Siren Song

Chilean Water Law As a Model for International Reform

Carl J. Bauer

• Publisher: Routledge
• Year: 2010
• eBook ISBN: 9781136527739
• Topic: Biological Sciences
• Subtopic: Ecology
• Index: Biological Sciences

Increasing scarcity, conflict, and environmental damage are critical features of the global water crisis. As governments, international organizations, NGOs, and corporations have tried to respond, Chilean water law has seemed an attractive alternative to older legislative and regulatory approaches. Boldly introduced in 1981, the Chilean model is the worlds leading example of a free market approach to water law, water rights, and water resource management. Despite more than a decade of international debate, however, a comprehensive, balanced account of the Chilean experience has been unavailable. Siren Song is an interdisciplinary analysis combining law, political economy, and geography. Carl Bauer places the Chilean model of water law in international context by reviewing the contemporary debate about water economics and policy reform. He follows with an account of the Chilean experience, drawing on primary and secondary sources in Spanish and English, including interviews with key people in Chile. He presents the debate about reforming the law after Chile's 1990 return to democratic government, as well as emerging views about how water markets have worked in practice. The resulting book provides insights about law, economics, and public policy within Chile and lessons for the countries around the world that are wrestling with the challenges of water policy reform.

CHAPTER 1

THE INTERNATIONAL CONTEXT:
THE WATER CRISIS AND DEBATES
ABOUT WATER POLICY

In the international context, the Chilean model of water management represents one response to what is increasingly recognized as a global “water crisis.” This crisis has been caused by the confluence of several international trends in water use and water management—trends that are remarkably common and widespread throughout the world despite obvious differences in social, economic, and geographic conditions.

The core trend is the ever-growing demand for water for an increasing range of social, economic, and environmental purposes. These growing and multiplying demands are driven by long-term forces of population and economic growth. Continually increasing demands have made water resources relatively scarcer, which has raised water's economic value, intensified the levels of competition and conflict among different water users, and magnified the environmental impacts of water use. The dynamics of growing scarcity, economic value, conflict, and environmental impact reinforce one another and have led to a vicious cycle in many parts of the world.¹

Moreover, water scarcity is not just a problem of water quantity; it also includes issues of pollution and water quality. Lack of sufficient water of adequate quality, for whatever purposes, is a problem of scarcity. The two aspects of water management are always physically interrelated.

Since the early 1990s the scope and severity of the world's water problems have received broad international recognition, as indicated by a series of high-profile international conferences. Especially prominent were the International Conference on Water and Environment, held in Dublin in 1992; the United Nations Conference on Environment and Development (also known as the Earth Summit), held in Río de Janeiro, also in 1992; and the Second World Water Forum, held in The Hague in 2000. These conferences and related events have led to international consensus about the need for major reforms of water laws, policies, and management to address the worsening problems of water scarcity and conflict. The Chilean model has often been mentioned at these international conferences as an example of successful reform.

Several themes have dominated international water policy debates. One is that water policy reforms should move in the direction of more “integrated” water resources management, including long-term environmental sustainability. This notion enjoys very broad rhetorical support.

A second theme is that water reforms should take a more “economic” approach, making use of market incentives and other economic instruments to increase the efficiency of water use and allocation. This approach is more controversial but is nonetheless fairly well accepted as a general principle, and it is the context in which the Chilean model is most commonly discussed.

A third theme is that water management should place more emphasis on problems of poverty and social inequity, especially in the poorer countries of the developing world.

Beyond the general rhetorical consensus, of course, there is much less agreement about what the specific policy reforms should be. At least in theory, integrated water resources management should include economic, social, and environmental issues. It is debatable, however, whether these kinds of reforms are really compatible.

In this book I focus most of my attention on the first two themes—the arguments for more integrated and more economic approaches to water management—and I fold the issues of social equity into that context.

INTEGRATED WATER RESOURCES MANAGEMENT

A great deal of ink has been spilled about integrated water resources management (often abbreviated IWRM), and I offer only a brief summary here. Integrated water resources management aims to be a comprehensive and interdisciplinary approach that recognizes and deals with the many social, economic, political, technical, and environmental aspects of water issues. According to the definition of the Global Water Partnership, “IWRM is a process which promotes the coordinated development and management of water, land, and related resources, in order to maximize the resultant economic and social welfare in an equitable manner without compromising the sustainability of vital ecosystems.”² This requires understanding of the overall water cycle—that is, the continuous processes of water as it evaporates from the oceans, precipitates as rain and snow, and flows downhill across land surfaces and through rocks and soil back to the oceans.

