Madeline Baer February, 2006 The Policy Design of Water Privatization in Bolivia

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Madeline Baer

February, 2006

The Policy Design of Water Privatization in Bolivia

Decisions made at the supranational level by international financial institutions (IFIs) have a tremendous impact on local policies in developing countries. Economic reforms pushed by IFIs like the World Bank and the International Monetary Fund (IMF) have met with varying degrees of resistance, particularly in Latin America where many social movement groups and NGOs protest the social and economic consequences of these reforms. Globalization processes are changing the role of the state in the everyday lives of citizens, and transnational corporations are playing an increasing role in determining “who-gets-what in the world system” (Strange 1996: 54). While IFIs and multinational corporations (MNCs) are pushing the state out of the economy and lessening its role, many Latin American social movements are simultaneously pulling the state back into local communities and demanding a strong government role in the provision of services. These social movements often resist public policies that lessen the role of the state in the daily lives of citizens.

Public policies have far-reaching and long-lasting impact beyond the specific outcomes that arise from their implementation. In addition to allocating resources, policies can reproduce and reify existing social constructions of groups, institutions, and knowledge (Schneider and Ingram 1997). In this way, public policies have the potential to strengthen democracy and galvanize active citizenship, or they can negatively impact opportunities for democratic participation. As a response to unpopular policies, social movements can emerge to protest and effect change in public policy. When citizens challenge policies, they often focus on the negative social and economic outcomes of the policy. Social movements also frequently challenge the democratic deficits that exist within the institutions involved in making and implementing unpopular policies. Water privatization is a policy area where claims have surfaced regarding negative social and economic effects as well as undemocratic decision-making processes. The privatization of water emerged as a controversial policy area in Bolivia after massive protests forced the retreat of a multinational water conglomerate from the city of Cochabamba. This paper examines water privatization policy in Cochabamba, Bolivia, the site of the first large-scale rejection of water privatization in Latin America.

In this paper I analyze water privatization policy in Bolivia using Schneider and Ingram’s policy design for democracy approach (1997), which asserts that policy designs have a direct impact on opportunities for democracy and citizenship. Through analysis of the policy design, I find that water privatization policy in Bolivia had negative consequences for democracy and active citizen participation. Despite this negative impact on democratic citizen participation, a social movement emerged in Cochabamba that confronted and overturned the unpopular policy. The paper begins with a brief overview of global water issues, privatization, and the circumstances leading to the reversal of the water contract in Cochabamba. I then analyze the content and design of water privatization policy in Cochabamba, focusing on the policy goals, policy implementation, and the social constructions of knowledge that were embedded in the policy. This analysis also explores the World Bank’s role in pushing privatization in Bolivia, and raises concerns about accountability and the democratic deficit within the World Bank.

The Global Water Crisis, Privatization, and the Bolivian Water War

The struggle for access to potable water is at the nexus of the larger battle between states, MNCs, IFIs, and organized groups of citizens in Latin America. The common terrain for these actors is the emerging water crisis, a result of the rapidly dwindling supply of available clean water for human consumption. Less than three percent of the world’s water supply is fresh water, and less than one percent is accessible for human consumption. Over 1 billion people lack safe drinking water, and 3 billion people lack basic sanitation. Transnational water companies see a financial opportunity in this crisis, as limited supply and growing demand motivate the scramble to control the world’s water systems. Environmentalists see an ecological crisis of grave proportions, which calls for an immediate transformation of the way water is extracted and used. On the community and individual level, many Latin American citizens have experienced limited access to clean water under both state owned and privately owned water systems.

The United Nations Commission on Sustainable Development describes water as “irreplaceable for the purposes of drinking, hygiene, food production, fisheries, industry, hydropower generation, navigation, recreation and many other activities. Water is equally critical for the healthy functioning of nature, upon which human society is built” (UNCSD 1997 cited in Finger and Allouche 2002: 32). Safe drinking water and sanitation are directly linked to human health and environmental health; 80% of disease in poor countries is spread through unsafe water, and an estimated 90% of Third World wastewater flows untreated into local rivers and streams (Barlow and Clarke 2002: 52). Global water shortages are emerging as a result of overpopulation, overuse, pipe leakage, and waste. The poor suffer disproportionately from water shortages and lack of reliable access to safe water and sanitation services. Women bear the brunt of water scarcity and lack of water rights, as women play a central role in the provision and management of water in poor countries (Bennett et al. 2005). As the World Bank notes, addressing the global water crisis is essential for reducing poverty in the developing world (World Bank 2004a).

The World Bank is the most influential actor in the international water sector, both in terms of policy-making and financial aid for water-related projects (Bauer 2004, Finger and Allouche 2002, Moore and Sklar 1998). The water sector represents 15% of the Bank’s cumulative lending (World Bank 1993). Although Bank-financed water projects have experienced successes over the years, many water supply and sewerage projects financed by the World Bank have a poor track record in terms of efficiency, improved service, and improved access to the poor.1

The World Bank’s approach to water policy drastically shifted in the early 1990s from a model that promoted state involvement in infrastructure development, to a model that portrays the state as an impediment to progress, development and the public interest (Finger and Allouche 2002). While the Bank had previously viewed infrastructure services as public goods warranting state provision, it began to advocate treating these services as private goods. This shift coincided with the rise of the “Washington Consensus” as the dominant paradigm for economic development, which advocated privatization of public utilities. The World Bank’s 1993 Water Resources Management Document elaborated this shift in policy goals to reflect the newly accepted free market approach. It also incorporated concerns from environmental groups and various NGOs that were pushing the Bank to adopt more environmentally sustainable policies and to be more responsive to local community input. The new approach to managing water resources included treating water as an economic good, decentralizing management and delivery structures, a greater reliance on pricing, fuller participation by stakeholders, and a more comprehensive policy framework that considers social, economic, and environmental aspects of water management (World Bank 1993).

