The Danish Economy, 1973–2009: From National Welfare State to International Market Economy

ABSTRACT

A number of long-term trends in the Danish economy changed around 1973. The decades before were characterized by the establishment of a welfare state with a high level of social security and an optimistic attitude to public planning. Many periods during the subsequent decades have witnessed a struggle against different specific economic problems, including how to pay for the welfare state. But the whole period since 1973 has been characterized by an overall movement from a national welfare state to a more international and market-oriented economy. The development can be divided into four separate phases based on changes in government and different policies: 1973–1982 is characterized by escalating economic problems, 1982–93 with an improvement in the macroeconomic balance except in employment, and 1993–2001 with a highly successful improvement, including in employment. During the period 2001–2009 the government did not show the same willingness to make reforms, but this period’s liberal-conservative government is the symbol of the transformation to a market economy.

KEYWORDS:

• Danish welfare state
• internationalization
• economic transformation

Disclosure statement

No potential conflict of interest was reported by the author(s).

Notes

1. Hansen et al., Med hånden på statskassen.

2. I am grateful to many researchers who have contributed valuable comments and insights to this work, particularly Peder Andersen, Jens Thomsen, and Jørgen Hansen. I also thank the two anonymous referees whose feedback has significantly improved the article. Any opinions and errors in the article are solely my responsibility.

3. For instance, in discussing this development in the Danish political system, Lars Bille approaches the subject without delving deeply into its economic aspects. Meanwhile, Per Ulstrup Johansen and Mikael Trier focus on economic developments, often overlooking many political factors. Bille, Partier i Forandring; Johansen and Trier, Dansk økonomi siden 1980.

4. Internationally recognized journals such as the History of Political Economy and the European Journal of the History of Economic Thought lead this field. Agnar Sandmo’s Economic Evolving is a good example of the numerous textbooks available. Although the history of economic thought is not typically country-specific, unlike political and economic history, a specific analysis of Danish contributions can be found in Olesen, Danske bidrag.

5. Petersen et al., Dansk Velfærdshistorie; Mogensen, Det danske velfærdssamfunds historie, see also Petersen and Christiansen, The Nordic welfare states.

6. This article focuses solely on the economy and relevant political institutions without delving into changes in culture or morality. As a result, certain changes, such as the lifting of the ban on pornography in 1969, the introduction of free abortion in 1973, and the increase of women in parliament from slightly over 10% in 1968 to just under 25% in 1979, are not addressed here, despite their significance.

7. Rasmussen resigned from politics in 2009 to become Secretary General of NATO.

8. Topp, Udviklingen i de finanspolitiske ideer; Topp, Fiscal Policy in Denmark; Kærgård, Keynes og dansk økonomisk politik.

9. Thorkil Kristensen (1899–1989) earned his university degree in economics in 1927 and went on to become a professor of economics at Aarhus University in 1938. He was a prominent Liberal Party member of the Danish Parliament from 1945 to 1960 and served as finance minister in 1945–1947 and 1950–1953. Later in his career, he was Secretary-General of the OECD from 1960 to 1969. For more information, see Nyboe Andersen, Thorkil Kristensen; Kærgård, “Thorkil Kristensen”.

10. Viggo Kampmann (1910–1976) obtained his university degree in economics in 1934 and pursued a successful career as an economist at Statistics Denmark (Danmarks Statistik) and the Ministry of Economic Affairs (Økonomiministeriet). He served as the Social Democrat finance minister in 1950 and 1953–1960 and later became the prime minister from 1960 to 1962. For further details, see Smidt, Viggo Kampmann; Kærgård et al., “Viggo Kampmann”.

11. Jens Otto Krag (1914–1978) completed his university degree in economics in 1940 and made significant contributions as a Social Democratic Member of Parliament from 1947 to 1973. Throughout his career, he held several ministerial posts, including trade minister (1947–1950) and economics and labour market affairs minister (1953–1957). He also served as foreign affairs minister (1960–1962) and was twice the prime minister, from 1962 to 1968 and 1971 to 1972. For more on Krag, see Lidegaard, Jens Otto Krag.

12. Erik Ib Schmidt (1911–1998) was renowned for his role as the head of the department of economic analysis in the central administration (Det Økonomiske Sekretariat) from 1951 to 1964 and later as the head of department in the Ministry of Finance (Finansministeriet) from 1962 to 1975. See Schmidt, Fra psykopatklubben.

