The Opposition's Statement
Between last year and this the market value of Lehman Brothers dropped from $38.4 billion to $5 billion, Merrill Lynch from $71.9 billion to $33.1 billion, and Morgan Stanley from $70.2 to $43 billion. Since then Lehman Brothers has collapsed.
There is clearly no reliable “market price” in a volatile world driven by greed and profits, with no social regulation. The idea that the management and distribution of and access to a scarce and vital resource like water can be left to the market—and that the market can assign a reliable price reflecting the real value of water—is both absurd and irresponsible.
All cultures have viewed water as the basis of life. Marketisation, however, allows water to be perceived as no different from any other commodity in the global market place–to be owned and bought and sold at arbitrary, unreliable prices.
The commodification of water shifts the focus from the water cycle on to water markets – diverse species, ecosystems and water systems adapted to millions of years of evolution are replaced by instantaneous relationships between “sellers” and “buyers” negotiating a commodity transaction which determines how water will be used, where it will flow, and where and to whom it will stop flowing. It is assumed that water will flow from “low value” to “high value” use. This increase in “value” (which refers to price) is supposed to magically overcome water scarcity and allocate water equitably.
We need to focus our thinking on water cycles rather than water markets, on human rights to water rather than profits to be made from commoditising a scarce resource. It is our relationship with the ecology of water that has the capacity to sustain water supplies for us and other species. Trade in water can help water markets grow in the short term, but unregulated markets will make our scarce and fast-disappearing water resources disappear ever faster. It is the discipline of ecology and hydrology that we need to guide our efforts at conservation, not the ecological indiscipline of markets.
The anarchy of the water market can be a good guide to profits – but it is a bad guide for the equitable, just and sustainable use of our precious water systems.
In the years ahead, the ecological and commercial paradigms will clash intensely as globalisation displaces cultures of water conservation and replaces them with a commercial monoculture of water as a commodity.
The commodification of water resources is being promoted by the World Bank and free-trade agreements like NAFTA and WTO. The World Bank is using Structural Adjustment programmes to privatise water resources. Free-trade agreements are defining water as an environmental service covered by rules of free trade in services. Privatisation and commodification are threatening to accelerate the processes that have led to the growing crisis of drought, desertification and water famines.
The market paradigm of water involves the assumptions that:
1. Increase in price is increase in value.
2. Increase in water trade is increase in water supply and hence free trade in water can overcome the water crisis.
The assumption that water markets will overcome the water crisis is, however, fallacious and malicious. Firstly, water markets cannot reduce water use and conserve water because commercial exploitation has created water scarcity by fuelling over-exploitation. In a world of inequality, higher prices do not tame consumption–they increase the luxury consumption by the rich and deprive the poor even of survival needs.
Secondly, water trade cannot increase water supplies. Water cannot be created by markets. It can be stored, diverted, polluted and also over-exploited, but its overall availability cannot be enhanced.
Water is defined by the water cycle and renewed if the water cycle is maintained. The ecological paradigm recognises that:
1. Water is the basis of all life on the planet including diverse species and all human communities.
2. Non-sustainable water use spurred by non-sustainable economies and technologies which violate the limits and the integrity of the water cycle are creating a water crisis.
3. The current water crisis can only be overcome by respecting the limits on water use that are enforced by the water cycle.
Markets driven by commercial values can neither recognise or respect the ecological limits set by the water cycle, nor give water its real value as the very basis of life. The real value of water is assigned by culture, which treats water as sacred; it is also assigned by rules of social equity and justice which recognise that everyone has a human right to water.
Water Markets Violate the Water Cycle
Water markets define “value” only as commercial and market value, and try and maximise this value as profits through commercial transactions and trade.
In nature’s economy, the primary value is sustainability and maintenance of nature’s essential ecological processes. Conservation is the imperative in nature’s economy for maximising ecological values.
In the sustenance economy, meeting people’s biological and livelihood needs for water are the primary objectives. Equity, justice and human rights are the primary values. Sharing of scarce water equitably is the imperative in the sustenance economy.
When water's social and ecological values are ignored and markets determine how water flows, it starts to move against the law of gravity. It moves upwards – to money – from the poor to the rich, from agriculture to industry, from the countryside to the city. In water markets, water moves from having a high ecological and social value, but a low market value, to having a low ecological and social value, but a high market value.