Proponents of water privatization argue that treating water like any other commodity is the only way to improve efficiency and address community water needs. Privatization supporters cite numerous studies that show how privatization has benefited the poor and improved service in some developing countries.2 Those who oppose the commodification of water challenge the notion that transnational corporations have the right to own and profit from entire water systems that include the delivery mechanisms for water, the underground aquifers, and water resources that are naturally replenished through the hydrological cycle. As the debate over water privatization grows, two competing visions of water emerge: one that favors defining water as an economic good that should be commodified and traded on the open market; and one that defines water as a public trust, a part of the global commons, and a basic human right that must not be privatized (Barlow and Clarke 2002).


Beginning in the early 1990s, privatization of water was viewed as the miracle solution to water crises throughout Latin America. Public sector failure and the need for substantial investment coincided with a growing number of transnational corporations that were seeking to enter the water markets (Finger and Allouche 2002). Ten corporations or consortiums currently dominate the global water industry, the two largest of which are Vivendi Universal and Suez (Barlow and Clarke 2002:106). These two corporations alone control over 70% of the current water markets of the world. Smaller consortiums such as RWE-Thames and Bechtel-United Utilities also provide water to millions of people worldwide, and are increasingly challenging Vivendi and Suez’s dominance in the water sector (Barlow and Clarke 2003). As many governments in the developing world abandon their traditional roles in the provision of services like water and sanitation through the privatization of public utilities, these corporations have come to own and operate many Third World water systems.

The implementation of privatization of services in Latin America is attributed to a mixture of state inefficiency, changing norms about the role of the state in the economy, and acceptance of the market as an appropriate venue for providing services to citizens. Advocates for privatization of public services argue that by selling state-owned enterprises to the private sector, developing countries eliminate problems of corruption and inefficiency that bog down state-run enterprises. Developing countries are increasingly under pressure to privatize public utilities such as telecommunications, electricity, and water in order to receive loans from IFIs such as the World Bank and the IMF. This policy is challenged throughout the hemisphere by many labor unions, NGOs, and local community organizations with the support of transnational advocacy groups. These sectors claim that privatization negatively impacts access, quality, and accountability regarding social services.

Privatization of public services is a core policy of the neoliberal development model, also referred to as the Washington Consensus. In the 1980s, the Bretton Woods institutions shifted their ideological orientation away from their original Keynesian roots in favor of the Washington Consensus, a consensus between the IMF, the World Bank and the US Treasury about how developing countries should operate economically (Stiglitz 2002). The Washington Consensus emphasized fiscal austerity, privatization, market liberalization, reducing the role of the state, and opening economies to market and foreign investment.3 This set of policies is rooted in neoliberal economic ideology. Neoliberal, or ‘free market,’ policies were widely implemented in Latin America beginning in the 1970s. The effects of these policies are highly controversial due to the mixed record of successes and failures.

Neoliberalism is an economic doctrine founded on orthodox neo-classical economics with an added emphasis on free markets (Bauer 2004). The neoliberal approach argues that free markets increase efficiency through pricing, while state regulations and subsidies distort this process and therefore reduce efficiency. The state is generally portrayed as inefficient and corrupt in running public services; thus many policies of the Bretton Woods institutions aim to reduce the role of the state and turn public enterprises over to private interests who can more efficiently operate them. The IMF and World Bank have aggressively pushed neoliberal policies at the macroeconomic level, within developing countries, and within specific sectors of domestic life, such as the water resources and sanitation sector (Bauer 2004).

Bolivia began implementing neoliberalism in 1985 with a set of reforms called the “New Economic Policy.” The New Economic Policy was a group of structural adjustment reforms that completely restructured the economic and social fabric of the country. It included reduction of the public sector, and end to state subsidies, wage freezes, and a general retrenchment of state agencies responsible for social welfare issues such as health and education (Gill 2000). Although the World Bank and the IMF have consistently pressured Bolivia to adopt neoliberal reforms, initial acceptance of neoliberalism in Bolivia came from political leaders within the country. By 1985 Bolivia faced a growing national economic crisis. This crisis was the culmination of years of fiscal mismanagement by military regimes, which resulted in massive foreign debt, inflation, and a stagnated tin industry (formerly Bolivia’s primary source of foreign exchange). There was a need for massive economic reform, and members of the government who chose to pursue the neoliberal route found strong allies in the IMF and the World Bank (Gill 2000).

Under pressure from the World Bank and the IMF, the Bolivian government began widespread privatization of state-owned industries including the national airline, railroads, tin mines, telecommunications industry, and the electric company (Shultz 2003b, Olivera 2004). The World Bank began aggressively pushing for privatization of Cochabamba’s public water system in 1996, and the Bolivian government finally negotiated a contract for the sale of the system in 1999. The contract for Cochabamba’s water system was the first water privatization to be subsequently reversed in the face of massive social protest in Latin America. Although the World Bank touted the policy as the solution to the city’s water problems, the privatization of water delivery services in Cochabamba quickly became a political quagmire for the Bolivian government, and a symbol of resistance to neoliberal reforms.

Cochabamba’s Water War

The Bolivian “water war” of April 2000 was the culmination of years of domestic unrest over water issues in Cochabamba (Assies 2003). Prior to privatization, Cochabamba suffered chronic water shortages and many of the poorest neighborhoods were not connected to the municipal water network. Under this arrangement, state subsidies to the water utility mainly supported middle-class neighborhoods and industries located in the urban center (Finnegan 2002). Communities that were not connected to the urban network had to seek alternative sources of water. Many of these marginalized communities pooled their resources with international aid to create independent freshwater well cooperatives, which provided clean and inexpensive water to members of the cooperative. These cooperatives served a relatively small number of people, while the majority of Cochabambans endured inadequate water quality and access.

