Multimedia Mania/abacus-multimedia-mania.iso/dp/0016/00163.txt

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$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]