The Norwegian Path. Creating Resources and Building Enabling Sectors. Olav Wicken

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1 The Norwegian Path Creating Resources and Building Enabling Sectors Olav Wicken Working Paper Centre for Technology, Innovation and Culture University of Oslo October

2 The Norwegian Path: Creating Resources and Building Enabling Sectors Technological change and institutional change are the basic keys to societal and economic evolution and both exhibit the characteristics of path dependence (North 1990: 103) Technology, Institutions and Path Dependence Natural resources should be regarded as human made and developed by social processes involving creation and use of various types of knowledge. (ch. Wicken part I) This perspective on natural resources is the basis for analyzing resource based industries and economies as dynamic processes which can evolve in different directions depending on social and political contexts as well as by decisions undertaken by organizations and individuals. Economies specializing in natural resources may therefore follow different historical paths of economic and social evolution. (ch. Smith and Wicken) This perspective is in line with a tradition in economics and economic history which regards technology and institutions as the main elements of long term economic development, and where we find a diversity of development patterns with path dependence characteristics. (North 1990) Using the typology developed by Smith and Wicken (2010) Norway may be classified as a country which during the 20 th century followed a path characterized by resource creation and extension, but with few indications of development blocks of new specialisations which became independent on its original natural resource base. By the early 21 st century Norway s export is still dominated by natural resources. Approximately half of Norway total export value in 2006 came from oil and gas. The second largest export sector of goods was primary metals followed by fish products. The resource based sectors in the trade statistics (SITC 0, 1, 2, 3, 4, and 68) represented more than 80 per cent of the country s exports of goods and app. 2/3 of total export (including services). High-tech industries play a marginal role in exports as well as in total production, and only shipping constitutes a significant export sector which is not directly a 2

3 natural resource based industry. 1 However, even shipping is historically closely linked to the country s natural endowment. 2 The evolution of Norway as a resource based economy was not obvious during the 19 th century when many Western European countries became industrialised. Norway had two major resources which formed the basis for exports, fish and timber. Europe s probably richest fish resources were located in the North Sea and the Norwegian Sea. The most important seasonal fishing region was at Lofoten in Northern Norway and herring on the western coast of Southern Norway. In Lofoten thousands of fishing vessels gathered every winter to catch spawning cod. This was the basis of European trade in baccalao which had been a tradition from the Middle Ages. Fish was the most important export resource along the coast while timber was most important in the Eastern inland parts of the country. The resources were considerably smaller than those of Sweden and Finland, but they were crucial for international trade of the country. Table 1: Norwegian export , main export sectors (mill. NOK) Export sector Timber 30,7 44,5 37,1 40,7 Food products from animals (fish) 27,0 34,6 36,8 39,3 Animal fat (fish) 5,3 6,3 6,0 6,3 Other animal products (fish?) 3,3 5,1 5,7 6,3 Minerals 2,1 4,5 3,8 6,2 Metals 1,5 2,5 2,7 3,0 Other 11,1 8,7 11,3 13,0 Total export of goods 80,0 106,2 103,4 114,8 Statistics Norway, Historical Statistics 1978, table 156 Norway was specialised in a few natural resource based sectors. However, the country also lacked natural resources which were important for industrialisation and economic development during the 19 th century. There were no rich iron deposits and no major coal mines. Only one small mine (Nes) continued to produce iron during the 19 th century. Norway therefore had very limited iron production and was dependent on import of these core elements of industrialisation. In addition, only c. 3 per cent of the country s land could be cultivated. The remaining 97 per cent was mountain deserts or forests. The Norwegian society was therefore dependent on import of food to feed its population, and from early times dependent on international trade both for food and for primary products as inputs for industrial or 1 Shipping is the second largest export sector with export value of approximately the same size as primary metals and fish in combined. 2 The establishment of this industry during the 19th century constitutes probably the only development block process which has had a long-term significance for the economy through the emergence of a strong maritime cluster. (Reve 1990) 3