Water markets take water from where it is needed by nature’s economy, people’s economy and the countryside, to where there is purchasing power for water as a commodity—the urban areas, industry and industrial agriculture. Managing a scarce and precious resource like water requires conservation, equity and the recognition that as the basis of life, water is priceless.
“Anyone who can solve the problems of water,” John F. Kennedy once said, “will be worthy of two Nobel prizes—one for peace and one for science.”
Sadly, as moderator of the latest of The Economist’s online debates, I do not have any Nobel prizes to hand out. But there is no doubt that Kennedy was right: water has always been a pressing issue, and one that involves many different disciplines. Some see it as a matter of morality—a human right—and others as a purely practical concern. And even among pragmatists, there is little agreement about how to get clean water to the 1.1 billion people around the world who lack it.
The motion before us suggests one possible solution: “This house believes that water, as a scarce resource, should be priced according to its market value.” Arguing in favour is Steve Hoffmann, of WaterTech Capital, an investment bank that specialises in the water industry. In his opening statement, he argues that water should be priced precisely because it is of such fundamental importance to health, development and the environment. Although there is lots of fresh water in the world, it is not always available at the right times and in the right places. Treating it and transporting it to those who would use it is expensive. The market, in Mr Hoffmann’s view, provides the only reliable test of how much money should be spent on water, and where.
Indeed, Mr Hoffmann sees pricing as the key to the sustainable management of water. It ensures that water is allocated to the most productive use, and can help to prevent its over-exploitation. His opponent in the debate, Vandana Shiva, author of “Water wars” and founder of Navdanya, a non-governmental organisation that campaigns to protect the poor’s access to water, also invokes sustainability in her opening statement. But she sees the market, with its profits and losses, its booms and busts, as too unstable to provide for sound, long-term management of the world’s water.
Moreover, Shiva worries that markets for water, far from instilling thrift, simply reallocate it from the frugal poor to the prodigal rich. In her view, the market does not recognise the importance of providing livelihoods to impoverished farmers, nor does it ascribe an appropriate value to health of the environment. In short, putting a price on water reverses the natural order of things, allowing it to flow “uphill”, away from the places where it is most useful to society as a whole.
The two debaters agree on one point at least: that water is critical to development, and to the fortunes of the world’s poorest citizens in particular. But otherwise, their views seem utterly at odds—the perfect start to a vigorous debate. For the next ten days, the arguments will ebb and flow, and all are welcome to add thoughts of their own. Then we will put the motion to a vote: sink or swim, as it were.
Proposition's statement
The severe spatial and temporal imbalances in the supply of and demand for water—and safe drinking water in particular—dictate that water be priced at the true market value in order to resolve our global water challenges.
The notion of sustainability is gaining momentum with respect to the use of water and is likely to permeate virtually every aspect of water-resource management in the 21st century. While the hydrologic cycle is a closed biogeochemical process, the fact that the aggregate amount of water on Earth, in its various forms, is virtually constant on a human time scale does not mean that we do not face enormous challenges with respect to its spatial and temporal distribution.
Water is a critical factor in poverty, has a fundamental impact on human health, and is increasingly crucial in economic development. The World Health Organisation reports that 1.1 billion people worldwide lack access to safe drinking water and 2.7 billion people lack basic sanitation needs. Yet despite its stature as a prerequisite for life and for living, the price of water remains artificially low based on an institutional ideology that developed when accessible freshwater was relatively abundant and when contamination was mitigated by the ubiquity of the resource.
Sustainability is the mantra behind many emerging regulations, water-policy initiatives and technological advances. And nowhere is the market price of water more critical than in the concept of sustainability. Efficiency is critical in achieving sustainability and a market-driven price is paramount to the efficient allocation of water resources. The sustainability criterion suggests that, at a minimum, an allocation must leave future generations no worse off than current generations. Economics has much to say about the efficiency of the allocation.
The pricing of water must go beyond the mechanical and political aspects to the basic factors that affect the relationships between producers and consumers, and that are implicit in the rate structure. The principle of sustainability is critically dependent upon efficiency in water use. And efficiency cannot be achieved without the proper signals included in market prices. Market value is equivalent to water rates based on economic principles of water-resource pricing. In that regard, resource economics requires the convergence of two key principles: equimarginal value in use and marginal cost pricing.
