World War II (1939–45) and the decades that followed produced major changes in New South Wales. During the war a Japanese midget submarine entered Sydney Harbour and attacked ships there. This was the only direct attack on New South Wales territory, but the war’s social and economic impacts were considerable. The war stimulated industrialization, and the movement of Allied troops—especially U.S. servicemen—brought cultural change. A Labor government, elected in 1941, promised to expand social services.

After the war the population of the state expanded greatly, from 2,917,415 in 1945 to 5,738,500 in 1988. The proportion of residents of British origin fell as increasing numbers of immigrants—initially from Europe, then from the Middle East and Asia—arrived under schemes implemented by the federal government. Policies premised on assimilation gave way in the 1970s to the goal of creating a multicultural society, and cultural diversity—or at least areas of ethnic concentration—came increasingly to characterize areas of Sydney, where the majority of immigrants settled.

The continued growth of the state capital was a marked feature of the postwar years. Sydney, which had a population of about 1,756,611 in 1945, grew to 3,596,000 by 1988. In the process it became recognized as a leading world city. However, it was also marked as both more affluent and more economically and socially polarized than other major Australian cities. Construction of the Sydney Opera House, designed by Danish architect Jørn Utzon, began in 1959. It was funded largely by the sale of lottery tickets and was completed in 1973. The opera house project exemplified both the idealized image and the reality of Sydney, just as the controversies surrounding its construction revealed tensions between the bold design and the politics and penny-pinching of its implementation.

Important too was the expansion of Newcastle and Wollongong, centres of the iron and steel industry. The increased concentration of population in coastal cities such as these created inequalities in development and gave rise to attempts to promote compensatory growth in the interior of the state, where some country towns were in decline. Places designated as “growth centres”—e.g., the Bathurst-Orange area, some 120 miles (200 km) west-northwest of Sydney, and Albury-Wodonga, on the Victorian border—were projected in the mid-1970s, but only limited results were achieved in breaking Sydney’s lure.

Despite some setbacks, the postwar years were ones of economic expansion. Construction of the massive Snowy Mountains Hydro-electric Scheme, begun in 1949 and completed in 1974, was undertaken in conjunction with the federal and Victorian governments. It was an outstanding venture among a number of public works projects that brought improvements to the power supply, roads, railways, and city life. A Housing Commission, established in 1941, sought to address pent-up demand for housing, and new estates on the fringes of Sydney provided cheaper housing for workers. The largest trading state, New South Wales retained a leading position in many spheres of enterprise.

In the political sphere, power alternated between Labor, which ruled until 1965 and from 1976 to 1988, and the coalition formed by the Country Party and the Liberal Party. After 1942 the Commonwealth alone levied income tax; this limited the state’s opportunities to initiate reforms. Increasingly the Commonwealth seized the initiative in spheres such as health and education, particularly in the university and college sector, which underwent unprecedented expansion after 1957. Nevertheless, the state government did much to diversify and expand the economy and improve facilities and opportunities for a widening segment of the population. Reforms were introduced in the hospital system, while the school system, primary and secondary, was brought into line with new social and educational needs. Legislation, influenced by that introduced overseas and in Canberra, opened new opportunities for women, who since the 1960s had been organizing in protest against prevailing inequalities. New South Wales had been the first Australian state to legislate for equal pay for equal work, in 1958, and campaigns for divorce-law reform gained pace in the following decade.

Attention also was turned toward Aboriginal peoples, whose plight aroused national and international concern. Up until World War II it was widely believed that they were vanishing “as a people” and that the object should be to ease the process of their vanishing. The measures adopted, such as separating children from their families, brought much suffering. After the war, attitudes gradually changed, as Aboriginal people became more conscious of their heritage and their rights. Inspiration came from overseas, especially from civil rights campaigns in the United States, building support among segments of the white populace, including university students and teachers. Students joined in the “freedom rides” of 1965, which were inspired in part by the Freedom Rides of the U.S. civil rights movement and were designed to highlight racial discrimination in rural New South Wales. In response to mounting pressure and the example set by the federal government, which after a referendum in 1967 gained power to legislate for Aboriginal people, reforms were introduced in New South Wales. These culminated in 1983 with an act that established Aboriginal Land Councils. Earlier, attempts had been made to improve medical facilities for Aboriginal people and increase educational opportunities.