13. Poul Nørregaard Rasmussen (1922–1998) was a professor of economics at the University of Copenhagen from 1958 to 1988 and head of the economics department at the University of Copenhagen from 1958 to 1970. See Estrup, P. Nørregaard Rasmussen.

14. Schmidt, “Den økonomiske”, 42. See also Kærgård, Oslo skolen, 335. Unless otherwise stated, all translations are mine.

15. Kampmann and Nørregaard Rasmussen, Beskæftgelse og investering, 151. See also Kærgård, Oslo skolen, 335.

16. Jørgen Pedersen (1890–1973) served as a professor of economics at the University of Aarhus from 1936 to 1960. He was a Liberal Party candidate for the 1945 parliamentary election but was not elected. Throughout his career, he also held the position of head of the economics department at the University of Aarhus for extended periods. See Laursen, Jørgen Pedersen.

17. Pedersen, Om Aarsagerne, 40–41. Also Kærgård, Oslo skolen, 336.

18. Erik Hoffmeyer (1924–2016) obtained his university degree in economics in 1951 and became a professor of economics in 1959, holding this position until 1964. He was one of the chairman of the Board of Economic Advisors from 1962 to 1965 and later served as the head of the Danish central bank from 1965 to 1994. See Andersen, Hoffmeyer.

19. Anders Ølgaard (1926–2009) earned his university degree in economics in 1953 and subsequently became a professor of economics, serving in this capacity from 1962 to 1996. He also held the position of head of the Board of Economic Advisors from 1970 to 1976. See Andersen and Kærgård, Anders Lebeck Ølgaard.

20. Anders Fogh Rasmussen (born 1953) obtained his university degree in economics in 1978 and had a significant political career. He served as the Minister for Taxes from 1987 to 1990, followed by the position of Minister for Taxes and Economic Affairs from 1990 to 1992. Later, he became prime minister from 2001 to 2009. See Mylenberg and Steensbeck, Præsidenten; Mørch, Anders Fogh Rasmussen.

21. Rasmussen, Betalingsbalancen en privat sag.

22. “Det Økonomiske Råd” is an institution created by law in 1962. There were at that time three economists (now four) acting as chairmen (typically professors), often called vismænd, who participated in the public debate with considerable authority. They are chairmen for a council with about 30 representatives for the main agents in the Danish economy; trade unions, the central banks, the economics ministries etc. A main wing of the institution are the staff, including some of the best qualified young economists, who conducted analyses for the chairmen. The institution is often called in English ‘The economic council’, but this does not tell us much about the institution’s function. In this article the ‘Board of economic advisors’ is used instead, but this can be misleading because in some countries the name is used for institutions that are less independent of the government and the central administration. See Kærgård, ‘Økonomiske vismænd’.

23. Økonomiske Råds formandskab, Dansk økonomi 1988, 143.

24. Mogensen, Det danske velfærdssamfunds historie, 1: 258; Danmarks Statistik, Størst indkomstfremgang.

25. Kærgård and Skou, Marienborgmødet.

26. In the 1970s, academic economists disagreed on the correct economic theory. Some of the younger Danish economists were intrigued by Marxist economic theory, while the ideas of the monetarists were also discussed. However, neither the Marxists nor the monetarists wielded significant influence over the formulation of economic policy during that period.

27. Knud Heinesen (born 1932) earned his university degree in economics in 1959 and subsequently served as a Member of Parliament from 1971 to 1985. He was education minister from 1971 to 1973 and finance minister from 1975 to 1979 and again from 1981 to 1982. Since 1982, he has pursued a career in private business, holding the CEO position in various companies. See Heinesen, Min krønike; Heinesen, Sporskifte.

28. Poul Schlüter (1929–2021) obtained his university degree in law in 1957 and served as a Conservative Member of Parliament from 1964 to 1994. He assumed the role of prime minister from 1982 to 1993 and later served as a Member of the European Parliament from 1994 to 1999. See Schlüter, Sikken et liv; Schlüter, Det var vel ikke så ringe endda.

29. The Danish krone has never been freely floated. From 1945 to 1973, it was fixed within the Bretton Woods system, and from 1973 to 1982, it became part of a European arrangement. Devaluation was possible through negotiated agreements within these frameworks. The fixed exchange rate adopted in 1982 was a political declaration backed by concrete political actions to lend credibility to the government’s intention.

