Tuesday, 21 October 2014

How the Danes Discovered Britain: The International Integration of the Danish Dairy Industry Before 1880

New EHES working paper

On the 150th anniversary of the loss of the Danish Duchies of Schleswig and Holstein to Prussia, a new EHES working paper, by Markus Lampe at Universidad Carlos III Madrid and Paul Sharp at the Historical Economics and Development Group of the University of Southern Denmark, asks whether it really was the turning point in Danish economic history it is often supposed.

The Battle of Dybbøl, 1864, by Jørgen Valentin Sonne (1801-1890) 

A commemorative medal produced for a large exhibition of industry and art in Copenhagen in 1872 bore the words of the poet H.P. Holst: ‘Hvad udad tabes, skal indad vindes’, or ‘What outside is lost, must inside be won’. With the loss of the Duchies of Schleswig and Holstein to Prussia in the Second Schleswig War of 1864, this soon became a sort of national motto for Denmark and remains a potent national symbol of strength at a time of adversity even to today. Indeed, the rapidness with which Denmark subsequently developed, based largely on the success of her agricultural exports, is well known.

Thus the then Danish Prime Minister, marking the centenary of the Federation of Danish Cooperatives in 1999, stated that the cooperative movement (a key factor in the success of Danish agriculture) was ‘part of the history of the country of Denmark, which won inwardly what we lost outwardly after the catastrophe in 1864, when we lost two-thirds of our precious country’. Then, marking the anniversary this year in front of the queen and other dignitaries, the present prime minister stated that ‘Out of the defeat in 1864 grew the modern Denmark. With democracy. With a well-educated population. With equality between the sexes. Freedom for the individual. And the whole of our welfare society based on solidarity.’

The success of Danish agricultural exports at the end of the nineteenth century is often attributed to the establishment of a direct trade with Britain. Previously, exports went mostly via Hamburg, but this changed with the loss of Schleswig and Holstein to Prussia in the war of 1864, after which the German hub was politically unacceptable. From this point quantity and price data imply narrowing price gaps and thus imply gains for Danish producers. Given this, this new working paper asks a rather neglected but perhaps obvious question: with so much to gain, why then did Denmark not discover the British market earlier?

In fact, it turns out that butter markets in the UK and Denmark were integrated in the eighteenth century, but through the Hamburg hub. It is then demonstrated that there were sound economic reasons for this well into the nineteenth century. However, movements to establish a direct trade were afoot from the 1850s, as these factors became less important even before 1864. First, the costs of establishing a direct connection with England fell with the price of steam shipping and the telegraph, and with the liberalization of British trade policy. Second, the benefits of the Hamburg hub were decreasing with the abolition of the Sound Toll (which was payable by any ships entering the Sound between Helsingør in Denmark and Helsingborg in Sweden) in 1857, which made Copenhagen a more attractive port than it had been. And finally, the commercial and credit crisis in Hamburg in late 1857 also contributed to its relative loss of centrality in trade between Britain and Southern Scandinavia over the following decade or so.

Thus, it is argued, although the war certainly gave an extra boost to the process, the shock from the loss of the Duchies was not necessary for the future Danish success.

This blog post was written by Paul Sharp, professor in Economics at University of Southern Denmark.

The working paper can be downloaded here

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