The privatization of water services in Italy: Make or buy, capability and efficiency issues

Increasing private-sector participation to improve the efficiency of infrastructure services was a growing trend in Europe in the 1990s. Dissatisfaction with state solutions, ever-tightening government budgets and technical innovation favored therefore the privatization of the utilities sector and even water utilities. The privatization of water services was generally regarded as the supreme failure of the (welfare) State that turned water into a commodity. The paper presents a critical review of the privatization process of water services in Italy and provides a theoretical insight into critical issues related both to the regulatory framework and pricing mechanism and to make-or-buy decisions. The aim of the paper is to show how the State (i.e., the institution-of-institutions) and the Market can be conceived of not as opposing entities but in a complementarity perspective, according to which the State expresses in the broadest terms society’s organization and historical course and intervenes to correct market failures.