CONTINUITY AND CONTEMPORARY BUSINESS IN DENMARK 1

Executive summary In Denmark, globalization has resulted to the redundancy of the national boundaries for the economic transactions. The views regarding the effects of the globalization are diverse. According to some arguments, global competition is presented as a force which reduces the spending and intervention of the state. The forces include policies that are market-friendly and the state of the modern welfare. Garrett and Lange (1991, p.23). Some argue that both social and political globalization impacts are dependent on the institutions within the State. Hirst (1999, p. 69). Most literature material perceives growth of globalization as empirical due to the various specific trajectories in the national welfare and their dependence on path. Esping-Andersen (1996, p.45). The economic globalization usually constrains the policies in vulnerable nations. The review of the economic policies in fiscal spending, taxation and industrial policies are sometimes can be easily manoeuvred. Weiss (2002). According to her, globalization is does not constrain the policies but the domestic within the domestic institutions. Denmark has a declining economy in social democracy due to the higher tax imposition, the spending regime, and the strong policies in the labour market, the high equality in income and equality in the distribution of the wealth. Danish industrial structure is believed to be lagging, vulnerable and very pre-Fordist, particularly when compared to the Scandinavian neighbours Mjoset (1987, p.67). However, a recent model review indicates that despite of the problems associated with globalization, Denmark maintains high aspirations in social democracy and welfare. Nielsen (2001, p.46). Studies indicate that there have been intensive efforts in

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defending of the fiscal policies and the welfare aspirations of the state.Benner (2000, p.49). Some studies have given more attention on the strengths related with the arrangements in Denmark in mediating between the interest groups and the stakeholders and Small and Medium sized Enterprises (SMEs) in Denmark.Amin & Thomas (1998, p.32). The continuous adoption of the societal cohesion context enhances flexibility and cooperation. Lundvall (2002, p.57). The Danish Miracle successful characteristics are a reflection of the small size. Nielsen (2003, p.80). Though considered a Coordinated Market Economy, Denmark has in the recent past developed a more hybrid market economy by decentralizing collective learning and decision making, and increasing the exposure of actors to market forces. Due to this change, Denmark continues to pose a paradox for the varieties of capitalism literature and continues to raise serious concerns about one of the variety of capitalisms most important logical tenets. This report is on the globalization impacts on the political economy in Denmark.

In the first part of the report, the specific features of the Danish economy are outlined and the various challenges that characterizes globalization. The second part consists of the discussion on the globalization impacts on the economic policies, the industrial structure and on the welfare state. The conclusion contains a critical evaluation of the effectiveness of the response by Denmark and the political repercussions resulting from the response are demonstrated.

LITERATURE REVIEW The political economy in Denmark is characterized by social democracy Glyn (1995, p.25), the Scandinavian model Jespersen (1999, p.54), and its welfare state regime Esping-Andersen

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(1990, p.76). Muller- Armack likens it to the social market economy. Muller-Armack (1956, p.38). The social democracy in Denmark in areas of elected government and political core capitalism reform objectives are meant to reduce unemployment, income inequality and improve the generous social services. Denmark is universalistic in nature on welfare state aspirations and it resonates with the classical description of the social market economy by Muller-Armack. This is usually based on the market competition which enhances growth and productivity, facilitates the intervention of the state in income redistribution, and it ensures fairness in markets so as to achieve the social objectives. Generally, research shows that these terms are true only up to a certain extent. In Denmark, the dominance of the social democracy is uncontested as compared to other Scandinavian countries. Some of the key aspects that have been neglected include the policies on full employment. According to Katzenstein (1985, p.65), the democratic corporatism provides a better description that distinctively characterizes Danish political economy. It involves capturing the adaptation practices on the world market changes, and this is based on consensual political culture. These economies are usually small and should adapt to the changes. The interest group meditation is crucial in adaptation and compensation process. Studies reveal that Danish economy relies greatly on bargaining and negotiation. In negotiated economy, many institutions and other inter-institutional networks will engage problem solving debates and make negotiations which result to conflict resolution. The interpretation framework is based on relatively homogeneous population and on rough power symmetry in the capital-labour relations. The negotiated economy in Denmark is based on self-organization principles, egalitarianism, consensus and compromise approaches. Capital formation, labour, and well established government was not experienced in Denmark due to the presence of strong countervailing forces. The centralized corporatist model was mainly impossible due to the

