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Is Water Privatization A Viable Option In Latin America? Case Studies Of Bolivia And Argentina

2773 words - 11 pages

Most contemporary discourse centers on the role of the state in domestic socio-political and economic development. This trend is not really new since the entire classical and liberal debate dealt with reducing or enhancing the state's participation versus the participation of private enterprises. There are many reasons why state owned enterprises continue to exist and are considered paramount to the stability of a country. Certain imperfections of the market result in the creation of anti-consumer situations whereby the average man in any country is greatly disadvantaged. What most of the neoclassical literature ignores is that, in certain situations "decentralized market mechanisms under private information may not handle well some problems of coordination and urgent decisions which could be more readily solved by central direction." (Bardhan; 1990, p 4)There is also a growing perception that the state has certain responsibilities with regards to its citizens which must not be dependent on whether the same are able to pay for them. Rather eligibility for such commodities and services is essentially contingent on a person's citizenship.This paper will investigate the unique place of water provision as an enterprise in Latin America and why there has been a general trend to privatize state-owned water services. At the same time it is contended that with services like water provision and sanitation efficiency arguments are not sufficient in themselves for a motive. If development, and not economic growth, is to be a goal then it is imperative for the state to acknowledge its responsibilities towards the citizens. In this context the cases of Argentina and Bolivia stand out, most especially, due to the conflicting outcomes in these two countries.Throughout time, since the formation of nation-states, most of the essential services have remained part of the state's domain. Provision of utilities like electricity, gas, water and sanitation until a decade ago was still in the hands of government officials. (; Kim and Horn, 1999) Part of the reason for this is that utilities are a natural monopoly. This means that they operate more efficiently when working as the single, thus the largest, supplier or service provider because the initial cost outlay is so large that most entrepreneurs cannot venture to this side. Also the real benefits of being a monopoly can be reaped only after considerable short term losses. Hence, when a monopolist finally 'settles' into a market, it prices higher and supplies lesser than under competitive market structures. It is in this scenario that most governments find it easier to create a public utility rather than regulating a privately owned natural monopoly. In this manner it ensures that the prices remain low and that as many of its citizens as possible are provided for. However through technological advancement, competition in many of the previously...

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