I’ll Drink the Privatized Water

Lydia Milja – Director, Alberta Initiative
Fraser Forum
July 1, 2000

In the aftermath of the E. coli outbreak in Walkerton, Ontario, media outlets quickly moved from examining human error as the cause of the infection to pointing the finger at the government for deregulation, off-loading, and privatization. The Tuesday, May 30, 2000 edition of CBC Newsworld’s “Counterspin,” was titled, “Don’t Drink the Privatized Water.” That show was inspired by the Ontario opposition parties who denounced the privatization of Ontario’s water supply testing as a possible cause for the outbreak. Many people, including columnists Terence Corcoran, Andrew Coyne, and Lorne Gunter, have correctly pointed out that the testing was the only component of the Walkerton water system that functioned properly. Not only did the private lab detect the E. coli bacteria in the water sample, but the lab also immediately notified the municipality. In previous months, the lab had also notified the Ontario Environment Ministry about high E. coli counts. The municipality’s response was to increase the chlorine levels in the town’s water, and to deny that there was anything wrong with the water supply

Reducing error

Until the inquiries by the coroner, medical officer, and provincial government are concluded, there is much to be learned about what went wrong with Walkerton’s water supply. But we do know a number of things. First, the Ontario government failed to enforce its own regulations, and second, government employees who were in charge of the water supply made errors in judgement. Little can be done to completely eliminate human error. However, some actions can reduce errors and provide incentives for individuals and organizations to be more vigilant about communicating possible problems to the public in a timely manner. This is where privatization comes in. Rather than see privatization as the cause of the problem in Walkerton, Ontario opposition MLAs should recognize it as a solution to maintaining a healthy water system in the province.

Regulating effluent treatment

Improperly treated water from Canadian municipalities makes its way into Canadian rivers, lakes, and wells, where it has the potential to pollute the water supply. Walkerton, Ontario is not alone in the country in having a problem with its water supply. The Sierra Legal Defence Fund (SLDF) found in its 1999 National Sewage Report Card that of the 21 cities it examined, “only one city-Calgary-is using truly effective, environmentally sound technology in its effluent treatment” (Wristen, p. 3).1 Four of the 21 cities dump a combined total of “365 million litres of untreated sewage directly into the nation’s rivers, lakes, and seas every day. Eleven other cities dump an average of 437 million litres of untreated sewage per day through by-passes and combined sewer overflows” (Wristen, P. 3). Since that report, Moncton, New Brunswick, which was not surveyed by the SLDF, has privatized its water system. That city not only treats the water coming into the system, but also has a treatment facility for the water leaving the system. It has invested $23 million in the system and has standards 10 times higher than the national regulations.2

The problem does not lie with lax legislation or weak regulation. Most environmentalists acknowledge that Canada has very stringent laws governing the disposal of sewage treatment. The problem, as Elizabeth Brubaker of Environment Probe points out, is that the government does not enforce its legislation, nor does it fine or charge the polluters. Brubaker and the Legal Defence Fund agree that the government is in a conflict of interest. Provincial governments must contribute the costs of constructing sewage treatment works. “In such cases, prosecution of permit offenders by the provincial governments may be an unrealistic expectation; it would be pressuring itself to fund improvements to the system. This raises an unresolved conflict-of-interest question in instances … when provincial authorities take over and drop private prosecutions of municipalities for violations of the Fisheries Act” (Wristen, p. 58).

Elizabeth Brubaker argues that one way for Canadians to resolve this conflict of interest is to take a page from the British example and privatize sewage treatment. This would allow the government to become the regulator and the private sector to provide the necessary money and improvements in the water treatment, across of the country (Brubaker). She notes that while the number of prosecutions in the UK have increased since privatization, pollution has declined. While this makes sense, some interests criticize privatization. Most notable are union and special interest groups such as, in this country, CUPE and the Council of Canadians, respectively, who want to see more government involvement in water supply and treatment. When union representatives like CUPE’s Judy Darcy point to the increase in prosecutions in the UK as an argument against water privatization, as she did on the May 30 “Counterspin” show, they fail to note that prior to privatization, the government did not pursue polluters. Now it does, and the environment is significantly cleaner for it.

The private sector’s record on communicating errors and tampering

If the government regulating the private industry were not sufficient cause for someone to have more confidence in a private versus a public water system, one should examine the record of corporations when dealing with accidents and human error. The private sector, with its eye on maintaining customer loyalty, responds more effectively to public safety than do governments. Part of the problem in Walkerton was that the municipality took too long to notify the public of the high E. coli counts. This is in contrast to Johnson & Johnson, the makers of Tylenol products, who in 1982 dealt with the problem of product tampering and became the model for crisis communications (ten Berge, 1988). When 7 people died after taking cyanide-laden Tylenol, the company immediately alerted consumers across the nation, via the media, not to consume any type of Tylenol product. Moreover, “they told consumers not to resume using the product until the extent of the tampering could be determined. Along with stopping the production and advertising of Tylenol, Johnson & Johnson re-called all Tylenol capsules from the market. The recall included approximately 31 million bottles of Tylenol, with a retail value of more than I 00 million dollars” (Kaplan, p. 381). Johnson & Johnson stock declined in the weeks after the tampering scare, but soon rebounded because of the company’s forward-looking and positive communications. Had the water workers in Walkerton been as responsible in notifying the public about the E. coli counts, many of Walkerton’s citizens might have avoided the contamination and felt confident that the government was protecting the general public’s interests.

