Policy Analysis No. 104

Going with the Flow: Expanding the Water Markets

By Terry L. Anderson and Donald R. Leal
April 26, 1988

Executive Summary

Beginning with the Carter “hit list” and continuing with the fiscal conservatism of the Reagan administration, westerners have been obliged to realize that the days of concrete and steel solutions to water problems are gone. In stressing the West’s need to adjust to the new realities of water, Gov. Richard D. Lamm of Colorado described the change that has taken place as follows:

When I was elected governor in 1974, the West had a well-established water system… . Bureau [of Reclamation] officials and local irrigation districts selected reservoir sites and determined water availability. With members of the western congressional delegation, they obtained project authorization and funding. Governors supported proposals, appearing before congressional committees to request new projects, and we participated in dam-completion ceremonies.

In 1986, the picture is quite different. The boom in western resources development has fizzled, though tourism remains an economic mainstay… . Congress, including members of the western delegation, has to worry about how to cut spending, not which [water] projects to fund… . Farmers are trying to stay in business and are recognizing that their water is often worth more than their crops. Policymakers recognize that the natural environment must be protected because it is a major economic asset in the region.[1]

The current political, social, and economic climate is ushering in a whole new era in western water. In the face of efforts to curtail runaway government spending and protect the environment, water institutions must foster the conservation and efficient allocation of existing supplies. They must also take water’s growing recreational and environmental value into account. The crucial question is, can the current water institutions meet today’s requirements?

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Terry L. Anderson and Donald R. Leal are associates of the Political Economy Research Center in Bozeman, Mont. This paper is excerpted from their forthcoming book, Free Market Environmentalism. Anderson is also the author of Water Crisis: Ending the Policy Drought (Cato Institute, 1983).