Chapter 8. Property in urban water: Private rights and public governance

‘The prolonged process of social and economic restructuring of the relations between the “private sphere” of economic activity and the “public realm” of democracy and the state’ (Picciotto 2002: 1) often obscures more fundamental questions about how we might formulate property in water as a concept that straddles both the economic sphere and the public realm in Australian cities. In urban areas, the issues of defining the public interest and state accountability, vis-à-vis the ‘rights’ of water users and consumers, and the environment, take on particular dimensions in the light of the regulatory changes occurring in the water supply and ‘retail’ sectors. Moves to deregulate urban water authorities have created models of governance that transcend the simplistic view of dichotomous public and private spheres and public/private property. Some analyses suggest that this ordering, with its terminology of the market, arises independently of the various forms of state law (Teubner 1983). Here, it is suggested that there exists a symbiotic relationship between state law and the economic regulation and techniques of the market that produces a more seamless, ‘regulatory space’ inhabited by both ‘public’ and ‘private’ ‘actors’. Indeed, to posit a dichotomy of public and private regulatory spheres is to ignore the complexities of the interplay between private and public forms of regulation that have merged over the last few decades (see Vincent-Jones 2002: 27; and Godden 2006). On the one hand, there has been a move to allow a greater role for private actors in water-policy development and water-provision services, while concurrently governments have enhanced their auditing and monitoring functions of these private ‘players’ in the water sphere.

Consistent with such trends, the current emphasis on the articulation of the pubic/private modes of regulating water resources in Australia is a consequence of the national water law and policy-reform agenda initiated through the Council of Australian Governments’ (CoAG) political agreement-based process and National Competition Policy (NCP). To date, these converging policy platforms have culminated in the current strategy known as the National Water Initiative (NWI) and its associated institutional and sectoral forms. Reforms of the water sector have produced a broadly-conceived, structural adjustment where the emerging governance and regulatory models share many common features with trends to privatisation, commercialisation and commodification of water in other social-democratic nation states (Bakker 2005: 544).

In particular, key components for the governance of water are a response to an increasingly prominent series of rules and principles associated with ‘economic globalisation’ as an ensemble of legal frameworks, policies and institutions for the promotion and protection of private property, investment and trade. Such rules and structures cumulatively attempt to fashion a global vision of economic policy, property rights, and the role of the state and government that institutionalises the political project called ‘neoliberalism’ (Schneiderman 2000: 84). Under the impetus of this project, an expectation arises that governments will remove regulatory restraints on the movement of capital, property, goods and services. In a corresponding trajectory, governments at all levels are under pressure to divest common resources and publicly-owned enterprises to create private property rights, and to facilitate the private supply of goods and services (Schneiderman 2000: 85). ‘Neoliberalisation of nature’ (see, for example, Marsden 2003) is a term coined to denote the phenomenon which is characterised by the establishment of private property rights in relation to commonly held natural resources. It is denoted by the use of the market as the mechanism for allocation of rights (or perhaps more accurately, for re-allocation of rights), and the adoption of cost and pricing measures that reflect environmental externalities. These elements are united by an overarching philosophy that environmental components are most efficiently used and allocated when regarded as economic goods. Markets, rather than being seen as contributing to environmental degradation, are regarded as a large part of the solution.

In this context, ‘[w]ater has been called the last frontier of privatisation around the world’ (Petrova 2006: 1). Yet privatisation of water admits of various gradations which can include situations where:

Privatisation of water resources in urban areas, therefore, could adopt any mixture of the models of resource management and outsourcing of services under a general rubric of privatisation. These configurations may or may not affect the fundamental construction of the respective ‘property’ in water between the state and private individuals. Indeed, Bakker (2005: 543) posits that privatisation and the introduction of markets has not been uniformly applied in converting water into a private ‘transferable’ commodity. In England and Wales, for example, there has been a resurgence of a mixed private/state-based regulation. Indeed, it is often overlooked that many privatisation objectives are to be achieved by applying a mixture of regulatory policy, legal ‘tools’ and market mechanisms that either seek to place constraints on the scope of ‘state’ regulation (exemplified by trends such as ‘cutting red tape’) or, alternatively, seek to enhance state capacity through increased private provision of services, characteristic of ‘Public Private Partnerships’. Again, these regulatory models may impinge on the relative water ‘property’ distribution between the state and individuals, although complete transfer of public ownership of the water itself, as distinct from infrastructure, into an economic good is unusual within Australia to date (Fisher 2004: 201). Surprisingly, even in the United States, the majority of water resources remain in public control, although various forms of private rights are recognised (Glennon 2005: 10). Nonetheless, the end result in recent times has been to perceive the function of the state in western democracies in an increasingly constrained manner. Accordingly, there has been pressure to progressively narrow the powers of the state with respect to the control and management of water; firstly in response to development-oriented resource-based approaches, and more latterly under globalisation and privatisation trends. However, as Fisher (2007: 122) notes, current water-reform strategies under the NWI employ a range of legal, regulatory, market and behavioural models to achieve the strategic outcomes, all of which will have differing degrees of legal enforceability. Thus, it is difficult to identify a discrete boundary between the public, the private and respective property ‘rights’ without reference to specific institutional and governance forms, notwithstanding the claims that are made about the pervasive privatisation of water.

