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DANISH INSTITUTIONAL COMPETITIVENESS
IN THE GLOBAL ECONOMY
John L. Campbell
Department of Sociology
Dartmouth College, USA
and
International Center for Business and Politics
Copenhagen Business School, Denmark
and
Ove K. Pedersen
International Center for Business and Politics
Copenhagen Business School, Denmark
May 2005
Prepared for the Danish Funktionærernes og Tjenestemændenes Fællesråd.
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Executive Summary
DANISH INSTITUTIONAL COMPETITIVENESS
IN THE GLOBAL ECONOMY
Despite high taxes, a large welfare state, hefty regulations, and a very open
economy, Denmark continues to compete successfully against the other advanced
capitalist economies. This paper argues that Denmark’s success has been based in large
part on its institutional competitiveness–its capacity to achieve socioeconomic success as
a result of the competitive advantages that firms derive from operating within a particular
set of political, economic, and cultural institutions. It shows that there is no one best way
to achieve success in today’s global economy. Notably, low taxes, limited government
spending, and light regulatory burdens are not necessary prerequisites for success. The
institutional basis for Denmark’s labor market policy, vocational training and skill
formation policy, and structural policy are given as examples of ways in which Denmark
has become institutionally competitive and, therefore, achieved remarkable success
during the late 1990s and early twenty-first century.
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DANISH INSTITUTIONAL COMPETITIVENESS
IN THE GLOBAL ECONOMY
Denmark is noted for its extraordinarily high tax rates, large welfare state, and
hefty regulatory burden on business.1 Yet Denmark continues to compete successfully
against the other advanced capitalist economies on a broad range of economic, social, and
fiscal dimensions. This is so even though Denmark is a very open economy and,
therefore, vulnerable to the competitive pressures of economic globalization.2 This is
puzzling from a neoliberal perspective. According to neoliberals, countries are supposed
to need exactly the opposite tax, welfare, and regulatory policies in order to compete
successfully in the global economy. Why? Because high taxes, welfare spending, and
regulatory burdens are said to drive away investment capital that is needed for developing
new technologies, products, and industries, improving labor productivity, stimulating
economic growth, and otherwise enhancing national competitiveness (McKenzie and Lee
1991; Ohmae 1995, 1990).3 How has Denmark managed to defy the neoliberal
prescription and still be so successful? This paper argues that Denmark’s success has
been based to a significant degree on its institutional competitiveness, by which we mean
its capacity to achieve economic success as a result of its political, economic, and cultural
institutions.
Institutional competitiveness stems from the benefits that firms derive from
operating within a particular set of institutions—benefits that afford them advantages
over their competitors. For example, if firms operate where training and educational
systems offer nationally coordinated apprenticeship programs rather than just general
education, then their employees may be better trained to begin with and may have greater
opportunities for upgrading their skills throughout their careers (Thelen 2004). If firms
operate where finance capital tends to come from banks rather than stock markets, then
they are often less pressured to maximize profit in the short term and more likely to take
a more patient view that emphasizes increased market share, investment in research and
development, and long-term growth (Dore 2000; Zysman 1983). If firms operate where
labor unions are well organized rather than weak, where centralized corporatist rather
than firm-level wage bargaining is the norm, and where works councils exist, then firms
are more likely to experience cooperative relations with their employees, take part in
subsidized job creation and training programs for the long term unemployed, and
participate in active labor market programs that further improve the skills of workers
(Martin and Swank 2004; Molina and Rhodes 2002; Schmitter and Lehmbruch 1979;
Streeck 1997, 1991)
In turn, if a highly skilled labor force, patient investment capital, cooperative
labor-management relations, and the like enable firms to produce high quality goods,
1
Some of the material in this paper is drawn from Campbell (2004) and Campbell et al. (2006) and from
Pedersen (2006).
2
By economic globalization we mean the increased mobility of capital, labor, goods, and services across
national borders.
3
A similar argument about capital flight was made earlier by scholars on the left (e.g., Block 1980; Kalecki
1971; Lindblom 1977; Prezworski and Wallerstein 1988).
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pursue long-term investment and productivity growth strategies, and use teams of
workers and managers to collectively solve production and other problems—all in ways
that enhance their international competitiveness—then these firms are institutionally
competitive. In other words, their competitive advantage stems from the institutions
within which they operate. This is not to say that institutions are the only basis by which
firms compete. But they are an important aspect of competitive advantage.
The paper proceeds as follows. First, we discuss the general institutional
conditions that have enabled small countries like Denmark to succeed economically in
the post-World War II era. These include the capacities for policy learning and flexibility
that stem from democratic corporatism and that have been accompanied by a variety of
welfare programs designed to protect people from the potential difficulties associated
with deindustrialization and increased international economic competition. Second, we
explain why domestic institutions are so important for affecting how countries compete in
today’s global economy. We argue that different types of capitalism enjoy different
institutional advantages when it comes to such competition and that there is no one best
way to achieve economic success. Third, to illustrate the point, we briefly compare the
performance of Denmark and the United States during the 1990s. Despite the fact that
they were very different institutionally, they achieved remarkably impressive and similar
levels of success. Finally, we provide several examples of how institutions helped
Denmark achieve its economic success during the last twenty years. Specifically, we
discuss the institutional underpinnings of labor market policy, vocational training and
skill formation policy, and structural policy.
PREREQUISITES FOR SMALL-COUNTRY COMPETITIVE SUCCESS
It has long been recognized that small advanced capitalist countries with open
economies, like Denmark, are fundamentally different from large ones. Large countries
can define and bend the rules of the international political economy to suit their purposes,
but small countries cannot. Hence, small countries are both more vulnerable to changes
in the international political economy and must be capable of flexible adjustment to order
to respond to international challenges, such as today’s more volatile markets, shorter
product life-cycles, rapidly changing production and information technologies, and
increased international competition. In turn, flexible adjustment requires political and
economic actors to engage in policy learning. Unless small countries can do this they are
not likely to be successful economically. That is, their economic competitiveness will
erode (e.g., exports will decline, productivity will deteriorate, unemployment will rise,
etc.). In the end, they may also be unsuccessful politically in the sense that they
experience much political instability as a result of their economic problems (Katzenstein
1984, 1985, 2002; Senghass 1985).
