By James H. Spencer
May 16 – 20, 2005
Santa Barbara, CA
James H. Spencer
Depts. of Political Science, Urban & Regional Planning
University of Hawai’i at Manoa
2424 Maile Way
Honolulu, HI 96822
I. An illustrative story
The following sketch of rapid urbanization and the accompanying social and economic changes happening in the Mekong Delta of Viet Nam inform a larger debate about the nature of privatisation efforts currently advocated in developing countries, and suggest that better outcome measures on the privatisation of water infrastructure development are needed. In particular, public health and is one such outcome measure of direct importance to the urban poor upon which efforts to privatise should be evaluated.
During recent visits to Can Tho, the Mekong Delta’s largest urban area, I had the opportunity to discuss water provision, sanitation and pollution issues with a number of urban ward residents and leaders. During these conversations I was able to piece together the outline of an interesting story of how one part of urbanizing Viet Nam is dealing with the pressing need for providing basic infrastructure to a growing population, some of the socio-cultural problems associated with the provision of this infrastructure, and the environmental changes that may be driving it. For this chapter I will limit the analysis only to those aspects of change related to the privatisation of water and sanitation.
In 2004, the Vietnamese National Assembly developed a strategy to turn Can Tho City into the fifth municipality in the country and invest in infrastructure that would turn it into a regional growth pole for the Mekong Delta. In effect, this strategy divorced the City of Can Tho from the Can Tho province and significantly increased its governmental autonomy. This decision had several important material outcomes. First, it meant that the national government would prioritise the construction of major infrastructure for Can Tho City that would link it more directly to external markets. Thus, for example, an international airport is to be constructed in Can Tho over the next several years, and the final section of a major highway linking Can Tho to Ho Chi Minh City, the country’s most dynamic economic center is to be completed in the coming year. More locally, the plans mean that every ward in Can Tho must have a market to facilitate local trading, and the City’s population is planned to grow from about 1.3 million in 2004 to about 3.0 million by 2010. This doubling of the size of the city in six years will bring major changes to the current residents of Can Tho. One such change is the way that residents secure clean water and sanitation.
There is currently no centralized water system serving the whole city, other than what seems to be a small neighborhood in the central part of the city served by adequate running water and good sanitation. Before 2000, most water for domestic use was, as is the common practice throughout the Mekong Delta, taken from the extensive rivers and canals, as well as from rain catchment off roofs. Some residents had wells they had dug themselves, but these wells usually only lasted a short period before they became polluted by groundwater contaminated with agricultural runoff and human waste. In 1989/90 UNICEF had co-financed a number of deeper wells dug 80 meters below the surface, but residents say that when the equipment broke down no one was able fix the wells and they fell into disuse. Thus, Can Tho faces a major challenge in the provision of adequate water and sanitation services if its population is to roughly double in size, and it makes a rapid shift from a rural water system to an urban one over the next 6 years.
The strategy that Can Tho seems to have adopted is based on a kind of localized privatisation scheme that fits neither into the current model of corporate participation in water services, state-run systems, nor local community control of water resources. Instead, it is based on a complex system of local entrepreneurs working together with an entrepreneurial state-owned enterprise above them and entrepreneurial households beneath them. This quasi-private model for water management is not obviously better or worse for local residents and in particular the poor, but the structure of the system argues for a better understanding and evaluation of the multiple local forms that privatisation might take in developing countries.
The structure of the new water system is based on the concept of maximizing cost recovery by the state and subcontracting the management of the water infrastructure, where possible, to the lowest level of private households. Phuoc Thoi ward provides a good example of how this system works. In Phuoc Thoi, there are 4 water stations built and owned by the Can Tho City Water Company, one of Viet Nam’s state-owned enterprises, but managed by the private household upon whose land the station is built. Households within 1,000 meters of each station have the right to use the water pumped from the station, if they pay a connection fee and buy a meter. The station managers, because they have put up the land as capital are allocated about three cubic meters of water per month free of charge and receive an in-kind payment equal to the value of one cubic meter for every three cubic meters used by those connected to this station.
The cost per cubic meter of water, including sanitation/disposal is equal to about VND2,600 ($0.17). A legal meter costs about VND340,000 ($20); and many of those eligible have connected to the system in this way. In a country where average annual incomes are below $1,000, however, this cost can be quite high for the poorer members of the ward, and many choose a different route. A semi-legal meter costs only VND22,000 ($1.50), and there are many cases where 3or 4 submeters are connected to the main, legal meter. Like the station manager, these households with submeter spokes assume a management role regarding their neighbors’ domestic water, collecting payments for their use and paying out to the station manager, who in turn pays out to the City Water Company. Residents and officials suggest that these households manage their family and friends’ water use through this system and sometimes provide credit when payments are burdensome for the poorer members on the spoke.
