2 Water privatization and political participation in Bolivia The privatization of public utilities was a key feature of economic reform programmes in the

Box 7.2 Water privatization and political participation in Bolivia The privatization of public utilities was a key feature of economic reform programmes in the

1990s. The expectation was that private sector companies would be more efficient in running these services than governments or local authorities. The privatization of such serv- ices has taken many forms, such as the outright sale of utilities, including the underlying infrastructure or, alternatively, franchise contracts that allow the company to run services throughout the infrastructure for a period of years, usually under a regulatory framework. The expectation was that the privatized service would be run more efficiently because of the introduction of market incentives into their provision: private investors would have incen- tives to invest in the infrastructure and provide good services in order to make profits.

In Bolivia, attempts to reform water resource management had been going on since the 1970s, culminating, in 1999, in Law 2029. This created concessions in which private enterprise could take over water supplies in major towns and cities, with the principle caveat that they be run on a financially self-sustaining basis. In the third largest city of

INSTITUTIONS, MARKETS AND ECONOMIC DEVELOPMENT

Cochabamba, the municipal water service was not performing well. It served only 57 per cent of the urban population, with permanent rationing caused by high levels of leakage. As a result of this, many people had resorted to sinking their own wells or building their own water tanks. The unserved population was dependent on wells and private vendors, and often ended up paying more. The concession was put up for bids, but only one international company, Aguas del Tunari (AdT), submitted a tender. The contract included increased prices but these were socially progressive, charging high-income households more than low-income ones, and the scheme planned for the gradual extension of services to areas that remained hitherto unserved.

When the company began to operate the concession in November 1999, protests and riots broke out and, by April 2000, the concession was withdrawn. The causes were multi- ple. First, there was general unrest regarding the neoliberal reforms being implemented nationally and the negative impact these were having on growth and employment and, more specifically, the concern that such privatization epitomized a preference for foreign capital (with its imperialist implications). Second, although price increases and progressive tariffs had been agreed, when they were implemented, some households experienced very high increases (because their consumption had been rationed earlier by leaks). Third, farm- ers in the surrounding area operated their own mechanisms of water management, and they feared their rights were threatened even though these had been recognized in the agreement. Moreover, the apparently now exclusive control of water resources by AdT also threatened the richer consumers, who had developed their own resources through wells and tanks. Likewise, it threatened the situation of poorer consumers, who were dependent on water vendors and other sources, and these were expected to disappear as the network was expanded to cover their areas. Fourth, local political interests were at stake.While local politicians had been involved in the contract negotiations and had agreed to the price rises, they opposed them once they were implemented. The municipal elections in December 1999 brought tensions between central and local government. Moreover, local pressure groups and professional associations had not been involved in the negotiations and perceived it to be against the public interest. Fifth, the regulator had not carried out a public awareness campaign on the terms of the concession in advance. It also lacked regulatory capacity and could not operate at arm’s length from local politics.

Utility privatization presents a good example of how markets are constructed since the abrupt shift from public to private enterprise operations demonstrates the array of factors that underlie the construction of any market. This case shows that norms about what is acceptable matter: for example, the role of foreign investment was not acceptable, nor was the fact that their private water resources (wells and tanks) could be owned by

a company. Politics, both at local and national levels, is therefore critical to the way interests are pursued. While the protests in Bolivia have been claimed as an example of people power by some, the coalitions of interests mobilized were not clearly representing the interests of the poorest water users, who may have benefited from improved provision of services and lower prices. It also points out the need for inclusive debate and deliberation prior to the implementation of such major reforms, and for information to be well-publicized and easily available.

Adapted from Assies (2003) and Nickson and Vargas (2002).

TOPICS

Questions

7.1 Take one specific capability and examine the institutions, both formal

and informal, which are promoting or constraining it. Identify a particular group of people who have difficulty achieving this capability and identify the specific ways in which these formal and informal institutions are involved in producing this outcome.

7.2 To what extent is access to markets crucial for people to achieve a

certain level of human flourishing? Illustrate with examples.

7.3 Think of a market with which you are familiar. Identify the formal rules

and regulations that affect this market. Try to identify the informal institutions which support the operation of this market. Examine whether women and men engage differently with it and, if so, why? What formal and informal institutions create or affect these differences?

7.4 Consider a change in institutional environment in a particular context

you are familiar with – this could be a reform of rules around markets (e.g. privatization) or around other resources (such as land or water). Consider how the change came about and the politics surrounding it. How did political interests affect the way the reform was eventually worked out? Who gained and who lost out from this change in rules?

Notes

1 This paragraph has been written by Shankaran Nambiar. 2 This may seem obvious but it is possible to think of traded goods which may not have such straightforward exchanges, such as land or trees. Land is a particularly complicated case. In many countries, the emergence of a land market is hugely constrained by the fact that many people may have claims over it or its products. 3 Sen (1993) has demonstrated that such efficiency results can be obtained when well-being is conceived in the space of individual freedoms and not utility.