4 manufacturing production. There was no resource abundance in spite of the resource specialisation. Rather, we may argue that there was a critical resource scarcity for industrial and economic development, and this scarcity created a social and economic crisis in Norway. The dynamic development linked to agriculture, forestry and fisheries could towards the end of the 19 th century not any longer sustain social welfare in most of the country. Large parts of the rural population left their local communities and moved either to the only region characterized by modern manufacturing, the Oslo Fiord region, or emigrated to America. In total more than people left Norway between the end of the Civil War in America and the start of WWI. In addition there was a significant domestic migration where hundreds of thousands of people moved to the new industrial centre in Oslo. This was a significant mobility in a population which in 1890 in total had 2 million inhabitants. As a percentage of the population only Ireland experience a higher emigration of the European countries. Angus Maddison s calculations indicate that Norway s productivity level (GDP per capita) in 1890 was among the lowest in Europe, on the level of Sicily and Sweden. Table 2: Import of goods to Norway (mill NOK) 3 Sectors Food and drinks 50,3 67,0 76,7 71,0 Textiles 12,5 37,2 36,5 21,5 Minerals 7,3 11,6 12,8 12,7 Metals 6,5 12,2 10,7 11,0 Ships 5,2 13,9 11,5 11,5 Other product sectors 18,6 12,0 7,9 30,0 Total import 100,4 153,9 156,1 158,2 Statistics Norway, Historical Statistics 1978, table 156 Increasing the diversity of knowledge bases in resource based economies The crisis in the Norwegian economy which peaked during the 1880s can be used to illustrate how an economy specialised in natural resources may end in what may be characterised resource curse : high specialisation in resource products resulted in a longer period of lock-in (Grabher 1993, Johnson 1992) of a long-term path dependency process where further economic development along the old path was problematic. The basic idea is that knowledge is produced through internal learning processes in the economy and this crate specialisation in knowledge 3 Food and drinks, category 1,2,3,4,5,6,7; textiles cat. 8,9,10 and 11; minerals cat. 20 and 21, metals cat. 22 and 23, ships cat 24. 4

5 production depending on the structure of the economy. This specialisation is necessary for creating competitive firms and industries, and creates a technological or knowledge based trajectory which will differ between economies. The specialisation channel further development along the existing trajectory and constrains technological opportunities (Metcalfe 1997).The path dependency process should, however, not focus on technology and knowledge development alone. Rather, technology and knowledge is regarded as embedded in wider the economic, social and cultural context shaped by this context as well as influencing and shaping the context. Path dependency involves therefore both knowledge and technology, as well as organisations and institutions of the environment where knowledge processes take place. It consists of the development of techno-organisational paradigm. (Perez The first part of this paper describes the old path of resource based economic development of Norway; characterised by small scale production units, local resource accumulation, local institutional set-up, concentrated on a relative limited number of natural resources, and dynamics dependent on informal and social learning processes. This path experienced a negative lock in with decreasing returns and low growth rates during the long depression. 4 In retrospect we can observe that this situation was overcome. The transformation of the economy was not easily implemented. It took a long period of time, involving most of the first half of the 20 th century, experiences many set-backs and challenges. This transformation is labelled path creation process (Schienstock 2003), and the initial phase may be observed from the first decade of the century. A path creation process can only be understood as wide socio-economic transformations involving many types of change. In an attempt to identify important factors, Gert Schienstock point to four: a window of opportunity opened up by a new knowledge paradigm, economic pressures to adapt to a new paradigm, change events that trigger and support the transformation process as well as courses of action that seer techno-economic development into a new direction. (Schienstock 2003) For Norway the main new opportunity for change was the development of a new energy source. Norway has a number of large water-falls which could be turned into electricity production, and electricity became a central dynamic force in creating a new direction in industrial and economic development. The new path was part of a wider development in the European economy where long term changes in science, technology, organisation, finance, public policies, etc. became utilized in the economy. There were a number of new knowledge bases linked to what is defined as the Second Industrial Revolution including scientific 4 More on the distinction between the two paths on Norway s development, see Wicken

