A different kind of market

Researching for a paper on the last water scarcity scare, I came upon an article published in the New Statesman on July 23, 1976. The following extract from the piece is spookily familiar and makes for salutary reading. It suggests that we have learned very little from the last serious drought.

“Britain has plumbed to the bottom of the water-butt. Rain in quantity probably won’t fall until October or November and everyone will know the meaning of drought by then. If the 1975-76 European drought, though, promotes the rational use and conservation of water, we will have been parched for a purpose. Meanwhile, Britain appears to be peopled by hydrodipsomaniacs who feel about water the way alcoholics feel about Scotch.”

The water-rationing measures now in place affecting more than 13 million people, have rekindled memories of the 1976 drought. Although – reading the piece in the New Statesman – it is clear that we didn’t learn the lesson of water scarcity then, because we have failed to do anything effective to prevent the drought now. In spite of changes to the water industry, the public water supply remains a creaking infrastructure using the same Victorian network of mains pipes and the same system of demand management as it did 30 years ago. At that time, bureaucrats made public information films which jollied us into unselfish acts like bathing only every other day and leaving our lawns unwatered.

Fast forward to 2006, and the House of Lords Science and Technology Select Committee has published its report on water management. It doesn’t make for pleasant reading, and the evidence gathered by their Lordships is a symphony (or should that be a cacophony?) of derision that the committee has branded a PR disaster. The usual suspects in certain sections of the media have had a field day, pointing the populist finger of blame at certain water companies for the present problems.

Always an easy target, the media monkeys should have done their jobs better and looked harder. They would have seen that the water companies – caught between the demands of the city, investors, regulators, customers and governments – were the victim of the failure of successive governments to invest in an ailing infrastructure.

Since the late 1940s, British governments have plotted for economic growth and development. More businesses, people, jobs, homes, urban settlements and consumerism. Somebody forgot that all this requires a modern 21st century infrastructure capable of providing enough water to meet all these disparate but related interests. And with new economic growth areas planned for the South of England, typified by proposals for hundreds of thousands of new homes, we are set to breach environmental limits even further.

The effects of a changing climate, two dry winters and ever-increasing consumption and waste of water is far from the whole story behind the present water shortage. Some say that the lack of a properly functioning market is also to blame. Imagine, they say, if the supermarkets did away with checkouts and barcodes and decided instead to charge customers a flat-rate subscription based on their girth. Its easy to envisage what would happen: the shelves would soon empty. The supermarkets would have no incentive to keep them full, as it would make no additional profit on each item sold. And customers would have no incentive to economise on their purchases.

The only way supermarkets could manage demand is by making endless appeals for customers not to be greedy, and trust that their public-spiritedness would make them think twice about stuffing their trolleys with another 10 boxes of chocolate muffins. Swap food for water and that is exactly the same position with Britain’s water supply. In the absence of a price mechanism to control demand, customers use water extravagantly, while water companies attempt to conserve water through appeals that seem not to work.

So far the government has baulked at the idea of wholesale compulsory metering for fear of a political backlash, and only companies that can prove a chronic water shortage can fit meters compulsorily. Meanwhile, that other barrier to a more liberal market for water – a national grid – seems unlikely. The Environment Agency’s recent report estimated that building a national water grid would cost around £15B; have a negative environmental impact and high energy consumption. Certainly, the idea of a national grid for water is proving popular with free-marketeers and those who want competition in the water industry. We have not yet got to the stage of standpipes in the streets. My guess is that the public won’t put up with it in the good-humoured way it did 30 years ago. This, after all, is the 21st century of technofix solutions, with complex modern economies powered by sophisticated science. If we had a different sort of market for water, where companies had a greater freedom to produce it and where customers had an incentive to conserve it, Britain might be better prepared to face the spectre of climate change and be less dry. It’s time to defy the populist claptrap, it’s time to talk.