What are the key capacities for learning and flexible adjustment that small
advanced capitalist countries possess? Since at least the Second World War these
consisted of a set of institutions known as democratic corporatism, which contained three
elements: an ideology of social partnership expressed at the national level; a centralized
and concentrated system of interest groups; and voluntary and informal coordination of
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conflicting objectives through continuous political bargaining among labor and business
groups, state bureaucracies, and political parties. The classic example was national-level
collective wage bargaining between labor and business peak associations, including
especially trade union confederations and national employers associations, as organized
and moderated by the state. Indeed, business, labor, and government were the three
groups whose cooperation lay at the heart of these tri-partite corporatist arrangements
(e.g., Pedersen 1993; Schmitter 1979; Schmitter and Lehmbruch 1979; Shonfield 1965;
Zysman 1983).
Through the institutions of democratic corporatism small countries pursued a twin
strategy. First, they accepted international liberalism (e.g., economic openness and low
tariffs) in the belief that to do otherwise would trigger retaliation from larger countries in
the form of trade barriers to small country exports and higher prices for small country
imports, both of which would undermine the international competitiveness of small
countries. Second, they adopted policies of domestic compensation, which meant the
development of generous welfare programs (e.g., transfer payments, manpower policies,
active labor market policies, incomes policies, etc.) to buffer their populations from the
potentially harmful effects of international liberalization and, more recently, the transition
from manufacturing to service-based economies as well as the subsequent effects of
deindustrialization (e.g., Cameron 1978; Iversen and Cusak 2000; Katzenstein 1985).
Recently, domestic compensation policies have been viewed as especially important for
small countries in an increasingly global economy (e.g., Garrett 1998; Swank 2002).
THE IMPORTANCE OF INSTITUTIONS
Why are institutions so important? Institutions condition the strategic interactions
that are central to the behavior of economic actors—particularly the strategic interactions
that are involved in a number of important coordination problems that any advanced
capitalist society must confront. These coordination problems include, for example,
managing industrial relations, labor markets, vocational training, corporate governance,
technology innovation, investment, inter-firm relations, and customer relations.
Strategic interactions vary according to the institutional context within which they
occur. In this sense, and speaking broadly, there are two institutionally distinct types of
capitalism—liberal and coordinated market economies (Hall and Soskice 2001a, 2001b;
see also Albert 1993). Liberal market economies (LME), such as the United States and
Britain, coordinate their activities primarily through markets and corporate hierarchies
where actors respond to price signals and make strategic decisions accordingly.
Coordinated market economies (CME), such as Germany, Austria, Switzerland, and
Japan, coordinate their activities more through non-market relationships, such as informal
networks and other collaborative arrangements, notably the institutions of democratic
corporatism. CMEs also have bigger welfare states and public sectors and higher tax
burdens than LMEs. Different institutional arrangements lead to different yet relatively
stable systems of industrial relations, labor markets, vocational training, technology
innovation, investment, inter-firm relations, and customer relations. In brief, LMEs are
based on a model of shareholder capitalism where the interests of corporate shareholders
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are put first and where short-term firm profitability is the guiding principle. CMEs are
based on a model of stakeholder capitalism where the interests of all of the firm’s
stakeholders are considered in decision making, and where business is more patient and
less obsessed with short-term profitability (Dore 2000; Roe 2003). Stakeholders are all
those actors with a vested interest in the firm’s success, including investors, employees,
customers, suppliers, and the local community in which the firm operates.
The distinction between LME and CME has been criticized for being too broad
and, therefore, missing important sub-types of capitalism (Zeitlin 2003; see also Crouch
and Streeck 1997; Hollingsworth and Boyer 1997). Of particular relevance for this paper
is an important sub-type of CME, which we call the negotiated economies (NE). These
include, for example, Denmark, the Netherlands, Finland, and Norway. NEs share many
features with the general CME type. In fact, they have evolved out of this type.
However, NEs have developed several unique characteristics over the last twenty years
that distinguish them from the classic CME. First, the old centralized form of
corporatism in these countries was transformed into a more decentralized form. Second,
the policy learning process in these countries was opened up in pluralist fashion to a
wider array of interests beyond just labor and capital. This facilitated a more inclusive
and on-going dialogue among a broad range of actors that helped to mobilize political
consensus around national strategies for international competitiveness (Kjær and
Pedersen 2001; Pedersen 2006a). Third, the old corporatist arrangements were
transformed into a set of institutions perhaps best described as lean corporatism, which
contained three additional elements: an ideology that emphasized the need for adapting to
international competition by means of national strategies designed to enhance the
comparative advantages of specific industries and firms; a multi-level system of interest
groups and firms participating in policy learning and implementation processes at both
national and sub-national levels; and a system of voluntary political exchanges in both
centralized and decentralized forums that fine tune policies and institutions to help firms
adapt to international competition (Molina and Rhodes 2002; Pedersen 2006a; Traxler et
al. 2001;Visser and Hemerijck 1997).
To put all of this into somewhat broader terms, NEs, as a sub-type of CMEs, are
based on a model of stakeholder capitalism where the interests of the firm’s stakeholders
are well represented in national, regional, and local strategies for the enhancement of
comparative advantage for firms and industries alike. NEs try to develop comparative
advantages by decision making involving firms, business associations, labor unions, other
interest groups, politicians, and state bureaucrats in a generalized system of political
exchange and decision making (Pedersen 2006a, 2006b).
Given the attention to stakeholders, CMEs—and especially NEs—provide
capacities for policy learning, national leadership, and coordination across policies
through deliberations and discussions that help a wide variety of actors reach collective
understandings and agreements with each other. Deliberative institutions, such as
corporatist negotiations, public commissions, think tanks, and policy institutions, are
important because they facilitate consensus building and the formation of national
strategies that then boost common understandings of international competition and other
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kinds of national challenges.4 In other words, deliberation enhances the capacity of
actors to cope with new or unfamiliar challenges by enabling them to develop a common
diagnosis of the situation and agree to a collective response. It enhances the capacity of
actors to coordinate interests and act in common. It enhances the capacity of actors to
establish a culture—a set of shared understandings—that facilitates the search for the
public good. And it enhances support among business and other groups for social
policies that build social cohesion and trust (Martin and Swank 2004). This sort of
deliberation, trust, and cooperation, which is formally institutionalized and culturally
sanctioned, provides the possibility for the sort of learning and flexible adjustment often
required of small countries operating in global markets. Indeed, economists have
recognized that, all else being equal, countries with high levels of trust tend to perform
better economically than countries with low levels of trust (Zak and Knack 2001).
A brief example illustrates the point. During the period of stagflation in the 1970s
and early 1980s, countries with centralized corporatist bargaining tended to be more
successful in controlling inflation and promoting growth than countries without such
institutions. Why? Long-standing corporatist institutions facilitated deliberation between
workers and employers that resulted in collective agreements to restrain both wage
demands and prices. These agreements were based on a certain level of trust that had
been forged through cooperation over many years (Lindberg and Maier 1985).
