A Case Against Privatisation: Part 2

Welcome back! Towards the end of the 20^th century, the provisioning of water saw a shift from state monopolies to a gradual increase in private sector involvement, which inevitably has been a topic of much discussion. Additionally, access to safe drinking water and sanitation has been established by the United Nations (UN) in 2010 as a human right, questioning the ethics of commodifying a natural resource that is necessary for human survival.  In this blog, I’ll be exploring the arguments against the increasing involvement of the private sector.

Private sector limitations

The limitations of private sector involvement have been identified in Bayliss (2003). The first being the effectiveness of privatising the delivery of water is dependent on the government’s organisational structure that precedes private sector involvement. Countries that had a relatively functioning supply chain tended to continue being functional post privatisation; the reverse was true for dysfunctional supply chains. Additionally, the success of the delivery of water is dependent on the wider economic environment, whereby unfavourable political, economic or social climates can detrimentally impact the success of private operators. I discussed in my last blog the effectiveness of Cote d’Ivoire’s privatised delivery service, however, performance dropped after political unrest began in 2002 ultimately leading to SODECI withdrawing their operations (Bayliss, 2003).

Secondly, a major weakness of privatisation has been the private sectors failure to comply with regulations. This can also be attributed to a lack of regulatory capacity available in an associated administration; a condition that is rather wide spread throughout many low income countries. The strong rule of law and its ability to be enforced is fundamental to holding the private sector accountable, and is something that is just assumed to be available in governments of low income countries. This reinforces the imbalance in power between the private operators and their regulators. This asymmetry is highly undesirable in developing economies where particular groups are highly vulnerable to exploitation (Bayliss, 2003).

Furthermore, the benefits of the private sector, particularly with respect to efficiency and performance rely heavily on market conditions that facilitate relatively low risk investment and therefore competition. Unfortunately, many places in Africa currently do not lend themselves to these market conditions. Private operators need to generate profit which remains challenging in low income countries where portions of the population are unable to afford the water being supplied, ultimately reducing financial backing. This in turn reduces competition which can undermine some of the benefits resulting from private sector involvement. An example being the withdrawal of Biwater from supplying water in Zimbabwe as the service was unaffordable to many. Not to mention, the required profit margin for private firms is likely to result in rural areas being excluded from the supply chain as urban areas are much more economically viable (Bayliss, 2003).

Prepaid meters – Harare, Zimbabwe

Ultimately, the effectiveness of private sector relies heavily on the effectiveness of government with regards to; maintaining appropriate economic conditions in which the private sector can operate; executing it’s regulatory power to ensure balance of power; and potentially provide subsidies to private firms when consumers are unable to afford the service in an effort to stimulate investment (Bayliss, 2003).

Runaway privatisation

Bayliss goes on to argue in her later work that another issue of privatisation is that it can lay the foundations for financialisaton Bayliss (2014).

This could be seen as an unintended consequence whereby the treatment of water as a private commodity with economic value feeds into the financial market of stocks and assets, whose participants are financial elites operating on national and international levels; a stark contrast to the ‘small scale entrepreneurs’ Solo was heavily promoting, as I mentioned in my last blog. Furthermore, Bayliss clearly states the issues with the intensifying financialisaton of water, specifically; it’s direct association with increasing wealth inequality; detracting investment from the real economy (the part of the economy related to goods and services production) to high value assets; the tendency of global elites operating in the financial market to safeguard inequitable and exploitative influence in policy-making, particularly at national levels; and it’s prioritisation of profit over equity.

To conclude…

Privatisation has fundamental limitations that can hinder its ability to function. Additionally, effective privatisation doesn’t necessarily relieve government of its obligations, rather shifts it to a more regulatory focus, challenging many African governments. In this regard, a strong government is required for either state monopolies or privatisation, no matter the degree of involvement, so the sentiment of privatisation being a panacea for supply of water is arguably not well founded.

Reference List

Bayliss, K 2003, Utility privatisation in Sub-Saharan Africa: a case study of water, The Journal of Modern African Studies, Cambridge, Vol. 41, Iss.4.

Bayliss, K 2014, The Finacialisation of Water, Review of Radical Political Economics, Vol 46(2) 292-307.

Solo, T.M. (1999) Small-scale entrepreneurs in the urban water sanitation market. Environment and Urbanisation, Vol. 11, No.1 Pp 117-132.

UN Resolution 64/292, adopted by the General Assembly, July 2010.