The buck starts here
25 September 2017 19:09 (South Africa)
Opinionista Ivo Vegter

In a water crisis… Let them drink beer?

  • Ivo Vegter
    IvoVegterBW
    Ivo Vegter

    Ivo Vegter is a columnist and the author of Extreme Environment, a book on environmental exaggeration and how it harms emerging economies. He writes on this and many other matters, from the perspective of individual liberty and free markets. He is seldom wrong.

In the grip of a prolonged and severe drought, several states in Brazil, including the major cities of São Paulo and Rio de Janeiro, are running out of fresh water. The state-controlled company responsible for water could learn something from that country’s largest beer producer.

Brazil’s south-eastern states are suffering the worst drought since the 1930s. São Paulo, a city of 20 million people, is the worst affected, and is already suffering frequent interruptions in its water supply.

A water crisis is no joke, and if you’re thirsty, beer won’t slake your thirst for long. But whether you find yourself in an impoverished town in the middle of nowhere, a large urban slum, or a city in the grip of a drought, you can always find a beer. Why should beer be so freely available when water is not?

Let’s take a step back. An article first published in Natural News in December 2014 has been doing the rounds again recently. While the water crisis it highlights is real, the clumsy headline is as hyperbolic as headlines get: “Alarm bells toll for human civilisation as world's 12th largest mega-city to run out of water in just 60 days.”

In the first sentence, the author puts his disdain for humanity out there: São Paulo is the 12th largest city “on a planet dominated by short-sighted humans”.

By paragraph three, he has elevated a local drought and water crisis to a global problem: “But this isn't a story about São Paulo; it's a report that dares to point out that human societies are incredibly short-sighted and nearly incapable of sustainably populating planet Earth.”

The reason? “...[T]he endless greed of the ‘grow-consume-profit’ business model that dominates the global economy leaves no room for any hint of balance with nature”.

It is easy to blame shortages on the consumption of those who produce the most prosperity. It is easy to draw a simplistic contrast between a city’s poor favelas and the rich in their mansions. Few government officials would dare to stand against torches and pitchforks.

But knee-jerk caricatures are not limited to a few green-socialists on the fringe. Such tropes are repeated in only a slightly milder form by the New York Times: “As southeast Brazil grapples with its worst drought in nearly a century, a problem worsened by polluted rivers, deforestation and population growth, the largest reservoir system serving São Paulo is near depletion. Many residents are already enduring sporadic water cut-offs, some going days without it. Officials say that drastic rationing may be needed, with water service provided only two days a week.”

So, the causes are: drought, population growth, deforestation and pollution. All of these are plausible – though some more than others – and rent-a-quote environmental activists who can expound on these topics are a dime a dozen. The paper adds the authority of no lesser a personage than the governor of São Paulo State, Geraldo Alckmin, himself. He happily joins the blamestorming: “Climate change has arrived to stay. When it rains, it rains too much, and when there’s drought, it’s way too dry.”

What they don’t tell you is that Alckmin is not the most reliable source on the subject of water shortages. He has long been downplaying the crisis, and the question is now being asked why residents were not warned of the looming crisis sooner.

A local website (Google translation) claims to have a leaked audio recording of a board meeting of Sabesp, the local water supply company. In it, company president Dilma Pena says a “superior” would not permit the company to warn São Paulo residents about the impending water crisis, so that economising measures could be taken sooner. Another blog (Google translation) claims to have documentary evidence that the company failed to announce the crisis or implement water rationing, even after it began to use emergency supplies in May 2014. Sabesp is majority-owned by the State of São Paulo. The state governor, Alckmin, was up for re-election in October 2014. He won.

Environmentalists might not be the most reliable sources on water shortages, either. They have been campaigning against dam-building for decades, but when drought comes around and the supply doesn’t hold up, they’re the first to point fingers at others.

The narrative that prosperity and overconsumption has much to do with the water crisis in Brazil is equally mistaken. Although it is the fifth most populous country in the world, it is ranked only 12th in terms of fresh water use. Individually, Brazilians use as little water as Israelis, Yemenis and Zimbabweans. That’s hardly a picture of unbridled greed.

Blaming the drought on climate change is also spurious. Research shows droughts have not become more severe, more frequent, or longer during the last 60 years. One cannot with any confidence attribute a particular drought to a trend that may not even exist.

Besides being useless as policy guidelines, these glib explanations gloss over one important fact: water in São Paulo is not supplied by capitalists operating in a free market. Although private investors are involved, water is supplied by a monopoly in which the government has a majority stake. The state is both player and referee in the water market. The responsibility to supply water lies with them, as does the accountability when the taps run dry.