6 advancements in physics, chemistry, biology, geophysics, and a number of other disciplines. There were technological improvements in a wide number of sectors. Among the new technologies we find production of precision parts and instrumentation for various types of mass production, and the combustion engines which became important for a revolution in transports at land and sea. New types of organisations like the new industrial enterprise (Chandler), investment banks, and industrial laboratories (Mowery and Rosenberg) were introduced; and new professions (engineers, managers, scientists) and social groups (financial investors) became part of the new industrial path. New transport (steam ships) and communication technologies (telegraph, telephone) created the basis for higher international economic integration. The new path was characterised by much larger production units and organisations, and involved more capital and higher financial risks as well as new knowledge bases. The old path based on rural and local dynamism did only partly become the basis for industrialisation along the large scale path. 5 The emergence of a new type of resource based industrialisation took place mainly outside the old economy. The path creation process took a long period of time to become embedded in the Norwegian society, and particularly to get a stronghold in politics. Following the perspective presented by Douglas North (1990) the representative of the new organisations and knowledge bases gradually became politically and socially influential, and it therefore took time before they were able significantly to alter the rules of the game. 6 After a long period of political competition between the old and new path, the large scale resource based form of industrialisation became dominant time after WWII (c ). The second part of this chapter will analyse how the lock-in to the old path was followed by a path creation process. In Norway, also the new path of industrialisation became based on natural resources. However, the large scale organisations had both much larger resources available and much wider knowledge bases compared to the small scale local organisations. The larger organisations employing new professions with formal education became more inclined to search in wider knowledge bases locally and internationally, and had resources to invest in collaboration with other organisations (companies, universities) or establish internal large scale development processes. The new large scale centralised path therefore was distinctly different from the old small scale decentralised path which had characterised Norway. 5 Some of the old families linked to forestry became important actors in the establishment of new large scale industries, particularly wood processing (Sogner 2004?) 6 Organizations and their entrepreneurs engage in purposive activity and in that role are agents of, and change the direction of, institutional change. (North 1990:73) Institutional change is seen as the outcome of continual incremental changes at particular margins involving many actors over a long period of time. Institutions are therefore characterized by a high degree of stability, and are results of conscious decisions by individuals and groups who want to gain from change. (p68) 6

7 The new technologies and knowledge bases did not only become the basis for an emerging new path, but also contributed to a transformation of the old path. The small scale (rural) path remained important for economic, social and political development throughout the 20 th century. Also this type of companies were gradually able to use new knowledge both to improve productivity, increase production volume, as well as to create new natural resources. Fishery is a good example of the transformation of the old path during the 20 th century. Traditional fishing has introduced radical new production technology (communication, detection, navigation, automation) and has been able to increase both volume and value of the catches. The main innovation in the fishing industry is the development of fish farming consisting of a large number of small scale producers which became a major export industry. When the old part remained strong in the Norwegian society, this is linked to the relatively strong political position of this type of industrialisation. The ideals of small scale industrialisation have been represented in the parliamentary system by the liberal tradition, supported by political parties (Venstre, Bondepartiet/Senterpartiet and Kristelig Folkeparti). From the 1960s also the Left Socialists (Sosialistisk Folkeparti/Sosialistisk Ventreparti) supported the same values and ideas for economic development. Both the new large scale path as well as the old small scale path of industrialisation remained based on natural resources. They both became characterised by resource creation and extension. The relatively success of the country s economy during the 20 th century was closely linked to its ability to develop new resources and extend existing resources. This demanded the development of market organisations and public agencies, involving different groups of people, organisations, resources, and knowledge to succeed. Politics and the development of an institutional set-up for both the old and the new path was an important element in this process. In the following we will look closer into the institutional set-up and technological/knowledge development of both the old and the new path. The Old Path small scale with local knowledge and institutions The old path was specialised within a relatively limited number of products, but the economy within the specialisations were far from static. Using the typology for dynamics in resource based economies developed in chapter (Smith and Wicken 2010), we may argue that new products were introduced to the market, production technology was improved, and linkages backward and forward were developed. These types of processes took place in all of the traditional natural resource based industries; agriculture, fisheries, forestry, and mining. However, when the old path entered into a negative lock-in by the late 19 th century this was due to limitations of the knowledge bases and resources available within the path. The 7

8 industries were deeply embedded in local social structures and regional cultures, even though there were close contacts to other parts of Europe, particularly the North Sea region. The dominant economic structure in Norway during most of the 19 th century was that of small scale rural production where mot of the population lived on small farms owned by the family or the farmer. Most farmers could not live from the income from the farm alone, but were dependent on external income. Along the coast the combination of farming and fishing was the most common combination, in the inland the combination of farming and forestry. In addition both fishing and forestry created jobs through timber saw mills production, transport of timber, processing of fish (drying, salting), transport of fish and timber (shipping), production of equipment and machinery for ships, fishing vessels etc. Most resources for this type of economic development came from local communities, and the limited resource allocation limited opportunities for introduction of capital-intensive production technologies. This form of localism became influential in shaping the national intitutional set-up of Norway. The election system gave a strong representation to farmers and to rural communities, and the Storting (parliament) introduced laws and regulations which supported the small scale economic trajectory. Technological development remained dependent on incremental and small step developments within the existing technological path. Changes were therefore marginal small improvements on sail ship technology, water driven saw mills, simple tools in agriculture all important for improving productivity during the 18 th and 19 th century. By the late 1800s the old path was challenged by technological and institutional development in other parts of Europe. Most important was the development of more efficient production methods of steel and gradually more efficient steam engines of various sizes and adapted to different user groups. The combination of steel and steam challenged the old path of Norway, demanding more capital intensive production systems. The local fishing fleet of rather small sailing ships using fish hooks or relatively small nets were challenged by British large steel trawlers with steam engines and the sail based shipping fleet experienced a similar challenge Also in forestry new knowledge challenged the old forms of production. Steam engines were introduced into saw mills and timber was used for new products like pulp and paper. (Sejersted 1982) The old path lacked the knowledge and resources to meet the challenges from the emerging new technologies and industries in other parts of Europe. Most of the export industries were locked into the old ways of production. In the following I will briefly describe the dynamics of the old path by analyzing some aspects of the institutional set-up and knowledge or learning processes. 8

