Labor history

The Kanslergade settlement

By: Niels Finn Christiansen

Lecture at the Workers’ Museum on January 30, 2013

A number of crisis settlements were reached in the 1930s. Several with a politically heavy and significant content. But it is the settlement on the night of January 29-30, 1933 that has remained in history and in the general consciousness as the settlement with particular symbolic significance. It was even included in Brian Mikkelsen’s canon of historical events that students absolutely had to know about. There are many reasons for this.

The room where the negotiations that resulted in the Kanslergade settlement were held.

The settlement is easily remembered because of its name, which was attached to it by the scorned participant in the settlement, the Conservative leader John Christmas Møller, after the street where Thorvald Stauning’s apartment formed the setting for a somewhat picturesque negotiation process and final settlement in hindsight. But it is also easily remembered for its coincidence with the transfer of power in Germany to Hitler and the Nazis.

The settlement became a symbol of the Danish parliamentary democracy’s ability and drive to implement an effective crisis policy, and that the country had no need for strongmen of Hitler or Mussolini’s type. And when the current concrete content of the agreement is forgotten, it is remembered because it paved the way for the adoption of the major social reform, which Social Minister K.K. Steincke had unsuccessfully sought a majority for four years to implement. The reform became one of the stepping stones on the road to the welfare state.

From 80 years away, some of the problems facing the negotiators may indeed seem “banal”, as the headline on the invitation to the meeting said, and the figures used in the settlement resemble the budget for a small municipality in the provinces from today’s perspective. But it was an important settlement.

The country was in a state of flux. Large parts of the mainstay industry, agriculture, were on the verge of collapse, the labor market was locked down, and a major lock-out threatened to paralyze significant parts of industrial production and the building and construction sector. Despite a comfortable majority in the Danish parliament, the social democratic-radical government could not easily implement its policies. The parliament still had a conservative majority, so the government had to get at least one of the two conservative parties, the Liberal Party or the Conservative People’s Party, to agree to a settlement. 1)

The immediate background to it all must, of course, be sought in the world economic crisis, which had its origins in the collapse of the US stock market on “Black Tuesday”, 29 October 1929. People were used to crises. They were, as Marx and others had predicted, a recurring phenomenon. But this one was of unprecedented depth and duration. It propagated into a worldwide depression, and it affected all the core capitalist countries, most severely the US and Germany. International trade was virtually paralyzed, capital movements were severely hampered, production fell, while unemployment grew explosively. By the end of 1932, it reached around 30 million in the Western world.

Each country jealously guarded its own interests, closing itself off with tariff walls and controls on capital movements. In 1931, the international payment system changed dramatically when England left the so-called gold standard and a number of countries, including Denmark, followed suit.

Internationally, the crisis began to ease somewhat from 1933, partly because stocks were depleted and the various governments, led by the US and Germany, began to pursue expansive economic policies. But in the US, it took until 1940 before production levels reached those of 1929. Until now, the crisis of the 1930s has been seen as the crisis above all others, partly because it could be interpreted as a late offshoot of the complex political-economic problems following the end of World War I, and because in many countries it was intertwined with a crisis in the political systems – unlike Denmark. 2)

The crisis hit Denmark with some delay in 1931, and until then, parts of the business community had actually benefited from falling prices for imported raw materials, including grain for animal feed. But then agriculture was hit by restrictions on export markets and industry faced increased competition from foreign goods on the domestic market. In 1932, unemployment reached 32% of the insured, which of course covered a significantly higher number of people who were actually underemployed, not least in rural areas.

The foreign economic situation was intricate, entirely dependent on agricultural exports to Great Britain, while imports were spread across a number of countries, with the main emphasis on the German neighbor. One thing was the country’s economic dependence, another was the reverse security policy position, where Denmark was completely dependent on the relationship with Germany. This was a situation that had to be taken into account when considering crisis policy.

At this time, agriculture was still the country’s mainstay industry. Although it employed only 1/3 of the working population, it accounted for around three-quarters of exports and thus the foreign exchange earnings that enabled the purchase of raw materials for industry and finished goods for consumers. Around 60% of exports went to the UK, 20% to Germany and the rest to a wide range of countries. The 1920s had been relatively good times for agriculture and many farmers and large landowners had invested in new farm buildings and improved production tools, partly with borrowed money. Both overall and for individual farmers, debt had grown considerably.

The effects of the crisis were a massive drop in the price of agricultural products and the blocking of certain exports. In the space of three years, the value of agricultural production halved. The result, of course, was that farmers’ income was greatly reduced and with it their ability to service their debts.

