Water futures are a presentist approach for a present-future problem
Short-termism is what got us into the mess in the first place. Allowing the financialization and commodification of water would subject it to the vagaries of commodity trading's narrow temporal structures and horizons. The consequences can be dire. At the very least, a serious conversation about water's place in finance should be taking place
Water Futures Contract Specs, source: www.cmegroup.com
As reported by Bloomberg last week, water futures for California began trading on the Nasdaq Veles California Water Index, a commodity exchange operated by CME Group and Nasdaq. Starting from December 7th, "farmers, hedge funds and municipalities alike are now able to hedge against – or bet on – future water availability in California". With the development of this unprecedented financial instrument, water resources have officially entered Wall Street.
This is evidently not the first time water has been marketized. Formal and informal water markets exist. State-regulated internal water transfers are common in western U.S. states, for example. But these water markets and transactions have tended to be local, immediate, and tied to situational agricultural needs, droughts, and land and water rights. CME's water futures market, on the other hand, is the first of its kind. Its scale and volume might not (yet) appear to be grand. NQH2O (the index's ticker name) is based on transactions in five local Californian water markets. However, there is nothing small-time about this: water has now graduated to the big and voracious commodity leagues of Wall Street from small and local in-state and spot markets. CME Group is the fastest growing and most valuable exchange brand in the world, and its commodity exchange is one of the world's oldest and largest. California is the fifth largest economy in the world and uses the most water in the United States, itself a disproportionately large consumer of water. Moreover, the relatively niche markets underpinning the NQH2O are still the most active of their kind, and they proved to be attractive enough for profit-minded investors and financiers to develop water derivatives. Veles, the company behind NQH2O, is a new "financial products company" led by experienced financiers from the oil, energy, and 'carbon market' sectors. The actors and socio-economics of this "emerging market" of water financial products is markedly different from the more local and situational transfers of existent water markets.
This can prove to be a watershed moment. Water scarcity is increasing. The commencement of trade on water futures signals a financialization and commodification of water resources. The object of this op-ed is not to warn of a megacorp or high-finance conspiracy to privatize water, nor is it to argue against any market-based approaches to water management and allocation, which can prove useful at times. It is to advocate a conversation on water commodification that foregrounds time as an especially relevant dimension of the issue, and that takes into account the temporal properties of both finance and the water cycle.
The dynamics of finance and the global economic system are determined by their temporality: the timing of an action matters as much as its substance, and the pace is frenetic. As literature from the management world itself has found, the time horizons of the corporate, investment, and finance worlds—from both the executive and investor viewpoints—are narrow, typically distilled in 3-month quarters. Markets' boom/bust, bear/bull cyclicality is recognized and accepted as part of the game even by zealous free market advocates. Michael Biggs moreover explains how financial markets are prone to dynamics of false belief and self-fulfilling prophecies. These built-in imperfections can be seen as tradeoffs, the price to pay for the dynamism of the system.
But should water be allowed to partake in the game like any other good or commodity? Water is unique, with no ersatz good. It is literally vital; humans cannot survive more than three days without it. Nor can the economy, as agriculture and industry are heavily dependent on it. Amidst increasing scarcity coupled with political inaction, society's reflex to immediately defer to the markets for water allocation is telling, and shows that we have not learnt anything from the past mistakes that got us into the mess in the first place; most relevantly, state-sponsored monocropping and deforestation.
Sociologist Barbara Adam argues that "it makes a difference whether we approach the future from the standpoint of the present, that is, as present future, or from the standpoint of the future, that is, as future present". The distinction between the two temporal domains is useful to imagine the solutions to the problems that thinking- and business-as-usual created and failed to solve. Futures contracts tie the future to the present in a very tangible way. They allow dangerous leeway in determining the future of water from the position of the present. Financializing water creates an incentive, however theoretical, to increase water scarcity. Water's cruciality for life makes it timelessly and perfectly inelastic, which could, if commodified, motivate rent-seeking behavior.
Water is an asset that mustn't be managed by the present future if we are to have a future present at all. With or without the market, any approach to water management and distribution must also be based on water's temporality: its natural and manmade water cycles.
Yassine Halila is an International History MA candidate at the Graduate Institute of Geneva. He's researched and reported on the history, culture, sports, and contestation politics in North Africa and the wider Middle East. Find some of his writing here.