Privatisation: The New Zealand Experiment of the 1980’s: How Did Mom and Pop Fare?

Abstract

Many would judge the privatisation program which was a significant feature of the New Zealand Experiment of the 1980’s and 90’s, in which both Labour and National governments adopted extreme right wing policies, a failure. In looking at the privatisation of state assets we find they were, at least from an investors’ perspective reasonably successful. Returns to investors who held a portfolio of privatised assets outperformed the NZ share market as a whole. An investment strategy of buying each privatisation, on the market on day one, would have yielded a return of 12.71%, while a similar investment in the entire NZ market would have returned only 7.01%. Also there can be little doubt; the nine privatisations in this sample have had a considerable impact on the NZ stock market, following the listing of Telecom in 1991 total privatised assets comprising 49% of the NZ total market and for twenty years the capitalisation of the privatisation sample has averaged 37% of the NZ total market. Analysis of government papers of the day reveals the government’s overall objective was increased efficiency, flowing from a fundamental belief that government couldn’t and shouldn’t run commercial businesses. In this they were successful, but at what cost?