The political economy of water reform feasibility in Australia

Australia is experiencing the most dramatic and comprehensive reform of its water industry, placing it at the leading edge of water management internationally. A key feature of the reforms is the explicit linking of economic and environmental objectives: in that the reforms seek to improve environmental management of the nation's river systems by increasing efficiency of water use via water markets. However, there is growing evidence to evince that water markets are failing to achieve environmental objectives. This paper uses the insights of economic sociology to analysis this failure, and argues that economic efficiency does not and will not guarantee environmental effectiveness because newly constructed water markets are embedded in existing social processes/industry structures and are permeated by existing power relations. For real environmental benefits to accrue, existing water markets must be seriously restructured. This paper explores the elements of such a restructure and suggests that it is unlikely to succeed without strong state action and coordinated policymaking, institutional reform, adjustment packages, significant community involvement, and the participation of the rural sector. Finally, it proposes that social capital could play a pivotal role in the restructuring of the Australian water industry.