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 80s. 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 privatisation 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 "renationalise" 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 Thatcherised before Thatcher, Reaganised faster than Reagan. Rightwing economists the world over flocked to the south Pacific to hail the Kiwis' wisdom in privatising faster and more furiously than any country in the world.

In a few, breakneck years in the mid-80s they did it all: deregulation, tax cuts, 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 Labour 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 privatisation - and even reverse it.

Where previous administrations had privatised the payout of compensation for workplace accidents, this government promptly renationalised it. They are now eyeing the railway network which, like Britain's, was sold off in the last decade. The privatised 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 Labour 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: Labour is ready to shove the fat cats to one side and renationalise a chunk of the railway.

As if that was not enough, New Zealand is ready go further than merely undoing failed privatisations. Any day now it will announce a decision on a new venture - owned and run entirely by the public 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, using the network of post offices (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 has been 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 privatise more and more - until eventually the government would tax nothing, regulate nothing and do nothing," she says. Labour called a halt, resolving to keep market forces out of health, public housing and education, and to "rebalance" the economy and society.

Why should any of this matter to us? Surely New Zealand, like California, is light years away from Britain? Not to Clark it ain't. Her party is self- consciously modelled on New Labour, right down to the five-point pledge card embossed with her own, Blair-style signature. 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 favour of the market. If New Zealand is heading the other way now, we should all take notice: we have followed in their wake before.

Tony Blair and Labour 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 Tories. They continue to wage war on Ken Livingstone over a public-private partnership for the London Underground and to scare the public with privatisation plans for the air traffic control system. Just last week, Blair reaffirmed his faith in PPP, insisting he wants "to see more not less" of it.

But what if our famously modern 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 Labourish 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 80s 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 be the most sensible. Pragmatism, not doctrine; "what works" over dogma: it should be classic Blairism. So, once the election is out of the way, perhaps the PM should head west for his holidays; he might like what he sees.

© Guardian Newspapers Limited 2001

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