The 21st century's most explosive commodity will be . . . WATER

There's plenty of it to meet the world's needs but too much of our supply is in the wrong places says a report at thebusinessonline.com by Allister Heath 5 March 2006, copied here in full for future reference:

WHISKY is for drinking, water is for fighting over - or so Mark Twain once remarked. He was right. Water has played a central, albeit usually overlooked, role in conflicts throughout human history, far more so even than oil; and many of the wars of the 21st century will be fought over the clear, cool stuff.

During the past 50 years alone, there have been 507 conflicts pitting country against country, and 21 instances of actual hostilities, as a result of disagreements over water. All of which puts in perspective the row in the UK over last week's decision to allow water companies to impose metering to force water consumers to face the true costs of their water consumption - it even makes the looming drought and hosepipe bans in the South of England almost bearable in comparison.

Water historian Peter Gleick, director of worldwater.org and the author of a unique chronology of water wars, has discovered a huge history of conflicts and tensions over water resources, the use of water systems as weapons during war, and the targeting of water systems during conflicts. The earliest known example dates back to 3,000 BC. Well before the remarkably similar accounts of the Great Flood to be found in the Bible, ancient Sumerian legend tells the tale of the deity Ea, who punished humanity for its sins with a devastating six-day storm.

There have been hundreds more instances of water wars across the ages, involving just about everybody from Nebuchadnezzar to Louis XIV and famous military operations such as the Dam Busters during the second world war. In 1503, Leonardo da Vinci and Machievelli planned to divert the Arno River away from Pisa during hostilities between Pisa and Florence. Astonishingly, Arizona and California almost went to war in 1935 over the construction of the Parker Dam and diversions from the Colorado River.

In the late 1970s, Ethiopia's wish to build dams on the headwaters of the Blue Nile led to a furious reaction from Egypt. "The only matter that could take Egypt to war again is water," said Mohamed Anwar al-Sadat, the Egyptian president later assassinated. Boutros Boutros-Ghali, an Egyptian diplomat who became UN secretary-general, said in 1988: "The next war in our region will be over the waters of the Nile, not politics."

During the past 15 years, there have been armed conflicts over water in Bangladesh, Tadjikistan, Malaysia, Yugoslavia, Angloal, East Timor, Namibia, Bostwana, Zambia, Ecuador and Peru. Several terrorist groups have threatened to poison water systems and water distribution has been regularly targeted in Iraq.

The fundamental problem is that access rights to water are often badly defined. Unlike with other commodities, the institutions of modern capitalism property rights, private companies, free market prices - have rarely been applied to water, and especially not to water flows that cross different countries. The result is that countries all too often use non-commercial methods to arrange their water supplies - such as finders-keepers, war or diplomatic deals.

Individual water molecules cannot be owned or subjected to property rights. But rules and agreements about who can use water and in what way, or who can have access to or the right to divert rivers, lakes or underground reserves, need to be found. And the best rules for all goods and services, including the most precious of commodities, are the rules of the market. Water and river rights could easily be traded.

At the moment, however, rational ways of allocating water are sorely missing. "Few agreements have been reached about how the water should be shared; most of those agreements are seen as un-just: upstream countries believe they should control the flow of the rivers, taking what they like, if they can get away with it. Downstream, where the states are often more advanced and militarily stronger ,they have always challenged this assumption, like Egypt and Israel. It is a recipe for confrontation," according to Adel Darwish, co-author of Water Wars: Coming Conflicts in the Middle East with John Bulloch.

Countries such as Egypt, Hungary, Botswana, Cambodia and Syria all derive more than 75% of their water from rivers that flow though other countries first. In the same way that oil and gas pipelines that go through hostile countries can be siphoned off or blown up to cut supplies to rival countries, water flows can be diverted with devastating effect.