Predictably, the consequence was a huge increase in the number of foreclosures, almost fivefold from 1929 to 1932, with all that this entailed in terms of family tragedies and loss of way of life for those affected. But also political activism to provoke intervention from the government and parliament.

Rapidly growing discontent in the industry led to the formation of the extra-parliamentary movement Landbrugernes Sammenslutning (LS) in 1930. Its membership grew almost explosively in the following years, and the movement carried out a series of spectacular actions, culminating in 1935 with a large peasant procession to the king. The miserable development of agriculture led to pressure on the political system and especially on the Liberal Party from farmers, farmers’ associations, smallholders’ associations and not least from LS, whose system-critical elements manifested themselves quite loudly. In the second half of the 1930s, parts of the movement approached Nazism. 3)

International unemployment gradually spread to Denmark, culminating in 1932 with an annual average of around 32%. In the winter months it reached significantly higher, almost 50%, especially in the building and construction sector. On the labor market, in 1931, the Conciliation Board succeeded in passing a collective agreement renewal with a modest pay cut. However, the footwear workers embarked on a three-month-long conflict, without the support of DSF but with the active support of an increasingly offensive communist party.

From the late 1920s, the crisis and growing unemployment were met with attempts to organize the unemployed and gather many of them in the so-called Unemployed Train, which passed through Denmark to put pressure on the trade unions and especially the politicians in the Danish Parliament. During these years, DKP recruited predominantly among the unemployed and in a few large workplaces.

Composite image with the committee negotiations leading up to the Kanslergade settlement, 1933

Crisis politics

The government and parliament were under intense pressure from the two main social classes and their organizations, farmers and workers, to do something. But what instruments did the political system have at its disposal? The economic theories were at a crossroads.

Classical economic thinking, liberalism, had previously argued that in times of crisis, one should simply leave the economy and the markets alone, let the crisis rage, and the economy would find a new balance and harmony between the factors of production and between supply and demand of goods, capital and labor. This thinking had already been disrupted during the First World War, when virtually all governments implemented extensive regulations and interventions in the economic mechanisms. At the same time, it created an experience base and preparedness among policy makers, the civil service and the organizational system that could be put into action during a crisis like that of the 1930s.

On a theoretical level, the 1920s and early 30s saw a break from classical liberalism, and economists in the Nordic countries were among the pioneers. They made their mark internationally in the so-called Stockholm School with names like Knuth Wicksell, Gunnar Myrdal and Bertil Ohlin.

In Denmark, it was economists such as Frederik Zeuthen and Jørgen Pedersen, and especially Jens Warming, who in the late 1920s developed the theory of the so-called multiplier effect, i.e. an assumption of broad and long-term effects of political-economic interventions to promote employment, demand and economic development.

In many respects, these Nordic economists anticipated the theories summarized by British economist John Maynard Keynes in his epochal 1936 work The General Theory of Employment, Interest and Money, and Keynes loyally acknowledged his debt to Warming’s theory. 4) In many respects, Keynes’ work became the bible for economic policy in the Western world for the next 40-50 years. But here in Denmark, politicians could initially get by with less ambitious, but quite (sniff) sensible ideas and plans.

When the Social Democrats were about to form their first government, they drew up a government program in 1923, which included a very simple idea of how to counteract potential crises. This could be done by initiating public works, thereby, as it was said, “contributing to the maintenance of the workers’ homes” and avoiding the necessary payments of benefits to the unemployed. 5)

This was a kind of basic Keynesianism before Keynes, and in fact, in the following years, major public works were launched: the bridges over Lillebælt and Storstrømmen, the expansion of the railroad network and the establishment of the S-banen in Copenhagen. As these works helped to bind the country together, there was broad political consensus on them.

This happened in a decade, the 1920s, which was otherwise characterized by a struggle for power in Denmark between the two major combatants, the Liberals and the Social Democrats, between liberalism and social democracy, between rural and urban areas and between farmers and workers. For a number of years, the balance of power was precarious, not least because the conservatives still dominated the Danish Parliament, and votes from at least one of the two parties were required to pass a law. However, the impact of the crisis and the crisis policy contributed significantly to the Social Democrats establishing themselves as the country’s leading party for many decades thereafter, in good harmony with the Radical Left.

In the long run, the crisis meant that all parties had to bend their principles – the Liberal Party most decisively, as it was forced to abandon its steadfast belief in liberalism under severe hardship. On the other hand, the Social Democrats, in harmony with the university economists, were strengthened in their ideas about the importance of demand for a way out of the crisis. This came to characterize the crisis policy and the crisis settlements that were implemented from 1931. The crisis policy was also rooted in the experience gained during World War I, where the war economy represented a containment of market forces and launched the idea of state power as a rational actor in the regulation of the market.

