Chapter 2 The Free Market Model: Chili's 1981 Water Code

Through the DIT lens, Bauer is pointing to the pendulum swing common in Latin America, swinging from path 0M over to exclusive focus on path 0G, and back.  Chile clearly swung the pendulum over to path 0G. Bauer suggests that before 1967, Chilean water law had a reasoned balance in private and public concerns. In 1967, the pendulum swung, in DIT terms, over towards the public side, toward path 0M. It was clearly a hard-& move.  In 1981, the pendulum swung totally the other direction towards the private side, toward  a path 0G.

The 1981 Chilean Water Code gave full private property rights in water, and also separated water from land. The  idea was to get people to start thinking of water as a commodity, even though most of the water was  and still is used in agriculture, and farmers typically would not be thinking completely that way. The 1981 Chilean Water Code closely reflected the 1980 Chilean Constitution.  Intriguingly, while water is declared to be a public property, it gives full authority to the government to reassign it as private property. So, in the abstract, supposedly said new private property were to be water use rights, while the public retained some influence and control, And, as such, water use rights could be administratively modified or cancelled without compensation. It was not to be. Water has become a private property in Chile that can be freely bought, sold, mortgaged, inherited, and transferred like any other kind of real estate.

An agency of the Chilean government called the General Water Directorate  (DGA) has full authority to grant requests for new water rights, free of charge, whenever the water is physically and legally available. Once said rights are assigned, they become subjected to private law rather than public law. In effect, such rights cannot be regulated. So, in effect, the government assigned the rights to decide where the water will be allocated to the private sector. Quoting Bauer, “…owners have no legal obligations to actually use their water rights, and they face no penalty for cancellation for lack of use. The unconditional nature of private water rights differs from all previous legislation in Chile and also from the water laws of all other countries around the world (p. 33).” It has led to unrestricted speculation in water rights. The DGA also cannot cancel or restrict water rights once they have been given to the private owners, and cannot adjudicate conflicts, which are now handled in the  civil courts,

The DGA supposedly still has some areas it is able to manage and address like gathering and maintaining hydrologic data, inspecting large waterworks such as dams and canals, and enforcing the rules governing the functioning of water users associations, and keeping a registry of who actually owns the water. In practice, however, data is not being collected on who the new owners of water rights are, and there is absolutely no regulatory function of the DGA.  It is basically a laisse fare operation.

The DGA did create a non-consumptive water use right, for use in such things as hydroelectric power. The main focus  of DGA though is on agricultural water use organizations and individual irrigators. Problems have arisen at the river basin level, in the private property owners within river basins have not been necessarily able to transfer the water where it needs to really go. Conflicts end up in civil courts, resulting in not actually resolving some rather severe conflicts. Environmental protection and water quality are simply not addressed. Some attempts have been made in rectifying this problem by DGA, and additional legislation has been proposed, but it has not been very effective.

The 1980 Constitution: Foundation of the Water Code

Bauer points out the inordinate influence --- the ideological ascendence --- of the neoliberal economists on how the constitution was developed in 1980.  It was in effect imposed by a military run government. It was done without public discussion, and, any opposition was not allowed.  Through the DIT lens, it was an imposition of Market Fundamentalism by an authoritarian government.  The military government was returned to a democracy-based government in 1990, but the 1980 Constitution was retained. Said constitution, quoting Bauer:  “The constitution guarantees the basic legal framework for a free market economic model by defining very broad private property rights and economic freedoms and tightly restricting the regulatory authority of government agencies and the National Congress. (pp. 35-36).”  Bauer clarifies that the constitution in effect embedded power in both the military and some rather conservative nonelected forces. So, through the DIT lens, again, it is an authoritarian imposed Market Fundamentalism.  As a result, the definition of water rights cannot even be changed without a constitutional amendment.  Increased power of the courts also is a player here.

“Legislative History” and Political Background

Bauer goes on to provide some legislative history, keeping in mind the military, and authoritarian in the realm of the conservative right dominance of this history over a number of years.  Bauer points out how a number of “free market” analysts have failed to recognize this history.

