The Economy of Denmark

by Anmol Arora

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If you know Denmark just to be one of the best countries in the world to lead a happy life in, trust me, you don’t know the half of it. Putting aside the fact that the Danes are some of the most remarkable architects, evident from the Sydney opera house, Denmark is, in fact, doing an excellent job with its balance sheet.

The nation, as most of the Nordic countries are, has been a tad bit exclusive, might I add superior, in their ways and from what I or anybody else can tell, they have worked delightfully.

As one of the first members of the Organisation for Economic Co-operation and Development (OECD), Denmark has successfully maintained unique yet brilliant economic policies and practices. As we scroll further down, we take a look at some of the strong suits and limitations of their economy.

Strengths

One aspect of the economy that Denmark prides itself on is its 69.5% labour force participation rate (LFPR), as of 2019. Now, this statistic is especially significant here considering the fact that Denmark’s total population is a mere 58.1 lakh people.

Such a high LFPR comes on the back of exceptional female participation in the labour force and absolutely free higher education for each and every citizen.

The nation also boasts of something unheard of in the developing world of today- a current account surplus. Yes, you heard that right. In 2019, Denmark had imports of a total of $101 billion, compared to exports of $103 billion. Packaged medicaments, refined petroleum, and pig meat lead the charts of exports from Denmark.

On the other hand, cars and passenger and cargo ships were the most common imports in 2019. Most of Denmark’s trade (46.7%) is with Germany, Sweden, Netherlands, and China. An added benefit of a trade surplus is that it has aided the government to keep its debt to a mere 32% of GDP, drastically lower than countries like Germany and Switzerland.

Now, coming to the famous tax structure adopted by the government. Denmark is an example of the Nordic model, characterized by an internationally high tax level, and a correspondingly high level of government-provided services (e.g. health care, child care, and education services) and income transfers to various groups like retired or disabled people, unemployed persons, and students.

The current personal tax rate in the country is 55% (varying slightly with the level of income). The unadorned fact that people are willingly ready to give more than half of what they earn to the government speaks volumes of the ability of the government to provide worthwhile benefits and services to the taxpayers.

The reason behind the high level of support for the welfare state in Denmark is the awareness of the fact that the welfare model turns our collective wealth into well-being. “We are not paying taxes. We are investing in our society. We are purchasing quality of life”.

Well, something seems to be working because the country has consistently ranked in the top 5 in the world in the happiness index.

Weaknesses

After having researched for days, fortunately, or unfortunately, I could not poke more than a few holes in the economic system of Denmark. Perhaps that speaks to the adeptness of the policymakers and practitioners.

So, one imminent predicament which the Danes face is high household debt. Owing to a lack of action on the matter over the past few years, the total household debt has grown to a massive 281% of disposable income. According to recent numbers, the net liquid wealth of the nation (overall) is negative too.

This, in my opinion, is attributable to the high pensions that citizens rely upon when quitting the labour force. The expectation of pensions in old age eliminates the incentive to save and the numbers reflect so.

But the question remains, are pensions enough to compensate for high debt? Well, that entirely depends on the income of the individual as that determines the tax rate and money, in turn, translates into the pension.

Another conundrum, perhaps an interesting one, is the aging population of the country. Now, as you would remember me saying, the Danes pay high taxes to the government and the government provides its citizens with top-notch healthcare facilities free of cost.

Coupled with consistent pension and healthy living (along with virtually no pollution), in simple words, people don’t die (young). The ratio of the population aged 65 and over to the population aged 20-64 is projected to increase from 30% in 2012 to 43% in 2050.

This, inadvertently, forms a circle. Arguably the best healthcare policy in the world increase, exponentially, the happiness quotient of the people but proves to become a burden on the treasury department too!

While the growth in GDP in recent years has not been as dramatic as the country would’ve hoped, the numbers did indicate a positive trend up until the inception of the coronavirus related disruptions in the economy which tanked growth this year to as much as -10%.

The nation has, so far, been fortunate enough to avoid severe repercussions due to the pandemic, growth forecasts continue to be cautious in light of the manufacturing dip and danger of a second wave of the virus.

The approach adopted by the Danes sure is unique, however, simply put, it works. In my estimate, the Danes are not too ambitious and desire a peaceful and happy life, which fortunately for them, the government is providing exactly.

I believe that the policies currently laid out and the people in charge are the right ones and that Denmark is truly in good hands. From the way I see it, the nation is the embodiment of exclusivity and their model will continue to work until one day, it doesn’t.

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