TNR Online | Great Danes (1 of 2) (print):
If you want a lower standard of living," conservative policy experts Grace-Marie Turner and Robert Moffit wrote in an op-ed last week, "the Europeans have the right prescription." The topic of discussion was universal health care, but it just as easily might have been government-sponsored child care or generous unemployment benefits. The failure of the European welfare state is, after all, an article of faith among conservatives, from Robert Samuelson ("Europe is history's has-been") to Jonah Goldberg ("Europe has an asthmatic economy") to David Brooks ("[T]he European model is flat-out unsustainable").
The argument generally goes like this. Nowadays, every nation faces a stark but straightforward choice: It can admit that globalization demands a fluid economy--in which people will lose jobs frequently and incomes are bound to be more volatile--and adapt by slashing taxes, government benefit programs, and trade barriers. Or it can try to hold on to old-fashioned notions of lifetime job security and guaranteed incomes by blocking out trading partners, closely regulating business activity, and maintaining a generous welfare state--a formula sure to produce sluggish growth, chronic unemployment, and crippling government debt....
But... Scandinavia and, especially, to Denmark. Over the last decade, the Danes have turned the conventional wisdom on its head by boasting not only one of the world's most expansive welfare states, but also one of its most robust economies. Given the way average American workers' wages continue to stagnate even as their burden of risk--of losing a job, of losing medical insurance--continues to rise, it looks increasingly as though the conservative triumphalism has been misplaced....
Denmark's welfare state traces its origins to the Great Depression--specifically, to a dank January morning in 1933 when Prime Minister Thorvald Stauning called several of the country's political leaders to his apartment for a private session to discuss the nation's growing economic crisis.... [N]early half the population was out of work and farm foreclosures were widespread.... Stauning and his colleagues were desperate to take actions that would not only alleviate the widespread suffering but also save capitalism itself.... Henceforth, the government would take primary responsibility for making the economy work--and making sure that it worked for everybody--by, among other things, providing a set of social insurance programs that protected against illness and unemployment.
The strategy succeeded. Denmark's political center held, Danes got back to work, and, on the eve of World War II, the economy was back on track. The country continued to thrive... from the 1950s through the 1970s, it generally had steady, strong growth. The more the economy grew, the more money the government collected through taxes--allowing it to provide, in turn, even more generous services....
[In] the '70s... the Danish economic model--like those across Europe and in the United States--was challenged by "stagflation" in the '70s and globalization in the 1980s.... [W]hile most of Europe continued staunchly to resist change, the Scandinavians began to embrace it.... In the early '80s... voters threw their support behind the Danish conservatives... [who] had run on a platform of rescuing the Danish economy, which they vowed to do by privatizing some government services, modestly reducing welfare benefits, and bringing down government deficits....
By the early '90s, the economy had recovered enough--and the public's enthusiasm for the conservatives had waned enough--to swing politics back in the other direction. The Social Democrats took power once again, this time under the leadership of Poul Nyrup Rasmussen... [who] undertook some of the very measures that the conservative coalition had proposed but could not enact on its own.... [P]erhaps most important were the reforms Rasmussen's Social Democrats introduced to the Danish unemployment system.... [T]he government began limiting assistance to four years--and, even then, only on the condition that beneficiaries worked or enrolled in job training.... Relative to Clinton's welfare reform, Rasmussen's invested much more money in worker-counseling and training. The explicit goal was to recognize a social compact: Just as the unemployed were obligated to find new jobs, so the government was obligated to make sure the jobs were there (even if it meant creating them on the public payroll) and that the unemployed received proper training to succeed.
Today... Denmark spends more than 4 percent of its GDP on its labor market programs--the most of any country in the Organization for Economic Cooperation and Development (oecd) and more than 20 times what the United States spends on its worker-training programs.... [W]hat was most significant about Rasmussen's agenda was what it did not include: radical changes to the welfare state.... [T]he country has programs that remain among the most generous in the developed world. There is universal health care and child care....
Denmark has a tax burden to match: Half of the country's annual economic output goes through government in the form of taxes--again, among the highest in the developed world and well above the U.S. rate of just under 30 percent. If you believe the conservative rhetoric on economics, this combination of high taxes, a large public sector, and lavish welfare benefits ought to be killing the Danish economy. But it's not. In fact, Denmark's economy has thrived. And nowhere is that more apparent than in the job market. By the time Rasmussen left office in 2001, the unemployment rate had fallen from a 1994 peak of 9.6 percent to 4.3 percent; in 2002, it fell below the U.S. rate, where it has remained ever since. For the most recent quarter of 2006, Denmark's standardized unemployment rate was 3.6 percent, compared with 4.7 percent in the United States.... [I]n Denmark, a mere 3 percent of its 15- to 19-year-olds are neither in school nor working--the second-best rate in the developed world.... In the United States, by comparison, the figure is about 7 percent....
[W]hat have the Danes figured out that conservative American pundits haven't? "High taxes don't hurt [by themselves]," says Harvard's Richard Freeman, a highly respected labor economist who has studied Europe extensively. "It depends on what you are getting for the money." Medical care is the most obvious example of this. Danes have lower infant-mortality rates than Americans and, statistically speaking, live just as long. You can't pin that completely on the medical system (a lot has to do with poverty, diet, and so on), but it certainly suggests Danish health care is no worse than the U.S. version. Yet we Americans pay far more for our system....
Just as a well-educated workforce attracts foreign investment, so does strong infrastructure--whether it's in the form of good roads or a speedy information highway. Here, too, Denmark excels. And here, too, government can take considerable credit....
The high rates on personal income, which max out at 63 percent, mask relatively low rates on investment capital and corporate earnings. That relative balance--with investment taxed less than wages--is what many economists prefer....
A bigger issue for those who might want to import the Danish model--particularly for a country like the United States--is that Denmark is a small, ethnically homogenous country with a tradition of marked cooperation. Labor and management enjoy one of the least adversarial relationships in the developed world.... [N]obody is suggesting that other countries could--or even should--import the Danish model whole.... The idea, rather, is to take broad lessons from Denmark's experience. And the broadest lesson would seem to be the most obvious one: that it is entirely possible to have a large welfare state, with generous benefits, without choking the economy....
[E]ven back in the early '90s... then-Secretary of Labor Robert Reich, who proposed that "if we blended our flexible labor markets with [Europe's] investments in human capital and put the safety net somewhere in between ours and theirs, you would have the best system in the world."... [Laura] Tyson... raised the possibility that Denmark might be a model for the United States, noting that "there is nothing in the growth rates to suggest that Denmark is paying a penalty for having a high level [of taxes and government spending]. ... This is not to mention in addition the fact that health care coverage in Denmark is universal, and it is not to mention the fact that, actually, Denmark has one of the lowest poverty rates in Europe and has the lowest poverty rates for children in all of the oecd countries"...
