Government Failure in Peru

By IAN VASQUEZ
August 20, 2007 - WSJ

The water towers on the outskirts of Lima, Peru say "Water is health, care for it." For many residents of Villa El Salvador, one of the Peruvian capital's famous sprawling shanty towns, that admonishment is a cruel joke. Many have petitioned the government for water for decades, to no avail. One million of Lima's eight million citizens have no access to clean water.

The water monopoly -- which loses some 40% of its water through leaky pipes or in ways otherwise unaccounted for -- is only one of Peru's monuments to government incompetence. Peruvians were reminded of another last month when the communist-led teacher's union went on strike, paralyzing schools and triggering violence across the country. The union was protesting a law requiring that teachers be tested and held accountable for competency. An evaluation earlier this year found that one-third of teachers are deficient in reading comprehension and that nearly half cannot do basic math.

The union's grip on schools is the main reason for the failure of public education, according to the Peruvian Institute of Economics, which reports that half of 15-year-olds lack minimum reading skills. In the end, the union agreed to temporarily suspend its strike while it negotiates with the government.

Those hit hardest by the crises in education and water -- poor Peruvians -- are not reacting with complacency, however. They are demanding private solutions. Indeed, during my visits to one of the poorest parts of Villa El Salvador in the past two years, I learned why residents began marching on government offices to demand the privatization of Sedapal, Lima's state-run water company. Community leaders and residents explained that they'd grown tired of being neglected by Sedapal. They have been joined by residents of other shanty towns surrounding Lima.

In one such protest by hundreds of people from the shanty town of Carabayllo at the Ministry of Finance last year, Adolfo Peña Olivos told the daily Diario Correo that "We represent 116,000 families from 120 squatter settlements that have not had water or sewage for more than 10 years, and many children and elderly have died because Sedapal does not have the resources to alleviate our needs."

Lima's marginalized poor are correct about the potential of the private sector to meet their water needs -- they can see for themselves how private companies have made electricity, telephones and cable widely available in their neighborhoods. As José Manuel Saavedra, head of CITPeru, a local NGO, wryly notes, poor communities have Internet access, but no water.

The poor know, too, that the price they're used to paying would fall dramatically with privatization. Water they now buy from unsanitary tanker trucks costs 10 to 15 times more than piped water. In Guayaquil, Ecuador, a privatization carried out in 2001 has lowered the price of water by 90% for 275,000 poor people because their homes became connected to the formal network. Privately run water can also save thousands of lives, as has been the case around the developing world including in Argentina, where child mortality dropped by 26% in the poorest areas that privatized water.

By chance, during my visits I learned that the rejection of state services has extended to education as well. One day, a woman in Villa El Salvador confirmed to me that the large building in the distance was a public school, and volunteered that she did not send her son there. Instead, he goes to a private school that charges a fee. "It hurts, but it's well worth it," she explained.

Somewhat surprised, I then asked if many other parents there send their children to private schools. She estimated that at least half do so. Standing on the dusty hillside overlooking the town, with the putrid smell of human waste wafting through the air, the mother pointed to building after building where private, informal-sector schools educate the poor.

As it turns out, Peru's shanty towns are full of such private, for-profit schools. Yet to my knowledge, the phenomenon has not been carefully studied. The anecdotal evidence is, however, consistent with the pathbreaking work of University of Newcastle Professor James Tooley, who documented how private schools in the African and Indian slums he studied have arisen to educate the majority of the children there. Mr. Tooley found that students in private schools performed notably better than those in public schools, and private schools rated better on most indicators, including teacher attendance.

The same seems to be the case in Peru. The one grade school I visited, San Vicente de Paúl, offered classes to 30 children at a cost of about $12 per month. Its several classrooms were clean and orderly, and looked well supplied. The school even had 10 computers connected to the Internet and a small play area. Director Ariela Roque's main complaint, however, was that her school lacked a property title, thus inhibiting its expansion.

So it is that people in Lima's squatter settlements rely on their wits to overcome any number of obstacles thrown up by government. Their thinking is still, as anthropologist William Mangin, one of the first to document the vast informal economies of Lima's shanty towns, described it some 40 years ago: "Similar to the beliefs of the operator of a small business in 19th century England or the United States . . . Work hard, save your money, trust only family members . . . outwit the state, vote conservatively if possible . . . educate your children for their future and as old-age insurance for yourself."

Even in a country where the government is dysfunctional and vastly larger than that of 19th century England, those values can serve as a good development guide. New spending of the kind President Alan García has begun on water projects in Villa El Salvador will not do the trick. As CITPeru points out, Peru cannot come close to spending the $2 billion necessary to meet Lima's water needs unless there is private investment.

The government's new water pipes will mostly be running dry. It is high time the government recognize the dignity of Lima's poor by trusting their solutions.

Mr. Vásquez is the director of the Center for Global Liberty and Prosperity at the Cato Institute.