Adam Smith famously said: “nothing is more useful than water; but it will purchase scarce anything; scarce anything can be had in exchange for it. A diamond, on the contrary, has scarce any value in use; but a very great quantity of other goods may frequently be had in exchange for it.” The diamond-water puzzle has fascinated economists and business leaders for centuries, including University of Virginia Darden School of Business professor, Peter Debaere.
Debaere is Associate Professor of Business Administration, whose research focuses on the global economics of water, especially to what extent water scarcity determines what countries produce and trade. His research has explored the pattern of water use in the United States and the fight against water scarcity abroad. Last week, Debaere and his colleagues on the World Water Day symposia team hosted Peter Brabeck, Chairman of the Board and former CEO of Nestlé Group, to address the business case for combating water scarcity.
According to Debaere, large multinational companies have an incentive to better manage water resources because scarcity can lead to political and social instability, creating a difficult business environment. For companies like Nestlé, the availability of water is crucial to their business, and so they have a vested interest in encouraging sustainable management.
Brabeck spoke to a crowd of MBA students and others from the UVA community about United Nations Sustainable Development Goal’s water guidelines that he and others are working to develop. These goals are meant to address a host of water related issues, such as sanitation, agricultural run-off, access to drinking water, and ecosystem management. Brabeck’s group advocates for a right to equal access to water and instituting a true value on water resources. One model he has proposed is to price water exponentially based on use. This model would guarantee the poor a cheaper price for water, while heavy users would be penalized.
“Many people are surprised to know that water use in the U.S. despite a growing population has gone down or remained flat since the 1980s—much of that can be explained by the nature of our economy—the U.S. has become much more service oriented,” said Debaere.
As nations face tougher conditions from drought and depletion of reservoirs, new financial models are being used to reduce water consumption. In Texas, says Debaere, there are water markets that allow farmers and cities to buy and sell water rights. These types of markets allocate a proportion of water to different groups to sustainably manage the overall water supply. Producers wishing to use more water can purchase additional rights from other users.
On the local level, individuals can have an impact on global water issues by making smarter purchasing decisions. Opting for less water intensive products and purchasing locally will send a strong message to companies and policy makers. The Carbon Disclosure Project is one source for tracking water use among multinational corporations.
“Developed nations are purchasing goods from abroad and outsourcing the water needed to create them, so it is our belief that we should reinvest some of those profits into updating the technology used to produce those goods—preventing excessive water loss,” said Debaere.
To learn more about water issues and to attend more World Water Events, visit UVAworldwater.org.
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