In the mid-1850s, Sweden was a poor agrarian country on the periphery of Europe. 120 years later, Sweden was one of the wealthiest nations in the world. A number of important changes and reforms led Sweden into the early stages of industrialization.
Between 1850 and 1970 Sweden had the highest economic growth rate in the world, next to Japan, and became one of the wealthiest nations in the world in terms of GDP per capita. Which factors influenced this process?
Early entrepreneurship
An important factor in Sweden's successful economic development has been the abundance in natural resources, such as iron ore and forests. In the early 19th century the Swedish business system was more or less based on commodities from these resources, in addition to the old metal and foundry village environments, that existed in the country. This has resulted in a long tradition of refinement and export of metals like iron and copper. In parts of Sweden where metals were not available there has been a long tradition of handicraft based on textile and wood.
This became the foundation of early entrepreneurship, but until the mid-1850s, most of the economic activities were restricted by prohibitions and regulations. These regulations, gathered in a system called the guild system, contained clear rules of who, where and how different work could be carried out. One important step towards free entrepreneurship in Sweden was the liberal reform of 1846 that scrapped the entire guild system.
Agricultural revolution
Another important condition for early entrepreneurship and economic growth was the agricultural revolution in late 18th century. Traditionally, Swedish farmers have always had a strong economic and political position in the Swedish society.
The agricultural revolution introduced large scale and technically advanced methods of cultivating the land. These rationalizations meant that productivity rose in the sector and that the labor force made redundant could move to work in the early industries.
In that sense, the agricultural and industrial sectors together created a positive environment for economic growth.
The changes also implied increasing income for the land owners, which in turn led to higher demand for consumption and new machinery in the form of industrial products. In that sense, the agricultural and industrial sectors together created a positive environment for economic growth.
Industrialization begins
The biggest leaps of the Swedish industrial development occurred in conjunction with two separate industrial revolutions. The first industrial revolution, which began about 1850, had its roots in the old agrarian sector. At that time, Sweden had 3.5 million inhabitants and approximately 80 percent were engaged in the agricultural sector. Only 10 percent of the population lived in the cities. Therefore, industries were established primarily on the countryside for labor purposes.
Although Sweden was, industrially speaking, something of a slow starter, the country entered the scene at a favorable moment.
The manufacturing sector, where steam was the main source of power, produced goods for export such as steel and iron and timber products. At that time Britain and a few other countries were already well under way in the industrial development process.
Although Sweden was, industrially speaking, something of a slow starter, the country entered the scene at a favorable moment. The economic development in Europe raised international demand and paved the way for Swedish products.
Free trade and technological development
The free trade movement that spread through Europe during the second half of the 19th century was crucial for the success of Swedish international trade. This enabled Sweden to ship products and goods such as iron ore, copper and timber products to Britain and to the rest of the European continent.
The second industrial revolution started around 1890 and meant a giant leap for the Swedish economic development. The electric and combustion engines replaced the steam engine as power source in the industrial production process. The industrialization became more focused to the cities.
The industrial production for the domestic market, such as clothes and shoe manufacturers, grew larger due to the overall income increase. This was also the era when new and more knowledge-based industries, such as engineering and the pulp industry, became the most important export industry.
Large corporation structures
In the second industrial revolution a new type of enterprise emerged, the joint stock company. In the late 19th century the joint stock system had become the dominating form of ownership in Swedish industry, and has been seen as one of the crucial factor for the formation of large private corporations.
Large, vertically integrated company groups began to form and many of the Swedish multinational engineering companies, such as LM Ericsson, ASEA/ABB, SKF, Alfa Laval, Aga and Dyno Nobel, were established. These companies were built around a number of revolutionary Swedish inventions and innovations.
A changing economy
The developing industry was aided by of one of Sweden’s major natural resources: hydroelectric power. The large quantity of rivers and waterfalls in the north of the country made electricity relatively cheap. This, in turn, lowered costs and further raised the demand for Swedish products on the international market.
Several additional factors created breeding grounds for Sweden’s rapid economic growth and eased the first steps toward the industrialization. They include
- large scale investments financed by foreign capital in Swedish infrastructure, mainly railroads
- rationalizations of agricultural methods
- rapid population growth
- city enlargement and technological improvements, such as telegraph expansion
- the spread of daily press
- the public school reform in 1842.
Around 1900 more than half of the population worked within the agricultural sector. Sweden was poor but it was a nation which swiftly adapted during the age of industrialization. Even if Sweden was a slow starter compared to other European countries, oncethe industrialization process set off, the economy developed at a rapid pace.
Sweden had all the ingredients that supported stable and long term economic growth. In the early 1900s the characteristically Swedish industrial mixture of engineering, mine, steel and pulp industry that we still see today was starting to take form.