Denmark Should Not be Rich

0:00 Denmark should not be rich.

0:01 It's small, it's cold, it has almost no oil wealth,

0:05 no vast industrial base,

0:06 and it taxes nearly half of everything its economy produces.

0:10 Income taxes are sky-high, there's a 25% VAT on almost everything,

0:14 and Danish workers spend some of the fewest

0:16 hours at their desks in the developed world.

0:18 And yet, somehow, Denmark is one of the most prosperous countries on the planet.

0:23 Its economy is stable, its companies are global giants,

0:26 its people enjoy free education,

0:27 universal healthcare and some of the highest living standards anywhere,

0:30 and while much of the developed world is

0:32 struggling with rising debt and stagnant wages,

0:33 Denmark just keeps getting richer.

0:35 So, how is this possible?

0:38 At first glance, it might seem like just another Scandinavian success story.

0:42 But unlike Norway, it didn't get rich off fossil fuels, and unlike Sweden,

0:45 it's not powered by global tech giants.

0:47 Yes, by many measures, it's outperforming them both,

0:50 with faster GDP growth, higher per capita wealth,

0:52 and one of the lowest public debt levels in Europe.

0:55 But before we crown Denmark the perfect economy,

0:58 it's worth noting the cracks in the foundation.

1:00 Rising housing costs, labour shortages and pressure on its welfare system,

1:03 particularly from immigration and an ageing population,

1:06 mean the Danish model isn't without its problems.

1:08 Still, it's a system that works remarkably well.

1:11 So the question is, how?

1:13 How is Denmark pulling this off?

1:15 Is it a fluke or is there a formula behind its success?

1:18 To find out, we need to as always answer a few important questions.

1:22 Why haven't high taxes gotten in the way like they were supposed to?

1:25 Are there any special advantages that Denmark has had over its peers?

1:28 And finally, is this equitable dreamland really sustainable in the long term?

1:33 Once we have done all of that,

1:34 we can put Denmark on the economics explain leaderboard,

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2:24 It would be easy to assume that Denmark has always been rich.

2:27 But for most of its history, it was anything but.

2:30 For centuries, Denmark was a poor agricultural

2:32 country.

2:32 It relied on farming,

2:33 fishing and small-scale trade while its neighbours in Germany,

2:36 Britain and France raced ahead with industrialisation.

2:38 Even as factors transformed Europe

2:40 in the 19th century, Denmark remained heavily reliant on dairy and meat exports,

2:44 with little in the way of high value industries like machinery,

2:47 chemicals or advanced manufacturing.

2:48 By the end of the 20th century, Denmark was struggling.

2:51 It faced economic crises,

2:52 war disruptions and weak industrial development.

2:54 But after World War II, everything changed.

2:57 Although occupied by Nazi Germany from 1940 to 1945,

3:00 Denmark escaped the war with most of its

3:03 infrastructure intact.

3:04 And it faced a major choice.

3:06 Stay a low productivity agrarian economy or

3:09 modernise and integrate into the rapidly developing global trade.

3:12 It chose the latter.

3:13 In the decades that followed,

3:14 the country opened up its economy and joined the Nordic Council,

3:17 the European Free Trade Association and

3:19 eventually the European Economic Community,

3:21 which later evolved into the European Union.

3:23 By integrating into the world's largest trading

3:25 block, Denmark gained access to vast new markets,

3:27 allowing its industries to expand far beyond its

3:29 tiny domestic economy.

3:30 At the same time, alongside its Nordic neighbours, Denmark embraced what would

3:34 become the Nordic model,

3:35 a hybrid system combining capitalism with a strong welfare state.

3:39 Education was one of its first big investments.

3:42 University became free and so did vocational training.

3:45 Workers also stayed skilled and adaptable thanks

3:47 to a national commitment to lifelong training,

3:49 compared to most other advanced economies where people

3:51 will commit the first few years of their

3:52 life to training and then hope that carries

3:54 them throughout the rest of their career.

3:56 And it paid off.

3:56 Danish workers became some of the most productive in the world.

4:00 Universal healthcare followed.

4:01 Unlike in many other countries where medical

4:03 costs can derail families and businesses,

4:05 Denmark provides high quality healthcare to all citizens.

4:07 This isn't just seen as a social

4:09 policy that's nice to do for people,

4:11 but rather it's considered a prudent economic strategy.

4:14 Healthy workers take fewer sick days and have longer careers,

4:16 which means more people working

4:18 contributing to the economy.

4:19 And then there was something even more unexpected, bicycles.

4:23 Copenhagen's consistently ranked one of the

4:24 most bike-friendly cities in the world,

4:26 but this wasn't by accident.

4:28 Since 2005, the government has invested over $200 million in

4:31 cycling infrastructure.

4:32 Why?

4:32 Because cycling makes people healthier, less stressed and more

4:36 productive.

4:36 And atop of the personal perks,

4:38 biking has helped Denmark reduce traffic, improve air

4:40 quality and slash commuting times,

4:42 making life easier for workers and the economy more efficient.

4:45 But none of this came cheap.

4:47 In the late 1960s, Denmark made a radical decision.

4:50 It expanded its welfare state dramatically,

4:52 funding free healthcare, free education and social protections

4:54 with higher taxes.

4:56 Its tax-to-GDP ratio rose from 29% in 1965 to nearly 50%.

5:01 Critics warned, like they do in most economies,

5:04 that high taxes would make businesses uncompetitive.

5:06 But instead, something unexpected happened.

5:08 A well-educated and healthy population became

5:11 one of Denmark's greatest strengths.

5:12 But that alone didn't make Denmark rich.

5:14 It's more what it

5:15 enabled, which was genuine, high-value innovation.