Several further points require attention. First, there is no one best practice when it
comes to national economic performance. That is, different types of capitalism each
possess different institutional capacities for coping with market challenges. And each set
of capacities may have unique advantages when it comes to competing in the global
economy. In other words, LMEs and CMEs each have their own unique comparative
institutional advantages. On the one hand, LMEs are typically more adept at large-scale
radical innovation. This is because firms in LMEs can quickly shed or acquire labor,
close down production facilities at will, and rapidly shift large amounts of capital from
one sector to another with little opposition from stakeholders. For instance, these are
some of the reasons why the United States managed to launch whole new industries like
computers, microwave telecommunications, and biotechnology that have contributed
significantly to its global competitiveness. On the other hand, CMEs are better at
incremental innovations, such as adopting breakthrough technologies developed
elsewhere or continuously improving existing products and production processes, in ways
that enable them to provide very high quality products and services, often in relatively
small batches or specifically tailored to a customer’s needs.5 This is because firms in
CMEs receive extensive institutional support for, among other things, life-time vocational
training and close labor-management collaboration not just for wage bargaining, but also
4
Think tanks in the CME, and especially the NE, context are not very similar to think tanks in LMEs. In
LMEs, such as the United States and Britain, think tanks are far more partisan politically and actively seek
to promote particular policy positions over others with little interest in forging a political consensus (Stone
1996). In other words, LME think tanks are not “deliberative” in the inclusive and cooperative way we
mean here. In contrast, think tanks in the CMEs are less politically biased and more deliberative (e.g.,
Mentzel 1999).
5
This innovative capacity is often referred to as either flexible specialization (Piore and Sabel 1984) or
diversified quality production (Streeck 1991).
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for the organization of shop floor activity, the adoption of new flexible production
technologies, and the like. Hence, Japan and Germany are known for their application of
computerization and robotics to automobile assembly, which enabled them to compete
internationally on the basis of high-quality cars and trucks. In Denmark, the
biotechnology firm, Novo Nordisk, has used micro-processing technologies, invented
elsewhere, in the development of new self-regulating insulin injection systems for
diabetics; Bang and Olufsen has combined the latest television, stereo, and computer
technologies with modern Danish designs to produce products for the high-end consumer
electronics market; and NEG Micon has adapted special materials technologies from
abroad to the development of wind turbines. In all of these cases, incremental innovation
has enabled these firms to compete very successfully in world markets. But the point is
that each type of capitalism may have certain unique capacities that help it succeed
economically, depending on the goals of its leaders. Success may be achieved in
different ways in different types of capitalism.
Second, in terms of state policy making, LMEs are better at formulating policies
that sharpen market competition whereas CMEs are better at formulating policies that
reinforce the capacities of actors for non-market coordination and deliberation (Hall and
Soskice 2001b, pp. 45-51). This difference becomes manifest in many ways. For
example, LMEs tend to favor antitrust policies that preserve competition whereas CMEs
often permit cartelization (e.g., Djelic 1998). Similarly, given their emphasis on market
forms of coordination, LMEs are less likely than CMEs to engage in targeted industrial
policies that are designed to enhance the comparative advantages of specific industries or
firms (Katzenstein 1985). And insofar as LMEs have smaller welfare states and
emphasize coordination of economic activity through the market rather than through
deliberative mechanisms, they tend to have higher levels of social inequality than CMEs.
In particular, one type of CME—the negotiated economies—are among the most
egalitarian societies in the world (e.g., United Nations 2004). As a result, we suspect that
CMEs, and especially NEs, also have higher levels of social cohesion and trust than
LMEs (e.g., Katzenstein 2000; Zak and Knack 2001).
Third, all types of capitalism develop institutional complementarities (Hall and
Soskice 2001b, p. 17). That is, all types of capitalism consist of complex sets of political
and economic institutions that evolve incrementally over time. Once developed, these
institutions fit together such that the functioning of one depends on and enhances the
functioning of the others. In other words, institutions evolve in ways that make them
functionally interdependent on each other.6 This is especially important for both public
and private decision makers to understand because it means that altering one institution—
particularly if this is done in a radical fashion—can trigger a series of ripple effects
among other institutions, perhaps with unintended and undesirable consequences.
Finally, it is common to hear today that the key to national economic success is
the pursuit of a neoliberal program. As noted earlier, this means doing three things. It
6
This does not mean that institutions are functional in the sense that they necessarily guarantee the most
efficient outcome. It simply means that for one to operate it depends on the continued functioning of the
others. This is true for both LMEs and CMEs
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means reducing taxes on business and investors that, according to neoliberalism,
undermine investment. It means reducing welfare programs that allegedly sap the
initiative of workers and otherwise distort labor markets and raise the cost of labor. And
it means reducing the expensive regulatory burden on business that is also said to
undermine productive investment. In sum, cutting taxes, welfare, and regulation is
supposed to reduce the costs of doing business and, therefore, improve the
competitiveness of firms and the over all performance of national economies.
However, as we have explained, while firms and national economies can compete
on the basis of comparative cost advantage, they can also compete on the basis of
comparative institutional advantage (Hall and Soskice 2001b). In other words, countries
may actually fail to compete on the basis of their comparative cost profile, but still do
very well thanks to their comparative institutional profile, which may provide them with,
for instance, an exceptionally well-trained labor force, state-of-the-art infrastructure, the
latest technologies, flexible labor markets, patient investment capital willing to support
innovation, advanced research and development programs, social cohesion, political
stability, and other things that very much help firms compete in today’s global economy.
The importance of institutional competitiveness may be at least as important as cost
competitiveness. After all, why else would firms continue to invest as they do in
countries with high labor and other costs when other options are available?7 Why else
would firms in countries with corporatist bargaining tend to support social welfare
programs for their workers as well as other government policies that contribute to social
equality and inclusion (Martin and Swank 2004)? And why else would firms seek to
defend codetermination and works council arrangements that require them to participate
in corporatist deliberations in the first place (Thelen 2000)?
DANISH AND AMERICAN SUCCESS IN THE 1990s
The notion that there is no one best practice or single route to economic success
requires some elaboration. Different types of capitalism can achieve comparable levels
of success albeit by doing so in very different ways. Recent Danish and American
experiences illustrate the point. To begin with, Denmark is a negotiated economy while
the United States is a liberal market economy. Consistent with this characterization, table
1 shows that the level of central government spending as a percentage of GDP in
Denmark was substantially higher than it was in the United States in the 1990s. The
same was true for social expenditures. And the level of taxation, including the tax burden
on capital, was also much higher in Denmark than it was in the United States.