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nature of the state: it was highly decentralized. However, the availability of the pluralistic and localized reform process enhanced the acceptance of the co-determination principles and division of responsibilities. Basically, the industrial structure in Denmark is mostly dominated by the SMEs and the economy specializes in low value added, and the strong international competition. Research show that the development in food and pharmaceutical industries has not been Cleary defined. Maskell (1998, p.41). Denmark dependent highly on the SMEs with the basic low-tech and medium-tech fields, hence the growth in the international markets is limited. The domination by social democrats in Denmark was significant, and conservative government election between 1982 and 1993 was not successful in legacy changing of economic governance and social democratic politics. In 2001, there was formation of a coalition between the social democrats and the social liberals. However, there should be no overestimation of the discretionary power by the national Danish governments. Centre parties have been in the forefront in providing the coalition votes necessary for governance leading to the emergence of strong consensual policies despite of the governing partys political spectrum. The consensus history in Denmark has since 2002 been very uncertain. For once after fifty years, now Denmark has a majority in the right-wing government which is independent of centre partys moderating influence. The hybridization thus incorporates both the Liberal Market Economies (LME) and Coordinated Market Economies (CME) characteristics and being a CME, Denmark has elements typically found in LMEs that has been incorporated into its structure in ways that have enhanced its socioeconomic performance. This has been clearly demonstrated by institutions governing vocational training and skills formation, labour markets and industrial policy. In studying labour markets, Denmark clearly exhibited traits associated with CMEs by having almost 80% of all workers unionized and were covered by the collective

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bargaining agreements (CBAs) reached through corporatist institutions. On the other hand, employees in the private sector had rather limited levels of employment protection thus employers had an upper hand depending on the market signals, to hire and fire workers. In addition, decentralization of bargaining regarding job training, work scheduling, especially to the level of individual firms, represented a move in the direction of LMEs. Thus, Denmarks overall level of employment protection changed from that of pure CMEs to move closer to pure LMEs. Historically, Denmark is highlighted as one of the easiest in business conducting. At the initial stages, Denmark had already been integrated internationally. The Danish firms used to operate subsidiaries and affiliates abroad. Various latent internal and external forces challenged the success. Until 1970, Denmark was a homogenous country after which the influx of the working immigrants affected its economy. With the shifting of the demographics, Danes started questioning the beneficiaries of the taxes and payments from social security. Danes believed that their transition from the close knit community threatened their democratic values and exposed them to the diverse society. The concern by the Danes was on the sustenance of their welfare. In 2008, Denmark entered into a recession. According to Lars Lkke Rasmusse, Denmark was supposed to strike a balance between the globalization and social welfare of the state. There was an active subsidization in alternative energy innovation by Denmark after the economic recession in 1970. According to Paul Krugman, the shifts in relative demand in labour; both skilled and unskilled, leading to unemployment and tensions in welfare state policies. According to Peter Katzenstein, the economic downswings in the world markets contributed greatly to the adjustment of policies so as to sustain globalization. Some economists argue the enhancement of the adaptability by the welfare states in traditional

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unemployment. The present day Denmark reflects independence and a considerable decline in the geographical size. Denmark transformed from a superpower under the Northern Europe to a prosperous nation. The Vikings used techniques that were very advanced when they were building ship. Vikings were feared since they were used for warfare and in looting throughout the whole period. Both the 16th and 17th centuries saw the stability in the economy.

Influence of globalization on policies and decision making processes in Denmark Globalization can be perceived as techniques used in intensifying the worldwide interconnections of the economic activities. According Appelt & Weiss (2001, p. 15), globalization is ideally a discursive process that is based on neo-liberalism, evidenced by the neo-liberal discourse in competition, the comparative advantages, and the investment friendly environments.

The Economic Policy Globalization reduced significantly the repertoire and the efficiency of the national economic policies. Mostly, the instruments used in traditional macroeconomic disappeared and effectiveness of other instruments adversely declined. The global capital markets hindered the effective control of the money supply and the interest rates. This undermined the effectiveness for the national monetary policy. Moreover, at national level, the exchange rate management became vulnerable to the speculative capital movements. As a result, the economic policy makers aim at accommodating expectations by the big investors internationally, in their consideration of the most appropriate measures in the economic policy. This has proved more imperative than the domestic political considerations. The perception of European Union as the supranational body limits the plans by the EU countries in using the instruments in macroeconomic policy. The Keynesian demand

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management effectiveness has reduced due to spill over demand effects of the expansion across the borders. Some industrial policy instruments have been ineffective in transfer production and undermine the efforts towards the support of the "national champions".

