Posted by on 10/26/09 in Global Politics, Nature

The contemporary band “There Might Be Giants” has written a great song (ostensibly for children, but addictive for their parents) called “Meet the Elements,” one in which H2O features prominently. It seems so simple. Combine two of the most common elements on Earth (two parts Hydrogen +  one part Oxygen) to create the substance that covers most of the earth’s surface and constitutes 70% of the human body (=Water).

But you don’t have to be from semi-arid, landlocked Colorado to appreciate that water is far from simple and even farther from commonly accessible. Water has always been a potent geo-political commodity; if anything, it is only becoming more so. Gold, oil, copper, rice and wheat can all stake claims as the most vital of tradable commodities; yet, it is water that lies uniquely at the heart of so much human suffering and possibility.

While the conflicts in the Middle East—and particularly those between Israelis and Palestinians—are almost always framed as tribal or theological in nature, perhaps the most daunting issue on the table between the conflicted parties is nature itself. Who will control water on the West Bank and Gaza? Whose olive groves—and children—will drink and whose will not? Michael Oren reports that one of Yasser Arafat’s first attempted attacks on Israel was not on school, a shopping district, or even a military installation—those came later. No, the first attack was on a newly built water pumping station in the still young Israel. And whatever the “final” peace looks like, water rights must figure prominently in that settlement.

Turn then across the globe to California, the 7th or 8th largest economy in the world, one that has struggled to secure sufficient water to meet the competing needs of consumers, agricultural producers and  the rich ecological environment. For many consumers, particularly those in urban areas, water is something that flows on demand from a tap or spigot, rather than something that must come one way or another from the sky or the ground. Many of us have grown accustomed to assuming that water will be available at our pleasure regardless rather than as a result of lifestyle and policy decisions. And it is not just the American West; recent droughts in Georgia and Pennsylvania have been provocative reminders that even the most developed nation cannot assume that our lifestyle is impervious to nature.

Clearly, however, the most acute water challenges are in the developing—or politically stagnant—countries of Africa, Southern and Central Asia, and Latin America. These are the places where children die in the thousands each day due to lack of access to clean water. There seems, however, to be a trend toward forging solutions that rely less on the cooperation of corrupt or incompetent governments and attend more to the cultural and behavioral issues of the people who most need the clean water.

Why discuss water in an economic update? As the developed West reevaluates how it invests, we would hope that the resulting paradigm is one in which the investments themselves—as well as the desired outcomes—are more sustainable. Capital markets can join and empower those engineers, entrepreneurs and policy makers that are taking on the challenge of securing clean water. Yet to be effective long-term, the capital markets must to a certain degree align their objectives with those who are designing and implementing the products and policies. Thus, the capital markets themselves might need to be brought to bear differently and by different actors than in the past.

In a time of tremendous change, that prospect is not only exciting, but also possible.