While sipping on my coffee at a local doughnut shop, I overhead some fellows having a heated discussion about their water bills. They were saying that the City of Cleveland was going to double the water rates over the next 5 years. The City of Cleveland's Division of Water enjoys a monopoly on water distribution in Cleveland and most of the surrounding suburbs.
I later learned that the Public Utilities Commission of Ohio (PUCO) and City Council agreed to reduce the increase to 64% over the next 4 years, but this is still quite an increase. I guess all Ohioans should be proud that PUCO protects us from greedy utility companies.
As I listened on, I was surprised to hear one of the guys employ some basic economics to defend his position. He asked how there could be such a large rate increase when there is clearly no shortage of water. Cleveland lies on the south shore of Lake Erie and we have had record rainfall this year. The other man replied that the city workers were to blame as they are unionized and probably got a huge pay raise and expansive benefits package. He asked: How much should they be paid for digging a ditch and installing a water pipe? Of course, as long as the workers are unionized, we will never know the answer to that question.
The official explanation is that the City of Cleveland needs to upgrade the water system to modernize it and to add capacity. Nobody asked the Division of Water why they waited so long before improving the system. Certainly their engineers must have some idea as to the useful life of the pipes and other components that make up the water works. Instead, this issue is sprung on the public as a crisis that must be resolved immediately and the only solution is to take more money from their captive customers.
After listening to the men go on and on about how city government is corrupt and inefficient, I jumped into the conversation by asking a simple question: Why does city government have a monopoly on delivering water?
The men stared at me and then let out a loud laugh. One of the men said: Who would provide us with water? Then they both continued laughing as if this was the most ridiculous thing they had ever heard.
I replied that there are many possible solutions to this problem and none of them require the government to do anything. The obvious solution would be to install a water tank and pump in your home and then contract with a company to fill the tank. Perhaps the company would pay for the tank and pump provided you signed a long-term contract with them. Perhaps someone would invent an even better system for water delivery. With a free market we would get many varied solutions to the problem, with government, we only get one inefficient and costly solution.
Well the guys didn't buy it. It was like I was arguing that the sky was green. After all their talk about how government is corrupt and inefficient, they simply could not imagine a solution that did not involve government.
Well it turns out that my ideas were not crazy after all. According to the City of Cleveland's Division of Water, a man by the name of Benhu Johnson started a water delivery company in 1810. He would deliver 2 barrels of Lake Erie water to your home for 25 cents. They go on to say that others started water companies but none were able to handle the development of a water works for an entire city. Therefore, government had to step in and fix the problem. This is the classic "market failure" argument that is used to justify government action.
Now since government maintains a monopoly on water distribution, we will never see what alternatives the free market can deliver. However, we can compare it to another utility that is much less regulated: cellular telephone service.
I work for a cellular service provider as a network engineer and I have seen the cost of service decrease while the reliability and range of services offered has increased. Nowadays, cell phones are capable of much more than voice communications, they offer: text messaging, email, high-speed internet access, driving directions, enhanced 911 services, and much more.
Unlike the water department which waits until the system is falling apart before making needed upgrades, we constantly maintain and upgrade the network. Over the past few months we have been working hard to add capacity to our networks so that they are ready to handle the increased traffic that occurs over the holiday season.
When the blackout of 2003 hit Cleveland, most of the pumping stations went down and much of the city was without water for days on end. In contrast, our network facilities are backed up by generators and so we remained operational throughout the blackout with only a minor decrease in capacity.
Technology and innovation are what enables us to do more for less. Fiber-optic lines have replaced copper wires; digital technology has replaced analog technology. It used to take several racks full of high-power equipment to handle 100 phone calls. Today, a single rack of low-power equipment can serve several hundred phone calls.
What would a modern water system look like if we applied the same level of energy and innovation to it? Perhaps we would have separate water systems in our homes. High quality water could be used for drinking and cooking while cheaper, low quality water could be used for toilets and washing machines. I am only speculating. I am sure there are plenty of smart Civil Engineers who can offer creative solutions.
So despite what others say, there are always alternatives to government action. Unfortunately, Clevelanders will not be allowed to consider any other alternative when it comes to their water bills. Instead, they will be forced to cough up more money to support another inefficient bureaucracy.
August 3, 2006