Question

Question 4. (40pts.) In a news item that appeared on the 31 January 2014 in the Guardian (an esteemed British newspaper) it is reported that in the Swiss mountain ski resort of Davos, Nestl ́e chairman Peter Brabeck addressed some criticisms pointed towards his alleged claims calling for the privatization of water:1

While Brabeck will have stoked the debate on climate change, he also sought to dampen the controversy last year in which he was accused by some NGOs of arguing for the privatisation of water and claiming is not a human right.

As a student seeking expertise in economics and having finished a serious general equilibrium course, evaluate this very question. (You could imagine that you are working in a newspaper and your editor gave that particular question for you to write about in the economics section.) Could privatization of drinkable water, hence markets, work for the human kind (even if access to drinkable water is not a “human right” as he allegedly claims)?2 Do not focus too much on whether or not this is a human rights issue, after all ours is not a law course. Evaluate whether or not his claims can be justified or trashed with the use of formal economics arguments that you have seen in this course.

I do not have to remind you that this is a serious question and I am expecting you to come up with solid arguments.

Answer 1

Water is an essential & fundamental part of human life & life on earth. According to United Nations access to drinking water is fundamental right of the every human being. Privatization of public utilities especially privatization of water is one of the most discussed policies of the last century. The issues related to water quality, supply & pricing together with acceptable public policy to allocate supply of water to users in a truly market oriented framework is yet to be discussed & developed in a real life scenario. The economic rates of return for utility privatizations including water resources is a controversial topic in the field of economics as economists do not share same views. In last century considerable research has been done to analyze water uses, formulate models & to define determinants of water demand for industrial activities.

According to me market has a limited role to play in water resource management & should respect access to water. The past experiences have shown that big corporations & Mnc,s have exploited water resources & created imbalance in its distribution. Turning a social good into an economic commodity & claim by policy makers or corporations that existing water resources can be managed & consumed efficiently is far from truth. There are several reasons to oppose it.

First private entities have only one goal & that is to maximize profits. They focus only on profits which results in disproportionate price increments making it difficult for public to consume it.

Second Poor people & marginalized community losses access to water resources which eliminates basic concept of social welfare in economics. Also companies provide poor quality of water & services to these sections of society which creates health hazards & reduce marginal utility.

Third private players are not accountable to public & many times governments sign long term contracts with companies with exclusive distribution rights which creates monopoly in the market. If there is no regulator to watch their affairs they often engage in corruption.