Managing the Murray

Managing the Murray River is arguably the nation's leading policy challenge.

The river supports a $5 billion agricultural industry, supplies water for drinking and recreation to many communities and people and it is the nation's most important freshwater ecosystem.

There is also little slack in the system.  It is currently exploited at close to its hydrological, economic and environmental limits.  Therefore any increase in water -- say, for the environmental use -- must come at a cost of commercial use.  There is capacity to increase the efficiency of water use, but the experts generally agree that the scope is limited.

The task is therefore to optimise the use of the water between commercial and environmental uses.

Over the last decade there has been a general acceptance that the health of the river would be in danger if any more water was allocated to irrigation.  As a result, irrigation volumes have been capped for nearly 10 years.

Environmentalists are now demanding a massive shift in policy which has dire consequences for rural Victoria.  The so-called Wentworth Group are, for example, lobbying governments to transfer at least 1,600 gigalitres and up to 3,000 gigalitres from irrigators to environmental flow.  These volumes represent between 50 and 100 per cent of total water reliably available to NSW and Victorian irrigators and as such would all but eliminate regular irrigation by Murray farmers.

Similar proposals have been promoted by other environmental groups and they are receiving the attention if not the support of urban politicians and the public.

What is this basis for this claim?  While there is widespread belief that the Murray is under environmental stress, there is little hard data to back these beliefs.  Indeed the first comprehensive audit of the river's ecological conditions is now underway.  Moreover, the only pollutant for which there is good data is salt and, contrary to public perceptions, salinity levels have tended to decrease over the last twenty years in the river outside of South Australia.  Some scientists have predicted that large and unacceptable increases in salinity levels will take place in the river over the next decades.  These forecasts are, however, based on theoretical projections and not hard data.

Indeed the latest Report of the River Murray Scientific Panel on Environmental Flows states "there is limited information upon which to make quantitative links between hydrology and the ecological health of the river and the floodplain" and "Knowledge of the species ecology is woefully defective in many key areas and is hampered by lack of historical information".

In short, the basic data on the state of the river's environment and the effects of increasing environmental flows is rudimentary and woefully inadequate to support anything like the Wentworth Group's proposal.  It is certainly inadequate to justify eliminating a $5 billion rural industry.

The problem is that despite the importance of the River, inadequate resources have been applied to understanding and mapping its environment.  And in the absence of basic data all we have is opinion which is inherently subjective, malleable and divergent.

The River and it many users deserve far batter.

ADVERTISEMENT

Private Property Rights: the Key to Efficient Rural Water Use

WATER IN AUSTRALIA

Water has always been a defining issue in Australia's prosperity.  And in recent decades irrigation has grown rapidly.  Even so, only two per cent of Australia is irrigated, one of the lowest proportions amongst among OECD countries.

In Australia's first century of European settlement, agricultural productivity came to equal that of anywhere in the world.  Gains continue to be made -- output has doubled over the past fifty years, a growth that could not have taken place without a similar expansion of irrigation.  The Murray-Darling, which comprises 14 per cent of Australia's land mass including half of Victoria, is our most important agricultural province.  Its irrigated and non-irrigated output, each at $5 billion, comprise a third of Australian agricultural output.

Most of the uses of water involve choices or compromises -- drinking water versus irrigation versus industrial and so on.  Some, however, involve complementarities, particularly flood mitigation and certain recreational uses, like water sports, that are facilitated by storage and consistent availability.

In many cases, water will perform sequential functions -- the same water can be used and re-used for irrigation, used for industrial cooling and finish as drinking water.

Two conditions are required if water with different, sometimes competing, benefits is be optimally used.  First, its ownership must be clearly specified and the owners' obligations to other users (or claims from other beneficiaries) must be well understood.  Secondly, each property right must be tradable to enable acquisition by those who can extract more value from it.

