9789144120744

26 mm

The late 20th century brought a major upheaval, various­ly referred to as the emergence of the service economy, the third industrial (electronic) revolution and the dawn of the information age. That transformation was just one stretch on Sweden’s road to modernity.

Sweden’s journey from the agrarian society of the late 18th century to a post-industrial, service economy may appear to be long and circuitous. At the beginning, social change was so slow as to be barely perceptible.

Mobility and unpredictability are integral to modern life, but the seeds had been planted even before the 19th century rolled around. The enclosure movement was under way and the rural lower class was growing, all of which port­ended the breakup of centuries-old class society. Coal, steam power and machinery were about to set the stage for the first industrial economy.

All of these developments were dynamic. They ­pointed ­forward, interacted with each other and merged in a cumulative process of growth and transformation whose consequences were unforeseeable.

This book examines the evolution of the Swedish ­economy over the past two centuries. The reader is ­offered a sweeping, long-term perspective on the ­historical relationships and forces that have shaped 21st century Sweden.

Sweden’s Road to Modernity ges numera ut av Studentlitteratur AB. Denna andra upplaga innehåller dock inga förändringar av innehållet jämfört med den första upplagan.

Lennart Schön | Sweden’s Road to Modernity

Sweden’s Road to Modernity An Economic History

Sweden’s Road to Modernity An Economic History

Lennart Schön

Art.nr 37621

studentlitteratur.se

978-91-44-12074-4_01_cover.indd Alla sidor

2017-03-14 08:30

The book was awarded the Pro Lingua Prize in 2007 - inaugurated by the Bank of Sweden Tercentenary Foundation and The Swedish Foundation for International Cooperation in Research and Higher Education - to enable the translation into English.

Copying prohibited This book is protected by the Swedish Copyright Act. Apart from the restricted rights for teachers and students to copy material for educational purposes, as regulated by the Bonus Copyright Access agreement, any copying is prohibited. For information about this agreement, please contact your course coordinator or Bonus Copyright Access.

Should this book be published as an e-book, the e-book is protected against copying.

Anyone who violates the Copyright Act may be prosecuted by a public prosecutor and sentenced either to a fine or to imprisonment for up to 2 years and may be liable to pay compensation to the author or to the rightsholder.

Studentlitteratur publishes digitally as well as in print formats.

Studentlitteratur’s printed matter is sustainably produced, both as regards paper and the printing process.

Art. No 37621 ISBN 978-91-44-12074-4 Second edition 2:1  The author and Studentlitteratur 2010, 2017 © studentlitteratur.se Studentlitteratur AB, Lund The original title: En modern svensk ekonomisk historia.

Tillväxt och omvandling under två sekel (2000, 2007) Translation: Ken Schubert Graphic design: Sture Balgård Cover photo: Trängsel i Riddarhusgränd 1927. Dagens Nyheter.

From Staffan Tjerneld: Det romantiska 20-talet. Norstedts 1963.

Printed by Holmbergs i Malmö AB, Sweden 2017

978-91-44-12074-4_book_p001-p004.indd 4

2017-03-15 15:29

Ekonomisk historia engelsk_Layout 1 2010-12-14 11.31 Sida 5

Content

Preface

9

chapter 1

Growth and transformation during two centuries

11

Growth and transformation 13 · Pillars of growth 15 · The question of transformation 18 · Complementarity and development blocks 21 · A pattern in long-term social development 22 · A structural cycle 29 · Foreign trade and Swedish transformation 32 · How this book is organised 34 · Background in previous research 36

chapter 2

The Transformation of Agriculture and Early Industrialisation, 1790–1850

the european background

37 37

The foundation of the Industrial Revolution is laid 37 · The decades of revolution 40

the transformation of agriculture and early industry in sweden until the mid-19th century 43 Population growth 46 · New economic growth 49 · The transformation of agriculture 52 · Market growth and industrialisation in the agrarian society 66 · Growth of the markets and institutional change 94 · Epilogue in the first wave of transformation 102

chapter 3

Railway Construction and Expanded Industrialisation, 1850–1890

104

spread of industrialisation and transformation in europe

104

Development block surrounding the railways 105 · International integration 107 · Political transformation 111 · The Long Depression and rationalisation 114