The Global Trade The Free trade free capital availability improves the international competition and as well as inducing pressures on OECD member countries in pursuing the industrial restructuring measures. Cow-cost producers competition based on the modern technologies in production has been very vital. New market economies affect the restructuring processes. The effects competitive ventures are grave and the individual nation states should cautiously reallocate the resources thus shifting the international markets conditions. The pressure towards industrial upgrade in Denmark is especially high due to the low and medium tech specialization.

The Social Policies Domestic socio-economic adjustment encompasses shifting of the resources from shrinking sectors to expanding sector. As a result, there is greater need to compensate so as to alleviate adjustment process. The compensation capacities appear to be declining. The curtailed efficiency and the autonomy in the management of the macroeconomic policy have undermined the nation state policies on full employment. This was considered as first most line of the defence from poverty in Keynesian model of welfare state. Mishra (1999, p.48). Secondly, the effectiveness in the social support defence has drastically reduced due to the decline in effectiveness of taxation of the increased mobility of the tax base national governments. Moreover, globalization is believed to undermine the extent to which the political basis can chip in and facilitate the

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funding of the welfare state. Usually, it is said that employers demand the reduction in taxes and contribution in social security. They argue that these two impedes their competitiveness globally. On the other hand, the political forces will resist the tax cuts and weaken the decline in social contributions. Some other barriers arise due to the integration of the EU monetary union and common market. The increased barriers are as a result of the unavailability of common integration of social policy. These lead to downward spiralling in social standards even as the nation counters the competition in the international market.

The Ideological Change Despite of the factual effects of globalization, there are also the indirect effects that involve the change in the strategic arena as well as the payoffs from various actions. The reorientation in political perspectives as well as changes in the shared mental models follows. The ideological forces play a key role in apparent convergence of the political and the social agendas in the commitment towards the price stability, privatization, low deficits and taxation, and expenditure cuts measures in welfare and social support. In the non-liberal discourse, the Danish socio-economic development is affected when the factual pressures are limited. The consequences are real, particularly if those involved believe in globalization. Ganssmann (2001, p.48). Some other impacts of globalization include the decline in the wages due to the increase in the international competitions. Lack of skilled labour exposed the high-cost countries to severe competitive pressures. Furthermore, globalization is believed to reinforce the disintegration of the pre-existing bargains. The Danish "negotiated economy" context on future survival of the institutions that have been established raises contentions. Kjaer & Pedersen (200l,p.45). The rate of unemployment is higher than average among the low-

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skilled workers. However, efforts were made towards the prevention of their social and economic marginalization. This was done through income support supplement in 1990s and it was done through a special program on democratic workforce.

Response of Denmark The globalization pressures affected the Danish government capacity in promotion of the national prosperity through the macroeconomic policy. In 1984, Denmark made remarkable efforts in de-regulation of the credit and liberalization of the capital movements. After this period, Denmark has not been able to regulate and manipulate credit, though the effects of these two instruments are minimal. Denmark declined EURO currency and did not join European Monetary Union (EMU). Despite of this, its exchange rates and other monetary policies are linked to EU, which is based on EMU membership. Their interest rates were higher than from other members of the union. The influence of Denmark on decision-making processes in European Central Bank is limited, and is prone to speculative attacks. As a result, Denmark relies on policies that are more prudent policies than in cases where it could be part of EMU. The severity of the speculative attacks suffered by Denmark was not as serious as it was in Britain and Sweden. By 1982, the Denmarks exchange rate was linked fully to Germans Mark then to EURO. The Danish governments were strongly committed to the fixed rate in boosting the employment through budget deficits and devaluations of the currency. The rate of unemployment was very high in Denmark than it was in the other countries. The regime of the economic policy acted as a surrender to the capitalism and departure from the definitions of the Scandinavian model. Globalization has resulted to a

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significant reduction in Keynesian demand management. Not all autonomy was lost, recent developments depict macroeconomic policy scope which support employment. Between 1993 and 1994, the democratic government revived the stagnant economy using different policies that relied on existing manoeuvring room based on fixed exchange rate during the international growth regime. Combination of these measures with innovative arrangements on paid leave, a declining level in unemployment resulted in Denmark. Loftager & Madsen (1997, p.36). The labour market supply played key roles towards the success and it was clear that the demand management could be effective even in employment policies on condition that they be conducted on criteria of anti-inflationary and fixed exchange rate regime. Sources depict that apart from macroeconomic policies being limited in achieving the economic growth, they contribute to unemployment and they are usually irrelevant. Efforts are made towards improving of quality in production sector especially in technology, knowledge skills and the social skills. The formulation of policies in industry, labour market, education and in training facilitated the improvement of the economic performance. The Schumpeterianism; new regime replaced the Keynesianism, and this was characterized by the supply side measures substituting the demand side measure which has boosted competitiveness and restructuring Jessop (2000, p.58). The adoption of these structural policies by Denmark took place earlier and in 1980s, some major technological policies were initiated which acted as guidelines in the economic policies. Nielsen (1991, p.71). There was an introduction of structural monitoring system by the government in 1997 meant to enhance the structural competitiveness. It also reduced structural unemployment. As a result, new polices emerged in industrial and labour market sectors. The traditional macroeconomic policies were greatly undermined by the increased pressures from globalization. The management of the aggregate demand is still limited despite of the