9 Property rights to natural resources: not market products A characteristic of the old path was that natural resources were not owned by individual persons and that they often could not be bought or sold through market transactions. There was an underlying ideology that natural resources belonged to a wider collective or community, and that the individual user had the right to exploit the resource but not the right to sell the resource to others without permission from somebody representing a larger collective of community. An indication of the collective and communality aspect of natural resources is the well known Scandinavian institution of Allmenningsretten. This gives everybody a right to use the natural environment, and also to exploit economically some of the marginal resources of low market value (picking berries, mushroom, branches, etc.). We find limitations on regulations on individuals property rights to natural resources in all of the old resource based industries which restrict market transfer of resources: - Fish resources in the sea were in principle open, but coastal fishing had common law regulations of local rights to fish at particular locations. This is well documented both for the rich cod fisheries in Lofoten as well as some regions on the Western coast. (Nils Kolle) - Farming land belonged to the family, not the individual farmer. The Odel Law, which can be traced back to the Middle Ages, secures that faming land is transferred from father to eldest son, and that the farms only in specific cases are sold on the open market. - Forests was most often owned by farmers (as part of a farm), local community or by the state. Within forestry we find a greater concentration of natural resources controlled by individuals/families compared to farming land and fisheries. There was also more market trading of forests. - Mining differs from the above mentioned resource based activities by higher demands for capital and investments, and therefore a higher degree of risk. In Norway there are many examples of development of small scale local mining, however, most of the larger mines have traditionally been developed by the state (17 th and 18 th century), and also by involvement of foreign investors. (The state often owned the land but gave the right to exploit minerals to private companies, and could also sell the land??) The examples above illustrate that natural resources belonged to families (farming land), local communities ((forests, local fishing grounds), the state (minerals), or to be an open resource for everybody (ocean fishing, Almannaretten). This was the basis for a society with a rather decentralised distribution of natural resources. A large part of the population had rights to exploit some resource economically. Until the second half of the 19 th century the majority of the households combined income from various natural resources as the basis for its welfare; farming land, fish, forests, hunting, or from work in mines and forests or transport of resources. 9

10 This created the basis for an economy characterised by a very large number of small independent producers (mostly family based) located in rural villages and regions. The dynamics of the natural resource based industries became closely linked to the rural petit bourgeoisie. The industrial development took place within the framework of local communities with many small producers each of them able to accumulate only limited resources. This became the basis for what is defined localism (Thue 1990), the strong position of local communities, rural areas and the independent farmer or fisherman in Norwegian politics and society. The local framework defined how technological development and investment practices could be implemented. Mostly, technological development became incremental and industrial development was characterized by small step improvements within the institutional set-up defined by the property rights of natural resources, but also by the position of the family and local community in the economy. This tradition supported local government more than a central national government, supported an ideology of a weak state and strong local independence. Local resources should be controlled by local community. This ideology is still influential in Norwegian politics and shape the direction of resource based industries. Local opposition has formal power to block external actors to enter into activities of exploiting natural resources. This is evident in the attempts to establish wind farms to produce renewable energy along the coast. Dynamics of the old path The old path was clearly dynamic, and Norway became among the leading exporters of fish and shipping services in Europe, as well as a significant exporter of timber products. The economic development until til 1880s took place in many sectors of the economy; in agriculture, shipping and other services, as well as manufacturing industry. Both agriculture and manufacturing industry remained concentrated on supporting local or national markets, and Norway continued to be dependent on import of food, inputs for manufacturing industry, capital goods and consumer products. However, Norway remained an economy were natural resources remained a central aspect of the national economy and economic specialisation. Timber and fish remained the most important sources for international trade, and to a large extent the old export products remained dominant in the export statistics. Table 1 indicates how timber and fish dominated export statistics until 1885, and table 3 shows the importance of the traditional export products, dried and salted cod and herring and timber, in Norway s export statistics until In spite of the dominance of very old and traditional products in the export industries, we may also observe that new products entered the statistics during the 19 th 10

