International Policy Analysis

Internationale Politikanalyse International Policy Analysis

Mogens Lykketoft

The Danish Model A European success story

The Danish Model is a reference for many other countries regarding the design of policies. The basis characteristics of the Danish Model are:

- A fairly even distribution of qualifications, a high labour market participation by both men and women.

- An extensive redistribution through a progressive taxation system, paying for public services within education, child care, care of the elderly and health care.

- A uniquely small disparity in living standards compared with other countries.

- The rather heavy taxation – especially on private income and con- sumption – does not harm employment – on the contrary it stimu- lates competitiveness through investment in education, research and development, good infrastructure, etc. Low corporate and only small mandatory social contributions from the employers.

- A public sector which in international comparison is highly effective and citizen-friendly. Corruption is practically non-existent.

DECEMBER 2009

International Policy Analysis 1

Content

1 The triumphal progress of democracy 2

2 The Danish Model: from crisis and war to the major welfare advances 3

3 The interaction between the trade unions and the political system 7

4 After the oil crisis: Unemployment and devaluation strategies 9

5 1982-1993: From active reform course to another high unemployment rate 9

6 The renewal of the Danish Model 1993-2001 11

7 Many people on transferred income 13

8 »Freedom of choice« and »-freeze« 14 2 The Danish Model

1 The triumphal progress of education, health care, care of the elderly and chil- democracy dren, and through a system of financial benefits in case of unemployment, illness, disability and old First a few facts on recent Danish history, its political age. structure and the business pattern. Social Democrats originally had public ownership is a small country with 5.5 million in- of the means of production on their political habitants and an area of 44,000 square kilometres. agenda. In reality, however, the Danish Model was Since 1973 Denmark has been a member of what is never about abolishing capitalism but rather hu- now the (EU). Denmark had a GPD manising it by insisting on a fundamental social per capita of 35,800 dollars in 2007. That made it structure that could provide more equal rights and the 11th richest country in the world measured in strong security for the individual as opposed to the purchasing power parity – i.e. not translated into free play of market forces. The Danish Model is not official rates of exchange, but with respect to how the result of one big master plan. Creating social much can be bought with the money in specific progress for ordinary people with lower incomes countries. has been a long and gradual process – opposing The World Economic Forum’s 2008 competitive- and striking balances with employers and centre- ness index ranks Denmark in its Top Three world- right political parties. wide. And the World Transparency Index ranks it as Crucial for this development was the substantial the world champion in non-corruption. Furthermore political influence gained by the Social Democrats in it should be noted that other international compari- collaboration with the small Social-Liberal Party at sons nominate the as the happiest people in an early stage in the 20th century, so that it could set the world! the agenda for social reform. Initially most Liberals For a long time Danes have had no ambition to and Conservatives were against it, but over time dominate other large and small countries. But they they adopted significant parts of it as it turned out do believe that they can contribute good experience to have huge popular appeal. and sound ideas on how democracy and social The Communists played a significant role on the relations can enrich a society. Danish political scene for only a short period after Democracy came to Denmark at an early stage. the end of the German Occupation in 1945 – be- Denmark’s loss of territory and power – most re- cause of their role in the Resistance. But in 1959 a cently the loss of Schleswig-Holstein to in new left wing party – the Socialist People’s Party – the 1864 war – made the country a small, homoge- was established by former communists, breaking neous nation state with a distinct cultural, social with Moscow. That party has established itself as a and democratic development which explains a lot much stronger factor and one that was to be per- about the strength of Danish society. manent. Nowadays there are few programmatic Agriculture, which was long the principal indus- differences between Social Democrats and the try in Denmark, was dominated by an independent Socialist People’s Party. and confident farming class, which organised a Only for a few times and a period that totals strong cooperative movement and gained political three years (1967 and 1971-73) has a »socialist« supremacy as of 1901. »Folk high schools« became parliamentary majority existed, which was enjoyed a stronghold for the development of democratic by the Social Democrats and the Socialist People’s attitudes and a national feeling founded in Christi- Party. These majorities did not give rise to any re- anity. vival of old socialist anthems. However, in 1967 this Rapid industrialisation towards the end of the majority managed to ensure the two most signifi- 19th century increased growth in the cities and cre- cant sources of income for the welfare society – ated strong trade unions as a counterweight to taxation-at-source (or pay-as-you-earn-tax) and private capitalist power. From the beginning, the value added tax (VAT). Mogens Lykketoft movement and the Social Democrats Between 1924, when the first Social Democratic is the First Vice- were linked politically as well as organisationally. In government came into power, and 1982, the party President of the Denmark, as well as in the other Nordic countries, was only outside the government for 12 years. Since Danish Parliament, the interaction between unions and the party be- 1982 a Social Democratic government has ruled for Folketinget, and came the key driving force in the development of a only 9 years, from January 1993 to November 2001. vice-chairman of the Foreign Policy highly vital welfare model. Economic inequalities Nevertheless, during this time the Danish Model Committee. were evened out through tax-funded services within was renewed and the economic progress and rise in International Policy Analysis 3

