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War Economy

Prelude: The War Effort

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Prelude: The War Effort

THIS volume is concerned with the economic effects of New Zealand's participation in the Second World War.

Predominantly this is a story of effort—intensive sustained effort leading often to overstrain. The manpower record is a perfect illustration. In war, New Zealand willingly shouldered a manpower load which ultimately proved too great for her population to bear. She committed herself to supply fighting forces on two fronts, and this alone was a formidable undertaking for a small country. But she was also called upon increasingly, as a major food supplier, to expand her production. Despite mechanisation and improvements in methods, it became impossible to find sufficient men for both. In the endeavour to keep faith on the battlefield as well as on the farms and in the factories, truly Herculean tasks were performed.

This type of war effort must have been motivated as much by patriotism as by economic motives. But there are also in the pages of this volume examples of waste of materials and effort, of traders who took advantage of shortages of goods to charge exorbitant prices, of producers who took advantage of lack of competition to make excessive profits, and of workers who took advantage of shortage of manpower to make outlandish claims for rewards. In these cases one may well speculate as to the relative importance of patriotism and personal gain in motivating their efforts.

However, when all is weighed up, patriotic effort predominates over the war years. The profiteers, strikers and loafers stand out as the exceptions. Should the historian ignore them? In all honesty he should not—they are part of the story he must tell. But there is a better reason for giving them their proper place in the narrative. These are some of the difficulties which occurred in a time of national stress. They may occur again in another time of stress. Warning of them may well result in more effective effort in the future.

Can the warning be given without conveying, incorrectly, an impression of widespread disorder? It is to be hoped it can, for New Zealand's war effort is indeed a record of achievement of which she can be justly proud.

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As a history this volume is probably typical in that it contains a number of strange and apparently contradictory happenings. For example, through the most difficult war years, when the need for extra production was leading to many and varied industries being declared essential, New Zealand's most essential industry—farming—was not declared essential. Again it took a rather disastrous nine months for those who had signed the Reverse Lend-Lease Agreement1 on New Zealand's behalf to discover that what they had signed meant that New Zealand labour used by United States forces in New Zealand, and rewarded often at rates which were excessive by prevailing New Zealand standards, was being paid for by New Zealand.

All the economic events discussed in this volume are directly or indirectly connected with the war, but it is often difficult to say whether or not particular wartime events are effects of the war. For example, the need for stricter economic control was an inevitable part of the war effort, but the tendency to expand Government controls over the economy was already well advanced by 1939; the war merely gave it impetus.

The war can be regarded as having created a state of economic emergency. But this was no new thing for New Zealand. The years 1938 and 1939 had already seen financial difficulties amounting to economic emergency as a result of the falling away of overseas reserves in 1938. In fact the New Zealand economy tended to proceed from one state of economic emergency to another. No sooner was it well on the way to recovery from the depression of the early 1930s than it was faced with the 1938 crisis in overseas reserves. The war came as the third crisis in a single decade.

In wartime the need for maximum supplies of foodstuffs to Britain and their orderly marketing was to require control or supervision of marketing arrangements by the Government. But New Zealand's guaranteed price arrangements for dairy products had already provided valuable experience in Government control of overseas marketing.

The financial strains which were to be imposed on the economy by the war were different only in degree from those imposed by the then Government's welfare policies, and by its extensive public works programme. It is interesting to notice that, though the war caused public works effort to be largely diverted to military construction work, the Government's welfare programme was slowed down rather than halted by the strains of wartime finance. The first steps towards a truly universal superannuation scheme were taken pre-war, but various extensions to the Social Security programme

1 Parliamentary Paper A-7, 1942, United States – New Zealand Mutual Aid Agreement.

page 3 were made during the war years. The next major step, the introduction of the universal family benefit, did not take place until 1946.

The Government's policy of improving working conditions was also slowed down rather than halted during the war years, in spite of the fact that some steps in the programme clashed with the need for more intensive use of labour in the interests of the war effort. However, the decision, in the interests of the war effort, to conscript men for armed service and to direct labour into essential industries represented one of the most drastic reversals of a firmly held policy any Government has been called upon to make.

Much of the Government's handling of wartime economic problems was influenced by its pre-war experiences. The fact that the extensive burden of wartime finance was carried with virtually no overseas borrowing was no doubt attributable in no small part to the depression experiences, when drastic falls in prices for New Zealand's products increased the relative burden of overseas debt servicing until it absorbed a quarter of all export earnings.1 Perhaps equally influential was the firm and almost unfriendly attitude which Finance Minister Walter Nash met on his visit to the United Kingdom in 1939 to renew an existing loan.

Probably the major economic achievement of the war was the success of the Government's stabilisation policy. This policy was assisted considerably by the decision to finance the war by taxation and internal borrowing in preference to overseas borrowing. The stabilisation programme extended well into the post-war years.

A major surprise was the persistence of full employment after the war. Entering the war with a pool of 19,000 unemployed or in subsidised employment, New Zealand had a temporary cushion against the shock of extra wartime demands for manpower for the forces and for increased production;2 but these men were soon drawn into normal employment, and the last few years of the war were marked by acute labour shortage. The fact of full employment in war encouraged Governments to believe in the practicability of full employment in peace and the New Zealand Government, amongst others, made provision for maintenance of full employment in the post-war years. In New Zealand this provision proved to be unnecessary. Whether or not it was caused by the war, the economy had been influenced during these years towards the employment of a larger proportion of its population. Full employment, to the extent of acute labour shortage, seemed now to be built into the economy and was to remain a characteristic of it for two decades after the war finished.

1 Based on information in New Zealand Official Yearbook, 1933, p. 209.

2 See also Table 1, p. 581, which gives details of unemployment, etc., up to March 1939.