In 1931, the Conservative People’s Party voted for a crisis settlement that included a reduction in property taxes, help to pay off the agricultural debt burden and extraordinary help for the unemployed. The financing was found in an increase in indirect taxes. This was the line that became the guiding principle for later settlements: a balancing of considerations for the two hardest hit social groups, farmers and workers.

Even then, the expectation was that the crisis would be short-lived and the interventions temporary. However, the next blow came in the late summer of ’31 when England devalued and suspended the redeemability of gold. The other Nordic countries immediately followed suit, and after a few days of stumbling, Denmark followed suit with similar measures, deciding to introduce a more potent instrument to protect the currency.

In 1932, one of the most remarkable and powerful instruments of crisis policy was created, the Danish Central Exchange. Paradoxically, it was created on the initiative of liberalism’s standard-bearer par excellence, Madsen Mygdal, and it was given the authority to control the industries’ currency consumption, especially regarding imports. The currency board had a long life and became, as it turned out, an important tool for managing economic policy and, as a side effect, an incubator for the most prominent economists, civil servants and (social democratic) ministers of the following decades. the “Psychopath Club”, as Erik Ib Schmidt dubbed it in his memoirs. This was a gathering of theory and exchange of ideas inspired by international literature and debate. 6)

Again in June 1932, crisis measures had to be implemented for agriculture and the unemployed, this time with the Liberal Party as a participant in the settlement. An election to the County Parliament in September did not fulfill the government’s desire to win a majority. Stauning then wanted a clarification of the political position and called elections to the Danish Parliament for mid-November. This resulted in few shifts; however, the Liberal Party lost five seats and began a prolonged downturn that culminated in the 1935 election. More on that later.

The settlement itself

Around the turn of 1932/33, the crisis came to a head. Unemployment grew explosively and the agricultural sector intensified its demands for devaluation and interest rate cuts to enable debt conversion; they also demanded property tax relief and wanted to buy up and destroy cattle. All aimed at restoring profitability in agricultural production through state intervention.

These were wishes that were put forward by the official agricultural organizations, but which were also demanded very loudly by LS. They had long since abandoned the traditional liberalism of agriculture. To the problems of agriculture was now added another element that helped speed up and dramatize the negotiations: a threat from the Confederation of Danish Employers to initiate a large-scale lockout from 1 February, and this was probably the factor that immediately brought about the settlement. The employers had terminated all expiring collective agreements and demanded a 20% pay cut, which the Confederation of Danish Trade Unions (DsF) categorically rejected.

The deadlock in negotiations led the conciliator to announce on January 27 that he found it pointless to make a mediation proposal. But with almost half of the organized workers in an unemployment situation, a conflict was not exactly what the DsF or the Social Democrats were aiming for.

On January 28, the government introduced a bill that prohibited employers from initiating the lockout, extended the current collective agreements for one year and also issued a general strike and lockout ban for the same period. On the same day, the Liberal Party sought contact with the government, and in the Danish Parliament, the Liberal Party made it clear that they could help avert the lockout if the agricultural demands were met.

At the same time, the Liberals made it clear that they didn’t mind if the Conservatives were not invited to the negotiations. There was an ice-cold air between the two bourgeois parties, since the Conservatives had actually helped bring down the Madsen Mygdal government in 1929.

It all ended with the well-known 18-hour negotiations in Kanslergade in Østerbro between the government’s leading ministers and representatives of the Liberal Party. It was a process “rich in dramatic scenes”, as the radical Bertel Dahlgaard later recounted, with the equally well-known breakdown of negotiations late at night, a breakdown that Stauning would not accept and which he averted by sending his partner, Augusta Eriksen, down to a dark basement for the last bottle of whisky in the house. The good drops dissolved the deadlock and late in the night between January 29 and 30, the settlement was reached. 7)

The settlement was quite comprehensive. Most urgently, the lockout had to be averted, and this was achieved by a commitment from the Liberal Party not to vote against a government intervention in the County Parliament. Madsen Mygdal had to bend and abandon his long-standing fight against “union tyranny”. The law on the extension of collective agreements was the first legislative intervention ever in a conflict situation in the labor market. But as we know, it was far from the last.

Neither in the 30s nor later. The postponement of the lockout by one year meant an extension of the current wage tariffs, a kind of compensation for the price increases that were the result of another element of the settlement, namely the devaluation of the krona, which had been one of agriculture’s main demands. The agreement also included a number of social measures aimed at the most disadvantaged working-class families, and in all important respects it met the Left Party’s demands for easing the socio-economic position of farmers. In the following months, concrete bills were drafted and passed in all these areas.

