Since its election in July 1984 the fourth Labour government in New Zealand has embarked upon the most radical and systematic reorganization of the state sector since the creation of a unified, non-partisan, career-oriented service in 1912. The reforms include the commercialization of many of the goods and services provided by state agencies, the turning of public trading enterprises into corporations, major administrative changes and the overhauling of state pay-fixing arrangements. This article examines the theoretical assumptions underpinning Labour's strategy and assesses the extent to which the new arrangements are likely to achieve their intended purpose of improving the efficiency, flexibility and accountability of the public sector.