"Particularly tricky are cases where one river, or river system, provides water to many nations, some of which may be steadfast political or ideological opponents. But there can be conflicts even between countries with otherwise excellent relations if they have the same watercourse as their principal source of water supply. If one country starts emptying the river, less will be left over for the countries downstream," says Frederik Segerfeldt, senior adviser to the Confederation of Swedish Enterprise.

At last count, there were 263 river basins shared by two or more countries and these were home to roughly 40% of the global population, according to Unesco. In most cases, the institutions needed to regulate how water resources should be used are either weak or missing altogether.

One particular area of contention is the Jordan River basin, which is divided between Lebanon, Syria, Jordan, Palestine and Israel. Its supply of water is critical to Palestine, Israel and Jordan, and very important to Lebanon and Syria. The problem, each time, is who owns the water, how the water should be shared out between different countries and under what conditions.

Partly as a result, water has also played a critical but much under-reported role in the Israeli-Palestinian conflict and other wars in the region. The six-day war, which pitted Syria, Jordan and Egypt against Israel, had partly to do with a disagreement over water. One of the reasons why Israel has been reluctant to pull out of the Golan Heights and the West Bank is because it feared losing control of water flows and handing over control of them to hostile forces.

The absence of proper property rights in water also fuels tensions within countries, pitting town against town or region against region. There is a growing number of disagreements about who can or cannot use water from a particular source in the US. "From Montana to Michigan, from septic systems to centre-pivots, we wage war over water - its cleanliness, its availability, its highest use, its commodification, its spiritual essence. And as history proceeds from the settling of the prairies to the sprawling of suburbs, the struggles are becoming increasingly intense," says Douglas Clement of the Federal Reserve Bank of Minneapolis.

The answer, many economists believe, is to move towards a system of international tradeable water rights, recognised by the courts. Companies could buy and sell rights to water use, both within countries and internationally; all subsidised water for farmers and industry would be halted and all consumers would pay competitive prices, with the poor looked after. Water companies would be broken up and privatised; government-imposed barriers to competition would be lifted. Polluters would be faced with strict liability rules and would have to pay for cleaning up rivers, lakes or underground reserves.

The introduction of market forces would be especially positive for poor countries. Even in areas of the world without water wars, a horrendously large number of people are short of good quality, clean, drinking water and sanitation. The World Health Organisation (WHO) has estimated that more than 2bn people are affected by water shortages in more than 40 countries: 1.1bn do not have enough drinking water and 2.4bn have no provision for sanitation. This has led to disease, lack of food security and much conflict. An estimated 25,000 people are still dying every day from malnutrition and 6,000 people, mostly children under the age of five, are dying from water-related diseases, according to the UN. This is a tragedy in urgent need of attention from the world, especially rich countries. But despite repeated statements of intent from international bodies such as the UN, little has been done.

So why so many conflicts and so much misery? Taking a global perspective, the problem is not that there this is too little water; in fact water is extraordinarily plentiful, a perfectly renewable resource that can be used over and over again. Instead, the challenge is getting the water to the right places and the right people; the issue is one of the misallocation of a scarce resource and is thus economic and political in nature, not physical or scientific.

A physical water shortage is mainly confined to countries of the Arab world, a few countries or regions in south and south-east Asia and parts of Australia. But there is economic water scarcity in much of the developing world. "The problem is not the amount of water available but the inability to produce and distribute safe water," says Segerfeldt, author of Water for Sale, published by the Cato Institute in Washington.

About two-thirds of the earth's surface is made up of water; if one strips out sea water, which of course can quite easily be turned into drinking water with the help of desalination plants, one is still left with 2.3m litres per person.

There is also plenty of rain: each year, 113,000 cubic kilometres showers down on the earth. Much of it evaporates but we are left with 19,000 litres a day per person. The global economy consumes only about 1,300 litres per person a day, 6.8% of the daily rainfall. The United Nations does the sums differently and finds that we use about 8% of the available water every year - but of course, unlike oil, which can only be used once, this water can endlessly be recycled.

