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While some European countries, such as England and Germany, began to industrialize in the eighteenth century, the Netherlands and the Scandinavian countries of Denmark, Norway, and Sweden developed later. All four of these countries lagged considerably behind in the early nineteenth century. However, they industrialized rapidly in the second half of the century, especially in the last two or three decades. In view of their later start and their lack of coal—undoubtedly the main reason they were not among the early industrializers—it is important to understand the sources of their success.

All had small populations. At the beginning of the nineteenth century, Denmark and Norway had fewer than 1 million people, while Sweden and the Netherlands had fewer than 2.5 million inhabitants. All exhibited moderate growth rates in the course of the century (Denmark the highest and Sweden the lowest), but all more than doubled in population by 1900. Density varied greatly. The Netherlands had one of the highest population densities in Europe, whereas Norway and Sweden had the lowest Denmark was in between but closer to the Netherlands.

Considering human capital as a characteristic of the population, however, all four countries were advantaged by the large percentages of their populations who could read and write. In both 1850 and 1914, the Scandinavian countries had the highest literacy rates in Europe, or in the world, and the Netherlands was well above the European average. This fact was of enormous value in helping the national economies find their niches in the evolving currents of the international economy.

Location was an important factor for all four countries. All had immediate access to the sea, and this had important implications for a significant international resource, fish, as well as for cheap transport, merchant marines, and the shipbuilding industry. Each took advantage of these opportunities in its own way. The people of the Netherlands, with a long tradition of fisheries and mercantile shipping, had difficulty in developing good harbors suitable for steamships: eventually they did so at Rotterdam and Amsterdam, with exceptional results for transit trade with Germany and central Europe and for the processing of overseas foodstuffs and raw materials (sugar, tobacco, chocolate, grain, and eventually oil). Denmark also had an admirable commercial history, particularly with respect to traffic through the Sound (the strait separating Denmark and Sweden). In 1857, in return for a payment of 63 million kronor from other commercial nations, Denmark abolished the Sound toll dues the fees it had collected since 1497 for the use of the Sound. This, along with other policy shifts toward free trade, resulted in a significant increase in traffic through the Sound and in the port of Copenhagen.

The political institutions of the four countries posed no significant barriers to industrialization or economic growth. The nineteenth century passed relatively peacefully for these countries, with progressive democratization taking place in all of them. They were reasonably well governed, without notable corruption or grandiose state projects, although in all of them the government gave some aid to railways, and in Sweden the state built the main lines. As small countries dependent on foreign markets, they followed a liberal trade policy in the main, though a protectionist movement developed in Sweden. In Denmark and Sweden agricultural reforms took place gradually from the late eighteenth century through the first half of the nineteenth, resulting in a new class of peasant landowners with a definite market orientation.

The key factor in the success of these countries (along with high literacy, which contributed to it) was their ability to adapt to the international division of labor determined by the early industrializers and to stake out areas of specialization in international markets for which they were especially well suited. This meant a great dependence on international commerce, which had notorious fluctuations; but it also meant high returns to those factors of production that were fortunate enough to be well placed in times of prosperity. In Sweden exports accounted for 18 percent of the national income in 1870, and in 1913, 22 percent of a much larger national income. In the early twentieth century, Denmark exported 63 percent of its agricultural production: butter, pork products, and eggs. It exported 80 percent of its butter, almost all to Great Britain, where it accounted for 40 percent of British butter imports.

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