When the market drops

Note: Due to the upcoming tenth anniversary of 9/11, there will be no “Termination Tuesday” bracketology this week. It will be back again next week. In the meantime I’m actually going to try to behave.

Would you like to play a game? Don’t worry – it’s simple. First we’ll consider a factoid and then we’ll say the first thing that pops into our heads. This is just an idea. Let’s try it once and see what happens.

Ready? Okay!

Factoid: Approximately one-sixth of the human population on this planet does not have access to safe water.

Response: The solution is a new market! We should be charging a whole lot more for water!

Erm? Did we not all come up with the same answer? How odd.

Before we get into our differing responses, let’s see what the internet says about access to safe water. I’m going to  provide multiple sources for the factoid in an attempt to preemptively quell quibbling about whether it is true or not:

• Nearly one billion people lack access to safe water and 2.5 billion do not have improved sanitation. The health and economic impacts are staggering. (Source: Water.org)
• Almost fifty per cent of the developing world’s population – 2.5 billion people – lack improved sanitation facilities, and over 884 million people still use unsafe drinking water sources. (Source: UNICEF)
• Water is essential for life, yet in 1995, more than one billion people in low- and middle-income countries—and an additional 50 million people in high-income countries—lacked access to safe water for drinking, personal hygiene and domestic use. These numbers represented 25 percent of the world’s 5.9 billion people. In addition, close to 2 billion people did not have access to adequate sanitation facilities. (Source: The World Bank)
• Because of the high initial investments, many less wealthy nations cannot afford to develop or sustain appropriate infrastructure, and as a consequence people in these areas may spend a correspondingly higher fraction of their income on water. 2003 statistics from El Salvador, for example, indicate that the poorest 20% of households spend more than 10% of their total income on water. In the United Kingdom authorities define spending of more than 3% of one’s income on water as a hardship. (Source: Wikipedia)
• Access to clean, safe drinking water is now an official basic human right everywhere in the world, like the rights to life, health, food and adequate housing. The water rights resolution was approved late Wednesday by the United Nations General Assembly, not unanimously, but without opposition. / The text of the resolution expresses deep concern that an estimated 884 million people lack access to safe drinking water and a total of more than 2.6 billion people, 40 percent of the global population, do not have access to basic sanitation. About 1.5 million children under the age of five die each year because of water-related and sanitation-related diseases. (Source: Environment News Service)
• 1.1 billion people lack good, clean water supplies, and 2.7 billion have no access to proper sanitation. (Source: Copenhagen Consensus 2008)

You can do your own research, but if these and other sources are to be believed, an estimated 800 million to 1.1 billion people don’t have access to “safe” water.

An American taking a five-minute shower uses more water than a typical person in a developing country slum uses in a whole day.
–Source: 2006 United Nations Human Development Report (PDF)

So where did I come up with my “market” response? I actually got the idea from Peter Brabeck-Letmathe. Never heard of him? Me either. He’s the CEO of Nestle, the world’s largest food production company. I heard about him in a Wall Street Journal piece dated Sept. 3, 2011. (Link.)

In the article, Brabeck-Letmathe describes the problem with water as one of waste, overuse and misuse of the water we have. He says that traditional approached to water problems have focused on the “supply” side, such as using dams to make more water available.

The solution as he sees it? Coming up with a “market” approach that will serve to regulate “demand” via “prices.”

Obviously, as a CEO and businessman, Brabeck-Letmathe is built to see solutions in terms of economics, market forces and, dare I say it: profits. Yes, the system he proposes would make water – the stuff of all life on Earth – yet another “commodity” to be traded by the rich and powerful. And, like all markets, thus is introduced the opportunity for some to make a killing in profits. (I hope I’m only speaking figuratively here.)

Now, I ask you: What in the name of Zeus’ butthole could possibly go wrong?

In theory the free market approach to problems like distribution of resources is an eminently logical proposition. By its very existence, a market serves to balance the forces of supply and demand and thus guarantee reasonable distribution and consumption of resources.

In practice, however, market forces can be extremely destructive. “Corrections” that sound reasonable in theory can actually wreak incredible havoc and destroy the economics that affects millions of lives. Human greed invariably kicks in. Long-term efficiencies are sacrificed again and again by a greedy few willing to reap short-term gains by crass manipulation of the system. The damage isn’t discovered until it’s too late and the system is never made whole.

The flaw, as I see it, with market theory is that it invariably fails to account for basic human motivations like greed. A market is basically a system that is incentivized to put the needs of self above the needs of the group. All market theory is based on the assumption that, in the long run, these selfish micro-decisions will lead to desirable outcomes. In my opinion, based on empirical evidence, this simply isn’t true.

I guess this is okay if we’re talking about pork bellies or futures, or even things like oil, but water itself? That is precious to human life. The lives of billions of people literally hang in the balance. It must not be allowed to become a pawn in a game that will only serve the economic interests of a few.

I’m sorry Mr. Brabeck-Letmathe, but I can’t imagine putting water at risk using a system like that. We need to act, as a species, to come up with a system that guarantees a right to safe water to all human beings on this planet. A system that can’t be manipulated for profit or personal gain.

There needs to be a line in the sand. This needs to be one area where we don’t do our normal thing and fuck around. The risk is too high.