Under pressure from the World Bank to accept the conditions of a debt relief package (Shultz 2005a), the Bolivian government sold the Cochabamba water system in 1999 to the only bidder, Aguas de Tunari, a subsidiary of the US corporation, Bechtel.4 The 40-year contract gave Aguas de Tunari exclusive control over the municipal system, including all industrial, agricultural and residential systems, as well as the water in the natural aquifer. The deal also allowed the company to install meters on all water sources, including cooperative wells (Finnegan 2002).

These acts were legal under Law 2029 (the Drinking Water and Sanitation Law), which was approved by the Bolivian government in October 1999 in preparation for the privatization. Law 2029 was passed quickly with little public knowledge, deliberation or public support (Olivera 2004, Slattery 2003). The new law created the legal framework for private ownership of water sources, and it authorized private responsibility for delivery of water to citizens (Slattery 2003). The law outlawed traditional water practices, such as cooperative water systems and individual homeowners’ wells, and banned collection tanks used by many peasants to collect rainwater. It ended government subsidies for water consumers, and authorized price increases that would allow the price of water to reflect the “true economic cost of the service” as determined by the contracted owner (Slattery 2003).

The impact of the privatization was immediately and widely felt. The new water company installed meters on the cooperative wells that were built with donated funds and the personal funds of the community. The communities were charged for water drawn from the wells and for the installation of the meters (Finnegan 2002). Some urban families experienced a 200-300% increase in water rates (Schultz 2003a), and lower-income workers faced water bills that exceeded a quarter of their monthly income5 (Finnegan 2002). Farmers, engineers and environmentalists were outraged over the lack of consultation by the government with local experts in negotiating the contract (Finnegan 2002). Middle-class families and business owners objected to the rate hikes and to the lack of improvement in water quality under the new water company. In response, a coalition of neighborhood associations, labor unions, workers, farmers, and other sectors of society formed the Coalition for the Defense of Water and Life, or “La Coordinadora.”6

Although La Coordinadora was officially formed in December 1999, some members of La Coordinadora were working on water management issues in Cochabamba for years prior to the privatization of the municipal system. The Cochabamba Department Federation of Irrigators’ Organizations (FEDECOR) had been organizing and protesting around issues of resource ownership in the rural areas surrounding Cochabamba since the mid-1990s, focusing mainly on providing alternative proposals for water management to the government’s proposed general water law (Assies 2003). The Society of Bolivian Engineers (SIB) has also challenged government proposals for water management in the area since the late 1990s. These groups protested the exclusionary and non-transparent negotiation of the contract between the government and Aguas de Tunari. The government rejected their requests for inclusion in the negotiation of the contract and design of the policy despite their interest and expertise in water resource management in Cochabamba.

When the contract with Aguas de Tunari was signed in late 1999, FEDECOR and the Cochabamba College of Engineers predicted that the new contract would mean a drastically reduced quantity of potable water for consumers and agriculturalists, as well as massive rate hikes that would disproportionately hurt the poor. When the policy was put into effect in January 2000, the predictions made by FEDECOR and SIB were realized; Aguas de Tunari instituted massive rate hikes and carried out seizures of private and communitarian water systems. As the implementation of the policy progressed, trade unionists, community organizations, and consumers joined in opposition to the policy. Although the protests that took place in the early months of 2000 were mainly over rate hikes and the seizure of private water sources, the leadership and organized roots of La Coordinadora consistently exposed the policy negotiation process between the government and Aguas de Tunari as undemocratic and non-transparent. Thus, the protests in Cochabamba reflected a mixture of normative complaints about the negotiation process made by organized communities and organizations such as FEDECOR and SIB, as well as utilitarian concerns about cost and ownership made by consumers.

In the early months of 2000, La Coordinadora organized demonstrations and highway blockades that paralyzed most of the country. La Coordinadora demanded that the government review the rate increases enacted by Aguas de Tunari and renegotiate the contract with the company. Unsatisfied with the government’s response to the rate hikes, they eventually called for the government to modify Law 2029 and to cancel the contract with Aguas de Tunari. The protesters framed the issue as a fight between poor people and a greedy multinational corporation over the basic human right to water (Finnegan 2002).

In April 2000, over 100,000 citizens from Cochabamba and the surrounding areas participated in a general strike and multiple highway blockades across the nation, which led the government to declare martial law. Conflicts between protesters and police left dozens wounded, and one person dead. When it became clear that the protesters were too numerous and too angry to back down, Aguas de Tunari executives fled Cochabamba. Shortly after, the government revoked the contract with Aguas de Tunari. In a victory for La Coordinadora, Cochabamba’s water system was returned to the public utility with a new board of directors that included Coordinadora representatives. A new national water law was written giving legal recognition to usos y costumbres (traditional communal practices), including protection of independent water systems, public consultations on rates, and a commitment to prioritizing social needs (Finnegan 2002). But with a sinking aquifer, crumbling infrastructure, and little chance of new international investment, the public system is desperately in need of capital. Bechtel attempted to sue the Bolivian government for over $25 million in lost profits in the World Bank’s International Center for Settlement of Investment Disputes, but was forced to drop its suit due to international pressure.7

The Cochabamba water war became a symbol of resistance to water privatization and of rejection of neoliberal policies that reduced the role of the state in domestic economies. Opponents of water privatization objected not only to the rate hikes, but also to the lack of democratic decision-making processes and consultation associated with the privatization (Olivera 2004, Assies 2003). Public statements by La Coordinadora decried the “simulation of democracy which only renders us obedient and impotent…” (La Coordinadora 1999). The conflict over water privatization in Cochabamba was the first of a number of “consumer rebellions” in Bolivia against the sale of natural resources to private corporations (Shultz 2005b). Organized consumers reversed the privatization of water in the Bolivian city of El Alto in 2005, and ongoing conflicts over attempts to privatize the nation’s natural gas reserves have crippled the country and created political instability since 2003. The failure of water privatization in Cochabamba is an example of how public policy is more than the sum of its economic outcomes; it also has wider implications for democracy and citizenship.

