PRIVATISATION: THE NEW ZEALAND EXPERIMENT OF THE 1980’S.HOW DID RETAIL INVESTORS FARE

Many would judge the privatisation program, a significant feature of the “New Zealand Experiment” of the 1980’s and 1990’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, yielded a return of 7.99% representing an XHPY was 1.19% over a similar investment in the entire NZ market. There can be little doubt; the nine privatisations in this sample had a considerable impact on the NZ stock market, following the listing of Telecom in 1991 total privatised assets comprised 49% of the NZ total market, for twenty years the capitalisation of the privatisation sample 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?

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