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Policy Choices and Challenges

3 Governance Failures

Many of the underlying causes can be traced to three types of governance failure, which are inherent in most countries:

  • Market failure (eg. incomplete/non-existent property rights, uncorrected environmental and social externalities, incomplete information, information asymmetries, monopoly)
  • Institutional system failure (eg. lack of worker commitment, no public respect/compliance culture, incomplete regulatory systems, failure to regulate monopolies, no legitimacy for regulators or service providers)
  • Government failure (eg. water agencies acting to further internal, not public interests, capture vested interests, capacity constraints, bureaucracy, lack or accountability)

These failures are currently being addressed through the Dialogue on Effective Water Governance, but the Tools contained in the IWRM ToolBox are highly relevant for dealing with the major governance problems, as the following section illustrates.

Some of the failures occur outside the water domain. For example, over abstraction of ground water may be exacerbated by failures within the energy markets which highly subsidise pumping costs, and demand for irrigation water could be increased by policies which subsidise food or agricultural exports. By understanding the underlying external causes of the water problems, water professionals and policy makers are better placed to engage in dialogue with other branches of government to seek less cost solutions.

Learning from Failures

When analysing the underlying governance failures, policy makers need to pay special attention to those institutional system and government failures which have bedevilled previous reform attempts. In the past new laws or institutional arrangements have often been introduced based on their theoretical advantages (eg. market instruments) or their performance in other (typically developed) countries, without full analysis of the conditions necessary for successful implementation. For example, private sector participation can fail to deliver the desired benefits if the country concerned lacks regulatory capacity, lacks expertise and negotiating capacity, and neglects the creation of clear dispute arbitration mechanisms. Major reforms, if they are to be successful rarely involve a single change, in the Private Sector Participation (PSP) case new regulatory arrangements, regulatory capacity building, public information to ensure realistic expectations and the ‘removal’ of public sector problems, such as over-manning, may all be required. Learning from the past reform failures can be vital in judging what reform instruments can feasibly be employed.

Barriers to Change

In every country there are some legal, administrative, or constitutional ‘failures’ and some inappropriate policies (from a water perspective) which are currently ‘unchangeable’. For example, in many countries it would be politically unacceptable for private companies to own and/or manage what are regarded as public services. The question then becomes what mechanisms are available to allow the advantages of private involvement (technical expertise, alternative sources of finance) to be achieved within a publicly controlled system.

Likewise, in countries which have recently decentralised their water services to local municipalities it could be politically impossible to reverse this even though major problems have resulted (diseconomies of scale and scope, external costs, eg. pollution passed to neighbouring areas, lack of human or financial capacity). The question then is are there tools which give municipalities incentives to enhance performance, develop cooperative investment opportunities and pool expertise and which reduce their ability to pass costs onto adjoining or downstream municipalities. Similarly, in some countries there may be ethical or religious objections to the use of particular policy tools; the challenge is then to work to find alternative ways of achieving the policy objective and tackling the problem cause.

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