Saturday, January 3, 2009

The Danish Economic Model

Today's Financial Times interview with Peter Sutherland, chairman of BP and also Goldman Sachs International ("Lunch with the FT: Peter Sutherland") includes this paragraph on the Danish economy:

“Yes, there are questions we should be asking ourselves, especially in the Anglo-Saxon economies. If you look at Denmark as an economy, you have higher marginal rates of tax, lower unemployment, a very high safety net support, and GDP per capita significantly higher than this country’s. This is the social model everyone was moaning about. But maybe it works rather well. What you also have, agreed with the unions, is a flexible labour market. Labour market flexibility is to my mind very, very important – far more important than the ability to earn very large sums of money.”

The labor market flexibility and low unemployment rate Sutherland mentions are key differentiators between Denmark other European countries with high marginal tax rates and generous welfare states; usually, the trade-offs in these countries (e.g., France) include inflexible labor markets (where, since it's difficult for companies to fire workers, they are wary of hiring new workers) and high unemployment. Sutherland's mention of Denmark brought to mind a 2006 Wall Street Journal article on Denmark's labor policies, "For the Danish, A Job Loss Can Be Learning Experience". Below is an excerpt from that article:

Most of Western Europe is fighting to hold on to its traditionally strong job protections while in some cases cutting jobless benefits, as the region struggles to compete in a globalized economy. Denmark has gone the other way.

The government allows liberal hiring and firing as in the U.S. And it has imposed limits on the duration of its high unemployment benefits. But it also invests more than any other country, as a percentage of its gross domestic product, in retraining the jobless -- a combination it calls "flexicurity." Its unusual mix of the free market and big government has helped Denmark cut its unemployment rate in half, from about 10% in the early 1990s to U.S.-style levels of under 5% now. The economy has been relatively robust, growing 3.4% last year. Meanwhile, France and Germany are at or above the Danish jobless rate of a decade ago.

Even though Danes are among the most easily laid-off workers in Europe, polls show the country's workers are the most secure about their future.

Back to the Financial Times interview with Sutherland, which concluded with this paragraph:

Just as I am formulating a response to this [Sutherland's invidious comparison of the "Anglo-Saxon" model to the Danish one], Sutherland takes the words out of my mouth. “I feel somewhat hypocritical because I’ve been a beneficiary of this” – and judging by the well-cut suits around us he is not the only one – “but I don’t think that has interfered with my thinking processes. I do think we need to reflect on a certain culture of excess.”

One could say Sutherland's lunch tab reflects a "certain culture of excess". From the FT:

Jermyn Street, London SW1

1 x wild Scottish smoked salmon £28.00
1 x Lobster bisque Newburg £13.00
1 x seared scallops £28.00
1 x grilled halibut £26.00
2 x spinach £10.00
1 x brussels sprouts £5.00
1 x fresh raspberries £12.00
1 x crème brûlée £10.00
4 x glass Chablis £32.00
2 x double espresso £ 10.00
2 x espresso £9.00
1 x mineral water £5.00

Total (inc. service) £211.50

1 comment:

James Cramer said...

Can I get some coffee with that Danish?