Ekonomisk historia engelsk_Layout 1 2010-12-14 11.31 Sida 6

sweden and the breakthrough of industrialisation, 1850–1890

116

A breakthrough for modern growth 117 · Why didn’t Sweden become an underdeveloped country? 125 · Institutions and the liberal breakthrough 128 · Industrial transformation 142 · A new working class 156 · 1870s — culmination and crisis 159 · Rationalisation and new conditions in the 1880s 163

chapter 4

The Breakthrough of Industrial Society, 1890–1930

the second industrial revolution

178 178

Development blocks surrounding engines 178 · The greater importance of human capital and the degradation of labour 182 · Industrial transformation 183 · Uneven development 185

the breakthrough of industrial society in sweden in the 1890s and afterwards

187

Swedish growth accelerates after 1890 190 · Structural change, 1890–1930 193 · Forces of growth 206 · The capital market, venture capital and industrial transformation 219 · New institutions 227 · The situation before World War 1 231

war profits, crisis and rationalisation, 1910–1930

233

World War 1 and expansion in the 1910s 233 · The crisis of the 1920s and the breakthrough of industrial society 246 · Rationalisation and new forces of growth in the 1920s 262 · Women’s labour market and middle-class femininity 277 · The situation around 1930 279

chapter 5

The Peak of Industrial Society, 1930–1975

from crisis and war to all-time records

281 281

Development blocks and a new economic policy 282

the swedish economy in transformation, 1930–1950

286

In the front ranks of international growth 287 · Growth, productivity and employment, 1930–1950 288 · The crisis of the 1930s 293 · The Social Democrats and new economy policy 296 · Why did Sweden cope with the crisis of the 1930s so well? 299 · The Swedish economy during the World War 11 308 · The post-war programme 312

Ekonomisk historia engelsk_Layout 1 2010-12-14 11.31 Sida 7

a golden age of growth in the western world, 1950–1975

314

Institutional solutions 315 · The technology gap 318 · Supply of factors of production 320

a golden age of industrialism in sweden, 1950–1975

321

Growth, productivity and employment, 1950–1975 322 · The expansion of foreign trade and a new generation of exports 326 · Investment and development blocks 329 · A Swedish model for the welfare state 344 · Large companies and groups of shareholders in industry 355 · Industrial growth culminates 360 · The rationalisation of agriculture and forestry 367 · The outlook in 1970 371

chapter 6

The Third Industrial Revolution and the Breakthrough of the Service Economy, 1975–2010

transformation and globalisation

373 373

Structural crisis, stagflation and the new economic policy regime 374 · The electronic revolution 381 · From industrial society to service economy? 391

the swedish economy in crisis and transformation since the 1970s

402

No longer in the lead 403 · Two perspectives on Sweden’s relative decline until the 1990s 404 · The main components of structural transformation 408 · The structural crisis during the 1970s 417 · Transformation in the 1980s and 1990s 426

epilogue

Perspectives from the Third Industrial Revolution

446

References Index of persons General index

453 473 475

Ekonomisk historia engelsk_Layout 1 2010-12-14 11.31 Sida 104

chapter 3

Railway Construction and Expanded Industrialisation, 1850–1890

spread of industrialisation and transformation in europe A fresh wave of industrialisation began in Europe in the 1850s and took new directions. Railway construction was at the heart of the change. The scattered railways that had been built in the previous decades throughout northwest Europe were incorporated into national projects, creating a network of wholly new dimensions.

Railway construction was not the only ingredient of the new growth trends. Another ingredient consisted of innovative steel manufacturing processes. Railways and steel production represented a highly dynamic complementarity, had formed a development block that redeďŹ ned the prospects for social growth and progress.

The 1850s, and the 1860s to an even greater extent, were a period of comprehensive institutional changes both within and among nations. In the course of two decades of transformation, many countries chose to head down the path of industrialisation. New constitutions were adopted that strengthened the position of those who were favourably disposed to the industrialisation process. Economic and political decision making were deregulated, providing market forces with more leeway. The greater mobility of goods, services and factors of production, particularly across national borders, further integrated the economies of different countries. However markets and policymaking did not have a one-way relationship. The nation and state also became more important than ever before, especially in connection with the major projects of railway construction and industrialisation.

