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Salient: Victoria University Students' Paper. Vol. 25. No. 13. 1962

Reduced Improvement

Reduced Improvement

These two factors have reduced still further the modest improvement in our standard of living which the relatively slow growth of productivity would otherwise have permitted. On the other hand, they have to some extent been off-set by an inflow of foreign capital — both subscriptions to Government loans and private investment by overseas Companies — 'which has made available resources not drawn off from the current flow of production in New Zealand.

Why is New Zealand's recent growth record so mediocre? It has been fashionable until recently—though the fashion now seems to be on the wane—to consider the rate of capital investment one of the major determinants of the growth of productivity. In this respect, New Zealand's performance has not been too bad.

During the 1950's, for example, we channelled some 21.6% of our output, on average, into capital formation. Though lower than in some other rapidly growing countries such as Australia, this is a substantial proportion of output — very close curiously enough to the comparable figures for the two countries mentioned earlier, West Germany (20.6%) and Japan (21.8%), and substantially higher than those for the United States or the United Kingdom.

The trouble, then, seems to be rather that this relatively large amount of capital formation is not paying off, as it were, in terms of increasing output, so satisfactorily as in some other countries. Why should this be?

One factor is our rapidly rising population. This creates an enormous demand for investment in such things as houses, hospitals, schools, and in ancillary services such as water supply and drainage. Now, unlike investment in new machinery these things characteristically do not of themselves create a big, rise in the output of goods and services.

They give happiness and perform essential services, of course, for those who live in them or use them; but they do not "pay off" in terms of further increases of output as a similar amount of money invested in new factories or hydro stations would do.

New Zealand has, in fact, been investing recently an extremely high proportion of its income in new houses, despite the fact that, a nation, we are already amongst the best housed in the world.