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Summer 2000
Water Water Everywhere and Ne a Drop to Drink
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Vol. 9, No.4 Summer 2000
"Water Water Everywhere and Ne a Drop to Drink"
The good news is that drought-stricken Israel enjoyed a surfeit of water this summer; the bad news is that all the water appeared in news headlines, and none on the ground.
In the course of one week in Israel, the following headlines appeared in Israeli newspapers: "Israel's Wealthy are Using Subsidized Water Meant for Farmers," "Irreversible Damage to Tel Aviv Ground? water," "Sea of Galilee's Red Line is Lowered by One Meter," and "The Institute for Advanced Strategic and Political Studies: Israel's Water Policy is a Disaster from which there is Almost No Return."
This last headline appeared in both the Israeli dailies Ha'aretz and Globes. Both papers gave full coverage to IASPS's warnings that past and current water policy have led to poisoned groundwater, economically nonviable agriculture, overuse of local water sources, and political corruption. Both papers listed and explained the market mechanisms proposed by IASPS to introduce freedom into the water sector, in order to attain an efficient use of the limited amount of available natural local water resources, as well as to enable the creation of new water resources.
IASPS Policy Analyst Steven Plaut, a senior lecturer in economics at Haifa University, is the author of IASPS Policy Studies No. 47, Water Policy in Israel. In this Policy Studies, Dr. Plaut makes sense of one of the most complicated and bureaucratically burdened of all sectors in Israel. The full study is available, in English and Hebrew, on the IASPS website.
The IASPS Quarterly asked Dr. Plaut to summarize for the Quarterly his approach and his findings, as published in Policy Studies No. 47; Click here for Dr. Plaut's report follows.
Water Policy in Israel
By Steven Plaut
(Graduate School of Business Administration, University of Haifa, and Policy Analyst, IASPS)
Imagine a situation in which a dry semi-arid country with frequent droughts decided to allocate its scarce water in the following way: The water would be free, with a price of zero, and a bureaucracy would then decide, in a "command and control" manner, who gets how much water for what purposes, and at what time. The actual allocation would reflect lobbying pressures on the bureaucracy. Because there would always be tremendous pressures and demand for more free water, more would always be allocated than actually available based on the natural hydrological limitations of the country.
The above description is only a slight exaggeration of how Israeli water policy actually works. Water is not literally free and priced at zero, but water prices are not very much higher. They are only a tiny fraction of what they should be based on economic rationale and the resource value of water. Water is priced based on what politicians, especially politicians serving farm interests, regard as "fair" prices. It cannot be emphasized strongly enough that there is no such thing in economics as a fair price of anything, and certainly not of water. A government bureaucracy controls who gets how much water, especially in agriculture, where the bulk of the country's water is used.
Underpriced and Overpumped
The underpricing of water leads to waste and overconsumption, including the overpumping of water from the country's aquifers and the Sea of Galilee. Such overpumping has already produced enormous ecological damages and threatens even worse destruction. Each Israeli-Arab accord to date has put additional pressure on the country's water resources, and any future agreements will no doubt intensify the hydrological problems.
Swimming in Farm Water
Water is not only underpriced in Israel, but subject to a ridiculous system of price discrimination. There are no two farmers who pay the same average water price. Water is priced in a complex non-linear "tier" structure, and different types of users are charged enormous price differences. Farmers pay the lowest prices, although - as revealed recently in the press - the country's richest "yuppies" also fill their swimming pools with ultra-subsidized "farm water."
Water in Israel is completely subordinated to bureaucratic control. Farmers cannot buy and sell water rights among themselves, nor can they sell them to non-farm users. This creates waste and misallocation, lowers farm productivity and reduces export earnings.
Finally, the supply of water is not only state controlled, but all discussion of supply supplementation, such as from desalinization and water imports, takes government control to be axiomatic. The main component of a solution should be through introducing some forms of market incentives and price mechanisms into the water system of Israel. IASPS has referred to this as the "commercialization of water," where pricing systems select the most productive and efficient potential users of water and "price out" the less efficient. The best way to do this would be to auction off water rights in an open, competitive manner. This should be accompanied by "privatization at the margin," or allowing the private sector to supply and allocate water in addition to Mekorot.
Water Auctions
Overconsumption of water, which by now is a well-recognized consequence of Israeli water policy, can only be eliminated by divorcing water-consumption decisions from public agencies that are dominated by farm interests. Once the total pumping capacity is set, all prices for the water pumped should be set through a market mechanism, preferably an auction.
It is true that Israel is not the only place on earth where water has been politicized and water allocation is wasteful and anti-productive. Israel is neither a wealthy nor a water-abundant country and cannot afford the luxury of waste and misallocation of water.
Also in this issue:
Turkey,
Turkey, Turkey
Robert
J. Loewenberg on the changing strategic environment.
Billions
and Billions and Billions and...
Alvin Rabushka on
American money and Israeli socialism
The
Class of 2001
Ten
new Koret Fellows are set to begin the Institute's program
Mastering
the Art of NBNs
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Institute's Internet-based approach to getting the facts out