The expansive transformation culminated in the early 1870s, fol-

[104]

Ekonomisk historia engelsk_Layout 1 2010-12-14 11.31 Sida 105

3. railway construction and industrialisation, 1850–1890 ·

105

lowed by a long period of heavy competition and falling prices in the growing global economy. The period from 1873 to 1896 has been referred to as the Long Depression. But that description is not particularly apt. Growth continued although businesses were under increasing pressure to rationalise. The period ended with the Baring Crisis, an international structural crisis, in the early 1890s.

Development block surrounding the railways Railways were not an innovation of the 1850s. They had been around for several decades, but now they were part of new technological, industrial, economic and institutional contexts. The iron and steel manufacturing processes that emerged after the mid-1800s permitted steel to be produced in larger quantities, more refined grades and at lower prices. As a result, railways could be built over longer stretches, with greater freight capacity and higher speeds. New grades of steel also made it easier to construct better, higher-pressure steam engines, as well as improved locomotives and carriages. Thus, the mechanical manufacturing industry was incorporated into the development block. The new large scale steel production processes required more long-distance transport of coal, ore and steel. The railways offered that kind of capacity.

The combination of railways, steel production processes and the manufacturing industry created an extraordinarily expansive development block, offered a wide range of potential investment opportunities based on the anticipated demand that would flow from these innovations. Such expectations peaked in the early 1870s, followed by crisis and more conservative, efficient approaches.

The development block surrounding the railways contributed to many changes, particularly financial and institutional. Investment in both railways and heavy industry demanded new kinds of financing. Capital had to be acquired in larger quantities and for longer periods of time. Thus, investment spurred modernisation of the capital market and accelerated the international movement of capital.

Above all, more intensive cooperation was needed between regions/ countries that were just embarking on the path of industrialisation and northwest Europe, which had already undergone economic and political reform. Britain served as the “workshop of the world” during this period of expansion. The improvement in infrastructure and

Ekonomisk historia engelsk_Layout 1 2010-12-14 11.31 Sida 106

106 Haymaking at Nyvik on the Aln river outside Sundsvall in the late 19th century – to the right on the other side of the sound is the Sund sawmill, which in 1856 was one of the early steam sawmills in the Medelpad province. A sailboat is visible at Nyvik. In the late 19th century, sailboats could still compete with steamships on the seas, particularly when carrying bulky goods like timber (Picture Archives of Nordiska Museet).

the spread of industrialisation to other countries brought about an interaction between complementary parts of the economy. This led to the emergence of growing competition in the late 1870s and beyond.

The task of building railways helped turn industrialisation in much of Europe from a regional phenomenon into a state or national project. The growth of heavy industry and the establishment of a more solid infrastructure enabled industrialisation as a project to grew in signiďŹ cance. For instance it had considerable military importance. Not only business people, but statesmen, ofďŹ cials and military representatives now participated in and promoted the process of industrialisation. The project required constitutional, legislative and regulatory reforms. In countries like Britain, the changes were not particularly radical in the decades after 1850 but were rather a cul-

Ekonomisk historia engelsk_Layout 1 2010-12-14 11.31 Sida 107

mination of previous trends. The break with the past was more abrupt in central Europe and the Continent’s periphery. In the decades after the 1848 crisis, new forces remoulded the global economy and served as a backdrop to industrialisation.

International integration The process of modern international integration began in the 1850s and 1860s (Kenwood/Lougheed 1992). Like reform-minded Belgium, Britain had already taken decisive steps toward freer trade relations and was more advanced than other countries both economically and industrially. A specialised engineering industry emerged early in Britain. Representatives of the industry opposed the prohibition against exporting machinery that was a vestige of the mer-

Ekonomisk historia engelsk_Layout 1 2010-12-14 11.31 Sida 108

108

· sweden’s road to modernity: an economic history

cantile era. Demands to eliminate obstacles to expanded markets helped spread industrialisation. Thus, the stage was set in the 1850s for the leaders of advanced and less advanced countries to reach consensus about international integration.