People acquire rights to property initially through a variety of routes.  One of these is seizure of something that was originally of little value until it was acquired and improved.  Squatters assume rights in this way.  No matter how they are first acquired, the rights need to be safe from theft and government seizure.  This provides the incentive for property owners and others to search out ways to increase its value or other benefits.

An owner's diminished security in a property right means it will be used less productively.  For example, if property is to revert to someone else or to the government, owners will milk it for its current use value rather than invest;  in other words they will sacrifice future gain for present benefits.

As a result, when title to property depends on continuing governmental assent, the lack of certainty brings lower incomes.  One outcome of this can be observed in the Murray-Darling system.  Water rights on the Victorian side of the Murray are secure, while those on the NSW side have been over-allocated and are subject to administrative discretion, including having a secure duration of only 10 years.  The result is that farmers on the Victorian side plant more valuable perennial crops while those in NSW tend to focus on annual crops, especially rice.

Some claim that Victoria's more robust property rights mean that the State Government has lost "capability" to manage compared with NSW.  The corollary of this is the increased risk and associated lower value of production north of the Murray.  Governments that give themselves increased capacity to direct production or take individuals properties need to accept lower levels of income and output.

IRRIGATION AND SALINITY

Issues stemming from irrigation comprise two types:  those impacting on the environment and those impacting on private uses.

Increased salinity is the main concern about the Murray-Darling.  This is fundamentally a conflict of interest between productive users -- the complaint of "damaged goods" by downsteam users against those upstream.

The Murray-Darling Basin Salinity Strategy 2001-2015 estimated that increased salinity will mean costs of $294 million per annum to the basin.  Yet data on the salinity of the Murray-Darling shows levels upstream of South Australia are lower than they were in the early 1980s.  This indicates the solutions lie in South Australia.

In any event, full and secure specification of rights and obligations of commercial parties will allow any dispute to be resolved as long as the impacts are measurable and their causes identifiable.  In this respect, technology to measure salt in water and trace increases to particular locations is readily available.

There has been over a century of agreements regarding the allocation of water rights between jurisdictions and to individual irrigators.  Nonetheless, there is likely to be constant bickering over water rights.  This will intensify if State Governments seek to sanctify proposals for changing the carve-up by claiming to promote an improved environment.

Identifying individual ownership rights to water and allowing trade will maximise the value of water.  But if the impending salinity problem is as great as some claim, other solutions might well include buying out some allocated irrigators' rights.  However, alternatives may be to remove salt from the water by engineering solutions or simply to live with higher salt levels.

ADVERTISEMENT

Land Management in Review

Since 1984 Russell Smith has lived on the edge of the Bogong High Plains.

Up until the Australia Day fire attack, the adjacent Alpine National Park was a dry forest with almost impenetrable noxious blackberry, sweet briar and forest floor litter.

The area had not been burned in 100 years.  It was a disaster waiting to happen.

The public lands are managed by Parks Victoria and the Department of Sustainability and Environment, or as we say, the Department of Scorched Earth.

The lands are breeding grounds for feral dogs, cats and goats, blackberry, St John's wort, sweet briar, broom, Patterson's curse -- the list goes on.

It was almost impossible to gain access to the pristine High Country rivers because of weed infestation, but the annual green spotted tree frog count still goes on in the Bundarrah headwaters.

Fire prevention/ minimisation is part of the management of public lands;  but nothing has been done.  Optimum forest floor litter coverage for ecological balance is 4 tonnes a hectare;  in my area the litter was hundreds of tonnes.

Horses could not traverse parts and travel by foot was exceedingly difficult.  There had been no official fuel reduction burning in living memory.

Now fire has consumed more than 1.1 million hectares.

But will lessons be learned from this disaster?  For the first few days of the fires, the public land management authorities allowed the fire to burn and thereby gain ground and momentum.  It was on public land, but there was very little information available.  The local CFA was being told nothing and had nothing to pass on.

