The Real Denmark Would Surprise Americans
(Bloomberg Opinion) -- Danish Prime Minister Lars Lokke Rasmussen reacted with anger and pride to a recent White House report criticizing the Nordic countries as “socialist.” The center-right politician shouldn’t have bothered: President Donald Trump’s Council of Economic Advisers isn’t arguing with him but with Senator Bernie Sanders and other local leftists – about a Denmark that only exists in American imaginations on both sides of the partisan divide.
The Nordic countries, the Council of Economic Advisers report says, “are often singled out as countries with socialist policies and admirable economic outcomes.” Yet, “Nordic country living standards are still at least 15 percent lower than in the U.S. The private and social returns to a college education are higher in the U.S., even while college education is at least as common here. These results are consistent with the basic economic idea that redistribution and single-payer systems have significant costs in terms of reducing national incomes.”
In response, Rasmussen claimed on Facebook that if there were a competition between Denmark and the U.S. on who’s got the better social model, “Denmark would win every time” because of its “good balance between freedom and community” and the more equal opportunities in education and health. “If there’s one area where Americans can beat Denmark, it’s praising themselves,” Rasmussen wrote.
Those loud Americans can be irritating indeed, but Rasmussen, who is on the right flank of Danish politics and whose immigration policies are harsher than Trump’s on some points – so not a socialist at all -- is not the target of Trump’s advisers. Their polemics are with socialist Bernie Sanders’s vision of Denmark which he laid out in a 2013 op-ed: “In Denmark, social policy in areas like health care, child care, education and protecting the unemployed are part of a ‘solidarity system’ that makes sure that almost no one falls into economic despair. Danes pay very high taxes, but in return enjoy a quality of life that many Americans would find hard to believe.”
Trump’s economists argue in response that working people in the Nordic countries, including Denmark, don’t live as well as their U.S. peers. One example they give is the cost of owning and running a Ford Ranger pickup truck. A U.S. worker would need 4.4 hours' pay per week after labor income taxes to cover the purchase price and gas costs, while a Danish one would require 6 hours' pay and a Finnish one 11.9 hours' pay.
The greater ownership costs in the Nordic countries reflect a combination of higher retail prices (including VAT), higher fuel costs, lesser wage rates, and somewhat greater marginal tax rates on labor income.
Of course, it’s difficult to find a Dane interested in owning a Ford Ranger. Quite apart from the low popularity of pickup trucks everywhere in Europe, the Ranger’s fuel efficiency is about 22 miles per gallon, or 13 liters per 100 kilometers, to use the measure that’s more common in Europe. According to Danish official statistics, the average newly registered car this year uses about 4.3 liters of fuel per 100 km.
More to the point, both sides exaggerate to make their point. Sanders, for example, overstates the ability of the Danish social system to level out poverty. According to the Organization for Economic Co-operation and Development, Denmark’s poverty rate after taxes and transfers was 5.5 percent in 2015, compared with 16.8 percent in the U.S., if the poverty line was set at 50 percent of the median income. But in the 18 to 25 age group – from which much of Sanders’s voter base came in 2016 – the poverty rate after taxes and transfers was 21.3 percent in Denmark and 18.4 percent in the U.S. There’s actually less “economic despair” among young Americans than among young Danes.
Sanders doesn’t mention that the U.S. is more economically welcoming to immigrants than Denmark; in the U.S., according to the OECD, the poverty rate in immigrant households is 2.2 times as high as in native-born ones, the average for developed nations. In Denmark, the ratio is 2.7. The Danish social security system works better for the native-born than for the 12.9 percent of the country’s population who are immigrants or their direct descendants.
Trump’s economic advisers, for their part, point out that individual consumption is 31 percent lower in Denmark than in the U.S. –but they don’t seem to realize that the difference is cultural. Denmark has one of the developed world’s highest saving rates – 12.2 percent of gross domestic product in 2015. That same year, the U.S. had a saving rate of 3.7 percent of economic output. For similar reasons, it’s pointless to compare the financial returns to higher education in the Nordic countries and the U.S., as the White House report does; in North European cultures, vocational education produces proud, highly qualified workers who are sometimes remunerated as highly as college-educated professionals. The U.S. culture is different: There, college is increasingly required for almost any kind of jobs except the most menial ones.
Comparing countries on a set of parameters that reflects one’s worldview is not the most intellectually honest of exercises. Whether a certain economic policy will work depends on a country’s culture as much as on the policy’s theoretical soundness. It’s possible that Danish approaches to health care, education and social protection would also work in the U.S., but it’s impossible to know until they’ve been tried, and that would require a broad consensus in society about such an experiment. Conversely, in Danish society there’s no demand for something like the U.S. health care system, in which one’s level of income defines the care one receives more than in most other countries.
The 2018 World Happiness Report ranks countries by its residents’ self-reported happiness levels and attempts to break down those happiness levels according to different factors that explain them, such as relative wealth, social support, freedom, healthy life expectancy, corruption perceptions, the generosity of the prevailing culture. Denmark, according to this ranking, is the world’s third happiest country, while the U.S. is 18th. The actual difference, however, isn’t huge; both countries are far happier than, for example, Saudi Arabia (ranked 33rd), Greece (79th) or South Africa (105th). Despite their widely divergent social models and cultures, the U.S. and Denmark both do OK in their own ways.
This column does not necessarily reflect the opinion of the editorial board or Bloomberg LP and its owners.
Leonid Bershidsky is a Bloomberg Opinion columnist covering European politics and business. He was the founding editor of the Russian business daily Vedomosti and founded the opinion website Slon.ru.
©2018 Bloomberg L.P.