This informal debt emphasizes the economic transactions that characterize each of these subcontracted levels of service provision. Although both levels of managers seem not to profit informally from their role, the potential for price fixing, especially to those on semi-legal meters, is high. Currently, it is not clear to what degree these two levels of subcontractors to the City Water Company are subject to fixed prices or to serving all those within range of their connections to the larger system. Nevertheless, each has a potentially significant financial incentive to maximize connections into the system, and, it is hoped, they will thereby reduce the number of residents in this growing city dependent on river, rain and groundwater.
Currently, about 60% of those eligible use the system, and local officials hope to increase this percentage. In addition, Phuoc Thoi ward would like to have six more public wells built in 2005 and have identified six entrepreneurs willing to provide the land for and manage each of the stations. They expect, however, that they will only get a couple of the contracts, since at the beginning of the year each ward must submit proposals to the City Water Company and compete with other wards for allocation of the capital to build the stations.
This case of water infrastructure in Can Tho clearly shows that in a nominally socialist state, market principles have paradoxically, taken hold in the provision of public services. Since at least 2000, the Can Tho City Water Company, the primary provider of clean household water and sanitation, has developed a market-based, semi-privatized scheme to provide water to all the urban wards. Although somewhat successful in increasing coverage of the households within the urban wards, the changes have led to a three-tiered semi-privatized structure that uses local entrepreneurs to manage delivery, payment, and repairs, and opens multiple possibilities to increase coverage, while simultaneously opening up multiple opportunities for corruption and price-gouging in the absence of strict and enforced regulation by the City authorities.
As of yet, it is not clear whether such a system is better at providing access to clean water than a simple state-run system. Nevertheless, this illustrative story does indicate that coverage with good water supply and sanitation has increased over the past four years in Can Tho. Evaluating the system based on this coverage, however is insufficient for assessing whether the system works in some basic way. Given the opportunities for simultaneously increased coverage and price gouging described above, simply examining whether coverage increases, as is done for the UNs Millenium Development Goals initiative, seems inadequate. At first glance, this concern may be reflected in the statistic that only about 60% of those eligible in Phuoc Thoi are on the system, with those not on it possibly worrying that to connect means losing too much control over their water supply. Moreover, it is clear that the current system has overcapacity, some of which is due to 40% not connecting, but some also which may be due to under-use by those connected because of the price of the water and incentives for the managers to have high prices. These speculations should be investigated further in the future, but do suggest that simply measuring coverage and access to clean water and sanitation does not necessarily reflect actual use and overall benefits of clean water to local residents, especially for the poor.
This case suggests that privatisation is a multifaceted process that does not always conform to the stereotype of external corporate entities taking advantage of local residents, especially the poor. It questions whether or not privatisation, and the coverage and access measures most often associated with initiatives to privatise are the most appropriate. The case of Can Tho seems to be an example of privatisation that clearly increases the access of local poor residents to clean water, but not in the way promoted most conventionally by development agencies, and therefore may miss important outcomes.
In the following sections I argue that access should not be the ultimate goal of water services in poor countries. Of greater relevance are outcomes more directly related to human well being such as health. It is these measures that should drive our assessment of whether privatisation is a positive or a negative process for the poor. In the absence of such clear measures of direct relevance to the poor, the debate on privatisation will remain mired in positions driven by ideal types (corporate/private versus state/public) rather than an understanding of the complex degrees of private/public institutions, corporate/local ownership and entrepreneurship that characterizes this illustrative story.
II. A Common Institutional Context: Privatization and decentralization
To date, the global water agenda has been driven by international institutions promoting the privatization and market allocation of water, albeit with associated government regulation and enforcement. Despite this growing interest in treating clean water as a commodity subject to private competition in its provision and management (Nickson 1996, 1998), there is little evidence supporting the neo-liberal hypothesis that the private sector is more efficient at providing clean water access to citizens. Empirical studies show that public enterprises are no less efficient at providing water than private ones (Lobina and Hall 2000), and that private and public entities both fail to provide adequate services to the poor and those most in need of clean water (Budds and McGranahan 2003). Such findings suggest that privatisation does not serve to disenfranchise a previously empowered poor (Olmstead 2003), but that the debates about privatisation of the water supply may not be as important as other socio-political developments (O’Riordan 2003).
