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Note to Denmark: Don't Change a Thing

Vox Populi

John Campbell, the Class of 1925 Professor of Sociology, was recently invited by the Prime Minister of Denmark to give the keynote address at the final meeting of Denmark's Globalization Council, a body convened by the Prime Minister to help sustain and improve Denmark's global economic competitiveness. He drew his remarks, which he revisits here, from a policy paper written with a Danish colleague advising the nation's largest labor union and from his new book, National Identity and the Varieties of Capitalism: The Danish Experience.

John Campbell
John Campbell

Whenever a head of state asks for your opinion on policy-making matters, it's important. This is certainly true for Denmark, a country that has achieved institutional competitiveness in the global economy during the last 15 years or so. When I spoke to the Prime Minister and his Globalization Council in February, Denmark was still reeling from the international uproar over Islam-themed editorial cartoons. While the cartoon crisis may seem a far cry from the question of global competitiveness, the controversy served to underscore one of the themes of my talk: the importance of social cohesion for Denmark's success. That cohesion, and the institutions and policies that undergird it, make a strong case for preserving the principles that have so far guided Denmark, even when those principles sometimes contradict the tenets held by other advanced capitalist countries.

The ability of countries to achieve socioeconomic success depends not just on the macroeconomic policies that their governments pursue but also on the institutions within which their firms operate. In other words, national socioeconomic performance depends in part on the nation's institutional competitiveness, or its capacity to achieve socioeconomic success as a result of its political, economic, and cultural institutions.

Denmark can lay claim to impressive socioeconomic performance, stemming in part from its institutional capacities to generate strong economic growth and distribute the benefits of that growth rather equitably among the population. That growth also raises questions about how best to manage Danish institutions to ensure Denmark's institutional competitiveness in the future.

There is no one best institutional practice. Today, the most successful countries—including Denmark—may have very different institutional profiles.
For instance, contrary to conventional thinking in the United States and many other advanced capitalist countries, high taxes and high levels of government spending have had positive rather than negative effects on Denmark's performance insofar as they have supported the systems and programs that have provided for the nation's economic success.

The Danish case suggests that countries can have both high taxes and generous spending and still achieve impressive socioeconomic performance. Indeed, Denmark's performance is comparable to that of the United States-a country with much lower levels of taxation and spending. The secret of the Danes' success lies in their hybrid-style economy that combines features of both Liberal Market Economies (LMEs) like the United States and Coordinated Market Economies (CMEs) such as Germany and Sweden. The result has been a system of "flexicurity," which ensures that the private sector has enough freedom and flexibility to hire and fire workers in response to market signals, while also ensuring that public funding is in place to provide generous unemployment benefits, health insurance, and, most importantly, training to help workers obtain new skills and return to work.

This national focus on worker health and security illustrates an important point. For Danes, social cohesion is a national priority. As I argued before the Council, that social cohesion has contributed significantly to Denmark's ability to adapt flexibly to globalization. I maintain (and research confirms) that the greater income and social equality experienced by Danes than by those in many other advanced capitalist countries leads to more social trust and a greater collective commitment to national goals, given that a more equitable distribution of wealth ensures that national gains benefit everyone. Therefore, welfare spending-and the taxes that support it-should not be reduced significantly in the interest of institutional competitiveness.

Institutions are tightly coupled; changing one institution can have unintended consequences for the performance of others. Tighter eligibility for various welfare benefits may have helped push Danes back into the labor market thereby reducing unemployment, but it also contributed to an increase in the poverty rate and the increasing marginalization of certain segments of the population like Islamic immigrants. Hence, when things are going well, as they are in Denmark, decision makers ought to consider staying the course rather than pursuing major institutional changes.


Questions or comments about this article? We welcome your feedback.

Last Updated: 12/17/08