Canadian Commentary: International

Great Danes

March 1998

Peter Cook, the international columnist for the Globe and Mail's Report on Business, provides an example to the Terence Corcorans of this world of how one can be a business columnist and still be sensible. Cook is naturally conservative in his opinions, normally favouring a free-market, low-regulation economic system, and yet he is aware that there is more to a nation than simply economics and business, and he is always willing to understand different points of view even if he does not endorse them.

These qualities were brought to the fore in his recent discussion of Denmark. To someone like Cook, Denmark is a paradox. "Despite" having one of the highest taxation rates in the world and a very generous social security net, Denmark enjoys rapid but steady economic growth, low unemployment, low inflation and no government deficit. Furthermore, it has no natural resources which could be used to explain away its success. Cook provides a very interesting analysis. He points out that the generosity of Denmarks's social security means that it is easy for companies to hire and fire employees. In other words, the high taxation and social system is precicely what enables the kind of labour mobility which Cook and others consider so important in a successful economy. "Big government" provides a favourable business climate, rather than undermining it.

The example of Denmark is very important (although it is replicated to a lesser extent in several other small European nations). It disproves two fundamental assumptions of neo-conservative ideology. First, it destroys the assumption that high taxation inevitably leads to either slow growth, high unemployment or inflation. It demonstrates that it is in fact perfectly possible to have a high-tax economy that is successful by traditional measures. Second, it destroys the stereotype that generous social programs undermine people's will to work. Denmark has a low unemployment rate despite the fact that its unemployment insurance system pays 90% of salary for several years. It is not social programs which lead to chronic unemployment, but rather a lack of jobs and a lack of support such as training.

Denmark provides another important lesson. As with several other nations over the past decade, it was a centre or centre-left government which presided over the restructuring that led to a low-umeployment, no-deficit economy. The first such government to do so, in New Zealand, had no map to follow and tried a Thatcherite approach, with not particularly successful results (a decade of low growth). Since then, however, several such governments (Australia, Netherlands, Denmark, Canada) have evolved a moderate approach which balances rising taxes and cuts which focus government activities while maintaining the basics of a social democratic state. This approach has been less traumatic and at least as successful as the kind of radical slashing of government advocated by neo-conservatives. The reason for this success is, perhaps, that centrist/leftist parties understand the purpose, even the necessity, of the government in society and are thus better able to restructure it so that it continues to perform those functions which are necessary while improving its efficiency.

Successful centre-left governments such as Denmark's are especially important as examples to the largest nations in Europe. France and Italy have centre-left governments which are currently struggling with the problems of high unemployment, budget deficits, and antiquated social and labour systems. Germany is about to join them. These governments need to look to counterparts such as Denmark and the Netherlands for examples and for the courage to implement the changes necessary so that their economies thrive even as their social systems remain effective.

March 10, 1998

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