Water privatization hasn’t delivered

The global economic crisis of the 1980s resulted in governments relying on privatization for economic development and the delivery of public services. This was in accordance with World Bank and International Monetary Fund conditionalities and prescriptions for loan packages that also insisted on austerity measures.

Privatization was meant to (1) reduce the extent of the government’s involvement in business; (2) promote competition, efficiency and productivity; (3) stimulate private entrepreneurship; and (4) avoid the monopolies and bureaucracies of government-run agencies.

Economist Jomo Kwame Sundaram, however, maintains that the promise of privatization remains unfulfilled. Privatization has failed to stimulate private entrepreneurship and investment, as economic assets are diminished and diverted to take over state-owned enterprises. Not only do “private funds (become) less available for investing in the real economy,” he says; opportunities for small- and medium-sized enterprises are also crowded out.

Sundaram notes that “since a significant portion of state-run activities are public monopolies,” privatization will simply create new private-run monopolies. And since “private interests are only interested in profitable or potentially profitable enterprises… the government will be saddled with unprofitable and less profitable activities.” Long-term investments are thus sacrificed in favor of short-term profits.

Privatization also results in inequalities in the delivery of services — “one for those who can afford more costly, private — including privatized — services, and the other for those who cannot, and hence have to continue to rely on subsidized public services.” Lastly, Sundaram argues that “privatization in many developing and transition economies” frequently breed “patronage and corruption… enriching a few with strong political connections, while the public interest (is) increasingly sacrificed to such powerful private business interests.”

In August 1997, the Philippine government privatized its publicly owned water provider, the Metropolitan Waterworks and Sewerage System (MWSS). It was the first large-scale water privatization in Asia. Two decades later, however, the goals of Philippine water privatization continue to fall short of its promises. The problems under water privatization include:

1. The rising price of water, leading to inequality and a class bias
2. Excessive profit-taking beyond allowable limits
3. Inadequate and unreliable coverage, particularly for the urban poor
4. Poor water sanitation and wastewater treatment services
5. The increase of nonrevenue water
6. Inefficient management—underspending and irregular practices
7. The noninvolvement and/or diminished role of local government units and the local community
8. Workers’ welfare and unemployment issues
9. Use of public funds for water privatization
10. General weakness of the regulatory process

Given the above, it is time to rethink the privatization policy and give back to the public sector the ownership and control of public services, particularly the provision of water services. This is premised on public management and democratic control that is transparent, accountable and participatory. The key drivers are vibrant citizens’ movements that have to work hand-in-hand with water service workers and local governments to reclaim ownership of essential public services.

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Eduardo C. Tadem, Ph.D., is convener of the UP Center for Integrative and Development Studies, Program on Alternative Development (UP CIDS AltDev). Teresa S. Encarnacion Tadem, Ph.D., is professor of political science and executive director of UP CIDS. This commentary is excerpted from a research study of UP CIDS, the Department of the Interior and Local Government-National Capital Region (DILG-NCR) and the Office of the Quezon City Mayor on “The Administrative Region of the Republic of the Philippines: A Study on the Implications of Federalism in the National Capital Region and Considerations for Forming the Federal Administrative Region.” The study was funded by the DILG-NCR.