Foreign Affairs: The Copenhagen Consensus: Reading Adam Smith in Denmark
Policy paths are heavily dependent on prior history, as Americans are reminded whenever they try to depart from the illogic of employer-provided medical insurance. Because of the unique social and political history behind it, Danish flexicurity policy cannot be imported whole by other countries. There are important differences between the welfare states of Scandinavia and those of Germany and France, whose labor safeguards are more protectionist and less flexible. Even greater are the differences with the United States, where unions try to protect what they have because there is no system for facilitating job transitions or for moderating extreme wage disparities. It is hard to imagine the United States importing Danish industry's embrace of trade union partners, or the Danish labor movement's comfort level with outsourcing, or the Danish taxpayer's tolerance of total tax rates of 50 percent. In an interrelated system, changing one element requires changing others. Yet a national policy of greater competitiveness and greater equality based on dynamic investment in worker skills is too good an idea to ignore. Denmark breaks through stale notions about the inexorable tradeoff between equality and efficiency, as well as the conventional view shared by the American left and the American right that social justice and free trade are incompatible. If a U.S. administration had the political nerve to propose an active labor-market policy on a serious scale, it could not only narrow income gaps and increase overall productivity; it might also reclaim some of the lost support for a more managed brand of capitalism, revive the idea of a role for government in promoting equality as well as efficiency, reclaim trade unions as social partners, and build more compassion among Americans for those of different social strata. Adam Smith is best known for his axiom that individual acts of selfishness aggregate to a general good. Even Smith, however, acknowledged that there are some economic necessities that market forces cannot provide, such as education. In 1759, long before he wrote The Wealth of Nations, Smith published the less well-known Theory of Moral Sentiments, a treatise on what a modern Danish social democrat might call social solidarity. "How selfish soever man may be supposed," Smith began, "there are evidently some principles in his nature, which interest him in the fortune of others, and render their happiness necessary to him." Reading those words of Adam Smith in Copenhagen did not feel odd at all.
Yet a national policy of greater competitiveness and greater equality based on dynamic investment in worker skills is too good an idea to ignore. Denmark breaks through stale notions about the inexorable tradeoff between equality and efficiency, as well as the conventional view shared by the American left and the American right that social justice and free trade are incompatible. If a U.S. administration had the political nerve to propose an active labor-market policy on a serious scale, it could not only narrow income gaps and increase overall productivity; it might also reclaim some of the lost support for a more managed brand of capitalism, revive the idea of a role for government in promoting equality as well as efficiency, reclaim trade unions as social partners, and build more compassion among Americans for those of different social strata.
Adam Smith is best known for his axiom that individual acts of selfishness aggregate to a general good. Even Smith, however, acknowledged that there are some economic necessities that market forces cannot provide, such as education. In 1759, long before he wrote The Wealth of Nations, Smith published the less well-known Theory of Moral Sentiments, a treatise on what a modern Danish social democrat might call social solidarity. "How selfish soever man may be supposed," Smith began, "there are evidently some principles in his nature, which interest him in the fortune of others, and render their happiness necessary to him." Reading those words of Adam Smith in Copenhagen did not feel odd at all.
I've been meaning to write a diary or two about the Danish way of doing labour markets for a while. The above quote provides what's essentially the Conventional Wisdom about the Danish Model. And while the Conventional Wisdom is not completely bunk, it is not the whole story either.
- Jake Ceterum censeo Chicago esse delendam
if you like, let me know and i can email you the entire piece. it would be very interesting to get your take on it. Truth unfolds in time through a communal process.
There are a couple of statements in the preview that I disagree with, but overall it seems like a reasonable description of the Nordic social model. Certainly, it would be a good jumping-off point for a diary.
Where he falls flat is in his enthusiasm for the changes over the last fifteen to twenty years, which have been more in the vein of "reform" than improvement, and have been shaped more by the advice of anglo-centric economists than genuine support for the Danish social model. With predictable results.
