On a panel at Water Week, I suggested that most of the problems with urban water come from the same source: mis-pricing of water.
Water is a private good (if I drink a glass of water, you can’t drink it). Private goods should be priced at their marginal cost. Because poor people, like everybody else, need water for life, but they may not be able to afford it, governments typically subsidize water—i.e. price below marginal cost. A subsidy means that somebody other than the consumer is paying the utility to deliver water. In many countries, this somebody is a politician, who then uses the power associated with the subsidy for political patronage. Water pipes go to neighborhoods of the politician’s choosing (which may not be where the poor live). Meanwhile, poor people, because they need water, buy it from water vendors at 5-16 times the meter rate.
Studies show that the poor also bear coping costs that are more than the cost of supplying water. In short, the very people we were hoping to protect by subsidizing water are the ones who don’t get the water. As a poor farmer in Andhra Pradesh once said after a reform raised the price of water to marginal costs, “We will never again allow the government to give us free water.”
Note that the solution is not necessarily to privatize the water company. It is simply to price water at marginal cost, regardless of whether the utility is private or public. But how can we expect the poor to pay? By definition they have less money.
The analogy with cell phones is apt. Roughly half of Africa’s poor have access to a cell phone. There is no subsidy: they pay the full cost, even if it is a 50-cent phone card. And water is a greater necessity than a cell phone.
Raising the price of water to marginal costs is difficult because politicians will resist it, since power will now shift from them to the consumer. How then can we effect this change, which will benefit millions of poor people? The only thing I can think of is to widely disseminate the information about coping costs and extremely high prices charged by water vendors, so that the broader public will resist the calls by politicians to keep water prices low.