The Policy Design of Water Privatization in Bolivia

Schneider and Ingram provide a framework for analyzing policy designs and the dynamic relationship between policies and their contexts. “Policy design” refers to the instrumental and symbolic content of the public policy, such as the architecture, discourses, and practices that comprise the policy. Policy designs are created through a dynamic process that involves the social construction of knowledge and of target population identities. Policy designs have consequences for democracy and active citizenship; policy designs can enable and support active citizen participation and democracy, and they can also contribute to the reproduction of degenerative policies that undermine and stifle democratic participation (Schneider and Ingram 1997). Degenerative policies discourage active citizenship by excluding citizen participation, devaluing local knowledge and input, and are often handed down from above with little transparency and accountability. Conversely, policies can enable citizen participation by strengthening communicative processes through fostering communication among different levels of government and public and private actors (Schneider and Ingram 1997).

Schneider and Ingram situate their study within the “crisis of democracy and citizenship” in the US, which is characterized by public disrespect for government and low citizen participation, and is exacerbated by degenerative policies (1997: 3). Rather than providing institutions and symbols that ensure that pluralist democracy can function, policies often discourage active citizenship, leaving citizens disconnected from government and policy initiatives. Schneider and Ingram argue that policies are “lessons in democracy,” as they can create public spaces and encourage discursive dialogue between citizens, or they can separate and marginalize citizens (1997: 79).

Schneider and Ingram use a critical theory approach to analyzing public policies, focusing on how public policies can disempower citizens and contribute to societal inequality. This approach emphasizes the implications of policy for social justice, power relations, and social constructions of identities. Schneider and Ingram’s framework for policy analysis draws on a theory of democracy “that is variously called discursive, deliberative, communicative, or participatory” (1997: 53). John Dryzek’s work on participatory democracy informs the policy design framework (1990, 1996). Dryzek describes participatory democracy as including politics that are “increasingly discursive, educational, oriented to truly public interests, and needful of active citizenship (Dryzek 1990:13).

To determine whether a policy has a positive or negative impact on democracy and citizen participation, Schneider and Ingram recommend evaluating policies based on their effect on four “values of democracy:” citizenship, justice, problem-solving, and democratic institutions (1997: 82). Citizens are described as the critical linkage to accountability in political institutions. Therefore, citizens must be attentive to the effects of public policy and use the political process to make their sentiments known. Some policy designs will encourage active citizenship by providing forums for participation and will create the expectation that citizens will play an active role in policy making. These types of policies are more likely to enjoy citizen support, and thus will achieve voluntary compliance, while those that are exclusive will likely encounter resistance from the public.

In addition to promoting active citizenship, public policies must also serve justice in order to have a positive impact on the values of democracy; meaning, policies must promote equal treatment under the law and equal opportunity. In a society where public policies nurture justice, policies must ensure that “material goods are distributed in ways that meet a reasonable standard of fairness, such as equality, equity, need, or merit, depending on the values of the society and the context within which the distribution occurs (Schneider and Ingram 1997: 80). Schneider and Ingram evaluate public policies by how well they solve collective problems in an efficient, equitable, and non-wasteful manner. Policies must also contribute to the creation and maintenance of democratic political institutions that are open, provide for control of elected officials by citizens, and ensure multiple avenues of access to citizens. These institutional cultures should also incorporate discursive and ethical patters of communication.

Policies must be assessed in terms of whether they encourage or discourage these four categories of democratic values. Policies that contribute to a stronger democracy incorporate designs that ensure public involvement, avoid overly complex and technical designs that empower narrow interests, encourage and strengthen communicative ethics and rationality, cultivate a sense of community through the creation of civic organizations, build the capacity of citizens to participate, and avoid deception to garner support for the policy. Schneider and Ingram’s policy design framework provides a mechanism for assessing how the elements of the design structure impact these values of democracy.

Policy designs emerge from specific issue contexts, which are the socially constructed understandings that emerge from the broader societal context. These social constructions are then embedded in the design itself. By socially constructing an issue, a set of beliefs is accepted as “true” or “real” and the policy reflects and reproduces this particular construction of reality. Unpacking a policy’s design involves looking at this issue context as well as the core empirical elements of the policy. These core policy elements include observable elements, such as the goals or problems to be solved, agents, target populations, rules, tools, rationales and assumptions that make up the policy (Schneider and Ingram 1997). In the case of water privatization in Bolivia, an examination of the policy goals, policy implementation, and social constructions embedded in the policy reveals a discrepancy between stated and hidden goals, an implementation structure that limited opportunities for democratic participation, and a policy rationale that reproduced socially constructed knowledge about water and about the appropriate method of delivering water to citizens.

Policy Goals

The goals of public policies correspond to the problems to be solved by the policy, or what is to be achieved or changed through the policy (Schneider and Ingram 1997: 82). Policy goals reflect conscious choices that are made about what the policy is intended to achieve, and they result in “benefits to some and burdens to others” (Schneider and Ingram 1997: 83). This allocation of benefits is linked to concerns about equity, justice, and democracy. Goals can be normative, political, and technical in nature, and they reflect the societal context in which they are formed. Goals can also reflect a politically motivated rationale; these goals are often hidden, and can be revealed in examination of the implementation and outcomes of the policy.

