Denmark: Globalisation and the Welfare State

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Table of Contents

Abstract
Introduction
Conclusion
Bibliography

Abstract

In this article, an attempt has been made to explain how globalization has exerted unstoppable influence on the Danish economy. We attempt to look at four different influences of globalization on the Euro zone together with European integration, which is an aspect of globalization. How did it affect the Danish economy?

European integration and globalization brought pressure in terms of industrial restructuring and required countries to drop their liberal discourse. Denmark is a typical example of a Scandinavian welfare regime that managed to shrug off globalization challenges but still maintained its welfare model.

For it to have successfully integrated, it needed to succumb to political and market pressures of globalization which it did not. Denmark has very unique national characteristics together with its geographical size but how did all these help it reject globalization pressure?

Introduction

Denmark has been on the upward trend in the twentieth century. Although it is small and rural, Denmark is very prosperous politically, socially and economically (Selle, 1999). Its economy has been very stable after World War II. Denmark has been taunted for keeping its welfare model and embracing globalization.

Its development and its famous model of ’flexicurity’ has been a subject of admiration by many European politicians, right wing or left wing.

Although small in the global economy, Denmark still registered low unemployment in 2008; in the midst of global economic crisis in 2008, Denmark stood shoulder high as a model for preoccupations and issues that trigger true modernity and globalization (Catcora et al. 2012).

Globalization brings with it a lot of things. Imagine globalization of markets and production of goods. Globalization has been demonized because it is thought to bring a lot of economic inequalities between countries that are already dominant and those that are not.

It is also true to argue that globalization brings with it a lot of good things. Prosperity is achieved quickly and better job opportunities are made available. A wide range of products are made available and that too at lower prices. This means more profits for enterprises as a result of increase in production.

But it also brings very serious challenges, for example the demand of highly qualified labor and diminishing demand for other labor profiles. This means that the level of education must be scaled up to keep up with this pace. How can this be possible if the goal of globalization is to benefit all?

Denmark has been better furnished to tackle the effects of globalization (Catcora et al. 2012). Her secrets have been a flexible job market combined with a welfare state ensuring high security for revenues. Its economy is strong and the unemployment rate is very low. Its public sector is highly efficient which is good, economically.

This is the system called ’flexicurity’. This is very unique, because it combines high level of service with low-binding employment protection. Denmark is ranked as a country with very high performance worldwide.

It is thus obvious that the Danes believe in a democracy where diversity is very important and individual rights and freedom are highly upheld.

The Challenge of Globalization

For us to know what impact globalization really brings we have to examine it well. Globalization is defined in different ways. In today’s scenario where organizations are going for globalization, the economic relations have become stronger and they are based on certain ideologies and facts (Catcora et al. 2012).

This brings about neo-liberalism (Appelt and Weiss 2001, p. 15). Neo-liberalism occurs when we have healthy competitions from competent trading partners and this is made possible by putting in place investment friendly conditions.

Globalization harmonizes economic conditions across borders. How is this possible? Picture an improvement in communication networks across borders, cheaper transportation costs and formation of supranational bodies like NAFTA and the European Union (Harvey 1997, p. 30; Appelt and Weiss 2001).

The European countries were greatly affected (in the negatice aspect) as a result of the European integration.

The reason for this effect was the removal of obstructions that had propelled regular capital, labour, merchandise and a fiscal framework. Social policies such us distributive justice were not catered for and still are not easy to handle (Scharpf 1996; Streeck 1999).

These were left to be dealt with, at a national level (Deppe 2001, p. 34). It would not be wrong to say that the European integration could not put forth an impressive and effective plan to control the emerged integrated market.

Due to the taxation policies of various nations, workers as well as firms are attracted to shift their loyalties.

As an implication, it is expected that in the absence of competent government in the European context, some member nations will opt to reduce the welfare and tax benefits in order to sustain the competition from other European nations (Hirst and Thompson 1999, p.186).

Globalization has exerted influence on European economies, social democracy and welfare states. It has actually minimised the importance of national limits for making financial transactions.

It has also pressed on changing the structure of the governement, as a result of which the governments have – to attain certain financial goals – modified their political views on governing their respective nations. It has not been clear what has been the result of forces of globalization as there are different divergent views.

Some pundits believe that this kind of a philosophy has forced various nations to enter into a competition to reduce their overall national expenditures and bring about new market-friendly programs that might lead to a gradual end of democracy and recent welfare nations (Garrett and Lange 1991).

