Denmark’s Flexicurity: An Institutional Analysis of Denmark and the United States Authored by: Bill Berg Abstract: This inquiry details the “Flexicurity” system in Denmark. The employment and welfare benefits are considered from the employers and employees perspective. The role of the state is described in detail. Historical institutional differences between liberal market economies and coordinated market economies are analyzed. This essay seeks to establish that the “Flexicurity” system in a liberal coordinated market economy is a noteworthy form of industrial organization. It 1
Transcript
Denmark’s Flexicurity:An Institutional Analysis of
Denmark and the United States
Authored by:
Bill Berg
Abstract:
This inquiry details the “Flexicurity” system in Denmark. The employment and welfare benefits are considered from the employers and employees perspective. The role of the state is described in detail. Historical institutional differences between liberal market economies and coordinated market economies are analyzed. This essay seeks to establish that the “Flexicurity” system in a liberal coordinated market economy is a noteworthy form of industrial organization. It is demonstrated that the system is a first class way of enhancing human capital formation while engendering a social safety net that is far more sophisticated than with social services in the United States.
JEL Classifications: I3, J5, J8, L52, O23, O57
Social welfare, human capital, employment, comparative systems, industrial organization, vocational training
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This inquiry seeks to establish that Denmark’s Flexicurity system is a superior
mode of industrial organization. An all-inclusive system in Denmark’s economy that
simultaneously provides the social safety net that working persons deserve while giving
business enterprises a profitable institutional arrangement with very few regulations.
“Flexicurity” will be analyzed from various perspectives. A cross country survey of human
capital formation, educational support and communal investments in job training
programs are compared between Denmark and the United States. The historical
institutional conditions and the philosophical underpinnings of Denmark’s public sector
deserve attention. The Danish model evolved. It wasn’t the brainstorm of one or two
individuals; it was the result of the interactions of a culture, over time, resulting in a
sophisticated development of working rules and institutions. The subsidized higher
educational and a generous social safety net decrease inequality in Denmark while the
Active Labor Management Policy makes re-employment more attainable and gives the
welfare system accountability while reducing structural unemployment. Incentives and
disincentives have been carefully considered by the authors of the Flexicurity model.
Overall, it is a system of reciprocally beneficial individual and business support that
engenders a mutually beneficial exchange. Denmark is branded by Bredgard (2005, 4) as a
combination of high employment and low marginalization of its labor force. In support of
such a system it is noted that the social security fostered through “Flexicurity” leaves
citizens with more resources and energy to contribute to society.
What is Flexicurity?
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Bredgard (2005, 5) informs the reader that, The blend of well-organized
macroeconomic controls, reforms of the labor market policy, a high degree of flexibility, a
well-educated labor force and functioning multilateral cooperation based on social and
political consensus has won the “Danish labor market model” recognition. The “Golden
Triangle” of Flexicurity is formed by the three parts described by, Anderson (2011, 3-7). It
is encompassed by, employment protection legislation (EPL), unemployment insurance
schemes (UIB) and active labor market policies (ALMP). Figure 1 on page 31 contrasts the
relative generosity of each of the three quantitatively comparing them with other
countries. The ALMP also offsets any impediments for returning to work created by a very
liberal unemployment and social assistance program. Essentially it attaches conditions to
collecting unemployment called “rights and duties” maintaining the incentive structure in
the labor market. The working rules that foster these institutions would make any
proponent of “right to work” states in the US blush crimson.
In Denmark up to a quarter of employees each year are affected by
unemployment. Table one on page 32 discusses participant flows into ALMP. They receive
unemployment or cash benefits. The majority of these unemployed persons manage to
find their own way back into a new job within, on average, thirteen weeks. The rest end
up in the target group for the Active Labor Market Policy. For persons eligible for
unemployment benefits or receiving social assistance, the basic rules are as follows:
Unemployed below the age of 30 have the “right and duty” to an activation offer after no
later than 13 weeks of unemployment. The activity should have an uninterrupted duration
of 6 months. For persons below 25 years without a labor market relevant education and
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without children the activation requirement is an education under normal conditions
study grants for a university. In addition, the level of social assistance is reduced after 6
months unemployment to the same level as the study grant.
People aged 30 and above have the “right and duty” to an activation offer no later
than after 9 months of unemployment. Though, the period is only 6 months for persons
with unemployment insurance and above 60 years. After the first offer there is a “right
and duty” to a new offer for each consecutive period of 6 months on public support, and
the duration of the offer should be at least 4 weeks. Unemployed people eligible for
unemployment insurance with an unemployment period of 30 months have a “right and
duty” to an activation offer for the remaining part of the 4 year unemployment benefit
period. Figure 3 page 37 illuminates the dichotomous relationship of UI benefits and
ALMP activation. The labor market reforms, in Flexicurity, have increased the labor force's
adaptability and readiness for change while reducing the average period of
unemployment, as stated by Hendeliowitz (2008, 5). The unemployment and labor market
policies have led to a considerable reduction in structural unemployment. They have been
a decisive factor in Denmark's continued economic growth.
According to Anderson (2011, 23), the activation requirements are an integral part of
the Danish Flexicurity model serving to maintain focus on job search, strengthen job
search incentives, and contribute to overcome qualification barriers for employment. The
activation offer can be in one of three provisions each of which has specific rules and
duration:
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I. Counselling and requalification including short counselling and assessment
programs as well as special projects and education in the ordinary educational
system.
II. Job training (‐ virksomhedspraktik), this may be in the public sector or a private
company, and is used for persons where there is a need to clarify the possible job
prospects, or for persons who due to lack of qualifications may have difficulties in
finding a job under normal conditions.
III. Employment with wage subsidy, this may be at a public or private employer and is
used for retraining to upgrade the qualifications of specific skills, language or social
skills of the client.
About 2/3 of all activations offers are of type I. The other two types constitute about 1/6
each. With longer duration of unemployment the commitments to activation policies are
amplified. Figure 2 on page 33 illustrates the relationship between passive and active
labor policies and ALMP. Table 1 page 32 denotes aggregate spending as a percentage of
GDP in various locales. There are two important effects of the ALMP. On the one hand, as
a result of the active measures, the participants in various activation policies, job training
and education become more proficient at a wider range of tasks improving their chances
of getting a job. On the other hand, the measures can have a motivational effect.
Unemployed persons approaching activation time may intensify their search for ordinary
jobs, if they consider activation a negative prospect. The ALMP is important in ensuring
that a steep increase in unemployment does not translate into persistent unemployment.
After all, individuals have thirteen weeks to sit at home and drift then it’s time to get off
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the fence. The ALMP stresses job competency for a nimble, competitive workforce geared
for intensive vs. extensive growth. Ideally, with rigorous training employers will benefit
from increased output or labor dollar invested.
The implications for competitiveness and innovation in the Danish vocational
training system are substantial. The system creates incentives for firms to modernize
technologically constantly improving their production processes and strategies to avert
their most skilled workers leaving for more interesting and promising jobs. As a result,
business development and skill acquisition go hand in hand. First of all, the training
affords Danish firms the luxury of leaving discretionary decision-making to its workers
rather than supervising them closely in costly, rigid, bureaucratic ways. Second, high
levels of training enable workers to develop and make use of their own ideas and take
independent initiatives in their jobs to a much greater degree than is typically the case in
other countries. Such independence improves firm efficiency and productivity. Third,
having a well trained work force facilitates cooperation, and collective brainstorming
among production floor workers, engineers and managers.
Unemployment benefits play an important role as automatic stabilizers in macro
literature since they measure the extent to which income variations are absorbed by the
public budget and the extent to which the safety net cushions income to shocks. The
quantitative size of the automatic stabilizers reflects in a summary way the consequences
of social safety nets and their financing arrangements. It is a simple summary measure of
the extent of the social safety net or, in the wider meaning including the state
dependencies of transfer, taxes and expenditures. As Anderson (2011, 5) points out, the 6
unemployment insurance system in Denmark is a mixture of UI funds and voluntary
individual membership dues. The UI funds are subsidized by the public sector with
consistent contribution rates across all job profiles that are politically determined. The
marginal costs of increasing numbers of unemployed are fully tax financed.
Unemployment benefits pay up to 90% of the workers previous wage calculated based on
the previous year’s earnings up to a cap which was 22,300 Euros in 2011. Table 2 page 34
illustrates net replacement rates. The cap favors poorer dislocated workers paying them a
higher percentage in benefits than upper echelon employees would derive.
Hendeliowitz (2008, 11-17) explains that, in 2008, the employment system itself
was reorganized enabling it to meet the future challenges posed by a shortage of qualified
labor. The shortage will result from the increasing proportion of elderly people in the
population and the decreasing proportion of young people. A new institutional
arrangement was implemented including new planning and management tools. Four
employment regions were set up to keep a special focus on the labor market situation.
The decentralization of the public sector described by Hendeliowitz (2008, 13) is based on
the philosophy that the political decision-making in the public sector, as well as the
standards, level and allocation of the benefits it provides, should be decided in proximity
to the citizens it affects. The second principle underpinning regionalization is the
assumption that it represents a more adaptable, efficient, approach to handling
responsibilities. The opinion of those concerned is that if the state has to exercise political
control over a great number of public institutions, the need for substantial regulation and
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bureaucratization of the public sector is also greater which is contradictory to the
philosophy of Flexicurity and the values of Danish public administrators.
The Minister for Employment appoints members to the regional employment
council. The members represent trade unions and employers’ organizations as well as
municipalities and organizations for the disabled etc. The employment regions function as
the regional employment councils' secretariat and perform their tasks in close
cooperation with the councils. In terms of the regionalization of labor policies, the
employment regions play an important role in identifying and facilitating initiatives for
targeting regional constraints including any industry specific labor shortages. The
employment regions and the regional employment councils also support the employment
measures in the local and municipal job centers by providing advice on local employment
measures and making knowledge available regarding current developments in the
regional labor market, including information about the enterprises' current and future
demand for labor. The local employment councils monitor the effects and outcomes of
the employment measures being taken by the job centers and provide advice on possible
improvements. They also support initiatives directed at local enterprises and develop local
preventative measures that are targeted at those people who are on the fringes of the
labor market. The objective is to increase the employment opportunities for those who
are at risk of becoming disconnected from the labor market, or who have difficulty finding
employment on normal terms. Table 3 page 33 compares expenditures per capita. The
whole setup is impressive because during the planning process everyone is at the table.
The unions and employees are represented. The employers themselves have a voice.
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And, the State is on board as a mediator. There shouldn’t be any disconnect in mutually
beneficial conversations about wants, needs and forecasting.
Anderson (2011, 21-25) states that there is no clear relation between level of
automatic stabilizers, a generous safety net, and unemployment persistence. Contrary to
conservative assumptions, the groups of countries with the strongest automatic
Stabilizers Denmark, Sweden and the Netherlands have a lower level of persistence than a
large group of countries with modest stabilizers suggesting a non linear relationship ‐
between generous benefits and unemployment persistence. See figure 18 on page 41.
Bredgard (2012, 12), notes that generous welfare incomes increase risk taking by actors in
the workforce assisting labor mobility. The businesses and employees don’t object to the
relatively generous, yet costly, welfare scheme because it entails more workplace
efficiency and opportunities for all concerned.
In nation states where unemployment protection is quite high long term
unemployment tends to increase with increasing levels of government regulation. As
Bredgard (2005, 19) explains, the inflexible highly regulated labor regimes hobble both
employee and employer because employers tend to be highly selective. It also reduces
the economies capability of adjusting from high to low unemployment. Figure 4 page 35
relates different policy regimes. Bredgard (2012, 13-14) continues the discussion by
adding that, studies have found that strict regulations encourage labor market “duality”
wherein economic growth and productivity is dampened. Conversely, in Denmark,
entrepreneurs can start new companies with little red tape. Very few policy regulations
give businesses flexibility in retaining or, if need be, dismissing labor. There is no special 9
protection for public employees, and notice periods and severance pay are comparatively
low.
The Danish industrial structure, which is dominated by small and medium-sized
enterprises, is, aligned with the long liberal tradition of the Danish welfare state. As
Bredgard (2012, 5) points out, It relies on “social partners”, unions and employers, to
standardize most of the terms and conditions of the labor market, in contrast to the,
oftentimes odious, state regulation found in other countries. Bredgard (2012, 7) makes
the reader aware that, most countries with high rates of union membership and collective
bargaining paralyze new business formation and demand high taxes on capital. Denmark,
the Netherlands and Sweden have followed a different tact by taxing wage earners at a
higher rate and by comprehending that capital is mobile, while labor is not, they have held
corporate taxes relatively low. In Denmark individual tax rates are at 55% versus 35% in
the United States. On the other hand, corporate taxes are 25% in Denmark and,
supposedly, 35% in the USA. Table 4 page 36 illustrates various welfare issue differences
across countries. Flexibility and public regulation are often presented as each other’s
opposites, according to Bredgard (2005, 11), and a fully flexible labor market is considered
to be a labor market with very few restrictions on the behavior of the actors involved such
as the United States.
