Govts rethink benefits of comprehensive privatization

By Jonathan Freedland

LONDON: They showed the world the way to free market heaven -- and now they're having second thoughts. An ocean apart, and far, far away from us, they are two societies that blazed a trail toward the privatized future: between them they offered a model for the new age, hastening an era when governments would shrink and business would take their place. But guess what they're up to now.

Head west and touch down first in California. Pioneers in their blood, they have a good claim to starting the free-market revolution of the 1980s. It was California where Ronald Reagan cut his teeth as governor before winning the presidency in 1980; California, too, which passed Proposition 13 in a 1978 referendum -- keeping a legal lid on property tax rates. As California went, America followed -- embracing the low tax, free market rules which went on to become global orthodoxy.

But look at California now. The state once synonymous with free-wheeling capitalism is turning dramatically left. Driven by an electricity crisis that has caused rolling power cuts, plunging the Golden State into unaccustomed darkness, California's politicians are mulling a radical change of course.

They want to clear up the mess left by the botched privatization of the state's power supply -- by buying back the transmission system they sold off less than five years ago. Put simply, California is set to "renationalize" the grid.

As you reel from that news, stumble towards LAX for the 12- hour flight from Los Angeles to Auckland. For New Zealand is the other pioneer society which once led the global march toward market fundamentalism. It Reaganised faster than Reagan.

Rightwing economists the world over flocked to the south Pacific to hail the Kiwis' wisdom in privatizing faster and more furiously than any country in the world.

In a few, breakneck years in the mid-1980s they did it all: deregulation, tax cutting, selling off the state owned family silver. "It was market forces with a vengeance, to the power of 10," says one ministerial veteran of those years.

But survey the scene today. A new kind of Labor government rules New Zealand now, in coalition with a small, leftwing Alliance party. In little over a year, they have not only increased the top rate of income tax for high earners, jacked up pensions, reduced student debts and boosted trade union rights, they have dared halt the global trend toward privatization -- and even reverse it.

Where previous administrations had privatized the payout of compensation for workplace accidents, this government promptly renationalized it. They are now eyeing the railway network which, like Britain's, was sold off in the last decade. The privatized service, Tranz Rail, has been deluged with the same criticisms heard in Britain -- over everything from declining safety standards to abandoned rural services. The papers call it Tranz Fail.

But New Zealand Labor and its allies refuse to be content with mere rhetorical demands for improvement. Instead they are reminding Tranz Rail -- which is not even owned by a New Zealand company, but in faraway Wisconsin -- that the government still owns the land under the track and that it is quite willing to run services the firm deems unprofitable.

Translation: Labor is ready to shove the fat cats to one side and renationalize a chunk of the railway.

As if that was not enough, New Zealand is ready to do more than merely undoing failed privatizations. Any day now it will announce a decision on a new venture -- owned and run entirely by the private sector.

Designed to remedy a sell-off fever which left every one of NZ's high street banks -- including the Bank of New Zealand itself -- in foreign hands, the Alliance has proposed the setting up of a new bank, offering cheap services and low-cost loans, owned and operated by the government, via the post office (the one service past administrations never sold off). They even plan a name rich in socialist heritage: the People's Bank.

It is a remarkable transformation. Where once New Zealand seemed bent on shrinking the public sector to anorexic proportions, it is now pumping it full of new blood. For prime minister Helen Clark, the turnaround has been dizzying -- but essential.

New Zealand's experiment in market fundamentalism had "failed", she told me in her modest constituency office in Auckland. Growth was slower than anywhere else in the western world, business performance at rock bottom.

"The high priests of the right were telling us to keep throwing more meat at the beast, to privatize more and more -- until eventually the government would tax nothing, regulate nothing and do nothing," she says. Labor called a halt, resolving to keep market forces out of health, housing and education, and to "rebalance" the economy and society.

Why should any of this matter to the rest of us? Surely New Zealand, like California, is light years away from, say, the United Kingdom?

Not to Clark it ain't. Her party is self-consciously modeled on the UK's New Labor. Besides, New Zealand has a long record of setting global trends. It was first to give votes to women, first to create a welfare state, first to balk at nuclear power and first to tear down the state in favor of the market. If New Zealand is heading the other way now, we should all take notice: we have followed in their wake before.

The British prime minister Tony Blair and the British New Labor Party should pay particular attention. For they have made the once rightwing faith in the private sector their own, adhering to it just as closely as the Conservatives.

They continue to wage war over a public-private partnership for the London underground train network and to scare the British public with privatizing plans for the air traffic control system.

But what if the famously modern British prime minister is out of step with the times? What if the message from Los Angeles to Wellington is that the new trend is in the other direction, away from a wide-eyed belief in the private sector and toward a new trust in the public?

The irony is that this trend should present no threat to Blair. Listen to Jim Anderton, the Old Laborish leader of the Alliance party and New Zealand's deputy prime minister.

"I'm not waging ideological war against Rogernomics," he says of the rightwing philosophy named after NZ's 1980s finance minister, Roger Douglas. "I'm just saying, isn't this a good idea?"

In a post-ideological world, says Anderton, the public option might sometimes just be the most sensible. Pragmatism, not doctrine; "what works" over dogma: it should be classic Blairism. So, once the UK election is out of the way, perhaps Blair should head west for his holidays. He might like what he sees.

-- Guardian News Service