$Unique_ID{bob00163} $Pretitle{} $Title{Denmark The Danish Economy After 1945} $Subtitle{} $Author{Anders Olgaard} $Affiliation{Press and Cultural Relations} $Subject{danish denmark industry 1960s 1950s exports fact public denmark's time see tables } $Date{1988} $Log{See Table 1.*0016301.tab See Table 2.*0016302.tab See Table 3.*0016303.tab See Table 4.*0016304.tab } Title: Denmark Book: Fact Sheets on Denmark Author: Anders Olgaard Affiliation: Press and Cultural Relations Date: 1988 The Danish Economy After 1945 The German occupation of Denmark ended on May 5, 1945. When the excitement of liberation had subsided, it was realised that - as in the case of other countries in western Europe - economic reconstruction would have to be based on a thoroughly worn-out productive apparatus. And as Denmark must import virtually every ounce of raw material, there was naturally a shortage of these resources and of many consumer goods. But the country had been mercifully spared hostilities proper, so buildings, machinery, etc., though obsolete, were more or less intact. Moreover, the population had been better fed than people in most other countries. The large number of medals won by Denmark at the 1948 London Olympics amply reflected this fact. The question of how to divide a long period into logical segments always has to be solved by a more or less arbitrary judgment, and if we want to say when the Danish economy had regained a state of normality after World War II, it is difficult to give a single, absolute answer. But 1949 would be a pretty fair offering. It was in this year, too, that important international events occurred in the economic field which were to be of crucial importance to the Danish economy. In late summer 1949 sterling was sharply devalued in relation to the dollar. The Danish krone followed the pound all the way; the krone/pound rate was fixed at 19.34 - which remained unchanged until 1967. This sharpened the competitive ability of Danish industry on markets which operated in dollars, bringing to Denmark's puny foreign-exchange reserves a much-needed supply of dollars. It had been natural for Denmark to echo Britain's devaluation; Britain was our most important export market, and one-third of our imports came from there. Throughout the 1950s and the first half of the 1960s Denmark was justifiably considered part of the sterling area. Another decisive factor in the struggle to stimulate the Danish economy was Marshall Aid from the United States. As indicated, Danish dollar reserves were almost non-existent. Marshall Aid thus represented a substantial easing of our exchange problems. In 1950 and 1951 Denmark received dollars worth a total of approx. D.kr. 1,000m, i.e. the equivalent of about 5% of a whole year's national product. The Korean War and import liberalisation The boost given by devaluation and Marshall Aid was offset, however, to some extent by price increases for imported raw materials in the wake of the Korean War. From 1949 to 1951 Denmark found its terms of trade deteriorating by almost 20%, which quite clearly renewed anxiety over the country's very limited foreign-exchange reserves. The situation was aggravated by the fact that during and immediately after World War II Denmark had had no means of servicing its foreign debts, particularly dollar loans. The general political feeling was that these debts should be paid; this meant generating a balance-of-payments surplus. With top priority firmly fastened to the balance of payments, Denmark's net foreign debt was in fact reduced to zero by about 1960. The price of this policy was a lower level of ambition as far as full employment was concerned. For most of the 1950s Denmark had 60-80,000 people out of work out of a total labour force of almost 2m. The unemployment rate among people insured against unemployment was 8-10%. It was recognised, of course, that the unemployment rate could be reduced by pursuing a less restrictive economic policy - for example, by allowing construction of more than the 20,000 dwellings authorised annually. But this would have increased imports, a fact that was unacceptable in the drive to improve the balance of payments. In this context it is illustrative of political determination that a Social Democrat government chose in 1950 to resign when it was unable to obtain the support of Folketing (Danish parliament) for continued butter rationing. Butter was one of the country's leading export items, and on this point, too, the government placed the balance of payments first - at the expense of domestic butter consumption. Within a year or two, however, all remaining rationing restrictions had been removed. On reflection, the observer might wonder why an attempt was not made to improve the balance-of-payments position by tightening import controls. The explanation, however, is simple. In connection with Marshall Aid Denmark had become a member of OEEC, later OECD, and as such had - in common with the other members - committed itself to the gradual removal of import restrictions, with the exception of agricultural goods, but Danish imports here were virtually nil. We were obliged throughout the 1950s increasingly to allow foreign industrial goods to compete on the Danish market. One can scarcely overestimate the importance of this enforced liberalisation. At the start of the 1950s Danish exports were still primarily of farm products. Since the start of the century agriculture had dominated the export scene, and it was farming interests especially that had been most strongly in favour of lifting restrictions from Denmark's business and trading policy. Well into the 1950s it was looked upon as perfectly natural that domestic prices for Danish farm products should be determined by export prices - particularly in connection with exports to Britain. Industry's attitude was decidedly more protectionist. Danish industry had been relatively late in getting off the ground - it got going during the second half of the 19th century. Initially, production was aimed primarily at home consumption, with exports concentrated on a handful of product lines. By the end of the 1920s industrial exports accounted for only 20% of Denmark's total export earnings. During the recession of the 1930s, industry - as happened in other countries - was protected by import restrictions. This gave it the opportunity to expand - but the question Denmark's industrialists asked themselves was whether industry was strong enough to fend for itself when trade restrictions were removed after the war. They had their doubts, and Danish industry was less than ecstatic at the prospect of import liberalisation in the 1950s. But there was no alternative; membership of OEEC demanded the removal of restrictions. In the event, the industry more than lived up to expectations in the 1950s. In the face of rising foreign competition, industry managed to increase both production and employment - and its share of Denmark's total exports. By the close of the decade the value of industrial exports was approaching that of agricultural exports. Great leap forward - 1958-62 As already mentioned, the 1950s saw relatively little growth and long dole queues, the government