Nevertheless, both countries exhibited remarkably similar performance during the last
decade.
Table 1 about here
7
Recently, some Chinese clothing manufacturers have forsaken the benefits of cheap domestic labor and
outsourced the production of up-scale clothing, such as silk blouses and dresses, to Italy because Italian
workers, although more expensive, have better skills and greater concern for quality control, thanks to
extensive apprenticeship programs, when it comes to processing these fine materials (Harney 2005).
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Table 2 compares Danish and U.S. performance on several social, economic, and
fiscal measures. Among the social indicators, GDP per capita in Denmark, while a few
thousand dollars less than in the United States, was still among the very highest in the
world. Both countries were extremely prosperous, particularly in view of their virtually
identical and very high scores on the U.N. Human Development Index. However,
Denmark outperformed the United States in impressive fashion in other ways. It had
much less income inequality, gender-based wage inequality, poverty, and illiteracy than
the United States. In fact, Denmark was recently ranked first in the world in terms of the
government’s effectiveness in reducing income inequality—a point to which we will
return later (World Economic Forum 2003, Danish country profile, p. 42).
Table 2 about here
Among the economic indicators, table 2 reveals that the performance of these two
countries was again very close. The notable exception was a somewhat higher GDP
growth rate in the United States. Nonetheless, the Danish growth rate was a very
respectable 2.7 percent. And although the official American unemployment rate was
slightly lower this figure fails to take into account the fact that a comparatively large
number of poor, uneducated, young, males—that part of the population most likely to be
unemployed—were in prison in the United States and, therefore, were not counted among
the officially unemployed. Indeed, the rate of incarceration in the United States was
roughly ten times greater that of the incarceration rate in Western Europe during the
1990s. Accounting for this fact could add between one and two percentage points to the
U.S. unemployment rate, which would mean that Denmark actually did better than the
United States in minimizing real unemployment (Western and Beckett 1999).
Finally, among the fiscal indicators in table 2, Denmark had a larger government
budget surplus than the United States although it had more national debt as a percentage
of GDP. Of course, Denmark has continued to pay down its debt and maintain a budget
surplus of about 1 percent of GDP through 2004. In contrast, the United States, largely
through a combination of income tax reductions and expansive military spending, has
managed to replace its budget surpluses of the 1990s with deficits running as high as 4.4
percent of GDP by 2004—deficits that have contributed to a skyrocketing national debt
somewhere in the vicinity of 7 trillion dollars (The Economist 2005, p. 97).
The point is that two countries with extremely different tax, welfare, and
regulatory institutions achieved remarkably similar—and impressive—levels of success
during the 1990s on most indicators. The question, then, is just how did Denmark do so
well, especially given its high level of taxation and government spending? After all,
neoliberals argue that in order to compete successfully in today’s global economy
countries must cut taxes and government spending—especially if they are very open to
the global economy as Denmark is. In this regard, Denmark’s performance vis-à-vis the
United States is all the more impressive in view of the fact that Denmark is a
considerably more open economy than the United States.8 As noted earlier, we believe
8
In 1999, trade in goods was 67.8 percent of GDP in Denmark compared with only 19.8 percent in the
United States. Similarly, gross foreign direct investment was 13.3 percent of GDP in Denmark and only
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that much of Denmark’s success is attributable to its institutional competitiveness
(Campbell and Hall 2006; Pedersen 2006a, 2006b).
EXAMPLES OF DANISH INSTITUTIONAL COMPETITIVENESS
A full-blown and systematic analysis of all of Denmark’s institutional capacities
for competitive success is beyond the scope of this paper, but a few examples are worth
examining briefly. We discuss labor market policy, structural policy, and vocational
training and skill formation policy. We leave for another time discussions of how
institutional competitiveness can also be derived from things like bank-based investment,
stakeholder capitalism, and the like.
Labor Market Policy
In the area of labor market policy, the Danish approach has generally involved a
blending of elements from the ideal typical LME and CME. Danish labor market policy
during the 1990s has been described as a system of “flexicurity” and consists of three
basic dimensions (Madsen 2004, 2006).9
First, by European standards Danish employees in the private sector have rather
limited levels of employment protection. Hence, employers have much latitude to hire
and fire workers in response to market signals as is typical of LMEs. In this regard,
Denmark and Britain have the most flexible labor markets in the European Union (World
Bank 2003, p. 36). And among the OECD countries only Hungary, Switzerland, Ireland,
and Britain provide their workers less protection against being firing than does Denmark
(OECD 2004, p. 72).10 As a result, job mobility is quite high in Denmark compared to
many other countries (Auer and Cazes 2003, table 2.1.). However, workers are not left
alone to manage such employment uncertainties. So, second, Denmark offers generous
unemployment policies, health insurance, and other welfare benefits, as if often the case
in CMEs, to ensure that when workers become unemployed they have a social safety net
that is substantial enough to protect them and their families from some of the worst
problems associated with unemployment. Unemployment policies are generous in
Denmark compared to most other EU and OECD countries, including those with large
welfare states, such as Sweden, Germany, and the Netherlands (Hansen 2000, p. 33).
Third, and again reminiscent of CMEs, Denmark developed in the early 1990s a set of
active labor market policies established in law that help workers obtain new skills and
training so that they can return to work. Workers also receive assistance and
encouragement in locating job opportunities for which they can apply. Insofar as today’s
global economy requires greater reliance on skills, learning, and labor market flexibility
5.2 percent of GDP in the United States. And gross private capital flows across its borders were 25.4
percent of GDP in Denmark and only 13.6 percent in the United States (World Bank 2001, Table 6.1).
9
For a detailed discussion of the many dimensions of flexicurity, see Wilthagen and Tros (2004) and
Ferrera et al. (2001).
10
The same is not true for workers in the public sector, who are more difficult to fire given a variety of
legal and contractual protections. This, of course, is not a problem for private sector firms.
12
(Powell 2001), the flexicurity system is especially well equipped to help Denmark
compete globally.
In recent years, as a result of labor market reforms and corporatist bargaining,
important elements of the welfare programs, the active labor market policies, and the
system of collective agreements have been decentralized to the regional level and
occasionally even to the level of single firms and companies. This has infused the system
with an additional element of institutional flexibility that seems to better fit the needs of
employers—many of whom are small and medium sized companies who are trying to
adjust to the global economy (Wilthagen and Tros 2004). In particular, training for
workers in the local labor market is tailored more specifically to the needs of local
employers thereby facilitating a more efficiently operating labor market. Indeed, it
appears that this decentralized flexicurity system has contributed significantly to
Denmark’s relatively low unemployment rates during the 1990s (Madsen 2006). The
point, of course, is that without welfare and active labor market policies, and without
wage and other agreements between unions and employers’ organizations Danish
economic performance in this regard would not likely have been as impressive as it was.
