Monday, March 16, 2009

Water Markets

The NYT has an especially dire article on the consequences of water privatization in Chile.  I figured this was the result of poorly-thought out liberalization or monopoly power, as happened with Enron for instance (though other instances of electricity liberalization in Chile and India have done much better).  This was a little surprising to me as Australia seemed to be doing pretty well on that experiment.

However, in looking at the Wikipedia page, it looks like having markets for water seems to have worked pretty well there.  I've never understood how we have a water 'shortage.'  We have a water mispricing, and this is a solution.

The crazy thing about Chile is that the numerous privitization schemes started under Pinochet have survived through several regimes.  The political debate is not about what industries should the government control--as it still is in, say, India--but rather about the optimal amount of subsidies and redistribution from a generally held conception of market economy.  It would be great if every country's politics looked like this.

The crazy thing is that this 'good debate' equilibrium was founded from a non-democratic base.  Given the poor record of economic policy elsewhere on the Continent, and earlier in Chile's history, it's difficult to imagine that this legacy of reforms would have happened in a democratic system.  That's not to say that the optimal government path begins in a form of autocracy, but is still a little worrying.   

By the way, Paraguay has to be one of the craziest countries in the world.  Who starts a war against three of your neighbors, who vastly outnumber you, until you lose a naval battle (this is a landlocked country) and lose two thirds of your population.  Nuts.

No comments: