Recent reforms leave Denmark’s welfare state firmly in place

Story Repair | By Mike Alberti |

May 7, 2013 — As it struggles to escape from the broad economic stagnation that has plagued Europe for nearly half a decade, the Danish government has recently agreed to a series of policy changes that will affect students and people living on social assistance, as well as spending increases and tax cuts intended in combination to spur economic growth.

What is story repair?

In this feature, we select a story that appeared in one or more major news outlets and try to show how a different set of inquiries or observations could have produced a more illuminating article.

For repair this week: “Danes Rethink a Welfare State Ample to a Fault” (The New York Times, Apr. 21).

We were struck by the story because it bore no relation to the reality our chief correspondent found when he did extensive reporting in Copenhagen for Remapping Debate back in 2011.

That reporting had resulted in articles that highlighted differences between prevailing Danish and U.S. attitudes towards the appropriate role of government, the importance of high-wage jobs, and the meaning of citizenship. Even many centrist and conservative U.S.-based economists and policy experts, we found, agreed that the Danish experience might offer some valuable lessons for the United States.

The recent article in the Times, as this press criticism points out, appears to have been the product of a mindset that can’t accept the idea that Danes continue to support the fundamental elements of their existing model even while the particulars of how that model is implemented are contested within Danish society.

With nuance so lacking in the original piece, we thought a Story Repair was in order.

— Editor

The reforms come on the heels of other, broader policy changes that have been enacted in Denmark since the recession, leading some observers to characterize the changes as a radical rethinking of the Danish welfare state, often seen as the most generous in the world.

Yet despite those attempts, Danish experts are nearly unanimous in the opinion that the reforms are better characterized as modest tinkering that is broadly consistent with the time-honored Danish welfare state model, which combines a generous social safety net, robust educational and training system, high taxes and a strong emphasis on the obligation to work.

Nevertheless, the recent changes have provoked controversy within Denmark. Some observers on the left worry that the modifications have gone too far in pushing to ensure that all Danes are working, undermining the strong sense of solidarity that has long characterized Danish society.


Recent reforms and the “Nordic model”

In the last month, the Danish government has agreed to two significant changes to the welfare state.

The first relates to a program known as the “student allowance” system. In addition to receiving free higher education, all Danes who are studying have long been entitled to a monthly stipend intended to cover books and living expenses. In response to data showing that Danes on average take significantly longer than other European students to finish their university degree, last month the government agreed to roll back the duration that students will be eligible for the allowance to five years from six.

Second, in an effort to create incentives for people who are receiving social assistance to go back to school, the new reforms will cut the level of income assistance that Danes under the age of 30 who don’t have a college degree can receive down to the level of the student allowance, which in some cases will mean a significant drop in income. There will be some exceptions for individuals who are deemed unable to pursue higher education.

“Before, if you were a young person on welfare, it would be perfectly understandable for you not to get an education,” said Ane Halsboe-Jørgensen, a member of parliament from the Social Democratic party, which currently shares governing power. “You would look at your friend who is in university and see that he is getting less money, so we tried to equalize these two groups.”

These two changes follow upon several other reforms that were undertaken by the previous, conservative government. In 2011, for example, the government reduced the amount of time that Danes are eligible for unemployment assistance to two years from four years.

Bent Greve of Roskilde University said that Denmark has long pursued a “social investment” model, in which the government plays a large role in producing highly skilled workers who go on to work in highly paid jobs and pay high taxes, which are then used to finance the welfare state.

Additionally, in what is perhaps the most drastic and controversial change, the government agreed to increase the retirement age to 67 in 2027 and index it to life expectancy thereafter. Though special arrangements will be made for workers in some industries like construction, this change means that many Danes born after 1970 will be work five or more years or more longer than their parents did.

According to Jørgen Goul Andersen, a political scientist at Aalborg University, raising the retirement age was “a very big change that many of us argued that the government did not need to make.” The policy “is going to mean hardship for a lot of workers” and may increase inequality, as well, because workers with better jobs and higher incomes who are able to save more for retirement may be more likely to retire early, Goul Andersen said.

However, according to numerous experts inside and outside of Denmark, all of the recent changes are broadly consistent with what has been termed the “Nordic model” — a particular blend of social and economic policies distinctive to Scandinavian countries.

Bent Greve, a professor at Roskilde University, said that Denmark and other Scandinavian countries have long pursued a “social investment” model, in which the government plays a large role in producing highly skilled workers who go on to work in highly paid jobs and pay high taxes, which are then used to finance the welfare state.

“In this model the welfare state is not just a cost, it’s also an investment,” Greve said.

According to Dean Baker, an economist and co-founder of the Center for Economic and Policy Research, a left-leaning think tank in Washington, D.C., this model has performed remarkably well since the recession. “Denmark and the other Nordic countries have come through all this turmoil in much better shape than most other European countries and the United States,” Baker said.

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