The Political Economy of Water and Sanitation

Matthias Krause

• Publisher: Taylor & Francis
• Year: 2010
• eBook ISBN: 9781135846107
• Edition: 1
• Topic: Economics
• Subtopic: Environmental Economics
• Index: Economics

According to recent estimates, around 6, 000 people – mostly children under five – die every day from diseases caused by inappropriate water and sanitation (WS) services. Much of the academic and political debate surrounding this issue has focused on private sector participation. By shifting the attention towards the influence of governance, Krause examines the political and sectoral institutions that are essential for the provision of WS services. Utilizing data from sixty-nine developing countries, Matthias Krause demonstrates that the level of democracy has a statistically significant positive impact on access to WS services and that low-quality governance of sub-national governments compromises the internal efficiency of providers and the widespread access to services. This book makes a critical contribution to the water and sanitation research and will help academics and policy-makers to rethink the way in which they deal with water issues.

1 Introduction

According to recent estimates, by the year 2004 more than one billion people were not using safe drinking water services, and more than 2.5 billion were not using appropriate sanitation services in developing countries (World Health Organization [WHO] and The United Nations Children′s Fund [UNICEF] 2006). Every day, around 6,000 people, mostly children under five, die from diarrhoeal diseases caused by inappropriate water and sanitation (WS) services (United Nations Human Settlements Programme [UN-HABITAT] 2003, 59). Increasing the coverage with appropriate WS services can, therefore, be considered a priority for development that is also acknowledged in the WS target set in the Millennium Development Goals (MDGs).¹ Meeting this WS target will require substantial efforts in terms of mobilisation of financing and in terms of reforming WS sectors.

Increasing the coverage and improving the quality of services to reduce the burden of disease is not the only pressing issue developing countries are confronted with in the area of WS. Rapid urbanisation and increasing pollution due to lacking wastewater treatment go hand-in-hand with an escalating stress on the resource water in several regions of the developing world, boosting social and political conflict. The need to adapt to climate change poses additional challenges for governments in the area of water management. In many cases, poorly managed WS service providers and lack of finance for investing in WS infrastructure compound the situation. This book focuses on developing countries because the magnitude and the urgency of these problems are especially great in this group of countries. Governments, civil society, and the private sector need to find ways to increase the coverage and quality of WS services and, at the same time, to manage the natural and financial resources in an efficient and sustainable manner. Successful WS sector reform along these lines is critical for advancing human development in a great part of this world.

During the 1990s, the mainstream approach in development cooperation with respect to WS sector reform was private sector participation (PSP)² in order to tackle the double challenge of (i) increasing investments in developing countries and (ii) reforming an industry characterised mainly by financially strained and inefficient public WS service providers (cf. e.g. Finger and Allouche 2002). By the beginning of the new millennium, this view has changed due to several reasons: Popular protests and political opposition to PSP are an issue in several developing countries;³ the private sector has shown a relatively low engagement to invest in WS services in developing countries,⁴ and the research literature has not found a conclusive empirical evidence concerning the actual benefits of PSP.⁵ This change of attitude toward PSP in the WS sector becomes evident in the following citation taken from a report of the Operations Evaluation Department of the World Bank (2003a, 21):

[PSP] is not a panacea to deep-seated problems and cannot be expected to substitute for decisions that only governments have the power and obligation to make. PSP is better likened to a sharp tool. A capable government can use it to great advantage to improve the water supply and sanitation situation but an inept government can make matters worse through an injudicious use of PSP without providing clear quality and price regulation and lending strong and sustained support to PSP.

At present, development agencies do not follow a clear policy paradigm regarding WS sector reform and there is a debate in the policy-oriented literature on second-generation approaches to infrastructure reform in developing countries.⁶ This study intends to contribute to this debate by shifting the attention towards the importance of governance.

In this study, the term governance⁷ describes the elements that shape policy-making and public decision taking. Institutions⁸ are crucial elements of governance because they shape the behaviour of the actors responsible for policy-making and public decision taking. The approach followed here distinguishes between the general political governance of a country and the specific governance of the WS sector (WS governance). The key elements of political governance are the institutions that shape the relation between citizens and government actors (electoral systems, political rights) and the rules that determine the organisation of government (separation of powers, checks and balances). Crucial elements of WS governance are the articulation of the actors responsible for policy-making, regulation, and service delivery and the institutional boundaries between them as well as the institutions for user participation.

