The mixture of government intervention and independent market-orientation

The mixed economy model that Denmark developed has been classed as a high-income economy by the World Bank, ranked 10th in nominal GNI per capita worldwide and 6th most competitive economy in Europe, according to a World Economic Forum Report of 2018.

Many readers might think that this is a result of a manufactured model, and as seen in many other cases, the numbers show only the positive aspects of the Danish economy. Nonetheless, the people of Denmark are amongst the happiest people in the world, according to the ‘World Map of Happiness’ of 2007, even with some of the highest taxes in the world.

Not only the economy isn’t structured in a way that the rich are getting richer and the poor are getting poorer but the case is even more positive, with the unemployment rate being among the lower in the European Union, the poverty rate is the third-lowest in the world and the equality in income distribution being the second globally.

The big question is how? How did Denmark construct such an efficient financial model? How does it manage to outperform some of the biggest economies in the world? How do people have such a great way of living? The biggest part of the answer is this: ‘Flexicurity’.

And I know exactly what you are thinking. This isn’t even a real word. How does this answer the question that most of today’s governments have? So let me explain in simple and understandable terms. ‘Flexicurity’ is the combination of the two words ‘flexibility’ and ‘security’.

So let us understand the first part of the term. Flexibility. This is a word that comes in accordance with the respect shown to the workers and the people that facilitate the production of goods and the provision of services. The labor market is based on flexibility which simply means that workers can be easily fired, with little prior notice, but they can also be even more easily hired.

You might ask, however, how is this feasible? Aren’t there any costs included in the firing of the workers? And the answer is yes, the cost is minimal. So this permits workers to seek better and higher jobs each and every year. If one wants to understand this through specific numbers, the large turnover rate in the labor market surpasses 35% each and every year.

Another question that as a reader you might have is what happens if someone doesn’t find a better or even any job after he was fired. That’s where the government plays a huge role along with the second part of the ‘flexicurity’ term; security.

The government makes great efforts to secure the interests and the income of the workers, even after being fired, through a social protection system that functions by great and generous unemployment benefits.

How does this actually work? If a worker is fired by a company he worked for quite some time, he will receive even up to 90% of his previous wage through unemployment benefits provided by the government, which are limited to 3 years. Up until that time, the unemployed worker will be paid a certain amount of money and in the meantime, he will be eligible to search for a new job.

The government of Denmark is also providing services for training and education for workers who want to increase their opportunities and search for better and higher jobs. Structural unemployment is also reduced since fewer people don’t have the education and the ability to be chosen for new jobs.

This security part for the workers and the unemployed citizens works in accordance with the free provision of education from primary school to university, free health care, pensions for retired workers at the maximum level of 85%, and other government subsidies for low-income earners and businesses.

In more general and understandable words, the major factor of ‘moving’ the economy was the market-orientation, the free-trading system, the healthy competition, and the limited government intervention in most of the new financial projects. It’s more than important to notice that at a minimum cost, one can open and start a business in some hours; the lack of intervention provides the people with ways to not avoid the bureaucratic procedures and that’s why, as a country, it has the shortest amount of start-up time for new projects and businesses in the European Union.

The case with the high taxation and the good feeling of happiness for the people of Denmark is also important and should definitely be mentioned. The country has progressive taxation which is very positive for development and wealth, despite the fact that it has one of the highest tax rates in the world, with even 50% of the incomes on average.

The progressiveness, however, makes the citizens better off since depending on their situation and their salary, they pay taxation respectively. A person that makes 5,000 euros monthly will pay a greater tax than someone who is making 2,500 euros as the salary of 30 days.

This is why people are happy since they don’t have the same tax burden regardless of their salary and most importantly, this prevents income inequality.

Through this equal distribution of taxation and also, through the understanding of the people, the incomes from what is paid by the people works for increasing the government’s revenue and therefore it’s spending, for the great unemployment benefits discussed above. The tax burdens for the businesses are also comparable with many other Europeans.

The whole market-oriented system of the Denmark economy and the term of ‘flexicurity’ has permitted a great development for the country, which respects the workers and functions through their achievements. From their part, their understanding of the firing cases and the high taxation is what makes them happy and they are aware that the government won’t ‘let them down’ in any case of unemployment. This isn’t the only reason why Denmark is among the greatest economies of the European Union but this system for the workers at the ‘steering wheel’ is definitely one of the major keys for success.

Bibliography

<a href=’https://www.macrotrends.net/countries/DNK/denmark/gni-per-capita'>Denmark GNI Per Capita 1968–2020</a>. www.macrotrends.net. Retrieved 2020–12–30.

Schmieder, Johannes F.; von Wachter, Till (2016). “The Effects of Unemployment Insurance Benefits: New Evidence and Interpretation”. Annual Review of Economics. 8 (1): 547–581.

“Flexicurity and the Economic Crisis 2008–2009 | READ online”. OECD iLibrary. Retrieved 2018–12–14.

Kvist, Jon (July 2017). “Denmark: A new unemployment insurance scheme for the future labour market”. European Social Policy Network.