How the Danes Discovered Britain: the International Integration of the Danish Dairy Industry Before
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European Review of Economic History, , – © The Author . Published by Oxford University Press on behalf of the European Historical Economics Society. All rights reserved. For permissions, please e-mail: [email protected] doi:./ereh/hev Advance Access publication July , How the Danes discovered Britain: the international integration of the Danish dairy industry before MARKUS LAMPE* AND PAUL SHARP** *Vienna University of Economics and Business, Austria/Universidad Carlos III Madrid, Spain, [email protected] **University of Southern Denmark, Denmark, [email protected] 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 after the loss of Schleswig- Holstein to Prussia in , and with it the connection to the port of Hamburg. We show that Danish–English butter markets were actually integrated already in the eighteenth century, but through the Hamburg hub, which provided advantages such as density of information, trade connections, and credit availability. These eroded gradually, and move- ments to establish a direct trade were underway from the s. Defeat in war only speeded up the process. Introduction A commemorative medal for the Copenhagen exhibition of industry and art bore the famous words of poet H.P. Holst: Hvad udad tabes, skal indad vindes (“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 , this became a potent national symbol of strength in times of adversity. Thus, when the Federation of Danish Cooperatives celebrated its centenary in , the then Danish Prime Minister expressed that the cooperative movement was “part of the history of the country of Denmark, which won inwardly what we lost outwardly after the ca- tastrophe in ” (quoted in Mordhorst ,p.), and marking the th anniversary in of the lost war, the present prime minister stated that Out of the defeat in 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. This idea runs through both Danish literature (Westergaard , pp. –) and international accounts (Kindleberger ), apparently proven by the rapid catch-up of the Danish economy in the decades after , when its dairy sector became the envy of the world. We nuance the importance of .Wefirst summarize all available information on the butter trade and confirm the image of a sudden break in in terms of direct exports to Britain. Then weturn to price records and demonstrate that the markets of Copenhagen and London had been integrated long before, but via Hamburg. Until the s, Denmark was very dependent on this http://www.stm.dk/_p_.html. Retrieved October . How the Danes discovered Britain hub, but then she rapidly developed her own infrastructure, in particular direct trading routes with Britain. So, while the war made trade via Hamburg if not impossible at least politically unacceptable, trading directly with Britain independently reduced costs by cutting out the Hamburg middlemen. The important question then is why Denmark ever traded via Hamburg, and how such a sudden reorientation was possible. Our answer considers the literature on service clusters and export hubs and asks how lesser developed countries can escape path dependencies in traditional trading patterns and bring home the high-value added parts of their export trade. This connection between market integra- tion and path dependency is a relevant topic in economic history and has recently been formally modeled by Chaney () as a combination of informational frictions for exporters and the role of geographyand distance in explaining trade flows. Chaney formalizes what business historians have known for a long time: exporters depend on a network of contacts to find trade partners, and this network is geographically biased and conditioned by previous contacts. Gaining reli- able information on foreign markets and establishing functioning distribution networks is far from trivial. In preindustrial times, substantial specific investments in networks and the protec- tion of business abroad had to be made (Greif ; Grafe and Gelderbloom ), and it took large shocks, such as wars and revolutions, to reorient existing networks (Schulte Beerbühl ). For nineteenth-century markets in sophisticated agricultural products, where asymmet- ric information, quality uncertainty, and cheating prevailed, the problems of establishing reliable distribution channels abroad have been highlighted (Simpson ; Stanziani ). Under these circumstances, clusters of agents with more contacts, deeper informa- tion on foreign demand patterns and business practices as well as better credit availability, more frequent connections and better storage are at a clear advantage over peripheral trading locations. Theoretically, a model by Krugman () demonstrates that such hubs are favorable locations for industries subject to increasing returns, and that the loca- tion of a hub can be self-sustaining, reinforcing historical accident through subsequent path dependency. We reinterpret the Danish case in this light as the weakening of historical advantages of a trade hub and a considerable shock jointly dismantling existing path dependency. In our interpret- ation, the Second Schleswig War certainly provoked the sudden change, but this was not simply a reflection of national consciousness after . Initially, Hamburg provided services that Denmark could not, but as the first eraof globalization moved on the use of this hub entailed larger opportunity costs as the Danish economy developed its own capabilities. At the same time, the Danish case is representative for late nineteenth-century agricultural globalization and the “Great Specialization” between urbanized, industrialized regions and agricultural “hinterlands” within countries, and the formation of a core-periphery model with industrialized countries, above and first of all Britain, in the center. In a process resembling von Thünen’s rings of specialization (Kopsidis ), the perishability of individual commod- ities, relative factor endowments, and absolute geographical advantages marked the potential extent of this specialization. This fueled international trade in agricultural commodities, which grew at annual rates above percent from (at least) until the World War I (Aparicio et al. ). Daudin () explores if such reorientation, in the case of premodern transatlantic trade, can be systematically linked to city-growth and increased local economic activity. European Review of Economic History . From Hamburg to the UK: the reorientation of the Danish butter export trade .. Evidence from trade statistics Exports ofbutter were considereda statesecretuntil (Drejer,p.) and ifstatisticswere kept, they have not been preserved. The first meaningful trade statistics, the Eksportstatistiske Tabeller (“Export Statistical Tables”)startin only, with tables on butter and cheese from (Boje ,pp.–). These tables are preserved in the Danish National Archives and run to . They contain total exports per product from the Danish Monarchy including the Duchies of Schleswig and Holstein, henceforth “Greater Denmark”, and the distribution of export destinations. Unfortunately, the Danish (Holstein) free port of Altona, today a district of Hamburg, was not part of the customs territory, but is listed as a destination. Also, destinations of exports for each of the constituent parts of “Greater Denmark” are not detailed in those early tables. For the whole of “Greater Denmark”, more than percent of all butter exports went to Hamburg and Altona, and together with the Baltic Hanseatic port of Lübeck more than percent is credited to port cities. For the rest, we can see an increasing share of direct exports to England and Scotland, and a decreasing share of exports to Norway, which had been ruled by the King of Denmark until . Exports of butter from Denmark proper accounted for a relatively small fraction of total exports from “Greater Denmark” in this period, i.e., . percent on average. More importantly, the distribution of export destinations was probably somewhat different for Denmark proper than for the Duchies (Boje ,pp.– ). In Denmark, the importance of the traditional market of Norway was much higher than in the aggregate, and Altona would have taken a larger share than Hamburg, although much of the latter was simply passing through to Hamburg. The first published Danish trade statistics, covering the period –, confirm this. They contain an overview of the destinations of butter exports for Denmark proper (see table ). For the period before the First Schleswig War (–) . percent of exports went to Norway, and another . percent to Altona, while the shares of Hamburg and Germany were much smaller and direct exports to Britain oscillated between and percent. During the First Schleswig War (–), the volume of butter exported from Denmark remains stable. The importance of Altona declines markedly, while direct exports to Britain, Norway, and the Hanseatic ports increased. The trade diversion away from Altona was probably caused by the war that cut trade routes to Altona and through the Duchies. The trend toward Britain reflects some of the efforts to establish direct shipping connection described below. It also seems to reflect the reversal of a former trend away from butter exports to Britain. However, already for , we see a marked reorientation