employment experienced by Denmark was – in the 83,000. This development resulted in depopulation European context – exceptionally strong. in the rural areas and huge investments in housing and infrastructure in the big cities. The few remain- ing people in the agricultural sector produce 14 2 The Danish Model: from crisis and times as much as in 1950. And then there were six war to the major welfare advances times as many of them! In 1950, 33% of the workforce was female. In Naturally, the Danish Model has developed in inter- 2008 it was 48%. The employment rate in 2008 action with the vast changes in economic condi- was 80% for men and 74% for women. Just a few tions. The first great challenge – and also the first generations ago, the role of most married women huge leap forward – was »the Slump« and mass was to take care of their children, the elderly and unemployment of the 1930s. the sick within the family. Not particularly visibly. On the very same day that Hitler came to power And without pay. Now the women of the new in Germany in 1933, the Danish Social Democratic generations – also women with young children – Prime Minister Stauning made a huge political set- are just as much a part of the labour market as their tlement with the opposition Liberals. The deal ad- husbands. dressed unemployment, consolidated agricultural But where did they go – all the people migrating earnings and laid the groundwork for a social re- from agriculture and from looking after their form that gave social welfare benefits to those in homes? In rough numbers, the changes are as need as a right – not as alms. follows: The agricultural sector has lost a workforce During the 1930s Denmark pursued an eco- of 460,000 and the industrial sector has lost nomic policy involving huge public investments with 170,000. The construction and civil engineering the aim of creating jobs. This was in good confor- sector has grown by 60,000, the public service mity with the ground-breaking ideas of the great sector by 635,000 (!), and the private service sector British economist Keynes, who said that the state by 655,000 employees since 1950. must make capital injections and create employ- From 1950-2008, Denmark’s gross domestic ment during times of crisis. Although it is uncertain product in real terms increased by 276%.It is diffi- whether the decision-makers of the time actually cult to quantify the specific factors, which caused knew of Keynes’ theory, they took the right action this development. But let me stress a few points: nevertheless. 1. A solid general level of education with high- After the liberation in 1945, politicians decided quality primary and lower secondary schooling to continue the work that had been interrupted by which emphasised interaction with other people World War II. Society took a more active part in – development of social skills and development ensuring the return to full employment. People in of the ability to improvise. Furthermore there are Denmark were – along with everyone else in the strong traditions in vocational training. Finally – Western world – experiencing how dramatic tech- as in other European countries – the proportion nological developments and the opening of the of each generation attaining higher education markets to the outside world resulted in huge has increased dramatically: From 25% in 1980 changes in job opportunities and demanded new to 47% in 2006! and different skills. From the 1950s the standard of 2. Many small, adaptable, individually-owned com- living exploded. Family patterns underwent a revolu- panies account for the bulk of private employ- tion that Danes have still not seen the end of. But ment. However, there is one single international the fact is that Danes now live and work under giant – ^K= mK= j›ääÉêLj‹êëâ – within shipping totally different circumstances than they did a few and oil and gas extraction, to mention but a few decades ago. areas, which represents a substantial and in- Huge changes have happened at a record pace creasing proportion of value creation and for- during the past 60 years. These economic and social eign exchange earnings in Denmark. changes have been generated in particular by two 3. A very liberal industrial policy, where govern- unique revolutions: very extensive migration from ment has not come to the rescue of companies rural areas to urban areas and the entrance of in trouble. Denmark does not have large, inflexi- women into the organised labour market. ble subsidy-requiring companies within mining In 1950, 545,000 people were earning a living and heavy industry. On the other hand, the pub- from farming in Denmark. In 2008 this figure was lic authorities have traditionally owned or con- 4 Mogens Lykketoft The Danish Model

trolled fields such as telecommunications, elec- instance there should be strong focus on other tricity, water supply and public transport. Tech- types of renewable energy that contribute to re- nological development, the demand for a com- ducing carbon emissions – aiming at ambitious, petitive market and more rigorous EU competi- but necessary, climate goals. tion requirements have led to the opening up of 5. As a small country with very extensive interna- public transport for private competition – and tional trade, by the end of the 1950s Denmark the direct sale of the publicly owned shares in was already a leader in lifting import restrictions telecommunications. These are the most impor- and dealing with external competition. As a re- tant examples in some of the traditionally sult major changes were required, but new ex- owned public areas. The current philosophy is port opportunities arose as well. that protecting consumers from exploitation by Entire industrial sectors disappeared at an private monopolies is handled better by in- early stage when Denmark pointed the way to creased cross-border competition and more ef- the elimination of import restrictions – e.g. the fective national and European regulations than conventional production of textiles and clothing. through public ownership. 6. Subsequently, efforts to encourage new forms 4. The economic policy pursued has supported of production which could enable decent sala- growth and changes in the private sector. Be- ries to be paid were initiated at an early stage. ginning from the 1950s tax legislation giving the The union movement was a highly active partici- companies very generous depreciation possibili- pant in this and placed great emphasis on train- ties on all kinds of machinery made a crucial ing in new technology and agreements on new contribution to the renewal of the Danish indus- incentive pay schemes. Rather high minimum trial sector. wages in the collective agreements also played a Furthermore, prioritisation of good service significant part in the acceleration of the phased for all citizens, for instance within health care, elimination of low-wage trades in Denmark. It has at an early stage created a domestic market was a deliberate tactic. And the development which offered Danish industry the possibility of confirmed that supplementary training and edu- becoming market leader in valuable niches on cation of the workforce and investments in pro- the global market. This accounts for NOVO’s duction facilities could create very high employ- leading role when it comes to insulin and similar ment regardless of the comparatively high global positions for other Danish medical prod- minimum wages. ucts. It is no coincidence that the late Chinese In other words, the relatively narrow wage leader Deng Xiaoping had a highly sophisticated differentials in Denmark are the result of collec- Danish hearing aid from Oticon. Or that another tive bargaining supported and supplemented by Danish company, Danavox, is mass producing a a significant effort in the educational field result- robust and inexpensive hearing aid for less- ing in a declining number of unskilled workers privileged consumers in China and other parts of and a rise in the number of well-trained semi- the world. skilled workers. The distribution of competencies Particularly in the 1990s, demand for a more is simply smaller in Denmark than in most other environmentally sustainable energy supply re- countries. sulted in the state sponsoring the development 7. The agreements on terms of employment com- of windmill technology through preferential bined with the structure of the unemployment taxation and research and development funding. insurance system – the so-called flexicurity- This laid the groundwork for a highly significant model – have supported developments towards export success and positive contributions to em- more and better paid jobs on the Danish labour ployment – not least for unskilled workers in pe- market: ripheral areas of Denmark with low employ- It has been part of the unwritten social ment. Vestas is the largest and increasingly in- agreement that the trade union movement ternational producer of windmills. would not insist on long periods of notice for There certainly exists a much greater poten- workers. It has therefore been much easier for tial for interaction of this kind between public employers to hire and fire in line with fluctuating demand and funding for environmental or so- market conditions compared to employers in cially desirable development on the one hand Germany and France – or even in neighbouring and private industrial initiatives on the other. For . When employers know that it is possi- International Policy Analysis 5

