The following is the prepared text of the speech given by Minister Haekkerup on September 28, 2013, at The New School, with an introduction by William Milberg.
Introduction
The word “capitalism,” describing our market-oriented economic system of wage labor, private ownership and the endless drive for wealth accumulation, was invented in the 19th century. For the last part of the twentieth century, “capitalism” was a dirty word. It alluded ever so uncomfortably to exploitation in human interaction and the unequal nature of modern economic society. The word capitalism was represented by euphemisms in economics –- “competitive equilibrium,” “pure competition,” or “monetary production system.” My late colleague Robert Heilbroner found that Gregory Mankiw’s popular textbook, Principles of Economics, a book over 500 pages long and first published in 1998, mentions the word “capitalism” just one time, and that occurs in a footnote.
In 2013, we once again dare to speak the word. Why? Because with the international financial crisis of 2008 and the economic stagnation experienced in much of the industrialized world since then, there is a palpable sense that the system is at risk and in need of scrutiny, as a system. Capitalism, it would seem, is back.
In fact, however, capitalism does not exist. The ideal, competitive market system remains largely in the imagination of economists and some right-wing ideologues. What exists is not capitalism, but capitalisms, a variety of government policies and regulations, civil society institutions, social networks and innovation systems that are different, and often markedly so, across space and time. American dominance in the world economy in the late 20th century made the American variety of capitalism seem synonymous with capitalism generally. Today, as capitalism re-emerges as a category of analysis and debate, and as the American economic position in the world economy becomes tenuous, a more textured picture of the world economy has emerged.
The speech that follows, by Nick Haekkerup, the Danish Minister for Trade and European Affairs, lauds the Danish variety of capitalism. In a short speech delivered at The New School for Social Research on September 28, 2013, he provides a portrait of a well-functioning, growing, relatively equitable and humane Danish capitalism. Denmark’s variety of capitalism – characterizes by a “flexicurity” has received much attention in the last decade for its successful combination of labor market flexibility with significant guarantees of employment security. There will no doubt be questions about the Minister’s idyllic portrait of Danish capitalism. What about the status of immigrants? Why recent cutbacks in government support for higher education? I will leave readers to add to these questions and to provide response in the comment section that follows the speech.
Speech
Dear Guests, Faculty members, And – of course – Students, perhaps even one or two Danish students, as I know Danes love to study here, I want to thank the New School for the invitation to speak here today. It is – truly – a privilege to be invited to one of the world’s most prominent universities. To me, this place is about tomorrow. New York is about the future. It always has been. So today I want to talk about the future. To get there I will go back fifty years in time.
Half a century ago the Danish Secretary of State arrived to this magnificent city. He came from a small town in the countryside. He came here to talk about a changing world in the first decades after a war that changed the world, as it changed him. Later in his life he would retire, and sit in his house late in the evening, remembering the friends he lost. And remembering, with gratitude, how his country and Europe was liberated by the United States of America. He kept these memories alive by telling the stories to his grandchildren. I know this. The Secretary of State was my grandfather. And I bring these stories with me today. I am also grateful.
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My grandfather was a social democrat. All his life he fought to create a society prosperous, democratic and socially just. So that future generations of Danes would live a life better than his. This was the welfare society, the welfare State. Preparing for this meeting here today I read about the American Dream:
Life should be better and richer and fuller for everyone, with opportunity for each according to ability or achievement, regardless of social class or circumstances of birth.
This is how the dream was defined by James Adams in 1931. This is the aim of the welfare state. And my message today is that the welfare state, the Nordic welfare model, is the model of the future. That the American dream, if I may be so bold, comes to life in Denmark, in a welfare society…
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The economic crisis in Europe has shaken the foundations of the European Union and prompted worries about the future of the Euro. Questions are also raised about the sustainability of the “welfare state” as an institution. Some people have even argued that the economic crisis is not about the European Monetary Union. It is really about the European welfare model. The expansion of social welfare combined with an aging population has resulted in excessive spending, budget deficits and economic crisis. The critics are quick to point out the paradox. A model designed to improve social security and stability has ended up creating insecurity, conflict and disappointment. While the debate has mostly focused on Southern Europe, outside observers have also criticised the Nordic welfare states and their excessive governments. Recently there was an article in New York Times that suggested that Denmark has been forced into reforming a shaky economic model that creates a lazy population and hampers growth and innovation. I know pictures have been printed, also on this side of the Atlantic, of a quite strange man dubbed “Lazy Robert”.
We are reforming. But the real story is in many ways quite different. Let me tell you why Denmark and the other Nordic countries do not fit the traditional stereotype of sluggish and wasteful welfare states. Why Denmark and the other Nordic countries on the contrary represent some of the best places in the world to both live and do business. Represent the society of tomorrow.
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Most people would agree that Denmark and the other Nordic countries are doing relatively well compared to the rest of Europe. But some people would still argue that the Nordic welfare states are less competitive and less successful in creating employment than other models, such as the United States. Let us compare a few numbers: Denmark has a lower budget deficit than the United States. 1.8% as opposed to 5.4% Denmark has a lower unemployment rate than the United States. 4.3% as opposed to 7.4% Denmark has more working people among the working-age population than the United States: 73% as opposed to 66%.
And while the United States is one of the best places in the world to do business, Denmark is right behind. On the World Bank’s “Ease of Doing Business Index”, the United States is number 4 and Denmark is number 5. Denmark even has a lower corporate tax rate than the United States. I know this comparison is not fair. I know that Denmark does not outperform the United States on all measures of economic performance. I am aware that your GDP is xxx times bigger than ours…
As Secretary of Defence I met with Leon Panetta, and we talked about cutting defence budget. I realised that the entire Danish defence budget matches what US defence spends alone on air conditioning… 3,3 billion dollars…Nevertheless, I will argue that the Danish model has produced strong results. Not only do we have a triple A rating and a high standard of living. According to the World Happiness Report released a couple of weeks ago by Columbia University, Danes are also the happiest people in the world. I am aware that the Wall Street Journal, perhaps fairly, questions these findings…But after all: Isn’t high income, security and happiness what most people strive for?