11 century, both inside the old export sector but also completely new export industries emerged.. In addition we observe that some of the old export sectors expanded significantly. Table 3 gives some indication of the development of the export sector for a rather short period of time between 1830 and The figures are based on volume of export rather than prices, and do not give any information on the value of the various export products. The table covers all principle products mentioned in export statistics, and clearly indicates how specialised the Norwegian economy was in resource based industries. The table also indicates how the export sectors expanded through two types of processes: new resource based products entered the export statistics and the volume of export of many old products increased. We will look closer into some of these processes. Table 3: Export from Norway of principle commodities Export commodity (tons) TRADITIONAL PRODUCTS Fish, dried Fish, salted and dried Herring, salted Fish, salted* Cod liver oil (1000 l) Roe, salted Timber (1000 m3) n.a NEW PRODUCTS Copper ore and matte ** Copper, crude Iron and steel, crude Ice (reg.tons) Skins, domesticated animals Skins seals (numbers) n.a n.a Skins, wild animals n.a n.a n.a n.a n.a Oats Iron ore Pyrites Nickel, crude Fish and herring, fresh MANUFACTURING RESOURCE BASED Condensed milk Butter Canned food Paper Mechanical wood pulp Iron and steel manufact "MANUFACTURING 11

12 FINISHED PRODUCTS Ships, steam and motor (reg. tons) Ships, sail (reg. tons) Matches Source: Statistics Norway, Historical Statistics 1978, table 164 *Included in numbers for Herring, salted for 1830 ** From includes both Copper ore and Copper matte Creation of resources For long term economic development it is necessary to continuously increase the diversity of the economy by introduction of new sectors, industries and/or products. This is also the case for resource based economies. Table 3 illustrate how a number of new products entered the economy (as export products) between 1830 and We observe that new product sectors emerged in particular within the old sectors like fish, hunting, agriculture, and mining. In addition new industries developed which included some processing of the resources, and also some export sectors which only indirectly was linked to existing resources. We observe the introduction of mineral products in the export statistics, including pyrites and nickel. This reflects a long tradition with exploration for minerals in Norwegian mountains, becoming more systematic during 17 th century, initiated by the state during the reign of the Danish king Christian IV. During this century new mineral deposits of silver (Kongsberg) and copper (Røros, Kvikne, Løkken) were discovered and production started. In addition, a number of smaller iron ore deposits were exploited (Nes, Fossum, Ulefoss, Fritsø, Eidsfoss, Hassel, Dikemark, Bærum, Hakadal, Eidsvold, Lesja and Mostadmarken). Mining became an important industry. During 18 th century more copper, silver and iron mines were established, and in addition exploitation of cobolt (Modum). Pyrites (Foldal, Sulitjelma, Røros) became an important mineral and export product from the 1860s onwards. However, mining did not become an important export sector in Norway with the exception for short periods for specific ores. For a few years Norway was one of the main exporters of copper and pyrite was a signifcant export product during the 1870s. Fishing and hunting are the oldest export products in Norway, well known European products from the 9 th century. It was a relative stability in the products exported from Norway, but be find that products like fresh fish, seal skins and skins from domesticated animals entered the export statistics. This may be seen as the introduction to products which became of importance during the 20 th century. Fresh fish turned out to be high value products when 12

13 transport technology allowed for short distribution time, and Norway became a major exporter of various types of furs during the inter war period. The export of ice reflects the introduction of a new commercial product where saw dust from saw mills turned out to be excellent insulation to avoid the ice smelting during transport. Ice was an important product for fishing industry in other parts of Europe, particularly for the British fishing towns Grimsby and Hull. Development of oat created a crop from agriculture which became an export product. Export of ice from Porsgrunn: Year Tons NOK/ton Value Year Tons NOK/Ton Value , , , , , , , , , , , , , , , , Source: Joh. N. Tønnesson, Porsgrunns historie, bd. 2, s. 306, Porsgrunn 1957 There is an increase in new products entering the export statistics from c. 1860, and this partly reflects increased industrialisation by processing natural resources into new products. Food export increased through canned fish, condensed milk and butter. Timber was processed and turned into pulp and paper, while iron was turned into nails, wires, plates, etc. In total, I conclude that we observe a continuous development of new natural resource based (export) products and sectors before c. 1880, most of them linked to the old path of small scale decentralised production Extending resources A major aspect by resource based dynamics is the ability to extend existing natural resources and increase the volume of production through long periods of time. Table 3 indicates that some of the oldest product sectors were not able to expand during the 50 years period the statistics cover. This goes for dried cod and timber, two of the most important of the traditional exports. However, many of the other old export articles expanded rapidly. Growth in sales of dried and salted cod, salted fish and herring, and particular cod liver oil indicates that the old fishing sector was able to expand old product sectors. In particular cod liver oil became a major expert article from the 1870s onwards and soon developed an industrial character. 13