ble to get rid of manpower when market condi- income of any spouse and almost all net assets tions change, they will not hesitate to hire new will reduce the cash benefit amount. people during an upswing. For instance, Den- The Danish benefits system is funded as follows: mark has experienced faster and healthier pro- the total benefit cost for illness and mater- gress than most European countries in private nity leave as well as cash benefits and most employment for almost 15 years since 1994. of the cost for unemployment benefits is However, another aspect of the social agree- funded by means of ordinary tax (income ment is the unemployment insurance system, tax, value added tax, etc.), where the lowest paid workers from the first day employees fund a small proportion of these of unemployment and for several years ahead costs through membership fees, are entitled to benefits equal to 90% of their employers do not contribute to the financ- current wage. There is a maximum amount – to ing of the unemployment insurance system. the effect that coverage is significantly lower for 8. Furthermore, Danish corporate tax is relatively the higher paid workers – for instance skilled low and the possibilities of depreciation deduc- metalworkers receive only around 60% of their tions etc. are favourable. Recently the corporate usual net income in unemployment benefit. tax rate has been reduced to 25%. Also from The ideology behind the generous entitle- this point of view, it is attractive to run a busi- ment to benefits for low paid workers is that no ness in Denmark. Moreover, there are practically one should be forced to give up their home be- no statutory employers’ or company contribu- cause of unemployment. In turn, in order to be tions to social insurance (nor to social pensions entitled to unemployment benefit, the claimant or voluntary early retirement pension schemes). is required to be fully available for the labour A predominant share of government expen- market. diture on welfare is funded through taxes which However, it is crucial to such an efficient sys- are paid by the entire population according to tem that labour market policies and economic income or consumption, and all groups are policies in general are arranged in such a way guaranteed almost all social rights. That is why that everyone who is affected by unemployment both personal income tax and value added tax quickly moves on and receives supplementary are high as is expenditure tax on cars, energy, skills, job training or a new job. This was not an beer, wine, alcohol, tobacco, etc. option in the early 1990s, when the unemploy- There is a significant difference in the total ment rate reached 12%. Thus, the main purpose level of taxation between Denmark and Ger- of the intensification of the active labour market many – due partly to the extensive public financ- policy under the Social Democratic government ing of care for children and elderly people in in the 1990s was to offer terms that were so Denmark. There is an even greater difference good that no unemployed people could turn between Denmark on the one hand and Ger- them down, to enforce the availability require- many and France on the other concerning the ment and to upgrade the qualifications of all the tax structure: In Denmark personal income tax is unemployed in order to gear them for new job high and contributions from employers low. In opportunities. Germany and France large mandatory contribu- The benefit rate is the same for unemploy- tions for social costs are paid by the employers ment insurance as for illness – and for maternity in addition to wages. Thus there has been room leave, which at present is up to one year long. for larger wage increases in Denmark. But the The benefits during illness and maternity leave state has taken back a much larger share of the are obtained after a very short period of active wages in the form of direct income tax. The end employment, while entitlement to unemploy- result for the individual – the amount left for ment benefit requires 12 months of prior em- private consumption – is not particularly differ- ployment and 12 months membership of an un- ent in the three countries. employment insurance fund. If the requirements One of the fundamental differences is that for unemployment insurance are not fulfilled, the Danish system leaves the lowest paid work- the applicant is only – and then only perhaps – ers with more money and the highest paid entitled to a lower amount of cash according to workers with a little less than in most other the provisions on social welfare. This allowance countries. However, the effective progressivity of depends on the situation of the household: the 6 Mogens Lykketoft The Danish Model

Danish income taxation is counterbalanced as Visits to doctors are free of charge, as is hos- the largest amount of the tax-free capital gains pital care. on residential property go to the highest income Few European countries have a matching wel- earners and they also get the largest share in fare model. And in comparison with the USA, tax-privileged pension schemes. But even so dis- the differences are dramatic – not least regard- posable incomes are distributed more evenly in ing inequalities in income distribution. The rea- Denmark than in most other countries in the son is obvious: while citizens in Denmark with a world: low income only pay for welfare relative to in- The needs of the citizens are not only higher come and spending, the situation is totally dif- material standards in their daily life – such as ferent in the USA. Wealthy Americans pay very better clothes and food, a decent place to live, little tax – even less now than they did before modern appliances, IT, holidays and experiences. George W. Bush became president. In return, The demands of citizens are just as much con- families have to save a fortune in order to get cerned with resources and quality when it comes their children into good universities or pay for to their children’s schools and education, child- decent care for elderly family members. The care provision, care for the elderly and health family budget has to cover the full price for care. nurseries and private health insurance is neces- When the funding for schools, education, sary to receive proper medical treatment. User care for the elderly, health care and the bulk of charges and private insurance, where premiums child care comes from taxes instead of individual are paid according to the risk of illness or unem- payments, the distribution of disposable incomes ployment, are a much heavier burden on a tight will be more equal. family budget than on a large family one. The most significant features of the Danish Professors John L. Campbell and Ove K. model are exactly this: Pedersen from the Business School Education is free. Even 85% of the costs of have analysed the differences between Denmark private schools are funded by the public au- and the USA as follows: Real income per inhabi- thorities – offering an alternative choice to tant, productivity, unemployment and inflation the public primary and lower secondary rate have roughly been at the same level since school. Vocational and higher education is the second half of the 1990s. Denmark has had free. Add to this the fact that Denmark has a large budget surplus and is bringing down the most generous grant scheme for stu- debt, while the USA has developed a new large dents – e.g. with no obligation to pay back. budget deficit and large indebtedness since the And by statute and agreement there are presidential change in 2001. plenty of options of free supplementary The UN’s Human Development Index 2002 training. ranks Denmark and the USA on line – in the top For local child care – day nurseries, kinder- group of the world. But the inequalities in the gartens and after-school care facilities – the distribution of income are much larger in the share of the expenses paid by parents is typi- USA than in Denmark: The Gini coefficient, cally less than a third of the total expendi- which shows how large a part of the total in- ture: families with more than one child and come must be redistributed in order to obtain an low-paid workers even less. Three-quarters even distribution of income, was 25% in Den- of the total cost is tax funded. Financially, mark and 40% in the USA in the middle of the this has facilitated the entry of women into 1990s. The share of the population with an in- the labour market, which explains why 96% come less than half of the median income is 9% of children between 2 and 5 years are in in Denmark, whereas it is 21% in the USA (the some form of child care arrangement. median income is the income where half of the Elderly citizens who have difficulty managing population is above and the other half is under). daily chores receive domestic assistance free In the mid-nineties the share of the population of charge after an inspection by local au- between 16 and 65 years being functionally illit- thorities. Large grants reduce the rent on erate was 10% in Denmark and 21% in the homes for the elderly who are not capable of USA. Taxes and social expenses constitute twice taking care of themselves. as big a share of the gross national product in Denmark as in the USA. International Policy Analysis 7

