Denmark as a Model for American Socialists?

by Lars Hedegaard
August 20, 2018 at 5:00 am

https://www.gatestoneinstitute.org/12881/denmark-welfare-socialism

Danes actually pay for their brand of socialism through heavy taxation. In Denmark, everyone pays at least the 25% value-added tax (VAT) on all purchases. Income tax rates are high. If you receive public support and are of working age and healthy, the state will require that you look for a job or it will force a job on you.
In Denmark, it is uncomplicated for enterprises to fire workers, which gives them great flexibility to adapt to shifting market conditions. In fact, Denmark is more free-market oriented than the US.
"Very high taxes and the vast public sector clearly detract in the capitalism index and reduce economic freedom. But Denmark compensates by... relatively little regulation of private enterprise, open foreign trade, healthy public finances and more. This high degree of economic freedom is among the reasons for Denmark's relatively high affluence." — Mads Lundby Hansen, chief economist of Denmark's CEPOS think tank.

Here are some facts to consider before American "democratic socialists" look to Denmark for guidance, as Senator Bernie Sanders did during the 2016 presidential campaign.

First of all, Danes actually pay for their brand of socialism through heavy taxation. In Denmark, everyone pays at least the 25% value-added tax (VAT) on all purchases. Income tax rates are high. If you receive public support and are of working age and healthy enough to work, the state will require that you look for a job or it will force a job on you.

The willingness of all the Danes to pay high taxes is predicated on the country's high degree of homogeneity and level of citizens' trust in each other, what sociologists call "social capital." By and large, Danes do not mind paying into the welfare state because they know that the money will go to other Danes like themselves, who share their values and because they can easily imagine themselves to be in need of help -- as most of them, from time to time, will be.

Whenever politicians propose tax cuts, they are met with vehement opposition: So, you want to cut taxes? What part of the welfare state are you willing to amputate? And that ends the debate.

Danes, in contrast to American socialists gaining ground in the Democratic Party, are increasingly aware that the welfare state cannot be sustained in conditions of open immigration. A political party agitating for "no borders" could never win a Danish election. Danes do not suffer from historical guilt: they have not attacked any other country for more than two centuries and have never committed a genocide.

Moreover, there is an even deeper truth to ponder: Denmark is not really socialist but constitutes a sui generis fusion of free-market capitalism and some socialist elements. Denmark has no minimum wage mandated by law. Wages, benefits and working conditions are determined through negotiations between employers and trade unions. 67% of Danish wage-earners are members of a union, compared to 19% in Germany and 8% in France. Strikes and lockouts are common, and the government will usually stay out of labor conflicts unless the parties are unable to agree.

It is uncomplicated for enterprises to fire workers, which gives them great flexibility to adapt to shifting market conditions. To alleviate the pain, the state has in place a number of arrangements such as generous unemployment benefits and programs to retrain and upgrade redundant workers.

Danish companies must make ends meet or perish. They generally will not get handouts from the government.

Denmark is more free-market oriented than the US. According to the Heritage Foundation's 2018 Index of Economic Freedom, Denmark is number 12, ahead of the United States (number 18). Venezuela is at the bottom, one place ahead of number 180, North Korea.

Mads Lundby Hansen, chief economist of Denmark's respected pro-free-market think tank CEPOS, comments:

"Very high taxes and the vast public sector clearly detract in the capitalism index and reduce economic freedom. But Denmark compensates by protecting property rights, by low corruption, relatively little regulation of private enterprise, open foreign trade, healthy public finances and more. This high degree of economic freedom is among the reasons for Denmark's relatively high affluence."

Trish Regan recently claimed on Fox Business that Danes pay a "federal tax rate" of 56% on their income. This is misleading. The 55.8% is the levied on the marginal tax for the top income bracket, only on the part of their income above DKK 498,900 ($76,500). Any income under DKK 498,900 is taxed at lower rates. And the 55.8% marginal rate does not represent a "federal" or "national" rate. It represents the total of all taxes on income: national tax, regional tax, municipal tax and labor market tax. It does not, however, include Denmark's 25% value-added tax (VAT), paid on all purchases.

Regan also claimed that Danes pay a 180% tax on cars. While it is true that there was once a maximum tax of 180% on care in Denmark, the vehicle tax rates have been lowered in recent years. Today, the first DKK 185,100 ($28,400) of the price of a gas- or diesel-powered car is taxed at 85%, and if the car's price is above DKK 185,100, the remaining amount is taxed at 150% -- which is of course bad enough.