From the Tylenol contamination scare, Johnson & Johnson also learned that it needed to be more proactive and vigilant about product safety. It implemented changes which had little to do with regulation, and a lot to do with its need to reassure the public and regain the public’s confidence. The changes were not coerced by the government; they were inspired by the need to maintain share price and profits. According to economist Mark Mitchell, because of the 1982 product tampering, Johnson & Johnson “suffered a $1.24 billion wealth decline (14 percent of the fore- casted value of the company) due to the depreciation of the company brand name and the Tylenol brand name” (Mitchell, p. 616). Johnson & Johnson’s immediate change was to create triple safety seal packaging. When in 1986 the company was hit with another product tampering episode, Johnson & Johnson stopped all capsule production and created the replacement caplet, which was less easily tampered with (ten Berge, pp. 28-29.) Indeed, Robert Wood Johnson, the company leader for 50 years, wrote a credo in the mid-1940s that outlined the corporation’s responsibilities (ten Berge, p. 32). The executives in charge of the Tylenol recall were working with the credo, which kept at the forefront of their concerns the “consumers and medical professionals using its products, employees, the communities where its people work and live, and its stockholders.” According to Tamara Kaplan, “Johnson believed that if his company stayed true to these responsibilities, his business would flourish in the long run. He felt his credo was not only moral, but profitable as well” (Kaplan, p. 382).

Profits and safety

Despite the record of companies such as Johnson & Johnson, who are inspired by the profit motive to make their products safer and more effective for the consumer, there is another compelling reason to prefer privatized utilities to public ones: mistakes happen. But when mistakes happen to a private company, the company, not the taxpayer, pays for the mistake.

Consider Walkerton’s citizens. They will pay for their water system’s faults three times. First, their tax dollars have already been spent to pay for the inadequate water supply system. Second, it was they who suffered illness and loss of life from the poor system. Finally, when they sue the local and provincial governments for damages, any settlement they may get will come out of their tax dollars. Had a private company been responsible, the damages would have come out of the shareholders’ pockets. After all, shareholders would have assumed the risk when they bought shares in the company.

However, this is not to say that legal remedies are foolproof in obtaining compensation. While more people are suing corporations in product-liability cases, their success rate is declining. According to Jury Verdict Research, “Plaintiffs won 44 percent of the product-liability cases that went to juries in 1994, compared with 55 percent in 1989” (Mergerhagen). Scholars have hypothesized that part of the reason for the declining success rate by consumers is that injured people may be bringing weaker cases to court than they did in the past (Eisenberg and Farber, P. 3). Notwithstanding the success rates of previous cases, the threat of litigation can cause corporations to behave more cautiously. This cautious behaviour, in turn, makes it easier for corporations to win their cases.

In the Walkerton case, not only would a private company have a greater incentive than a public body to provide safe drinking water, but a private company would also have borne the brunt of the error, not the taxpayers of Walkerton. When Captain Joseph Hazelwood left the Exxon Valdez in the hands of his incompetent crew, the US District Court laid criminal and civil fines on the corporation on October 9, 1991. Exxon was fined $150 million in the criminal plea, where $125 million went to cleaning up the spill and paying private claims. Twelve million dollars went to the North American Wetlands Conservation Fund, and $13 million went to the national Victims of Crime Fund. As restitution for injuries caused to the fish, wildlife, and lands of the spill region, Exxon agreed to pay $ 1 00 million to federal and state governments. In the civil settlement, Exxon agreed to pay $900 million with annual payments stretched over a 10-year period.3

The government of Ontario must shoulder the blame for Walkerton: first, for not enforcing its own regulations, and second, for privatization. The criticism of privatization should not be, as the opposition MLAs suggest, that the privatization went too far, but that it didn’t go far enough. Full privatization of Ontario’s water supply might ensure that these errors are reduced in the future, and if they do occur, will ensure proper compensation for the victims of the human error.

Notes

1. This data was collected by the SLDF for the United Fishermen and Allied Workers’ Union, Local 24, and Georgia Strait Alliance. It was based on a questionnaire sent to municipal or regional governments. SLDF conducted follow-up interviews, and in some cases obtained additional written or verbal information. In addition to the completed surveys, some cities provided technical reports.

2. Greater Moncton Water Treatment Facility Fact Sheet http://www.moncton.org/search/english/cityhall/water/watertreatment.htm.

3. Exxon Valdez Oil Spill Restoration Trustee Council. Legacy of an Oil Spill 10 Years After Exxon Valdez 10 Year Report. http://www.oilspill.state.ak.us/setlment/setlment.htm.

Bibliography

Brubaker, Elizabeth (1997). “Bring Back Our Beaches: Britain Did. We Should Take the Plunge Too.” The Next City, Summer.

Eisenberg, Theodore and Henry Farber (1996). “The Litigious Plaintiff Hypothesis: Case Selection and Resolution.” National Bureau of Economic Research Inc., Working Paper Series, 5649, July.

Kaplan, Tamara (1994). “The Tylenol Crisis: How Effective Public Relations Saved Johnson & Johnson.” In Glen Broom, Allen Center, Scott Cutlip. Effective PublicRelations, 7th edition. Prentice-Hall Inc.

Mergerhagen, Paul (1995). “Product Liability.” American Demographics, June. http://www.marketingtools.com/publications/ad/95_ad/9506_ad/AD765.htm.

Mitchell, Mark (1989). “The Impact of External Parties on Brand name Capital: The 1982 Tylenol Poisonings and Subsequent Cases.” Economic Inquiry. Vol. 28 (October).

ten Berge, Dieudonnee (1988). “The Tylenol Poisonings: A Textbook Case Of Crisis Management.” In The First 24 Hours: A Comprehensive Guide To Successful Crisis Communications. Oxford: Sterling Nederland.

Wristen, Karen (1999). The National Sewage Report Card (Number Two), Rating the Treatment Methods and Discharges of 21 Canadian Cities. Sierra Legal Defence Fund Report, August.

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