Economic principles of resource allocation dictate that when costs are incurred in the acquisition, treatment and transport of water supplies to customers, the principle of equimarginal value in use should be combined with the principle of marginal cost pricing; that is, market value must govern. Additional units of water can always be made available by expending more resources to acquire and transport it, that is, at a given marginal cost.
The question of where to stop in increasing the supplies made available is then added to the question of how to arrange for the allocation of the supplies in store at any point in time. On efficiency grounds, additional units should be made available as long as any customers are willing to pay the incremental or marginal cots incurred. To meet the criterion of equimarginal value in use, however, the price should be made equal for all customers in a class.
It is precisely because of practical considerations such as alternative supplies, location, use patterns, types of service etc, that the marginal costs of serving all customers will not be the same. Pricing should be arranged, then, so that all customers within a class served under identical cost conditions pay the same amount equal to the marginal cost or market value. Between classes, however, prices should differ, and the difference should be the difference in marginal costs involved in serving the two. In general, the economic principles of resource allocation indicate that customers served under identical cost conditions should be charged equal prices and that the water should be supplied and priced in such a way that the price for each class of service equals the marginal cost of serving that class.
Water rates should be designed to fully recover the costs of providing water by charging customers in accordance with how they contribute to the costs. Schedules of water rates that charge customers in accordance with the cost of service would be efficient from the economic point of view, in that the price of a unit of water would be equal to the cost of the resources used to obtain and deliver that water. Further, they would be equitable in that no customer would be required to subsidise any other customer. To sum it up, the dictates of efficiency are clear: water should be allocated so that the marginal net benefit is equalised for all users. If marginal net benefits are not equalised, it is possible to increase net benefits by transferring water from those uses with low net marginal benefits to those with higher net marginal benefits. Again, the pricing of water at the ‘market’ value is the only way to make these determinations.
The amount of easily accessible freshwater is coming under increasing pressure as a result of global population growth, particularly in developing countries where urbanisation and industrialisation are underway, and the degradation of existing supplies. The amount of readily accessible freshwater is a minuscule percentage of the Earth’s total water budget. If per capita consumption of water continues to increase at its current rate, we will be using over 90% of all available freshwater with 20 years.
Scarcity, spatial and temporal, must be reflected in a pricing mechanism. Water is like any other economic good for which there is supply and demand and a pricing mechanism that seeks equilibrium between the two.
This is not a process-oriented enchantment with the free market that it may appear to be. While this might sound like so much economic rhetoric, the reality is that market pricing is central to enabling the forces that allow the efficient allocation of the resource. It is simply a recognition that market prices convey a great deal of information; information with respect to incentives, efficiency and allocational considerations. The pricing of water based on its true market value is also critical in resolving the issues associated with its allocation among competing beneficial uses.
Desalination is an example of where the market value of water plays an important role as a catalyst for problem resolution. In regions of the world where water is permanently scarce, desalination has emerged to meet demand. And it has done so only because there are few options. Granted, desalination is more attractive where energy is cheap, but it points to the reality that if water is simply unavailable, the market value argument is easy to acknowledge. It stands to reason that water priced at the market value (which includes scarcity, regulatory costs, treatment costs and resource management considerations) would be beneficial for the entire spectrum of conditions.
The signals and incentives contained in pricing water at its market value also enable the processes of recycling, reuse and conservation that are central to achieving sustainable water use. That water is not priced (valued) at its market value is the main reason why we are experiencing many of our severe water-quality and -quantity issues. Resource economics dictates the allocational efficiency of market-driven pricing.
Ten years after its return to China, Hong Kong -- with its political, economic and social systems largely unchanged since the end of British rule -- has evolved along with the rest of the country to become even more vibrant and prosperous. The naysayers of the "one country, two systems" must surely be embarrassed.
The "one country, two systems" was first put forward by late Chinese leader Deng Xiaoping in the 1980s as a potential solution to China's thorny Taiwan issue. The creative compromise formula charted the way to Hong Kong's successful and peaceful return to China in 1997.
The basics of the system saved face, instilled pride and maintained peace. It allowed the British a graceful exit and returned to China what was rightfully due.