Hence, the flexicurity system constitutes a vital component of Denmark’s institutional
competitiveness. It is the basis of one of the most flexible labor markets among the
advanced capitalist countries (Estevez-Abe 2001, p. 154; Wilthagen and Tros 2004;
Wilthagen 1998).
In addition to the flexicurity system, the Danish labor market has benefited from
several additional institutional sources of flexibility. For instance, since 1965 provisions
for flexible working hours (i.e., flextime) have been part of general labor agreements in
Denmark. And these provisions have been expanded since 1995. As a result, the Danish
labor market is among the most flexible in Europe in this regard (EIRO 1998). Among
other things, this has made it easier for families to juggle the demands of work and
family, which has enabled more people, especially women with young children, to enter
the labor force thereby providing employers with a larger pool of workers from which to
choose. Furthermore, as discussed below, the Danish labor force is broadly skilled due to
well institutionalized training and skill formation programs. Hence, workers can move
with relative ease among different jobs within firms. Firms, therefore, enjoy greater
flexibility in deploying workers within their organization than is often the case in other
countries. Such flexibility increases the efficiency with which firms can use their
workers.
It is worth mentioning that the flexicurity system is a good example of the
importance of institutional complementarities. The three basic institutions that form the
basis of the flexicurity system—limited employment protection, welfare programs, and
active labor market policies—have succeeded as a whole precisely because they are well
integrated with each other. Together they constitute a functionally interdependent
institutional system. In light of the earlier discussion of functional interdependence, to
radically change any one of these three institutions could compromise the functioning of
the others and, thus, undermine labor market performance. It could also run the risk of
introducing additional negative consequences that are difficult to foresee.
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Vocational Training and Skill Formation Policy11
An important underlying support for labor market flexibility is an extensive
vocational training system that equips Danish workers with a high level of general skills.
These, in turn, enable workers to move with relative ease from one job to another.
Indeed, workers in Denmark spend more time in training and skill formation programs
than they do in any other EU country (EUROSTAT 2003). The benefits of this system
are many. To begin with, it affords Danish firms the ability to leave much decisionmaking discretion to its workers rather than having to supervise them closely in rigidly
bureaucratic ways (Dobbin and Boychuk 1999). Closely related to the previous point,
high levels of training enable workers to develop and make use of their own ideas and
take independent initiatives in their jobs to a much greater degree than is typically the
case in other countries (Goul Andersen 2003). Such independence can improve firm
efficiency and productivity. Furthermore, having a well-trained work force facilitates
flexibility, cooperation, and collective brainstorming both between workers on the shop
floor and among shop-floor workers, engineers, managers, and others (Kristensen 1986;
Kristensen and Høpner 1994). Finally, a high level of general skill training enables
workers to move easily among different jobs in the firm, which also facilitates efficiency
and productivity.
The implications for competitiveness and innovation are considerable. The
Danish vocational training system has long enabled workers to acquire new skills faster
and more broadly than in many other countries. This creates incentives for firms to
modernize technologically and to constantly improve their production processes and
strategies if they want to prevent their most skilled workers from leaving for more
interesting and promising jobs. As a result, business development and skill acquisition
go hand in hand within Danish firms. This system enables firms to learn and adapt
quickly to changing market opportunities and technologies. In turn, this allows them to
capitalize on small, specialized niche markets. This capacity for learning also makes it
easy for them to work with a wide variety of customers—both domestically and
internationally—and to innovate in response to the demands and requests of these
customers. Moreover, this can be done with relatively little formal research and
development and without having to depend heavily on scientists and engineers
(Kristensen 1996).
The development of Danish wind turbines is a good example. Denmark is a
world leader in the production of wind turbines. Its success stems largely from
incremental innovations in wind turbine technologies that Danish firms developed
through close collaborations with their customers, production workers, and engineers
who continuously experimented with and developed improved blade and turbine
technologies over the years. This was very much a learning process based on a well
trained labor force that learned quickly through trial and error experimentation and
practical experience. Much of the learning was collective in the sense that it involved
considerable group brainstorming and information sharing among shop-floor workers,
11
We are indebted to Peer Hull Kristensen for his assistance with this section of the paper.
14
engineers, scientists, managers, and customers. By contrast, the United States tried to
develop a wind turbine technology too, but did so in a much more hierarchically
organized system that emphasized high-technology and big science as practiced, for
example, at NASA and other high-profile scientific institutes, but without much
involvement of shop-floor workers, potential customers, engineers, or other relevant
groups. This top-down, big science approach failed to provide the foundation for a
competitive wind turbine industry in the United States (Karnøe 1995).
Denmark has long had an extensive apprenticeship program for high school
students dating back to the 1890s as well as programs to continuously up-grade the skills
of workers—especially low-skilled workers. The curriculum for these programs was
worked out through corporatist deliberations between unions and employers with the
state shouldering many of the costs involved. However, during the late 1980s and the
beginning of the 1990s, the vocational training system underwent important changes. On
the one hand, unions and managers signed training agreements through which they
collaborated in upgrading the skills of blue collar workers. Training agreements
permitted workers to spend more time away from work in courses and training programs
of various sorts—often with state subsidies for tuition, wage supplements, and the like.
These greater opportunities for training increased the level of competition among
technical schools of various sorts which, in turn, elevated the quality of training being
offered. Better training enabled firms to introduce new and more flexible types of work
organization, such as project teams and lean production techniques. This allowed firms
not only to introduce and adapt quickly to new information technologies, but also to
search for continuous improvements in production processes themselves without
enlarging administrative hierarchies. On the other hand, in conjunction with the active
labor market policies discussed above, vocational training was made available to the
unemployed on a wide-spread basis so that they can upgrade their skills while they are
out of work. This enables them to return to active employment equipped with new skills
and a better understanding of the new work practices and forms of organization that they
are likely to encounter on the job. By creating a system that allows workers to improve
their skills during downturns in the business cycle, firms are in a better position to
compete when the economy improves and workers are called back to work (Kristensen
and Zeitlin 2005, chap. 3).
The advantages of this system are especially clear in comparison to Germany,
which is also known for its high-skilled labor force (Thelen 2004). When the German
economy experiences a downturn and unemployment rises, vocational training and skill
up-grading for those who have lost their jobs is jeopardized. This is because the German
vocational training system focuses on workers who are currently employed—not those
who are unemployed. By sending unemployed workers for further training Denmark
uses cyclical downturns in a more dynamic and creative way (Kristensen 2006). The
ability to continuously upgrade the skills of workers, particularly in these creative ways,
is one way that Denmark has met the challenges of globalization and the emergent
knowledge economy so successfully (Kristensen and Zeitlin 2005, part 2).
