Books

Scott Hamilton and Stuart Kells
Sold Down the River

How might you manage the limited water on the driest continent on Earth? You could depend on systems of law, custom and spirituality, as Indigenous people did for tens of thousands of years. You could rely on elected governments, rather than private individuals, to allocate flows, as Alfred Deakin advised in the 1880s. Or, alternatively, you could turn water into a mind-bogglingly complicated financial commodity and then invite the most rapacious traders on the planet to speculate on it.

In the early 2000s, Australia plumped for the third option, with the Council of Australian Governments establishing the National Water Initiative to manage the Murray–Darling Basin. As Scott Hamilton and Stuart Kells explain in Sold Down the River: How Robber Barons and Wall Street Traders Cornered Australia’s Water Market, the venture was internationally unprecedented, an experiment possible only because of the ideological fanaticism prevailing in the high neoliberal period.

Economists promised a regime dizzying in its efficiency, in which the market would allocate rights to water (severed from any association with land) wherever they might prove most productive. But this magic, they explained, would happen only if 18-century economist Adam Smith’s invisible hand could move without impediment – and so it was decided that the trade would not be governed by the Australian Securities and Investments Commission or regulated in any way.

Hamilton and Kells describe the system that evolved: “Farmers must … decide whether to buy and sell ‘on-market’ or ‘off-market’; and, if on-market, which trading platform and water exchange to use. To secure enough water, farmers often have to buy it across multiple exchanges and platforms. There are public and private exchanges, along with public and private water information services and matching apps such as Waterflow and Waterfind.”

To turn liquid into liquidity, policymakers urged bankers, hedge funds, superannuation managers and corporate investors into the action. The wolves of Wall Street duly descended on local lambs, with older farmers who could barely use smartphones suddenly competing with corporate whiz-kids and bots sealing deals within microseconds.

The new market coincided with a broader deregulation of the financial sector, one that encouraged risky speculation on almost everything. This was a time when Enron executives, heavily invested in electricity and gas, were filmed cheering on Californian wildfires. “Burn, baby, burn,” shouted one trader, knowing energy prices would soon spike.

The intricacies of water-trading suited such people to a tee. They mastered the system’s complexity and weaponised it against ordinary farmers, compiling sophisticated dossiers on agricultural conditions, climatic trends and the finances of rural communities.

A lack of governance allowed them to operate more or less in secret. “[T]raders routinely lied about what they were doing and why …” explain Hamilton and Kells. “Falsity became … a routine feature of the market.”

The deep pockets of international banks meant traders could force high prices on irrigators desperate to buy, and low ones on those who needed to sell. “Once inside the water market, the banks and the traders used Wall Street techniques (and Wall Street ethics) to play the market. They introduced digital trading techniques, aggressive arbitrage tactics and market manipulation. There were few controls to prevent conflicts of interest, such as those faced by brokers. Before entering the Australian water market, Wall Street traders and hedge funds had worked out how to corner markets, especially the ‘dark markets’ for over-the-counter swaps and derivatives, where they could trade on their own account, and use the information of customers and counterparties against them. The payoffs were huge, including secret margins and commissions, but the risks were low. This was a dark-market magic pudding.”

Cut-and-come-again for the financiers meant belt-tightening austerity for regional communities, with farmers forced to spend more and more time competing for a resource that grows steadily more expensive. “Most farmers just want to be out in the paddock,” one local tells Hamilton and Kells, “and making the best choices and most efficient decisions to grow good-quality high-yielding crops or cattle or whatever it is. And then all of a sudden they’ve got to be indoors making these trading decisions and marketing decisions.”

Environmentally, of course, the Murray–Darling’s decline continued, with the mass fish kills of 2018-19 a ghastly indicator of a spreading ecological disaster. The authors tell us that in the 2000s, many environmentalists backed the marketisation of water, convinced it would force polluters to pay. “Between left-leaning greens and more conservative browns,” they say, “there was a remarkable buying in to the cap-and-trade approach.”

In some ways, that’s the most terrifying aspect of this deeply disturbing book: cap and trade became, at the same time and for the same reasons, the mainstream response to climate change. Sold Down the River shows that financialisation means the transformation of the immediate into the immaterial, with a water market treating a certain quantity of H2O as an abstraction equal to any other commodity of the same price.

As Hamilton and Kells say, the bankers and brokers buying Australian water could equally be dealing in Brazilian soybeans or bets on the World Series: “The people who drive the market do not have a state or a region or even a country. Their interest in water is estranged from place.” Nature, however, does not work like that. The environment remains recalcitrantly concrete, irreducible to the ones and zeros of a stock-exchange ticker.

For the people Tom Wolfe once dubbed Masters of the Universe, water-trading proved a roaring success. For the river system – and the people dependent on it – the market brought nothing but catastrophe.

Now think about what that means for the climate.

Jeff Sparrow

Text Publishing, 336pp, $34.99

This article was first published in the print edition of The Saturday Paper on Sep 4, 2021 as "Sold Down the River, Scott Hamilton and Stuart Kells".

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Reviewer: Jeff Sparrow