For posterity, however, the opening for the implementation of the social reform is probably the most important and far-reaching partial agreement. It became possible, not because the Liberal Party loved the reform or simply voted for it. But because the party, as part of the agreement necessary for agriculture, agreed to abstain from voting in the County Parliament, after which the Social Democrats and Radicals could vote the reform through.

The social reform had been a long time coming. In fact, since 1920, when Steincke in his famous book “Fremtidens Forsørgelsesvæsen” formulated not only the basic principles behind a reform, but also a detailed bill, or rather proposals for the four laws that the reform contained: 1. the law on job placement and unemployment benefits, which was adopted already in 1931 in connection with the crisis settlement with the Conservatives; 2. the law on national insurance, which made membership of a health insurance fund almost mandatory to be entitled to social benefits; 3. the law on accident insurance and 4. the law on public care.

This last one was certainly the most important and groundbreaking. It replaced the Poor Law from 1891 and the law on relief funds from 1907, and it is here that the legal principle was established to replace the previous discretionary principle; i.e. that fixed tariffs would now apply to social clients instead of the previous alms principle and discretion of the local parish council chairman or municipal council. Whereas loss of civil rights, including the right to vote, had previously been the rule when granting social assistance, it now became the exception, an exception that lived on until 1961.

Finally, a social committee was to be established in each municipality and parish to determine local practice. Contrary to Steincke’s original ideas, private philanthropic associations were given a central position in social welfare.

In the longer term, the social reform meant that social policy practice became more uniform across the country and that professional social workers gradually gained a prominent place in the local civil service, especially in the large urban municipalities. As Søren Kolstrup writes in Dansk Velfærdshistorie, the Public Welfare Act meant “progress for the majority of the poor, but branding of a few who were still subject to the traditional legal effects of poor relief”.

In this field, Denmark came to constitute a “special case” among the Nordic and a number of Western European countries, which removed the negative legal effects much earlier. 8)

Th. Stauning and K.K. Steincke together with the Liberal Party’s chief negotiator Oluf Krag during the negotiations that led to the Kanslergade settlement in 1933

The social reform was nevertheless a huge step forward, both for the actual poor and for the many who became unemployed during the crisis or lost their livelihood through foreclosure or bankruptcy. A safety net was put in place that was stronger than in other countries.

As mentioned, the Kanslergade settlement and the adoption of the social reform have a deservedly prominent place in the history of Denmark in the 20th century, but also in the story we like to tell about the special development of the Nordic countries, which from the mid-1930s became a story about the special Nordic model in the eyes of the wider world. It was the compromises between the ruling classes, farmers and workers, the so-called red-green alliance that caught the eye.

It is also true that the Kanslergade settlement had parallels in Sweden (“Kohandlen” between the Social Democrats and the Farmers’ Union in 1934) and Norway (“kriseforliket” between the Labor Party and the Farmers’ Party in 1935) and somewhat later in Iceland and Finland. The settlements and effective parliamentary democracy made Denmark and the other Nordic countries stand in stark contrast to the main trend on the European continent with the establishment of more and more authoritarian or outright fascist/Nazi regimes.

The Nordic parallel development was not a coincidence. It had long roots in cooperation on transnational legislative initiatives, including almost identical marriage legislation in the early 1920s. From 1919, the Nordic ministers for social affairs met regularly for mutual information, inspiration and even a touch of competition for leadership in social legislation.

In 1932, the Nordic labour movements formalized their cooperation in the Nordic Cooperation Committee, SAMAK, which to this day has played a role as a springboard for policy development in the Nordic countries. 9)

One of the most remarkable common features of the Nordic labor movements was the almost simultaneous reorientation of the social democracies from being class parties based primarily on the working classes to emerging as class and popular parties. It had begun with the Swedish Social Democratic Party’s adoption around 1930 of the originally conservative concept of Sweden as a “people’s home”, and the Danish party followed suit when it adopted the manifesto “Denmark for the People” in 1934, which was essentially formulated by Stauning. Among other things, it stated:

“Now is the time. Not for fantastic experiments and lawless actions, not for threats and attempts to break down an orderly society, but it is time to create a community of the people who turn against lawlessness and set the building of society as the goal for the work of the near future. The working class has come far by virtue of solidarity and unity, but the whole people should join in when those who understand the meaning of production unite in the work of the times.”