By January 14, Russell had a phone call from the Swifts Creek incident control centre.  The person had no local knowledge and refused to provide information on the Feathertop fire, as it was in another fire control area.

On January 21, there was a weak southeasterly wind blowing and Russell asked permission to start a back-burn into the national park.  He was refused.

Knowing the fuel problem on the ground and that the weather was to get worse, Russell decided to back-burn along my boundaries -- it proved to be the right decision.  It saved his property.

The next few days were a disaster of organisation.  Information was either wrong or non-existent.  Suggestions to request defence resources were ignored and they never knew when there would be extra resources available.

Russell had been requesting the department to force an absentee owner to clear his property for 10 years, to no avail.  Omeo CFA was left out of the loop until a week after January 26.

The incident controller did not visit the northern fire areas at any time.  Crews on the ground did not receive briefings.  Local knowledge was not used to guide outside crews.

Unless locals wore a DSE uniform they were not listened to at all.  Information-passing telephone operators did not have any local knowledge or even maps.

Given the technology available, there were periods when communication ceased -- there is no excuse whatsoever.

There needs to be political will to ensure proper management practices are put into place.  Above all, there should be standardised procedures and joint regional exercises carried out.

There must be no division of responsibility between authorities on the ground and those responsible for resource management should not be in charge of the fires -- a clear conflict of interest.

But the most important thing of all is that MPs must accept responsibility for their actions.

Russell didn't see one professed greenie or Senator Bob Brown at the ACT, Kosciuszko or Victorian fires -- so much for commitment.

ADVERTISEMENT

The Power of Ideas

Last week a great Victorian, Dr John Paterson, passed away.

John was one of those often vilified public servants-cum-economists who helped make Australia's miracle economy, in whose praise by the OECD now sings and of whose benefits well all now enjoy.

John worked in the back blocks of reform, which is at the state level on water, health and infrastructure.  He was not one of the new bred of "policrats" who now dominate the halls of power.  He was a true public servant.  He worked constructively for Labor and Coalition Governments;  gave advice on basis of the public interest rather than on political merits;  and earned his rank by force of intellect and competence rather than mateship or ideological allegiances.

John's seminal contribution was to reform of water policy.  His ideas were simple.  He argued that people treat best what they pay for and therefore they should pay according to the amount of water they use.  He argued that building dams imposes costs -- economic and environmental -- and therefore construction of dams should be postponed where water savings measures were cost-effective.  He argued that people need rights over future use in order to invest in water saving capital or shift to higher valued uses, thus secure water rights are an essential feature of water policy.

These ideas may have been simple but they were a revolution in Newcastle were John first introduced them.  Despite concerted resistance, through force of intellect, dedication and organisation skill, John's simple ideas gain force.  Water consumption per capita in the Hunter Valley Water is now the lowest in the country.  And the principles he pioneered there are now in general use around Australia.

In the early 1980s John returned to Victoria as Director-General of Water Resources.  He again introduced his simple ideas along with cutting over 300 separate water boards in the State to a manageable handful.  Here the culture of dam building was deeply entrenched as was the belief that water should not be priced.  Again, despite the resistance, John's ideas gained hold.  Not only have no dams been necessary in Victoria over the last twenty years, but Victoria has far and away the best water rights system in the country, rights that are the foundation of greater rural prosperity in this state.

In late 1989, John shifted to community services.  Under the Kennett Government he became Secretary of the Department of Health and Community Services.  He oversaw the "case mix" system of funding, a form of market provision that directs funding for individual types of treatment to the most efficient hospitals.  This too was adopted elsewhere and continues to revolutionise health care around the country.  He also shifted hospitals-beds to the suburbs (where patients live) and started exposing the incoherent mess that is health funding.  John also contributed to reform of the ineffective and inefficient ambulance services.  While the information system put in place by a private contractor was not perfect it was far superior to what it replaced and has saved many lives.

John's central contribution was to drive reforms that not only saved money and resources but delivered better service to the public.  This is the essence of a now vibrant economy.

