PHOENIX—Five minutes into his interview, Alan Stephens, the chief of staff operations for Arizona Governor Janet Napolitano, squashed the single biggest fear driving efforts to protect the world’s largest freshwater lake system from massive diversions.

“We’re not planning to go after the Great Lakes,” Mr. Stephens said about his scorched desert state’s true intentions concerning the unrivaled freshwater ecosystem 1,800 miles east of here. “Augmenting our limited water supply is important. But you don’t do that by taking other people’s water. You do it by improving resource management and cleaning and conserving your own supply."

In the last century, “augmenting” the limited water supplies of thirsty Western states like Arizona meant cooking up schemes to divert vast amounts of liquid gold from neighboring states and regions - even those as far off as the Great Lakes Basin - to cities like this one. The thought has long made people in the basin very nervous.

Nervous enough, in fact, to spur the Great Lakes states and Canadian provincial governments to finally sign the long-awaited Great Lakes-St. Lawrence River Basin Sustainable Water Resources Agreement last December. The agreement, which is meant to end any continental water wars before they can begin, sets strict new standards that make large water withdrawals from the region difficult, if not impossible, although individual legislatures must still enact the basin-wide standards in their own states.

Basin state residents should not feel completely sanguine about Mr. Stephen’s reassuring words, however. They actually point to a brand-new kind of competition between bone-dry places like Arizona and water-rich places like Minnesota, Wisconsin, and Michigan. The new contest is not over which region can best poach or defend a water supply; instead, it is over which can spark vigorous new business growth by most quickly developing new technologies that can stretch and improve available water supplies.

And the Grand Canyon State seems to already have a leg up.

Pumping Up a New Economy
That is because while Great Lakes leaders talk new water treaties, Arizona is already acting to develop new water technology. Governor Napolitano, a Democrat, and other state officials have ditched expensive plans to build powerful pumps and transcontinental pipelines and instead have begun to coordinate top talent at several state universities with public economic development dollars and private industry to gain a competitive edge inthe lucrative water conservation business. The governor, Mr. Stephens says, is convincedthat developing drastically improved water conservation and purification products and selling them worldwide would bring thousands of new, high-tech, high-paying jobs to Arizona.

Water-tech’s potential market is vast. Approximately 1.4 billion people now live without access to clean drinking water, according to the World Commission on Water for the 21^st Century, an international association of Nobel laureates, policymakers, and scientists. The commission also found that seven million people—mostly children—die each year from water-borne diseases. The governor’s administration is looking hard at the problem.

“As water supply and quality is becoming a global problem, water is turning into a booming business," according to a 2003 report prepared for the Arizona Department of Commerce by the Battelle Memorial Institute, a scientific and technological consulting firm based in Columbus, Ohio. "Worldwide, annual industry revenues are estimated at $300 billion, with the United States accounting for more than half of that amount."

"This number is expected to grow as water becomes scarce and consumer markets begin to mature," the report continued. "Water markets are emerging in Australia, Chile, and Mexico, with expanding potential in the Middle East, Asia, and North and South Africa.”

The report details the promise of targeting growth in the water industry. Water supply and wastewater treatment is a $122 billion global market, for example, and demand is escalating for modern technologies that use it more efficiently and improve its quality. The market for improved desalination of seawater, currently estimated at $2 billion annually, is projected to grow to $70 billion by 2020. Irrigation is already a $30 billion annual market, with demand for water-conserving systems growing 10 percent each year.

Incubating Water
Some entrepreneurs in the Great Lakes region are beginning to pursue the opportunity, too, but the state has shown little interest in most of their ideas. In April 2006, approximately a dozen business leaders submitted water-related proposals to Michigan's 21^st Century Jobs Fund, a $100 million initiative specifically designed to funnel public investment to high-tech companies, generate modern employment opportunities, and diversify the economy.

Applicants included a company called Applied BioSensors Inc., which seeks venture capital to commercialize a more effective water-quality testing device. In a separate proposal, Syed Hashsham, an assistant professor in the Civil and Environmental Engineering Department at Michigan State University, is developing a computer chip capable of detecting some 50 toxins that threaten water quality. And John McCulloch, the Oakland County Drain Commissioner, aims to establish the Michigan Drinking Water Protection Technology Incubator.

