Crisis, what crisis?

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The crisis in the European social model should be clearly visible from Copenhagen. It proves hard to establish what is really supposed to be going wrong.

Dear Linda,

Greetings from Copenhagen. It is 8.30 in the morning and I am sitting in my room on the 34th floor of the Hotel Scandinavia. The sky is blue and clear and views over the old city and across the Kattegat to Sweden are stunning. Below, the traffic is moving smoothly along the Amager Boulevard, the town’s main traffic artery.

We are here to discuss the crisis facing the European social model. The crisis is not immediately evident. From the moment of arrival at Kastrup Airport, you are overwhelmed by a sense that Denmark is efficient, rich and comfortable.

There is no sign of the economic and social tension immediately evident when you arrive at Kinshasa, Bangkok – or indeed New York. Both the natural and the urban environments are enviable. The quality of public services, particularly education, is exceptional. By any criteria, Denmark is a pleasant place to live. True, the language is ridiculous. But it is reassuring that the taxi driver speaks English, which is rarely true in New York. And the facts and figures support these superficial impressions. In 1996, incomes per head in Denmark were around 20% higher than in the United States (the rise in the dollar since then will have reduced this differential).

Still, we must get down to work and discuss the crisis. Taxes in Denmark are nearly 60% of national income, the highest national figure of any country in the world. The labour market is heavily regulated. Even in the private sector, over 90% of the work force is in trades unions. They work closely together with employers and government in one of the most corporatist of European economies. It is well known that this combination is restricting growth, stunting innovation and damaging employment.

These things are well known, but what is well known is not always true. The Danish economy did experience a difficult phase in the 1980s. During the ‘blue period’ – a decade of Conservative government – there was some restructuring and reform. But since the Social Democrats returned to power in 1993, Denmark has grown at the same rate as the United States, and well ahead of the world average.

But what is most well known is the devastating effect on employment and unemployment of the European social model. And unemployment is indeed higher in Denmark than in the United States. The gap narrows when you adopt the standardised basis created by the OECD. 6.0% in 1996 as against 5.4% in America. However the OECD standardisation does not adjust for differences in the prison population, presumably because prisoners are not actively seeking work. Since there are 1.7 million people in jail in the United States, and only just over 3000 in Denmark, this is important.

If we add the proportion of the population incarcerated to the proportion unemployed, 6.6% of Americans were out of work in 1996 and 6.1% of Danes. There is a simple explanation for the difference in unemployment. Young men who in Denmark are at home watching television and desultorily looking for employment are in jail in the United States and therefore out of the unemployment statistics. Since there is much less crime in Denmark than in America, it is not clear that the Danes have got it wrong.

But there is a strong feeling on the part of the Danes that they have indeed got it wrong, which is why we are all at this conference. Whether or not there is indeed a crisis in the European social model itself, there is certainly a crisis of confidence in the European social model. For many of those who attend meetings such as these, the existence of the problem is self-evident and only the means of tackling it needs to be discussed. We are told that the era of the high-spending state, in which business is governed by both explicit and consensual regulation is clearly over. And that the day of the stakeholder company, embedded in the local community, is at an end. The European social model is at best a transitional form of capitalism, a staging post on the route to a full market economy.

And yet the undeniable fact is that if you are looking for the world’s most successful economies, “small West European state” is more or less the best predictor you can find. Denmark ranks alone with Norway, Switzerland, Austria, Luxembourg in any list of countries with high living standards, material and otherwise. And all these countries have other common characteristics. High, almost stifling levels of social cohesion and interlocking networks of corporations, employers and workers’ organisations and the state: the principal features of the supposedly defunct European social model.

These examples attract little serious attention. The shelves of the Said Business School library groan with volumes about Chaibol and Keiretsu. The books on China stretch the length of the Great Wall. But you will look in vain for titles like Great Entrepreneurs of Norway. The coming Economic Powerhouse – Denmark. Iceland – Europe’s Tiger Economy. These weaknesses in our library are not because we have not bought the books. They are there because no-one has written them.

When our students go on study trips they do not fly to Luxembourg or Finland. And when the international business elite meets in Davos, they appreciate Switzerland for its snow, sun and scenery, not as the world’s most successful economy.

Perhaps some rethinking is in order. The Danes are anxious to participate in fashionable discussion of the crisis facing the European social model. There is a deep-seated angst in the Danish character. This is the country of Hamlet, Hans Christian Andersen, and Carlsberg Special lager. They worry about whether they deserve their good fortune, and are fearful whether it will continue. But beneath it all there is a quiet self-satisfaction. They know that their system works. And they do not need lectures about their crisis. It is time to go back to London.

John

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