Danish PM Discusses Challenges, Achievements of Welfare State

Speaking at the Kennedy School of Government on Thursday night, Danish Prime Minister Lars Løkke Rasmussen lauded the Nordic welfare state but acknowledged the perverse labor incentives that its social programs can engender.

The John F. Kennedy Jr. Forum event, moderated by Kennedy School acting Dean Archon Fung, came just hours after Rasmussen attended the annual Northern Future Forum hosted in Reykjavik, a summit between the Nordic-Baltic Eight and the United Kingdom. Rasmussen, the leader of Denmark’s centre-right Liberal Party, assumed office in June 2015, having also previously served as Prime Minister from 2009 to 2011.

Rasmussen began his remarks by introducing the achievements of the Danish welfare state, noting the tradeoff Danes make by accepting a high level of taxation—up to more than 50 percent of their income—for a high level of security. Among its social programs, Denmark guarantees one year of paid maternity leave, subsidized early childhood development and care, and free higher education.

“Denmark is sometimes compared to a bumblebee—at first sight it seems almost impossible that a bumblebee would be able to fly, but it does,” Rasmussen said. “And as I understand, the main reason is that a bumblebee flaps harder with its wings than other wings, and perhaps that explains why we are flying as well.”

Rasmussen highlighted four reasons why the Danish social welfare state was successful: first, the creation of a strong social contract between the citizens and the government, in which high tax payments return in the form safety and comprehensive services; second, a broad economic consensus across political parties; third, a flexible labor market that makes it easy to hire or fire employees; and fourth, the access to the European single market.

But Rasmussen also noted that Denmark was not without its own challenges. With significant Asian economic growth, for instance, Rasmussen said Denmark needs to confront the outsourcing of jobs to low-salary countries like China and India.

“In a society with high taxes, we have to be very conscious about the incentives to work—in a society with a high level of social security, we have to pay special attention to the incentives among lower-income groups,” he added. “We continuously have to make sure that we do not undermine the sense of personal responsibility and citizenship.”

Rasmussen proposed capping the amount that individuals can receive from the state while cutting taxes on low-income individuals. These two policy changes, he suggested, would work in tandem to increase the income gap between those that live solely on social benefits and those who work at a low-income level.

When asked about Denmark’s tough response to the ongoing Syrian refugee crisis—the Danish government recently placed ads in Lebanese newspapers warning refugees not to come to the country—Rasmussen said that, while he was sympathetic to those seeking a better life, Denmark—and Europe—could not accept millions of refugees.

“We need to make this distinction between refugees from the war, who we are going to protect, and people who are migrants, who want a better life,” Rasmussen said, noting that trying to integrate waves of migrants would be too burdensome for his country. Rasmussen added that he wanted to strengthen incentives for those that do come to the country to integrate themselves in Danish society, learning the language and joining its workforce.

“Europe realizes that of course we need to stand up for our values and we need to welcome refugees, but we also must understand that we can’t absorb potentially ten million,” Rasmussen said. “Therefore we have to do a lot at the same time—invest more in the neighboring countries, invest more in a political solution.”