As Bredgard (2005, 8-11) points out employment elasticity has four basic pillars.
Numerical flexibility refers to adjusting the number of employees through hiring and
firing, if the need arises. A structural distinguishing factor of the Danish labor market is
high job mobility with as much as twenty five to thirty five percent of the workforce 10
changing jobs each year including high ranking employees. These high turnover rates are
increased by relaxed regulation of job hiring and firing as is the case in other liberal
systems. Working time flexibility or temporary flexibility is achieved by adjusting hours
worked based on the employers need or, to maintain an employee workforce even if,
collectively, their hours are cut. Wage flexibility is the rate at which nominal and real
wages adjust to changes in the supply and demand for labor. And, lastly, functional
flexibility denotes transferring employees either vertically or horizontally within an
organization. It is closely related to organizational flexibility which promotes rapid
realignment of managerial or production groups responding to changes in the market for
goods and services.
A benefit of high adjustability is that it facilitates rapid changes in staffing from
aging industries to new firms. It is noted in Bredgard (2005, 19) that, changing technology
and levels of international competition in various factor markets are readily addressed by
a nimble workforce and employers that aren’t saddled with high fixed wage costs. Figure 5
on page 36 illustrates comparisons of average job tenure in various countries with
different labor regimes. According to Campbell (2010, 16) this system enables firms to
learn and adapt quickly to changing market opportunities and technologies allowing them
to capitalize on specialized niche markets. This capacity for learning also makes it easy for
them to work with a wide variety of customers domestically and internationally with
innovative responses to the demands and requests of their customers.
Accommodating types of work organizations, such as project teams and lean
production techniques allow firms not only to introduce and adapt quickly to new 11
information and technologies. They also enable organizations to search for continuous
improvements in production processes themselves without enlarging administrative
hierarchies. Unions and employers negotiate training agreements through which they
collaborate in upgrading the skills of blue collar production workers which, in turn,
nurtures participation in company improvement on the production floor. Training
agreements permit workers to spend more time away from work in courses and training
programs of various sorts often with state subsidies for tuition and wage supplements.
The training opportunities increase the level of competition among technical schools of
various sorts while elevating the quality of training being offered. Insofar as today’s global
economy requires greater reliance on skills, learning, and labor market flexibility the
Flexicurity system is especially well equipped to help Denmark compete globally.
A Cross Country Comparison: Institutional Competitiveness and Differences
between the Neoliberal Capitalism of the United States and Denmark’s
Decentralized Controlled Market Economy.
Literature describing varieties of Capitalism fail to differentiate between
centralized and decentralized institutions and inclusive and exclusive coordinated market
economies or, CME’s. Instead they are described in terms using sweeping generalizations
or “isms”. Campbell (2010, 4-9) explains that oversimplifications overlook the degree to
which coordinated economies may be organized in decentralized and inclusive ways that
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enhance competitiveness. Blending elements from liberal and coordinated institutions
may do the same. High levels of taxation and state spending including welfare spending
may actually improve rather than undermine competitiveness because they support the
other institutions upon which competitiveness depends. Denmark has extraordinarily high
tax rates, a large state budget, very generous welfare benefits, and considerable
economic regulation implying, coordination of economic activity by non- market
institutions, such as state policy or corporatist bargains. Nevertheless, during the 1990s
and early twenty-first century Denmark competed quite successfully against the other
advanced capitalist economies. Contrary to neoliberal thought, one might argue that high
taxes and state spending are an important and very positive source of institutional
effectiveness in Denmark, not an impediment to competitiveness as neoliberals assume.
This is because state spending and the taxes that sustain it enable policy makers to
provide the sort of institutional supports that help Danish firms compete effectively in
world markets. Figure 6 and table 4 page 37 clarify public spending on labor markets.