Private sector participation in utilities such as water can work to improve supply, as case studies from nearby Argentina and Chile demonstrate. However, Brazil’s patchwork attempts at privatisation have suffered from an unclear legal regime and a lack of regulatory preparation. Partial privatisations that merely create unaccountable monopolists or crony-capitalist gravy trains can be worse than no privatisation at all.

In a competitive free market, rivalry drives down prices, but scarcity pushes them up. This encourages producers to produce more and consumers to consume less. When this balancing mechanism fails, supply will inevitably fail to meet demand. São Paulo’s state-controlled water firm, Sabesp, offered discounts to reward lower consumption, which is the exact opposite of what one might expect in a free market.

A common objection to market-pricing for water is that the poor cannot afford higher prices. That sounds right, but it isn’t. People respond to higher prices by economising, and they can afford thirst even less. Private sector participation in water provision has not harmed the poor in Argentina, Bolivia or Brazil. In Chile, means-tested subsidies are offered to those who cannot afford rising water prices. In theory, such measures reduce the efficiency of the market, but they also keep the peace.

São Paulo is not unique. Another huge city struggling with unreliable water supply is Karachi, Pakistan’s economic heart, and home to a population of 18 million. The New York Times explains why: “...analysts say supply isn't the only problem. Farhan Anwar, who runs an organisation called Sustainable Initiatives in Karachi, said the Karachi Water and Sewerage Board is horribly overstaffed and many of those are political appointees. The cost for water is also very low and the agency doesn't collect all that it's due, Anwar said. That's made it difficult to upgrade the aging pipes the system does have, meaning contamination and leakages are common.”

In Delhi, a city of some 17 million souls, political party workers actually lay pipes themselves, extorting payments from individual households. A black market supply is also emerging, run by cronies of the ruling party.

In each case, government is implicated in the failure to supply water.

One might expect that a water crisis in Brazil would seriously affect the country’s largest consumers of water. American Beverage Corporation (AmBev), a division of the largest brewer by volume in the world, Anheuser-Busch InBev, produces 14 billion litres of beer and almost 6 billion litres of soft drinks in Brazil. It has a factory on the outskirts of São Paulo. Did the impending water crisis make investors run for the exits? Not at all. Private beer production is secure.

When water is treated as a communal resource, supplied at an artificially low price by government, shortages become inevitable. The extreme case is simple theft. Of the water that is lost from São Paulo’s water system, theft accounts for 40%. The remainder is lost to leaks in decaying infrastructure. In total, water losses amount to 2 billion litres per day, or almost 25% of the total that enters the system.

In this respect, the situation in South Africa is no better. Twenty-five percent loss to leaks and theft is our ten-year goal. By comparison, the United States loses only 16% of its water, and countries like Japan and Germany can boast 11% loss rates.

The problem with simplistic narratives about water scarcity is that they don’t focus on the true problem: how to ensure supply, in all areas, despite all the challenges that accompany the provision of any resource.

Identifying fresh water as a scarce resource is a trivial truism. Of course it is. The market exists because of scarcity. The real challenge is far more complex. Whether a catchment area is in deficit, or has more water than its inhabitants can use, is a function of many variables besides rainfall or consumption. It depends on a region’s pipeline infrastructure, water treatment capacity, access to surface water or groundwater, availability of storage dams, and the ability to transfer reserves between different catchments. The are the sorts of complexities that profit-driven companies in competition with each other are best equipped to face.

Rhetorically, however, it is far easier to just rail against prosperity, or privatisation, or environmental degradation, or humanity’s short-sightedness. Even when utilities get run into the ground, you’ll sometimes hear that what they supply is too important to be left to a free market.

By that logic, the government should take over beer companies, because beer is the most important thing in the world.

The thing is, beer production works just fine under free market capitalism, despite high sin-taxes and wide-ranging restrictions on the sale of alcohol. That is because private companies are responsive to supply and demand through the price mechanism. They are able to anticipate and deal with multiple complex challenges. They have a financial incentive to ensure that supply remains in good health long into the future. Those who fail disappear, or get acquired by those who succeed. Consumers never need to understand the complexities of production and distribution, and governments never have to interfere to ensure continuity of supply.

We could do worse than turning over the supply of water to the beer industry. At least then we’ll be sure to never run out. DM

  • Ivo Vegter
    IvoVegterBW
    Ivo Vegter

    Ivo Vegter is a columnist and the author of Extreme Environment, a book on environmental exaggeration and how it harms emerging economies. He writes on this and many other matters, from the perspective of individual liberty and free markets. He is seldom wrong.

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