The overall goal of the World Bank’s water policies is to reduce global poverty through sustainable development. The World Bank’s public goals regarding water management are linked to the stark reality of massive inadequate access to clean water in the developing world. Public World Bank documents cite the millions of people, the majority of whom are extremely poor, that lack access to safe water and decent sanitation. The World Bank’s goal is to facilitate the provision of effective, fair delivery of water and sanitation services in developing countries. The World Bank is committed to helping achieve the Millennium Development Goal of halving by 2015 the proportion of people without sustainable access to safe drinking water and basic sanitation (World Bank 2004b). The World Bank asserts that, “improving service efficiency is…an overarching goal for the reform of water and sanitation services” (World Bank 2005). Improving efficiency requires “investment coupled with reform” (World Bank 2002b). The proposed reform involves “creating the conditions for more accountable, efficient, equitable and effective service providers” (World Bank 2002b). Reforming the public sector is described as insufficient for improving efficiency in the water sector. Allowing private sector control under contract with the public sector is preferred to achieve higher efficiency. This requires a transparent financial planning process to identify “the right sources of finance” to support the long-term goals (World Bank 2005). The World Bank had specific goals for water privatization in the three Bolivian cities of Cochabamba, La Paz/El Alto, and Santa Cruz de la Sierra. These goals were to “provide service for all in the most efficient manner,” and to “lay the foundation for sustainability” (World Bank 2002a).

The World Bank favors water policies that “put people at the center of decision making” and “at the center of sustainable water supply and sanitation” (World Bank 2002b). These policy goals emphasize that communities ought to be in control of their own water systems and they must be empowered to make decisions regarding water services. The World Bank encourages borrowing countries to implement reforms to allow this kind of community empowerment and control. The Bank is committed to facilitating participation of affected people and NGOs in water resource management, with an emphasis on the poor and indigenous peoples of borrowing countries (World Bank 1993). The rhetoric the World Bank uses to describe its policy goals is imbued with respect for local communities and local knowledge, support for empowerment of citizens, and an overarching humanitarian mission to improve the lives of the poor.

Despite a public commitment to serving the poor and involving local communities in decision-making regarding water policy, there is evidence that the World Bank acted contrary to these goals in its involvement with Bolivia. The World Bank emphasizes that water policy must prioritize the needs of the poor. Yet prior to the negotiations for the privatization contract in Cochabamba, World Bank officials specifically informed the Bolivian government that “no public subsidies should be given to ameliorate the increase in water tariffs in Cochabamba” (World Bank 1999). The rates increases that would occur after the privatization were predicted to leave many residents unable to afford the new price for water, given that over 70% of the population lives below the poverty line. This rejection of subsidies contradicts many internal World Bank analyses regarding privatization. Some analysts within the Bank point to the necessity of these safeguards during the initial stages of privatization to protect the poor (Klein 2003, World Bank 1993, and see Slattery 2003 for a non-World Bank, pro-privatization analysis of the importance of subsidies). Certain services require a minimum level of consumption for survival, such as water and heating, and thus may require ‘lifeline’ exemptions for some users who are too poor to afford market prices (World Bank 1993, Finger and Allouche 2002). The World Bank specifically advised the Bolivian government against this method of protecting the poor during the time when the Bank was playing a significant role in the design of the privatization policy in Bolivia.

The World Bank’s goal of ensuring local control over water management was also contradicted by the World Bank’s policy recommendations and demands on the Bolivian government. The concession to Aguas de Tunari essentially outlawed the local small-scale water systems, such as community wells and cooperative water systems that had been built with international aid and community funds. This concession contract, prepared “with the Bank’s assistance” (World Bank 2002a: 2), gave sole ownership of all water delivery and sanitation services to the private contractor. This included the water in the underground aquifer, which residents drew from in their private wells. It also effectively privatized rainfall, as residents were no longer permitted to capture rain for their own consumption without paying the new water company. These methods of water supply that were primarily used by the poor were now owned by Aguas de Tunari. In practice, the policy did not meet the World Bank’s goals of maintaining local control over water management and encouraging active citizenship.

Contrary to its stated goals of engaging in open and participatory processes with local communities to decide on appropriate reforms, the World Bank pressured the Bolivian government to adopt the policy by making privatization a condition for loans and debt relief. In February 1996, Bank officials informed the mayor of Cochabamba that a pending $14 million loan to improve water service was conditioned on privatization of the city’s system (“Banco Mundial Es Claro…” 1996: 10). Bank officials also pressured Bolivia’s president to privatize the system in June 1997 by making $600 million in badly needed international debt relief contingent on the privatization of Cochabamba’s water system (“Organismos multilaterales presionan al Gobierno…” 1997:5). Community representatives were not allowed to participate in the process of deciding whether to privatize water in Cochabamba. There was not an open and participatory process where local residents were invited to deliberate and decide on appropriate reforms to the water sector (Shultz 2005b, Olivera 2004). This dismissal of local input counters the World Bank’s stated goals of community involvement and respect for local knowledge in decision-making about water policy.8 Contrary to claims by member of La Coordinadora, one Bolivian analyst asserts that consultation did take place, in the sense that local elected officials and representatives from the municipal water system (SEMAPA) were involved in the process of negotiation of the contract (Laserna, “Cochabamba: La Guerra Contra el Agua”). However, most accounts of the process cite a total dismissal of local input from those affected by the policy (See Olivera 2004, Shultz 2003b and 2005b, Public Citizen 2003), and many argue that those who were consulted did not represent the needs of the public (Assies 2003).

Critics of World Bank water policies claim that in addition to contradicting its own public goals regarding water management, the Bank operates under another set of goals that remain hidden behind the humanitarian rhetoric. Critics claim that the World Bank pushes privatization not because it is more efficient or better for the poor, but because the Bank favors widespread private ownership of the potentially profitable water industry for a few large multinational companies. Water sources and delivery systems are viewed as a profitable investment opportunity for multinational corporations (Barlow and Clarke 2002). According to the head of the European Bank for Reconstruction and Development, “water is the last infrastructure frontier for private investors” (cited in Finnegan 2002). Critics charge that the World Bank works together with large multinational water companies to push private sector involvement, which benefits these private companies who seek to control the world’s water systems in the face of looming global water shortages (Barlow and Clarke 2002, Shultz 2005a).