But these impacts vary greatly, depending on the way national states are modeled (Hirst and Thompson 1999, Weiss 2002). There is also reliable evidence to show that national growths have been pegged on their specific trajectories and industrial relation institutions (Garrett and Lange 1991).

It is, however clear that economic globalization places countries on policy constraints and this pressure is exerted more on small countries whose economies are more vulnerable. Bit it is not always true to say that smaller countries are affected more (Weiss, 2002).

The three areas of economic policy and intervention contravene this. These are taxation, fiscal spending and industrial policy. Weiss argues that with these three tools, a state has more room for maneuvering than what these constraints hold.

She stresses that globalization is not constrained more by size but by the nature and strength of local organizations. With Denmark in mind, we can explain what this means.

Economic Policy

Globalization has severely influenced the Danish macroeconomic policy. Denmark is considered to be the trendsetter (1984) in lifting the regulations on the markets and allowing free and unhindered transactions.

Denmrak is not in the European Monetary Union (EMU) but the Danish exchange rate still goes hand in hand with the Euro. Denmark is thus an informal member of the EMU. Her interest rates are even higher than other European union members.

Denmark, being free from the European central bank control, can be speculatively attacked. Its autonomy also has less influence on the global economy.

Countries such as Britain, Sweden and Italy experienced severe economic impacts that compelled them to accept the common currency, Euro, in the initial years of the 90’s decade. This has never been the case for Denmark.

Denmark’s exchange rate is strongly pegged to German Mark and European Euro, giving it a comparative advantage (Catcora et al. 2012).

In the present scenario of globalization, macroeconomic arrangements are less pertinent since they have constrained access to accomplishing monetary development and lower levels of unemployment, on the grounds that globalization is accompanied by goodies such us change in the level and nature of manufacturing, innovation, abilities and social capitals.

Globalization demands a firm and steady supply system in order to achieve a uniform financial growth. But these structural reforms were adopted by Denmark relatively early in the 1980’s.

Technology policies were initiated and in the mid 80’s structural policies have been the conerstone of Denmark’s economic policy (Catcora, et al 2012). The Danish government introduced structural monitoring system which reduced structural unemployment because of its competitiveness.

This was incorporated into many other policies including industrial policies. The bigger nations are more prone to the impacts of political independence and macroeconomic arrangements than the smaller ones, such as Denmark, because the smaller nations have limited political independence.

Global Trade

Global trade has led to reorganization of industries in many countries and as a result, trading competitiveness has vastly improved. When it comes to global trade, Denmark stands out as a country with great specialization in products. Denmark is a strong trading partner to Asian industrialized countries.

It highly specializes in production of low tech products as compared to other countries in Euro zone. Denmark has the expertise in producing various kinds of food products and also furniture and medicines to some extent.

Despite being considered as a producer of low wage goods, Denmark still managed to improve its GDP among developed countries and was ranked highly.

This was made possible by using highly advanced equipment to produce the low class products. It has diverted its energy on such products so much that even marketing of such products is highly advanced.

Social Policies

Developed countries, over the last decade, appear to have rejected socialist policies. Even with these, social spending on GDP has increased tremendously (Scharpf, 2000). The reason is that it does not, in any way, relate to the influence of globalization. It has not been proven that welfare provisions harm performance.

Countries with social welfare have a stronger social capital and social support (Selle, 1999). In addition, high taxes have not been shown to hamper employment prospects.

In spite of its having high taxations, Denmark has been credited as being a nation with admirable employment rates as compared to other Europen nations (Scharpf, 2000).

The following three reasons justify the lesser impact of high taxation on the employent status of Denmark (Scharpf, 2000: 26). Firstly, Denmark’s primary income source for its welfare state is from income taxes and to a less extent social security taxes and even less employer contributions.

Therefore, the industry has less pressure. Secondly, the Danes have only a modest job security and thirdly, a strong system is available where they have decentralized collective bargaining.

These three points are the brains behind the survival of their ’flexicurity’ model to globalization challenges. Let’s now try to understand some tough questions about denamrk.

How did Denmark achieve such low unemployment in 2008?

Denmark was the first European country to enter into recession in 2008 after the collapse of the US market of prime mortgage risk. Denmark was in a real dilemma. She was wondering how she was going to address the budget dilemma and at the same time face the current crisis.

Denmark swiftly employed its model of ’flexicurity’ to respond to the crisis in many innovative ways. It issued bonds to support its major financial institutions for thirty years and these included pension funds and insurance companies.

