The Danish Model

Følgende er et kapitelbidrag til bogen "Denmark limited - Global by Design", edited by Waldemar Schmidt and Claire MacCarthy, Gad, 2006


Denmark is home to one of the world's most interesting paradoxes.
Despite this little country having one of the world's highest levels of
taxation, shortest working days, longest holidays, highest salaries,
biggest public sectors, highest percentages of unionised workers and generally awful weather - despite all this, year after year Denmark is rated the world's most competitive country in virtually every important ranking of economic competitiveness: the World Economic Forum, IMD, Economist Intelligence Unit, the World Bank...

And to render the paradox even more puzzling, Danes are considered among the happiest and most contented people in the world, according to 'people rating' surveys such as the World Values Survey.

How can it be, asks the International Herald Tribune in a major article, that
- and the other Nordic countries, which also place highly in the international rankings - are capable of outdistancing free market economy supernations such as the USA and Singapore in terms of competitive ability, one of the hallmarks of capitalism? Or as the newspaper formulated it: "Why does the bumble-bee stay in the air?"

The fact is that today
and the other Nordic countries are
considered contemporary winner models that do far better in the global economy than almost everyone else. At the Baltic Development Forum's annual meeting in
in autumn 2005, José Manuel Barroso, president of the European Commission, noted that the economies of the Nordic countries - and not just the welfare societies - today serve as the model for the whole of Europe.

Even the leading Danish business daily Børsen, which normally loves to hate the tax-plagued Danish model, wrote in a noteworthy article that 'the Danish model is the most successful of the Nordic models and has documented that it is possible to combine economic growth with welfare'.

So what is the secret?

We have need of an answer.

Strangely enough, neither
nor the other Nordic countries
currently have a convincing answer to the question. Traditional
macro-economic considerations do not appear to be applicable - there is no simple explanation for the Nordic success, as the countries are distinct in terms of geographical conditions, industrial structure and economic development history. Consequently the success and praise is felt to be somewhat surprising and something of a mystery to many - not least economists.

In fact, the aim of the Nordic socio-economic model was never to be a market economy showcase model, but a social vision. And this is why the out-and-out capitalist success that has manifested itself, particularly during the last decade, has caused confusion in many ideological pictures of the world.

As an example, the Confederation of Danish Industries has an agenda for its annual meetings, in which thousands of business leaders participate, that deals with what a Danish winning strategy could look like - a strategy that can generate growth and transform
into a winning nation. This agenda completely ignores the fact that the rest of the world already perceives Denmark and the other Nordic countries as winner models and that we are already creating the results that others dream about. The problem for the Confederation of Danish Industries is that it has occurred despite the high taxes, high salaries and steadily growing public sector workforce that the organisation has been warning for years
would plunge
into bankruptcy. Consequently there is no great interest in examining the reasons for this spectacular Danish success.

But we do need to find an answer. For if we cannot explain the Nordic success, if we do not understand its strengths, the rest of the world cannot use the success as inspiration when we ourselves risk
misunderstanding our own prerequisites and prospects, and in a
worst-case scenario risk formulating political initiatives that would
unintentionally undermine the Danish strengths instead of further
developing them for global competitive advantage.

Augusto Lopez-Claro, chief economist with the World Economic Forum, made the following comments about the Nordic countries in the World Competitiveness Report 2005:
"The Nordic countries remain a role model for the rest of the world's
economies. They share a number of characteristics that make them
extremely competitive, such as very healthy macroeconomic environments and public institutions that are highly transparent and efficient, with general agreement within society on the spending priorities to be met in the government budget. And whilst high tax rates could be a potential problem area, there is no evidence that these are adversely affecting the ability of these countries to compete effectively in world markets, or to deliver to their respective populations some of the highest standards of living in the world. Indeed, the high levels of government tax revenue have delivered world-class educational establishments, an extensive safety net, and a highly motivated and skilled labour force."

It resembles a confrontation between established economic conventions and dogma. High levels of taxation and a large public sector are not necessarily negative from an economic point of view, because these aspects could even contribute to the overall growth potential. And although it may resemble economic heresy to say so, it is conceivable that the collectively financed social model of the Danish and Nordic countries, with its highly egalitarian view of human nature, offers a better competitive structure in the innovation driven economy of the future than the more elitist, user-financed American or authoritarian Singapore model.

We must also keep in mind that part of this peculiar Danish paradox is the number of new companies established per inhabitant in
, which is as high as in the USA. In other words, the in-built security that exists in Danish society resulting from - seen from an international perspective - a generous, tax-financed social security net does not make the people any less motivated or willing to take risks. On the contrary, the combination of broadly qualified skills and a finely meshed safety net appears to encourage more people to take the risk.

