Mogens Lykketoft The Danish Model Mogens Lykketoft fm. Minister for Finance

Mogens Lykketoft Denmark 2008 Top 3 in World Economic Forum’s index on Competition World champion in Transparency International Index

Mogens Lykketoft Compared to USA (immediately before 2008) Real income per capita, productivity, unemployment, inflation very much the same Denmark big surpluses on balance of payment and public finance Taxes and social expenses constitute twice as big a share of GDP in Denmark as in the US

Mogens Lykketoft Compared to USA (immediately before 2008) Danish model model beneficial for those with low income and in major health risks or risk of being unemployed ( social insurance/ tax financing instead of private insurance or paying market prices in health, higher education, old age care and kindergartens) DK: 9 % have less than half of median income in Denmark; USA: 21%

Mogens Lykketoft Fundamental Features Good level of basic education – socialize and improvise Increasing share of population gets higher education Small companies with high ability to adapt to changing market conditions Very liberal industrial policy and early opening up for foreign competition

Mogens Lykketoft Fundamental Features Investment encouraged through favourable depreciation and low company tax Interaction: industrial development, welfare and environment protection Interaction: high minimum wages and supplementary training and education

Mogens Lykketoft Fundamental Features Interaction: high minimum wages and supplementary training and education Easy to hire and fire – high tax-paid compensation for unskilled unemployed Increase in female participation: most important revolution thus: socialization of care for children, ill and old people

Mogens Lykketoft Fundamental Features Legislation about holidays, pre-pension scheme Build-up of major labour market supplementary pensions since 1980’ies Welfare reforms – 2006 decision about increasing retirement age as population lives longer

Mogens Lykketoft Oil crises, reforms and new unemployment ( ) Increasing unemployment, inflation and devaluations Stop for automatic indexation of wages, fixed exchange rates, tax on pension funds, - new increase in employment Tax reform – austerity measures, depressed real estate market, big unemployment

Mogens Lykketoft Modernising the Danish Model more jobs ( ) Unemployment and structural unemployment Kick-starting – real estate credit, public infrastructure investment, temporary tax reductions Structural reforms of labour market and tax system Investment in education and welfare (health, kindergartens, care for the elderly)

Mogens Lykketoft Danish Model under pressur e ( ) Tax freeze and tough regulation immigration Privatization and ‘freedom of choice’ Weakening of the trade unions – fewer union members and fewer insured against unemployment Bubble economy due to easy and excessive private borrowing – explosion in real estate values and share prices

Mogens Lykketoft Danish Model under pressure ( ) More unequal distribution of wealth and income Up to 2008 impressive rise in employment through both migrant workforce from especially Eastern Europe and unexpected fall in an already low unemployment

Mogens Lykketoft Danish Model under pressure ( ) Bubble bursting – rise in unemployment (again in spite of new wave of major tax reductions in preparation for next general election) Potentially weakened popular support for the welfare model (greater threat than ageing population, current financial crisis and global competition)