He also lacks even the first clue about the parliamentary and political situation. When he starts doing parliamentary tea-leaf-reading, your eyes should glaze over, because he can't even get all the party platforms right, much less the dynamics underpinning the current parliamentary constellations.
But keeping those caveats in mind, he provides a pretty good overview of what Danes talk about when they talk about the Danish Model.
As an aside, it should be noted that he commits a sin of omission in that he fails to mention that the other Nordic countries have very similar social models - a detailed analysis of similarities and differences is beyond both my knowledge and the scope of the article in question, but suffice is to say that there are more similarities than differences.
This social consensus, however, requires constant tending. In the 1970s, Denmark's then overly generous lifetime social benefits collided with slow growth resulting from the OPEC oil shock. With the unemployment rate rising sharply, a taxpayer revolt broke out; the nationalist, antitax Progress Party became Denmark's second largest. When I visited Denmark in the late 1980s, to write an article on the faltering Scandinavian "third way," it was not clear whether the Danish model would survive. As late as 1993, the unemployment rate remained stuck at 12 percent. In the early 1990s, a new Social Democratic government, under Prime Minister Poul Nyrup Rasmussen and Finance Minister Mogens Lykketoft, brokered macroeconomic and labor-market improvements in three rounds of reforms. Growth was restored, and the model was refined. They worked through a commission that drew on business, labor, academia, and the other major political parties, striking a series of compromises that were typically Danish. At the time, some prime-age, able-bodied Danes were using unemployment and disability benefits to stay out of the labor force, often for life -- an embarrassment to the work ethic and a practice that was rendering the system unaffordable and undermining its legitimacy. The unions agreed to support a crackdown on abuses: the eligibility time for unemployment compensation was reduced from nine years to four and individualized reemployment plans were created that required the unemployed to meet regularly with counselors to seek new jobs, often in new occupations. (The labor movement's commitment, after all, is to facilitating and rewarding work, not idleness.) This brand of tough love forced many of Denmark's unemployed to seek and find jobs. And in return, the Danish government increased resources for highly customized training and temporary wage subsidies, with special provisions for workers under the age of 25. An unemployed Dane who reports to a job center can qualify for such opportunities as adult apprenticeships and university-level education. Denmark today has the world's highest percentage of workers, 47 percent, in some form of continuing education.
In the early 1990s, a new Social Democratic government, under Prime Minister Poul Nyrup Rasmussen and Finance Minister Mogens Lykketoft, brokered macroeconomic and labor-market improvements in three rounds of reforms. Growth was restored, and the model was refined. They worked through a commission that drew on business, labor, academia, and the other major political parties, striking a series of compromises that were typically Danish.
At the time, some prime-age, able-bodied Danes were using unemployment and disability benefits to stay out of the labor force, often for life -- an embarrassment to the work ethic and a practice that was rendering the system unaffordable and undermining its legitimacy. The unions agreed to support a crackdown on abuses: the eligibility time for unemployment compensation was reduced from nine years to four and individualized reemployment plans were created that required the unemployed to meet regularly with counselors to seek new jobs, often in new occupations. (The labor movement's commitment, after all, is to facilitating and rewarding work, not idleness.) This brand of tough love forced many of Denmark's unemployed to seek and find jobs. And in return, the Danish government increased resources for highly customized training and temporary wage subsidies, with special provisions for workers under the age of 25. An unemployed Dane who reports to a job center can qualify for such opportunities as adult apprenticeships and university-level education. Denmark today has the world's highest percentage of workers, 47 percent, in some form of continuing education.
RiBus was a company that ran busses. When it won a bid for outsourcing of public bus routes in Esbjerg, the drivers went on strike, because RiBus did not have acceptable wages and working conditions. The strike lasted for more than 8 months.
It's significant not just because it lasted longer than any other strike in recent Danish history; it also marked the first (and to my knowledge only) recent large-scale use of a number of very nasty union-busting tactics.
Oh, and I forgot a kind of important detail: The strikers lost. Which is why I don't understand why everyone to the right of the MLs seem to want to airbrush the event from history.
