Did privatization work in New Zealand?

New Zealand Business Round Table:

Since 1990, close to one trillion US dollars of assets has been transferred from public to private ownership. The share of state-owned enterprises of global GDP has declined from around 12 percent in 1979 to less than 6 percent today.

The World Bank has noted that "privatisation is now so widespread that it is hard to find countries not using the approach: North Korea, Cuba and perhaps Myanmar make up the shrunken universe of the resistant."

[...]The empirical literature almost invariably shows that privatisation has increased business efficiency, enhanced the competitiveness of markets and increased overall economic welfare. The table below summarises the results of a recent survey of published academic studies. Of the 22 studies surveyed, 20 found that businesses performed better after they had been privatised. Of the 10 studies that compared the performance of public and private enterprises operating in the same industry, eight concluded that private enterprises performed better.

[...]In addition, privatisation was found to increase the competitiveness of the markets that former state-owned enterprises (SOEs) operate in. This is because previously state-subsidised or favoured firms had to succeed (or fail) on their own merits.

Three recent surveys by the Organisation for Economic Cooperation and Development (OECD) and World Bank have provided equally conclusive findings. In total the surveys reviewed over 50 published empirical studies examining hundreds of privatisations. Few issues in economics have been subject to such exhaustive empirical investigation and provided such clear results.

The balance of evidence conclusively indicates that:

• private firms tend to be more efficient than their state-owned counterparts, especially in competitive industries;

• privatisation of an SOE is likely to lead to improvements in the efficiency of the enterprise and to a more open and competitive market, to the benefit of consumers, taxpayers and the economy as a whole.

The evidence does not suggest that private ownership is always more efficient. Some state enterprises can perform very well, at least for a period. Conversely, as the case of Air New Zealand has highlighted, private companies can and do make mistakes. But the balance of evidence clearly demonstrates that, on average and over time, the private sector is likely to be more efficient than the public sector at running commercial enterprises.

[...]In the most comprehensive study undertaken by the World Bank, the net gains to the economy from privatisation averaged 26 percent of the firms' pre-divestiture sales.6 A similar gain from privatising New Zealand's central-governmentowned businesses alone would boost the country's GDP by around 1 percent per annum.

[...]The Crown's financial position was strengthened, not weakened, by the asset sales. New Zealand's public sector debt declined dramatically (from over 50 percent of GDP in 1992 to under 20 percent currently), with the proceeds from privatisation accounting for over half the decline.

[...]The privatisation and deregulation of Telecom New Zealand brought large benefits (estimated at $0.5 billion per year) to consumers. These include significant declines in the price of phone services, reduced waiting times for services and increased access. There were benefits to the company from higher productivity and increased output.

• Despite concerns about the performance of Tranz Rail, the privatisation of New Zealand Rail has benefited the economy by up to $9.8 billion in total as freight prices have fallen and taxpayers have been relieved from continuing to subsidise the business.

[...]Many other former state-owned companies have flourished under private ownership. Examples include the Auckland International Airport Ltd, BNZ, Capital Properties, Contact Energy, Postbank, Rural Bank, State Insurance, Wellington International Airport Ltd, Works Development Services and local government enterprises like the partially listed ports (Auckland, Lyttelton, Southland and Tauranga) and bus services (such as Stagecoach).

Not all privatised companies have succeeded. Air New Zealand failed spectacularly in 2002. But that doesn't mean privatisation has 'failed'. Sometimes private enterprises get it very wrong. That is the nature of private enterprise. But the evidence clearly shows that they tend to get it wrong less often than public enterprises.