14 Some of the new products succeeded in expanding rapidly before Polar hunting for furs became the bases for a rather substantial export industry of furs and skins. There was a dynamic development of ships and processing industry, but limited to small regional areas. With the advent of guns for whale hunting from the 1860s, whaling along the coast of Northern Norway expanded and whaling stations were established. In food production limited supply of fat and butter became the basis for an emerging margarine industry which used animal fat, and during WWI also whale fat. With the emergence of efficient canning technology, sardines became a major export industry. During WWI there were more than 100 canning factories with a strong concentration in the south west of the country. Also in many sectors of mining new fields were discovered and production started. New ores were discovered in the old silver mines in Kongsberg which were almost closed down in the early 19 th century. Production increased until 1860 and remained at a relatively high level throughout the century. The other mineral which expanded through discoveries of new ores was copper which was first discovered in the 1840s. A number of mines were started and expanded rapidly until Norway was the world largest exporter of copper in the 1870s. 2.3 Lock-in to the old path and challenge from the new If economists had used statistics of Norway s economic development (rather than figures for ) they could argue that the country was hit by a resource curse. Norway experienced many of the characteristics of this disease, with a very high degree of resource specialization and a low growth performance compared to other countries like the USA and Germany. (Maddison) Major traditional industries were unable to expand within the existing paths of development. This goes for both forestry and fisheries. The maximum number of cods caught at Lofoten was during the 1880s, while the important herring fisheries probably peaked as early as the late 1860s. (SSB, HS1978, table 118) Export figures in table 3 indicate that timber production also entered into a period of stagnation from the late 1860s. The expansion in fisheries during c was not the result of technological change, but rather more extensive production (longer seasons, increased numbers of fishermen) and increased specialisation (in processing and trade). In fact, the volume of cod caught per fisherman was probably lower in the Lofoten fisheries in the 1880s than in the 1820s. In the major cod fisheries in Lofoten the number of fishing boats and fishermen reached a peak when fishermen participated. The increase in number of vessels and fishermen created physical problems of space, both on sea and in the harbours (see photo below). (Solhaug 1976: ) 14

15 The old path experienced a lock-in defined by knowledge, technology, organisations and institutions. It was problematic to increase production and welfare within the trajectory of this path. The small scale economic organisations lacked resources and knowledge linked to emerging new types of production technology en forms of energy. In addition, there was a strong ideology to protect the characteristics of the old path and to secure that the rural petit bourgoisie remained a strong social force in politics and culture. The lock-in was strengthened as the small haut bourgoisie linked to mining and forestry was weakened during the first part of the 19 th century. Norway developed a economic-political structure with a strong social group of owners of small scale firms, and a rather economically weak upper class. The state remained important for large scale economic development like mining. The lock-in of the resource based economy can be observed by looking at the limits for resource creation and expansion before Most of the new mining fields were the result of local individuals exploring for minerals or the result of luck (not systematic search). Development of fisheries was not linked to systematic search for fish resources, and there was limited knowledge on how forestry resources could be extended. In addition there was only limited systematic development of production technology which could improve production capacity. Most of the capital goods industry gradually improved existing production technology, and only marginally introduced new methods. These points may be illustrated by looking at development in other countries which challenged the old path. Prices on products exported from Norway were forced down by a combination of the opening of more resource rich environments in America, Russia and Australia as well as by new technologies introduced in some of the leading industrial economies, particularly the USA and UK. Between 1873 and 1876 Norway had nickel mines in total producing 1/3 of the world s total supply of nickel. The main market was German production of coins. In 1876 much richer mines in New Caledonia resulted in close down of Norwegian mines and a rapid decrease in Norwegian production and exports of nickel. 7 The timber industry met competition from Canada, and agriculture from America and Australia. At the same time ocean fishing with much larger vessels and more efficient fishing gear was developed in Europe, increasing competition for Norwegian coastal based fishermen. In addition, the large Norwegian shipping industry using sailing vessels were challenged by modern steel and steam ships. Within this new competitive framework the small scale resource based path could not any longer prosper by marginal and incremental changes. There was a demand for a more radical technological and social change a radical transformation of the Norwegian economy and 7 T. H. Aschehoug, Sosialøkonomik, bd 2, p , Oslo

