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The case of Denmark
- 30 years of reform
Martin Ågerup
President
Socialism didn’t work…
Capitalism
Socialism
...or is the Danish welfare state
proof interventionism works?
“We should look to countries like Denmark” - Sanders
“We should look to
countries like Denmark”
“I love Denmark” - Clinton
Conclusions
• Denmark was rich and well functioning country
before the welfare state
• Apart from tax-and-spend Denmark is a
relatively free market economy
• Denmark wealthy because of economic freedom
• High taxes and redistribution hurt wealth and
create serious economic and social problems
• 30 years of market oriented reforms have kept
Danish economy afloat and relatively competitive
5
Busting myths
about Denmark
• Wealthy because of the
welfare state?
Wealth of DK relative to
”Old Europe” and US (1870-2030)
DK/ 12 WE
DK/USA
1.6
1.4
1.2
1.0
0.8
0.6
0.4
1870
1890
1910
Sources: Maddison / OECD
1930
1950
1970
1990
2010
2030
Still: Denmark does (relatively)
well despite welfare state – how?
Ideal framework
for the innovation process
• Markets
– Competition
– Ease of entry
– consumer choice
– Prices
• Rewards to risk taking
– Private property
– Regulatory certainty
– Low taxation on
returns to risk
Economic freedom
Economic Freedom, Denmark (2013)
Slovak Republic:
no 47 – rating: 7.29
15
The welfare coalition
Dependency as a percentage of the electorate, 1970-2013
Pct.
70
65
60
In 1980 the fraction of the
electorate dependent on the
government was above 50 percent
55
50
45
40
35
30
Source: Statistics Denmark, the Ministry of Economic Affairs and the Interior, along with own calculations
The nordic welfare-”model”
Cases: Sweden, Denmark and both
Market orientation
Teacher Union
power diminished
1945
Retirement
reform
Corporate Wealth tax
marg tax
abolished
tax cuts
rate cuts
Privatisation Budget
Unemployment
process
benefit reform Dereg of
airlines, tele, reform
DKK peg
retail,
PensionInheritance
refrom
tax abolished
Financial
”Taxreform
sector
deregulation of the century”
1975
2014
Development of real and structural
employment (DK)
(Thousand)
Kons.
Soc dem.
Real
Structural
19
Liberal
Soc. Dem.
The top marginal tax rate in Denmark
(1975 – 2011)
Soc dem
Kons.
Soc dem.
Liberal
1970
1971
1972
1973
1974
1975
1976
1977
1978
1979
1980
1981
1982
1983
1984
1985
1986
1987
1988
1989
1990
1991
1992
1993
1994
1995
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
2015
2016
Corporate tax rate in Denmark
(1970 – 2016)
55
50
45
40
35
30
25
20
2045
2044
2043
2042
2041
2040
2039
2038
2037
2036
2035
2034
2033
2032
2031
2030
2029
2028
2027
2026
2025
2024
2023
2022
2021
2020
2019
2018
2017
2016
2015
2014
2013
2012
2011
Expected official retirement age
(after 2006 retirement reform)
71
70
69
68
67
66
65
64
Private pension wealth as a share of total
payments
16.0
14.0
12.0
10.0
8.0
6.0
4.0
2.0
0.0
1985
1990
1995
2000
2005
2010
2015
Conclusion:
You can have capitalism
without the welfare state
but
you can’t have the welfare state
without capitalism