Danish economic model: Don’t try it until you understand what it means..

There is a lot of talk especially in US Presidential debates on adopting Danish economic model.

Otto Brøns-Petersen of Center for Political Studies (CEPOS), a think tank in Denmark has an article on the issue. He says do not try the model at home until you know what it is all about:

Increasingly, both in Denmark and abroad, I hear the claim that Denmark is somehow proof that a gentler socialism is preferable to free-market capitalism, promising more happiness, greater wealth, or both. Recently, Democratic presidential candidates Bernie Sanders and Hillary Clinton declared their admiration for Denmark. I came across the rising attraction of the so-called Danish model earlier this year at conferences in Athens, Greece, and Sofia, Bulgaria. My advice at those events was and continues to be, “Don’t try this at home — at least until you understand what the Danish Model is about.”

The first thing to recognize is that Denmark, like the other Nordic countries, has quite a free-market economy, apart from its welfare state transfers and high government consumption. The Nordic countries tend to get rather high rankings on global measures of economic freedom. Denmark is thus number 22 on the Fraser Institute’s Economic Freedom of the World (EFW) index and number 11 on the index published by the Heritage Foundation.1 Denmark ranks at number 3 on the World Bank’s Doing Business report, which assesses the ease of doing business around the world.

….Second, Denmark did not become a rich country recently. As Figure 1 shows, Danish per capita GDP relative to other countries reached a maximum 40 to 60 years ago (ignoring the “noise” from the Great Depression and World War II). Denmark caught up to and overtook “old Europe” in the fifties, while it narrowed the gap with the United States and other Western offshoots until the early 1970s, when the process of catching up came to a halt. Danes are still not as rich as Americans.

…Denmark first became rich, and then introduced the government programs that make up the welfare state. The huge increase in government spending has been accompanied by deep structural problems, which has made it necessary to reform the Danish economy and welfare state. It can hardly be claimed that introducing the welfare state made Denmark rich; rather it was the other way around. Denmark first became rich, and then the authorities began to redistribute some of the wealth.

Hmm..Takes you to the Bhagwati vs Sen debates..

In the end, one needs to learn the right lessons. A welfare economy does not mean a careless one:

In many respects, Denmark could serve as a model for the world. But if you fail to learn the right lessons, it could be dangerous to try to imitate our model, especially the idea that you can become rich by redistributing wealth or that there is a gentler, more successful way to socialism than the one experienced by typical socialist countries.

And it would certainly be ironic if the Danish case were to become an excuse for politicians in the United States, Greece, or other countries to avoid fiscal consolidation and economic reform, since we Danes have been reforming and consolidating for decades to deal with the problems created by the introduction of our welfare state.

Nice bit..going back to basics..


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