Denmark's total tax burden amounts to 45.9% of GDP, the highest of all countries in the Organisation for Economic Co-operation and Development (OECD).

Danish hundred-kroner banknotes. (Image source: iStock)

As pointed out in the Fox Business segment, all education for Danes is tuition-free, all the way through to a Ph.D. Not only that; the state will, within certain time constraints, pay students to study. For students at university level no longer living with their parents, the monthly cash grant comes to almost $1,000 per month. No fewer than 325,000 students out of a total population of 5.6 million benefit from this generous arrangement setting the state back to the tune of DKK 20.9 billion or 1% of GDP (latest 2018 figures just in and supplied by Mads Lundby Hansen). Denmark even pays student support to 20,000 foreign students.

Attempts by fiscal conservatives to cut down on payments to students have been successfully resisted by the vociferous and influential student organizations; at present it would appear impossible to muster anything like a parliamentary majority to limit the student handouts.

Fox Business is right that a great many Danes are on public transfer payments. Government figures from 2017 indicate that 712,300 Danes of working age (16-64) -- not including recipients of student benefits -- get public financial support. But Regan's claim that most Danes do not work is ludicrous. According to Statistics Denmark, 69.9% of Danes aged 16-64 are active in the labor market.

How can Denmark pay for its comprehensive welfare state, which includes free medical care regardless of the severity of your condition? Regan claims that Denmark is "heavily in debt." Not so. As it turns out, Denmark is among the least indebted countries in the world, even when compared to other Western countries. The Danish government's gross debt stands at 35.9% of GDP. Compare that to, e.g., The United Kingdom (86.3 %), The United States (108%), Belgium (101%), Canada (86.6%), France (96.3%), Germany (59.8%), The Netherlands (53.5%), Italy (129.7%), Spain (96.7%) and even Switzerland (41.9%).

Comparing Denmark to the US, Madsen notes that the latter has a problem with fiscal sustainability that may necessitate tax increases. Denmark enjoys what he labels fiscal "oversustainability" ("overholdbarhed").

At a time when socialism appears to be popular among certain sections of the American population, its proponents would do well not to cite Denmark as a model. The Danish fusion of free-market capitalism and a comprehensive welfare state has worked because Denmark is a small country with a very homogeneous population. This economic and social model rests on more than 150 years of political, social and economic compromises between peasants and landowners, business-owners and workers, and right- and left-leaning political parties. This has led to a measure of social and political stability that would be hard to emulate in much larger and more diverse counties such as the United States.

Lars Hedegaard, President of the Danish Free Speech Society, is based in Denmark.

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Recent Articles by Lars Hedegaard

Jihad: "All the Fault of the West!", 2015-12-26
Sweden Surrenders to Saudi Arabia, 2015-04-09
Sweden's Foreign Minister Reviled as an Enemy of the Prophet, 2015-03-21
Sweden's Middle East Policy in Ruins, 2015-03-15
Terror Strikes Copenhagen, 2015-02-20

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Comment on this item

21 Reader Comments

jørgen • Sep 6, 2018 at 06:07

It was not socialism that created the Nordic welfare states. It was the Nordic mentality with strong work ethics and high levels of trust and social cohesion that created them. This mentality was simply a must for survival in an unforgiving climate. Nima Sanandaji has examined this in the book "Debunking Utopia. Exposing the Myth of Nordic Socialism." Among other things he compares the descendants of the Nordic emigrants to USA with other Americans and finds that the economy of the emigrants still is markedly better than the average American. No way can the Nordic welfare state be transferred to for example US. First they'll need to get the mentality.

And of course, the economy cannot survive the inflow of Middle East people with the opposite mentality. The Muslim population has doubled every ten years since 1980 So it is getting urgent and maybe already too late.

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Carl B • Aug 31, 2018 at 15:23

Excellent article - yes indeed, the homogenity can't be stressed enough. Only a community with common history and high trust will chip into a common bank without abusing these common funds.

It would be excellent if the author could comment in another article on the impact of non-European immigration on Danish public finance. I trust that there was a detailed research by the Danish government.

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jrcw • Aug 22, 2018 at 10:28

Bottom line is Denmark is not a Socialist Country but a Capitalist Country with very high tax rates.

"The Goal of Socialism is Communism"

Valdimir Lenin. Founder of the Russian Communist Party, leader of the Russian Revolution of 1917

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Paul Juliette • Aug 21, 2018 at 19:35

Visited Denmark in June 2016. We stopped at a wayside stop for two burgers and fries plus two pops. This came to $44 US. In Copenhagen it was beyond our economic means. We definitely would not return.

