The Danish Growth Miracle

Carl-Johan Dalgaard

Inaugural lectureNovember 5, 2010

Rank Country GDP per capita 2007

1 Qatar 88320,78

2 Luxembourg 77766,19

3 United Arab Em. 51342,68

4 Brunei 50568,99

5 Bermuda 48867,42

6 Norway 48391,18

7 Singapore 44598,62

8 USA 42897,42

9 Kuwait 42061,18

10 Ireland 41635,31

11 Iceand 38196,59

12 Switzerland 37308,82

13 Australia 36302,66

14 Canada 36166,12

15 Austria 36026,75

16 Netherlands 34391,35

17 Denmark 34287,45

18 Belgium 33794,14

19 Sweden 32952,04

20 Finland 32481,02

Rank Country GDP per capita 2007

1 Qatar 88320,78

2 Luxembourg 77766,19

3 United Arab Em. 51342,68

4 Brunei 50568,99

5 Bermuda 48867,42

6 Norway 48391,18

7 Singapore 44598,62

8 USA 42897,42

9 Kuwait 42061,18

10 Ireland 41635,31

11 Iceand 38196,59

12 Switzerland 37308,82

13 Australia 36302,66

14 Canada 36166,12

15 Austria 36026,75

16 Netherlands 34391,35

17 Denmark 34287,45

18 Belgium 33794,14

19 Sweden 32952,04

20 Finland 32481,02

Denmark: Limited natural ressources of historical importance; geographically small; surrounded by powerful nations.

.. Prosperity a small miracle?

• Why are European countries comparatively rich today?

Proximate reason: Started growing earlier than all other countries on the planet; Denmark (DNK) late 19th century

How was that possible? DNK adopted the ”Industrial revolution” . How..?

Universal education (early 19th century) was the facilitator

Why then did DNK adopt education early on? The question.

OUTLINE

• The Danish Growth Miracle: A Theory

• Remarks on external validity of the theory

• Implications for the current political-economic debate

THE DANISH GROWTH MIRACLE: A THEORY

Historical Denmark today Historical Denmark 5000 BCE

  Country Coast/area Population in 2000 (1000s)

1 Singapore 0.27 4036

2 Danmark 0.17 5337

3 Philippines 0.12 81222

4 Kroatia 0.10 4410

5 Greece 0.10 10559

6 Jamaica 0.09 2615

7 Estonia 0.09 1379

8 Mauritius 0.09 1185

9 Norway 0.08 4492

10 Japan 0.08 126729

Tabel 2. Top 10: Coast/AreaSources: CIA factbook, World Development Indicators

• Initial condition: (Uncommonly) coastal

• Travel by sea; hunting and gathering (Tauber, 1981; Enghoff, 1994)

• Incremental innovation process: boat building, navigation (e.g., Hale, 1998)

• Result: Potential to become a nation propelled by international interaction – trade. This potential was realized …

• Why was the trade potential realized?

1. Limited ressources (need is the mother of nessesity)

2. Limited market (small country)

3. Fortunate location: Europe (e.g., Diamond, 1997)

End result: 4. Geography (Coast/Area)

International Interaction and Trade

• Implications of being a nation propelled by trade?

• A need to be open to new ideas (affects the percieved return to knowledge accumulation)

• Evidence? Archaeology, Anthropology (religion, pre Christianity), Technology adoption prior to formal schooling (i.e., before 1500)

• End result: Trade Cultural Opennes to new ideas (/high inherent return to knowledge accumulation)

• ”Universal education”; great idea, but not of Danish origin

• Key events: Protestant reformation (e.g., Landes, 1999; Becker/Woessmann, 2009) – 1530 in DNK; Enlightenment (e.g., Easterlin, 1981; Mokyr, 2005) - 1690-1800

• E.g. ” Kirkeordinansen” (1537); ”Forordningen om undervisningspligt på landet” (1739); ” undervisningspligt såvel på land som i by” (1814)

• Pre-existing high inherent return to knowledge accumulation in DNK Early adoption of universal education in DNK

Theory:

Coastal (limited natural resources, location)

Trade High inherent return to knowledge accumulation Early adoption of universal education Technology adoption and take-off

REMARKS ON EXTERNAL VALIDITY

In 1910: Services (in total) make out 45% of GDP. Denmark was always a ”service economy”. Today: 70% (New: Public sector)

1890 1900 19100

5

10

15

20

25

30

35Transport, retail etc (DNK) Transport, retail etc (DEU)

  Country Coast/area Population in 2000 (1000s)

1 Singapore 0.27 4036

2 Danmark 0.17 5337

3 Philippines 0.12 81222

4 Kroatia 0.10 4410

5 Greece 0.10 10559

6 Jamaica 0.09 2615

7 Estonia 0.09 1379

8 Mauritius 0.09 1185

9 Norway 0.08 4492

10 Japan 0.08 126729

  Country Coast/area Population in 2000 (1000s)

1 Singapore 0.27 4036

2 Danmark 0.17 5337

3 Philippines 0.12 81222

4 Kroatia 0.10 4410

5 Greece 0.10 10559

6 Jamaica 0.09 2615

7 Estonia 0.09 1379

8 Mauritius 0.09 1185

9 Norway 0.08 4492

10 Japan 0.08 126729

  Country Coast/area Population in 2000 (1000s)

1 Singapore 0.27 4036

2 Danmark 0.17 5337

3 Philippines 0.12 81222

4 Kroatia 0.10 4410

5 Greece 0.10 10559

6 Jamaica 0.09 2615

7 Estonia 0.09 1379

8 Mauritius 0.09 1185

9 Norway 0.08 4492

10 Japan 0.08 126729

• Cross country data:

1. Coast/area predicts cultural valuation of new ideas (and patents pr capita)

2. Coast/area predicts early (1910) school enrolment rates

3. Coast/area predicts GDP per capita in 21st area (via HC)

4. Coast/area predicts the size of the service sector

  Country Coast/area Population in 2000 (1000s)

1 Singapore 0.27 4036

2 Danmark 0.17 5337

3 Philippines 0.12 81222

4 Kroatia 0.10 4410

5 Greece 0.10 10559

6 Jamaica 0.09 2615

7 Estonia 0.09 1379

8 Mauritius 0.09 1185

9 Norway 0.08 4492

10 Japan 0.08 126729

IMPLICATIONS FOR THE CURRENT POLITICAL-ECONOMIC DEBATE

• Human capital seems to have been critical. ”Quantity” in focus in the economic political economic debate. Perhaps time to consider educational institutions though (generalists vs specialists)

• Technology adoption has always been critical; not invention per se. In the economic-policial debate all focus seems to be on the latter however

• Services: historically critical, contemporarily critical. Not in focus in economic-political debate, which focuses on Industry