9. Through the past 40 years, most women have In a number of situations legislation was enacted wanted to enter the labour market. And it is in in a way that enhanced improvements initially fact the case that women participate in the la- agreed upon in collective agreements so that all bour market almost as extensively as men do. employees would benefit regardless of whether However, women still work part-time to a they were members of strong or weak unions or not somewhat greater extent than men, women are unionised at all. still undertaking more domestic duties as re- However, a distinctive feature of the Danish la- gards children and they do not get as far in their bour market has been the absence of important careers as men. But the high female participa- competing unions inside the same trades, and the tion is both the reason for and the effect of the extremely high density of union membership – only gigantic expansion of the role of the welfare so- marginally exceeded by Sweden. ciety in child care, elderly care and health care. The long existing linkage between trade union And while women used to be responsible for membership and unemployment insurance has been this care within the confines of the family, it is a significant contributory factor to the high density now mainly women who perform these tasks of union membership. Most unemployment insur- outside the family in day nurseries, hospitals, ance is still politically and administratively linked to nursing homes, etc. – and at the same time are the trade unions and most wage earners still con- paid for their work sider trade union membership and insurance as two sides of the same coin. But since the centre-right government came into power in 2001 it has delib- 3 The interaction between the trade erately weakened cohesion between trade unions unions and the political system and unemployment insurance via legislation and thus contributed to a decrease in trade union mem- As previously mentioned, the characteristic social bership and in the share of the labour force covered structures created in Denmark in the 20th century by unemployment insurance. are to a high degree the result of the strong organi- The blue collar worker groups are in general all sation, mutual relationship and great political influ- unionised in LO – the Danish Confederation of ence of the trade union movement and the Social Trade Unions, which is the trade union movement Democrats. that has historically been linked to the Social De- There has been an efficient, but also highly prag- mocrats. Over the past 50 years two other strong matic distribution of work between the trade unions confederations have gained strength – FTF (the Joint and the political labour movement. The trade union Council for Salaried Employees and Public Servants), movement was acknowledged as a negotiating which unites large groups of employees from the party with the employers more than 100 years ago, public service sector such as teachers, nurses, kin- and upon recommendation from both sides a no- dergarten employees and social educators as well as strike agreement was concluded when collective employees from the financial community, and AC agreements applied. That is why Denmark has rarely (the Danish Confederation of Professional Associa- experienced »wildcat« strikes in periods covered by tions), which unites academics from the public and collective agreements. And almost all collective the private sectors. As a main rule, clear demarca- agreements have been renewed without conflict. tion lines exist for membership of the different The trade union movement made real progress unions and of the confederations. The confedera- in securing better pay and improved working condi- tions cooperate in negotiations with employers. tions in negotiations with the employers. But where They participate in a large number of public boards, collective agreements were unable to provide ade- councils and commissions alongside employer or- quate possibilities, the political allies of the trade ganisations, business organisations and public au- union movement took over. For instance, at an early thorities and thus have influence on proposals for stage legislation was passed in order to ensure a new employment legislation, etc. better working environment. The trade unions’ own It should be noted that on several occasions – unemployment and health insurance system was not least from the 1960s to the 1980s – the trade replaced by legislation on systems to ensure risk union movement agreed on a number of so-called sharing across job demarcations, so that insurance »income policy« packages. This can be described premiums are no higher for people employed in the simply by saying that the unions accepted lower pay most risky trades. increases than market conditions could provide in 8 Mogens Lykketoft The Danish Model

return for legislation on social improvements and supplementary pension. And in future, the number economic policies that could stimulate employment. of such citizens will decrease. Naturally, such agreements were based on the A growing share of pensions overall is now strength and capacity of trade unions to deliver the based on saving, and Denmark is not remotely agreed slow-down of wage levels and the govern- experiencing the problems of financing its pension ment’s ability to fulfil its promises in its economic system which a large number of other western policy. countries will in a few years. However, these coun- From the end of the 1980s a new facet was tries face the same challenge, more or less. added to the Danish Model. Until then the vast Over the past decades, fortunately, average life majority of blue collar workers’ retirement provi- expectancy has risen significantly. And there is sions were mainly based on the relatively low tax- reason to believe that this development will con- paid old-age pension scheme, which gives every tinue, supported by the fact that most elderly peo- citizen the same basic pension. On the other hand, ple are now healthier and more fit for work at an the large and growing groups of public servants and advanced age than in the past. At the same time, salaried employees had collectively agreed and Denmark has developed retirement schemes in such financed supplementary pension schemes to which a way that more people are entitled to and have the employers and employees together contributed 10- financial possibility of earlier retirement. Somewhat 15% of the payroll. It became clear to LO that this simplified, the picture in Denmark is this: in 1970 situation was unsustainable in the long run. A work- Danes typically retired at the age of 67 and lived to ing class family in which both spouses had been in be 73. In 2006 they typically retire at the age of 62 the labour market had no possibilities of maintain- and live to be 78. ing their living standard during retirement without a The lowering of the retirement age is strongly supplementary pension scheme established through linked with the formation of what was known as collective agreements. During the past 15-20 years, the early retirement benefit scheme in 1978. In LO-leaders have succeeded in persuading their simple terms, this enabled individuals that had had members to demand better pension schemes rather lifelong membership of the unemployment insur- than the customary pay increases. Now it is normal ance system to stop being available for the labour for 10% of a typical worker’s salary to be allocated market from the age of 60 and still receive an al- to supplementary occupational retirement pension lowance corresponding to unemployment benefit contributions. until they retired on an old-age pension at the age The formation of the occupational pension of 67. The added expense was completely funded scheme for blue collar workers has had a significant by regular taxes because the introduction of this positive impact on the national economy. Savings new entitlement was not accompanied by an in- have accumulated, and – along with very significant crease in membership fees. increases in earnings from oil and gas extraction In the original draft legislation on early retire- activities in the North Sea – this contributed to a ment benefits, it was estimated that 35,000 people reversal from a chronic deficit in the balance of would gradually make use of the offer, most of payments up to the 1980s to a very significant them those who had been doing hard physical surplus from the 1990s onwards. labour for 40-45 years. However, it turned out quite At the same time the low rise in the wages and differently. In the late 1990s 180,000 persons took salaries paid has helped to relieve government fi- advantage of the early retirement benefit scheme, nances, because the statutory mechanism for regu- and even though the group of unskilled workers is lating income transfer to parallel the development larger than other groups, large groups with good in the wages paid to the employed excludes com- pension schemes were using the early retirement pensation for the proportion set aside for labour benefit scheme as supplementary means of paying market pension schemes. And in fact the level of for early retirement. In 1998, this caused a majority the income transferred in the form of old-age pen- of the Danish Parliament to adopt an adjustment of sions, unemployment and illness benefits etc. has the scheme in order to limit government expendi- risen somewhat more slowly than wage levels. ture and the reduction of the workforce. All other In the long term, government finances will bene- things being equal, the workforce will decrease in fit even more from the boom in pension savings as the coming years as the baby boomers of the 1940s a significant proportion of the old-age pension retire and the children of the small families of the scheme is only paid out to citizens with a very small 1980s enter the labour market. International Policy Analysis 9