Given their small domestic markets, small countries, like Denmark, tend to be
more open economically than large countries. That is, they are more engaged in
international trade and commerce relative to the size of their economies. Conversely,
large countries can define and bend the rules of the international political economy to suit
their purposes, but small countries cannot. Table 3 page 36 makes clear the differences in
trade flows for the US which has 15% of GDP in trade and is ranked #19 worldwide
whereas Denmark is ranked #3 with 57% of GDP coming from trade. Small countries are
both more vulnerable to changes in the international political economy and must be
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capable of flexible adjustment in order to respond to international challenges, such as
today’s more volatile markets, shorter product life-cycles, rapidly changing production
and information technologies, and increased international competition. In turn, flexible
adjustment requires political and economic actors in small countries to engage in policy
learning. Unless small countries can do this they are not likely to be successful
economically. Denmark is a good case for studying how countries can compete
successfully under conditions of increased globalization without resorting to
neoliberalism.
Liberal Market Economies and Coordinated Market Economies have institutional
capacities for being competitive albeit, for different reasons. Companies in LMEs tend to
compete on the basis of low cost and radical product innovation. Because LMEs have
institutions like weakly regulated labor markets as well as financial systems that impose
short-term investment horizons but allow high risk taking. These enable firms to keep
labor costs down, shed labor and close plants quickly, shift capital rapidly from one
industry to another, and invest in risky but potentially revolutionary and lucrative
research and development projects. In contrast, firms in CMEs compete more on the basis
of quality and incremental innovation, such as adopting breakthrough technologies
developed elsewhere. This is because CMEs have institutions like cooperative industrial
relations systems within firms, coordinated wage bargaining across firms, national
vocational training programs, and financial systems that allow for long-term investment
horizons. These produce highly skilled managers and workers who tend to cooperate in
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planning, trouble shooting, and the introduction of the latest technologies in ways that
enhance product quality.
The United States represents a classic LME example according Campbell (2010, 10-
12) when it comes to labor markets, and other institutional policies. Neoliberals prophesy
that governments must reduce taxes, spending, engage in Ponzi finance and reduce
regulation or their economies will fail to compete effectively in the global economy. The
United States has been on the forefront of neoliberal policy reform since the early 1980s.
This has been the mantra of conservative politicians since Reagonomics. It has pursued
neoliberal reforms of its tax, welfare, and regulatory institutions. With few exceptions,
Denmark has refrained from pursuing these neoliberal strategies. There were modest
reductions in some welfare benefits during the 1980s but the system is still very generous,
universal, and comprehensive. And tax reform has not been sweeping in Denmark.
Indeed, compared to the United States and virtually all other OECD countries the level of
taxation and state spending as a percentage of GDP in Denmark is very high and has
remained rather stable. Campbell (2010, 6) refers readers to Hicks and Kenworthy (1998)
who found that countries with corporatist or other institutions that facilitate cooperation
among firms or between firms and workers were more likely to minimize unemployment,
economic inequality, and inflation and to experience stronger economic growth than
countries without these institutions. They concluded, as have others, that the cooperative
form of capitalism performed better than others as a result of institutional differences.ff
Table 5 below illuminate’s differences in employment rates over time. The implication of
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this argument is that the best way to achieve economic success is by means other than
neoliberalism.
While the United States threw itself under the bus from the delusions of
Neoliberal policies, Campbell (2010, 18) explains that the old centralized system of CME
corporatism in Denmark was transformed into a more decentralized form during the late
1980s. It involved the development of a multi-level system of interest groups and firms
participating in policy learning, policy formation, and policy implementation at both
national and newly formed sub-national levels. Second, the corporatist policy process was
opened up in to a wider array of organized interests than just business and labor. This
more inclusive form of corporatist dialogue and bargaining helped mobilize political
consensus around structural policies for international competitiveness. Given the
importance of political consensus for orchestrating this sort of policy the result was a form
of corporatism that improved the capacity to develop collectively shared understandings
of international competition as well as improved capacities to formulate, implement, and
fine tune the structural policies deemed necessary to help firms and industries adapt to
this competition. As a result, there was an increase in local and regional structural policy
initiatives. These often involved the coordination of industrial policy with policies in other
areas, such as labor market policy, research and development policy, regulation,
environmental and vocational training policy, employment policy, and administrative
reforms in the public sector in ways designed to improve the performance of the economy
as a whole. Collectively they are referred to as structural policy which is a key strength in
Denmark’s institutional composition.