In the latter half of the 20th century, the cultural changes that came with sustained prosperity—and, not least, during the 1960s, the infusion of large numbers of U.S. servicemen on leave from the war in Vietnam—transformed areas of inner-city Sydney (most notoriously, King’s Cross) into districts where illicit activities such as prostitution, gambling, and trafficking in illegal drugs flourished. Money made through such activities and through speculation on property development was fed into networks of corruption that tainted areas of the police force and shadowed senior politicians. Equally, these new pressures and opportunities generated social movements protesting against the abuse of power, sheer conservatism, and the destruction of valued areas of parkland or housing. A march drawing attention to the persecution of homosexuals in 1978 grew through the 1980s into the Sydney Gay (and Lesbian, after 1988) Mardi Gras, gaining large crowds and international prominence as an event and arts program (held annually in February).

“Alternative lifestyle communities” exploring the countercultures of the 1960s and ’70s, exemplified by the “Aquarius Festival” held at Nimbin, a small town in northern New South Wales, in 1973, provided one constituency for concerted campaigns against the logging of forests on the north and south coasts of the state, but the environmental concern spread well beyond those groups through the 1980s. Whether the problem under study was the clear-cutting and wood chipping of old forests, the sewage that washed back onto Sydney’s beaches, or the location of noxious industrial plants in cities, a “green” agenda demanded action. The Liberal–Country Party coalition that had taken office in 1965 was edged aside in 1976 by Labor, which offered a fresh style of leadership and action on issues such as environmental protection and minority rights.

The economic challenges to the state, however, were considerable, and by the mid-1980s Sydney was repositioning and reshaping itself to become a financial capital for the Asia-Pacific region and a major global tourist destination. The grounds for the Royal Easter Show—an annual festival that celebrates rural industries and features exhibitions of agricultural products from around the state—were converted into movie soundstages, helping to attract international filmmakers to the state. Amid popular outcry, a monorail was constructed along the facades of inner-city buildings to serve Darling Harbour as it converted from shipping docks to entertainment facilities and a casino. Meanwhile, both Liberal and Labor governments wrestled with reducing the size and costs of state government.

From the time of the announcement in 1993 that Sydney would host the 2000 Olympic Games, the city worked to ensure that nothing would be lost in this great chance for reinvention. At the opening ceremony for the Games, clever parodies of the traditional icons of the bush, the beach, and the suburban backyard showed how vigorously this challenge was met. The hints of unfinished business—especially in relation to Aboriginal Australia—in the closing ceremony suggested that the past was not over yet.

Through the early 21st century New South Wales continued to find its way through the fluid and uncertain settings of the times. Sydney was consistently ranked high on most lists of the world’s most livable cities, given its environmental amenity, the ready availability of goods and services, and the quality of its infrastructure. However, strains were clearly evident in those same areas. Examples included rising electricity costs, delays or cuts in funding for public transportation, housing costs that were unaffordable to many and increased more rapidly than the rate of inflation, and the increasing debt of the state government and local councils. Population growth was concentrated in Sydney, but in the coastal regions growth was projected to outpace that in the rest of the state (including Sydney) and to be characterized by an aging demographic profile. Inland, the need to conserve water from the already straining river systems both heightened the uncertainties faced in those regions and put a premium on innovation and adaptability. These trends were to a large extent in accord with the history of the state and played to its identity—its diversity, its resourcefulness, the lure and glamour of the capital, and the stoicism of the bush.