The incubator would accelerate the rise of small businesses developing new technology to improve the safety of public drinking water supplies, which rely on increasingly antiquated water distribution and wastewater treatment systems. Since designing, building, and commercializing the new, modernized equipment is a pricey proposition for entrepreneurs, and since that equipment is often expensive for municipal water providers to buy, install, and maintain, the incubator would initially partner with established companies to speed new, cost-effective products to market.

Those companies include American Water Signal, which has developed a wireless drinking water monitor that hides in fire hydrants, and DynamOx, which has an idea for a better way to treat and clean wastewater.     

"The firms who get the new equipment to market first win," said Jim Ridgeway, who heads a Detroit-based environmental consulting firm working on the incubator project. "This could be worth a ton. There is a tremendous opportunity in Michigan to take our existing knowledge, leverage that knowledge, and develop, test, and commercialize the new technologies."

Despite the rising sense of urgency over gaining a foothold in the lucrative global water market, only five of the original 12 water-tech proposals survived the first round of the state’s intense review process. Along with 179 other finalists, the applicants moved onto the second phase of the 21^st Jobs Fund competition, which is managed by the Michigan Economic Development Corporation. But only one idea—Mr. Hashsham's water-smart chip—ultimately received funding. The $966,000 applied research grant is expected to generate two new jobs for the state's homeland security industry.  

More of the Same?
Mr. Ridgeway was optimistic that the Oakland County incubator would eventually receive start-up funding. But he expressed concern that Michigan economic development lacks a cluster focused on the growing water industry. The state currently manages the Life Sciences Corridor to cultivate research and development opportunities in the health industry. And other programs specifically promote the advancement of advanced automotive engineering, homeland security, and alternative fuels. But the high-tech water business is not really on the state’s economic radar.

Unlike Arizona, Michigan’s current business plan and political discourse perpetuates the debates of the 20^th century. In 2001, for example, Michigan offered subsidies worth nearly $10 million to the Perrier Group to attract the company to the state. The company now extracts and bottles its Ice Mountain water brand in the heart of the Muskegon River watershed, and exports it to much of the rest of the country. Yet, at the same time, a proposal to open a world-class water laboratory in downtown Grand Rapids to draw researchers from around the world withered away due to a lack of start-up capital—and any help from the state.

The current political season seems to promise more of the same. Michigan’s two gubernatorial candidates talk far more about halting the export of Great Lakes water than about promoting the development and export of new water-friendly technologies. Democrat Jennifer Granholm, the current governor, remains focused on the state-level action necessary to execute the recently signed basin agreement.

“The collective regional focus now needs to be on all states passing, and Congress ratifying, the agreements which will enact the prohibitions on diversion contained in the Agreement," Governor Granholm, recently said.

Her opponent, Republican Dick DeVos, has added little to the campaign’s discussion so far, either.

"The Great Lakes are our number one asset—the largest source of freshwater anywhere in the world," reads his campaign Web site, which adds that Mr. DeVos does "not favor Great Lakes water diversion. We have an abundant, renewable, sustainable resource in water that, if used intelligently here in Michigan, can create jobs. However, [I] will fight any diversion of water outside Michigan."

True Conservatives
In the meantime, Arizona continues to push ahead. The state has launched a comprehensive economic development plan to invest in water-tech innovation, attract high-tech companies, generate good paying jobs, lure talented workers, and remain competitive in the knowledge economy.

Still in its early stages, the program started with the announcement in October 2004 of the Arizona Water Institute, a collaboration among water experts from three state universities organized to support water policy, planning, and technology development. State leaders intend to double employment in the water sector by 2010. Four demonstration projects are already under way; the largest is a Web-based “information backbone” focused on the state’s water resources.

The activity is already attracting some high-profile attention. China, for example, is talking with Arizona State University, one of the project’s collaborators, about promoting sustainable growth, according to Alan Stephens.

With a desert landscape, limited water supplies, and one of the fastest population growth rates in the nation, Mr. Stephens said Arizona faces a water management challenge that is a microcosm of the challenges confronting the entire planet. He said the state is well positioned to become the "the water management capital of the world."

“We want to take our experience, market it, and make it a driver of our new economy," he said. "We want to translate our water expertise into job creation.”

“Arizona is a conservative state," Mr. Stephens added. "We’re not just going to throw money at unrealistic goals and ideas. We’re going to do our research, define the new markets, and begin to allocate public resources accordingly. There’s tremendous potential here and we’re going to do it right.”

Andy Guy directs the Michigan Land Use Institute’s Water Project from Grand Rapids. Read his blog at greatlakesguy.blogspot.com. Reach him at aguy@mlui.org.