The northern light

Fraser Whineray
The National Business Review
19 July, 2019

New Zealand performs strongly in a number of international rankings, and not so well in others, as well covered by this publication.

So when a delegation of Kiwi business leaders recently went to Denmark to see how a small country was a world leader – economically and socially – we were struck by what made the Danes so successful.

Members of The New Zealand Initiative delegation found the Danes’ attitude to trade to be utterly refreshing. Denmark has close connections with Sweden. Crossing the 42 km across the Øresund from Copenhagen to Malmö, Sweden, is a breeze, thanks to the 12km tolled bridge and tunnel for road and rail, completed in 2000. Malmö and several neighbouring regions of southwest Sweden see themselves as part of the Greater Copenhagen Area and are looking forward to another bridge being completed between Denmark and Germany in the next decade to unlock further economic development.

Interestingly, by leaning toward its European neighbours, Malmö is almost turning its back on Sweden’s capital, Stockholm, and showing the defiance and independence that comes with strong localism combined with a focus on export competitiveness.

Denmark (and its southwestern Swedish neighbours) orients towards Europe because of mutually beneficial trade. This outward-looking small nation knows it cannot support a revenue base for its social support systems grounded on a principle of equal opportunity without a rules-based economic trading bloc and a business environment that fosters great export businesses. While Denmark went into the European Union with the UK in 1973 to preserve its bacon exports to the UK, it will not leave the EU when Brexit comes to pass.

Proud exporters

Danish citizens appear to understand the vital construct of trade. They are proud of the 100 companies that make up 80% of the country’s exports, many of them world leaders, for example Maersk, Lego, Grundfos and Vestas. They have successfully internationalised activities they had to be good at. These include shipping to support their trade, renewable energy manufacturing to support energy security and water-pumping technologies for its agricultural sector.

The delegation was fortunate to examine pension arrangements, employment law, flexi-security and social support systems in more detail than under the often-misunderstood utopian aura surrounding the high-tax Nordic countries; much of that tax of course retained and spent by small municipalities. For example, the Danes talked about “our” welfare system, not “the” welfare system. The children of Maersk’s chief executive, Søren Skou, receive the same educational funding arrangements as someone out of work, which means everyone in society takes interest and has a stake in the common good – a prerequisite for a high trust and homogeneous society (more on that shortly).

Corporate taxes in Denmark are low. GST is high at 25%. Personal taxes, while high for the top brackets, were supported by the essential construct that the resulting expenditure receives strong oversight at all levels.

With such a large proportion of economic activity in the public sectors (98 municipalities, five regions and one central government), the risk of low productivity and misallocation of resources is high. Not having taxes all flow to the centre, oversight and transparency of expenditure by the almost Stalinist-named “Modernisation Department” and strong fiscal alignment across the majority of the political spectrum all combine for a commendable public performance. Citizens are less averse to tax when they have confidence it is well spent, and that there are fair boundaries to using the strong social security system. Voter turnout is high in local and central elections at more than 85% in Denmark proper, in part because Danes feel it will make a real difference.

The 5% employee/10% employer private pension contributions are substantial and now amount to more than $1 trillion of privately held pension assets. Income protection insurance is also included if you are out of work. However, you have to be available to work, and substantial support doesn’t last forever. These flexi-security arrangements allow for easy hiring and firing, which Danish employees, the majority of whom are union members, support and use to their advantage to find better jobs. Danes have the highest proportion of the population in employment in the world, though they worked only 1410 hours a year compared with Kiwis’ 1752 hours in 2016.

Far-right stance

But immigration into the 90% Dane society has taken a new twist. The Social Democrat Prime Minister Mette Frederiksen was sworn in while we were in Denmark. Frederiksen had to adopt a far-right immigration stance to get into power, since the Danish citizens appeared increasingly unwilling to see a high tax system redistribute to immigrants who have significantly lower employment rates. While that is a sign of more Danish pragmatism, it is unclear where the labour will come from to staff hospitals, support manufacturing and build the economy if the domestic sources of human capital, despite a solid dual-education system, are insufficient.

The insights for Aotearoa are plenty: economic development embedded in free trade, flexible labour laws, stable pension funding, social welfare, localism, dual education, etc.

Going to Denmark opened our delegation’s eyes to the possibility of doing things differently. While we would not want to import or copy everything Denmark does, observing its phenomenal productivity levels, its deeply strategic infrastructure projects and its shared purpose made us wonder, could we be a bit more Danish?

Being in a thrilling Cricket World Cup final against England certainly brought out Kiwi passion earlier in the week. Could we muster the same to trump Denmark in the world cup final of international rankings?

Fraser Whineray is the chief executive of Mercury. He led The New Zealand Initiative’s delegation to Denmark.

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