30. See e.g. Pedersen, Adjustment with Growth.

31. The fixed exchange rate policy has since garnered widespread acceptance in the public debate and among mainstream economists. Concerns about the Danish currency’s potential devaluation have faded away, and recently, amid crises in the southern part of the European Union, some academic economists have even advocated for a revaluation of the Danish krone. See e.g. Andersen et al., Vi skal ikke; Andersen and Malchow-Møller, Økonomer; Andersen and Malchow-Møller, Macroeconomics of a Delayed Recovery; Sørensen, Det har aldrig.

32. Poul Nyrup Rasmussen (born 1943) earned his university degree in economics in 1971 and pursued a career as an economist in the labour movement. He served as a Member of Parliament from 1988 to 2005 and held the position of prime minister from 1993 to 2001. See Mørch, Poul Nyrup Rasmussen.

33. Mogens Lykketoft (born 1946) received his university degree in economics in 1971 and served as a Member of Parliament from 1981 to 2019. He held ministerial positions, including Minister of Taxation from 1981 to 1982, Minister of Finance from 1993 to 2000, and Minister of Foreign Affairs from 2000 to 2001. See Lykketoft, Erindringer.

34. Marianne Jelved (born 1943) was educated as a teacher and taught at a primary school for twenty-two years. She served in a municipal council from 1982 and 1989, has been involved in various teachers’ organizations, and was elected to the Danish Parliament in 1987 for the Social Liberal Party. She served as Minister of Economic Affairs from 1993 to 2001 and Minister of Culture from 2012 to 2015.

35. See Ministeriet for flygtninge, indvandrere og integration, Befolkningsudviklingen 2001–2021.

36. Ministeriet for flygtninge, indvandrere og integration, Indvandring, integration og samfundsøkonomi; Finansministeriet, Fremskrivning af indvandreres nettobidrag til de offentlige finanser.

37. Rasmussen, Betalingsbalancen er en privat sag; Rasmussen, Fra socialstat til minimalstat.

38. See, respectively, Velfærdskommissionen, Fremtidens velfærd; Arbejdsmarkedskommissionen, Velfærd kræver arbejde; Skattekommissionen, Lavere skat på arbejde. Also Andersen and Pedersen, Demografi, velfærdsstatsdilemma.

39. These figures are according to the Association of Danish Mortgage Banks (Realkreditrådet).

40. This well-known effect is, however, weakened because private consumption also gradually came to include a larger share of services.

41. The overall macroeconomic impact of these reforms is uncertain, making it difficult to determine whether they had positive or negative economic effects.

42. See Lyck, Udkantsdanmark og sammenhængskraft; Slumstrup and Mortensen, Oprør fra udkanten; Dybvad, Udkantsmyten.

43. These new, more restrictive measures designed to limit the number of immigrants initially sparked considerable controversy – but, of course, its impact primarily affected those who were not Danish voters. This arguably reduced its political risk compared to other reforms and, instead, it gained popularity among a significant section of Danish voters.

44. Andersen, Danmarks selvskabte økonomiske krise; Andersen and Malchow-Møller, Macroeconomics of a Delayed Recovery.

45. See e.g. Theimann, Økonomer; Kærgård, Stærke og svage regeringer; Skovgaard and Lassen, Topøkonomer.

46. Private schools in Denmark present a more intricate landscape than in many other countries. While some well-off parents opt for private, elitist schools for their children, there is an older tradition of publicly supported private schools that are often far from elitist in the traditional sense. Almost two centuries ago, a liberal religious movement known as Grundtvigianismen initiated numerous ‘free’ schools in opposition to what they saw as the public education system’s ‘death knowledge’. These schools prioritize a broad general education, including history and literature, rather than just formal knowledge and are closely connected to Danish folk high schools. In the 1970s, this tradition was complemented by various small private schools that offered experimental, creative, and even Marxist teaching. Recently, the centralization of the public school system, resulting in fewer and larger schools, has led to the emergence of several local private schools as alternatives to the abolished public schools. For more details on this development, see Andersen, Privatskole.

47. See Pedersen, Konkurrencestaten.

Additional information

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Niels Kærgård

Niels Kærgård, professor emeritus, PH.D. 1975 and dr.polit. 1991 both University of Copenhagen. Main interests economic history, economic policy and agricultural economics. Associate professor of macroeconomics 1975-1992 University of Copenhagen, full professor of agricultural economics 1993-2017 Royal Danish Agricultural University (merged with University of Copenhagen 2007). Chairman of the Danish Board of Economic Advisors 1995-2001, vice-president of the Danish Academy of Science and Letters 2008-2013