16 society in order to able to compete efficiently. The old path entered into a negative lock-in creating serious social problems. Both the institutional set-up and the local learning dynamics were insufficient to break out of the path dependence process and this caused the deep crisis of the 1880s. Developing a knowledge intensive resource based economy Norway remained a resource based economy with relatively high growth rate. It succeeded in breaking out of negative lock-in of the late 19 th century. This took place in a broad social, technological and economic transformation throughout most of the first half of the 20 th century. Norway experienced a path creation process (described in the beginning of the chapter) where the dynamic of the economy changed and innovation and change involved new knowledge bases and new actors or organisations. In the following we will present how the new modes of innovation made it possible to develop new resource based products and industries and how achieve long-term growth based on this type of specialisation. Specialisation in natural resources during 20 th century Norway experienced a rapid economic growth throughout the 20 th century; it was one of the economic tigers of the century. (Bruland and Wicken 2000) Economic expansion took place in a very open economy, and Norway has traditionally and still does export approximately half of its GDP. Still, Norway s economy remained specialised in natural resources. At the beginning of both the 20 th and the 21 st century, most of the export of goods (80-85 per cent) came from industries or sectors defined as resource based (SITC 0, 1, 2, 3, 4, 68). However, the main export products of the early 20 th century were not any longer dominating the export statistics one hundred years later. (table 4 and 5, below) New resource based products had entered the economy and had become important export industries. A closer look at statistics and industrial development indicates that a large number of new products, industries or sectors defined as resource based industries entered the Norwegian economy during the 20 th and the early 21 st century. The Norwegian economy took a different direction from its neighbour (and until 1905 in political union) Sweden and other Western economies which during the first part of the 20 th century became less specialized in natural resources. Of total export of goods in the late 1870s approximately per cent was natural resources, and the same was the case when WWI 16

17 started. However, the composition of the export had changed. Some of the old export sectors had lost their importance, and new sectors had already achieved significance. Table 4: Export from Norway Selected principle products (percentage) Edible animal products 34,7 34,5 32,3 33,1 37,7 Hair, feather, skin 5,4 6,1 4,0 4,9 8,7 Timber 41,9 23,5 24,8 16,3 6,1 Wood products 0,3 14,3 14,3 15,4 14,3 Paper 0,2 3,3 5,3 7,9 8,1 Minerals, crude and semi-manuf. 3,7 1,7 3,0 5,7 5,1 Metals, crude and semi-manuf. 1,2 1,1 1,1 2,0 4,6 Other export sectors 12,3 16,8 8,9 14,4 15,3 TOTAL Fish products and skins/furs remained important export sectors in the Norwegian economy in the emerging path creation process, but was reduced from more than 40% to app. 30 % of total export value. The traditional timber export became radically reduced, and the timber now became processed in Norway. This is evident from table 4 which shows how the export of Paper and Wood products increased dramatically. The two sectors constituted less than half of a per cent of Norway s total export during the late 1870 s, but c. 15 per cent in We also note that the relative importance of both crude minerals (up from 4 to 6 per cent) and metals (from 1 to 4 per cent) increased in a period of total growth in exports. Behind the figures we can find the early emergence of new resource based industries (as well as a transformation of old export sectors). The expansion of electricity supply based on water-falls created at least three new growth industries which may be defined as large scale and capital intensive exploiting new types of knowledge bases and introducing new types of organization and learning processes within energy production (electricity), crude metals (aluminium, silicon, nickel), chemical products (artificial fertilizers) and pulp and paper. In addition the new energy source created new opportunities for expansion of the old mining industry and forestry. These sectors constituted main parts of Norway s industrialisation and export sectors until the oil and gas sector was introduced in the early 1970s. 17

18 Export of goods (mill NOK, fixed 2000 prices) Crude oil and gas Products from agriculture, fisheries and forestry Mining Porcessed food Wood products Wood processing Refined oil products Basic chemical products Metals Electrical energy Export of goods NR/export goods (%) Total export NR/total export The dominant role of oil and gas for exports has reduced the relative importance of the old export industries (fish, forest) and basic metals and chemicals in the export statistics. Still, even within the old export sectors new products and production methods have transformed the old sectors. Within fisheries, fish farming has become as important as ocean fisheries and has transformed international fish markets. In forest based production, timber has become input into bio-laboratories producing new types of basic products. In metals we may observe how old industries like silicon has been transferred into solar energy producers. In mining, new types of mineral are being commercialised and exported. When Norway has remained a resource based economy with relatively high growth rates, this is the outcome of introduction of new resource based industries and transformation of the old sectors, both processes linked to new modes of innovation Path creation: New modes of innovation Norway s longer term development as a resource based economy was therefore, in the long run, not seriously hampered by the resource curse symptoms of the late 19 th century. It succeeded in breaking out of the negative lock in, and we describe this as a path creation 18