Taking such a holistic perspective contrasts with the fragmented and sector-specific approaches that have historically dominated most countries’ water laws, policies, and institutions. An integrated approach emphasizes the close connections between issues that are nearly always regulated separately, such as the relationship between water uses and land uses, the relationship between ground water and surface water, and the relationship between water quality and water quantity. Similarly, an integrated approach by its nature treats river basins and watersheds as the most appropriate geographic units for water management, rather than areas defined by political or administrative boundaries.³

One of the best-known expressions of the current international consensus about water management is the so-called Dublin Principles. These principles emerged from the International Conference on Water and Environment held in Dublin in 1992 (as a precursor to the Earth Summit in Río de Janeiro later that same year). The Dublin conference brought together many water experts and organizations from around the world and concluded with a public declaration of the need for more integrated water resources management, together with a description of four guiding principles to help achieve it. The Dublin Principles cover environmental, sociopolitical, gender, and economic issues, as follows:

(1) Fresh water is a finite and vulnerable resource, essential to sustain life, development, and environment….

(2) Water development and management should be based on a participatory approach, involving users, planners, and policy-makers at all levels….

(3) Women play a central part in the provision, management, and safeguarding of water….

(4) Water has an economic value in all its competing uses and should be recognized as an economic good.⁴

Although these principles are obviously very general, their concise expression has been useful in framing and publicizing the major issues in international water policy debates. Furthermore, this particular formulation has outlived the 1992 Dublin conference because of the subsequent creation of the Global Water Partnership (GWP), an international organization established in 1996 to promote and help implement the Dublin Principles around the world.⁵

It is evident that integrated water resources management is an ideal concept rather than a set of specific guidelines and practices. Like “sustainable development,” it is a phrase that can mean all things to all people; because it seems to mean everything, it may end up meaning nothing. Nevertheless, even as a rhetorical term IWRM is significant as a reflection of the current international consensus about general principles of water management, particularly the need to take into account a wide range of factors, professional disciplines, and analytical perspectives.

There are also substantive parallels between IWRM and sustainable development, since achieving either goal depends on meeting the same three essential criteria: economic efficiency and growth, social equity, and environmental protection. These three criteria are often referred to (and graphically portrayed) as the triangle of sustainable development.

The holistic and interdisciplinary nature of integrated water resources management is also illustrated by the recent surge of interest in “water governance.” Because it encompasses the broad social and political aspects of water management, water governance goes beyond the scientific and technical aspects that have traditionally been the emphasis of water management. The Global Water Partnership has declared that “the water crisis is mainly a crisis of governance”⁶ and has defined water governance as “the range of political, social, economic, and administrative systems that are in place to develop and manage water resources, and the delivery of water services, at different levels of society.” This definition draws on a more general definition of governance by the United Nations Development Program: “Governance is the exercise of economic, political and administrative authority to manage a country's affairs at all levels … it comprises the mechanisms, processes, and institutions through which citizens and groups articulate their interests, exercise their legal rights, meet their obligations, and mediate their differences.”⁷

Governance is a very broad and inclusive concept whose aspects are inherently difficult or impossible to quantify, and it has generated a growing literature in various fields of policy and regulation. In this book I do not analyze this literature in more detail. Nevertheless, it is clear that issues of governance are closely related, if not identical, to institutional arrangements, as discussed in the following sections.

PERSPECTIVES ON WATER AS AN “ECONOMIC GOOD”

The most controversial of the Dublin Principles has been the fourth one— that water “should be recognized as an economic good.” What does this mean, and what are the policy implications? Most of the international debate about these questions has focused on the advantages and disadvantages of free markets and privatization.

Many people agree that the economic efficiency of water use and allocation is very important and that market forces and economic incentives, including prices, are powerful tools for increasing that efficiency. They disagree, however, about how free or unregulated such markets should be. The strongest market advocates argue that managing water as an economic good means treating water as a fully private and tradable commodity, subject to the rules and forces of the free market; from this perspective, the economic value of water is the same as its market price. The extreme opposing viewpoint considers access to water a basic human right and sees market forces and prices as unacceptable or irrelevant. In fact, the Dublin Principles try to have it both ways. Immediately following the controversial sentence—“Water has an economic value in all its competing uses and should be recognized as an economic good“—the statement continues: “Within this principle, it is vital to recognize first the basic right of all human beings to have access to clean water and sanitation at an affordable price.”⁸

An intermediate position is that water should be recognized as a scarce resource, which means that the available supplies are insufficient to satisfy all demands and that trade-offs are therefore necessary in allocating water to different uses. These trade-offs, however, need not be made via private or unregulated markets.