The 1998 revision had four main points: a sepa- and stagnation – with a very high interest rate rate fee was imposed on those who wanted to which only worsened the situation by killing off subscribe to the early retirement benefit scheme – investments. but only a fraction of the real expense of the sche- In Denmark these problems were exacerbated by me. If a person chooses to accept early retirement the fact that the collective agreements had an benefits before turning 62, the allowance will be automatic »cost-of-living adjustment«, which meant reduced relative to other pension rights. If a person that large wage increases followed in the aftermath refrains completely from using the scheme, a sub- of increasing oil prices. In order to stem the ensuing stantial bonus is awarded at the age of 65. The erosion of competitiveness, the Danish government retirement age in the old age pension scheme was devalued the currency relative to its most important lowered from 67 years to 65 years. This means that trading partners in the 1970s and early 1980s. now there are 3 years instead of 7 years with early In any case, these devaluations briefly reinstated retirement benefits without deduction for other the competitiveness of the Danish economy. In pension rights. The change must be seen in the 1979, the largest pre-emptive devaluation com- context in which the rate of early retirement bene- bined with a freeze of part of the agreed cost-of- fits rate is higher than the rate for old-age pensions living adjustment was implemented. and the fact that the vast majority retired before the The problems associated with this policy were official retirement age in the old-age pension sys- that the international markets would expect Den- tem. mark to repeat the devaluations at short intervals. Any amendments of access to retirement is As a result interest rates rose dramatically. And the naturally highly politically sensitive. Furious reactions employment rate declined even further when the from, among many others, the trade unions con- second oil crisis erupted in 1980. tributed to the weakening of electoral support for These problems wore out the Social Democratic the Social Democratic government. These reactions of the day. It was unable to may have been the result of surprise and anger get support to pursue an adequately coherent policy caused in particular by a number of previous denials to stimulate employment and the government fi- by the prime minister of any plans to change the nances accumulated an immensely large deficit. early retirement scheme. In spite of the reactions to the 1998 reform fur- ther changes in the retirement schemes were actu- 5 1982-1993: From active reform ally decided upon already in 2006 in an agreement course to another high between the centre-right government and the social unemployment rate democratic opposition. Most importantly, the age at which one is allowed to join the early retirement This was the situation when a centre-right minority scheme as well as receive an old-age pension will government came into power in the autumn of rise in step with the increase in average living age of 1982 under the leadership of the Conservative Poul the Danes – but not before 2019. Schlüter. Schlüter succeeded in remaining at the helm for more than 10 years under changing cen- tre-right coalitions. 4 After the oil crisis: Unemployment Initially, the centre-right government was very and devaluation strategies proactive and managed to lay down lines which have lasted under changing governments ever since A short backward glance at the economic policy of and furthermore have contributed to stability and the past decades might show which experiences the competitiveness of the Danish economy. The were gained and which errors were – or were not – necessary switch from devaluation to a fixed rate corrected regarding the Danish Model under the policy was implemented in a credible manner and fluctuating economic and political conditions. with full support from the Social Democratic opposi- After years of steady growth, in 1973 Denmark, tion. Ever since then the Danish currency has been like the rest of the world, was affected by increasing glued to a fixed exchange rate, initially with the unemployment as a consequence of the first oil German mark and later the Euro. crisis. During the initial years there was a great deal The adoption of the fixed rate policy was ac- of uncertainty on how to react, and Denmark ex- companied by an equally necessary final liquidation perienced the unpleasant combination of inflation of the automatic cost-of-living adjustment of wage 10 Mogens Lykketoft The Danish Model

levels. When the fixed rate policy had gained credi- boom of the 1960s and the 1970s and once again bility and wage inflation was under control, an during the economic upturn after 1983. The conse- improved investment climate arose, due to a signifi- quence was a growth in redistribution that bene- cant drop in the interest rate. This and a tentative fited house owners who had been in the market for international recovery rectified employment figures a long time and especially those with the most nicely from 1983-87. expensive houses. It facilitated taking up new loans The government also managed to stabilise its fi- on increasing property values. This was a recipe for nances by means of a transitional determination of an explosion in private consumption and a strain on unemployment and sickness benefits and other the already chronic deficit in the balance of pay- income transfers in nominal terms – thus cancelling ments. the automatic compensation for inflation. However, the fear of tax interventions among Finally, the government managed to collect large house owners made the subject political dynamite, amounts of money by reducing subsidies to local which is why no changes were introduced before governments who then had to raise taxes. 1987. And then they had huge impact, mostly But the most significant and permanent contri- because the government – while it was panic- bution to the stabilisation of government finances stricken over the balance of payments – did not was the implementation of taxation of the current wait to see what effect the intervention would have interest income and capital gains from pension on the behaviour of the citizens. A supplementary funds and insurance companies which had up to intervention against consumer borrowing in the then added a very high interest rate to the citizens’ form of austerity measures (the so-called »kartof- pension receivables. The Social Democratic govern- felkur«) was introduced at the same time as the tax ment had unsuccessfully tried to find support from reform. the centre-right to implement this taxation of the The result was a complete standstill in the real increase in value. Now it was proposed by a centre- estate market during the years up to 1990 including right government and implemented with the sup- a huge decline in prices, many compulsory sales and port of the Social Democratic opposition! a drastic slowdown in private consumption. The The centre-right government in the 1980s was balance of payments was stabilised. But the slow- unable at the same time to exert control over the down contributed strongly to yet another increase three deficits which had become chronic in the in unemployment and – in connection with that – a Danish economy since 1973: the job deficit, the dramatic weakening of government finances. budget deficit and the balance-of-payments deficit. In 1987, Denmark’s international competitive- Up to 1987 the first two deficits were success- ness again came under threat because of the accel- fully reduced. A lot of new jobs were created which erating wage increase. Nobody wanted to ruin the automatically contributed to stabilisation of the credibility of the fixed rate policy by adjusting com- government budget. However, concurrently a sub- petitiveness through a return to the pre-1983 pol- stantial growth in consumer spending obstructed an icy. The solution was for the centre-right govern- early-stage export growth. In consequence, the ment in cooperation with the trade union move- balance of payments was dangerously weakened. ment and the Social Democrats to implement an As a result, from the summer of 1985 an agreement abolition of basically all specific employer’s contribu- between the centre-right government and the So- tions to social schemes, financing the reduction by a cial Democrats and Social Liberals on a reform of 2% increase in value added tax (a very similar pro- the income tax rules took shape. First and foremost, posal was implemented in Germany by the this reform meant a very significant reduction in the CDU/SPD-coalition government after the 2005 deductible value of interest payments on residential elections). property, which had hitherto benefited those with The improvement in competitiveness that re- high incomes. sulted from this readjustment lasted in the years Up to then, people with high incomes had been that followed. This was only partly due to the be- able to offset 73% of their interest payments ginning of a rise in the unemployment rate so that against taxes while inflation compensated for more market pressure on pay rates therefore decreased. than the rest. In other words, the section of the In the long run it was of great importance that the population best able to accumulate savings were trade union movement and the employers in coop- being rewarded for having incurred debt. This was eration with the centre-right government and the instrumental in increasing property prices during the Social Democrats drafted a »social agreement« in International Policy Analysis 11

