How long can Denmark’s awesome socio-economic engine last?

[The Tivoli park, Copenhagen, Denmark] (LOC)
Image by The Library of Congress via Flickr

NPR did a couple of podcasts, touting the “awesomest” economy in the world, Denmark, here, and here.

I thought it was going to be another piece of hoopla on the wonders of Danish happiness derived from their unthinkably high taxes.  But luckily, Danes interviewed in the program didn’t go into PR mode, so some real questions and real concerns were addressed.

I do not think the low unemployment number (at 1.8% versus 5.8% in the US, on average) in Demark is indicative of its economic success by any means. Whether they like to admit it or not, an open EU has effectively made Denmark’s neighbours, close and afar, competitors of its most vital resource: labour.  Courtesy of the country’s free education system.

Danish taxes also contrast sharply with those in nearby London, often jokingly referred to among Danes as a Danish town, because so many of them live there. Lower taxes on high earners have been a centerpiece of the policy mix that has fed the rise of London as a global financial center since the 1980s.

But today young Danes can easily choose not to pay for the system’s upkeep, once they have siphoned off what they need. For starters, as citizens of the European Union they are entitled to work in any of the 27 EU countries.

In a country of just 5.5 million people and averse to immigration, there is no loss too small.

The Confederation of Danish Industries estimated in August that the Danish labor force had shrunk by about 19,000 people through the end of 2005, because Danes and others had moved elsewhere. Other studies suggest that about 1,000 people leave the country each year, a figure that masks an outflow of qualified Danes and an inflow of less skilled foreign workers who help, at least partially, to offset the losses.

And once the effect of its brain drain is felt, slower growth will follow, and the existing welfare system will have to change.

The Organization for Economic Cooperation and Development, which is based in Paris, projects that Denmark’s growth rate will fall to an annual rate of slightly more than 1 percent for the five years beginning in 2009, reflecting a dwindling supply of a vital input for any economy: labor.

The problem, employers and economists believe, has a lot to do with the 63 percent marginal tax rate paid by top earners in Denmark – a level that hits anyone making more than 360,000 Danish kroner, or about $70,000.

As for lessons learned from the fair state?

The EU says thanks, but no thanks. While searching for a more sustainable social model that blends sensible social welfare policies with demographic shifts and competition from hungrier players, i.e. Asia, OECD’s secretary general says:

“The Danes are the happiest people in the world, but you have to be a Dane to be happy in those conditions, because it is explained by 150 years of evolution in that particular area,” Gurría said.

“What is not possible is to replicate this. When they are talking about the Danish or the Nordic model, this cannot be done in Brussels, this cannot be done in Paris, it cannot be done in Italy, it cannot be done in the United States.”

Comments on this entry are closed.

  • Scott

    Actually this article is misleading. The Danes are a very closed society of people. I have lived many years in Denmark. Happiness place on earth? No..the most satisfied is more like it. The culture cannot be compared to the United States which is based on every man for himself and a race for the dollar bills every morning and night. The Danish system is a model for taking care of its citizens, something we can learn about here in the states. Also as with our diabetes problem
    Many still have no health insurance in the USA.

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  • Dan

    This is very narrow minded. Just like Scott said. I have been there for 5 months. Danes help you when you ask, and i even had the surprise of being asked if i needed help. And i enjoyed it even if it made a big hole in my pocket as a foreign student. The education system is free and is very good. The health system is also excelent. The administrative system is also good, Transportation system also. Everything was very fast and punctual.
    Yes they have high taxes because they have fewer of them. Unlike my country which has over 200 taxes, which if you don`t pay you get penalties. Realistically speaking… how is a person supposed to remember over 200? and moreover to know which ones to pay? In Denmark my rent bill was all that i had to pay, everything was included there. In my country i get rent bill, gas bill, maintainance bill, power bill. What i`m saying is that simple is better for citizens.
    Everything was made with a common target in mind. the citizen. Not like USA where the rich screw the poor and don`t give a dime about them. I have seen only 1 homeless person in the 5 months i stayed there and i was shocked to see that that guy helped someone. Unlike USA they are very equalitarian.

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