Critics also claim that the Bank’s unwavering support for privatization of water in the developing world is rooted more in ideological support for the neoliberal model of development than in concerns about effective water management. The World Bank’s shift to water privatization policies in the 1990s mirrored the global trend toward rolling back the government’s role in the economies of developing countries. Although the state had previously played a prominent role in World Bank-funded infrastructure projects, the World Bank began portraying the state as an impediment to progress. By re-framing the government as inefficient in providing these services, the goals of privatization policy became linked with de-legitimizing public control of utilities and loosening national control over domestic economies. This perspective describes the World Bank’s goals as a reflection of the dominant ideological framework of the time; a framework that is pushed by western developed nations, such as the United States, that maintain significant influence within the World Bank.

Although the World Bank’s public goals regarding water management call for policies that support democratic participation by local communities and active citizen roles in decision-making and resource management, there is a discrepancy between these goals and the resulting policy ‘on the ground’ in Bolivia since 1996. Charges of hidden goals that support the financial interests of private MNCs and the ideological policy perspectives of western developed countries call into question the Bank’s role as an international organization primarily concerned with poverty alleviation and responsible resource management. Imposing policies without consultation, removing local control over natural resources, and discouraging financial support for the poor in adjusting to privatization effectively removes local people from decision-making regarding the policy, and prevents them from participating in the implementation of the policy.


In Schneider and Ingram’s policy design framework, implementation is defined as the “value added” to design by the agents who carry out the policy (Schneider and Ingram 1997: 89). Although the World Bank prescribed the policy, the Bolivian government and Aguas de Tunari were the main agents responsible for implementing the policy. Implementation of the policy began with the negotiation process to decide on the nature of the privatization agreement, and included the actual implementation of the contract in Cochabamba. The implementation of the policy and the corresponding messages sent to the public showed a disregard for democracy and citizen participation, as local input and needs were systematically disregarded.

By most accounts, the negotiation process regarding the privatization of Cochabamba’s water system was closed and undemocratic, with no citizen role in negotiation or bargaining. During the government negotiations with Aguas de Tunari, citizens attempted to express their concerns over the negotiation process. Local engineers and environmentalists wanted to participate, as did local farmers who feared their irrigation systems would be threatened. The President of FEDECOR, Omar Fernandez, expressed concerns that the contract with Aguas de Tunari would result in a rise in the price of irrigation water that would drive between 15,000 and 20,000 farmers into bankruptcy. The Ministry of Foreign Trade and Investment and the World Bank later set the prices at the level predicted by Fernandez (Assies 2003). Despite the expertise of groups like FEDECOR and the wealth of local knowledge about the needs of local farmers and consumers in Cochabamba, input from these sectors of the community was not incorporated into the negotiation or policy planning processes. For many citizens, joining La Coordinadora was a response to the lack of democratic process in the policy negotiation.

This lack of citizen participation continued as Aguas de Tunari implemented the policy. The executives from Aguas de Tunari working in Cochabamba were foreign engineers with little understanding of local sentiments regarding privatization (Finnegan 2002). They were committed to implementing the plans for expanding the city’s water system, and they clearly stated that those who could not pay the new price for water would be cut off from service. The message sent during the implementation of the policy was that public input and consultation were unnecessary and unimportant. Government and World Bank experts who understood the complexity of the market and the water technology were portrayed as the appropriate actors to determine solutions to water problems, while local expert opinions were disregarded.

During the implementation of the policy, consumers joined La Coordinadora mainly in response to the rise in water prices and the seizure of private water sources. La Coordinadora also included organized citizens with normative claims about the exclusionary and undemocratic nature of the implementation process. While the government gave rhetorical support to open dialogue, it dealt exclusively with legally accredited organizations, which many citizens felt were co-opted by the municipal government and did not represent their interests (Assies 2003). Therefore, La Coordinadora was a challenge to the “instituted system of legally accredited representation, which failed to channel the concerns and interests of large sectors of the population” regarding the controversial privatization policy (Assies 2003:32). In response to exclusion from all aspects of the policy negotiation and implementation by Aguas de Tunari and the Bolivian government, La Coordinadora began to pursue its agenda outside of the official policy and legal system. La Coordinadora only achieved a place at the negotiating table after sustaining months of protest in the streets. When the government finally conceded to the demands of La Coordinadora, they agreed to create structures for ongoing inclusion of local community groups in future planning around water management. Members of La Coordinadora assert that inclusion of local knowledge and expertise in the policy planning and implementation process would have prevented the Cochabamban water war, and would have resulted in a more equitable and sustainable water policy for the region.
While the Bolivian government refused to consider the needs and opinions of local organizations and citizens during the initial negotiation and implementation of the policy, the World Bank also disregarded the importance of communication with the public about the policy. This disregard is evident in the World Bank’s analysis of the failure of water privatization in Cochabamba. According to World Bank documents, the contract negotiated with Aguas de Tunari included a costly project that would bring water to Cochabamba from the Misicuni reservoir. This project would be partly financed through price hikes, and would eventually allow for improvements in service. Aguas de Tunari agreed to invest US$85 million in infrastructure, and had a goal to provide 24-hour service by the second year of the contract (World Bank 2002a). Since this contract was made behind closed doors with no public input and no information to the consumers, when the initial price hikes were implemented, citizens of Cochabamba believed they were simply being charged higher prices for the same sub-par service.