When it comes to the commodity market, many countries abolished heavy protectionist duties. Britain and France signed the epochmaking Cobden-Chevalier Free Trade Treaty in 1860. The treaty contained a most-favoured-nation clause. In other words, if one of the parties signed a treaty with a third country, the most favourable treaty for each type of commodity would apply to all parties. Many such treaties were signed in the 1860s. The French, who adopted a number of measures under Napoleon III to encourage industrialisation, were particularly active in concluding trade agreements. Given the most-favoured-nation clause, such agreements promoted the rapid growth of international free trade. Other artificial obstacles that had made trade more expensive were also eliminated, including duties on the Sound between Sweden and Denmark and on the Rhine.

The capital market and international payment system were also restructured. Back in the 1820s, Britain had adopted the gold standard for the pound, which became the leading international currency. Other countries generally used the bimetallic standard, a combination of gold and silver. From the 1850s, the system was subject to great pressure, as exchange rates fluctuated widely due to the discovery of large gold deposits at a time of major economic and political transformation. In 1865, France, Belgium, Switzerland and Italy tried to stabilise the monetary system by forming the Latin Monetary Union, whose common currency was the franc. However the outbreak of the Franco-Prussian war in 1870 ended the short-lived experiment. Under the influence of growing trade and movements of capital, as well as the strength of the pound sterling, a number of key nations, including Germany, the Scandinavian countries, the Netherlands, France, Belgium, Switzerland, Italy and, de facto, the United States, adopted the gold standard in the 1870s. An international currency standard that ensured only very small exchange rate fluctuations had been created. The system remained in force until World War I. The expansion of the gold standard and industrialisation both required new regulations and restructuring of the capital market.

Industrialisation creates major imbalances in relation to growth,

Ekonomisk historia engelsk_Layout 1 2010-12-14 11.31 Sida 109

3. railway construction and industrialisation, 1850–1890 ·

109

investment and savings. The regions that began to industrialise made large, long-term investments in construction, transport, communication and housing. Before these investments were able to yield a return however, incomes and savings were low. Nevertheless, incomes and savings rose in areas that had invested at an earlier stage. Much of the surplus arose in agricultural regions, which had already gone through a period of transformation and had encountered high demand for food now that industry was growing in other areas. A savings surplus also emerged in earlier industrial regions and in commercial centres.

Though largely regional, imbalances between investment and saving arose at the national level as well. A well-functioning capital market was needed if payment systems and industrialisation were to work properly. Thus, areas that faced favourable development prospects required a flexible supply of credit that would ensure short-term exchange rate stability as long as credit covered the excess import demand of the expanding new regions. Industrialisation could proceed without the threat that credit would be suddenly cut off. Such lending flexibility was particularly important when various enterprises were highly complementary and an investment could prove profitable only if it were followed by others. From a longerterm perspective however, lending had to stimulate growth, saving and solvency. The system also placed demands on the capital market’s structure and players. The market needed to be freer than it had normally been in the first half of the 19th century. For instance, interest rates had to fluctuate naturally in order to readily link regions of surplus and deficit. A great deal of information about a prospective borrower’s circumstances and future potential was also required. As long as the system worked like that and its centre in London commanded confidence, there was very little scope for the type of speculation that could destabilise the gold standard.

The growth of trade and capital mobility required the elimination of obstacles other than restrictive legislation. Transport and communication of goods, people and information also had to be improved. The railways were integral to such developments, as was the use of steam in sea transport. But the impact of steam power was not as revolutionary on the sea as on land, and wooden sailing vessels were effective competitors for freight throughout the 19th century. However, steam-powered iron and steel propeller-driven ves-

Ekonomisk historia engelsk_Layout 1 2010-12-14 11.31 Sida 110

110

· sweden’s road to modernity: an economic history

sels emerged in the mid-19th century and speeded up shipping, particularly of passengers.

The construction of information systems for railways and sea transport was more important at the time than steam power on the sea. In the wake of trade treaties and railway construction, a series of international conventions were adopted to facilitate cooperation and joint utilisation of canals, railways, postal delivery, telegraph communications and the like. Telegraphy was particularly vital to international integration. Following a series of discoveries about the properties of electricity around the turn of the 19th century, the electric telegraph was developed in the 1830s in close association with early railways. The extensive railway construction of the 1850s was accompanied by exponential growth of national and international telegraph lines. Additional monumental steps were taken in the 1860s and 1870s. Submarine cables linked Europe to seaports in North America, Asia, Australia, Africa and South America. Britain, London in particular, became the hub of the information network.

