John Menadue. Why are the Nordics so successful? Part 2.

Jan 18, 2015

You might be interested in part 2 of these articles on the Nordics.

In my earlier postcard from Denmark, I described the Nordic success.

I didn’t mention that they are rated the happiest people in the world, have the lowest rates of corruption and are on track to achieve their target of 50% renewable energy by 2020. Copenhagen is a very liveable city.

But why have Denmark and other Nordics, Finland, Sweden and Norway been so successful?

Obviously a small country like Denmark with less than six million people has advantages in terms of social cohesion. A small population makes for stronger personal and community ties, and national unity. But a smaller population does not have the advantages of scale although with higher value added production this is probably less of a problem than in earlier years.

Amongst their other features, the Vikings were great traders. That tradition continues today with Danes actively pursuing overseas markets. The people are well equipped to do so. In my admittedly brief stay in Copenhagen I did not find any local who was not reasonably fluent in English. It contrasts sharply with our failures in developing Asian languages to equip us in our region.

In the 1970s and early 1980’s Denmark came to the conclusion that it’s remarkably high taxes and high welfare was not sustainable. Changes needed to be made, but in the process they did not shred everything from the old model. The country continues to have high taxes and provides very generous welfare. This reflects the close linking of national identity and social responsibility which is central to Denmark’s welfare model.

On discovering that the old social democratic consensus was no longer working, Denmark let some of it go with remarkably little fuss and introduced new ideas from across the political spectrum. They were determined to push through reforms. There was a hard-headedness and pragmatism about it.

This pragmatism explains why the new consensus so quickly replaced the old one. Few social democratic politicians now want to dismantle the conservative reforms put in place in recent years. Denmark has seen an amalgam of left and right wing policies that are broadly agreed across the community. Winners don’t take all in Denmark. Compromise is essential. A left wing coalition led by Social Democrats and Social Liberals was returned to power in 2011.

An underlying factor in the successful changes in recent years has been strong trust in government. The Danes do not see the state as a dead hand. They see government as enabling opportunity, promoting individual autonomy and social mobility. They trust their government and politicians to a remarkable degree. What a contrast it is to Australia.

This Danish trust in institutions is quite remarkable. A survey by the European Commission in November 2012 found that 53% of Danes had public trust in institutions. In Europe it was only 32%. By comparison in Australia, Essential Media reports that our ‘trust in institutions’ ranges from above 50% for the High Court, the ABC and the Reserve Bank but down to 20% or lower for trade unions, business groups and political parties. We have a long way to go to catch up to the Danes and other Nordics in trust in public institutions. We badly need to renew our public institutions that have been badly damaged. Just think of the deliberately created chaos in our last Parliament.

Trust in government has been a feature in Denmark for centuries. That results in high quality people joining the public service. Citizens and companies pay their high taxes without a great deal of complaint, and play by the rules. Government decisions are widely accepted and few go to the courts to settle disputes.

This trust in institutions is reflected in the fact that Danes expect their public leaders to keep their word. In his History of Denmark, Professor Knud J.V.Jespersen puts it this way.

The fundamental attitude of modern Danes is that the state is a friend and ally, not adversary, a protector and not an enemy. This is very much an unconscious result of the fact that for generations, the Danes have been accustomed to a state of law fashioned by the Danish Law to express… the relationship between the individual, society as a whole and the state. … The code stated that any promise intended to create obligations of a legal nature should be considered as binding irrespective of the form of the promise and whether it related to commerce or any other contractual circumstance. Even a verbal promise to give a present or to sell a property was considered as binding as if it had been in writing. … It is still true in Denmark that a man is a man, his word is his word, and should anyone in public life in modern Denmark fail to deliver on his word or promise, the public will judge him accordingly….

The most recent and spectacular example of this was when the previous Prime Minister, Poul Nyrup Rasmussen made a public promise in the run-up to the 1998 elections not to tamper with the rules for early retirement. When he did so anyway, after forming a government, he was embroiled in a crisis of confidence from which he never recovered. He lost the next election in 2001, not so much because he had chipped away at the system of early retirement benefits, which most people anyway thought was a sensible thing to do, but because he had breached a fundamental principle of Danish Law, the binding contract, which dates back to the Fifth Book of the Danish Law.’

As part of this trust in government Danes insist on honesty and transparency. They insist on rigorous scrutiny with access to almost all official records.

In the economic sphere, they let the economy rip but underpin that very liberal approach with support and retraining for those who are unemployed. The labour market is very flexible. Universal and free education encourages all students, regardless of social background, to achieve their potential. In taxation, husbands and wives are treated separately and on equal footing. Universal day-care for children makes it possible for both parents to work full time. This Danish emphasis on building human capital is not only a key to greater equity but major economic benefits.

That commitment to human capital development is dramatically shown in its support for skilling in architecture, design and film.

The Danes have clung to a strong public funder in health and have refused to go down the path of subsidised, costly and inequitable private health insurance

The Danes have clearly shown the benefits of getting a few important things right. They are pragmatic enough to make major changes when necessary. We could learn something from that in Australia at the present time.

At its core, the Danes have trust in institutions and government in particular. They see the government as a positive influence. Freeloading by any group or person is not tolerated. Governments in turn must earn that trust. Trust is perhaps a little fuzzy and hard to define. But we instinctively know it is essential in both private and public life.

The greatest damage to public trust in my lifetime was the dismissal of the Whitlam Government in 1975.Our Governor General and High Court Justices deceived the Prime Minister and damaged our public institutions. We have not recovered from that appalling episode. Our ‘betters’ who extol the importance of institutions and the value of conventions, trust and tradition were the very people who caused such damage.

We could learn from the Danes about good governance and trust, and the importance of developing human capital. They are the keys to their success.


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