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Conversely, the United States has done very little learning in the policy area.
Compared to many European countries it has had little interest in labor market policies.
The federal government shunned full employment policy after the Second World War
preferring to leave employment up to market forces as corrected periodically by
Keynesian macroeconomic policies that stimulated or constrained aggregate demand in
countercyclical fashion. Experiments with any sort of active labor market policy were
sporadic at best and conducted on only very limited terms. For instance, there were some
modest experiments with job training and placement policies in the 1970s that focused on
the bottom of the labor market, but these did not last long and were poorly funded and
understaffed. A notable example was the Comprehensive Employment and Training Act
(CETA), which Congress passed in 1973. It was a program that was soon targeted by
conservatives as a bastion of corruption and inefficiency and that was discontinued by the
by the bastion of corruption that comprised the Reagan administration in 1981.
Throughout the 1980s and 1990s the government’s role was basically to provide
short-term unemployment benefits, which were sometimes extended temporarily if the
economy was in particularly bad shape which, isolated from training and placement, is a
black hole. Campbell (2010, 10, 17) notes that even under the relatively liberal Clinton
administration during the 1990s, federal employment and job training policies remained
essentially modest and marginal. It’s unfortunate because there was strong support in the
administration for creating a more skilled work force to improve the employability of
workers for the new global economy. Any advances were frustrated by political divisions
within the Department of Labor; spending limits for new programs imposed by Congress
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during a time period of budget surpluses and the inability of labor and business to agree
on key features of the administration’s proposals killed significant reform.
The U.S. has refrained from trying to coordinate economic activity at the level of
industries or particular firms. At no time has there been an effort to coordinate a broad
range of economic, welfare, educational, and other policies in order to enhance U.S.
competitiveness. The mere mention of anything that resembles central planning raises
screaming fits of rage blaring, socialism! The government engages in limited
macroeconomic fiscal, trade and tariff policies, and narrow forms of economic regulation,
notably antitrust law, which has prevented the sort of cooperation that is found among
firms in CMEs. The closest thing to an industrial policy found in America is military
spending. Since the Second World War the federal government has spent trillions of
dollars on defense related appropriations and technology development projects. Some of
the technologies that were developed under military contract have helped spawn
America’s most competitive industries, such as information technology,
telecommunications, aerospace, and computing. Instead, the preference has been to rely
on market forces, corporate decision making, and, when necessary, the manipulation of
aggregate demand through monetary policy.
Low interest rates create an environment that is conducive to growth insofar as
they provide a supply of relatively inexpensive capital for consumers and investors. But
this does not guarantee success because it is injected into the economy randomly with no
focus. It doesn’t have an agenda that would be fostered by a reasonably coherent
exchange pertaining to a sound fiscal policy. Importantly, the issue of access needs to be 18
raised in light of a distribution problem. “Creative” adjustable rate loans increase the risk
of default on the liability of consumer purchases. Notably, low interest rates do not
ensure that firms will borrow or that, if they do, they will invest wisely in ways that
eventually yield success for them or the stakeholders whom they employ. It isn’t a sound
money policy. At worst the loanable funds will be “idle balances” or sources of “over
saving” for the rent seeking class.
The effect of labor market policies as noted by Campbell (2010, 13), during the
1980s and 1990s, were less impressive in terms of wages and income inequality in the US.
Median wages fell from the early 1970s to 1995 after which they rose again but began
leveling off five years later. Even as median wages rose in the United States during the
second half of the 1990s, wage inequality, which began to grow in the 1970s, continued to
increase, particularly between middle and low-income workers, on the one hand, and
high-income workers, on the other. This was due largely to the absence of strong, well
organized unions and encompassing collective bargaining agreements. This is one reason
why household income inequality rose during the 1990s and 2000-2010 time period.
