Globalization and the Welfare State

1 January 2017

Today Denmark is one of the most prosperous countries in the world. Unemployment rates are low. Denmark also has low inflation and a surplus on both balance of payments and public expenditure. The World Economic Forum’s 2008 competitiveness index ranks Denmark in its Top Three world-wide. And the World Transparency Index ranks it as the world champion in non-corruption.

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Furthermore it should be noted that other international comparisons nominate the Danes as the happiest people in the world! Denmark’s success is so impressive. However, in the 80s and 90s, as the globalization intensified, some economists were skeptical of the ability of small states like Denmark to navigate world markets because a heavily unionized but lightly populated country with high taxes and extensive welfare benefits looked fundamentally uncompetitive.

So, in order to facing with the challenge of tremendous and unyielding international competition, Danish government has decided to put forward The Danish Growth Strategy which looks to the creation of more jobs and boosted productivity, as well as encourage more Danes onto the labour market, equip the economy to generate added value through work and ensure more value for each invested Krone. The globalisation opens up new opportunities for Denmark and Danish business and industry.

Considering as one of the easiest country in the world in which to start a new business, together with its progressive taxes, redistributive policy and flexible labour market have effectively attracted foreign firms to Denmark. Prioritisation of good service for all citizens, for instance within health care, has at an early stage created a domestic market which offered Danish industry the possibility of becoming market leader in valuable niches on the global market.

This accounts for NOVO’s leading role when it comes to insulin and similar global positions for other Danish medical products. Lego Group is another expamle of a Danish firm found huge success as global niche player. Traditionally, Denmark has not regarded itself as a country of immigration. This is due to its relatively homogeneous population of 5. 4 million, a strong sense of national identity, and the fact that, until recently, immigration flows were moderate.

Most immigrants in Denmark came from other Nordic or Western countries, and the country experienced more emigration than immigration. The problems the Danish welfare state faces in terms of integrating immigrants are rooted in two interconnected phenomena. One is that the government and the public believe the continued success of Denmark depends on cultural homogeneity.

The second is that policies of entry and integration have been inadequately geared to distinguishing between different “categories” of immigrants (e. . economic migrants versus refugees, male versus female immigrants, Muslim versus non-Muslim), and have also been unprepared for the increase in the number of refugees and family dependents. However, since politicians and the public are beginning to realize that Denmark will need more immigrants in order to cope with the an ageing population and to ensure a sufficient supply of skilled as well as unskilled workers to a booming economy, there are a number of concrete changes in immigration policies.

They include automatic citizenship for children born and raised in Denmark, regardless of their parents’ citizenship; equal welfare rights for immigrants and Danes; vast reductions in application fees and cash securities; expanded work benefits for asylum seekers; and the possibility of dual citizenship, which will ease the naturalization process. In the present gloomy economic situation in Australia and United States, the so-called flexicurity model is such a very valuable thing to learn.

The labour market policies and economic policies in general are arranged in such a way that everyone who is affected by unemployment quickly moves on and receives supplementary skills, job training or a new job. The main purpose of the intensification of the active labour market policy under the Social Democratic government in the 1990s was to offer terms that were so good that no unemployed people could turn them down, to enforce the availability requirement and to upgrade the qualifications of all the unemployed in order to gear them for new job opportunities.

Furthermore, Danish corporate tax is relatively low and the possibilities of depreciation deduc-tions etc. are favourable. A predominant share of government expenditure on welfare is funded through taxes which are paid by the entire population according to income or consumption, and all groups are guaranteed almost all social rights. And in comparison with the USA, the differences are dramatic – not least regarding inequalities in income distribution.

The reason is obvious: while citizens in Denmark with a low income only pay for welfare relative to in-come and spending, the situation is totally dif-ferent in the USA. Wealthy Americans pay very little tax. In return, families have to save a fortune in order to get their children into good universities or pay for decent care for elderly family members. The family budget has to cover the full price for nurseries and private health insurance is neces-sary to receive proper medical treatment.

User charges and private insurance, where premiums are paid according to the risk of illness or unem-ployment, are a much heavier burden on a tight family budget than on a large family one. No formal barriers remain preventing Danish companies from exploiting trade and investment opportunities in the global economy. Therefore, to succeed Denmark must attract highly qualified workers and remain attractive to foreign investors as well.

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