On the Debate of Water Ownership: A Free Markets Argument

Throughout all of the reading and discussions involving the world’s water shortage, the topic that I have found most interesting is that of water rights ownership. While there is currently no consensus on a state level, I find myself a proponent of allowing private individuals or entities to own water rights.  My basis for this argument is that I believe the free markets are much better able to allocate precious resources than any government entity, and at the end of the day supply and demand of any resource should determine its price. While this is a bold claim, I do have justification. Think of the last time you went to a USPS post office, did you find that the office was run efficiently and that operations were in great shape? The most likely answer is no. The United States Postal Service is one of many examples of the government’s failure to provide a good or service better than the market. This is because free markets contain an intense amount of competition that both rewards those who are productive and innovative and punishes those who are inefficient and lazy. As a result of this competition, firms in a free market are constantly fighting to find more efficient, productive, and overall better ways to provide their service or they will find themselves replaced by a competitor. On the other hand, government agencies and services face no such competition. No matter how good or bad a job is done they stand to face no reward or punishment, there is no motivation to innovate. The following chart, courtesy of Zero Hedge, displays the operating profit / loss of the USPS over the past decade. A private firm with this level of poor performance would no longer be existent.

How is this all of this discussion relevant to the issue of water rights? As Mark Twain once said, “history does not repeat, but it does rhyme”. Given both the certainty of a water shortage going forward as well as the poor track record of the government in running various operations, the question I pose is: If the government does a poor job managing your mail do you want them to manage your water? I would answer no. This topic will become increasingly important as our water supply continues to be strained, and the given the critical nature of supplying our nation with water I would rather the free markets determine the most suitable candidate to do so.

As an as aside, one topic of discussion in class involved water commoditization, which it turns out is a process already in the works. In March of 2014 a new Australian futures exchange opened that allows individuals to trade and speculate on the price of water just like any other commodity, and so far (as of June 25th) 16.5 billion liters of water have changed hands on this new market. I think it is fascinating that while futures trading can be traced back to the time of Aristotle, thousands of years later this same financial innovation is only just beginning for water.