The political economy of water

1. Introduction 

Water is essential to human and non-human life, integral to the natural environment, and fundamental to economic activities. The way we conceptualize water in economic terms depends on what assumptions we make and which theoretical frameworks we adopt. Different approaches to economics translate into different ways of thinking about the economy of water

Let us take the issue of water pricing as an example. In this case, neoclassical economics would focus on calculating the appropriate equilibrium price based on supply and demand. Institutional economics would analyze the institutions that set up the price, such as public authorities, companies and regulators. More critical approaches would on the other hand question the pricing mechanism itself, rather than taking it as a starting point. For example, ecological economics would examine whether pricing is the appropriate instrument for reflecting the finite nature of water resources. Feminist approaches to economics would underline how such pricing mechanisms obscure the monetary and non-monetary costs borne by women and the role of water for the social reproduction of everyday life. Marxian political economy would investigate the role of political and social struggles shaping pricing and its institutional setup - particularly class struggles and their contradictions and historical transformations. In general, political economy at large underscores the importance of going beyond narrow understandings of economics, and taking seriously insights on the economy that come from adjacent fields, such as history, politics, international relations, sociology, geography and anthropology.

The example above has an illustrative function, to show how different approaches rely on different assumptions and focus on different issues. However, in real-life studies the boundaries between approaches are not necessarily as clear-cut and scholars may draw on insights from different perspectives. In the following pages, we will adopt a thematic focus, exploring contemporary issues in the political economy of water, illustrating the context, key concepts and debates related to specific topics: water governance (section 2), water privatization and financialization (section 3), water as a commons and as a human right (section 4), water scarcity (section 5). The conclusion will outline current debates and future research agendas for the political economy of water.

2. What is water governance?

More than ten years ago, the Organization for Economic Co-operation and Development (OECD 2011) stated that the water crisis is a governance crisis. Since then, studies on the governance of water have expanded. Most recently, “Re-envisioning the economics and governance of water” was the focus of a report written by the Global Commission on the Economics of Water[1] (2023: 92), leading to the UN water conference, which took place in New York in 2023.

However, in many of these studies it is unclear what is meant exactly with the term ‘governance’. While it is nowadays a popular term within economic, political and social sciences, the term is often used differently according to the context. In this section, we elaborate on a working definition for water governance and on the question what it has to do with economics.

According to Zwarteveen et al. (2017), the popularity of the term ‘water governance’ is connected to two main fields. On the one hand it is used in the natural sciences, to indicate that water is not only part of infrastructural and engineering development, but also embedded in social and political institutions. On the other hand it is used in politics and economics, to describe the retreatment of the state in the provision of services, while the private sector takes over and civil society actors grow more important.

In other words, water governance deals with the question of what decisions are taken, by whom and how; over the use, distribution and management of water, and is in this sense related to economic processes of production and reproduction. Indeed, water is not only essential for human health and for climatic dynamics, but also for agriculture and food supply, energy production and manufacturing processes (Distefano 2021). The term ‘governance’ is often used in opposition to ‘government’, to indicate a shift from centralized national decision-making to a plurality of political levels – local, national and supranational – and a plurality of actors – from the state to market and society.

However, water governance does not only narrowly refer to a set of institutional arrangements, but is more broadly imbued in power relations. In Gasseau’s (2025: 4) words, understanding water governance not as a thing, but a set of social relations implies considering it “dynamic rather than static, political rather than technical and contested rather than consensual”. This means that governance arrangements are historically produced, and are shaped by – while in turn shaping – social and political struggles.

After having worked out a definition of governance, as a process of decision-making, hence related to economic policies, let us now turn to some of these possible economic policies, starting with water privatization.

3. Water Privatization

Water privatization broadly refers to the involvement of the private sector within the provision of water services - including water supply and sanitation. Historically, both public and private sector have been entangled in the provision of water services. However, public entities in Western Europe have primarily been responsible since the 20th century for the large infrastructural investments required to set up water operators (Hall and Lobina 2012). They have also played a key role in ensuring service coverage to meet public health goals, due to the emerging industrialization and urbanization (Loftus, March, and Purcell 2019).

Nonetheless, this changed during the 1970s, when the shift towards privatization started. This shift is associated with neoliberalism becoming the dominant paradigm - referring to a set of policies favoring the role of ‘the market’, and therefore the private sector, seen as more efficient with respect to the public sector. The shift was associated with changed global socioeconomic conditions, including economic crises and stagflation, the rise of globalization, and the growing influence of capital and financial actors. Neoliberalism has generally been associated with increased inequality, labor market precaricarization, erosion of welfare states, financialization of everyday life and commodification of public goods.

The beginning of neoliberalism is commonly referred to the Reagan administration in the US and the Thatcher administration in the UK. It is no coincidence that the Thatcher government was the one to fully privatize the water infrastructure, as Thatcher’s policies, among others, marked the rise of neoliberalism. From there on, the previously favored state-led development model was substituted by the Washington Consensus, according to which key international actors such the World Bank promoted policies furthering water privatization in various forms worldwide (Reis, Magaña, and Villegas 2024:267).