19 process. The path creation process may be described as a true innovation process where existing resources are combined in new ways, but may also include new knowledge bases, new forms of organizations, new social groups and professions and new institutional set-up. The new groups controlling the new types of organization and knowledge bases become agents for further social, political and institutional change which is necessary in order to make the new knowledge bases embedded in the society and give the path a strong position in the economy. (Wicken 2009) The emergence of the new path in the economy was part of a wider economic and technological transformation of European economy which is often labelled the Second Industrial Revolution. Long term development in a wide range of sectors could at this time result in new practices, new products and new forms of production linked to chemistry, metallurgy, and steel production, mechanics and engine developments, biology and food production, physics and electricity, transport systems and other large scale technological systems, new production methods making mass production feasible for different types of production areas, development of education of engineers, scientists, managers, new knowledge linked to organization of production, scientific management and finance, new types of organizations like the industrial laboratory, modern industrial enterprise, research universities, etc. The many new types of technologies and knowledge bases created an increased diversity which could be combined in many ways. These opportunities were exploited within the Norwegian economy as a basis for a new spurt of the economy. The new large scale resource based path combined a number of the emerging technologies, organizations, and scientific knowledge bases. This is part of the same historical process as took place in American (and other) economy during the early 1900s. Gavin Wright and other historian argued that knew knowledge and technology transformed mining industries into a modern knowledge based and learning economy. This broad technological, scientific, economic, political and cultural process turned resource based industries from experiencing decreasing returns to increasing returns from investment. The change in knowledge formation and use regarding natural resources was so significant that it became possible to continuously expand production within this part of the economy. In this presentation we will emphasize how new knowledge bases linked to science and technology created the bases for new forms of innovation linked to natural resources. In the old path most useful knowledge in the economy came from experience in production and informal knowledge of the workers and managers. From the early 20 th century formal education (engineers, managers, scientists) entered many firms and scientific data and knowledge became actively used by firms. This became the basis for more systematic processes for development of new technologies, methods and products. It was a development from mainly 19

20 experienced based knowledge towards more use of science based knowledge and methods. It was the historical entry of the STS mode of innovation, and it became an alternative mode of innovation to the old DUI mode of innovation (Andersen et al, Research Policy). Natural resources as a driving force for science Historical analyses of development of science in Norway indicate the direct relationship between resource based industries and scientific development. Norwegian science became as specialized in geosciences and biology as the economy remained specialized in the same areas. Similar to the economy, Norwegian science remained specialized within these sectors also in the early 21 st century. Norwegian scientists became internationally leading in a number of subdisciplines of geosciences during the late 19 th and early 20 th century, and these areas had th highest level of publications and citations in the 21 st century. The historical analyses also illustrate the direct relationship between industry and science during this period. In the political system the main argument to finance natural sciences was that it would support economic development within fisheries, agriculture, mining and other resource based sectors. (Børresen 2008) In addition, historians argue that the most active and leading scientists of this period actively engaged with firms in many ways. They gave advice or worked as consultants for companies, investors and owners of companies, developed plans for new investments and technologies, etc. (Børresen 2003) Norwegian scientists within marine biology collaborated closely with local fishermen during the main fishing seasons, and became important for diffusion of new technologies and fishing methods. (Schwach 2002, Sogner 1994) The close interaction between industry and science created the basis for very strong scientific communities. In marine biology Helland Hansen, Sars, Devold became leading scientists in developing theories for fish mobility and reproduction. The theories were close to practical use as the underlying data could be used to inform fishermen of the movements of herring and other species at specific periods of time. In addition the scientists informed fishermen of appropriate technology to increase catches. (Scwach 2002) The development of modern metrology took place in the same scientific environment (Bergen). One of the main objectives of Bjerknes work was to give reliable data for weather forecasts for fishermen. This was important as many fishermen died/drowned every year due to bad weather and rapidly changing weather. (Friedman) Also the development of physical oceanography analysing currents, saliency, and other factors of importance for life in the ocean, emerged from the scientific community relevant for fisheries. Working methods and expertise of Norwegian scientists were transferred to the USA during the 1930s by employment of Harald Ulrik Sverdrup as director of Scripps Institute to modernize American oceanography. 20