Key Challenges

Social capital,
cooperation boost adaptability
Being 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 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:
School system’s
relevance to labor
market a concern
First, the challenge of maintaining a high employment rate remains relevant, not least in the perspective of technological change (e.g., automatization), globalization and migration. A key question in this debate is whether the extent to which the education system is sufficiently equipped to supply the type and quality of education needed by the private sector. The labor market possibilities for low-skilled workers is a particular challenge.
Second, the economy’s growth potential is an issue given the low level of productivity growth. In addition, given the relative size of the public sector, improving government efficiency and productivity will be an important task.
Inequality on the rise
Third, although inequality is low and social cohesion is high, in comparison to other OECD countries, Danish society is trending toward greater disparity and inequality. A particular challenge involves the integration of immigrants and other marginalized groups into the labor market, which is often difficult due to insufficient job qualifications.
Welfare system produces fiscal challenges
Fourth, while the long-term financial viability of the welfare state, despite an aging population, has been strengthened by a series of recent reforms, fiscal challenges remain due to increasing demands on welfare services in general and healthcare 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 its ability to reconcile low inequality and an extensive public sector with a well-functioning economy supporting high-income levels. Reconciling these objectives remains an ongoing challenge.
Fragmented debate
on EU role
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 European Union 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 has remained a very delicate subject since the referendum in 2000. Denmark is not a member, but pursues a tight, fixed exchange rate policy with the Danish krone pegged to the euro. This peg has proven very credible, as reflected in a very small (and in some periods negative) interest rate spread to the euro zone. 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 cooperation confirmed Denmark’s “sideline” participation in EU cooperation.
Tradition of ambitious strategic targets
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 remains a work in progress.

Party Polarization

Minority governments common
Due to the relatively large number of parties represented in the parliament (currently 10 plus representatives from the Faroe Islands and Greenland), most governments – including most coalition governments – are minority governments, which are obliged to seek broader coalitions to pass particular pieces of legislation. Danish politicians have therefore developed strong negotiation skills and flexible coalition arrangements, allowing for cross-party agreements on most policy reforms. This limits party polarization, although there is a divide between the “blue” block led by the Liberal Party and the “red” block led by the Social Democratic Party.
Party blocs
not monolithic
However, these blocs are not monolithic. Although the Danish People’s Party gave parliamentary support to the former Liberal-led government, it also flirted with the Social Democratic Party with whom they have affinities on immigration and social policies. On the left side, the red block – which, in addition to the Social Democratic Party, includes the Social Liberal Party, Socialist People’s Party and Unity List – decided to give parliamentary support to the minority Social Democratic government following the 5 June 2019 elections, leaving the green Alternative party in an uncertain position. The “understanding paper” (forståelses papir) outlines the basis of the parliamentary support negotiated between the current Social Democratic government and the three other red block parties. However, it is expected that the current government will also attract parliamentary support from some of the “blue” block parties for its proposed reforms, including a major climate law.
Flexibility in
alliances possible
The limited polarization has historically implied that the Social Liberal Party has alternated between supporting “red” and “blue” governments, and in the last election campaign the then prime minister, Lars Lykke Rasmussen, proposed a Liberal-Social Democratic government. Though disagreements within the Liberal Party subsequently forced him to step down as party leader. (Score: 9)
Jørgen Grønnegård Christensen og Jørgen Elklit (red). Det demokratiske system. 4. udgave. Hans Reitzels Forlag, 2016.
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