One World Bank report attributes the failure of water privatization in Cochabamba to the public’s misunderstanding of the intentions and plans of the company (World Bank 2002a). The report does not mention the lack of information available to the citizens about the contract, nor does it recommend using education about future privatizations to consumers as a possible remedy to the breakdown in communication during the implementation. The failure of the policy is blamed on public ignorance regarding the merits of private investment, and on local politicians who impeded the privatization process. The report refers to resistance by the mayor of Cochabamba to the price hikes as “political interference” by a local politician (World Bank 2002a: 2), not as a legitimate response to a policy that was unpopular, secretive, and potentially life threatening to the citizens of Cochabamba. The World Bank report concludes that the main lesson to be drawn from the failure in Cochabamba is that consumers do not like to pay higher rates for the same sub-par water service they experienced under the public system (World Bank 2002a). This analysis reveals the problematic nature of policy implementation that shuts out citizen participation and ignores the rights of citizens to information about policy designs.

The implementation of the policy relied on socially constructed notions about its target population (the water users in Cochabamba). The policy constructed the citizens of Cochabamba as consumers, not citizens who might take action about a policy that affected their daily lives. It also characterized them as likely to waste water. Promoters of privatization claim that when consumers do not pay high prices for water, they will waste it. In Cochabamba, where water is piped for two hours every other day into homes with no washing machines, dishwashers, lawn sprinklers or other water-intensive luxuries, this is a problematic claim to sustain empirically (Shultz 2005a). As a number of private water companies have discovered, many water users in Bolivia are more likely to conserve water than to waste it. Following privatization of water in the Bolivian city of El Alto, profits from domestic water use fell short of the company’s expectations. This was partly due to the large numbers of rural people who had moved to the city and were already accustomed to conserving water (Forero 2005). Rate hikes also forced many residents to cut back on water use. The company was considering incorporating a public relations campaign to promote water use in El Alto to counteract the drop in consumption that resulted from the rise in tariffs and the cultural practice of conserving water (World Bank 2002a).9 In this situation, citizens are constructed as ignorant consumers who do not understand the true value of water and who must be manipulated by pricing and public relations campaigns to use the “appropriate” amount of water in their homes. As seen in the implementation of the policy, the social construction of target populations carries implications for citizen participation.

Social Construction of Knowledge

Water privatization in Cochabamba is an example of how policy design both reflects and creates socially constructed notions of actors and issues. Socially constructed knowledge is embedded within the design of the policy. The creation of knowledge involves fact construction that is subject to biases, ideology, and politics. Water privatization policy involves socially constructed notions about water, government involvement in utilities, and the role of professional and expert communities in determining appropriate policy.

The way water is viewed influences approaches to water-related policy. Water has evolved from being viewed as a common good to being seen as a commodity that is managed according to economic principles (Finger and Allouche 2002).10 Water policy that treats water as a commodity assumes the market price for water is an inherently fair price that reflects the true value of water. This commodification of water is seen in World Bank privatization policies which advocate a “full-cost recovery” pricing system, requiring that consumers pay a price for water that reflects the cost of the water, the cost of infrastructure development, and the necessary profit for corporate investors. This conception of water is drawn from professional knowledge regarding economic efficiency as the most important concern for water management.

Some analysts question whether an approach to water policy that treats water solely as an economic good is compatible with long-term goals of responsible water management (Bauer 2004). Carl Bauer’s in-depth research of Chilean water markets11 raises questions about using conventional economic approaches to water. Bauer advocates a more qualitative and interdisciplinary approach to the “economics of water” which “emphasizes the institutional, legal, social, political, and aspects of economic analysis” that are often ignored in conventional economic approaches to water policy (Bauer 2004: 3). Bauer asserts that conventional economic approaches, including neoliberal economics, are often limited to quantitative, technical methods. These approaches are rooted in orthodox neoclassical economics that do not incorporate historical or interdisciplinary analyses such as institutional economics, political economy or ecological economics. The result is a “narrow” conception of water, which ignores the legal and institutional arrangements that are necessary for successful, efficient, and equitable water resource management (Bauer 2004:11). 12

From this perspective, privatization is a simplistic solution to a complex problem that is not solely economic in nature. The growing scarcity of water worldwide and the problems associated with inadequate access to water and sanitation in poor countries are political problems that purely economic solutions are inadequate to address (Finger and Allouche 2002). The rationale that privatization alone is the most economically efficient manner to handle water and sanitation services ignores the non-monetary costs of privatization, such as the costs to the welfare of the citizens, the loss of national sovereignty to multinational corporations and IFIs, and the damage done to democratic principles of accountability and transparency. Efficiency may not be the primary concern of water consumers, for whom issues of water quality, access, and affordability are likely to be more relevant. Further, the value of water is not fully captured in scientific or economic studies alone, as values and ideas about quality of life standards vary. Water is not merely a product that is consumed; it is an essential element in public health, economic development, industry, and agriculture. Water has also historically been imbued with religious and cultural meaning that cannot be quantified (See Shiva 2002).

The debate at the second World Water Forum in The Hague in 200013 over whether to define water as a human “right” or a human “need” reveals how important common understandings are for water policy. Defining water as a “human right” implies obligations on the part of states and the international community to ensure that it is available to everyone. Defining water as a “human need,” as it was ultimately defined at the Forum, justifies private control over the resource (Barlow and Clarke 2002). The decision to define water as a human need was decried by water activists and NGOs that support adopting an international definition of water as a social good, a human right, and a part of the global commons that is uniquely suited for public and local control.14 In Bolivia, La Coordinadora promotes an alternative vision for local water management that views water as “a social good [and] a sensitive social issue” (De La Fuenta 2003). La Coordinadora favors local public control of the water system that is independent of federal government and private foreign companies (La Coordinadora 2005).