Such general guidelines as private versus public management, however useful as prescriptions for multilateral and national investment and management can often mask important regional differences and ad-hoc arrangements within countries. At the heart of this debate is not the public-private dichotomy, but an issue of scale, both geographic and organizational. As Bakker (2003) points out, private water providers range from small water vendors to multinational corporations, while state providers range from local water coops to municipal and national corporations. In her point of view, the complexity of the organization and the scale at which it operates are central sources of variation in the alternative ways water is provided.
In this context, the use of simple national indicators on clean water access is particularly problematic given the widespread efforts to decentralize administration and policy throughout the developing world, as is evident in Can Tho. If organizational and geographic scale are indeed central issues in the provision of clean water, then a better empirical understanding of how alternative institutional structures, beyond a public-private dichotomy, for the provision of water and sanitation perform not only at coverage for improved services, but also for the material effects coverage has on an outcome measure of greater meaning to the poor.
Privatization in Viet Nam has somewhat unique characteristics since they are implemented within a strongly socialist state. Since 1986 Viet Nam has followed a strategy of reducing state management of the economy while maintaining control over basic flows of information and politics. Termed Doi Moi, this strategy was developed with the intention of helping the country make a gradual transition to a market economy without the political turmoil and uncertainty associated with the free market. Land reform and the establishment of secure property rights were early steps in Doi Moi that have been associated with significant increases in agricultural and industrial production, as well as a boom in construction, services and other private-sector enterprises. A second shift enabled by Doi Moi was the opening up of State Owned Enterprises to competition and possible dissolution if they are not able to compete. This process has led to significant turmoil, corruption and management changes in much of Viet Nam’s industry (Gainsborough 1998). To date, water management has not been treated as a wholly private sector enterprise, and many Vietnamese water companies, while being opened up to market-based management regimes remain protected by the state in a way not done for industrial products and manufacturing (Fontenelle 2003). Evidence from Can Tho, however suggests that this protection may be weakening, creating new opportunities for corruption.
This protection stems from the historic perception, especially strong in socialist Viet Nam, that water is a public resource to be managed and allocated by the state. However, as with many developing countries, Viet Nam’s ability to provide clean water to its residents is currently limited. According to official statistics, in 2000 about 53% of people had access to clean water, and if the state expenditures remain consistent with previous years Viet Nam is on track to achieve 93% coverage by 2015 (United Nations, Viet Nam 2002).
Despite making major gains in growth over the past decade, Viet Nam remains a very poor country. According to World Bank indicators, Vietnam’s average per capita income was $480 (US) in 2003, on par with Mongolia, Uzbekistan, Sudan and Pakistan, and $10 below the average for sub-Saharan Africa (World Bank 2003), a characteristic often forgotten in the excitement of such an economically dynamic context.
Despite this continuing poverty, Viet Nam has experienced important positive economic trends. From 1993 to 1998 general poverty was reduced from 58% to 37%, and for extreme – i.e. food scarcity – poverty from 25% to 15%. Along with these improvements come serious concerns, however, that the well being of the poor is threatened by decreasing access to public services of all kinds (Arkadie and Mallon 2003: 232). This threat is especially relevant because Viet Nam’s gains over the 1990s came not only through improved incomes but also through broader-based improvements in the quality of life. Despite its low GDP figures, Viet Nam scored an impressive 109 out of 175 nations in the Human Development Index (UNDP 2001), a broader-based measure that includes a wide range of public services including health, education and clean water. Viet Nam’s relatively high scores on the Human Development Index are, in large part, due to impressive gains in public health and education for a country with such low incomes. Thus, any changes in the management of public services such as water will affect the aspects of Viet Nam’s improvements over the past decade for better or worse.
This question has larger relevance for Viet Nam and other poor countries in better understanding the importance of public services such as water, health care and education for improvements in quality of life. Many of Viet Nam’s development gains have come because of improvements in public services more than because of income increases. This fact suggests that changes in the way that such services are provided, for example, the creation of semi-private systems such as that in Can Tho, have disproportionate effect on the quality of life, since it is not clear that income improvements will provide local residents the opportunity to simply buy clean water individually. Because of such high stakes for the future of public services such as clean water and sanitation, precise and relevant outcome indicators for whether such privatisation measures as that described in Can Tho actually improve the quality of life for the urban poor is of central importance to policy makers making decisions about Viet Nam’s future.