And the manifesto ended: “We are small people in Denmark, but there is will, courage and drive in the people, and this must also be seen in the political work. Up to the deed of the day. For home and children, for people and country. Denmark for the people.” 10)

Behind the lofty words was also a reconciliation with the national and Danish popular traditions. The Kanslergade settlement had shown what could be achieved in practice for the benefit of the people. Now it was also about not leaving the national and the popular to the more sinister forces rumbling on the conservative and Nazi right wing. The core concepts of Nazism were Volk, völkisch, and Volksgemeinschaft. There was no reason to give them to the Danish Nazis.

however, “Denmark for the People” also set out a strategy for national survival in an expected long-term crisis. The means for this was to be a socialist-inspired planned economy under democratic auspices and with a very active state power. The appeal to the general population was about securing voter support for this strategy and for what lurked in the future, namely a constitutional amendment. Fortunately, it did not come to anything.

The appeal to the community of the people proved effective. In the 1935 general election – with the famous slogan “Stauning or Chaos” – the Social Democrats won over 45% of the vote, more than ever before or since. The Liberal Party, on the other hand, saw itself reduced by 10 seats. It was an election that for many decades to come buried agricultural liberalism and for a long time secured the Social Democratic Party’s position as a dynamic driving force in Danish society – if we disregard the occupation period, that is.

In the wake of the Chancellery Agreement and the implementation of the social reform, Hartvig Frisch dedicated his great book “Plague over Europe” to Thorvald Stauning in 1933 on the occasion of his 60th birthday. In the famous and frequently quoted “Nordic Foreword”, Frisch wrote a tribute to the democratic Nordic countries, which included the words

“Now is the occasion for us to show that there are bones and marrow in the Nordic democracy. It was the peasants of the Nordic countries who led parliamentarianism to victory and created political democracy – that honor is theirs. It is the labor movement that has built on this foundation and laid the foundations for social democracy. The building has not yet been erected, and there is hard work enough for the coming generation, but the foundations have been laid, and every Nordic worker and peasant, craftsman and official, worker and artist has reason to protect and defend the efforts made here against any attempt to introduce dictatorship and methods of violence, whether they come from East or South.” 11)

Democracy and social security as the best defense against political-ideological extremism on the left and right became a mainstay of Danish politics for the following many decades.

Notes:

1) The political and economic background to the September Agreement is thoroughly discussed by Henrik Nissen in Søren Mørch (ed.): Danmarks Historie, vol. 7. The time 1914-1945. Copenhagen (Gyldendal) 1988, pp. 240-297. See also Vagn Dybdal et al: Krise I Danmark. Structural changes and crisis policy in the 1930s. Copenhagen (Berlingske Forlag) 1975.
2) Eric Hobsbawm: Age of Extremes. The Short Twentieth Century 1914-1991. London 1994 (Abacus), pp. 85-141 (Danish translation 1997).
3) Torben Ankjærgaard: Petty bourgeoisie and crisis. An analysis of LS’s conception of society in the 1930s. In: Historievidenskab 13-14, 1978, pp. 123-49.
4) Niels Henrik Topp: Udviklingen i de finanspolitiske ideer i Danmark 1930-1945. Copenhagen (xx) 1987.
5) “Odense Program”. Work program adopted at the Social Democratic Congress in 1923. Printed in Claus Bryld: Det danske socialdemokrati og revisionismen. Volume 2, 1914-1930s. Århus (GMT) 1976, p. 166-68.
6) Erik Ib Schmidt: Fra psykopatklubben: erindringer og optegnelser. Copenhagen (Gyldendal) 1993.
7) Henning Grelle: Thorvald Stauning. Democracy or Chaos. A biography. Copenhagen (Jyllands-Posten Forlag) 2008, p. 333-43.
8) Søren Kolstrup: Fra fattiglov til forsorgslov. In: Jørn Henrik Petersen, Klaus Petersen and Niels Finn Christiansen (ed.):Mellem skøn og ret. Danish Welfare History, Volume 2 1898-1933. Odense (University Press of Southern Denmark), pp. 229-33.
9) Klaus Petersen: Constructing Nordic Welfare? Nordic Social Political Cooperation 1919-1955, in: Niels Finn Christiansen et al (eds.): The Nordic Model of Welfare – A Historical Reappraisal, Copenhagen (Museum Tusculanums Forlag 2006), pp. 67-98.
10) Denmark for the People is printed in Claus Bryld anf. arb. p. 169-91.
11) Hartvig Frisch: Plague over Europe. Bolshevism – Fascism – Nazism. Copenhagen (Henrik Koppels Forlag) 1933, p. 9.

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