Importantly, scholars have underlined that water privatization refers not only to the full transfer of ownership rights, like it happened in some countries such as the UK and Chile, but also to other forms of private sector participation, that means through the externalization of key tasks, or through public-private partnerships (Bakker 2010; Mercille and Murphy 2017). Public-private partnerships are a general term to indicate a contractual agreement between the public and the private sector to finance, develop, manage public services and infrastructure. The extent to which risks and benefits are allocated between public and private entities remains an open, and often problematic, question. Bayliss and Van Waeyenberge (2018) argue that PPPs can be seen as another expression of the broader push to expand private sector participation in public service delivery.

Private sector participation has been advocated as being more efficient in terms of cost savings and performance maximization in service delivery, but evidence suggests that this is not necessarily the case (Bel and Warner 2008; Lobina 2005). Moreover, scholars have argued that the definition of efficiency should not include solely the cost/revenues ratio, but also social and environmental concerns that are best addressed by public authorities (Hall and Lobina 2007). Social, because water is necessary for human life and should be accessible for everyone regardless of ability to pay. Environmental, because water is a crucial part of ecosystems and as such should be protected. The intervention of private interests puts into question what kind of efficiency is prioritized, and whether social, environmental and economic goals are compatible with it.

For example, let us take the case of England. Since the above mentioned privatization of its water services, that are now owned by multinational conglomerates and asset managers, the service has deteriorated, with higher bills and pollution problems, leading to recent calls for nationalization [1].

Moreover, privatization is also connected to the introduction of operating principles from private companies into the public sector. One example is the introduction of entrepreneurial principles into water management, either through the changing of the rules governing the water operator itself (e.g. the introduction of managerial executives, of pricing, of profit-making) or the rules governing the interaction between operators (e.g. introduction of competition, change in regulation authorities in their composition and standards). To clarify, pricing is the mechanism through which a price is attached to water supply for financing the water operator, as opposed to for example financing through general taxation. This is often associated with profit-making, introducing the idea into public management that when companies are profit-driven, it leads to the most efficient outcomes.

Let us take the case of the EU for example - as Erne et al. (2024) show, European governance has pushed the commodification of water services in member states. This has been done not only by decreasing public spending available for services, but also by altering the nature of public operators in terms of their management and the relationship between these operators – shifting to competition procedures rather than direct management.

More recently, scholars have pointed out the emergence of the phenomenon of financialization of water. Reis et al (2024:268) point out that the literature on the financialization of water has focused on three, sometimes overlapping sectors: large water infrastructure, water utilities/water supply and sanitation, and water rights/water resources. Drawing from post-keynesian economics, water financialization can be defined as the increased role of finance in the economy through financial actors, institutions, motives (Reis et al. 2024:268) and an associated shift towards private financial interests (Bayliss 2014; Loftus, March, and Purcell 2019; Moore 2024; Pryke and Allen 2019). Bayliss (2014) retraces the emergence of complex financial instruments specifically targeted at the water sector, such as water-targeted investment funds, structured water products, water-focused exchange traded funds.

For example, in 2020, a tradable water price futures index was launched in the Chicago Stock Markets, based on California’s water resources (DiFelice 2022). Moore (2024) discusses how such water futures market built on the existing water trading markets - that is, the trading of the right to use a given body of water. As Pryke and Allen (2019) argue, what links various forms of water financialization - such as bonds, securitization and derivatives trading - is extracting local value to distribute it globally. In effect, a literature review focusing on studies on water financialization finds that it leads to increased socio-spatial nequality due to water diversion (Reis et al 2024).

4. Water as a Commons and as a Human Right

The spread of neoliberal policies and the Washington consensus, outlined in the previous section, triggered social movement’s reactions opposing them. Water privatization has been an area in which the global justice movement has historically been very active, vocal and successful, advocating for water as a human right (Barlow 2019). During the 2000s, the global water justice movement witnessed significant mobilization, marked by notable events such as the Cochabamba Water Wars in Bolivia. This conflict took place in 1999-2000 and was ignited in response to a steep increase in water prices, due to the privatization of the local municipal company. The large-scale demonstrations culminated with the overturn of the governmental decisions, resulting in the termination of the contract with the multinational private company involved, the amendment of the national water law, as well as the empowerment of the local water company and the network of grassroots organizations that had been involved in the struggles.

Following the continued salience of water struggles as well as persistent efforts of social movements, civil society organizations, and local communities, grouped in the global water justice movement, the UN United Nations General Assembly came to formally recognize water as a human right (Karunananthan 2019). In 2010, the UN General Assembly adopted Resolution 64/292, explicitly acknowledging the human right to safe and clean drinking water as well as sanitation, affirming the existence of the right to water within international human right law and cementing the efforts of years of mobilization and advocacy by the diverse actors comprising the Global Water Justice movement (Barlow 2013; Karunananthan 2019).