order to avoid pay increases of such a magnitude but it takes a great deal more and much longer to that Danish competitiveness would once again be reverse the situation. That is why it is so important weakened. for governments to intervene vigorously to fight As mentioned earlier, at this time the trade un- increasing unemployment. In the longer perspective ion movement was in the process of developing it is much less costly than to wait and see. occupational pensions in order to ensure that a It seems that the dispute about how to react to significant part of the moderate wage increases the global financial crisis is repeating itself in 2009. went to savings and not consumer spending. It is the opinion of Social Democrats that it is possi- In the last years of the centre-right government’s ble to a large extent to control cyclical movements term in office in the early 1990s, it remained com- but the timing must be extremely precise – and the pletely passive in relation to the soaring unemploy- political system must be capable of reacting swiftly ment rate, frequently declaring that an external enough to cyclical fluctuations. The main reasons upturn was on its way: thus the Social Democrats why others attempting to lead a business cycle and the trade union movement felt that the gov- policy have failed have always been rooted in in- ernment was failing to stick to the renewed social complete analyses of the problems and bad timing – agreement in not stimulating employment. The or inadequate political action. increase in unemployment became a vicious, self- Social Democrats believe – and with pride – that perpetuating process and reached an all-time peak they made the correct analysis, got the timing right of 350,000 persons before the curve reversed in the all the way from 1993 to 2001 and were lucky to summer of 1994. have the courage as well as the political opportuni- ties to translate their intentions into practical politi- cal action. 6 The renewal of the Danish Model But the aim of the Social Democrats was not 1993-2001 merely to manage cyclical fluctuations. Just as im- portant was the combination of macroeconomic The new Social Democratic government came into policy with fundamental structural reforms of the power in January 1993 and one crucial factor in this labour market and the tax system so that a steady success was its promise to reverse this development increase in the employment rate would not be quickly through national Danish political action. curbed by bottleneck problems and new inflationary The approach was as follows. The employment pressure. The policy implemented in 1993-2001 can situation in 1993 dramatically emphasised that it be summed up as follows: was both necessary and possible to boost employ- 1. A labour market reform which was to restore ment intensively in order to stimulate production rights and obligations for the unemployed. and create more value and more equality – ac- Large-scale investments in education and job knowledging that a high unemployment rate is the training, but also the introduction of stricter worst source of polarisation in society. rules – laying down that the unemployed should But the Social Democrats realised that it was just be fully available for the labour market. The pe- as necessary – and indeed much more difficult from riod of entitlement to unemployment benefits a political point of view – to ensure that the eco- was shortened, but not the size of the benefits nomic stimulus would only be temporary. Economic apart from for one group: young people under policy would have to be tightened further when 25 years with neither education nor training private demand started to increase. who were and who had been long-term unem- In other words, the Social Democrats wanted to ployed were moved into a lower benefit cate- prove that precise cyclical management was possi- gory. However, these lower benefits were com- ble. The centre-right government’s argument for bined with the provision of proper training ser- doing nothing to relieve unemployment was that it vices. In the beginning, financially favourable was impossible to control cyclical fluctuations and terms were offered for leave for training or edu- that they would adjust automatically with time! cation and childcare but in step with the im- The Social Democrats think, on the contrary, provement in employment figures these terms that this blind faith in market forces gives rise to were tightened by targeting leave for training or unreasonably large losses, for individual citizens as education. A temporary extension was also well as for society as a whole. Unfortunately, un- made of the possibilities of withdrawal from the employment goes up very quickly in times of crisis, labour market for long-term unemployed per- 12 Mogens Lykketoft The Danish Model

