This week, among other things, my ECONS102 class covered public goods. Public goods are goods that are non-rival (where one person using the good doesn’t reduce the amount of the good that is available for everyone else) and non-excludable (where the good is available to everyone if it is available to anyone). Just because a good or service is provided by the government, or you think it should be provided by the government, that doesn't make that good or service a public good. To be a public good, it must be both non-rival and non-excludable.
Which brings me to this article from the New Zealand Herald from earlier this year, about water services in Gisborne:
An overwhelming 90% of Gisborne submitters are in favour of keeping the region’s water services in council hands, with ring-fenced funding and targeted rates...
Previous Mayor Meng Foon was among those who submitted, writing in his submission, “water is a public good” and it should stay in public hands to prevent exploitation.
In general, water is not a public good (as I have noted before, here and here). However, the context here is a little different from the context in those posts, because the 'water' that is being referred to in the article is actually three different water services that are often bundled together and provided by local councils: (1) water supply; (2) wastewater; and (3) stormwater. That is the 'three waters' that had many people losing their minds under the previous Labour government.
Now, as much as Meng Foon may wish it to be so, the three waters are not all public goods. To see why, let's consider each of them in turn.
First, water supply is not a public good. It is a rival good, because one household (or other user) using water from the municipal water supply leaves less water for everyone else. Water supply is also an excludable good, because the consumption of water can be separated into the consumption by Household A, the consumption by Household B, the consumption by Household C, and so on. That means that it is feasible to exclude any of those households from access to the water supply. The council simply turns off the tap that runs to their house. So, water supply is a good that is both rival and excludable. By definition, that makes water supply a private good, not a public good.
Second, and in contrast to water supply, wastewater is probably a public good. Unless the wastewater system is at capacity, it will be a non-rival good, since one household flushing a toilet won't stop other households from doing so (if the wastewater system is at capacity though, then wastewater might be a rival good). Wastewater is also a non-excludable good because, unlike water supply, there is no tap to turn off to exclude a household from the wastewater system (as far as I am aware). If the wastewater system is available to anyone, it is available to everyone. So, unless the wastewater system is at capacity, [*] wastewater is non-rival and non-excludable. Wastewater is a public good.
Third, stormwater is almost certainly a public good. It is non-rival, since one household benefiting from the stormwater system doesn't prevent other households from benefiting from it as well. And it is non-excludable, because if it is available to anyone, it is available to everyone. Stormwater is non-rival and non-excludable. Stormwater is a public good.
I guess that makes Foon two-thirds correct, if we can agree that wastewater and stormwater are public goods. Water supply is clearly a private good though.
Now, even though water supply is a private good, rather than a public good, that by itself doesn't mean that it shouldn't be provided by the government. The government provides many goods and services that don't meet the definition of a public good, including healthcare and education.
The question of whether a good or service should be provided by the government is necessarily normative, and your preferred answer likely depends on your ideological position. However, as noted in my ECONS102 class, there are a number of principles that apply when deciding whether a particular good or service should be provided by the government or by the private sector. One of those principles is that the government can almost always raise large amounts of money more cheaply than the private sector. That's because governments are low-risk borrowers, so tend to pay lower interest rates than private sector borrowers. This is likely to be somewhat less true of local government than it is of central government, but nevertheless the point is valid. Foon clearly understands this point:
At the hearings, Foon spoke on his submission, supporting the council’s recommended option to retain water services under council control...
“Even though it’s a CCO, your private organisation cannot borrow money as cheaply as the council.”
This is quite relevant, because water services are very costly to establish and so the initial establishment of the infrastructure for water services is likely to be funded by borrowing. To minimise the cost of that borrowing, you want to borrow at the lowest possible interest rate, and governments can better achieve that than the private sector.
However, this particular argument in Gisborne might actually be missing the point somewhat. The argument discussed in the article was about whether to have a council-controlled organisation (CCO) run water services in Gisborne, like Watercare Services does in Auckland. A CCO is not a privatisation at all, since the CCO is fully owned and controlled by the local government. It may make operational decisions at arms-length from the local government, but that doesn't make it wholly a private sector entity. And even if water services are provided by local government, whether directly or through a CCO, that doesn't make all water services public goods.
*****
[*] If wastewater is rival and non-excludable, that makes wastewater a common resource.
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