Infrastructure expansion was accompanied by growing trade, greater information and declining transport prices. Meanwhile, population growth and rising incomes characterised various segments of the expanding global economy. As a result, migration increased as well. The stream of Europeans, particularly to North and South America, in the second half of the 19th century further reflected market integration. Large-scale emigration had begun in the decades after the Napoleonic Wars. Poor harvests, as well as greater mobility due to industrialisation, led to waves of emigration in the 1830s and 1840s. Ireland and the other British Isles accounted for most of the emigrants at that time. The pace doubled after 1850, and more than 250,000 people left Europe every year until 1880. Central Europe played a greater role than before. The trend accelerated after 1880.

Almost one million Europeans emigrated each year until the outbreak of World War I. Increasingly emigration went to Europe’s periphery in the north, east and south. Thus, emigration followed the same geographic pattern as the growth of industrialisation in Europe.

During the course of several decades, the upheavals of the 1850s gave rise to a revolution in transport and information, the historic proportions of which have still not been surpassed. The new trade arrangements, the movements of capital, the waves of emigration and the information networks were all components in the rapidly accel-

Ekonomisk historia engelsk_Layout 1 2010-12-14 11.31 Sida 111

3. railway construction and industrialisation, 1850–1890 ·

111

erating integration of the commodity, capital and labour markets.

Once infrastructure had been built and the new institutions were in place, the period after 1870 saw radical globalisation in the sense that prices and resources throughout the world became interrelated.

Such developments rapidly altered the prospects of various sectors.

Due to expanding markets, resources that had been relatively abundant and therefore inexpensive in a particular country became more valuable. They could be sold in new markets in which they were scarcer. Conversely, prices of resources that had been relatively scarce declined as areas in which they were abundant entered the market.

The relationship between the New World and the Old World clearly illustrates that consequence of globalisation. In the Old World, land was scarce while access to labour and capital was plentiful. In the New World, land was plentiful and labour was scarce.

During the second half of the 19th century, capital and labour flowed from Europe to the Americas and Australia, whereas Europe imported more agricultural products after 1870. This market integration increased the value of land in the Americas at the same time as the relative price of labour and capital declined. The repercussions of integration were just the opposite in Europe. The relationship between the price of land and labour was particularly affected. The relative price of labour increased. Price relationships in the Americas and Europe converged in accordance with the theorem that Swedish economists Eli Heckscher and Bertil Ohlin subsequently devised (O’Rourke/Williamson 1994). However relative prices were not fully equalised. Technological solutions were a function of the particular prices associated with a country’s factors of production (Habakkuk 1962). The United States invested early in more capital-intensive, large-scale production in order to save on labour, whereas Europeans long held onto labour-intensive technology, especially in agricultural and in low-wage sectors.

Political transformation Britain was indisputably the world’s foremost country, but the embryonic nation-state of Germany was at the centre of Europe’s economic and political transformation. Following the Napoleonic Wars, Prussia had emerged as a leading force in uniting the German areas, and the Zollverein (Customs Union) of 1834 was a major

Ekonomisk historia engelsk_Layout 1 2010-12-14 11.31 Sida 112

112

· sweden’s road to modernity: an economic history

step in that direction. Meanwhile, tensions had risen between the more reform-minded parts of western Germany and the aristocratic Junker rulers of Prussia’s core areas in the east. The tensions had spawned the 1848 crisis, which led to the first but unsuccessful attempt to create a unified German state. The failure was largely due to friction and an ill-defined balance of power in Europe’s eastern alliance between Prussia, Austria and Russia.

The real economic and institutional transformation took off during the Crimean War of 1853–1856. The war triggered the strongest industrial boom to date, including in Sweden. Heavy demand and accompanying inflation spawned new forces of growth, as well as a new balance of political power that put railway construction, industrialisation and reform high on the agenda. The Crimean War destroyed the political stability that had emerged after the Napoleonic Wars and was the run-up to a period of political and economic policy changes in Europe and North America. It was at this time that many countries and regions made the fundamental choice to pursue industrialisation.

