April 4, 2019 / 1:55 PM / a year ago

Breakingviews - Cox: Danish capitalism is alive but not all well

PARIS (Reuters Breakingviews) - The White House in October published a report arguing that living standards in the Nordic countries of Europe were “at least 15 percent lower” than those in the United States largely because of socialist policies. Among the evidence marshalled by the Council of Economic Advisers was the cost of a pickup truck, “one of the most popular personal vehicles in the United States”. As one Danish executive remarked: “I’ve never even seen a pickup in Copenhagen.”

Visitors view an ice sculpture of a polar bear as it melts to reveal a bronze skeleton in Copenhagen December 8, 2009. REUTERS/Bob Strong

The Trump administration was trying to warn against socialism “making a comeback in American political discourse”. Some contenders for the Democratic Party’s 2020 presidential nomination, like Vermont Senator Bernie Sanders, hold up Scandinavia as utopia. The truth lies in between. But it starts with recognising that Denmark is more capitalistic than either its American critics or supporters make it out to be. And as the woes inflicting its largest bank suggest, Danish capitalism suffers from some familiar shortcomings.

Compared to many European neighbours, Denmark is a bastion of free-market thinking. The government doesn’t set industrial policy in the dirigiste manner of, say, France or Germany. Prime Minister Lars Lokke Rasmussen even recently chastised French President Emmanuel Macron’s calls to loosen EU antitrust policy following the rejection of a merger between the train businesses of Alstom and Siemens. Europe shouldn’t emulate China “by allocating state aid to certain companies, or help them to avoid competition”, Rasmussen told the Financial Times.

Those are hardly the words of a central planner. Denmark does, however, embrace social policies that encourage greater financial equality, including the higher taxes that pay for free and effective healthcare and education for everyone. But to label this a derivative of Marxism – as the White House’s chief economist, Kevin Hassett, effectively tried to do in last year’s 72-page screed – is off base.

“Denmark has a sophisticated social safety system that doesn’t mess with private business and the labour market,” explains Per Callesen, governor of the Danmarks Nationalbank, the central bank. “People are more likely to take risks if they feel that if they fail there is a safety net there to absorb them and help get them back on their feet.”

Denmark’s superlatives are manifold. Its nearly 6 million people enjoy some of the world’s highest living standards, with per capita GDP above $50,000 – not far from the United States. Income inequality is enviably low. The Gini index for the country comes in at 29, where zero represents perfect equality. America’s is at 39, just behind the Kingdom of Saudi Arabia, according to the Central Intelligence Agency.

Danes are happier. The country ranked second to Finland in the United Nations’ recent World Happiness Report, which is based on economic and other qualitative factors. The United States clocked in at 19. Danes gave themselves the second-highest score in the OECD’s Life Satisfaction survey, which measures how people evaluate their entire life rather than their current feelings. America came in 15th.

The country has accomplished this with little of the direct state intervention normally associated with socialism. Nearly all the country’s largest employers are privately owned, including facility services juggernaut ISS; Carlsberg, one of the largest independent brewers in the world; Novo Nordisk, a global leader in diabetes treatment with a $100 billion market value; and AP Moeller-Maersk, the top shipping company on the high seas.

True, all these companies enjoy stable shareholders without whom they’d have long ago been gobbled up by larger foreign rivals. But even the charitable foundations which control Carlsberg, Maersk and Novo Nordisk are part of the firmament of Danish capitalism and civic life, recycling the earnings they receive from their holdings into public education, cultural institutions and research centres. A visitor to any Danish museum can’t avoid seeing the fruits of this system.

“What is being done in Denmark cannot just be reproduced everywhere, because it’s so small,” says Laurence Boone, chief economist of the OECD. “But it can give ideas about the direction we should take”, particularly in terms of training workers to adapt to globalisation, automation and digitalisation.

Still, it’s not perfect. A money-laundering scandal in Danske Bank’s Estonian branch has brought unwelcome attention to possible corruption and poor controls in the country’s largest financial institution. Danske is being probed by Danish, Estonian, French and U.S. authorities and faces billions of dollars in fines over the problem, variations of which have since turned up at other Nordic banks. 

Even here it seems the primary failure was cultural – a commission of too much trust. The bank’s internal fraud-detection systems weren’t robust enough to catch some $240 billion of illicit money flowing through the branch. As one Danish banker explains it: “When you move abroad and take this culture of trust with you without the necessary checks and balances you find yourself in trouble.”

Entrepreneurs cite other flaws peculiar to Denmark. The generous safety net makes it a natural destination for migrants. That has stoked some of the same tensions evident across developed economies, leading to tighter rules and a more hostile official stance to immigration. This “can create an external brand for Denmark that’s damaging”, says Theis Sondergaard, founder of Vivino, the wine-rating app. “I don’t know how many people are not applying for a job. We need international perspective to be a global success.” While Vivino has 60 workers from 23 countries in Copenhagen leading product design, it moved its headquarters to California.

This doesn’t bother Christian Motzfeldt too much. For nearly two decades he has run the Danish Growth Fund, which provides seed capital to companies and investment firms active in Denmark – it’s sort of a $2 billion sovereign venture capital fund. More Danes are starting up companies as the infrastructure for doing so has improved. And more are sticking around, he says: “This is a fantastic place to be a capitalist.”

One of them is Too Good to Go, which created an app unleashing market forces to solve the problem of food waste. Consumers in nine countries pay a small fee to receive meals that restaurants or bakeries would normally toss away at the end of the day. “Being based in Copenhagen is a blessing and a curse,” says CEO Mette Lykke, a former McKinsey consultant who previously founded exercise app Endomondo, and sold it to Under Armour for $85 million. “It’s so small here that you need to get the hell out asap if you want to scale – in that sense it’s a born-global mindset.” But, she adds: “I can’t see why anyone would want to leave.”


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