What Price Water Marketing?: California's New Frontier

By Gaffney, Mason | The American Journal of Economics and Sociology, October 1997 | Go to article overview

What Price Water Marketing?: California's New Frontier


Gaffney, Mason, The American Journal of Economics and Sociology


I

The Delayed Coming of Water Marketing

This writer has a long track record, from 1960, championing water marketing. In those days we were beset by those saying we already had it, others saying it would be a disaster if we did, and some saying both things at once. Now, however, market champions are popular - even legitimate - and their philosophical burden is light. This might seem a blessing, but doctrinaire marketeers may have carried a good idea too far. The first step toward the market solution is always to convert existing tenures, which are now conditional and temporary, into absolute property rights. This move wipes out obligations to the public - yet usually includes within the property obligations so created duties by the public to subsidize the owners. Finn up property rights, the market champions say, give out negotiable titles on all water sources, declare a free market, and let the good times roll (Phelps et al. for the RAND Corporation, 1978; Anderson, 1983b).(1)

At this time, water marketing is the rage. In 1982, a forward-thinking legislator, Richard Katz (D-Sylmar), sharing in part the Anderson-RAND viewpoint and seeking more water for Southern California, carried a statute to remove certain ancient legal barriers to selling or leasing water permits.(2) The Environmental Defense Fund, originally a reforming group, has turned into more of a brokerage house, combing the state to negotiate deals. In 1986 a new Katz bill passed, letting private water sellers use conveyance facilities of public agencies.(3)

A third Katz bill died in 1991. Senator John Seymour, during his brief tenure, tried a bill to let federal water be sold, with existing subsidies firmly attached. Senator Bill Bradley along with Congressman George Miller tried a bill with at least token recoupment of public costs required, and stricter acreage limitation. It has been a busy time for water marketing legislation.

Water Is The "Yield-Cutting Substitute"

Critics of water marketing fret that areas losing water may become unproductive. No doubt there are cases in point. Elsewhere, however, overall potential gains from reallocating water actually exceed what simple calculations predict. That is because water, in many areas, has been used as a "yield-cutting substitute" - a term I have had to coin for lack of standard theoretical treatment of what should be a basic tool of economic analysis. Water is such a potent substitute for labor and capital that more water often means lower yields from each acre. The productivity of water is measured, not in higher yields, but in lower labor and capital costs that raise net rents in spite of lower yields. I am not aware that farm production economists have ever faced up to this phenomenon and its implications.(4)

Thus, less water per acre may mean more output per acre, an uncommon and momentous relationship. Conversely, when water is cheap it is substituted for labor and capital. The effect of cheap water may be seen in Fresno, Kings, and Tulare Counties, California. Their populations grew by 32 percent during the 1940's when water was expensive. Then they received an influx of cheap water from two federally subsidized projects: The Pine Flat Dam on the Kings River and the Friant-Kern Canal of the Central Valley Project. For the next 30 years their populations stopped growing and even fell through outmigration (Ballard, 1980, p. 30).

In Tulare county, in 1974, wages and salaries accounted for only 50 percent of income payments (California Statistical Abstract, cit. Ballard, 1980, p. 28). Farms receiving the federal water subsidy were 7.2 times larger, on the average, than other California irrigated farms (calculated by Villarejo, 1986, p. 20). By 1980 California's Central Valley contained six of the ten American cities with the highest proportion of people on welfare (Metropolitan Area Fact Book, 1984, cit. Villarejo, 1986, p. 109). Two of them were Visalia and Fresno, in the region receiving federal water. …

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