Accountability, Transparency Key to New Zealand Reforms

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With sweeping and sustained reforms, New Zealand has recently retooled its economy. A centerpiece of this process has been a bold restructuring of the public sector. How was momentum built and popular support retained? Marco Cangiano, in an IMF Working Paper, Accountability and Transparency in the Public Sector: The New Zealand Experience, reviews these reforms and concludes that commitment to transparency and accountability helped win, and retain, public acceptance. It also enabled policymakers, over time, to shift the focus of fiscal policy from short-term stabilization to a framework that encouraged pursuit of efficiency in expenditure and taxation and responsible longer-term policies.

Background

In the early 1980s, New Zealand's fiscal woes resembled those of many industrial countries. Government expenditures as a percent of GDP had risen sharply, and the deficit had ballooned. Moreover, compared to other industrial countries, New Zealand's public enterprise sector played an unusually large role in the economy, accounting for nearly one-third of total employment and managing a substantial range of trading activities. In 1985, when slow growth and chronic and rising deficits prompted the government to take a hard look at the economy, the scope and role of the public sector was a principal focus of concern.

Corporatizing and Privatizing

In 1986, New Zealand took the first step in its reform process. It reorganized its state trading activities around five broad principles:

* Shed activities more efficiently performed by the private sector.

* Run state trading organizations like private companies (and shift noncommercial functions elsewhere).

* Require managers to run their organizations like successful enterprises and hold them fully accountable to performance objectives set by ministers.

* Operate the enterprises without artificial competitive advantage.

* Set up enterprises with specific commercial purposes, with new boards of directors from the private sector.

By the end of 1993, New Zealand had created 31 corporatized state-trading organizations and a number of new agencies to assume regulatory functions. In general, corporatization dramatically reduced unit costs, prices, and tariffs, and improved service and profitability. Much of the increased efficiency derived from...