Is Something Rotten in the State of Denmark?

by Gerard Emershaw

Independent Senator Bernie Sanders of Vermont announced that he is prepared to run for President of the United States in 2016, challenging the presumptive favorite Hillary Clinton. While Sanders caucuses with the Democrats, he is more akin to a European social democrat than an American progressive, 1960s style liberal, or “Blue dog” Democrat. Sanders has been fiercely critical of the Democratic Party

But there is no question that the Democratic Party in general remains far too dependent on big-money interests, that it is not fighting vigorously for working-class families, and that there are some members of the Democratic Party whose views are not terribly different from some of the Republicans.

Senator Sanders’ vision for America is that it should attempt to be more like Denmark. At a time when libertarianism is gaining currency in American politics and members of the Tea Party clamor for more freedom, Senator Sanders has a very different notion:

In the U.S. Senate today, my right-wing colleagues talk a lot about “freedom” and limiting the size of government. Here's what they really mean.

They want ordinary Americans to have the freedom NOT to have health care in a country where 45,000 of our people who die each year because they don't get to a doctor when they should. They want young people in our country to have the freedom NOT to go to college, and join the 400,000 young Americans unable to afford a higher education and the millions struggling with huge college debts. They want children and seniors in our country to have the freedom NOT to have enough food to eat, and join the many millions who are already hungry. And on and on it goes!

In Denmark, there is a very different understanding of what "freedom" means. In that country, they have gone a long way to ending the enormous anxieties that comes with economic insecurity. Instead of promoting a system which allows a few to have enormous wealth, they have developed a system which guarantees a strong minimal standard of living to all—including the children, the elderly and the disabled.

Denmark has a massive cradle-to-grave welfare system. Health care, child care, and education at all levels are free. Minimum wage is twice that of the United States. Denmark guarantees each citizen a minimum income of about $100 a day, has generous unemployment benefits, and invests heavily in programs to train workers. Workers in Denmark are guaranteed five weeks of paid vacation and 11 paid holidays. Danish parents are provided with extensive paid maternity/paternity leaves and are also allowed another 32 weeks of paid leave during the first nine years of a child’s life. Three-quarters of Danish workers belong to labor unions.

Denmark routinely tops the OECD Better Life Index as the happiest nation. Danish citizens have a higher life expectancy, a higher percentage of employment, and a higher disposable income than their counterparts in the United States. There is also a greater sense of security and community among the Danish.

Can the United States emulate Denmark? Should it?

Denmark and the United States are obviously very different. The United States is a large New World country of 3,794,101 square miles and with a population of 317,655,000. Denmark is a small Scandinavian country of 16,562.1 square miles with a population of 5,627,235. The American population has quadrupled since 1900 while the Danish population has merely doubled. The American population includes an estimated 11 million illegal aliens. The American population is diverse—with over 31 distinct ethnic groups having at least 1 million members. In contrast, 90% of the population of Denmark are of Danish descent and another 5% are from Germany or neighboring Scandinavian countries.

Many conservative Americans are likely to have the knee jerk reaction of labeling Denmark as a “Commie” country. In many ways, this could not be further from the truth. Denmark is a member of NATO and was a staunch ally of the United States during the Cold War. Remarkably, according to the Heritage Foundation’s Index of Economic Freedom, Denmark actually enjoys greater overall economic freedom than the United States. Denmark ranks 10^th with a score of 76.1 while the United States ranks 12^th with a score of 75.5. In the ten criteria measured by Heritage, Denmark ranks freer than the United States in seven—Property Rights, Freedom from Corruption, Business Freedom, Monetary Freedom, Trade Freedom, Investment Freedom, and Financial Freedom. On Labor Freedom, Denmark ranks lower than the United States but still quite high. In two areas—Government Spending and Fiscal Freedom—Denmark ranks remarkably low. In essence, Denmark is a laissez faire nation when it comes to everything but taxation and government spending on welfare programs. Taxation and the welfare state are both anathema to American libertarians and fiscally conservative Republicans. But the question nevertheless arises as to whether Denmark has found the right balance. Could and should the United States increase economic freedom elsewhere but double down on taxation and entitlement spending?

Denmark is among the world’s highest taxed nations and likewise is among the largest spenders on domestic programs:

The top individual income tax rate is 56 percent, and the corporate tax rate is 25 percent. Other taxes include a value-added tax (VAT) and a tax on fatty foods. The overall tax burden is equivalent to 48 percent of GDP. Public expenditures finance 57.6 percent of the domestic economy.

The United States has far lower tax rates and spends less on welfare programs. Nevertheless, the American people are still highly taxed and the federal government is anything but fiscally conservative:

The top individual income tax rate has risen to 39.6 percent, and the top corporate tax rate remains at 35 percent. Other taxes include a capital gains tax and excise taxes. The payroll tax holiday expired at the beginning of 2013. The overall tax burden amounts to 25.1 percent of gross domestic income. General government expenditures are slightly over 40 percent of GDP. Total public debt equals over 100 percent of the size of the economy.

Another marked difference is in defense spending. The United States spends a whopping 4.4% of its GDP on the military while Denmark spends a mere 1.4% of its GDP on the military. The United States should emulate Denmark at least in this regard. Because of its location, the nature of its people, and its status as a nuclear power, the United States is unconquerable. Therefore, if the United States chose to return to the non-interventionist foreign policy of the Founders, then it could easily save money with which it could either emulate Denmark by funding a larger welfare state, pay down its massive $17 trillion national debt, or lower tax rates.

