Paying for it

There's no doubt that access to clean water is a major problem in developing countries. According to the latest data from the World Development Indicators, only 56 percent of the population of Sub-Saharan Africa has access to an improved water source. Tyler Cowen, an economics professor at George Mason University, proposes what he calls a radical solution in a recent opinion piece in Forbes entitled Pay for It:

The solution for the poorer parts of the Third World is deregulation of the market for piped water, combined with the enforcement of property rights. Yes, I'm saying that Third World governments should consider letting private companies sell water at any price...And no, I don't mean a water concession with a price regulated by the government, I mean true laissez faire in water supply.

Cowen twice refers to his proposal as radical, and once even says that it "sounds crazy." Given the urgency of the problems associated with water supply, though, there is an intuitive appeal to radical solutions. If the situation is all that bad, isn't the solution the exact opposite? I'd like to argue that, despite the intuitive appeal, there is good reason to suppose that an intermediate solution would be the best solution.

First, have a look at this briefing from the Public-Private Infrastructure Advisory Facility on water concessions to private providers. The authors find unambiguously positive results in seven of eight case studies spread out in countries around the globe: "The share of households with water connections rose in five cases, fell slightly in Gaza, and remained at 100 percent in Gdansk and Zambia." But perhaps the authors of the Public-Private Infrastructure Advisory Facility cast too wide a net to provide useful results for low-income countries. The governments of low-income countries might lack the institutional capacity to manage such concessions. Let us narrow the focus, then, to low-income countries in Sub-Saharan Africa.

An article on Doing Privatization Right looks at exactly this question. The authors of the article consider partial privatization of water supply in three countries: Mozambique, Senegal, and Uganda. In both Senegal and Mozambique, consumers of water realized what the authors term "major net gains." In Uganda, they realized only a very modest gain, partly because the public water supply was already relatively well run. Senegal proved to be a particular success story; consumers captured 70 percent of the net gains from the water concession. In addition, at least some of these gains were captured by new users. According to the authors of the case study, "new connections accelerated after privatization."   

Perhaps radical problems don't always need radical solutions, however tempting they might sound in an op-ed.