sons in their 50’s but this was then withdrawn for people on low incomes. In 1993 the total tax when employment opportunities improved sig- burden was 48% of the gross national product nificantly a few years later. In the autumn of and in 2001 – even before the last stage of 1998 – as already mentioned – changes were »Pinsepakken’s« tax reliefs had taken effect it negotiated to the early retirement benefit was 48.6%. scheme for people over the age of 60, in order 4. An active industrial, environmental and energy to encourage later withdrawal from the labour policy which developed – with help from the market. It was a natural continuation of other new indirect taxes and direct subsidies – renew- attempts to expand the workforce in line with able energy and in general a more sustainable the increasing employment opportunities. This production structure. Another experiment initi- process provoked – unlike previous reforms – ated involved offering subsidies for cleaning ser- fierce criticism of the government and crippled it vices in private homes. considerably in its further reform work. 5. Public infrastructure investments were moved 2. A credit reform aimed at the residential property forward in order to contribute to improved market which made it possible for home-owners competitive power (traffic, IT, etc.). The large to convert old burdensome high-interest loans combined bridge and tunnels between the Dan- into ones with lower interest and longer amorti- ish main islands and between Denmark and sation periods. This was decisive in order to hold Sweden were completed during this period, and up compulsory sales and stimulate the real esta- an entire new metro was built in Copenhagen. te market. For a short period this effort was fur- 6. Acceptance of a somewhat higher rate of in- ther strengthened through a subsidy scheme for crease in public service expenditure – not least the repair and maintenance of private homes. within training, education and research, child 3. A tax reform which started out with a net effect care, the health care sector and care of the eld- that was supposed to stimulate the economy erly. Within training, education and research the became in the course of a few years a mere investment was absolutely necessary in order to structural change with reduced income tax rates, ensure future competitiveness. And the estab- a limitation of deductible allowances and the in- lishment of 200,000 extra places in kindergar- troduction of extra »green« taxes on energy and tens and nurseries within local authority child water consumption, which apart from the fiscal care was, for instance, a necessary response to contribution were also meant to – and did – re- the fact that even more parents with young strain consumption of scarce resources. The total children were working outside the home. tax collection was not meant to decline except The figures show that the political goals have been during a short period of initial stimulus. But the reached and even surpassed. The Social Democrats collection of taxes following the reforms was inherited an unemployment rate of 12% and re- carried out in a way that further encouraged in- duced it to 5%. When the government had to step creases in earned income and savings and dis- down after nine years, the unemployment figures couraged too much environmentally unsustain- had dropped from a peak number of 358,000 to able consumption. When Denmark faced great 142,000 and jobs for 200,000 Danes had been export prospects in 1998, which were, however, created. Two-thirds of these new jobs were in pri- threatened by a heavily debt-funded growth in vate companies. consumer spending, further changes in tax legis- The employment boost was much greater than lation were introduced in the form of new aus- in most other European countries. But the figures terity measures – the so-called »Pinsepakke« – also comprise a dramatic renewal process as every (meaning »Whitsun-package« as it was intro- year in the second half of the 1990’s, 200,000 old duced around Whitsun). These involved a mod- jobs disappeared and 230,000 new jobs were cre- erate increase in the taxation of property values ated – and this in an employment market with a and a further limitation of the value of interest work force of only around 2,6 million employees! payment deductibles. The purpose – and the ef- And many of the new jobs had better prospects, fect – of the package was to weaken the dra- improved technology and a higher knowledge input matic growth rate in property prices and thereby than the disappearing jobs. The numbers give hope limit debt-funded consumption as well. The re- that European countries with the ability and will to straints did not give rise to a permanent tax in- implement structural changes on the employment crease but formed the basis for income tax relief market may come out as net winners as regards full International Policy Analysis 13

employment in spite of the fact that the global 7 Many people on transferred income division of labour is changing dramatically and traditional jobs in this part of the world are being The decline in the unemployment figures was fol- moved to China, South-East Asia, India, etc. lowed by a slightly smaller decline in the number of There is a very important observation to be citizens receiving transferred income from the public made here: In January 1993, the best minds of the authorities. Ministry of Finance were of the opinion that Danish The very large number of citizens receiving »structural unemployment« was 9%. This meant transferred incomes often gives rise to misinterpre- that you could not get below this level without tations of Danish reality in the Danish debate and in causing the economy to break down due to the lack the eyes of other countries. The fact is that in all of qualified labour. With a strong focus on skill societies a large proportion of the population will be development and supplementary training – perhaps temporarily or permanently incapable of participat- the single most important element of the new pol- ing in the labour market. This proportion is no lar- icy – the Social Democrats actually succeeded in ger in Denmark than in other wealthy countries, but bringing down structural unemployment to the the Danish social system has changed during the same rate as the unemployment figures in the years last 40 years, meaning that these people are now up to 2001. supported by the public authorities instead of their Improved employment figures improve equality families. and harmony in a society. And thus the Social De- On average 8 out of 10 Danes between from mocratic government continued its improvement of the age of 18 to 62 are either working or studying. the collective, tax-financed goods, and attempted to That is practically a world record. Therefore Den- protect the tax system against tax evasion through mark does not have several hundred thousand loopholes and fraud. But the new boom in property citizens who may eventually become part of the prices and the major rise in share prices as an iso- employment market if some new and different lated factor pointed towards greater inequalities. policy is introduced. There will always be some In the summer of 1998, Denmark found itself in people on leave due to maternity or illness and in an unusual situation with the members of LO reject- these cases favourable rules will apply. Some people ing a proposal for new collective agreements which will be temporarily between jobs without posing union officials had negotiated and recommended. any real social problem. But they will be included in Therefore the government was forced to give legal the statistics as unemployment benefits are payable backing to the rejected collective agreement pro- from day one of unemployment. Many people are posals with the inclusion of a few changes. Public granted social retirement benefit because of physi- understanding of economic policy and the social cal or mental disorders. And of course many people agreement, which LO had been party to since 1987, have chosen early retirement as the early retirement was diminishing. benefit scheme has been so attractive. The fierce and partisan criticism by the opposi- A long-term change with follow-up action on tion of »Pinsepakken« in 1998 – appealing espe- long-term illness, better rehabilitation, a more suc- cially to the self-interests of the home-owners – cessful senior employees’ policy and the decided contributed to weakening support for the govern- long-term increase in retirement age will some day ment. And the settlement on the early retirement contribute to a better and longer working life for benefit scheme that same autumn only made mat- more people. ters worse. It is a special challenge to improve the integra- The criticism of the so-called »liberal« immigra- tion of immigrants. From 1993 to 2008, the propor- tion laws – particularly organised family reunifica- tion of immigrants and their descendants from non- tion from a number of Muslim countries (Turkey, Western countries rose from 2.8 to 6.4 per cent of Pakistan, Arab states) – and concern over the poor the population, especially due to the inflow of refu- integration of immigrants from these countries gees, family reunifications and a high birth rate became a decisive point of attack against the gov- within immigrant families. Where the employment ernment. rate for the Danish population is 79%, it is 59% for Thus the scene was set for an election defeat for immigrants from non-western countries and 68% a government which had brought about the longest for their descendants. uninterrupted period of economic growth in Den- With increasing employment, a growing propor- mark since World War II. tion of the shrinking number of the unemployed 14 Mogens Lykketoft The Danish Model

