Well-positioned to adapt, enact political reforms. High level of societal trust
Having a small and open economy, Denmark has a long tradition of meeting the challenges posed by international integration and globalization, and has shown a capacity to enact needed reforms to reconcile an extensive welfare state with a well-functioning economy. Comparatively, Denmark is favorably positioned with regard to adaptability and the enactment of political reforms to address challenges, despite sometimes delaying and deferring such reforms. A tradition of open dialogue, cooperation and broad-based reform goals may contribute to the country’s adaptability. Trust between different actors and societal groups, often referred to as “social capital,” has also been an important factor. However, to remain among the leading industrialized nations, Denmark must continue to monitor its policies and institutions. Additional changes and reforms will be necessary.
The following briefly lists areas of crucial importance to Denmark and outlines where policy initiatives are needed:
Labor-market shifts transform debate
First, the labor market situation is gradually shifting from one of jobs surplus to one lacking jobs. This has revitalized the debate on whether the education system is sufficiently equipped to supply the type of education needed by the private sector and necessary quality of education.
Low productivity growth
Second, due to a low level of productivity growth in the private sector, the economy’s growth potential is an issue. Also, given the relative size of the public sector, improving government efficiency and productivity also is an important task.
Inequality rising, if slowly
Third, although comparatively inequality is low and social cohesion is high, Danish society is trending toward more disparity and inequality. This applies to immigrants as well as other groups marginalized in the labor market, often due to insufficient job qualifications.
Welfare-state incentives must be balanced
Fourth, while the long-term financial viability of the welfare state in relation to aging is largely ensured by a recent series of reforms, the underlying profile of public finances is problematic, with increasing demands on welfare services in general and health care in particular. In the design of welfare policies, it is important to balance concerns for equality and social insurance with incentives for education and work. The hallmark of Danish society has been to balance low inequality and an extensive public sector with a well-functioning economy and high-income level. It remains an ongoing challenge to reconcile these objectives.
Conflicting opinions over international role. EU cooperation from the sidelines
Fifth, Denmark, with its small yet open society, has a long tradition of being an active participant and partner in international political cooperation. At the same time, there is a strong desire within society to establish “arm’s length distance” over certain issues, both to underline Denmark’s independence and prevent the country’s marginalization in international forums. As a result, the Danish debate on the EU has always been somewhat fragmented and not always comprehensible to foreign observers. A case in point are the four Danish opt-outs included in the Maastricht Treaty. European Monetary Union membership remains a very delicate subject since the referendum in 2000. Denmark is not a member, but pursues a tight, fixed exchange rate policy to the euro. This peg has been very credible, as reflected in a very small (and in some periods negative) interest rate spread. Denmark is, in this sense, a shadow member of the euro zone, although it is not directly represented in the supranational executive bodies. The recent referendum on Justice and Home Affairs (JHA) cooperation confirmed Denmark’s “sideline” participation in EU cooperation.
Overall, both the previous and current governments have set ambitious strategic targets. Various policy plans signal a political awareness of the country’s structural problems. Dealing with these challenges is a work in progress.