journal of european integration history revue d'histoire de l ...

88
Hans-Otto Frøland
vate investment. Through the state budget and forced regulation of the bond market
the authorities led a relatively large proportion of savings over into a network of
public funds and State investment banks. This national credit rationing could not be
maintained if the movement of capital was liberalised. With a low interest rate, private
savings would disappear abroad and there would be even less capital for investments.
This explains why Norwegian governments feared the Community directive
on the liberalisation of capital movements. Moreover, with less control over
overall investments, the trade union movement would in all probability lose interest
in wage moderation and the post-war bargain would crumble.
The importunate political problem of the modernisation strategy was nevertheless
that the majority of the electorate could be found in the sheltered sector of the
economy. In the 1930s, both the agriculture and fisheries were forced into cartels
and shielded against competition from abroad. During the inter-war period a large
industry based on handicrafts had emerged selling to local markets and this had accounted
for approximately ninety per cent of employment growth in the 1930s.
This industry, by planners referred to as the domestic market industry, continued to
enjoy extremely good terms until quota liberalisation was implemented in the
1950s. In 1950, twenty-eight per cent of employment was in the primary sector
while industry only employed twenty four percent. The majority of industrial employees,
moreover, produced for a protected domestic market. Estimates in the late
1950s said that about seventy-five per cent of the employment in industry was in
the domestic industry. A modernisation strategy seeking to survive politically
would need to consider this fact. To avoid social dissatisfaction and political- protest
movements, the sheltered sector, which was labour intensive and had a low productivity
rate, would have to be modernised more carefully. Governments accordingly
chose to maintain the compromise with agrarian and rural interests. An
expression of this was the 1950 parliamentary decision that the income of farmers
would follow the average wage of industrial workers. A negotiation system was
also introduced between the government and agricultural organisations with respect
to income developments in agriculture. A similar system was later introduced in the
fisheries sector. The production structure and income level in the primary sector
was thus completely dependent on price regulations, State subsidies and protection.
Similar considerations were attempted for lagging industry through an emphasis on
the income policy in wage settlements that were conceived in terms of social solidarity.
Hence an inflationary bias was established in the protected sector of the
economy which the governments, by means of subsidy policies, converted into political
business cycles. Inflation was tamed prior to elections. 34
The sheltered industry consisted of many companies, each with relatively few
employees and little capital equipment. Planners explained that this structure came
about because of the limited domestic market. Consequently, part of the long-term
34. O. AUKRUST, Inflation in the open economy: the Norwegian model, in: L.B. KRAUSE and W.S.
SALANT, Worldwide Inflation: Theory and Recent Experience, Washington, 1977, pp.107-153;
and FRØLAND, Corporatism within organized capitalism. Norwegian incomes policy 1935-1965,
in: Jahrbuch für Wirtschaftsgeschichte, 1993/2, pp.191-218.