This investigation sets the focus on analysing the influence of political governance and of WS governance on the performance of WS services in developing countries. It does so because the focus on private versus public providers, which has dominated the political and the academic debate, seems too narrow in order to explain success or failure in the provision of WS services. Due to the equity⁹ implications of WS services, their widespread use and the market failures associated with these services, public actors driven by political incentives play a more important role in the WS sector than in many other sectors of the economy (Spiller and Savedoff 1999), irrespective of whether the private sector is involved in service delivery or not. Therefore, the characteristics of the political institutions that shape the actions of public officials and the characteristics of WS sector institutions that shape the actions of regulators, providers, and users seem especially important for understanding the performance of WS services.

The neglect of these governance factors in many empirical studies could be one reason for the inconclusive evidence in academic literature regarding the effects of PSP on coverage expansion and on efficiency improvements of providers.¹⁰ In several countries, inappropriate political or WS governance could dominate or go against the expected benefits of PSP. On the other hand, it can be argued that the relatively good performance of some purely public WS service providers—e.g. in Chile before privatisation—is related to the good quality of the political and the WS sector institutions.¹¹ Therefore, here it is supposed that the quality of the political and WS governance of a certain country is a crucial factor that strongly influences the performance of WS services. This main supposition contrasts from the bulk of research work that has concentrated on the consequences of the delivery model (PSP versus purely public) for the provision of WS services.¹²

The effect of governance on the provision of WS services has not been systematically investigated in quantitative empirical research. However, there is some evidence from the quantitative research literature supporting the hypothesis that governance affects the provision of other infrastructure services. With regard to the effect of political institutions, Henisz and Zelner (2001) find that more checks and balances in a political system have a significant positive effect on access to telephone services. With regard to sectoral institutions, Cubbin and Stern (2006) report a statistically significant effect of higher quality regulatory governance on electricity generation capacity.¹³ This study adds to this body of empirical research by presenting evidence for the influence of governance on the access to WS services and on the efficiency of WS service provision.

In line with the main supposition previously stated, the purpose of this study is to answer the following main research question:

How does the quality of political governance and of WS governance affect access to and efficiency of WS services in developing countries?

This main research question is mirrored by a complementary enquiry that asks the conventional question addressed in the research literature: How does PSP affect access to and efficiency of WS services? Enlarging the focus of the investigation to include this complementary question serves to learn about the relation between governance and PSP, as well as about the relative importance of these two dimensions for the performance of WS services. Evidence with respect to this aspect seems especially relevant for practical policy-making. It could, for instance, give an orientation to policy makers whether priority should be given to improve governance or to introduce PSP.

The determinants of widespread access to WS services are an obvious subject of research, because the lack of access is a pressing problem in developing countries. In addition, it is asked for the determinants of the efficiency¹⁴ of WS service provision because neglecting this aspect would mean to risk wasting scarce natural and financial resources. This way, the environmental and economic sustainability of the provision of WS services and thus, ultimately, the widespread access to these services would be compromised.

The main and the complementary research questions are analysed conceptually and empirically. The conceptual part of the study (Chapters 2 and 3) develops a heuristic framework that offers an explanation for the influence of political governance and WS sector governance on two desirable attributes of the WS service industry: widespread access to services and high efficiency. The heuristic framework combines a normative economic perspective and a political–economic perspective.

The normative analysis in Chapter 2 develops the categories necessary for judging the state of affairs in the WS sector and deriving desirable WS policies, given the particular ethical and economic characteristics of WS services. It looks at typical problems of the WS sector from three different normative perspectives: equity, allocative efficiency, and internal efficiency. Based on this analysis, general policy implications are deduced. The analytical framework used is standard microeconomic theory.

The political–economic analysis in Chapter 3 explains how political governance and WS sector governance shape WS policies, regulation, and service delivery and, thus, access to and efficiency of services. Regarding the effects of political governance, it focuses on the aspects of democratic participation and checks and balances. The issue of different degrees of involvement of the private sector in service delivery (PSP versus purely public delivery models) is conceived as one important aspect of the institutional setting of the WS sector. Other important aspects of WS governance analysed are the institutional design of regulation, user participation, and the articulation of the actors responsible for policy making, regulation, and service delivery. The analytical framework used in this chapter builds on the work of the schools of new institutional economics, public choice and political economics.¹⁵ It takes a perspective that looks in an integrated manner at the economic and political system of a society, acknowledging that the behaviour of actors is shaped by both economic and political incentives.

