Who Pays for Detroit’s Water?
Religion & Liberty Online

Who Pays for Detroit’s Water?

As I was poring over the morning news the other day, it seemed to me that every few days there is another water crisis somewhere; whether it’s California’s drought, or more recently the controversial decision in which the Detroit water companies shut off the water supply to over 15,000 customers. But are we really looking at water regulation, appropriation, and the morality of shutting water off in the correct light?

Let’s start with some of the basics: Water is essential for survival. Water needs to be purified. But, how is this done? In most cities water companies or public utilities offer the service of collecting the water, filtering the water, and pumping it to our homes. How should a service like this be supported in a market? It should be supported by rewarding the provider of that service with a profit, so that they have an incentive to efficiently use their resources, and make it available to the widest range of people possible. To not pay, would be stealing from the water companies.

When one looks at Detroit’s predicament, which is that too many residents are not paying for their water, the residents state that they cannot afford the water bills. However, studies found that about 75 percent of residents are able to pay for things such as cable television or cell phone usage, and only 50 percent are willing to pay for water. Does this deserve an appeal to the U.N. for human rights violation? Is this a grave moral predicament? This past weekend, Detroit News-columnist Nolan Finley mentioned in an opinion piece on the subject:

This is not a humanitarian crisis, as the Netroots entitlement nation proclaims. It’s a necessary forced reordering of priorities. Water, food, clothing, shelter were never bestowed on us because we exist. It costs money to purify water and deliver it to homes. That’s why early on people began forming communities to share the cost of meeting that common need, and others. Charitable minded citizens have never objected to helping care for neighbors who are unable to care for themselves. But they understandably don’t have much appetite for carrying on their backs those who choose to indulge their wants before their needs.

Finley points out that as a result of people not paying, there have been increases in the water bills in an attempt to cover the higher costs of providing water to the free riders.

There is no way that the people can realistically claim that the DWSD (Detroit Water and Sewerage Department) is being unfair. It is clear that there are payment assistance options, and other options. It seems that most people are able to pay their bill; however, others believe that water is an entitlement that they should not pay for. The water shut-offs are not permanent, they are suspending the shut-offs for about 2 weeks. This is simply an attempt of the DWSD to provide incentive for the violators to resume the payments of the overdue bills and keep their filtered water services viable.

However, Michigan statute requires that all water providers are to be not-for-profit entities. This represents a misallocation of the resources. By ruling out privatization the state rules out a means for a more efficient water system. Privatization is a system that will provide incentive for the company to eliminate rent-seeking (rather than relying on government grants and regulations), maximize efficiency (in order to be rewarded by profit), and promote stewardship (by being efficient with the resources).

The renowned economist Henry Hazlitt touches on this in an article on the subject of water pricing:

None of these problems would arise under a metering system, in which the individual or family user pays for each gallon he uses, and saves on each gallon he doesn’t use. Then each family has a clear and direct incentive to economize. And in a serious water shortage, a city could raise the price it charged per gallon.

This is what the Detroit water suppliers are beginning to try to do. They realize that they need to provide incentive for people to use the water in a reasonable non-wasteful way. As it is, the residents are facing large price increases as a result of the expensive free-rider problem.  Most electrical companies have done this as well. They charge by the amount of electricity that one uses, which tends to minimize wasteful applications.

In one of the Acton Institutes publications on this subject: Environmental Stewardship in the Judeo-Christian Tradition the subject of incentives is highlighted:

The fact that property rights are sometimes not well defined and enforced is at the heart of environmental despoilment. The lack of a full rights structure means decision makers do not have appropriate incentives and information. Therefore, it is not surprising that resource misuse occurs when property rights are incomplete. Of course, simply pointing out the lack of adequate property rights is not a solution to the environmental problem, but it provides some general guidance. (Pg. 102-103)

What this excerpt is pointing to is that it is virtuous to do things that preserve natural resources, and it is a step in the right direction for organizations similar to the DWSD to become more efficient. It is in the public interest to operate with profit as an economic indicator of efficiency, optimal allocation, as well as reducing rent-seeking activities.

Edward Trancik

Edward Trancik is an Intern at the Acton Institute and a student of Economics at Hillsdale College.