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Food & Water Watch Takes a Hard Look at Market Self-Regulation

RP Siegel | Friday April 13th, 2012 | 1 Comment

Concerned about a recent trend in which financial interests have turned their attention to the profitability of trading in common resources such as air quality, water and fisheries, in what they are calling, “the financialization of nature,” Food & Water Watch (F&WW)  just introduced a new Common Resources program that scrutinizes these schemes with an eye towards protecting these common interests.

One would think that would be the role of government agencies, and in earlier times it was. But these are strange times we live in

In the announcement, Wenonah Hauter, Executive Director of Food & Water Watch said, “Unfortunately, the most powerful financial interests have determined that trading money, risk and related financial products outperforms the profitability of manufacturing products or even trading goods and services. And in this age of increased competition for natural resources, these interests have their eye on placing natural resources, like clean water and clean air, at the mercy of the market.”

So rather than creating products (and jobs), these “smart money” people have figured out that more profit can be extracted by privatizing and then trading these  resources rather than doing anything productive with them, not to mention conserving or protecting them.

Unfortunately, that is the way much of our nation’s wealth is generated today, and it is mostly kept captive in the hands of a few traders. The US financial sector’s share of total corporate profits and GDP doubled in the period from the 1980’s until today. It now accounts for 41% of all corporate profits. So, what does this mean? Picture a group of really tall basketball players, playing keep-away with a group of small children. They laugh and joke as they toss the ball back and forth over the outstretched arms of the frustrated little ones. Remind you of anything?

Take Citibank’s chief economist Willem Buiter, whose prediction that water will become the most important physical commodity-based asset class in 25 to 30 years draws cheers from the other tall men in the room. Buiter predicts that spot markets for water will be created and combined and that other derivative water-based financial instruments will then be exchange-traded. Better start buying now.

What will this do to the water that we the children reaching for the ball depend on to drink and for farmers to grow food with and for wildlife to live in? Well one thing that could easily happen is that the poor could be priced out. And if one trader suddenly decides to “liquidate” a large position, someone might just have to drain a swamp somewhere to cover the withdrawal.

The same thing can be said for pollution, where cap and trade is the rule of the day. But as a recent report, entitled, “Bad Credit: How Pollution Trading Fails the Environment,” points out, paying someone not to pollute is a little bit like paying a burglar not to rob your house. Cap and trade systems, which have been used with some success to limit criteria pollutants that cause acid rain, are now being proposed for use on everything from greenhouse gases to water pollution. If the ultimate goal is to make the polluter take responsibility for his pollution, cap and trade makes polluting legal, but costly. But the costs don’t cover all the effects, like for example, the health effects of coal emissions. Since the true value of the credits is unknown, it is difficult to maintain a stable mrket, which is exactly what has happened in the case of acid rain. Prices have fluctuated wildly. If the prices of the credits are not reliably predictable, then companies are hard pressed to use them as the basis for major investments in remediation. It’s not unlike you trying to decide whether to spend the extra money for a hybrid if the gasoline market were such that the price might go down to $1 next year. Of course, you could buy it anyway, because it’s “the right thing to do,” but not many CEO’s think that way.

F&WW’s new Common Resources program will seek to raise awareness regarding the shortcomings of the market-based solutions before they get locked in. This will not be easy since these approaches currently enjoy fairly broad support, among both industry and government agencies, though obviously not enough to pass a greenhouse gas bill in Congress.

The program will primarily focus on the following:

  • Water quality trading, a type of cap-and-trade scheme that does not effectively address the issue of agricultural run-off or industrial pollution.  It is being promoted by the U.S. Department of Agriculture and the U.S. Environmental Protection Agency in places like the Ohio River Basin and the Chesapeake Bay.
  • Water Markets: Water markets are another step in the privatization of public resources that could lead to deprivation and social instability. 
  • Public-Public Partnerships: Rather than privatization, a different model, called public-public partnerships (PUPs), can be a more effective method for providing services. PUPs bring together public officials, workers and communities to provide better service for all users more efficiently.
  • Catch Shares and Offshore Aquaculture: a cap-and-trade scheme for fisheries management — and factory fish farming will be under the Common Resources program. Privatizing of fisheries has been devastating fishermen and their communities.

According to Mitch Jones, Director of F&WW’s Common Resources Program, “There is an ideological battle being fought that is affecting our common resources. If we let market fundamentalists and industry-funded non-profits tout market-based mechanisms as innovative solutions to our resource problems, we’re ignoring proven methods of reducing pollution and simply speculating on nature. These schemes are a smokescreen, giving the appearance of regulation and action while at the same time giving industries carte blanche to continue using and abusing our precious resources — and letting the banking industry profit from it.”

[Image credit: The US National Archives: Flickr Creative Commons]

RP Siegel, PE, is the President of Rain Mountain LLC. He is also the co-author of the eco-thriller Vapor Trails, the first in a series covering the human side of various sustainability issues including energy, food, and water. Now available on Kindle.

Follow RP Siegel on Twitter.


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  • Akbweb2

    great insights…excellent report…thx