodification of water resources — or, put another way, the opening up of water to the same market forces that dictate the price of any other consumer good whose scarcity necessarily fluctuates (Postel and Richter 112). But as we shall see from examples of the commodification of water, not to mention a discussion of exactly what that would mean, the long-term dangers of such an economic approach far outweigh any short-term pricing benefits that can be mustered.

Water as an Economic Resource: Historical Context

By any definition of the situation, water has always been an economic resource for human societies. Some critics treat the idea that water usage can be regulated through the market as utter anathema, but the reality is that it has been this way throughout the length of human civilization. As Brown explains, "By very definition, for something to be 'economic' means that it is scarce relative to the uses to which it can be put … water has been recognized and treated as an economic good by every civilization that encountered a scarcity of it" (3). In other words, because water has always been a limited resource and therefore not infinitely available for all uses simultaneously, its use by human societies has invariably treated it as a scarce resource that might be more valuable during different periods of time — for example, the value of water, monetary or otherwise, would be higher during a drought.

The Case for Water Markets: Chile as a Model

Proponents of water markets argue that it is only natural to extend the free market system to the valuation of water in society. Such an approach should improve the management of a scarce resource by applying an efficient and universal value to different water-related activities such as personal use, agriculture, or hydropower. Proponents of this system — as was implemented in 1981 in Chile — argue that the "existence of a water market means … that behavior is not driven by the financial cost of the water but rather by the opportunity cost: if the user values the water less than it is valued by the market, then the user will be induced to sell the water" (Briscoe, Salas, and Pena 3).

In Chile, in some situations, this has been perceived as a positive development because it allows individuals who own surface or subsurface water rights to sell, lease, or barter through a marketplace with individuals who do not possess the same water resources. The purpose — and it works well in some situations in Chile — is to allow individuals to value the water-related activities most important to them and then trade or sell water resources accordingly (Postel and Richter 113). This has allowed relatively water-rich areas to profit by selling their excess or unneeded water to relatively water-poor areas of the country, or to individuals, companies, or groups that place a higher value on that water than its current owner does. As Postel and Richter point out, "Water markets also provide opportunities for conservation groups, government agencies, or others to purchase water or water rights specifically to enhance river flows" (112).

Decentralizing Water Resource Management

Postel and Richter have rightly pointed out that the "examination of any persistent conflict over water allocation or use almost always turns up two common ingredients: first, not everyone affected by the decision has had a say in making it; and second, the decision reflects the politics of power and influence rather than the broader public good" (Postel and Richter 167). In other words, the people making decisions about water resource management are not necessarily the people who have to deal with the consequences or live with any mistakes that are made. Furthermore, because those making decisions about water management tend to be in positions of political power, the infusion of politics into water resource management suggests that those decisions will often be expedient rather than judicious. For the vast majority of the world's population with little or no political capital, the end result can be decisions that have disastrous impacts on the day-to-day lives of ordinary citizens in communities throughout the world. The case of the World Commission on Dams is a good example of how this tendency to centralize water resource management can be mitigated, if not completely eliminated.

The political reality of the world is that government represents more than just laws and policies. Governance must be about more than enacting laws and edicts; it should reflect the values of the community and the interests of those who will be affected by those policies. In the case of water resource management, this means it must be a prerequisite to involve a wider variety of community stakeholders in the decision-making process in order to make more "equitable and sustainable use of rivers. But in most countries, the cards are stacked heavily against an inclusive and more balanced process. Patterns of governance for the most part still reflect the utilitarian mind-set of the twentieth century, which focused on the engineering challenges of bringing rivers under control for society's economic advancement" (Postel and Richter 168). Accordingly, the issues that governments traditionally consider with regard to water resource management have focused on how to accomplish specific tasks that will presumably benefit the political or economic landscape, with little thought given to how such decisions would impact the people who actually have to live with them — in the case of dam construction, for example, those individuals whose lives and livelihoods might be permanently displaced by the creation of an enormous reservoir where a river once flowed.

Conclusion: Limits of the Market and the Promise of Participation

The guiding principle — noble in theory if not always in execution — behind these movements is the idea that water resource management should happen as close as possible to the actual people who will be affected by the decisions (Bauer, "Water Resources Management" 15). Top-down hierarchical decision-making will only marginalize communities and perpetuate the continuing problems associated with dams and water management that could be avoided or at least alleviated in cases where it would have otherwise been possible to connect local people with the resources they could have used to manage the issue themselves.

Works Cited

Bates, Sarah F., David H. Getches, Lawrence J. MacDonnell, and Charles F. Wilkinson. Searching out the Headwaters: Change and Rediscovery in Western Water Policy. Washington, DC: Island Press, 1993.

Bauer, Carl J. Siren Song: Chilean Water Law as a Model for International Reform. Washington, DC: Resources for the Future, 2004.

Bauer, Carl. "Water Resources Management." A World Bank Policy Paper. Washington, DC: The World Bank, 1993.

Briscoe, John, Pablo Anguita Salas, and Humberto Pena. "Managing Water as an Economic Resource: Reflections on the Chilean Experience." Environmental Economics Series. Washington, DC: The World Bank, April 1998.

Brown, F. Lee. "Water Markets and Traditional Water Values: Merging Commodity and Community Perspectives." Water International 22.1 (1997): 2–5.

Dubash, Navroz K., Mairi Dupar, Smitu Kothari, and Tundu Lissu. A Watershed in Global Governance? An Independent Assessment of the World Commission on Dams. World Resources Institute, Lokayan, and Lawyers' Environmental Action Team, 2001.

Postel, Sandra, and Brian Richter. Rivers for Life: Managing Water for People and Nature. Washington, DC: Island Press, 2003.

"Dams and Development: A New Framework for Decision-Making." The Report of the World Commission on Dams: An Overview. 16 Nov. 2000.