Within this context, transnational mobilization around the right to water also took place within the EU, where social movements opposed water privatization in several member states such as Italy, Ireland, and Greece (Bieler 2021; Muehlebach 2023), and also notably at the EU level with a successful citizen initiative promoting water as a human right (van den Berge, Vos, and Boelens 2022; Bieler 2017)

Social movements across the world politicized water privatization, and instead promoted its recognition as a human right, at the same time pushing for alternative management models, such as re-municipalization, de facto re-inventing public ownership through democratic participation (Gasseau 2024; Hall, Lobina, and Terhorst 2013; Kishimoto, Lobina, and Petitjean 2015; Lobina and Weghmann 2020; McDonald and Swyngedouw 2019). In these experimentations with democratization of water governance, the concept of the commons plays a key role, as an imaginary but also a practical tool. The idea of commons provides an alternative to both state and market provision and focuses on communities managing their own resources and services instead (Bakker 2007; Bieler and Jordan 2018; Carrozza and Fantini 2016; Della Porta 2023).

The concept of commons traces back to the seminal work of Ostrom (1990) within new institutionalism. The problem addressed by the author is the governance of natural resources. Her argument is that between centralized control and private rights, there exists a variety of possible institutional arrangements that can effectively tackle the so-called ‘tragedy of the commons’, according to which communities cannot self-manage the use of resources, ending up in the depletion of resources, because of the ineffective coordination of collective action. Ostrom (1990) effectively debunks the claims of the so-called “tragedy of the commons”, by illustrating successful empirical examples of “Common Pool Resources” and analysing them through a conceptual framework rooted in institutional economics. However, the concept evolved beyond this work, and acquired relevance for scholarly studies within different fields. On a theoretical level it highlighted the possibility of a type of governance beyond state and market, rooted at the local level, and connected to participatory democracy. On a practical level it inspired political practices within and beyond water movements. The strive for water as a commons is a thread line in water movements, especially for the Italian movement towards the 2011 water referendum and for Greece and Portugal during the Eurozone crisis (Bieler and Jordan 2018; Della Porta 2020; Fattori 2013).

5. Problematizing water scarcity

After having outlined key issues studied within the political economy of water - such as governance, privatization and possible alternatives - let us now conclude with an issue that is increasingly gaining political and academic salience in the present conjuncture of polycrisis: water scarcity. Water scarcity is broadly recognized as a key social and environmental problem connected with climate change.

Through the concepts discussed above, we can see that water scarcity is connected to water governance, or in other words to the decision processes defining the allocation, management and protection of water. It is also linked to privatization, as private participation is often advocated as the solution to scarcity issues while at the same time it has been criticized for neglecting the social and environmental aspects of water management, that are at the core of water scarcity.

If we turn back to the different approaches to economics in light of what we have learned through these pages, we can see how the definition of the issue of water scarcity depends on the approach taken and also shapes the solution proposed to it. This is not to deny that there is a biophysical reality of water scarcity, but rather to problematize this reality (and potential solutions) through a political economy lens. 

According to neoclassical economics, the scarcity of water is just a precondition of market exchange, as for other resources - if there is a problem with it, it is seen as one of allocation, which can be addressed through market-based mechanisms. On the other hand, drawing from institutional economics, the problem of scarcity - again, understood as an existing precondition - can be addressed through institutional coordination - that is, setting in place organizations and rules governing the allocation of water in a more efficient way. In contrast, ecological economics would underline that the causes of water scarcity lie in pollution and are to be addressed through conservation and other policies protecting the environment. Feminist economics on the other hand would shed light on the fact that water scarcity disproportionally affects women, as they are generally they are the ones responsible for the social reproduction of everyday life, heavily dependent on water. From this viewpoint, the issue to be addressed is unequal gendered relations. Finally, a Marxian political economy perspective highlights that water scarcity is unequally distributed among social classes - that is, water is scarce for some because it is abundant for others. From this perspective, the solution to the issue would be the redistribution of the means of (re)production.

6. Conclusions

Summing up, in this essay we have learnt how different approaches to economics translate into different understandings of the political economy of water. We also have addressed specific topics such as water governance, water privatization, water as a commons and as a human right, and water scarcity.

Let us now conclude with the open debates within the scholarly and policy community, which students and self-learners may find compelling to explore through their own scholarly studies. First, there is an ongoing debate within the literature regarding the current extent of phenomena such as privatization and financialization. The debate focuses on how privatization, financialization and related phenomena have evolved in terms of their forms, geographical reach, and impact on different water sectors. In other words, the debate revolves around the question whether the role of private and financial actors have reached their decline, if such a decline is limited to some regions of the world or if they moved on other sectors, from services providers to technology providers. Within this context, further research could focus on analyzing empirically governance arrangements within the water sector, in particular the changing role of public and private actors.

Secondly and relatedly, current research is exploring the potential of transformative alternatives, including the reinvention of public management and the empowerment of community management. Finally, further research should explore the implications of the global water crisis and potential solutions to it. The broader question on how to address climate change in terms of mitigation and adaptation should be applied to the specifics of water, as well as to the underlying power relations of the political economy of water. This list is by no means exhaustive, as the scholarly field of the political economy of water is vast and open-ended, but it is rather meant as an inspiration for students and self-learners to study and research topics to further this field.

7. Literature

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