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institution constrain from the deficit limit that was imposed by EU Stability. The effects on smaller countries lie Denmark were minimal. The smallness and openness restricted the autonomy. The growth in structural policies in Denmark has been remarkable and its progress in economic policy is commendable.

GLOBAL TRADE The global industrial reorganization facilitated specialization that contributed to structural changes between and within industrial trade economies. Held et al (1999, p.186). Denmark showed such a trend in its economy, where this Danish economy did not suffer from the high competitions of the low-wage countries. In 2000, the 88% of its proceedings were obtained from trade with other OECD countries, while about 68% was from the EU. Trade with industrialized economies from Asia (NIEs) constituted 1.4% and 3.8% from the CEE countries. Increase in the trade between Denmark and NIEs was negligible in the last decade while that with the CEE grew gradually from 1.4% to 3.8%. The trade between Denmark to CEE was characterized by Danish exports increasing significantly than the imports (Rasmussen and Andersen 2002). Despite of the occurrence of specialization pattern, competition was still heightened in the low-cost countries. Denmark can be classified as one of the countries with the highest level of specialization. The Danish exports were highest in food products and less of pharmaceuticals and furniture. Various challenges ere experienced in pharmaceuticals, biomedical electronics and wireless communication. The industrial structure in Denmark was dominated by international level sectors that were characterized by low research, growth and wages. This weakened the already low specialization degree of the high-tech products. Despite of these challenges, the maintenance and improvement of relative positions in Denmark was a success

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and it was measured in GDP per capita. Flexibility and adaptability in the use of resources enhanced the diffusion of new technologies in both the low tech and the medium tech industries. This period saw advanced production equipment and improved manufacturing methods in foodstuffs, in furniture and in clothing. This contributed significantly to the expertise in design and marketing. Lundvall (2002, p.98). The assets in experience-based knowledge in the traditional industries are limited to R&D, but social interaction on the organizations boundaries, on the departments and in the management levels dominated. The system is capable of supporting the interaction between education and labour market. The structural reforms were aimed at facilitating capabilities and flexibility in labour markets. The Danish society was characterized by the strong cohesion where the firms took advantage of the relatively huge stock in social capital and the mutual trust. This results to a reduction of costs in the firm transaction and enhances the adaptation, cooperation and learning among the firms. The localized learning was on the basis of shared trust acted major competitive assets in Denmark. Maskell et al. (1999, p.76). The degree of direct investments in the international level was very low. Danish Competition Authority (1999,p.180). This low degree in outward foreign investment reflected the small sized nature of Danish firms and the large multinationals in smaller numbers than in Sweden and Netherlands. The SMEs predominance made many foreign firms being uninterested in making any investments in Denmark. Also, the investment by foreign firms was affected by the challenges in tapping the competitive sources of Danish economy. The experience-based knowledge entailed the context tacit knowledge. Despite of the availability of such knowledge amongst the insiders, its transfer is usually hard. It was crucial that availability of any specialization in the high tech products be backed-up by codified (R&D) knowledge. In Denmark, the previous two decades were characterized by increase in the foreign investments. In Denmark, the FDIs

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share quadrupled as that of GDP. Danish Government (1997, p. 53). Contrary to Swedish firms, the Danish firms were dependent on the national innovation systems in technological and organization adaptation, hence they preferred voice to exit.