The Crimean War between Russia and Turkey (and its allies, including Britain and France) represented the breakup of the Grand Alliance and Holy Alliance when mediation efforts failed and when Prussia and Austria refused to enter the war on Russia’s side. While the influence of the Western industrialised powers increased in the Balkans and Russia’s weakness was exposed, efforts to unite Germany intensified. Under Prussian leadership, a war against Denmark — and, above all, Austria and France — followed, after which a new German nation-state was created in 1871.

The German metamorphosis during that transformation stage may also be illustrated from another angle. During the structural crisis of 1848, Alfred Krupp took over his family’s forge in Essen in the rural Ruhr area. Krupp attracted attention at the London World Exposition in 1851 for his crucible steel ingots, which were of a new and larger design. This was the opening shot for major expansion of both Krupp’s business, which focused on the production of railway equipment and canons, and heavy industry throughout the Ruhr. Krupp and the Ruhr have come to symbolise the rapid German industrialisation of the 1850s.

The Italian nation-state was formed around the same time that Germany united. The process was quicker and had fewer repercus-

Ekonomisk historia engelsk_Layout 1 2010-12-14 11.31 Sida 113

3. railway construction and industrialisation, 1850–1890 ·

113

sions for the rest of Europe. The emergence of Germany and Italy redrew and consolidated the European map. The two older nationstates in the west were joined by strong ones in central Europe, which faced the feudalistic and multicultural Habsburg and Russian Empires to the east.

Defeat in the wars, as well as models of industrialisation, also paved the way for changes to the basic institutions of Russia and Austria. In the 1850s, Russia was still a bastion of feudal nobility.

But defeat in the Crimean War led to the abolition of serfdom, similar to events in Prussia during the Napoleonic Wars some 50 years earlier. After a Polish rebellion against their Russian rulers, serfdom was also abolished in Poland in 1864. Within the Austrian Empire, the Hungarians staged an unsuccessful rebellion in 1848–1849 under the leadership of the bourgeoisie and untitled nobility. However after Austria’s defeat in the war against Germany, power shifted with the formation of the double monarchy Austria-Hungary and the establishment of a Parliament in Budapest as well.

National unification and liberation — including new constitutions, abolition of serfdom and parliamentary reform (in Spain, Sweden, etc.) — was the major political trend in the 1860s among the European states that surrounded the core of countries that had industrialised early. All of these institutional changes served to strengthen the forces of industrialisation. They were crucial to national initiatives such as railway construction and education. National issues became increasingly important as projects covered large geographical areas and language played a greater role in education and new information channels. Thus, early industrialisation was to go hand in hand with rising European nationalism. Broader political representation in parliament strengthened the forces of industrialism and lent them more credibility as guarantors of long-term projects. These parliamentary inroads also made states more creditworthy as borrowers from Western European banks. This institutional transformation was followed by substantially greater movements of capital.

But most reforms in the European periphery — particularly Spain, Italy and Russia — were compromises between the new, forwardlooking classes and entrenched powerful landowners. Attempts were made to design laws that would allow landowners to retain much of their labour force, thereby making it easier for established interests to slow down the structural transformation at their doorstep.

Ekonomisk historia engelsk_Layout 1 2010-12-14 11.31 Sida 114

114

· sweden’s road to modernity: an economic history

The industrialisation policy that followed the Civil War in the United States during the 1860s was far more radical. The defeat of the South led to the abolition of slavery at approximately the same time as serfdom was abolished in Eastern Europe. Other aspects of U.S. economic policy were also reoriented to promote rapid industrialisation. In contrast to Europe’s periphery, little consideration was paid to the interests of plantation owners.