It all came to pass at the end of Britain's 99-year lease over Hong Kong, which had been signed after foreign powers of the day purposefully debilitated China with massive imports of opium.
Britain had already been the chauvinistic ruler of Hong Kong Island for five decades when it forced the teetering Qing dynasty in 1898 after the Opium Wars to lease areas south of Shenzhen River and north of the Boundary Street and more than 200 nearby isles for 99 years.
Not even a bit of revenge or atonement was sought by China's leaders during the handover negotiations. The cooperative approach found in the "one-country, two-systems" formula has now become a staple of China's foreign policy.
The policies entrenched in the agreement have been faithfully implemented by the central government and they have helped Hong Kong to quickly change its identity from a former British colony to a special administrative region of China.
Over the past decade, maintaining Hong Kong's long-term stability and prosperity has remained the primary consideration of the Chinese central government in all its dealings with Hong Kong.
Top Chinese leaders, including President Hu Jintao and former President Jiang Zemin, have staunchly supported the principles of the agreement and have guarded Hong Kong's security as one would a member of the family.
During the Asian financial crisis, the Chinese central government stood shoulder with Hong Kong as the city fought off currency speculators and survived the financial disaster that ravaged so many Asian economies.
The central government was also a first-responder of aid when Hong Kong became ground zero in the SARS health crisis and continues to protect the region with rigid border policies aimed at controlling the spread of the bird flu.
While dealing with difficulties has been a mainstay of the 10-year-old relationship, the "one-country two-systems" formula has also helped broaden horizons, create wealth and provide a new sense of self-confidence in the entire nation.
In 2003, the Chinese mainland and Hong Kong signed the Closer Economic Partnership Arrangement (CEPA), gradually scrapping tariffs on products manufactured in Hong Kong, expanding market access for Hong Kong services on the mainland, and improving trade and investment facilities.
To help rejuvenate Hong Kong's tourism industry, the central government has made it easier for more mainland residents to visit Hong Kong. This has helped create thousands jobs and brought billions of dollars into the city each year.
The enhanced economic cooperation between Hong Kong and the mainland has helped propel Hong Kong's image as a prosperous free port of the orient and maintain its international prestige.
The high degree of autonomy Hong Kong enjoys under the "one country, two systems" has enabled Hong Kong people to become the "real masters" of their soil.
Since the 1997, Hong Kong has held three elections for chief executive officer. Prior to the handover, Hong Kong's governors were simply appointed from London. They were all white men as were most of the top civil service officials.
Now the top leader of Hong Kong, known as the Chief Executive, is elected by a kind of electoral colleague, which is made up of elected representatives from various sectors such as labor and business.
As anniversary celebrations this weekend acknowledge the Hong Kong success story, even the one-time pessimists have to admit that city is now stronger and more mature and certain of its future.
A recent survey conducted by the University of Hong Kong showed that Hong Kong people's trust in the central government and the ideas embodied in the "one country, two systems" have reached a new height.
About 78 percent of Hong Kong people said they have confidence in the formula and 81 percent believe in a bright future for Hong Kong.
Former British Prime Minister Margaret Thatcher, whose government negotiated the handover agreement 13 years ago, recently told the BBC that the worries about Hong Kong's future "have largely proved groundless."
British Foreign Secretary Margaret Beckett said in a speech during a recent visit that there have been some bumpy moments over the past ten years, but the more dire predictions have not come true. "One country, two systems has worked," she said.
The European Union (EU) has come a long way since it was formed 50 years ago.
Since 1957, when the six signatory nations to the Treaty of Rome unveiled the European Economic Community (EEC), the ranks of its members have swelled to 27 and the Union has morphed into not only an economic but also a political powerhouse.
This political element could in itself be taken as testimony to the economic achievements:
Had the EEC, and later the EU, not successfully pushed aside obstacles to economic growth - creating a customs union and then the single market, lifting exchange controls that removed barriers to trade, agreeing a competition policy that aided the efficient development of commerce - then there would have been every chance the project would have flopped rather than prospered.
As it is, the near 500 million people who live in the EU's member states now account for almost a third of global GDP, or gross domestic product. Economic output has soared, and per capita wealth along with it.
Enlargement is helping more countries to join the party.