The same sense of security is built into the Danish labour market - the so-called flexicurity model, which combines employment flexibility with a high degree of financial security. The Danes have entered into a collective contract in a negotiation-based - rather than
legislation-based - labour market, where employees can be easily hired and fired by employers in return for high unemployment benefits and upgrading of qualifications, financed by the employees themselves, the employers and the state. This provides for an amazingly adaptable workforce that is used to changing jobs and adjusting to changing requirements and opportunities. A model that the OECD calls 'the best in the world' and one that is worth copying.

Can the Danish model be copied?

But the question is: can the Danish or Nordic models be copied? The
labour market model and the social model both rely to a great degree on a view of human nature and a set of values and opinions that are
notoriously difficult to copy. It is indeed fortunate for the Nordic
countries that precisely our values and opinions are so well suited to a global economy in constant flux.

This is also the conclusion of a report entitled "The Nordic region as a global winner region", prepared by the Nordic Council of Ministers and The House of Monday Morning. The report is the culmination of a series of interviews with Nordic thought leaders - business leaders,
researchers and culture thinkers. Opinion creators from Denmark include Jørgen Lindegaard, managing director of SAS; Lars Kolind, chairman of the board of Grundfos; Stine Bosse, group managing director of Tryg, professor Ove Kaj Pedersen, head of the International Centre for Business and Politics, Copenhagen Business School; professor Nina Smith, Department of Economics, Aarhus School of Business; Tor Nørretranders, author; and many others.

According to the Nordic opinion creators, the Nordic model is based on a number of common Nordic values such as:

? Equality
? Trust
? Inclusion
? Flexibility
? Respect
? Work ethic
? Aesthetics
? Low power distance

Not only are these values and attitudes of great importance to the way in which society is organised, but also they serve as a platform for a range of business/economic strengths.

For example, the low power distance means that high and low can discuss things together, and great trust means that basically people can count on one another in the Nordic countries - which means that the conditions for cooperation and innovation are particularly good in the Nordic cultures. This represents an obvious advantage in a global economy where competition is rooted in the quick interchange of ideas and innovation. In other cultures it can be more difficult for someone of low social rank or position to share thoughts and ideas with a manager of high social rank or position.

Similarly, inclusion means that everyone is on board and has the right to a good education and training, which ensures a broadly qualified workforce, while the protestant work ethic - it is not who you are, but what you do - means that work productivity is high and it is easy to introduce new technology and know-how into the work processes.

If you consider the parameters where the Nordic countries score highly in the international rankings, those that stand out are process
strengths and working relations. Today we are already utilising these
culturally founded strengths in the economic competition - and they are very much part of the explanation for the impressive Nordic results.

The future is already happening daily in Denmark

If - and we say if because at present these assumptions have not been empirically documented by the economic experts - these cultural strengths really do provide a competitive advantage and at the same time are difficult to copy precisely because they are culturally determined, then Denmark and the Nordic countries have a very interesting competitive advantage in an ever more global economy that can herald a profitable future in the coming decades.

For example, a Danish survey showed that 60 per cent of Danish companies are flat and network organised, not hierarchical and authoritarian, while Danes are now working so much in self-managed 'high-performance teams' that the trade unions are having difficulty in keeping even unskilled workers in the role of employees - more and more of them are defining themselves as managers and viewing the work situation from the manager's perspective. In other words, the types of organisations that the Harvard Business Review is still analysing and highlighting as those that will form the companies of the future are already widespread in today's

To underline the point, an American research project carried out by
Frank Dobbin and Terry Boychuk shows that a foreman in Denmark's
industrial sector has as much independence and autonomy in his work as a US managing director has in his, while a regular Danish industrial operator is considered an expert in his work and has as much autonomy as a foreman in the USA.

Clearly this is of great importance to the innovation culture. A survey
in 2000 found that 69 per cent of Danish employees often implemented their own ideas and themselves planned important work tasks, while a further 20 per cent said that they did so from time to time. This means that up to 90 per cent of all employees strive to meet the company need for innovation. This is close to a total mobilisation of the population.

Why do Nordic managers want to be American?

The significance of these mechanisms has clearly grown as the
competition conditions have changed. But they remain to a large extent unacknowledged. In fact, Danish and Nordic managers today view American management methods and forms of organisation as more attractive that the Nordic. A questionnaire in 2004 showed that 25 per cent of Danish and Swedish managers considered that the Nordic companies would become more like American companies, while only 9 per cent thought the opposite.

Therefore as long as the Danish and Nordic strengths remain
unacknowledged, we and others will not gain the full benefit from them. We also risk dismantling these strengths and replacing them with something weaker and worse. In other words, there is a colossal need for systematic, professional analysis of the Danish model.

At the same time, if the Nordic region is to be one of the future global
winner regions, we in Denmark and the other Nordic countries must,
according to the Nordic thought leaders, formulate a new, offensive
Nordic social vision - one that will not replace, but rather build on
the old vision of the welfare society and thereby release these unique
Nordic strengths in the context of a global perspective.


Mikael R. Lindholm, Fyrrevej 15, 2680 Solrød Strand, Telefon: ,