The Long Depression and rationalisation The period of transformation, including investment in railways and heavy industry, culminated in Europe after the Franco-Prussian War and was followed by a major crisis in 1873. The crisis was the beginning of the period referred to as the Long Depression, which lasted until the next expansive phase began in 1896. The term is however misleading. Growth continued after 1873 but under different circumstances. Heavy investment and its impact on demand had previously been most important. Rising prices and high profits had created a spirit of optimism. But competition was now stiffening. Prices and profits fell, and investment was redirected. Many formerly expanding manufacturers began to use investment to improve their efficiency and competitiveness rather than to increase their production capacity. Demand changed accordingly. For instance heavy capital investment goods such as steel and wood for building and construction did not grow as fast as they once had done. Instead, demand increased more rapidly for equipment, such as machinery.

Given the higher incomes and new markets that accompanied industrialisation, consumer goods were also in greater demand.

Meanwhile, the fulcrum of growth shifted toward the more peripheral nations that had begun industrialising later and were still in great need of infrastructure construction and new industrial facilities. Both the United States and Sweden were among those expanding countries. Such areas benefited from the decline in the costs associated with international trade and expansion of the markets. The greater mobility of capital also worked in their favour. As profits fell and investment stagnated in the previously industrialised areas, capital moved to the periphery, which benefited from declining transport costs.

European agriculture was hit especially hard by the new compe-

Ekonomisk historia engelsk_Layout 1 2010-12-14 11.31 Sida 115

3. railway construction and industrialisation, 1850–1890 ·

115

tition. Declining transport costs brought cheaper corn to the European market from countries like the United States, Russia and Argentina with abundant farmlands. As a result, farmers tried to reimpose import duties. They built a political alliance in much of Europe with manufacturers who produced goods for the domestic market that they wanted to substitute for imports, primarily British.

Duties would counter the price convergence brought about by market integration.

Agricultural protectionism played a particularly large role in populous countries such as France and Germany. They were potent symbols of the period, which included expansion of railways and industry in 1850–1870 and growing exports of capital, largely from an agricultural sector that had restructured from the bottom up and encountered the kind of favourable prices that ensured a high rate of saving. The capital market channelled such saving into infrastructure and agricultural expansion on the periphery of the global market. Once the impact of such expansion had been felt, farmers could obtain the protection of import duties. As a result, the countries that had borrowed in order to industrialise and sought to pay off their debts with agricultural exports found themselves in a more difficult position. Greater competitiveness was needed in order to participate in the market. Among the countries that had borrowed extensively was Argentina, which triggered the Baring Crisis of the early 1890s.

As Argentina experienced increasing difficulty paying its debts, the market value of its outstanding obligations declined. The Baring Brothers banking house in London speculated that the country would meet its obligations and invested heavily in Argentinean bonds, borrowing from other British banks for that purpose. New expansion opportunities after the Long Depression beckoned during a short economic boom in 1889–1890, but the upturn fizzled out when Argentina cancelled its debt payments and Baring was forced into liquidation. The ripple effect of the losses and credit crunch affected many of the debt-ridden businesses around the world that had been hit hard by heavier competition during the previous decade. The crisis marked the end of an era based on railway construction, steel and the expansion of trading in food and commodities. And although the crisis stemmed from agricultural protectionism in Europe, it also spelled the end of the dominance of agrarian society in many industrialised countries, including Sweden.

Ekonomisk historia engelsk_Layout 1 2010-12-14 11.31 Sida 116

116

· sweden’s road to modernity: an economic history

sweden and the breakthrough of industrialisation, 1850–1890 The industrialisation of northwest Europe had a major impact on Sweden during the 1850s boom that accompanied the Crimean War. Demand for Swedish exports was spurred by investment in railways, industrial plants and housing, as well as war expenditures and the associated price hikes. In addition, the Western European blockade of Russian ports during the Crimean War broadened the market for Swedish corn (Fridlizius 1960). As during the Napoleonic Wars, Sweden was favoured by its position between the East and West.

Once again, Swedish growth was stimulated by war while the Eastern market weakened. However the civilian ingredient of market changes was stronger than during the Napoleonic Wars. While the war and blockade had a relatively brief impact, more rapid growth became a permanent feature of the Swedish economy and represented a historical reversal of fortunes.

Thus, the 1850s began a new era in Sweden. Industrialisation and economic growth accelerated, public policy took a new direction and institutions changed. The metamorphosis had both internal and external catalysts. The transformation of agriculture reached its peak during the 1850s, and the domestic market that had emerged in previous decades became more firmly rooted, particularly as wages rose.