It is important to make a basic distinction here between the privatization of water resources and the privatization of water services. The privatization of water resources involves the ownership, use, management, and regulation of water resources themselves—the focus of this book. In contrast, the privatization of water services involves the organizations and infrastructure that supply water to consumers, and the costs and conditions of how that water is delivered. Although the two areas are closely related and are often lumped together when people talk loosely about the “privatization of water,” the core issues and objects of concern can be quite different. Much of the recent international controversy in this area—for example, at the Second World Water Forum in The Hague in 2000—has been about the provision of water services rather than about natural resources or environmental issues per se.⁹

In this chapter I review the specific interpretations of the fourth Dublin Principle that have been offered by international water economists. Before I do that, however, I want to raise briefly some general issues about the varieties of economic perspectives and schools of thought.

For the purposes of this book, I distinguish between what I will call “narrow” and “broad” perspectives on economic analysis. The distinction is based on two essential characteristics: first, how open the analysis is to academic disciplines and methods other than orthodox neoclassical economics; and second, how much attention is given to the institutional framework of markets and of economic activity in general. These two characteristics are closely related—indeed, they are in a sense two ways of expressing the same idea, since institutional arrangements and sociopolitical context are typically outside the realm of neoclassical economics, by definition. (When I use the terms institutions and institutional arrangements, I refer broadly to the legal, political, and social norms, rules, and organizational structures that shape the patterns of human behavior.)

In general terms, when I refer to narrow economic perspectives, I mean the more formal, quantitative, and technical approaches to neoclassical economics. The narrow perspective also includes neoliberal economics, which is the more extreme free-market version of neoclassical economics. I recognize that many neoclassical economists are not neoliberals, but even so, their views of institutions and of the boundaries of economics are very similar. In contrast, when I refer to broader economic perspectives, I mean approaches that rely more on qualitative, historical, and interdisciplinary analyses, such as the fields of institutional economics, political economy, and ecological economics.¹⁰ Later in this chapter I will mention some examples of these approaches as applied to water problems.

Another way to express the contrast between broad and narrow perspectives is to compare how much the realm of “economics” is considered separable from history and other social sciences. From a narrow perspective, economic methods are essentially mathematical, and economic analysis is largely independent of social, political, historical, cultural, or geographic factors. These factors are notoriously hard to quantify, and hence they are generally put aside or assumed as given.

I do not wish to exaggerate the distinction between narrow and broad economic perspectives, and I do not want to criticize neoclassical economics unfairly. The different perspectives are located along a continuous spectrum, rather than being polar opposites, and there are many neoclassical economists who are somewhere in the middle. (This is especially true of older generations of economists.) I myself rely on some of the core principles of neoclassical analysis (although not the math), as will be clear throughout much of this book, and I fully recognize the benefits of markets. Furthermore, even economists at the narrower end of the spectrum generally recognize, at least in theory, the importance of legal, institutional, and political arrangements to how markets work. The problem is that these arrangements are still considered “noneconomic” conditions, whose prior existence must be assumed in order to carry out quantitative economic analysis.

An institutional economic perspective, in contrast, focuses directly on the institutional arrangements, even though this requires qualitative analysis of noneconomic factors, such as law, politics, culture, and historical and social context. Since the rules governing markets come before the markets themselves, using market-based methods to analyze the rules can lead to conclusions that are too narrow, if not simply mistaken. Instead we should analyze these rules in terms of the values and interests of the people who influence their design.

Although institutional economics is to some degree a critique of neoclassical economics, the larger objective is to build on and incorporate the insights of neoclassical analysis rather than to reject them. My point here is simply to emphasize the limitations of neoclassical theory when applied to institutional matters. In recent decades there has been a great deal of academic work in the fields of “law and economics” and the “new institutional economics,” in which neoclassical economic analysis has been applied to a wide range of legal and institutional issues. Property rights have been a particular center of attention, since property is one of the fundamental areas of overlap between economics and law. Although economists’ increased attention to these issues has been an important change, the depth of the ...

Table of contents

• Front Cover
• Title Page
• Copyright
• About Resources for the Future and RFF Press
• Contents
• Preface
• Acknowledgments
• Introduction: The Chilean Water Model Comes of Age
• 1 The International Context: The Water Crisis and Debates about Water Policy
• 2 The Free-Market Model: Chile’s 1981 Water Code
• 3 Reforming the Reform? Policy Debate under Chilean Democracy
• 4 The Results of Chilean Water Markets: Empirical Research since 1990
• 5 Conclusions and Lessons about the Chilean Experience
• Notes
• References
• Index
• About the Author