Chile's First Water Code 1951: Private Rights Plus Strong Government

Bauer claims that the 1951 water code had struck a good balance in private rights and public regulation, having a lot of similarity with western US water rights legislation.  It had systematized Chilean rules and practice going back decades, and even centuries, while increasing government intervention.  And while it issued private rights, it had put significant legal conditions on said rights, including the DGA (in later years, after 1969) being able to cancel said rights. Also, the DGA could take the rights away if they weren't used, which is still a feature of western US water law, as in the “use it or loss it” principle. The DGA also established a priority of uses with drinking water and other domestic use at the top, followed by irrigation, and then hydroelectricity, and industrial purpose. Rights holders could not change the use. Also perhaps most significantly water rights were tied to land ownership. The 1951 water code really did not encourage a “free for all” market water market like the 1981 code so did.  Through the DIT lens, the 1951 code was seemingly an attempt to strike balance on a path 0Z, albeit individuals did not have much choice, so it was a kind of soft-& integrated with hard-& system.

Chili's Second Water Code 1967: Swinging Left To Centralized Control

The 1967 Water code swung the pendulum towards more governmental control on path 0M.  It perhaps precipitated a kind of overreaction against the hard-& of the 1967 path 0M leading to a “no-&” swing to path 0M in the 1981 code.  Emphasizing, through the DIT lens, 1967 was a swing completely over to path 0M and, again, a hard-& in the profane&sacred.  It was part of the Chilean agrarian reform, “…aimed to expropriate and distribute large land holdings, with the twin purposes of expanding the class of small land owners and modernizing agricultural production (p. 39).”  It favored government administration. It expanded the scope of public property to recognize the social, and restricted private property. The 1967 water code also declared water was a public property for public use. It basically allowed for expropriating all private water use rights. Water rights were certainly not registered like real estate titles.

            It was a time during which government technicians and scientists would establish how much water to allocate to all crops, we might supposed pointing to W_ET supply (Figure 1, the horizontal axis as the U_WET to agriculture, arguably not achieving economic efficiency.  At the river basin level, it was basically central planning, with allocation among users decided by the government. And, whether it would have worked or not, a huge problem was the lack of resources to actually do it.

Water Rights After The 1973 Military Coup: Confusion and Neglect

The matter of water rights after the 1973 military coup became wrapped up in the general move to bring in neoliberal based free market systems throughout the whole economy, and imposing said market fundamentalism on all Chileans. More private agricultural land was created, as public land was sold off.  By the end of the 1970s, water rights were in a state of flux because historically said rights had been controlled largely by the state. The transition to a imposed market fundamentalism, an imposed “free market” whether Chileans wanted it or not, made the public ownership of water a challenge.

The Final Version (1981): Compromise and Problems for Future Reform

Bauer points out how the decree of 1979 more or less came into law with the water code of 1981. It was a compromise between the neoliberal economists and the less market-oriented conservatives. Some market trading was allowed in water rights, but also restrictions were put on how much government could spend on irrigation projects. The whole idea was that the private sector would invest in irrigation projects once they had the economic incentive to do so. It did not happen.

The planned water tax was also et aside. Considerable pushbacks against the water tax came from the agricultural sector, in that the agricultural economy was under pressure from shifting to the new free market system. Also, public auctions would be allowed but for a much smaller category of water rights, in particular, cases where several parties had applied for the same water use rights.  The neoliberal economists had hoped that the water tax would induce more water trading, and more investment in irrigation systems. It just was not to be. Also, the neoliberal economists wanted to move more public water into private water use ownership via the public auctions. This also was not to be. Continual debate continues, decades later, about the extent to which the exclusive use of the market would play.

The agricultural irrigators who are the main owners of water use rights in Chile were also reluctant to move totally away from government subsidies for irrigation projects.  Irrigators did want private property rights, but that did not necessarily mean they wanted FME to dominate the investment in irrigation facilities and the water allocation process.

Using DIT framing, Bauer makes the clear point that the Other Forum plays a key role in developing the institution that gives context to the Market Forum.  Neoliberal framing has no placeholder for the institution, so it would not be in view at all. It shows in what happened in Chile in that the neoliberal framed water market that was put into play basically had no way to deal with river basin management. It had no way to coordinate multiple water users, address conflict resolution, deal with economic and environmental externalities, and other matters like indigenous water rights, all in the domain of the sacred.   DIT does have such a placeholder, as represented in what is referred to as the shared with the other interest, which is held and represented in the water institution.