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

Water policy and the laws that developed around it in the nineteenth-century United States West emphasized economic growth ahead of all other values in an effort to populate and capitalize on the resources of the West. Weighted heavily with the notion of private property, water rights in the U.S. West have inevitably favored short-term returns even at the expense of long-term consequences and collective concerns (Bates et al. 130, 144). The inevitable effect in the U.S. West, as demand for fresh water increased dramatically throughout the twentieth century, has been embattled conflict over limited water resources. States, individuals, and corporations with access to greater water resources are able to utilize — and even waste — them however they see fit under the law, with little regard for the collective damage their actions may cause.

Despite this obvious failing, some still argue that in order to manage water resources more efficiently, the best course of action is to commodify all water resources worldwide. Chile is often cited as an example of the free market's power to manage limited water resources, despite only limited success and many associated failings. From this point of view, "the economic value of water is the same as its market price" — a position that critics argue is unacceptable because it does not acknowledge the basic necessity of fresh water not only to human life, but to all life (Bauer, Siren Song 10). What is dangerous and novel about the commodification of water in the modern world is not that it values water, but that it divorces water from its essential uses within not only human communities but also within the larger community of life (Brown 4).

The reality the world faces is not simply that water is a limited resource, but that it is an essential limited resource without which life of any kind cannot continue. To treat it as a commodity that has no value outside of its monetary market worth is not just unacceptable — it is potentially catastrophic. The success of Chile's law in siphoning water toward more socially desirable uses is not relevant in a potential future scenario in which there is literally no more fresh water to be had. The application of an economic veneer to water scarcity is built on the false assumption that, like any other commodity, if more is needed then more can be produced. Because that will never be the case with worldwide water resources, turning to water markets and trading schemes as a means to manage limited resources will never be an effective long-term strategy. More likely, the markets will continue to function right up until the last moment when there is simply no more fresh water to be had.

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.