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Then the next question arises: Why are Denmark and the other Nordic countries able to balance strong welfare schemes, high tax rates – and economic growth? The answer in one word? Work. Studies show that Danes are more positive about globalization and less afraid of losing their jobs than other Europeans. This has to do with the Danish “flexicurity” model which promotes employment security over job security. “Flexicurity” is a compound of flexibility and security. It means flexibility with a safety net. The model has three elements:
- First: Flexible rules on hiring and firing, which means that companies can adjust the workforce to changes in production without suffering great cost.
- Second: All workers have the opportunity to receive benefits from the government in the case of unemployment. The flexible labour market means that almost one in three Danes change his or her job every year.
- Third: An active labour market policy offers guidance or education to all unemployed.
Not only do Danes change jobs frequently, they are also well-equipped to do so. The “Flexicurity” model not only works in times of growth. It has also proven its worth during the crisis. One of the advantages of this system is that employers are not afraid of hiring young graduates with little or no experience. As a result, Denmark will not face a “lost generation” when the economic crisis is finally over.
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Talking about generations, you may also have heard people talk about demography as another challenge to the welfare state. While the share of older people is increasing in all European societies, this is less of an economic challenge in Denmark and the other Nordic countries. Not only is the level of employment high in Denmark – so are the birth rates.
Comprehensive and affordable child-care and care of the elderly, enable women, especially the low-paid, to combine family and work. It is precisely because the Nordic welfare states have largely taken such tasks, that women have been able to enter the labour market to a greater degree than in other parts of the world. Denmark was recently ranked number two in the EU Equality Index because of a very high employment rate for women. And women rise to top-level management positions: At the moment, the amount of women leaders in the public sector is at an all-time high with 40 pct. My boss is a woman, the Prime Minister. And her boss is the Queen… We don’t even have a king. But no kidding, Denmark and the other Nordic countries are at the forefront as far as gender equality is concerned. That does not only make me proud, being the father of two daughters – it makes the Danish economy stronger.
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Before I get to the matter of reforming our public sector, I would like to address the issue of public spending. The Nordic welfare states are based on shared political values of equal opportunities, social solidarity and security for all.
As a result of the economic crisis, some people have argued that if we want to control public spending we have to comprise on our values. Compromise on the principle that everyone is entitled to equal access to social and health services, education and culture.
I strongly disagree. Only by letting these core values and principles guide the reform process will it be possible to balance the books and modernise our welfare states. The alternative is clearly visible in the streets of Southern Europe. By sticking to our values and principles, Denmark and the other Nordic governments have successfully managed to carry out a number of painful reforms, including an overhaul of the pension systems, without losing legitimacy.
Besides, private is not always cheaper than public. The United States spends much more on healthcare per capita than Denmark despite having a system based in the private market. And I have to mention this as well, when it comes to public spending:
It wasn’t too much money spent on public education and public health care that brought the Lehmann Brothers down!…
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But that shouldn’t stop us from keep reforming and sharpening our society. Reform and modernisation is not just austerity and cutbacks. Denmark and the other Nordic countries have been promoting welfare reform and innovation for many years. We may have big government, but not ineffective or inefficient government.
Let me give you some examples:
Much of Denmark’s economic activity is generated by the public sector and not automatically exposed to competition. Competition for public contracts is therefore an important tool for testing who is the best provider at the best price. This helps to increase efficiency and innovation in both the public and private sectors.
The Danish public sector is also a world leader in the adoption of IT and new technologies, aimed at improving welfare services. As such, Danes do not waste their valuable time on paperwork at their local government office. And taxpayers’ money is not wasted on printed forms and postage when digital solutions can carry out these tasks more efficiently. Taxes are relatively high, but you can pay them with a text message.
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One could claim that the massive Nordic welfare systems impede the drive for new innovations. Speaking today in the most innovative city in the world, there may be some truth to this. On the other hand, the public sector in Denmark and the other Nordic countries is bigger than in most countries. This makes it possible to use the size and centralisation of public procurement to stimulate innovation.
In Denmark there is a longstanding tradition of public institutions acting as a test market for innovative solutions. We have seen this in the areas such a healthcare and clean-tech where Danish companies today play a leading role on the global market.
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Denmark is among the five countries with the world’s highest social mobility. So are the other Nordic countries. The welfare model is based on a shared goal of equality and social cohesion. This means that everybody is entitled to equal access to social and health services, education and culture. Nobody needs to worry about whether they can afford to send their kids to college. Nobody needs to worry about who will pay for their healthcare. In that light it is perhaps not surprising that Danes are the happiest people in the world.
So, dear guests, faculty members and students: I believe the American dream comes to life in Denmark. I believe that the welfare state that my grandfathers and his generations fought for is still worth fighting for. I believe that the future needs the American Dream as a beacon – that:
Life should be better and richer and fuller for everyone.
With opportunity for each according to ability or achievement.
Regardless of social class or circumstances of birth.
We are not there yet, and we most likely never will arrive. Denmark still faces major challenges to create greater economic and human equality. Our job is far from over.
We need to be more productive – particularly in the public sector. We also need to be more innovative – both in the public and in the private sector. We need to be better at turning innovations into new businesses. These are all areas where we can learn from the United States.
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The Danish government is determined not to lose focus. When the New York Times asks whether Denmark can manage to sustain and reform its welfare state, my answer is yes, yes we can.
Thank you for your attention.