Denmark suffered the longest recession 2008-2009 but its expansionist fiscal policy such us tax cuts and increase in spending on health and infrastructure, culminated in ending the crisis.

This system revitalized its economy by stimulating global demand and support of social welfare. Thus the country was sufficiently able to maintain low levels of unemployment before and after economic global recession (Catcora et al. 2012).

Should Denmark integrate further with EU policies and the euro, continue to walk a fine line between autonomy and integration, or forge its own path?

It is worth noticing that Denmark has always been reluctant to enter the European Union. Denmark’s fiscal policy has always been to keep its Crown at a close range with the Euro. It feels that this way, it will have lower levels of transactions with the Euro zone.

The members of the Euro zone think that this will contribute to transparency in pricing but this is not the case as to what was experienced in the Euro zone after transition. All members experienced increase in inflation which was temporary during the transition to single currency.

The Danes don’t support the integration because of things like what we saw in the economic deblt crisis in Greece, Spain, Portugal and now, Cyprus.

Support for single currency is now diminishing among the Euro zone members, so it will be prudent for Denmark to maintain its autonomy and preserve its own currency as an instrument for macroeconomic stabilization (Catcora et al. 2012).

Is Denmark growing because of, or despite its welfare state?

Although the Danes have stuck to their guns of socilal welfare, it is still prudent to note that some reforms and adjustments are necessary to reap full benefits of globalization and addressing the challenges.

This is a global financial crisis that abbreviates economic growth and increases unemployment and is definitely not good for the’flexicurity’ system employed by the Danes. Even with the success of their ’flexicurity’model, the support for globalization is still upheld by the Danes.

The Danish government has embarked on a mission of initiating reforms to stem the challenges of globalization. It has set up a commission for globalization which will formulate strategies for reforms in all sectors of society such education, research & development for growth, and innovation.

This means that the Danish government is very keen on making the country one of the most attractive countries to live and work in. The Danish government obviously knows that Denmark is a place where everyone should enjoy freedom.

Everyone sould optimally display their abilities, compete with other nations in terms of innovations, research and development. The political issues in Europe pose a lot of uncertainty so it will be prudent for Denmark to keep its public debt below 50% of GDP and ensure it remains competitive with its neighbours.

If it realizes good economic indicators, then Denmark will be a happy state as it walks into the future (Schwartz, 1994, p. 38).

What should Denmark or its companies do in 2014? Anything different? If so, why, if not why not?

Denmark is a happy nation because it has tested and proven its ’flexicurity’ model system. Its high level of welfare system is a competetive advantage. It should not be taken that embracing globalization will influence its welfare system expenses which hasn’t happened either.

It is also good to note that globalization twitched its ’flexicurity’ system and it responded by reinforcing its model. The tools it innovated responded well to the pressure of globalization. But it is too early to say that a final solution to challenges posed by globalization has been realised in Denmark.

The response was a warning finger to its ’flexicurity’ system and this literaly means that Denmark is on the edge of transformation and it will need to put more changes to its ’flexicurity’ model in future (Catcora et al. 2012).

Conclusion

Denmark’s resilience and ability to stay afloat is like a Viking ship in rough seas. This means that for the ship to stay on its path, a lot of effort has to be done and this will depend on the approval from its crew members to avoid any harm.

This calls for a lot of collaboration among the political leaders with enormous degree of solidarity and equality. In the rough sea of globalization, it remains to be seen whether the recent tremor was handled well or will continue to shake up its social fabric in this rough sea of globalization.

Bibliography

Appelt, E and Weiss, A, 2001, Globalisierung und der Angriff auf die europaischen Wohlfahrtsstaaten, Argument-Sonderband Neue Folge AS 279; n.p, Berlin

Catcora, P.R., Sullivan M.G., D’Souza, C., Taghian, M., Weerawardena, J., Graham, J.L, 2012, International Marketing, 2nd edition, McGraw-Hill, London.

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Schwartz, H 1994, “Small States in Big Trouble. State Reorganization in Australia, Denmark, New Zealand and Sweden in the 1980s,” World Politics,Vol 46: 27-55.

Sellae, P 1999, “The Transformation of the Voluntary Sector in Norway: a Decline in Social Capital?” in J. Van Deth, M. Maraffi, K. Newton, P. Whiteley and H. Kenman (eds), Social Capital and European Democracy, London and New York: Routledge.

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