Why would a city privatize its water supply?

No community could survive without an adequate and dependable source of water.  I don’t see why any community, or any individual person, with any sense of self-preservation would willingly give up control over something they need to live.

I first read about privatization of water systems as something that was imposed on poor Third World countries by lenders.  The World Bank, for example, has a privatization requirement when it lends money to build water systems.

But I learned from my e-mail pen pal Bill Harvey, who lives in Baltimore, that water privatization is big in the United States, and that Baltimore itself is considering turning over its water system to a company called Veolia.  This would be a terrible idea.

Veolia is the world’s largest private water company.  Its headquarters is in Paris, France, and it has long managed water systems in France.  Recently, however, French municipal governments, including Paris itself, have decided they can get better service at lower cost by managing their own water systems.  So Veolia, in order to maintain its revenues and profits, has to expand business elsewhere.

Its track record doesn’t seem good.  Water rates are higher lower on average in public systems than in systems run by Veolia and Suez, the other big international water company, and there are complaints about not enough being spent on maintenance.  Private operators don’t necessarily follow the local government’s priorities for development.   The private company’s incentives may not align with the municipality’s priorities.

There are inherent problems with a private company that don’t exist with a public system.  Funds don’t have to be drawn off for profit and dividends.  And big companies have systems for charging subsidiaries for services, so that a subsidiary could be operating theoretically at a loss while the parent company makes a big profit.  There is an economic incentive to do that because the local water company can simply raise its rates to cover its loss.

And even if Veolia’s record is better than these articles indicate, no local government, unless it was very, very desperate, should surrender control of vital assets and services to solve a cash-flow problem.