Moving control of water distribution and sanitation services in developing countries out of the public sector and into the hands of private companies and a competitive market is the only realistic way to ensure that more people have access to clean and safe water, many economists believe.

"Water crises need not occur if individuals are allowed to respond to scarcity through market processes," says the Political Economy Research Center, an environmental think-tank in Montana. Forecasts of imminent natural resource shortages are often wrong because they ignore the impact of market forces on supply and demand, say Terry Anderson and Pamela Snyder, economists at the centre.

Higher prices induce suppliers to find new sources of supply and users to conserve and search for substitutes - and it would be the same for water were it subject to market forces globally. If governments send the wrong signals to suppliers and users by subsidising water storage and delivery, exponential growth in consumption will inevitably run into environmental and fiscal constraints. But if progress towards greater reliance on markets continues, water supplies and efficiency will increase as users trade with one another, and consumption will be tamed by higher prices. But numerous charities and lobby groups disagree.

They fear that the poor will not be able to afford water in a free market and claim that because it is essential to human life it should be free. But food, which is also a crucial requirement, is not free, and those countries that have tried going down that road have suffered catastrophe. Worst of all, the public sector is already failing to supply poor people with water: 22 people around the world are dying every minute because they are unable to get enough clean water from state-owned distributors.

By contrast, the overwhelming evidence from those countries or cities that have experimented with privatisation is that it has been a great success. The cost of obtaining water actually falls when the poor are connected to a water network: in Laos, water from street salesmen costs 136 times more than water from the official network; in Indonesia, the difference is as much as 489 times.

Access to clean water has increased following privatisation in every poor country that has tried it properly. In Tunja, Colombia, access rose by 10% following privatisation; in Gabon the figure was almost 15%. Cartagena, Colombia, posted access increases of 26%, Conakry, Guinea, of 24% and in La Paz and El Alto, Bolivia, of 10%. In Chile, 99% of urban residents, as well as 94% of rural residents, are now supplied with water all day round, which contrasts favourably with pre-privatisation figures of 63% and 27% respectively. Corrientes, Argentina, and Cote d'Ivoire saw increases of almost 15%.

Mischa Balen, a former researcher for UK Energy Minister Malcolm Wicks, is the author of a pro-privatisation book to be published on World Water Day on 22 March by the Globalisation Institute. "Government provision in water has overseen millions of deaths through lack of sanitation and unsafe water. Bringing in private sector expertise and investment is needed, both to meet the UN's Millennium Development Goals, but to actively contribute towards social justice the world over. In the vast majority of cases, where the private sector has been called upon, it has delivered the goods - even in cases decried by critics as 'failures'," Balen argues.

While the UK water industry is no poster child for privatisation, it has nevertheless shown the potential of harnessing market forces. The 1990 privatisation of the industry was in fact limited and the market remains highly regulated. The industry is not free to set the prices it wants and competition is restricted. Anyone who lives in the UK will have plenty of anecdotes about the incompetence or poor service of their local water company.

But the industry has successfully invested about £50bn since privatisation and water prices have gone up by less than inflation. Leaks, which still remain high, are down 30% and will fall further over the next four years. Instead of being able to concentrate on the leaks, the industry was forced by European Union directives to improve water purity first, to levels that some analysts believe were unnecessarily high.

The move to allow companies to impose metering on their customers and hence to enable them to charge for water usages, rather than merely a flat fee, is expected to cut water consumption by 5% to 15% – and for many households in the South of England, bills have fallen after meters were introduced. But meters alone are not enough. "The issue is not a lack of water meters per se, but a lack of true market prices for water. We should treat water the same as any other good or service traded in our economy. When water becomes more scarce, a rising price acts as a signal to both consumers and companies that they need to modify their behaviour," says Kendra Okonski, of the International Policy Network.

As economist Terry Anderson once put it, when water is cheaper than dirt, it will be treated that way - and that is the great problem with water in the world today. Unless it is priced rationally and managed by markets, countries will continue to go to war over it and the poor continue to die from a lack of it.