Areas of improvement: welfare restructuring Despite of globalization, the social spending, which is a percentage of GDP increased substantially. The high expenditure by the welfare is usually incompatible with the globalizations economic growth. The welfare provision evidence is not systematic and it affects the performance of trade. Pfaller et al.(1991, p.90). The availability of strong welfare programs is believed to enhance high level social capita as well as creation of strong social support in social capital maintenance. Selle (1999, p.80). It is believed that there is no correlation between employment and taxation. The case was true for Denmark in that Denmark is highly dependent on the income taxes and the contributions from other employers, the availability of the security in modest job, and finally, the strong decentralized and collective bargaining was very strong. The welfare state in Denmark was described as being compatible with other competitive economies. The migration and integration of the European affected the Danish approach critically. Apart from the ideological and structural changes, the political repercussions constituted majority of the decisive impacts in Denmark. The government in Denmark sided with Britain in the opposition evidenced by rejection of the Maastricht treaty by the Danish electorate. As a result, Denmarks situation became unsustainable due to exemption from the dynamic developments within the EU. Most political parties and various interest groups favoured Denmark. The elites and ordinary nationals from Denmark split. The emergent split was because of divergence in the

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perceptions toward globalization. Elites considered globalization being an opportunity but other citizens considered it to be an obstacle.

CONCLUSION The negotiated economy in Denmark mediated the effects of globalization pressures particularly in the national context. Facts on globalization influence within the Danish economy are minimal but there is an ideological evidence of the impacts of neoliberal ideas regarding the e policy discourse. The trade regulations in EU through some international bodies such as WTO denote alterations and renegotiations in state sovereignty. Denmark was one of pioneers in enactment of the adjustments from autonomy loss before popularity of globalization. The transition of Denmark from a Keynesian demand to the Schumpeterian supply side, some challenges in globalization were solved. The economy of Denmark is faced by low unemployment levels, dynamism in industrial networks, stability in public finances and strong currency. Generally, Denmark does not have large companies, the high tech industries are incomprehensive and the influential interest group are of high tax burden. Remarkably, a country with well planned welfare related expenditures will have the equality in transition from the demand side to the supply side free of welfare retrenchment and without causing any discrepancies in wages. Despite of the open market economy in Denmark, there have been obstacles when dealing with the outsiders. The nonliberal ideologies by the public did not alter the social consensus in Denmark but it changed negotiated economy practices. Apparent split between the elites and the ordinary people evidenced the negative ideological impacts of the neo-liberal ideas in public discourse of Denmark. The integrative democracy which involves strong participatory elements is a

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guarantee of strong relationship between elite and ordinary discourses in a negotiated economy. The split that occurred latest was a potentially disruptive phenomenon. Generally, the growing globalization in Denmark can be likened to a sinking ship from a rough sea. In order to prevent any wreckage, a consensus on the intended direction and collaboration amongst the crew should be reached through solidarity and equality. Globalization can be likened to a rough sea and efforts to steer the ship is from the political elite. The elites express their eagerness in exploiting the new opportunities but ordinary citizens will be worried about the costs. The political party support has been facilitated by the strategic positioning of the party in the defending side of the ordinary person from the effects of globalization. The opposition by the EU has reinforced the xenophobic reactions in the Danish public. As a result, the downgrading of the welfare benefits may be necessary in coping up with the asylum seekers. The threats in the welfare state and they have contributed to inactiveness in the defensive posture for the active initiatives. As a result, the defensive posture by the politicians in Denmark influences the transformations in the society. The activities of parties are an example of a compromise on strict measures so as to meet deadlines. The compromise hinders the efforts to make any remarkable progress by the government. Denmark, being one of the CMEs has employed tighter monetary policy, deficit reduction, an undervalued currency, increased debt-driven consumer demand and the pursuit of stable exchange rates for her success.

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CONTINUITY AND CONTEMPORARY BUSINESS IN DENMARK 22

Klaus Nielsen (1) and Stefan Kesting (2)

(1) Roskilde University Denmark and Birkbeck, University of London and (2) University of Bremen

Klaus Nielsen is Professor in Social Science (Institutional theory) at the University of Roskilde, Denmark, and Senior Lecturer in Management at Birkbeck, University of London, UK. He has published several books including Institutions and Economic Change. New Perspectives on Markets, Firms and Technologies (1998) (with Bjorn Johnson) and Strategic Choice and Path-Dependency in Post-Socialism (1995) (with Jerzy Hausner and Bob Jessop). In the context of a new Book Series New Developments in Institutional Theory (Edward Elgar) of which he is the editor, two of his forthcoming books are Institutionalism in Economics and Sociology. Variety, Dialogue and Future Challenges and Social Capital, Trust and Institutions.

Stefan Kesting holds a Ph.D. in economics and is working as lecturer and researcher at the University of Bremen, Germany. As an institutional and social economist, he has published articles on power and language in economics. He is author of a textbook on microeconomics in German Mikookonomik (Oldenbourg 2003, with A. Biesecker) and is currently writing a book on welfare economics.

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