ADVERTISEMENT

Why Aid to Poor Countries Has Failed

The Elusive Quest for Growth:  Economists' Adventures and Misadventures in the Tropics
by William Easterly
(The MIT Press, Cambridge Mass, 2002)

William Easterly is an American economist from the World Bank.  In this book, he reflects on the mistakes made by the World Bank and the International Monetary Fund over aid funding to poor countries since World War II.  It is thick with real insights.  It relates a string of aid and development policy fashions over the period and tests them against their outcomes.  The answer, of course, is a string of policy failures.  Easterly seeks the answers.

Take one very prominent example:  the Jubilee 2000 campaign to forgive the debt of poor countries.  The churches, with prominent figures such as the Pope and the Dalai Lama, and the usual motley lot of do-gooders with their stars such as Bono of rock group U2, pressed Western governments to forgive the debt of the poorest countries.  Let them start afresh without this burden placed on them by the West and all will be well, was the argument.  As a true economist, Easterly tested the incentives in this policy of debt forgiveness.  In the first instance, the big problem is that debt forgiveness is not new.  The World Bank/ IMF Highly Indebted Poor Countries Initiative, now running at $27 billion, stands on the shoulders of decades of previous rounds of debt forgiveness.

The promise of Jubilee 2000 is no different to all of those that have gone before.  "The debt campaigners treated debt as a natural disaster that just happened to strike poor countries".  The truth is not so charitable.  Countries that borrowed heavily did so because they were willing to mortgage their future.  They were irresponsible, they sold productive assets into unproductive hands, they built unproductive infrastructure, they favoured one ethnic group over another, or one region over another, they ran inflated economies, they were corrupt, they waged war, they allowed black markets to develop because they controlled exchange rates and interest rates.  And all the rest of the sordid details.

Data for 41 highly indebted countries -- Angola, Benin, Bolivia ... Zambia -- show that total debt forgiveness from 1989 to 1997 was $33 billion, while their new borrowing in the same period was $41 billion.  Moreover, new borrowing was highest in the countries that received the most debt relief.  In other words, the system rewarded debt;  the incentives were terribly wrong.  Clearly, there were irresponsible lenders as well as irresponsible borrowers.

What to do?

Easterly's insights -- based on and learning from his own and his profession's readily admitted mistakes -- are those of an obviously brilliant economist.  An economist brought to book by experience, or as one commentator remarked, "a lifetime idealist mugged at last by reality".  These insights are conceptually simple:  first, growth helps the poor, and second, people, rich and poor, governments and donors, respond to incentives.

First, he asks,

Does the government of each nation face incentives to create private-sector growth, or does it face incentives to steal from private business?  In a polarised and undemocratic society, where class-based or ethnically based interest groups are in a vicious competition for loot, the answer is probably the latter ... In a democratic society with institutions that protect the right of minority interest groups, institutions that protect the right of private property and individual economic freedoms, governments face the right incentives to create private sector growth.

Second,

Does each donor give a vested amount of aid to each country, so as to justify next year's aid budget? ... Do the World Bank and the IMF give loans to the Mobutus of the world, or support aid to governments that can present credible intentions to build national infrastructure and help the poor?

Third, individuals and businesses may face poor incentives from bad governments, but additionally they face low incentives to grow because their productivity depends on that of other poor people.  Aid that matches grants to the poor with increases in their own income as opposed to penalties, which is standard in welfare systems, can help correct poor incentives.

Easterly's contribution, when matched with Hernando De Soto's, Mystery of Capital, which brilliantly argues the case for property rights for the poor as the path to wealth in the Third World, provide a welcome intellectual fillip to those who view themselves as both on the right and in the right.  It is a splendid book.