The influence of external events increased as well. Exports of Sweden’s natural resources in the form of raw material and basic industrial products rose exponentially.

Swedish institutions changed in response to growing foreign trade and interaction with industrialisation in other parts of Europe. Sweden was incorporated into the ongoing integration of European markets. Thus, market deregulation swept through the country in the 1850s and 1860s. A wave of reforms at both the state and municipal level modernised the public sector and made government more responsible for infrastructure growth. Central to institutional changes was modernisation of the banking system, pushing commercial banks to the forefront of the industrialisation process.

Railway construction, which required greater commitment by both the financial system and the state, placed the new institutions in the spotlight. The heavy development block of railways and a modernised steel industry became increasingly vital to growth in Sweden, as it had

Ekonomisk historia engelsk_Layout 1 2010-12-14 11.31 Sida 117

3. railway construction and industrialisation, 1850–1890 ·

117

in other countries. Thus, the Swedish economy as it evolved in the 1850s and beyond was connected in a dual sense to the development block surrounding the railways. During the first stage of expansion, greater exports stemmed largely from railway construction and accelerating industrialisation in the rest of Europe. At the same time the expansion also brought the new development block to Sweden.

However, 1850–1890 did not represent a radical break with agrarian society in Sweden. Agriculture remained the dominant sector, and the growth in industrial production was largely limited to rural areas or small towns. Industry, particularly the export sector, was still oriented toward rather simple commodities, and most raw materials, energy and labour were still located in the rural areas. It was not until the 1880s that industrial growth accelerated significantly in the cities, heralding the real breakthrough of industrial society.

One of the core issues in analysing Swedish industrialisation is the relationship between the internal and external catalysts, particularly the export market vs. the domestic market. Most analyses have regarded exports as the driving force. However more recent research has ascribed a larger and more active role to domestic demand. This research also emphasises the evolution of the market during the previous period of domestically driven agricultural transformation and early industrial development. But it also stresses the importance of the domestic market in the ongoing transformation toward industrial society.

A breakthrough for modern growth In Sweden, between 1850 and 1890, modern growth experienced something of a breakthrough, at least in quantitative terms. Estimated annual growth during the previous decades was 0.5 percent per capita. The figure rose to 1–1.5 percent in 1850–1890. Because population increases remained high at 0.8 percent, total annual economic growth was more than 2 percent. Most of the growth was in industry, as well as infrastructure for transport and housing. All of these sectors enjoyed annual growth of 3–4 percent. Thus, agriculture lost its role as the economy’s driving force.

By the end of the period, the manufacturing and construction sectors had surpassed agriculture in terms of output. On the other hand, agriculture still employed more than twice as many people as the

26 mm

The late 20th century brought a major upheaval, various­ly referred to as the emergence of the service economy, the third industrial (electronic) revolution and the dawn of the information age. That transformation was just one stretch on Sweden’s road to modernity.

Sweden’s journey from the agrarian society of the late 18th century to a post-industrial, service economy may appear to be long and circuitous. At the beginning, social change was so slow as to be barely perceptible.

Mobility and unpredictability are integral to modern life, but the seeds had been planted even before the 19th century rolled around. The enclosure movement was under way and the rural lower class was growing, all of which port­ended the breakup of centuries-old class society. Coal, steam power and machinery were about to set the stage for the first industrial economy.

All of these developments were dynamic. They ­pointed ­forward, interacted with each other and merged in a cumulative process of growth and transformation whose consequences were unforeseeable.

This book examines the evolution of the Swedish ­economy over the past two centuries. The reader is ­offered a sweeping, long-term perspective on the ­historical relationships and forces that have shaped 21st century Sweden.

Sweden’s Road to Modernity ges numera ut av Studentlitteratur AB. Denna andra upplaga innehåller dock inga förändringar av innehållet jämfört med den första upplagan.

Lennart Schön | Sweden’s Road to Modernity

Sweden’s Road to Modernity An Economic History

Sweden’s Road to Modernity An Economic History

Lennart Schön

Art.nr 37621

studentlitteratur.se

978-91-44-12074-4_01_cover.indd Alla sidor

2017-03-14 08:30