15
Once again, the institutional complementarities involved are significant. The
vocational training system is an important element in the flexicurity system that enhances
the functional flexibility of the labor force. Furthermore, it is nestled within a set of
active labor market policies and collective agreements between labor and management.
Together they constitute a set of institutions that have helped Denmark achieve
considerable economic success.
Structural Policy
The development of a structural policy in the last 20 years is one of the most
important aspects of Denmark’s institutional competitiveness (Kjær and Pedersen 2001).
By structural policy we mean the coordination of policies across a wide variety of policy
areas (industrial, welfare, regulation, environment, labor market, vocational training, etc.)
in ways designed to improve the competitiveness of the economy as a whole. This
should not be confused with what is commonly referred to as industrial policy—the use
of regulatory, fiscal, and other policies targeted more narrowly to improve the
competitiveness of specific industries or firms.
The development of structural policy has a rather long history beginning in the
1970s and continuing through today. At the end of the 1970s the government tried to
devise a technology policy aimed at improving the technological capacities and,
therefore, the competitiveness of Danish firms. Consistent with traditional forms of
industrial policy, this consisted of programs targeted either at particular industries, such
as encouraging them to adopt new production technologies, or at the development and
improvement of technologies per se. These programs often involved various forms of
cooperation between the public and private sectors. The underlying assumption was that
Denmark’s competitive position in the international economy was suffering from
inadequate technological development.
But beginning in the mid-1980s a broader definition of Denmark’s competitive
problems developed. Central to this was the concept of structural competitiveness
whereby the competitiveness of Danish industry was seen as being linked to a much
wider set of problems and policy areas. These involved not just inadequate levels of
technological modernization and research and development, but also a debilitating
orientation on the part of Danish firms to producing for low-growth rather than highgrowth markets as well as a general lack of adaptive and innovative capacities in Danish
industry. Many people argued that in order to resolve these problems coordinated efforts
were needed in areas other than just industrial policy. In line with this view, people also
believed that there was a need to reform state administrative and regulatory structures in
several policy areas. In particular, it was felt that the policy formation process and
especially the policy implementation process needed to be decentralized and otherwise
streamlined to reduce the sort of bureaucratic sclerosis that many people believed had
prevented public policy from being more effective previously.
As a result, during the late 1980s there was an increase in local and regional
industrial and structural policy initiatives (Amin and Thomas 1996; Pedersen et al. 1992).
16
These often involved the coordination of industrial policy with policies in other areas,
such as labor market policy, research and development policy, vocational training policy,
employment policy, and administrative reforms in the public sector (Madsen 2003).
Furthermore, the concept of structural problems entailed a shift in orientation from
simply removing barriers to growth and adaptation in particular Danish industries to
improving the competitiveness of Danish society as a whole. That is, attention was
focused not just on the private sector, but also the public sector. Structural policy was
viewed as involving a continuous, simultaneous, and integrated adaptation of both the
public and private sectors.
To illustrate the point, recall the flexicurity system mentioned above. Here
various aspects of welfare policy were reformed and integrated with other policy areas.
For the unemployed, receipt of unemployment benefits after a period of time was made
conditional on seeking both vocational training and job placement. In other words,
welfare and vocational training policies were coordinated with each other and with the
needs of Danish industries and firms at the local and regional levels (Abrahamson 2006;
Madsen 2006). Another example involved public sector modernization. This was
perhaps clearest in the area of public sector modernization where the boundaries of the
public sector were redefined in significant ways. Several programs and plans were
initiated to promote experimentation with new types of public sector governance and new
relations between public and private bodies, such as experiments in contracting out the
provision of public services to the private sector, various forms of public utility
privatization, and the establishment of contractual arrangements between ministries and
government agencies (Lægreid and Pedersen 1994, 1996; Jacobsson et al. 1999). It was
no longer enough to limit public expenditures and to make the public sector more
efficient. One also had to consider the relationship between the public and private sector
and the over all development of society. In sum, the development of structural policy
was a deliberate attempt to connect and coordinate changes in one policy area with those
in others for the improvement of Denmark’s institutional competitiveness over the long
run (Pedersen 2006a). It is also another very good example—and perhaps the most
extensive example we can offer—of the institutional complementarities and functional
interdependencies that exist within the Danish economy.
A NOTE ON TAXATION, GOVERNMENT SPENDING, AND THE STATE
We began this paper by noting that taxation and government spending are
considerably higher in Denmark than in most other advanced capitalist countries.
Although there is much talk today that taxes and government spending are too high in
Denmark, a few things must be kept in mind before deciding whether it is a good idea to
alter the nation’s fiscal institutions. First, so far, neither high taxes nor high levels of
government spending seem to have hurt Denmark’s social, economic, or fiscal
performance. In fact, as we have argued, in some cases government spending has
contributed to Denmark’s success, notably as parts of the flexicurity labor market
institutions and the vocational training and skill formation institutions. Second, if taxes
were reduced this would have to be matched with reductions in government spending
unless budget deficits suddenly became acceptable politically. Of course, if such deficits
17
persisted they might increase the level of national debt and inflation. Third, if tax cuts
were matched with spending cuts in order to maintain a balanced budget, then the
reduced spending could undermine the sorts of labor market, training, and other
institutions that have served Danish firms so well in their quest for international
competitiveness. Again, a change in one institution can have significant consequences
for another.
It is deeply ironic, then, given the neoliberal argument, that the existing tax
system can actually be viewed as a positive source of institutional competitiveness to the
extent that the revenues it collects help pay for things like the flexicurity and vocational
training systems as well as the transportation, telecommunication, information
technology, research and development, and other infrastructures upon which firms
operating in Denmark depend so heavily—especially firms in the new growth industries,
such as business services, consulting, microelectronics, and pharmaceuticals.12
Denmark’s welfare institutions can also be viewed as a positive source of
institutional competitiveness. We have repeatedly referred to the importance of welfare
institutions to the flexicurity and vocational training systems. The Danish national health
care system is another example. The fact that the government provides health care for its
citizens means that firms do not have to bear these costs in the form of insurance
payments or have to negotiate them during wage bargaining.13 By contrast, in the United
States during the Clinton administration’s attempt to reform the health care system many
large firms lobbied heavily for an expanded role for the government in the health care
system precisely because they could not bear the costs of providing private insurance for
their workers. Notably, U.S. automobile manufacturers supported the Clinton plan and
complained that without it they would have to continue relocating their production
facilities to Canada where their costs of providing health insurance for their workers were
considerably lower. The fact that corporations may recognize that high taxes can
underwrite a variety of government subsidies, infrastructure, and other public service
benefits is likely one reason why taxes on capital have not declined significantly in recent
years in the OECD (Campbell 2004, chap. 5; Kiser 2001).
