The issue of Norway's future form of government was hotly disputed. A plebiscite showed a large majority in favour of a monarchy rather than a republic. On 18 November 1905 the Storting chose the Danish Prince Carl to be King of Norway. Prince Carl was married to Princess Maud, daughter of King Edward VII of Great Britain, and had one son. The new Royal Family arrived in Norway on 25 November. Prince Carl took the name Haakon VII, and swore an oath before the Storting to uphold the Norwegian Constitution.
Norway was enjoying a period of economic growth when the union with Sweden was dissolved. The GDP rose by 55 per cent, i.e. by an average 4 per cent per year. The population grew rapidly and the employment situation eased. This was a result of the second phase of the industrial revolution, which in Norway was characterized by the exploitation of cheap hydropower and foreign capital investments. The electrochemical and electrometallurgical industries were built up, and new products appeared on the market. Major concerns such as Norsk Hydro were established and a number of new industrial centres sprang up. This economic upswing lasted until the outbreak of WWI.
The labour movement was initiated in Norway prior to the dissolution of the union with Sweden. The first trade unions were formed in 1872, and the Labour Party was founded in 1887. Universal suffrage was given to men in 1898 and to women in 1913.
The Labour Party secured four mandates in the election of 1903. In 1912 26 per cent of the electorate cast their votes in its favour, and 23 representatives were returned to the Storting. This made Labour the second largest party in the national assembly, after the Liberals.
The first years of industrialization brought only modest change to the country's social structure. As late as 1910, 42 per cent of the work force was still engaged in agriculture and forestry. In 1920 the corresponding figure was 37 per cent. Today this figure has sunk to 3.7 per cent.
Following the dissolution of the union, Norway had to build up a ministry of foreign affairs and a network of embassies and consulates. The resources available for this were extremely limited. The guidelines for foreign policy drawn up by the government of Christian Michelsen in 1905 stressed that Norway should refrain from entering into alliances that could involve the country in wars. This policy of neutrality had the broad support of the people. However, Norway played an active part in the work of promoting international arbitration agreements.
During WWI Norway remained neutral, but the Norwegian merchant fleet suffered heavy losses on account of the submarine war and the mining of the seas. About 2,000 seamen lost their lives. The war, however, brought considerable financial gains, which enabled the Norwegians to repurchase major companies that had passed into foreign ownership (Borregaard, the coalfields of Spitsbergen (Svalbard) etc.). In 1920, in the settlement following the war, Norway retained its sovereignty over Svalbard.
The Liberals lost their majority in the national assembly in the 1918 general elections. Subsequently, no single party was able to gain a majority in the Storting until 1945. In 1928 the Labour Party was able to form its first government. This government survived for only 19 days, after which it was felled by a non-socialist majority.
The depression that started in the 1920s also affected Norway. The government's currency policy intensified the problems. Trade and shipping suffered heavy losses. A number of banks crashed. The krone started to fall, and the lack of foreign currency was severe. State revenues diminished, and many of the municipalities were hard hit. Earnings, which had been high as a result of arbitration in 1920, were reduced under vehement protest from the workers, who at that time were strongly influenced by revolutionary viewpoints. Unemployment was severe right up to the start of WWII.
In 1932, however, a new economic upswing started, which led to a drastic improvement of Norway's balance of payments. From 1935 to 1939 the national income rose by more than 1,400 million Norwegian kroner, a considerable sum for Norway at that time.
In 1920 Norway became a member of the League of Nations, thus departing from its policy of isolation. The Nordic cooperation initiated during the war continued in the League of Nations, where the Nordic states pledged their support to peacekeeping measures without committing themselves to military sanctions. The president of the Norwegian Storting, Carl Joachim Hambro, was president of the League when WWII broke out.
The imminent threat of war in the late 1930s brought defence issues to the forefront of Norwegian political debate. The socialists had previously strongly opposed granting funds to the military, and were partly supported in this view by the Liberals. Another reason for socialist scepticism towards defence was the fact that Vidkun Quisling, later to become a national socialist, led the Ministry of Defence in the early 1930s, as a cabinet minister in the Agrarian Party government. In 1936 the Labour Party again formed a government, with parliamentary support from the Agrarian Party. Johan Nygårdsvold became prime minister. Grants to defence were increased, though too late to have any real effect on Norway's military strength. At the outbreak of WWII in 1939 Norway again proclaimed its neutrality.