Bob Kuttner spends some time in Denmark and has wise things to say about the welfare state in Denmark and advanced countries in general:
Reading Adam Smith in Copenhagen -- the center of the small, open, and highly successful Danish economy -- is a kind of out-of-body experience. On the one hand, the Danes are passionate free traders. They score well in the ratings constructed by pro-market organizations. The World Economic Forum's Global Competitiveness Index ranks Denmark third, just behind the United States and Switzerland. Denmark's financial markets are clean and transparent, its barriers to imports minimal, its labor markets the most flexible in Europe, its multinational corporations dynamic and largely unmolested by industrial policies, and its unemployment rate of 2.8 percent the second lowest in the OECD (the Organization for Economic Cooperation and Development).
On the other hand, Denmark spends about 50 percent of its GDP on public outlays and has the world's second-highest tax rate, after Sweden; strong trade unions; and one of the world's most equal income distributions. For the half of GDP that they pay in taxes, the Danes get not just universal health insurance but also generous child-care and family-leave arrangements, unemployment compensation that typically covers around 95 percent of lost wages, free higher education, secure pensions in old age, and the world's most creative system of worker retraining.
Does Denmark have some secret formula that combines the best of Adam Smith with the best of the welfare state? Is there something culturally unique about the open-minded Danes? Can a model like the Danish one survive as a social democratic island in a turbulent sea of globalization, where unregulated markets tend to swamp mixed economic systems? What does Denmark have to teach the rest of the industrial world?
These questions brought me to Copenhagen for a series of interviews in 2007 for a book I am writing on globalization and the welfare state. The answers are complex and often counterintuitive. With appropriate caveats, Danish ideas can indeed be instructive for other nations grappling with the enduring dilemma of how to reconcile market dynamism with social and personal security. Yet Denmark's social compact is the result of a century of political conflict and accommodation that produced a consensual style of problem solving that is uniquely Danish. It cannot be understood merely as a technical policy fix to be swallowed whole in a different cultural or political context. Those who would learn from Denmark must first appreciate that social models have to grow in their own political soil.
At the heart of the Danish model, Kuttner says, is the idea known as flexicurity. What this means, in part, is that in Denmark there are simply no restrictions against laying off workers other than the requirement of advance notice. But:
What makes the flexicurity model both attractive to workers and dynamic for society are five key features: full employment; strong unions recognized as social partners; fairly equal wages among different sectors, so that a shift from manufacturing to service-sector work does not typically entail a pay cut; a comprehensive income floor; and a set of labor-market programs that spend an astonishing 4.5 percent of Danish GDP on initiatives such as transitional unemployment assistance, wage subsidies, and highly customized retraining.
In the U.S. by contrast, "spending on all forms of government labor-market subsidies -- of which meager and strictly time-limited unemployment compensation makes up the most part -- is about 0.3 percent of GDP."
The focus on economic security also enables a remarkable degree of consensus and enthusiasm on free trade. Denmark is probably one of the few places in the world where you will find, as Kuttner did, trade unionists arguing that industry should engage in more outsourcing!
If you want to learn from and adopt the Danish model, Kuttner says, you cannot do it on the cheap. The trade adjustment or wage insurance remedies that are circulated in the U.S. context do not include
the other key elements that make flexicurity both a political and a policy success. Most seek to buffer the dislocations of trade on the cheap. But the Danish model cannot be understood as a strategy merely of "compensating losers" or even of reinforcing political consent for free trade. It is part of a far broader national commitment to maintaining a highly egalitarian society in which there are no bad jobs and to the use of ongoing labor-market subsidies to create a highly skilled and dynamic work force as the essence of global competitiveness. The other northern European nations have their own successful variants of active labor-market policy, but most of the proposals outside Scandinavia that invoke the Danish model would appropriate the flexibility without the security. None is politically serious about the necessary scale of public outlay or social collaboration.
Kuttner's bottom line is that the Danish model is too specific to Denmark to be exported wholesale. But, as he hastens to add, the ideas in it are simply too good to ignore.