Why Does Denmark Love Globalization?
By Assad Dandashi
Nowadays, countries have mixed reactions regarding the positive and negative effects that globalization has caused over the past few decades. The increased interdependence across economies has further confirmed the notion that what happens in one country’s economy, affects economies of others. One concrete example is the financial recession that occurred in 2008, in which the burst of the real estate bubble in the United States, alongside lack of liquidity and excessive defaults, has affected nearly every corner of the globe. Nevertheless, one of the countries that view globalization as a beneficial phenomenon, rather than a harmful one, is Denmark. According to the Time’s article, Denmark’s quality of life is among the highest in the world, it has an unemployment rate of 3.1%, and its exports far exceeds its imports which is considered a positive economic indicator (Time Magazine, 2007).
One of the main reasons behind the Danes support for globalization and job outsourcing is implementing the concept of flexicurity, which is essentially the combination of flexible labour market, liberal rules for firing and hiring, and substantial social benefits (Global Envision, 2007). Status quo suggests that local workers will fiercely oppose job outsourcing because it is at the expense of domestic jobs. However, in Denmark, the government compensates workers who lose their jobs with sizeable unemployment benefits while also urging the unemployed to look for new jobs. If they fail to find a job, the government then sends the unemployed into retraining programs to equip them with adequate knowledge and tools in order for them to enter the non-import competing industry. Among the great social benefits that the Danish government provides are free education and free healthcare.
The generosity of Danish social benefits stems from the high tax rate. According to the article, marginal tax rate is almost 56% while the effective personal income tax is 35-48% (Inwemma, 2011). While such tax rates are considerably high compared to other European countries and the United States, the Danes receive high quality of social services in return.. While Denmark has a high rate of salaries compared to other European countries, the cost of living has also increased, thereby decreasing the purchasing power of the currency (Inwemma 2011). By the same token, high income tax rates has not only forced skilled Danish workers to flee the country, but also discouraged foreign skilled workers from migrating.This is one of the counter-arguments used to demonstrate how high tax rates are lowering the economical potential of the country, even if tax revenue is being spent on social benefits such as schools, hospitals, and infrastructure.
After the 2009 crisis brought financial systems down to their knees, the Danish government decided to alter few rules and regulations to protect its economy. Some of the changes included increasing control over financial institutions, enhancing accessibility to various levels and types of market information, monitoring the activities of banks closely, and protecting consumers (Danish Institute for International Studies, 2011). With that being said, Denmark’s stance on globalization remains unchanged despite the few changes that were caused by the recession as they are only precautious measures.
To put it briefly, the Danes appreciate the effect of globalization due to the various social and economical benefits that it brings to its society. The role of the government should not be understated as it collects high taxes and seems to redistribute to the country in various effective ways that has resulted in a high standard of living in Denmark. Will other countries follow Denmark’s social and economical model? Only time will tell.