An important aspect of the rationale for privatization is the assertion that private companies, not governments, should carry out water delivery and sanitation services. In the rationale for privatization, governments are often portrayed as inefficient and inappropriate for managing this kind of service, while the private sector is described as efficient and therefore better suited for the task. According to the World Bank, providing water is a daunting task for poor nations; it its expensive, and corruption and bureaucracy frequently plague public utilities. In the case of Cochabamba, the city’s public water system was not effective in delivering water to residents and was straining to meet demands for service expansion. Therefore, Cochabamba was particularly vulnerable to a conception of publicly owned utilities as inefficient.

Citizens and organized movements that resist water privatization often hope to bring the government back into service provision.15 Many citizens involved in anti-privatization movements question whether private ownership is the solution to government inefficiency, particularly in countries where years of fiscal austerity measures have cut funding for social services like water and sanitation. There is also growing distrust of private foreign control over natural resources and services that are essential to life, as private control is viewed as less accountable and less open to citizen participation than publicly owned utilities. For those who view water as a fundamentally public resource, removing government from provision of water services is problematic, despite concerns over government inefficiency.

Professionals and expert communities, such as the World Bank and multinational water companies, play a role in the social construction of water and of private ownership of utilities. The institutional culture of these communities and their agreed-upon notions about the appropriate way to manage water directly affect policy designs. Policy-making is seen to be more objective when experts play a large role in the creation and implementation of the policy, and when utilitarian rationality is the dominant value that guides policy (Schneider and Ingram 1997). Scientific and professional policy designs can be viewed as an antidote to the dangerous power dynamics and negative social constructions that typically characterize degenerative politics (Schneider and Ingram 1997). Through the use of the scientific method to determine the facts of any given policy situation, the power of social constructions is supposedly diminished, and solutions to social problems are discovered in an objective way. This process creates an illusion of neutrality and implies a transcendence of the pitfalls and inequalities commonly associated with policy-making. From this perspective, scientists, professionals, and academics emerge as the appropriate experts to be consulted in policy-making, while local citizen input and knowledge is often viewed as unnecessary.

Scientific and professional policy design is not value-neutral, and it does not necessarily escape the pitfalls of degenerative politics. Scientific and professional expertise often relies on a particular type of knowledge that is limited to utility and rationality considerations. This approach to policy typically does not consider values and cultural factors that cannot be measured empirically (Schneider and Ingram 1997). Scientifically designed policies can serve interests that run counter to the public interest, and they can reinforce unequal and unjust relationships.

Policies are inherently normative in nature, in that they are constructed according to a set of normative understandings (Fischer 2000). Therefore, claims of expertise based on technical knowledge alone do not always mesh with the “real world” of public policy (Fischer 2000:43). Just as science is not immune to social and political forces, neither are economic determinations of what constitutes good policy. Water privatization is accepted as sound policy largely based on expert analysis that considers market-rate pricing and private ownership to be superior to public control (World Bank 2005, Peet 2003). Policies based purely on a market rationale can overlook or ignore issues of equity, and they can de-legitimize local knowledge and alternative policy elements.

The World Bank’s water privatization policy in Bolivia provides an example of the implications of accepting scientific and professional constructions of knowledge, and of the ascendance of expert communities in public policy decision-making. The tension between professional expertise and democratic governance is exacerbated when “policy communities” gain influence over issues that affect the public (Fischer 2000, Schneider and Ingram 1997). Policy communities form when experts come to agreement on the problems, solutions and desired outcomes of policy situations. Within these communities, outside knowledge is often considered to be irrelevant. Policy communities have reputations for being knowledgeable, prestigious, and best suited to formulate policy that deals with complex social problems. By essentially placing themselves between politicians and the public, policy communities can allow politicians to avoid blame or responsibility for policy outcomes. The policy community can insulate itself from scrutiny by emphasizing the technical aspects of policy that the general public does not understand.

The World Bank is a policy community that contains a coherent set of solutions to the pressing problems of developing countries. International organizations like the World Bank have become sources of authority in the international system, drawing power from the legitimacy of the “rational-legal authority” they embody and the control they have over technical expertise and information (Barnett and Finnemore 1999: 707). Bureaucracies like the World Bank appear to be de-politicized because they present themselves as impersonal, technocratic, and neutral. They derive authority from this image, and modern society views this type of rational-legal authority as legitimate (Barnett and Finnemore 1999). The World Bank also derives power from its ability to coerce governments into adopting their policy recommendations, as seen in Bolivia. Encouraging the empowerment of experts and professionals in policy-making can denigrate the role of the ordinary citizen in the policy process, as there is less need to educate and involve ordinary citizens when decision making and advising are perceived as primarily the role of epistemic communities.

Although social constructions of knowledge are powerful and can become entrenched, they are also dynamic and frequently contested. The response to water privatization in Cochabamba is an example of how different ideas about water, private control of services, and the role of experts can emerge and challenge the dominant understanding of these issues. The reversal of privatization in Cochabamba represented a major shift in policy. Large-scale policy change can occur when beliefs and values (the policy image) interact with the political institutions (the venue for policy action)(Baumgartner and Jones 1991). Policy shifts occur when many people change their views on an issue, thus changing the policy image. By reframing the image of an issue, groups can move the issue to a venue that is more favorable to their particular image of the issue (Mintrom 1999). In the case of Cochabamba, the community challenged the image of water as a commodity that should be subject to market prices. Instead they framed water as a basic human right that ought to be subject to local community control. This reframing of the issue, combined with the massive pressure on the government by protesters, led to the canceling of the private contract.

Policies based on scientific and professional perspectives send messages to citizens about the unimportance of civic participation and local knowledge. These messages are one component of the overall policy design that includes goals, implementation structures, and socially constructed notions of target populations and knowledge. The social movement that emerged in Cochabamba effectively challenged the policy itself, the social constructions the policy reproduced, and the role of the World Bank in Bolivia.

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