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Dr. Norma J Stevlingson • Aug 20, 2018 at 19:00

SMALL country and HOMOGENEOUS (!!!) COUNTRY! Huge difference from the US!

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Mikel Rhodes • Aug 20, 2018 at 18:52

The article about the Danish socialism failed to compare the amount the United States pays for National Security vs. what The Danish government pays. The article also fails to comment on the United States requirements to world security vs. Denmark.

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Lars Hedegaard

Mikel Rhodes • Aug 23, 2018 at 14:59

You are right. That is for another article. One of the reasons why Denmark can spend enormous amounts on welfare is that we assume America will take care of our security.

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Henry • Aug 20, 2018 at 16:53

Should Denmark open its borders to the mass migration from the third world, their well balanced welfare state will agonizingly collapse after a couple of years, as it has no room for extra recipients and the weight will heavily shift to handouts. Sweden is a good example showing Danes what would happen to their paradise should they submit to the globalization agenda.

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herbert r richmond • Aug 20, 2018 at 14:00

Agree, this would be difficult to implement in America because of the identity politics agenda of the Left.

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Bisley • Aug 20, 2018 at 12:45

American socialists, the majority of them, and especially those who make the policy, would have no interest in a system like Denmark's -- their goals are entirely different. They are not particularly interested in economic prosperity, and would never tolerate a free-market, capitalist private sector.

American socialists are primarily concerned with political and economic control, and making everyone conform to their ideas -- they see themselves as the masterminds who know how to run everyone's life, business and property better than they do (and, supposedly, for the public good), and they intend to use government to impose their ideas of how everything should be on everyone. Much like the Muslims who see Islam not only as the right way, but the only way, and the way that must be forced on everyone, whether they like it or not -- the American socialists are driven by a religious zeal to rule with their version of Sharia.

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RonH • Aug 20, 2018 at 10:37

Here is your socialism wrapped up in a nutshell. While most socialist nations fail miserably, this one eventually will too. Socialism is the failed politics that creates a downtrodden do nothing society, that was never and will never be great.

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David Lincoln • Aug 20, 2018 at 10:06

To add to this, it doesn't seem that long ago, but it has been, that Danish newspaper cartoons about Mohammed were in the news.

Well, when Imams were going through different parts of the world, embellishing what was printed, this did not reflect well on Denmark or Muslim immigrants.

When the median age is outside of the safe zone, there is room for trouble. Just take a look a look at Denmark's median age, and compare it to others.

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Ron Thompson • Aug 20, 2018 at 09:58

Although Denmark is a tiny State compared with the United States, this is an excellent comparative analysis of a developed economy and how it can blend a strong Capitalism with elements of an enlightened Socialism.
Given that the US is undertaxing its rich, and had the highest number of low-income and poor people of any developed country, much to think about from this interesting article.

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Lars Hedegaard

• Aug 23, 2018 at 15:10

I once worked for the national trade union organization and took away a profound observation made by one of the economists: We are not going to nationalize capitalists. Let them make their profits. And let us see to it that everyone gets a fair share.

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CeCelia Squires • Aug 20, 2018 at 09:18

Comparing the U.S. to Denmark is like comparing apples to oranges!

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Chuck • Aug 20, 2018 at 09:12

Can we assume not many Ferraris are sold in Denmark? Obesity must not be a problem if most people are on bicycles. Seriously, this all works well for the Danes with their small, mostly homogeneous population and a culture of respect for each other. Bet it is difficult to immigrate to Denmark, too.

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Lars Hedegaard

Chuck • Aug 23, 2018 at 15:15

It has been easy to immigrate for the past 40 years and we now have a Muslim population of 350,000. However, Danes have had enough and the leading political parties except for the hard left say they will stop it.

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Soxtory • Aug 20, 2018 at 08:58

Plus they are under the wing of NATO so no real defense cost.

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william carr • Aug 20, 2018 at 08:57

Figures on migrant labour and social dependency would have been interesting. I am sure employment among migrants is not high.

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Badger • Aug 20, 2018 at 08:01

Thank you for a most instructive article. So much in so little. Congratulations.

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Joseph Marmor

Badger • Aug 20, 2018 at 09:47

Does the fact that Denmark is a country of 5.6 million and the US is a country of 320 million make a difference? Trying this in an economy the size of the US would be a very bad idea. A small country like Denmark with very few minorities can try this but the US with all of it's special interests would have a real problem.

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