Why Water Privatization Adds Up

1 in 6 Americans gets drinking water from privately owned systems

There is a tendency to think there is a wide gulf between private and government water utilities, but that does not reflect people’s own experiences nor the wealth of institutional comparison research.

In my life I had water provided to my home by privately owned water utilities, government owned and operated water utilities, and government owned and privately operated water utilities. Unlike most people, I knew which was which.

  • 2 of every 5 drinking water systems nationwide are privately owned regulated utility systems.
  • 1 of every 6 Americans gets drinking water from privately owned regulated utility systems.
  • Roughly 1 of every 25 communities in the rest of the nation has a government owned and privately operated water utility.

If private involvement in water provision was the high-risk endeavor that critics claim, with those numbers we would have disasters happening all around us. But we don’t.

In fact, when Public Citizen set out to report the most heinous examples of privatization gone bad they came up with only one substantiated case of a private operator running amok, buried in the midst of stories of such terrible things as the publicly appointed utilities commissions granting rate increases.

In a rich irony, the researcher for Public Citizen who wrote that report and their other early attacks on privatization quit soon after and came out publicly to explain that his work had taught him that privatization works when done right and that critics have failed to show any problems with it beyond a few anecdotes.

But neither is privatization a White Knight that can ride in and rid a city council of all its water utility worries. It is not an easy, no brainer solution to all our water ills.

In fact it is a policy tool, that like all others, works well when applied properly in the right place.

Why do I conclude that from all of my research?

1. Privatization has bipartisan support as a means of improving the environment and the health of citizens. A 1999 study President Clinton’s EPA endorsed privatization as a means by which local governments could meet environmental standards. Indeed the EPA wrote, that privatization creates a classic “win-win” situation. And the former Public Citizen researcher I mentioned now says that his work to dig up dirt on private operators convinced him that “private operators have a respectable record of providing quality water and complying with environmental standards.” Comparisons of compliance performance all find that privately operated utilities are less likely to violate safe drinking water standards.

2. The market and the private sector are not evil. Yes, water is vital, and along with most other vital things, the market has proved exceptional at providing it. The market provides us food and medicine, child seats for our cars… most of the things we allow to be put in our bodies or use each day to make us safer come from the private sector. And that includes water for a very large number of Americans, as I mentioned before. Our government hires contractors to maintain the airplanes that that transport the President, to run the space shuttle, to guard our nuclear power plants, and to build, maintain, and often operate submarines, fighter jets and other high-tech weapons systems. Government remains responsible for establishing and enforcing quality and reliability standards, and with a good contract, contractors have every incentive to ensure the same. Just as with government-run facilities, employees and managers, and their families, live in the community and drink the water. And companies that consistently fail to deliver expected service will soon find no more willing customers.

3. Nearly every credible cost comparison study that has been done shows that privatizing utility ownership or management reduces costs. Even Clinton’s EPA argued that private management reduces costs and helps communities achieve compliance.

4. The customers are satisfied. 91 percent of communities choose to continue privatization at renewal time. And this is not because they are captive to the private firms-6% of communities switch to another private company when existing contracts are up, and each year about 10 communities bring services back in house. 94% of communities say they would recommend their private water manager to other communities.

I add all of that up and I cannot say privatization is bad. Nor can I say it is inherently good. I can say it has a solid track record of success, that failures are the small exception, that research and experience show it is a viable option in the right time and place.

Local control and accountability matter. People worry about accountability for private operators, raise specters like foreign ownership of some of the operating firms. We trust foreign-made cars with our lives-and they are far more likely to be the cause of our death than our water is. We ingest foreign-made pharmaceuticals, we eat imported foods, we strap our children into foreign-made car seats, all without really worrying about where they are made. Why? Because there is a system for ensuring they are safe products. Privatization of water and wastewater services does not change the system for ensuring the water is safe and reliable.

The government remains responsible for that system via regulation and contract-they set standards and enforce them with either government or private operations. The partnership in a privatization and the contract that binds it must be based on visible, measurable performance, and reward private companies only if they meet the goals and performance they have promised.

Over 1500 of these contracts have been written, so there is a lot of experience and best practice out there, and consultants who specialize in helping communities negotiate with private operators. Community leaders have to apply the best practices and lessons learned from all of that to their own decision about privatization.

The key is transparency and accountability, and the track record of privatization shows that accountability exists except in rare cases.

Adrian Moore is Vice President of Reason Foundation.