ENVIRONMENT - MARKETS AND WATER - REVIEWS

Water’s Fall Running the risks with economic rationalism
By Christopher Sheil
Pluto Press

These volumes share ways of looking at the world, both being critical of Economic Correctness with its claims that humane values will follow from the maximising of profits by self-regulating oligopolisers. Frank Stilwell begins by grounding his alternative economic strategy on ‘nurturing, building and sharing’. Although Christopher Shiel was not a student of Stilwell’s, his skeptical stance, like that of two generations of doubters, has been nurtured, built and shared by the doggedness and guts with which Stilwell has kept alight the flame of political economy, whether as a teaching department, a biannual journal or a stream of books. Stillwell’s path is illuminated by contrasting it with that taken by David Hill who had been a tutor in the University of Sydney Economics Department until falling foul of its orthodoxies, and who, following many manifestations as a state functionary, turns up as Chair of Sydney Water in time to star in Shiel’s retelling of its administrative soap opera.

Changing Track is Stilwell’s summation of thirty years of investigative conceputalising. By bringing precepts together, he helps us to grasp what he has been leading us to comprehend all along, offering the material for “a fourth way”, a “new socialism”, based on an “economics as if people and nature matter”. The five characteristics of this approach cover class, production, democracy, co-operation and ecology – but not war and peace, the latter also being absent from his four instances of “wouldn’t it be great if”. Readers unfamiliar with Stilwell’s output may find Changing Track weighted towards surveying the literature and hence short on numbers and case studies.

Stilwell recognises that the state still organises capital and disorganises its victims when he rejects the claim that globalisation has made nation-states redundant: “On the contrary, their economic policies typically play a central role in establishing the conditions for competitive advantage”. To defend a “public” sector, Stillwell needs to hone the definition of “public” to distinguish his goals from the bureaucratic rent, subsidies to corporations and the deregulators’ rhetorical counterpoising of “public” against “private”.

Discussing tariffs Stilwell rebuts the allegation that our balance of payments tends to chronic deficits because tariffs once protected industries so much that they were unable to compete for export markets. He replies that tariffs were introduced to raise revenues and to benefit certain firms. He could have added that protection also managed crises in the balance-of-payments. In addition, automotive exports peaked under a high tariff regime for as long as it suited the foreign parents to export from here. Their failure to reinvest, combined with refusal throughout the Menzies era to coordinate investment, has left more damage than any protective impost. The place of tariffs in the accumulation of capital needs to be clarified so that they can never be more than a tactic in a strategy of planning.

Planning involves the marshalling of capital, or it is a nullity. Under the 1980s Accord the direction of capital never got beyond ill-executed Industry Plans. Stillwell points to the paradox of Hawke’s regulating labour at the same time that he deregulated capital markets. As more national income flowed to capital, its managers failed to increase investment in productive ventures. Compulsory superannuation funds were not channeled towards job creation. “The somewhat socialisation of investment” is what Keynes thought he was on about. The Economically Correct seek solutions to inadequate investment in the market, the realm where Keynes argued the problem originated.

Discussing capital in Water’s Fall, Christopher Shiel dips towards Idealism by arguing that the risk of profit rises accompanying productivity declines “fundamentally stems from failures in the theory, since economic rationalism assumes that capital, in its form as an investment opportunity, has an organic relation with capital as a fixed productive reality”. Surely the greater risk comes from the race for profit, leaving the abstraction as a blind. Instead of twice mentioning Piero Sraffa merely as a conduit to Keynes, Shiel could have buttressed his analysis with the Italian’s 1926 identification of the circularities in the orthodox quantifying of capital.

Shiel presents the difficulty of defining the value of the capital asset in a dam such as Warragamba, built in 1960. Who can know how long the materials will remain functional? Or what will be the cost of an abrupt, or protracted collapse? Or from its disassembly? Can it be left to stand empty, or should it be buried? The environmental costs of a dam may increase after its use.

In documenting 25 years of the management of urban water, Shiel explains that “the idea is to convert water and other public services into valuable corporate commercial activities, which means subordinating public content to commercial imperatives”. Here again is that gulf between a human need and the effective demands that service capital’s compulsion to expand.

Yet it is etatism, not socialism, which looks on the tax-funded supply of all water as an essential function. In deciding what is economically rational, a social equalitarian will want to know the contribution to welfare through employment, taxation and environmental impacts from state spending on a reservoir which, in Adam Smith’s words, is ‘necessary for facilitating commerce’. A comparable caveat applies to drinking water. How much capital should socialists put into flushing cisterns with potable water?

The distinction between table and toilet has long been the case in Adelaide which is the site for one of Shiel’s two case studies after the Big Pong from sewerage during the autumn of 1997. To avoid the yuck and salt from their taps, many Adelaidians have long bought bottled water for drinking, installing rainwater tanks for softer washing. The latter was genuine privatisation, whereas the firm that took over the Adelaide system, United Water, is a subsidiary of Vivendi, one of Europe’s largest conglomerates.

Shiel draws on his work experience as a cabinet official to reveal how corporatisation initiates a momentum towards the sale of tax-funded assets as financial and political costs accumulate around the minister’s office. South Australia awarded the contract to United Water to avoid legal action, not to advance any broader public welfare. For the Sydney upset, Shiel’s analysis has the benefit of the McClellan Report in detailing the incompetence of managers whose only skill is the exercise of power, or bullying.

Shiel spells out the unreliability of comparisons in productivity before and after corporatisation because they omit the longer-run cuts in staffing. Even taking the short-term view, “some of the costs from five years of raising the rate-of-return by neglecting pipe maintenance now had to be paid” in 1998. For instance, laboratory staff at Sydney Water’s commercialised arm were so under-resourced that their numbers on contamination were erratic.

Sydney’s water scare was a case where the epidemic that did not eventuate initiated an inquiry which turned up proof of no less grave matter. The irrationality of the market infected the governmental domain because the new rule for maintenance is “you only get money in a crisis”. Hence, managers let assets run down to secure an injection of funding. Shiel warns that Sydney Water “was an unreliable, broken-down, barely functioning and dangerous production unit, even though, but more likely because, it had been made more profitable” since “a rate of return does not necessarily reflect any real facts about the efficiency or the effectiveness of water infrastructure”.

A closing word in praise of the publisher of these volumes, Pluto Press, which ensures that critical thought gets a hearing. Radical ideas require an infrastructure every bit as much as does profit-taking.

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