Hence, cutting back dramatically on either taxes or government spending could
jeopardize Denmark’s institutional competitiveness. It could also create political
problems insofar as tax cuts and welfare cuts may be politically unpopular with the
population at large. A recent survey from Aalborg University suggests that about 85
percent of Danes are now content with their taxes. Moreover, roughly two thirds of the
12
Examples of such important infrastructure projects, financed at least in part by public funds, include the
Øresund regional development project, including the Øresund bridge to Sweden, renovation of Copenhagen
airport, the Great Belt Link bridge connecting eastern and western Denmark, and the Copenhagen metro
system.
13
It also means that health care costs are significantly lower in Denmark than in many other countries,
notably the United States. In 2002, health expenditures per capita were $2,835 (8.8% of GDP) in Denmark
and $5,724 (14.6% of GDP) in the United States while the infant mortality rate (under age 5 years) per
1,000 births was 5.9 in Denmark and 8.0 in the United States (World Bank 2005). Adult life expectancy
was virtually identical in 2002 at 76.6 years in Denmark and 77.0 years in the United States (United
Nations 2004, p. 139).
18
population would prefer improved public services to lower taxes (Copenhagen Post 2005,
p. 4). Certainly there is no groundswell of support for neoliberal reforms of either the tax
system or government spending. The same is true of other Western European countries
that are preserving their high corporate and other tax rates in order to continue funding
social welfare programs (International Herald Tribune 2005, p. 14).14
That said, we do not mean to suggest that there either has been or is no room for
change when it comes to the state. Denmark has undergone considerable public sector
modernization since the 1970s. Among other things, this has entailed the streamlining of
state bureaucracies, reductions in the number of personnel in some ministries, agencies,
and departments, the adoption of efficiency oriented decision-making criteria (i.e., costbenefit analysis), the frequent decentralization of policy implementation, and the
inclusion of a more diverse set of organized interests into the policy process. This has
had two positive effects in terms of Danish competitiveness. On the one hand, by
increasing state efficiency, less money needs to be spent on administrative matters and
more money is available for the state to spend on programs, such as those described
above, that enhance competitiveness. On the other hand, the state has also become more
effective in the sense that a wider range of interests are represented in policy making and,
as a result, the legitimacy of state policies is enhanced. This may be one reason why
there is such wide-spread public support for state programs and such little opposition to
high tax rates in Denmark.
One caveat is in order. Recall that Denmark has had much less income and social
inequality than the United States. This is due in part to the effectiveness of Denmark’s
welfare, educational, labor market, and other institutions as well as the tax system that
helps to finance them. While there may be more than one route to economic success and
while success may be achieved by both LMEs and CMEs, the same may not be true when
it comes to the issue of income equality, gender equality, and poverty. In this case, the
CME strategy may be better than the LME strategy (Hicks and Kenworthy 1998).
The important point here is that high taxes and spending per se are not necessarily
sources of competitive disadvantage, as neoliberals suggest. To the contrary, labor
market policy, vocational training and skill formation policy, and other policies that have
benefited Danish industry cost money. Drastically altering the expenditures that support
these and other programs could jeopardize Denmark’s institutional competitiveness. The
same is true for taxation. Dramatic changes in the over all level of taxation could reduce
the government’s revenue stream and, therefore, undermine the fiscal base upon which
spending for important programs rests. Moreover, radically altering the structure of the
tax system, that is, the relative balance of revenues collected from different types of taxes
14
Of course, tax regimes provide institutional opportunities for both LMEs and CMEs and can be
manipulated in a variety of ways depending on the will of governments. Recently, some LMEs have
simplified their tax codes, closed loopholes, and reduced rates somewhat in order to make the tax system
neutral with respect to the incentives it creates for businesses in different industries. Conversely, CMEs
can deliberately incorporate tax incentives, such as accelerated depression allowances for certain types of
investment or tax breaks for training certain types of workers, into the tax code in order to encourage
certain kinds of investment or other types of activities. In the latter case, tax policy in effect becomes a
form of industrial policy.
19
(e.g., income, profit, social security, consumption, etc.) could undermine Denmark’s
institutional competitiveness to the extent that the current tax structure creates incentives
for investment, consumption, saving, and other activities that have apparently served
Denmark well over the years. The relationship between taxation, spending, incentives,
and institutional competitiveness are, of course, extremely complex and well beyond the
scope of this paper. So, we offer no suggestions as to how Denmark’s fiscal institutions
should be changed, if they should be changed at all. Rather we urge great caution in this
regard. Insofar as fiscal institutions support and reflect the nation’s comparative
institutional advantages, politicians should be sure to learn what works and what does not
work in terms of Denmark’s institutional competitiveness before they start to meddle
with the underlying fiscal system. Given the institutional complementarities involved,
radical surgery could have disastrous consequences.
CONCLUSION
We have argued that Denmark’s recent success stems in large part from its
institutional competitiveness. More research is required to better understand the full
range of benefits associated with Denmark’s key institutions. This also entails that we
learn more about the possible disadvantages of the current Danish system. CMEs and
LMEs exhibit both comparative institutional advantages and disadvantages. The only
way we can begin to determine these things is through systematic comparative analyses
of different countries, their institutions, and the relationship between these institutions
and social, economic, and fiscal performance. We need to explore more fully what works
and what does not work in Denmark and in other countries. This is certainly an
important prerequisite for forecasting, benchmarking, and otherwise figuring out how to
adjust Denmark’s ensemble of institutions as well as public and private policies and
programs in ways that will preserve and enhance the country’s comparative advantage in
the years ahead.
