Between 1850 and 1970, Sweden had the highest economic growth rate in the world next to Japan and became one of the world’s wealthiest nations in terms of GDP per capita. What factors influenced this process?
Early entrepreneurship
An important factor in Sweden's successful economic development has been an abundance of natural resources, such as iron ore and forests. In the early 19th century, the Swedish business system was more or less founded on resource based commodities in addition to a number of traditional industrial communities built around e.g. foundries all over the country. Thus, there was a long tradition of refinement and export of metals such as iron and copper. The parts of Sweden where metals were not available instead had long traditions of handicraft based on textiles and wood.
Although the foundation of early entrepreneurship was established, most of the economic activities were restricted by prohibitions and regulations as late as the mid-1850s. Together, these regulations formed a system called the guild system which upheld clear rules prescribing who was allowed to perform certain kinds of work and also where and how these kinds of work were supposed to be carried out. One important step towards free entrepreneurship in Sweden was the liberal reform of 1846 which dismantled the entire guild system.
Agricultural revolution
Another important condition for early entrepreneurship and economic growth was the agricultural revolution of the late 18th century. Traditionally, farmers have held a strong economic and political position in Sweden since time immemorial.
The agricultural revolution introduced large-scale and technically advanced methods of cultivating the land. These rationalizations meant that productivity rose for the agricultural sector and made parts of the labour force redundant, freeing these individuals to move to and work in the early industries.
In that sense, the agricultural and industrial sectors together created a positive environment for economic growth.
These changes also increased the income of land owners, which in turn created a higher demand for consumption goods 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
These changes also increased the income of land owners, which in turn created a higher demand for consumption goods 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.
Although Sweden was, industrially speaking, something of a slow starter, the country entered the scene at a favorable moment.
The manufacturing sector, where steam supplied the main source of power, produced goods for export such as steel, 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 favourable 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 spreading through Europe during the second half of the 19th century was crucial for the success of Swedish international trade. Free trade enabled Sweden to ship products and goods such as iron ore, copper and timber products to Britain and the rest of the European continent.
The second industrial revolution started around 1890 and constituted a giant leap for the economic development of Sweden. Electric and combustion engines replaced steam engines in the industrial production process. Industrialization came to be more concentrated to the cities.
Industrial production of products intended for the domestic market, such as clothes and shoes, thrived due to the overall increase in incomes. This was also the era when new and more knowledge-based industries, such as the pulp and engineering industries, came to position themselves among the most important export industries.
Large corporation structures
The second industrial revolution saw the birth of a new type of enterprise: the joint stock company. In the late 19th century, the joint stock system had become the dominating form of ownership in the Swedish industry and has later been proposed as one of the crucial factors behind the formation of large private corporations.
Large, vertically integrated company groups began to take form and many of the Swedish multinational engineering companies were established during this period, including LM Ericsson, ASEA/ABB, SKF, Alfa Laval, Aga and Dyno Nobel. 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 abundance of rivers and waterfalls in the north of the country made electricity a relatively cheap commodity. This, in turn, lowered costs and further raised the demand for Swedish products on the international market.
Several additional factors created the breeding grounds for Sweden’s rapid economic growth and eased the first steps toward industrialization. They included
- large scale investments in Swedish infrastructure, mainly railroads, financed by foreign capital,
- rationalizations of agricultural methods
- rapid population growth
- urban growth and technological improvements, such as expansion of the telegraph system,
- the spread of daily press, and
- the 1842 public school reform.
Around the year 1900, more than half of the population of Sweden worked in the agricultural sector. Sweden was poor but it was a nation adapting rapidly to the age of industrialization. Although Sweden was a slow starter compared to other European countries, once the industrialization process set off the economy developed at a rapid pace.
Sweden had all the ingredients required for stable, long-term economic growth. In the early 1900s, the characteristically Swedish industrial mix of engineering, mining, steel and pulp industries, which is still in place today, was beginning to take form.