III. Evaluating Privatization Initiatives by Looking at the Health of the Poor
The link between clean water and health status is well established (citations: see email), yet much of the scholarly and policy debate on the privatisation of water supply focuses on access to water (Millennium Development Goals; Budds and McGranahan 2003), leaving the larger impacts of this access on individuals and families largely unexamined. In many ways, water infrastructure and hygienic environmental conditions are mechanisms to improve family and personal assets – most importantly health and nutrition. In developed countries, better water infrastructure can be a mechanism for cost savings, but in very low-income countries, if the infrastructure is not available, then households will not necessarily be able to purchase it. Thus, for poor countries, improved health is the benefit of access to clean water. Where urbanization, industrialization, and globalization rates are high, these basic health assets for the poor are threatened because of the loss of traditional sources such as rain water, river water, or simple well water in the face of growing population densities and pollution.
Despite this underlying reason for clean water and sanitation, the discussion of health in debates on the institutional arrangements - most importantly the degree of private sector participation - for the provision of clean water and sanitation is noticeably absent, especially in the rapidly urbanizing areas of Africa and parts of Southeast Asia. Refocusing the debate on direct outcomes on human behavior that improve health and physical well-being in addition to basic access would be of direct relevance to the material well-being of the urban poor.
In particular, the state of water infrastructure and sanitation is relevant for child mortality, maternal and child health, gastrointestinal, and other water-borne (and water enabled?) diseases. This fact is often overlooked in the larger discussion of the privatisation of water infrastructure that can sometimes pit proponents of “community control” (e.g. IIED concept paper) against proponents of efficient financing (e.g.s). This debate rests on the fundamental question of whether access to clean water is a right rather than a commodity. Pursuing this framework, however, can become paralysing for policy makers since there seems to be few empirically valid generalizations about whether private sector participation means less access to water by the urban poor (Satterthwaite, McGranahan and Mitlin 2005; Budds and McGranahan 2003). Without conclusive and generalizable empirical evidence, policy makers are subject to pre-conceived ideological positions of community control versus efficient financing regarding private sector participation.
The underlying problem with focusing on access to clean water and sanitation, rather than health, is one of setting appropriate goals. Clean water, it is correctly argued, is a requirement for human survival. However, unlimited free water is generally not viewed as a social good because it can promote waste. Thus, efforts to secure access to clean water is hampered by fears of inefficiency, prompting initiatives to treat water as a commodity in order to provide basic coverage but not promote waste. In other words, water is treated as a rivalrous good – more for the one means less for the others. For some kinds of water systems such as individual wells and river water, this treatment makes sense. For others, such as neighborhood piping, it only partially makes sense. On the other hand, fears that such commodification will disadvantage the poor are justified. Health, however, is a distinctively non-rivalrous. The health of the one not only does not reduce health for others, but actually reduces health risk for the others.
Focusing on the relationship between privatisation of water infrastructure and public health, an outcome measure for which “more is better,” sidesteps this paralysing debate of water as a right versus water as commodity. More important than access, I therefore argue, is the actual use of clean water and sanitation infrastructure, and the impact this use has on the health and well being of poor individuals and families. If public health is the outcome measure, then the question for policy makers on whether to privatise water provision is which form of water provision provides the best public health outcomes rather than which costs least while providing minimum access.
One of the reasons why this link has not been made adequately is because of the difficulty in empirically establishing such correlations. These limitations, however, should not stop policy researchers from examining the larger impacts of the privatisation of health and other public services.
Empirically measuring the privatisation of public services, beyond case studies is difficult, in part, because in practice at the local level the distinction between public and private entities are fluid rather than discrete, as is suggested by the story presented earlier. While useful, case study analysis is limited in its ability to point out general patterns on effects of privatisation. Nevertheless, the scholarly literature has not yet complemented these case studies with general statistical analyses of the growth of the private sector, its impact on water and sanitation provision, and public health outcomes. Providing generalizable empirical data on privatisation and public health requires robust data sets with extensive and reliable variables. These requirements are challenging in the context of low-income countries, but not impossible to achieve.
Developing such empirical tools is necessary for evidence-based analysis and policy guidance, particularly on an issue torn by ideologically-driven decision making such as private sector participation in water provision and sanitation, especially for the urban poor.
 Cited from Lobina and Hall (2000).
 As cited in O’Riordan (2003).
 The UNDP uses a different system for estimating GDP in calculating its Human Development Index. The UNDP GDP per capita figure was $2,070 for 2001, a much higher figure than $480. In either case, though, the measure is comparable to low-income Central Asia and sub-Saharan Africa (GDP per capita of $1,831). I use the World Bank method for calculating the measure of average income relative to other countries, however, because it uses the Atlas method to adjust for short-term fluctuations in exchange rates that can distort annual measures of GDP figures.
Published: Wednesday, May 18, 2005
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