Further study also requires the examination of possible alternative explanations
for Denmark’s recent success. For instance, skeptics might argue that because Denmark
and the United States have very different institutional arrangements yet quite similar
levels of success in many cases, institutions do not actually have much to do at all with
national economic competitiveness. Perhaps both countries share similar conditions that
we have not identified that have been responsible for success in both countries. For
instance, an obvious possibility might be monetary policy. Interest rates were kept quite
low during the 1990s in both countries. Might this not have been the key to success
rather than institutions? Certainly low interest rates help create an environment that is
conducive to growth insofar as it provides a supply of relatively inexpensive capital for
consumers and investors. But this does not guarantee success. Notably, low interest
rates per se do not ensure that firms will borrow or that, if they do, they will invest wisely
in ways that eventually yield success. Furthermore, interest rates were low in many
countries in the European Union during this period that did not experience economic
performance nearly as strong as that of Denmark and the United States. So, while
monetary policy may have contributed to economic success, it is certainly not the only, or
even the most important, factor. In any case, the point is twofold. First, we are not
20
arguing that institutions are necessarily the only basis for Denmark’s impressive success
over the last two decades or so. Other factors may have contributed as well. Second,
much more research is necessary in order to determine the degree to which Denmark’s
success stemmed from its institutional arrangements or something else.
As we have said, the success of small capitalist countries in the twenty-first
century depends increasingly on their ability to learn and be flexible. It is important,
however, to remember that collective learning, flexibility, and economic success are often
rooted in an underlying normative consensus within these countries that enables business,
labor, and other groups to work cooperatively together (Katzenstein 2000; Zak and
Knack 2001; see also Putnam and Goss 2002, pp. 5-7). Over the years, Danish decision
makers have cultivated consensus and social solidarity among various status and class
groups in order to cope with geopolitical and, more recently, international economic
challenges that the country has faced. This has involved, in part, the development and
modification of an interdependent set of welfare, labor market, and other institutions that
includes and benefits a wide range of interests (Campbell et al. 2006). Introducing
sweeping changes to these institutions may run the risk not only of undermining
Denmark’s institutional competitiveness, but also the underlying consensus and solidarity
that have been so beneficial to Denmark in the past.
This last point relates directly to the role of Danish policy makers. Over the last
couple of decades, Danish leaders have tried to learn which policies do and do not work
well in terms of improving the nation’s competitiveness. Such learning has facilitated
political leadership insofar as policy makers have managed to figure out collectively—
often through prolonged discussion and negotiation with business, labor, and other
important social partners—how different policies and institutions are linked in ways that
are mutually reinforcing and beneficial (Pedersen 2006b). This sort of learning, linking,
and leading has helped to enhance Danish institutional competitiveness. The same is also
necessary for preserving Denmark’s competitive position in the future.
To shed some light on this issue, let us add a final dimension to the discussion of
the institutional competitiveness. Specifically, consider knowledge regimes. A
knowledge regime consists of three parts: (i) the knowledge process – how knowledge is
formed and changed; (ii) knowledge organization – how the formation of knowledge is
organized; and (iii) knowledge content – the kind of knowledge being produced. The
point is that there are likely to be a particular knowledge regime belonging to the Danish
negotiated economy. Moreover, the type of knowledge regime in place in Denmark at the
moment influences which economic paradigms (knowledge content) serve as the
foundation for macroeconomic and microeconomic decisions as well as political and
business decisions. Consequently, there are several reasons why knowledge regimes are
important – but especially in a negotiated economy. First, we believe that negotiated
economies are more error-prone than are other economies, due to the fact that they
include a particular element of gambling and risk. Not only are stakes higher – the
survival of an entire nation including the population’s economic growth and welfare is at
stake. Also, decision making depends on the capacity of the elite to interpret
contemporary economic and other conditions for action, and to do so in a manner that
21
will lead to successful national strategies. And finally, being a small state, Denmark is
forced by circumstances to adjust to geopolitical decisions taken by big states and to
adapt to economic trends influenced by multinational concerns and international
organizations. So, perhaps more than in liberal and coordinated economies, a negotiated
economy operates in a high-risk environment – the future fate of a whole economy is
based on the capacity of the elite to develop national strategies for adaptation.
Second, we are convinced that this element of gambling reveals itself in the way
that knowledge is organized in the Danish case. In contrast to other production regimes
the Danish knowledge regime is characterized by three processes. First is learning.
Learning is all about interpretation and monitoring. In Denmark it includes how such
interpretations and monitoring of things like the international competitiveness of the
Danish economy have developed slowly and over many years into a socioeconomic
framework of meaning to which all the important economic and political decision makers
refer when making decisions (Pedersen, 2006a,b). If the Danish negotiated economy is
equipped with mechanisms that facilitate change and adaptability, then it is probably
because learning within the Danish knowledge regime is collective and includes all of the
most important actors; because the knowledge gained is cumulative and, as a result,
experiences are stored in the collective memory; and because knowledge is utilityoriented and stored in macroeconomic and microeconomic databases, which are always
updated and always accessible for all decision-makers. The important point is that a
negotiated knowledge regime – in contrast to an ideal typical liberal knowledge regime –
is not individual, but collective; not private, but public; and not contemporary, but filtered
through the collective experiences of the past.
Leading is the second process. Leading is about how knowledge is utilized. In the
Danish negotiated economy the collective memory is constantly used to make decisions
in which collective interests are combined with special interests. This is the first reason
why leadership is important in a negotiated economy – the array of special interests must
be united in one common interest. A second reason why leadership is important in
Denmark is that this common interest is always formulated on the basis of an
interpretation of what it takes for the nation to adapt to contemporary developments in the
global economy and the geopolitical environment. In the negotiated economy, this
involves considerable gambling on the part of leaders, as we suggested earlier. And the
stakes are very high. Not only does leadership involve an explicit effort to provide for the
collective well-being as knowledge is used in negotiations between the government and
other actors, but, given the orientation of Danish policy making nowadays, it is very
much future-oriented insofar as leaders seek to anticipate how the very open and
vulnerable Danish political economy can best adapt to changing international economic
and political circumstances. Hence, leadership in Denmark is a collective art form, one
based not on personal experience or intuition alone but on a collective memory that is
used to develop aggregated and systematic policy prescriptions. Indeed, making decisions
for an entire economy, with consequences for an entire population, via the aggregation of
an array of different interests, and by coordinating a number of different policy
instruments, through an all-encompassing set of structural policies, and doing so on the
22
basis of information that is fundamentally uncertain involves considerable gambling,
which may make leadership even trickier in Denmark than in other types of society.
Finally, the third process is linking. Linking is the ultimate purpose of learning
and leading. Linking occurs when an increasing number of policies are coordinated and
when several policies are linked in social pacts or through negotiation games to become
strategies for national action. In the Danish negotiated economy, linking operates on
many levels. National strategies combine many policies. Negotiation systems link many
levels of decision-making. Indeed, policy making increasingly requires simultaneous
attention to the supranational, national and local levels as well as the level of individual
corporations (Martin and Swank 2004). And, as discussed above, knowledge is used to
help link and coordinate policies in order to improve Denmark’s comparative advantages
by devising and taking advantage of various institutional complementarities.