The newcomers are hoping to follow in the footsteps of formerly poor countries like Greece, Ireland and Portugal, whose economic performance supports the argument that the EU has not only fostered economic prosperity but also facilitated a more equitable distribution of wealth amongst its members.
Disgruntled voters
But whilst economic success during the early years did speed up political integration, the economic concerns of the past decade appear to have had precisely the opposite effect.
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EU in figures
 Accounts for 30% of global GDP
Some 500 million people
315 million people in 13 countries use the euro
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"Brussels" became the favourite scapegoat of many politicians. Many national problems have been blamed on the EU, while in some countries the large body of EU-wide regulation is perceived either as an unnecessary burden or too liberal for society's good.
No wonder that many voters have become disenchanted with the European Union, as they worry about sluggish economic growth and high rates of unemployment, especially in the nations that founded the EEC.
In 2005, Dutch and French voters rejected their governments' plans to ratify the European constitution.
Hits and misses
However, although the Union's political climate is a useful yardstick of economic performance, it is often precisely political disagreement that gets in the way of measuring success.
There is little agreement on the EU's most important economic hits and misses. Here are some of the areas where the debate is fiercest.
Ever since wine lakes and butter mountains created headlines during the 1970s, the European Common Agricultural Policy (CAP) has found itself under attack from free-trade proponents both within the EU and beyond.
The CAP accounts for some 45bn euros ($60bn; £30bn) or nearly half the total EU budget.
Are fast economic growth and job security mutually exclusive?
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Indeed, the lavish subsidies to both commercially unviable farms and agroindustrial big business are often hailed as evidence that the EU is not working.
The CAP is also blamed for the misery of farmers outside the EU. Subsidies depress agricultural prices, which makes it difficult for farmers in Africa, Latin America and elsewhere to compete with the EU's subsidised farmers.
But the policy is also secretly admired by many for having preserved the countryside - especially in France - and small-scale farming across Europe.
So although not many seem to be prepared to stand up and defend the CAP, pushing through any meaningful reforms has been a painfully slow process.
Looking back, it is tempting to declare euro a resounding success.
Job creation is crucial as unemployment remains a problem
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Businesses trading within the eurozone have benefited a great deal from stable exchange rates and transparent markets, and while the euro's initial weakness boosted the area's exporters, its recent strength has done a lot to insulate member nations from the sharp rises in global commodity markets, especially oil, which are priced in US dollar.
In 2002, euro notes and coins were introduced in the eurozone, and although 315 million people in 13 countries now use the currency daily, many feel poorer as a result.
The launch of the euro has been widely blamed for a bout of inflation, with retailers using the changeover to hide sharp price rises of ordinary goods, ranging from espressos in Rome to pints of stout in Dublin.
EU exporters selling to customers outside the Union also bemoan the strong euro, which is making its goods and services more expensive.
But the main challenge posed by the euro is its one-size-fits-all monetary policy. A single interest rate applies to the entire eurozone, but for some economies this rate is probably very inappropriate. The same could be said for some of the larger countries, where for example Germany's poor east and its rich south might want to have different interest rates.
Much was made of last year's creation of three million jobs within the European Union, yet despite such headline grabbing figures there is little doubt that many EU member states, and indeed many regions within, are suffering from stubbornly high rates of unemployment.
Job creation has long been a declared goal shared by all EU member states, though there is no agreement about how to go about it.
Each country has chosen different tools for the job.
Britain and France are at opposite ends of the debate, with most other member nations somewhere in between.
In the UK the rate of unemployment stands at 5%, which is relatively low, at least by European standards. Deregulated labour markets are claimed to be behind the success. If it is easy to shed workers, employers find it less risky to create new jobs, and hence unemployment falls.
In France, where unemployment has been hovering around 10% for years, there is widespread scepticism about such Anglo-American attitudes to commerce. More people may be out of a job, but those who have one can feel more secure.
Lamentably weak economic growth, in the lower single digit percentages, is another cause of concern for many within the EU.
It is made all the more worrying by the emergence of China, India, Brazil and Russia as new powerful competitors.
Compared with these newcomers, the EU is suffering a relative economic decline, and it is widely agreed that what is crucial for the EU at this stage is to stimulate innovation to boost competitiveness and growth.
Only then can the Union make sure what was gained during the last 50 years will not be lost during the next half century.