Twenty-years ago there were 14,262 banks in the United States. Every community had at least one bank. Great political power vested in their owners. Today there are about 9,000 banks. Think of the sweeping changes hat have occurred: national banking, ATMs, interest on checking, sale of mutual funds, telephone access, the loss of differentiation between savings and commercial banks, the merger of Chemical and Manufacturers Hanover, and the emergence of Nationsbank and Fleet. Twenty years from now the water industry will have experienced a similar revolution.

Three great changes are coming (see table); (1) re-engineering, (2) consolidation and (3) privatization. These three apply equally well to both the investor-owned and municipal sectors of the industry. The customer, the only person who ultimately matters, does not care about how the industry chooses to organize itself. What matters s product quality, service and rates.

Re-engineering America's water companies has only just begun. Over the past ten years, the average number of customers per employee is estimated to have improved only 6 percent, a much smaller increase than the 16 percent realized in the banking industry, or the 22 percent obtained in the telecommunications industry.

While significant improvements have been made in the quality of drinking water, management still needs to be flattened, decisions delegated, technology adopted, and productivity improved. The key is to better utilize computers, to empower better trained managers, and to be tougher about under-utilized assets, particularly employees.

The impediment to re-engineering is inertia, which may take the form of regulators' unwillingness to allow a fair rate of return, management's reluctance to adopt new technology, labor's insistence on antiquated work rules, or a reluctance of all parties to eliminate overstaffing and waste.

Consolidation is both inevitable and desirable. are too many small water systems, both investor-owned and municipal. Of the 58,000 water systems, only 2.5 per cent serve over 25,000 people; many small systems are, or will shortly become, non-viable. Just like community banks, the industry needs to consolidate into larger units where a critical mass of expertise can be sustained and a large customer base can absorb the cost of infrastructure improvement. The Safe Drinking Water Act will push consolidation along the way, but the driving force will be consumerism and the media. In one industry survey after another, consumers have signaled their desire for better service and more involvement in the trade-offs faced by the industry.

The impediment to consolidation is frequently rigidity of thought of the water utility owners, their executives and municipal managers. Owners are not yet ready to consolidate their holdings into larger, more economically viable organizations. Managers, both municipal and private, are not yet willing to face the loss of power which they perceive will result from consolidation.

When the purchase price is high enough or the operating costs of small systems intolerable, owners and managers will promptly seize the economies of scale.

Privatization is happening in many countries, but not yet to a material degree in the U.S. With America's distribution systems built and water universally available, the time has come to focus on the most effective way to improve the infrastructure and to streamline operations.

Competition is usually the most effective way to improve efficiency. The issue is, what is the best way to introduce competition into our water systems, particularly the municipals. Operating contracts are far more likely to succeed than the sale of assets because the US tax laws convey many structural advantages to municipal ownership. On the other hand, competitive bidding to design, install and operate America's water and waste facilities is eminently possible. The process has been going on for years, and has recently received a boost from Mayors such as Giuliani of New York and Goldsmith of Indianapolis. In 1992 over 400 separate contracts were let for about $450 million. By 1998 industry sources estimate that there will be over 800 outsourcing contracts for water and waste water.

The impediment to privatization is fear over job-loss. City managers and union representatives are wary of the loss of jobs which may result from contract bidding among for-profit companies, each competitively driving for productivity improvements.

Once the reality of taxes, needlessly high to subsidize water rates or featherbed municipal jobs, becomes conspicuous to voters, mayors and city managers will choose political goodwill over a few jobs in the water department.

The river ahead is rocky, but the pressure to overcome each obstruction is building. The industry has the technical capability and the ability to raise the necessary finances. What may be lacking is the willingness to overcome inertia, abandon rigid thinking, and welcome the substitution of technology for jobs.