Thursday, July 15, 2010

Water for Sale

Water for Sale is the title of a book by Fredrik Segerfeldt. The last chapter of the book begins:
“Excessively low prices fixed by politicians have lead to waste, lack of caution, and misallocation of resources-in short inefficient use of water. Distribution, moreover, has been managed by bureaucrats and public authorities with a low level of competence, little capital, and distorted incentive structure. In addition, the lack of property rights and water trading has resulted in water being pent up in less productive activities..;”

Mr. Segerfeldt was talking about the water supply in the developing world, but much of this appears true of many of the water distribution systems in our first world country. We delay maintenance of our water infrastructure as we debate the “fairness” of water rates. Our regulators and bureaucrats have allowed water companies to pump so much water from rivers that they no longer flow to the sea or have been reduced to small trickles. They have removed the cost of water from the benefits by artificially pricing water too low. The environmental costs have to be paid for by the water users. Damning and diverting rivers and pumping of groundwater have become as extensive as to change the face of the planet. The nature of governments is they do not take small steps, and then continually reevaluate the course direction. The grand actions governments tend to take are limited by knowledge and a tendency of man to believe that what he wants to see and assumes is the ultimate truth. Governments do not make quick course corrections. Central control of resources produces tragedies. (See Time Magazine article on the impact of a hydroelectric dam on India.)

“The tragedy of the Commons,” by Garreth Hardin was published in Science, December 13, 1968 and at least among environmentalists and scientists of my age are well known. The concept from the article that has survived is that what is a free and common resource is abused. The common of Hardin’s article was a community pasture that was open to all and used to graze cattle. The theory proposed by Hardin was that each cattle owner would try to keep as many cattle as possible on the commons until the carrying capacity of the land was exceeded and the land was overgrazed and the common pasture destroyed by erosion and weed dominance. Hardin said “Freedom in the commons brings ruin to all.” It was sensible for each cattle owner to increase the size of their herd because though the common pasture would be ruined, each individual would have maximized what they got out of the pasture before it was gone. This idea has of late been very poignant to me because of the work being done by the Prince William Soil and Water Conservation District in their environmentally friendly horse farm project. I have watched management techniques utilized to revitalize and manage a pasture from overgrazed with significant runoff to lush, well maintained and thriving along with the horses.

Hardin was arguing for forced population control and pollution laws in a direct command and control manner. To a large part I believe he was wrong in that argument. His assumptions about human nature were wrong; we are not mindless and respond to incentives both perverse and rational. As countries move up the development ladder, they fertility rate falls. The rise of the middle class has coincided with a fall in fertility rate. As people have more they begin to choose smaller families for their well being and the well being of their children. In China where the famously enforced one child rule has been relaxed families are for the most part still choosing one child (perverse incentives), and the crash in population will be devastating for their economy and society.

However, the Tragedy of the Commons is also an argument for private ownership. What is not owned is not protected and what is viewed as free is abused. It is an argument to have quantitative ownership of rights to use a resource. Water rights must be owned and cannot exceed the sustainable rate of with drawl. In California there is no longer any relationship of the water to the land, they have destroyed the natural ecology of water rich areas to deliver the water to Los Angeles, San Francisco and the farms. Water is wealth in California where you can grow three crops a year. As long as water costs less than the real resource cost, farmers will plant and grow as much as their water allocation as the state continues down the path of ruin. Water cannot be banked in California, use it or loose it. Eighty percent of all water use in California is for agriculture and the demand will always be just a little more than the last wet year when times were so good. The incentive scheme has become extremely perverse in California. They did not initially understand the damage they were inflicting on the groundwater basin and the environment. I believe that if we understood the value of a resource and we own it that individuals can work together to protect their common interests.

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