Second World War
The Second World War had countervailing effects on investment. House building and land improvement on farms largely ceased. Resources were diverted to the war effort. Construction of public buildings and hydro dams ceased, but road, rail and airport projects with military significance were completed.
There was some development of domestic manufacturing for supplying the war, or to provide essentials the war had made difficult to obtain. There was massive investment in military equipment and defence facilities for the New Zealand war effort, totalling nearly £33 million (almost $2.5 billion in 2009 terms). In addition, the United States invested heavily in facilities for its troops based in New Zealand or in action in the Pacific, including a number of hospitals which were converted to civil use after the war.
Investment and the world economy, late 1940s
After the Second World War ended the government set about addressing a backlog in residential house construction and infrastructure investment. The housing situation was made worse by the speed with which returned service personnel formed families, and their own lack of resources to finance housing because of income foregone during the war. There was a surge of state house building throughout the country.
Depression, which had followed the First World War, was avoided. Economic conditions in the United Kingdom, New Zealand’s major export market, remained difficult for nearly a decade after the war, but it continued to buy New Zealand produce in large quantities.
US assistance to rebuild Europe under the Marshall Plan, and its decision to stockpile commodities as the Cold War turned into conflict on the Korean peninsula, led to buoyant times for New Zealand farmers, especially sheep farmers. The levels of investment in land clearing and farm equipment rose as farmers, whose ranks had recently been swollen by young and enthusiastic ex-servicemen, responded to the buoyancy by increasing capacity. Private capital investment doubled its share of national income between 1945 and 1951.
Hydroelectricity, 1950s and 1960s
Construction of the Roxburgh hydroelectric power station on the Clutha River was announced in 1949, and completed in 1956. Seven dams were built along the Waikato River. The last of these, Aratiatia, was completed in 1964. The maturing forests of the Volcanic Plateau attracted both private and public investment, in the New Zealand Forest Products plant at Kinleith and the Tasman Pulp and Paper plant (part state-owned) at Kawerau.
From the beginning of the 1950s the post-war baby-boom generation started school, and there was a surge in public investment in primary schools to cater for the increased numbers. The bulge in demand for education gradually worked its way up the education system. There was increased investment in secondary schools from the mid- to late 1950s, and in universities from the mid- to late 1960s – Massey and Waikato universities were built, and Canterbury was relocated. In 1960–61 public investment totalled £73 million (nearly $2.9 billion in 2009 terms), a third greater than in 1951.
Costs of protection
The balance of payments difficulties that had developed before the war returned, and foreign exchange control and import licensing (to control overseas spending) became entrenched as major features of economic policy for almost 30 years.
Over time import licensing became increasingly focused on protecting domestic manufacturers from lower-cost or more efficient overseas competitors. This promoted investment in manufacturing in New Zealand that would not have occurred without protection. Much of this investment was economically inefficient. People believed the country could benefit economically from hosting a car assembly industry, but with six or so plants producing exclusively for a tiny domestic market it did not. Similarly, investment in the production of cotton textiles did not provide an economic advantage to the country.