KEY POINTS:
The state-owned enterprise (SOE) was born after the Finance Minister in the mid-1980s, Sir Roger Douglas, blamed an inefficient public sector for an inefficient economy.
It was wrong, he said, to have 12.5 per cent of gross domestic product, and 20 per cent of new investment, going into
businesses that in some cases provided no return.
The answer: making government businesses run along the same lines as private sector companies, with accountable directors and the main aim of paying a dividend to its owner, the Crown.
The legislation passed in December 1986 created some now household names, including Timberlands, Solid Energy, Meridian Energy, Tranz Rail and NZ Post.
Corporatisation was seen as a signal that the SOEs were to be sold off, but in many cases that did not happen.
Was the reason that some SOEs moved from "prepare for sale" to "long-term hold" mode because they were nice little earners?
"Very often there was a special reason why the Government owned the business," Wellington economist Brian Easton observes.
"Many were just by accident companies that had gone bankrupt and fallen into the Government's hands. Most of those were privatised but there were a set which were basically monopolies and the Government took the view that it made sense for it to hold on to the monopoly."
Profit became the SOEs' primary objective but unlike the private sector, they were also obliged to be good employers and socially responsible, requirements which critics such as Auckland law professor Jane Kelsey says never quite gelled.
"The difficulty of the model was that it was really purely experimental," she told Radio New Zealand.
"It was built out of some initial work that was done in Forest Corp and then there was a structure applied pretty well as a standard across the board.
"It had no empirical basis, there was one very small social impact study done on forestry in Murupara. There was no effective regulatory regime, especially that addressed the non-commercial aspects.
"I think we need to go back and understand that the model was very limited in its objectives and in its framework, and had huge consequences that weren't explored then and still aren't properly addressed today."
What was most shocking was the inevitable redundancies and the social cost of restructuring. In all, some 40,000 jobs were lost, post offices disappeared, railways workers and miners got the sack and some communities faced major unemployment.
Ken Douglas, head of the Council of Trade Unions at the time, believes it contributed to the skills shortage we still experience now.
But Sir Roger is unrepentant.
"You could always see the jobs that were lost because they were big lumps - Railways went down from 20,000 to 5000 - you could see those, but you couldn't see the jobs that were created," he told the same Radio NZ programme.
"I would say that those changes we had in the 80s are really the reason that we have 3.5 per cent unemployed at the present time."
Debate raged about the merits of "selling off the family silver" and whether the best price was paid.
Easton said: "Where the business was essentially in a highly competitive framework, it didn't make a lot of sense for the Government to hold on.
"To give an example, the banking system was very competitive so there was not a lot of argument ... to hold on to the Bank of New Zealand."
The sale of Telecom was, in his view, the least successful. It was passed without an adequate regulatory framework and Telecom's powers are still being reined in by legislation.
"Very often the privatisation was too hurried, too badly thought out and in many cases I think that we got a bad deal. Often prices were too low.
"A classic case of that was the Government Printing Office and the man who bought that was shrewd enough to see the Government wasn't selling it at a very favourable price to the taxpayer. He is now New Zealand's richest man. That's not his fault but it certainly cost us taxpayers a few million dollars."
In a few cases, the Government found itself buying back some of its former assets, such as Air New Zealand, to prevent its bankruptcy, and the country's rail tracks.
But the difference between SOEs deemed to be successes and failures was most sharply seen in NZ Rail and the Post Office. NZ Rail lost three-quarters of its workforce and has struggled to maintain its assets and turn a profit, with its current owner threatening to close less profitable routes.
NZ Post, as the Post Office became, was unpopular for closing 432 post offices and axing hundreds of jobs, but now has more branches than it closed.
It advises other countries on how to privatise their postal systems and its banking service was replaced years later by the successful Kiwibank, arguably to fill a market niche unserviced by commercial banks.
Has the SOE experiment worked? Critics would say the social cost was not worth it but Victoria University management lecturer Richard Norman believes that on balance SOEs have been a success.
His research on SOE directors has left him with the view the New Zealand model has created some good economic results and is favourably viewed overseas.
Kelsey is less complimentary. She cites TVNZ, the crown research institutes, the crown health enterprises and Housing New Zealand among those SOEs which have struggled to adapt to the market.
Sir Roger, who has often said the reforms did not go far enough, believes the SOE model has been "reasonably successful," although he thinks the corporatisations of the 90s were "halfway houses".
Douglas, who is now on the board of New Zealand Post, and Norman believes that SOEs need to move on to avoid becoming stagnant.
They see as significant Trevor Mallard's suggestion in June that SOEs might be allowed to look outside their core activities to increase investment - including operating overseas.
However, Easton adopts the "not at the risk to the taxpayer" stance to taking up overseas opportunities.
He also sees an ethical conflict in allowing SOEs that have state support, sometimes monopolies, to enter competitive markets overseas.
He also notes that SOEs are not the only vehicle the Government can use to invest. The public-private partnership, which sees the Government leasing or paying for a service provided by a private company, is another option.
- NZPA