sticking determinedly to its aim of achieving a payments surplus - even in the period after the Suez crisis in 1956, when raw-material prices again rose and the terms of trade once more deteriorated. But at the same time - although hardly a facet of planned policy - Denmark's commercial structure was altering gradually but radically: emphasis was switching from agriculture to industry. This trend accelerated during the period 1958-62. In this four-year stretch the national product at fixed prices increased by a total of 26%, a rate equalled neither before nor after. And this was despite the growing evidence that Denmark would not be joining the Common Market - at least not for the time being. The steep growth rate was due partly to the fact that the terms of trade had swung back more in Denmark's favour and partly to the fact that Danish industry had demonstrated its ability to survive in the cut-and-thrust of competition that followed with liberalisation of trade and the introduction in 1958 of currency convertibility. In this context it was also significant that for the first time in Denmark the government in the late 1950s formulated and began to implement an economic policy aimed specifically at improving the conditions with which industry had to cope, for instance by introducing schemes designed to encourage investment. As a result of strong growth, unemployment fell from a national total of 75,000 in 1957 to a mere 25,000 in 1962. For the first time in decades Denmark had achieved full employment. Leading industries in the 1960s A quick look at the make-up of Danish industry at this time shows that it comprised many small companies engaged in a large number of fields, with the emphasis, however, on engineering and foodstuffs. The great majority of Danish companies employ fewer than 500 people. At the same time, production structure is mainly labour-intensive. With relatively few exceptions, there are no capital-intensive enterprises in Denmark. One advantage of this structure is that Danish industry can adjust and adapt its production lines quickly and at short notice. Industry is innovation-oriented; companies are constantly on the lookout for special niches in which they can secure a strong competitive position by continuous product development. This was true of Danish industry in the early 1960s and is still largely applicable. By the mid-1960s industrial exports equalled those of agriculture. Agriculture in the 1960s found itself in a recession. Efficiency continued to improve but farmers were unable to find any additional markets worth speaking of; part of the reason for this unhappy situation was that Denmark had not become a member of the European Community. The Danish agricultural labour force, which in 1950 had comprised more than 500,000 fulltime employees, had to be reduced to a manageable size. In 1960 it numbered just under 400,000, and by 1970 the farming industry had just over 250,000 employees, or 10% of the total national work force. This decline in the labour force occurred despite the fact that throughout the 1960s successive governments paid out increasing subsidies to farmers, especially toward animal-based production. At the same time building and construction hit a period of vigorous growth in the 1960s. Investment in new housing doubled, giving Denmark by the end of the decade the highest standard of housing in the world. Expansion was especially marked in the owner-occupied sector; by 1970 half the population lived in homes they had bought themselves. [See Table 1.: Labour Force, 1,000 Persons] [See Table 2.: Percentage Breakdown of Labour Force by Occupations] Welfare state grows The 1960s and first year or two of the 1970s saw the Danish economy coasting along in top gear, although the growth rate was somewhat lower than in 1958-62, when rising production was boosted still further by harnessing the reservoir of unemployed, as we have already seen. The fastest-growing area of the Danish economy in the 1960s was unquestionably the public sector. If its size be measured on the basis of national-accounts statistics, and we include only the public sector's purchase of goods and services, we find that the share of the total national product consumed by the public sector more or less doubled during the 1960s. The increase in public activity occurred across a broad front. It was made possible for people to spend more time at school and in various forms of higher education. Expansive policies were also adopted for the health service and for provision of institutions for nursing and minding pre-school children and the elderly. The political motivation for expanding these activities came from numerous factors: a general desire in the population to give everyone, regardless of income, access to free education, hospitalisation, etc. But it should also be pointed out that in the 1960s there was a sharp rise in the number of adult women seeking employment, one reason being that with full employment it had become easier to find a job. Moreover - and probably of more fundamental importance - women were increasingly demanding equal rights. This had been reflected, for example, in the fact that to a growing extent girls were receiving the same education as boys. Women continued to demand equal opportunities throughout the 1970s; the position in the 1980s is that participation rates are about the same for both sexes. [See Table 3.: Percentage Breakdown of Exports] A social pattern in which the majority of women have work outside the home naturally raises problems concerning the performance of work previously done at home, especially by the traditional housewife, e.g. looking after children and old people. Government stepped in here and provided institutions to cater for these needs, although it put a heavy strain on the public purse. It is also worth recording that the traditional family pattern was altered radically in the process. This is not, however, the forum in which to debate whether the benefits derived from these changes outweigh the drawbacks. We have already referred to the increased public spending on goods and services, represented particularly by an increase in the number of public employees. But in addition there was an enormous increase in the volume of income transfers in the form of unemployment benefit, sickness benefit, pensions, etc. In many countries these payments are made through state-owned or semi-public insurance systems, and benefits are not drawn directly from the central-government budget. But in Denmark it has been a tradition since the 1930s that payments of this nature should be administered by the government. The most important improvement in the income-transfers system in the 1960s was that everyone, irrespective of income, should be entitled to an old-age pension. In addition, unemployment benefits were raised substantially, making them among the most generous in the world. These higher rates of benefit were no particular burden on the public purse while the country was fully employed - but they were to have grave economic consequences when recession brought unemployment in the 1970s. [See Table 4.: Public Finances, Percentage of Gross National Product]