Skewering the Dogma

The Blank Slate:  The Modern Denial of Human Nature
by Steven Pinker
(Allen Lane, 2002, $29.95)

When I was a lad at school, my English teacher defined for the class the meaning of "dogmatic".  By way of illustration she intoned "the dogmatic scientist".  I was silently outraged.  Scientists are seekers after truth.  "The dogmatic English teacher" would be more apt!

Sorry teacher.  You were right.  I was wrong.

My disillusionment with scientists has been long in building, and is now complete thanks to Steven Pinker's new book:  The Blank Slate:  The Modern Denial of Human Nature.

While it has destroyed the remaining illusions I had about scientists, it has offset this by affirming my belief in science.  Not, I hasten to add, that science's current answers are right, but that science is a self-correcting system.

The principle purpose of this book is to refute a set of assumptions about humanity that inform, and arguably do great damage to, studies of humanity.  These, he says, have been made obsolete by advances in studies of the mind.  Those assumptions are:  the Blank Slate, the Noble Savage and the Ghost in the Machine.

The Blank Slate is the notion that out minds are infinitely malleable, especially as children.  The concept of the Noble Savage is that the horrid aspects of life are due to that malleability being misemployed to pervert us, when compared to native persons who are not so twisted and thus live happy lives.  The Ghost in the Machine is a pithy term for Cartesian dualism:  that our minds are "entirely different" to the bodies which house them.

Pinker comprehensively demolishes all three.  He approaches the issue from the perspective of an evolutionary psychologist:  the capabilities (including the mental capabilities) of people were evolved, as described by Darwinian models, in order to meet their survival and reproductive requirements.  The evolutionary variation that distinguishes humanity as a species virtually all took place during the relatively lengthy period in which humans and their precursors lived as hunter-gatherer bands, not the mere ten millennia of settlement and large-scale social organisation.

This means that we are not born with minds that are ready to absorb whatever culture cares to imprint, without limit, but are equipped with a wide range of mental mechanisms (or an impetus to develop those mechanisms during the first years of life) that proved useful for our earlier hunter-gatherer lifestyle.  Some of these mechanisms have been adapted for our more complex modern societies, but that does not detract from their importance.

Pinker assembles a strong empirical case from the neurological sciences to prove his point, and ties this in with other scholarly fields, such as anthropology.  In doing this he engages in the dangerous task of choosing:  will he go with the mainstream social scientists, or those dissidents who are roundly condemned by their colleagues?  He has chosen the latter, rightly recognising that much anthropology has been corrupted by a post-modern theoretical foundation that renders it useless.  He draws on Napoleon Chagnon's studies of the South American Yanomamö tribes as a window into how humans related to each other before the development of more widely organised societies:  in a word, appallingly.  Rousseau was wrong.  By our modern sensibilities, the savages were anything but noble.

Along the way he takes on those scientists who oppose the concept of a human nature, highlighting the way some resorted to dreadful misquoting so that, for instance, geneticist Richard Lewontin and neuroscientist Steven Rose could mutate Richard Dawkin's "[genes] created us, body and mind" into "[genes] control us, body and mind".  Quite a difference.

I suppose scientists can, indeed, be dogmatic.

Pinker also defends the fact that our brains have a set of built-in modes of operation, and certain built-in limitations, from attacks by the religious and cultural right.

This is not the end of the matter.  He persuasively argues not only that this "mechanistic" view of humans does not justify any abdication of personal responsibility for uncivilised behaviour, but that it provides a stronger basis for morality than either Marxist atheism or any of the various faiths.

The reason is that, for all practical purposes, it leaves our conception of freewill undamaged.  The mind, which forms our nature, may be mechanistic, as indeed may be the processes of Darwinian evolution which formed the mind, but it is also an "open-ended combinatorial system" which yields infinite variety within the bounds of what it is to be human.

This book is a powerful addition to the popular exposition of science.  For me, it also provides a powerful underpinning to FA Hayek's The Fatal Conceit.  Hayek assumes a human nature, and a state of nature in which humanity operated through most of its past.  Pinker proves it.