Capitalism and water

If you don’t dedicate too much of your reading time to useless rags like Time and Newsweek, you’ve probably read an article or two over the last few years about the globalization of water. There was an interesting article in this month’s Vanity Fair (not online) “The Rise of Big Water” that details Big Water’s entrance into the Chinese market. The article asks, but does not answer, the question about just how far markets can be effective, especially when it comes to things like water.

On the one hand, the article makes a compelling case that a price level can prevent waste on the one hand, and spurn development of the resource to places it might not otherwise reach on the other. It also points out, though, that some people end up paying ridiculous portions of their income for water.

I think lumping things like water into the category of a normal good, like diet coke, is a big mistake. Part of market pricing is set by consumer preference. If no one wants diet coke because they like diet pepsi, Econ 101 says the price of diet coke should go down. But people are still getting diet soda. And people don’t even need diet soda. Water, though, is different. People cannot live without it. Unlike electricity and natural gas, even, water is among those things that are required by life.

So, how do you encourage development, prevent waste, and make sure that people have enough water? In a developed country, you could give tax credits to people with low incomes. Direct subsidy is probably the only way it works in emerging economies, and that doesn’t address the waste issue.

I’m all for markets when it comes to discretionary goods. It does have its magic in that realm. But I’m skeptical of how this works for things that is basically a human right. Is it snarky to ask if air is next?