The question of whether the United States should follow the Danish model by massively increasing taxes and welfare spending still remains. Unlike Americans, who hate paying taxes even if they do not openly protest like the Tea Party or Grover Norquist, the Danish do not mind paying high taxes. Some of the taxes in Denmark would make even the most progressive American’s head spin and belly ache. For example, there is a 200% tax on automobiles. Buy a $20,000 car in Denmark, and you will pay $60,000! One negative consequence of this is a brain drain. The brightest and most talented Danes tend to leave for greener pastures in places where they can earn more money and pay less in taxes. Another problem is that like anywhere else, these welfare programs tend to grow and grow.

Danes are likely willing to live under this kind of economic system for several reasons. First, there has never been large class distinctions or wealth gaps in Denmark. With high taxes and a generous welfare system, all Danes sort of get pushed into what is basically a middle class existence. Second, Danes lack what one might call a “killer instinct.” This means that Danes do not dream of achieving the kind of success that Americans dream of. Instead, they prefer the comfort and security of their economic system even if it means that they are unlikely to become rich. Third, the small size and ethnic homogeneity makes Danes more willing to endure high taxes for the benefit of their fellow citizens. When your neighbors are more akin to family, it is likely easier to be altruistic. However, this masks a dark form of collectivism. Such ethnic collectivism is not that far removed from racism. If Denmark had the same ethnic demographics as the United States, would Danes be so willing to pay higher taxes for the benefit of others? Denmark has a small, stable, and homogenous population, and it seems to want to keep it that way. Denmark has very strict immigration laws, which some in Europe believe breach human rights. In addition, Denmark only borders Germany, so it is unlikely to ever face an illegal immigration problem like in the United States despite is generous welfare policies. Would those like Senator Sanders be happy if the United States were to deport its illegal aliens and close the doors to immigrants as Denmark essentially has?

The American psyche is just not such that it could endure the Danish system. The American Dream consists of being one’s own boss, becoming wealthy, and achieving economic independence for one’s self and one’s family rather than merely being economically comfortable. Americans would also be unlikely to be motivated to work hard and produce new innovations under such a system. Are the Danish so motivated? They are motivated to work and work fairly hard likely for the aforementioned reasons. However, do they innovate? Other than LEGO blocks, what innovations have Danish businesses produced? Would there be the technological innovations that affluent Danes enjoy were it not for nations such as the United States which encourage greatness by providing greater economic rewards? If not, then is it not the case that Danes are free riding in a sense? If the United States and all other nations were like Denmark, would not the world find itself living in comfortable stagnation? Furthermore, if all nations lacked ethnic diversity in the way that Denmark does, would the world not be a less tolerant place? Would ethnic strife among nations not be even a greater problem than it already is if there were not so many ethnically diverse nations like the United States, Canada, Brazil, etc.?

Despite militarism being a bad idea, it is also likely that Denmark has been a free rider in terms of defense. While a member of NATO, Denmark clearly benefited from American taxpayers during the Cold War. Denmark was easily conquered by Nazi Germany during World War II and had to be liberated by the Allies. It is likely that Denmark would have fallen to forcible Soviet influence had it not been for American taxpayers who subsidized Denmark’s defense for so many years and hence, subsidized its welfare state.

There is also a question of how long Denmark can afford such a robust cradle-to-grave welfare state. Taxes can only be raised so much, and Denmark’s low birth rate of 1.73 means that Denmark’s population is not likely to grow steadily. Therefore, the overall tax burden per Danish citizen is likely to increase as the population ages.

Nevertheless, there are things which the United States can learn from Denmark. As previously mentioned, military spending could be cut. The American economy could also emulate the Danish economy by becoming economically freer in the seven areas outlined earlier. The United States federal government could also better balance taxation and federal spending as Denmark does. The United States debt to GDP is currently 101.6 while Denmark’s is 45.4. The United States can no longer spend, borrow, and inflate through the Federal Reserve. At some point, like Denmark, it must come closer to paying for what it spends. This will require a decision whether the federal government will enact higher taxes, cut spending, or some combination. The most optimal solution would be to cut spending so that taxes can be kept at current levels and ultimately lowered. However, something must be done.

One other area where the United States should closely examine Denmark is in terms of economic inequality. Studies have revealed a correlation between income inequality and social problems including homicide, infant mortality, obesity, teenage pregnancies, emotional depression and prison population. The United States has among the highest rate of economic inequality among industrialized nations while Denmark has the lowest rate. The happiness among Danes is likely partly due to this lack of inequality. However, the answer to this problem is not socialistic redistribution of wealth. Redistribution of wealth is among the reasons that such inequality exists in the United States in the first place. The “inflation tax” of the Federal Reserve efficiently redistributes wealth from the poor to the wealthy. Another reason for the gap between the haves and have nots in the United States is the crony capitalism which allows powerful corporations to stifle small competitors through the use of government regulations and red tape. In the end, it is a good thing for a nation to be free of this disease, but while Denmark does not suffer from this economic malady, its methods would not be effective in curing it in the United States.