The empirical part of this study (Chapters 4 and 5) analyses the main and the complementary research questions previous mentioned, using both quantitative and qualitative empirical approaches.¹⁶ Combining quantitative and qualitative approaches has the advantages (i) of getting a richer picture of the research subject, since the approaches elaborate on different aspects and (ii) of using one empirical approach to compensate for the supposed weaknesses or the blind spot of the other. For instance, qualitative approaches, as compared to quantitative approaches, have the disadvantage that the strength of the effect of one factor on another cannot be quantified and that the observed results, typically, cannot be generalised. However, qualitative approaches have the advantage that it is possible to dig deeper into causality mechanisms identified by quantitative research and to gain valuable information about the empirical plausibility of supposed causal relations. Or, to put it differently, qualitative case studies can contribute to the empirical microfoundation of causality relations derived from theory and from the statistical analysis of aggregated (macro) data.

Chapter 4 analyses the influence of political governance (democratic participation, checks and balances) on the coverage with WS services, using a multivariate regression model and cross-sectional data from 69 developing countries. The quality of political governance is measured by governance indicators conventionally used in econometric work. The chapter concentrates on the influence of political governance, because there is no comprehensive and reliable data available on WS governance (e.g. on the institutional characteristics of regulation, service delivery, or user participation). The data on coverage with WS services was taken from the database provided by the Joint Monitoring Programme of WHO and UNICEF. The model controls for conventional economic and demographic variables, as well as for the availability of freshwater resources. Based on the reasoning in Chapter 3, the main supposition analysed is that a higher level of democracy will have a positive influence on the coverage with WS services.

Chapter 5 investigates the case of Colombia. Colombia has quite a number of unique characteristics that justify performing a single in-depth case study to analyse the main and the complementary research questions of this study. The macro approach followed in Chapter 4 is suitable for analysing the influence of national political governance. Still, in many countries the responsibility for WS service provision lies within the realm of sub-national governments. Therefore, there is a need for investigating the role of local governance for WS service provision. Colombia is very well suited for this undertaking. First, thanks to political decentralisation, the country is marked by variation in local governance structures. Second, there is a diversity of delivery models in Colombia, including PSP and purely public delivery models. This allows one not only to analyse the relation between local governance and WS service performance on the sub-national level, but also to explore the effect of PSP on service performance and to assess the interaction of PSP and governance.

The chapter has two purposes. First, it applies the heuristic framework developed in the conceptual part of the study in order to describe and to assess the main elements that influence the provision of WS services in Colombia: the institutions and actors that are key for the policy making process, the main institutions and actors of the WS sector, and the principal WS policies.

Second, Chapter 5 analyses the influence of local governance and of PSP on the performance of WS service providers. The analysis is conducted in two steps. First, the effect of PSP on internal efficiency improvements and on coverage expansion is investigated by means of a multivariate regression analysis, using cross-sectional data from 30 Colombian providers. The data on ownership, internal efficiency and coverage has been provided by the two regulatory authorities Comisión de Regulación de Agua Potable y Saneamiento Básico (CRA) and Superintendencia de Servicios Públicos (SSPD). The main supposition analysed is that providers with PSP show a higher internal efficiency than their public counterparts. Second, the effect of local governance on provider performance is examined. This is done by a qualitative approach that compares the purposefully selected providers of the four provincial capitals of Manizales (public), Santa Marta (private), Tunja (private), and Villavicencio (public). The question analysed is whether local governance can dominate the expected effect of PSP on service performance and whether unexpected performance—such as a public provider with outstanding internal efficiency indicators (Manizales) or a private provider with poor internal efficiency indicators (Santa Marta)—can be explained by the quality of local governance. The main portion of information for the qualitative analysis has been collected by the author in interviews conducted in the four cities mentioned, and in Bogotá in June and July 2005.

Finally, Chapter 6 summarises the findings of the investigation and draws some overall conclusions. The key result of this study is the empirical evidence found on the influence of political governance on WS service performance. First, the cross-country regressions performed in Chapter 4 yield significant and robust statistical evidence that higher levels of democracy have a positive effect on coverage with WS services. This is an innovative result that, to the knowledge of the author, has not been reported in the econometric research literature so far. It...

Table of contents

• Cover Page
• Title Page
• Copyright Page
• List of Boxes
• List of Figures
• List of Tables
• List of Acronyms
• Acknowledgments
• 1 Introduction
• 2 Normative and Problem-Oriented Framework for Assessing Water and Sanitation Policies
• 3 Political-Economic Framework for Analysing the Relation Between Governance and the Provision of Water and Sanitation Services
• 4 Political Governance and Access to Water and Sanitation Services: A Cross-Country Regression Analysis
• 5 The Role of Governance and Private Sector Participation for the Provision of Water and Sanitation Services: Case Study on Colombia
• 6 Summary and Conclusions
• Appendix
• Notes
• Bibliography