While average hourly compensation for workers in the manufacturing sector was virtually
the same in both countries during the 1990s, average real wages grew 0.9 percent per
year in the United States and 1.5 percent per year in Denmark. And Danish income
inequality, while growing slightly during the 1990s, remained much lower than in the
United States. Denmark’s high level of unionization and corporatist wage bargaining were
largely responsible. On balance, then, except for Denmark’s slightly higher rate of wage
growth and much lower level of income inequality, both U.S. and Danish labor markets
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seemed to have performed about the same although for very different institutional
reasons. In 2000 the official unemployment rate for Denmark was 4.3%. In the United
States it was 4.0%. Table 5 page 39 tenders a time series comparing unemployment rates.
An additional 1.41% segment of the population most likely to be unemployed was in
prison in the United States and, therefore, was not counted in the official unemployment
statistics. The rate of incarceration in the United States is consistently roughly eight times
greater than the incarceration rate in Denmark. Currently, BLS and Prison Ministries data
have Denmark at .15 of 1% and the US at 1.41%. This infers that Denmark, for various
reasons, some more obvious than others, has been more successful in recent history than
the United States in minimizing real unemployment. Currently, unemployment is 4.3% in
Denmark. In the United States it is 7.1 % +1.41 %. See fig 7 page 39. One could argue that
the United States commissioned its own peculiar brand of active labor market policy,
which was quite effective in reducing the official unemployment statistics. As a result,
Denmark poses a paradox for neoliberalism.
Campbell (2010, 14) also notes that workers in the US have not been as technically
well trained as in places like Denmark which developed extensive publicly funded
apprenticeship programs for most students not going to college or university. Historically,
the skills deficit wasn’t a major problem for the U.S. economy where the emphasis on low-
cost, mass production was the key to competitive success for many American firms.
Because craftsperson’s were never well organized and craft unions were weak, firms
implemented mass production techniques and reduced their dependence on skilled labor
altogether. There was considerable conflict among unions and employers over this. In the
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end, skilled workers were co- opted by employers, put on salary as foremen, and
supervised semi-skilled workers. Apprenticeship suffered and eventually disappeared for
the most part. Moreover, firms abandoned broad-based training programs and shifted
their attention to training supervisors or hiring college graduates for such positions. They
also depended on high schools and vocational programs in community colleges to train
workers. As a result, the United States became the archetypal example of a
decentralized, extremely uneven private system of vocational training.
There is little formal structure to national training; there is no national system of
accreditation for recognizing vocational skills; and virtually all training decisions are left up
to individual firms and, usually, the workers. States are involved in the process to varying
degrees but commitments are sporadic and funding is inadequate. It is a system where
individuals have to saddle themselves with mountains of debt while anticipating the
demand for labor in various sectors which may or may not see fruition. It is unfair because
it disconnects people who have little no financial resources from advancing their
employability. Under those conditions people are not as apt to be cross trained. The
system puts a glass ceiling in place for lower echelon workers who cannot afford schooling
or technical training. What it amounts to is a few people know a lot and lots of people
know very little. When something goes wrong legions of untrained infantry stand by.
Experience has revealed the unproductiveness to me.
Currently, this lack of vision is aggravating our structural unemployment problem.
Instead of having coherent conversations our institutions have opted for a system based
on PONZI finance bankrolled with huge structural deficits, offshore labor and a retail mega 21
complex that only thrives under the conditions of credit expansions and that cultivates a
followed by depredation for the common person. Unfortunately resulting from our
institutional structure and appropriations of tax revenues the average citizen is done a
disservice resulting from warped agenda’s. Some even consider that our institutions are
failing us. The OECD Employment Outlook for 2007 informs readers that Denmark spends
4.8 % of GDP on active and passive labor market policies. On the contrary, the United
States spends .2 of one percent on policy initiatives. Figure 6 page 37 compares relative
investments in human capital. Institutional competitiveness, according to Campbell 2010,
(3-6, 14), stems from the benefits that firms derive from operating within a particular set
of institutions. Benefits that give them advantages over their competitors and that
enhance national socioeconomic performance. For example, if firms operate where
educational institutions provide nationally coordinated apprenticeship programs rather
than just general education, then the employable workforce will be effectively trained to
begin with and have greater opportunities for upgrading their skills later. In turn, if having
highly skilled workers enhances the ability of firms to compete in global markets, then
these firms and the nation within which they operate are institutionally competitive.
