Tuesday, February 20, 2018

How Denmark Got to Denmark: The Role of Landed Elites in Development

From Chicago Booth's ProMarket blog:
For most people the idea of landed elites conjures up images of aristocrats sipping tea while enjoying the proceeds of the labors of the peasants on their land. New research on Denmark suggests, however, a quite different story—one in which these elites in fact played a crucial role for development, and ultimately enabled the empowerment of the peasant class through agricultural cooperation.
In a lighthearted manner, Francis Fukuyama once described the issue facing developing countries as the problem of “getting to Denmark,” a metaphor for a society characterized by wealth, the rule of law, good governance, and related virtues. More recently, senator Bernie Sanders declared in the 2016 presidential primaries that “we should look at countries like Denmark,” and even president Donald Trump was recently reported to be in favor of more Scandinavian (specifically Norwegian in this case) immigration. Outside the world of politics, Denmark is perhaps best known for the concept of “hygge” (portrayed as a sort of cozy candlelit sense of security and happiness), and for often being at the top of the list of the world’s happiest countries. But if we all want to get to Denmark, we might wonder how Denmark actually got to Denmark?

For economists and historians, the answer has much to do with a rapid modernization of agriculture a century and a half ago, when peasant producers captured an important share of export markets, making them rich and giving them increased political power to boot.

Today Danish agricultural products can be found all over the world, and Denmark’s current status as an “agricultural superpower,” dominated by massive firms such as Arla (a dairy cooperative), is often traced back to developments in the late nineteenth century. At that time a modern dairy industry based on a new technology, the steam-powered automatic cream separator, made it possible to use milk which had been transported over long distances to be processed in a central production facility, and voluntary associations of Danish peasants, the cooperatives, sprang up to take advantage of this possibility. Within a decade hundreds of cooperative creameries had spread throughout the whole country. In fact, immigrant Danes also played an important role for modernizing North American dairying, bringing the first automatic cream separators to the United States and Canada, and setting up cooperatives (not completely incidentally, the modern cooperative Land O’Lakes had a plant in Denmark, Wisconsin, until 2014).
Massive increases in productivity followed, production boomed, Denmark captured a large share of the important UK market for butter and other agricultural products, and witnessed rapid economic catch-up with the leading economies of the day, as traditional suppliers of agricultural goods such as Ireland and the Netherlands lost market share.
This Danish success is usually set within the context of the American “grain invasion” from the 1870s, when cheap exports of American grain flooded Europe, promoting a backlash of protectionism. Denmark, like the United Kingdom, chose to remain open, however, using the cheap grain as fodder for increased animal production. Thus, modern Denmark emerged based on a democratic, cooperative, and liberal countryside, providing something of a role model to other agricultural countries around the world. It also achieved this in just a few years. The following map illustrates the speed with which the cooperatives spread, and plots the location of the cooperative creameries in 1890, just eight years after the establishment of the first....MORE