I could spend the next ten posts or so describing how poorly crafted legislative mandates have led to bad administrative outcomes, but I’ll provide just one here that is quite typical of many developing-world public agencies.
The city of Hyderabad, India, has been one of the fastest growing over the past two decades, and one of the centers of the country’s IT-based service industry. But like much of the rest of India, it has failed dramatically to promote infrastructure development at an adequate pace to keep up with private demand.
This failure to provide basic public services is one of the biggest points of contrast between democratic India and authoritarian China. The latter succeeded in increasing the rate of access to tap water for its urban population from 48 percent in 1990 to 96.1 percent by 2009. Singapore’s performance has been even better, not only providing its own population with clean water, but creating an internationally competitive water industry.
By contrast, the city of Hyderabad, capital of Andhra Pradesh, has been able to supply less than half the amount of rationed demand for water in recent years. This shortfall has meant that many residents of the city have access to water only a few hours of the day, and often from communal taps that have to be shared with many other people. This has led to the unsustainable pumping of ground water by residents rich enough to be able to dig private wells, and to companies importing water privately from other jurisdictions in order to ensure continuous supplies.
An earlier reform had consolidated the city’s utilities into a single Hyderabad Municipal Water Supply and Sewerage Board. But the resulting organization could not achieve even basic cost recovery, much less generate the kinds of revenues that would be necessary to fund a major expansion of capacity. The system’s infrastructure was old and inefficient. Some fifty percent of the water it distributed was lost, some to leaky pipes that had not been updated, but a larger amount in the form of illegally diverted water, stolen mostly by the poorer residents of the city.
The solution proposed by the World Bank and other international donors was the one popular during the 1990s, which was to privatize water supply and turn its management over to an outside operator like Suez or Vivendi that would have an incentive to recover costs and turn municipal water into a profitable business. This was not to happen, however, because of politics within the state of Andhra Pradesh. Privatization would have served the interests of the commercial users of water in Hyderabad like the city’s fast-growing IT companies. But the city’s million and a half slum dwellers were represented by politicians who argued that privatization would have raised rates on the poor, absent a credible scheme of cross-subsidization. Even cracking down on the illegal diversion of water met stiff political opposition, since many politicians argued that this was the only way that slum dwellers would have guaranteed access to clean water.
The problem Hyderabad couldn’t solve was thus a political one: it could not reconcile the interests of large commercial users, who wanted reliable supply and were willing to pay for it, with the interests of the poor, who were highly price sensitive and politically powerful. Clean water is not usually considered simply a private good for which individuals are expected to pay the full marginal costs of provision. Like electricity, sewerage, and telecoms it is considered a necessary condition of life and thus something akin to a fundamental right. The municipal water authority was under conflicting political mandates to do contradictory things: to expand supply for commercial users, do cost recovery, and yet provide highly subsidized water to the entire population.
Privatizing municipal water supply, achieving cost recovery, and yet maintaining universal access through cross-subsidies is not an insuperable task. Indeed, many Chinese cities (particularly in the south) have invited in private suppliers to manage their municipal water. But doing so requires substantial state capacity. The private supplier is often put in the position of being a monopoly provider of a critical public resource, and if it is not adequately regulated, will simply seek to extract monopoly rents. The Indian municipal authority did not have the credibility to convince stakeholders that it could handle this task adequately. In this respect they were very different from the EPM utility in Medellin described in the previous post.
Hyderabad’s problem is unfortunately an all-too-common one in developing countries. An even more glaring case is that of the Nigerian Electric Power Authority, whose frequent blackouts and brownouts led residents to say that its acronym NEPA stands for “No Electric Power Anytime.” You cannot solve any of these problems in public sector service delivery without solving the underlying political problem of how to distribute costs and benefits across a diverse political constituency.
[thanks to Selina Ho for background on the Chinese and Singaporean water systems]