Denmark has long had extensive apprenticeship programs for high school students
dating back to the 1890s as well as programs to continuously up-grade the skills of
workers especially low-skilled workers. The initial creation of publicly financed national
apprenticeship programs involved political compromises between journeymen and
masters over various “rights and duties. The debating process of implementing the
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agreements in the 1890’s gave birth to the term “social partners”. These compromises
were facilitated by promises from the state of aid to vocational schools under joint control
of both parties. This lay the foundation for today’s national vocational training system. It
doesn’t appear that there is the stakeholder- stockholder dilemma that we have in the
United States in Denmark where it appears that everyone is a stakeholder.
Denmark has had much less income and social inequality than the United States.
This is due in part to the effectiveness of Denmark’s welfare, educational, labor market,
and other institutions as well as the tax system that helps to finance them. Other
important metrics also deserve consideration. Denmark’s outlays for public education are
61 percent higher at 8.7% of GDP in the US it is 5.4%. GNI per capita is surprisingly lower
than the US’s $43,480 at $33,518. Incidentally, when one adjusts the HDI value for
inequality Denmark scores at .764 whereas the United States scores much lower at.681.
Denmark outperformed the United States in impressive fashion in other ways. It had
much less gender-based wage inequality, poverty, and illiteracy than the United States.
Crime rates in Denmark are also lower. For example f/m per 100,000 murder rates
are .5/.9 in Denmark versus 1.9/6.6 in America. The bottom line is that education and
vocational investments get people out of the poverty trap. This country redistributes
wealth from the bottom to the top. The Danes are much more even handed.
Conclusion
Two strikingly different institutional forms of capitalism are evaluated in Denmark
and the United States. Both are very successful. The World Economic Forum (2005)
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ranked Denmark and the United States among the top five most competitive economies in
the world in 2004. Both countries are extremely prosperous, particularly in view of their
virtually identical and very high scores on the U.N. Human Development Index. The index
has Denmark scored at .901 and the US at .937. Denmark was recently ranked first in the
world in terms of the government’s effectiveness in reducing income inequality. Denmark
has a healthy positive balance of trade. Table 6 page 41 unveils trade data over time.
Conversely, the United States has twin structural deficits for debt and trade our wealth is
leveraged with paper. While there may be more than one route to economic success. The
same may not be true when it comes to the issue of income equality, gender equality, and
poverty. In this case, the CME form may be better than the LME form, as others have
shown. It is often argued that there is a tradeoff between economic growth and social
equality. Campbell (2010, 23) explains that findings of various research scientists support
those who have suggested that this tradeoff is not necessarily the case, at least not for
CMEs like Denmark.
Over the decades, Danish decision makers have cultivated consensus and social
solidarity among various class, status, and political groups in order to cope with
geopolitical and, more recently, international economic challenges that the country has
faced. In a time of increasing globalization, maintaining high levels of employment will
depend on a country’s readiness for change and ability to adapt its production; and in this
context the flexibility of the labor market is a pivotal factor. The Danish model is a hybrid.
The low level of employment protection is similar to the liberal regimes found in Britain
and especially, in the United States. On the other hand, the wide-ranging social security
24
arrangement is on par with the systems dominant in the other Scandinavian welfare
states. The model manages to resolve the vibrant forces of the free market economy with
the relative security of the coordinated market economy.
From an evolutionary-competitive perspective the aggregate conditions of
values and philosophical underpinnings of Danish public administration is interesting,
as noted in Jorgensen (2013, 4, 21-22) in a study that him and others did analyzing
historical public policy documents. He was looking for a contextual framework to put
any value driven statements into. Efficiency was a common theme in the legislation.
Values included ethics, integrity, good governance, transparency and the widespread
development of scruples for responsible public behavior. Other lasting values are
accountability towards society in general, continuity, balancing interests of self and
others and creating networks. The role of public administration as a “quasi-political
entity” with a mediating and stabilizing mission is emphasized in Denmark. “A value is
a conception, explicit or implicit, distinctive of an individual or characteristic of a
group, of the desirable attribute which influences the selection from available modes,
means, and ends of action.” The notions of reciprocity, mutually beneficial exchange
and balanced agenda are the outcomes of well thought out value driven policy. States
their corporations and citizens willingly or not are competitors in a global market
place. Competitive states aren’t viable for purely economic reasons. It’s expedient that
society and the state are culturally composed in a way that retains its principles giving
it an institutional advantage.
25
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