originate from outside Denmark. Many within this government and the opposition. group lack adequate language skills and other quali- The government consists of Liberals and Conser- fications. But many who have actually mastered the vatives, but in all major issues it depends for its language and have the appropriate qualifications majority on the support of the populist Danish often encounter unjustifiable mistrust. The climate People’s Party. This party is based on xenophobic on the labour market is not totally unaffected by hostility to . It appeals to right-wing the frequently acerbic political discussions of prob- nationalism and opposition to the EU. When it lems linked to small groups of immigrants. comes to economic policies the party offers loyal But the fundamental fact is that the active la- support to the centre-right government though bour market policy has been crucial in gradually with some further demands – not least as regards reducing structural unemployment from 9 per cent senior citizens. in the early 1990s to 3-4 per cent in 2009 – and The centre-right government and its supporters with room for even further improvement down to 2 have created an image of themselves as those being per cent. able to slow down Muslim immigration, make cuts In 2006 – at a point where registered unem- in welfare benefits for immigrants and pursue a ployment was a little less than 5 per cent – the tight law and order policy, while generally preserv- author predicted that 80,000 of those in receipt of ing the welfare model for the Danes – and at the transferred income might become employed within same time freeze and even reduce taxes. a fairly short period of time through a combination The government has benefited fully from the of especially favourable market conditions, extensive fundamental improvements of the economic struc- focus on active labour market initiatives such as ture and especially on the labour market that was supplementary training and the creation of more initiated in the 1990s. sheltered jobs for people with reduced working Unemployment increased somewhat in the gov- capabilities. ernment’s first three years – from 5 to 6 per cent. Interestingly, Denmark experienced a decrease in But then it declined steeply to 2 per cent to be unemployment of precisely that magnitude from followed by a steady increase since the autumn of spring 2006 to late 2008, when the financial crisis 2008. The figure could well pass the 5 per cent level broke out. It was the end of an extremely high again before the end of 2009. growth period – internationally as well as domesti- Up until 2008 the government budget showed cally. This high growth was only made possible by an overwhelming surplus as a combined result of a mobilising the last reserves in the national labour number of extraordinary events. A huge debt- market and inviting tens of thousands of workers funded private spending spree, good company from abroad, primarily in the construction sector earnings, a fall in interest rates, capital gains tax on from neighbouring and the Baltic countries. pension schemes and high tax revenues from oil We now realize that this extreme boom – driven and gas extraction in the North Sea due to the by private consumption and investment – depended extraordinarily high energy prices. The latter also on excessive borrowing based on the unsustainably contributed decisively to major surpluses in the high values of shares and fixed property, and it was balance of payments. not accompanied by sufficient investment in the In 2009 a large budget deficit will re-emerge, labour force. But we did get an impression of how which shows that the super-boom was very shaky far we can bring down unemployment in times of and unsustainable. Public service expenditure – very high growth with a revival of an active labour which is mainly borne at municipal or regional level market policy. – has been kept by the government within strict growth limits – even in the boom years. Under the slogan of »Freedom of choice« the 8 »Freedom of choice« and »Tax- government has managed to cultivate private com- freeze« petition to the public services. This is expanding mainly in hospitals, because private competitors are The general election in 2001 led to a centre-right being given very high rates of payment for surgical minority government under the leadership of the operations. In that way the government is encour- Liberal leader Anders Fogh Rasmussen coming into aging the population to transfer tax money from power, and the elections in 2005 and 2007 did not the public system into private hospitals. This involves change much in the balance of power between the International Policy Analysis 15

a major risk that the middle class will in increasing tion of introducing a large stimulus package of numbers be turning their backs on the financially public investment in infrastructure, hospitals, strapped public services – taking with them their schools, energy conservation and developing sus- money and support. The door has opened to a huge tainable energy supplies. The opposition’s proposal increase in private insurance and could dampen the would create many more jobs for the same amount willingness of this group to pay to maintain good of money now spent on under-financing the tax public services for everyone – including the finan- reform. In a situation of deep crisis there is strong cially and socially weak groups – via their taxes. reluctance in private households to spend money In the upcoming crisis it is more obvious that the from tax reductions, because many have lost their government has invested all too little in education, jobs, many more are afraid of losing theirs and the research and development in order to maintain majority have incurred heavy losses in the values of Denmark’s leading position in the global economy. pensions and homes. With increasing unemployment, there is a strong Naturally, the tax freeze and tax reductions are need to reverse the cuts from recent years in active attractive in themselves. But in 2005-2008 the labour market measures. There is an urgent need government’s tax policy combined with rising share for a much stronger educational component for the prices, extremely low interest rates and new possi- unskilled workers now being thrown into unem- bilities of amortisation-free loans in private homes ployment and whose traditional jobs will probably has triggered the explosive rise in property values not return to Denmark in the future. and a corresponding explosion in private consump- The crisis also puts the focus on the weaker po- tion on borrowed money. These were the driving sition that many people are now in, because they forces in the boom-bubble that burst in the autumn were somehow lured into opting out of the unem- of 2008 in America and much of the rest of the ployment insurance system and stopped being world, including Denmark. In the boom, tax reduc- organized in the trade unions. The government’s tions contributed to the instability. In crisis they do preference for the private sector – and its »freedom not work effectively against rising unemployment! of choice« and a tax policy in line with this prefer- Denmark is still one of the countries with the ence – explains the limitation of resources for im- least inequality. But the overall result of 7-8 years of portant public services. centre-right government is that inequalities have »The tax freeze« has been the major sales pro- increased. Between the very few with even more motion idea from the centre-right government. exceptional income and wealth and the increasing Primarily it is a promise not to raise income tax rates number of the poor; between house-owners and and to freeze tax on the property value of private tenants; between the well-established and the homes, which has hitherto followed the develop- young, newly established on the housing market; ment in sales prices. This tax freeze has been sup- between the big cities and the outer regions; be- plemented with two minor reductions in income tax tween the employed and people on transferred rates on middle and higher incomes in the election income; between well established Danes and in- years 2005 and 2007. coming new immigrants. In March 2009 – when the financial crisis struck So the Danish model does face serious threats. – the government majority decided on a major The major challenges do not, however, come from reform of the tax system, which in the years up to the pressure of globalisation but a potential decline the next election is heavily under-financed and in support for the model among the electorate as a offers major tax reductions to the upper ten per- consequence of the centre-right policy. cent. The theoretical basis for this tax reform is that lower marginal taxes for high-earners in the elector- ate will increase the labour supply and avoid a po- tential brain-drain from Denmark of people with higher education. The empirical evidence for this theory is limited in Denmark. Danes work hard already and most of the Danes that go abroad for education and work return home after some years. While they decided to free up billions by under- financing the tax reform, the government parties rejected the alternative proposal from the opposi- 16 Mogens Lykketoft The Danish Model

Imprint Orders All Texts are available online: Friedrich-Ebert-Stiftung Friedrich-Ebert-Stiftung www.fes.de/ipa International Policy Analysis International Policy Analysis The views expressed in this publication Division for International Dialogue Nora Neye are not necessarily those of the Frie- D-10785 Berlin D-10785 Berlin drich-Ebert-Stiftung or of the organiza- www.fes.de/ipa E-Mail: [email protected] tion for which the author works. E-Mail: [email protected] Fax: +49 (30) 26935-9248 ISBN 978-3-86872-246-8