Increasingly, nonetheless, in the utility and resource sectors, there are emerging forms of water regulation typified by groups of public and private actors who are linked through an ‘identified’ policy problem or objective, such as water security. By virtue of the manner in which the ‘problem’ is defined, it is seen to necessitate joint participation and a joint expenditure of resources. Typically, such inter-organisational structures are expressed in reinvented forms of agreement, which are then given legal expression in the form of contracts, partnerships or even as joint ventures. Innovative, institutional and legal governance forms have appeared in Australia with blended corporate structures where private law models of the corporation are adapted to public functions in structuring the functions of bodies such as water authorities (for a discussion of these trends within the European Union, see Teubner 1983). As noted, where both approaches converge is around a construct of market environmentalism — ‘a mode of resource regulation that promises both economic and environmental ends via market means’ (Anderson and Leal 2001).

However, while adopting joint objectives, market environmentalism is not uniform in its distributive consequences. The conjoining of economic-efficiency outcomes with environmental goals under market environmentalism typically occurs at a highly aggregated level, typically expressed as consumer preferences or ‘highest and best use’, which may ignore local and spatially skewed impacts. Further, the apportioning of risks and returns on joint arrangements and expenditure under the processes of risk-spreading that operates within the financial and security sectors, still suggests uneven responsibilities for the public and private ‘actors’ in the water sector. These effects can be seen in both environmental impacts and in financial obligations — an important consideration given the large capital costs associated with water-infrastructure development. Any potential distributive inequalities are exacerbated as financial arrangements, despite some attention to triple-bottom-line sustainability objectives, remain more traditionally structured around ‘purely’ economic objectives. As the head of project finance nabCapital commented recently:

Whether it is appropriate for governments faced with severe water-supply situations in urban areas, and in the light of long-term drought exacerbated by climate change, to seek to mitigate the risks of water supply by various ‘privatisation’ or market strategies goes to the heart of debates about efficiency and sustainability of water regulation in urban areas. These trends also have significant implications for rural areas as many of the ‘water resources’ that governments offer as the basis for water-supply projects will be physically located in rural regions. Most importantly, many of the repercussions of these projects will be experienced in the environment and communities of those rural areas.

Arguably, in the context of recent government policy on water security in urban areas, we need to invert the well-worn adage of Adam Smith in the Wealth of Nations to examine not just the invisible hand of the market but the ‘invisible’ hand of government in the market. Law, whether legislation, or through court-based processes of dispute resolution, is a key mechanism for governments retaining a hand in the market, even if this presence remains largely unacknowledged. Thus, in concert with such a regulatory approach, the role of law is transformed from its traditional command-and-sanction position to be held in tension with other policy drivers such as ‘market forces’. Accordingly, within this paper, the theoretical context combines an approach which posits law (and regulation) as an expression of normative ‘communications’ between social, economic and political groups or networks, and which recognises that law provides only one, albeit a very significant, technique that is deployed either explicitly or implicitly to achieve those normative objectives (for a discussion see Black 2002: 5–6). In a former era we might have referred to the development of ‘policy’ and then its implementation. Yet law sits awkwardly across such a division. Law is a major influence in the creation of the governing normative order but it is also key to its implementation. Law is central to the institutional design that structures discourse around water (see Dryzek 1997: 109) and also a major instrument to effect the implementation of those normative objectives. If that sense of law is accepted then it is integral to a more complex and reflexive sense of water ‘regulation’ that has come to the fore within Australia. In turn, this impinges upon how property as a legal construct needs to be understood, both as a normative expression and as a ‘tool’ of implementation for policy objectives.