5:18 Take Novenordisk, for example.

5:20 Founded in 1923, this Danish pharmaceutical giant focused on a niche market,

5:24 diabetes treatment, and became

5:26 the world leader.

5:26 Today, it controls nearly one third of the world's insulin supply and has had

5:30 big successes in other fields like weight loss

5:32 drugs that aren't technically weight loss drugs,

5:34 but still helped it recently become Europe's most valuable company,

5:36 with a market cap exceeding

5:38 $350 billion.

5:38 Then there's MASC, the Danish shipping company that moves 14% of global trade.

5:44 Founded in 1904, MASC expanded aggressively,

5:46 taking advantage of Denmark's strategic location

5:48 between the North Sea and the Baltic.

5:49 Today, it's one of the largest shipping companies in the world,

5:52 while the world is trading more than it ever has, for now at least.

5:56 And then there's wind.

5:57 Back in the 1970s,

5:58 while most countries were doubling down on fossil fuels, Denmark made an

6:00 unusual bet, and invested in wind power.

6:03 At the time, this seemed strange.

6:05 Remember, this was more than 50 years ago now,

6:08 so there wasn't nearly the same consciousness around

6:09 emissions.

6:10 Oil and gas were still the backbone of the global industry,

6:12 and renewables were seen as

6:14 expensive and unreliable.

6:15 But Denmark stuck with it.

6:17 Today, that investment has paid off massively.

6:20 Denmark now produces over 50% of its electricity from wind power alone,

6:23 far ahead of most other

6:24 developed nations,

6:25 which by itself would be a great accomplishment as energy security becomes

6:28 such a concern.

6:29 But it also took that knowledge and commercialised it.

6:32 Again, today it's a global

6:34 leader in renewables, with companies like Vestus exporting turbines worldwide.

6:37 It also has some

6:38 of the lowest CO2 emissions per capita amongst developed nations,

6:41 showing that economic growth

6:42 doesn't necessarily have to come at the expense of environmental sustainability.

6:46 For a small country with limited natural resources,

6:49 Denmark's economic success is remarkable.

6:50 But it's not perfect.

6:52 As a heavily export dependent economy, it faces rising risks from

6:55 global trade tensions and shifting tariffs.

6:57 A slowdown in demand from pharmaceuticals,

6:59 now one of the most dominant sectors, could ripple across the entire economy.

7:02 And with global freight rates increasingly volatile,

7:04 Denmark's shipping industry is exposed

7:06 to shocks that could hit a high employment industry.

7:08 So, how does this whole hold together,

7:10 especially with some of the highest tax rates in the world?

7:13 Why hasn't that scared off business,

7:14 slow growth, or crushed its global competitiveness?

7:16 The answer doesn't lie in how much Denmark

7:19 taxes, but in what it taxes.

7:21 Unlike countries that lean heavily on taxing businesses and payrolls,

7:25 Denmark shifts much of its tax burden to personal consumption and income.

7:28 Payroll taxes are costs that employees pay on top of salaries,

7:31 things like social security

7:32 contributions and unemployment insurance.

7:33 Income taxes are paid directly by workers on the money

7:36 they earn.

7:37 And in Denmark, they are high, with a top marginal tax rate exceeding 55%.

7:42 Then there's the value added tax, or that,

7:44 a consumption tax added to nearly every purchase.

7:46 At 25%, Denmark's VAT is one of the highest in the world.

7:50 Now that might sound like a nightmare for workers, but here's the trade-off.

7:54 Corporate taxes are relatively low.

7:55 At just 22%, Denmark's corporate tax rate is below the OECD

8:00 average of 23.6%, and far lower than Germany's 29.9% or France's 25.8%,

8:05 and that means businesses

8:06 face fewer barriers when hiring, reinvesting, or expanding.

8:09 And it works.

8:10 Denmark now has one of

8:12 the highest start-up rates in Europe.

8:14 It supports entrepreneurs with grants, minimal bureaucracy,

8:16 and a tax system that rewards reinvestment, instead of punishing profits.

8:19 In fact, the World Bank ranks it amongst the easiest

8:22 countries in the world to do business,

8:23 thanks to its digital

8:24 first administration and streamlined regulation.

8:26 That's why cities like Copenhagen have become

8:29 major start-up hubs attracting founders and investors from across Europe.

8:32 Now the thing is that, eventually,

8:34 corporate profits are distributed to individuals anyway.

8:36 Shareholders can't fund themselves with business profits alone,

8:38 they need to be paid out as dividends,

8:40 or shares sold to make a capital gain,

8:42 so just taxing the individual when that happens achieves

8:45 the same end result.

8:46 And here's where it gets even more interesting.

8:48 Despite its high personal

8:50 tax rate, Denmark doesn't burden employers with heavy

8:52 payroll taxes like many other European

8:54 countries.

8:54 That makes hiring more affordable, even compared to countries with lower income

8:58 tax rates but higher labour costs.

9:00 So businesses save money, workers take home solid wages,

9:03 and the government still collects enough revenue to fund universal healthcare,

9:06 free education, and generous benefits.

9:08 But Denmark's hybrid model doesn't just make life easier for businesses,

9:11 it also makes life less risky for workers.

9:14 Like Sweden and Norway, Denmark offers strong

9:16 worker protections,

9:17 but it stands out for a unique system called flex security, which makes

9:21 hiring and firing easy, while still giving workers a strong safety net.

9:25 Unlike in countries like

9:26 France or Italy where strict labour laws

9:29 make layoffs expensive and legally complex,

9:31 Danish companies can let employers go with minimal restrictions.

9:33 But the key difference is that when

9:35 workers are let go, they aren't left behind.

9:38 Instead, laid-off employees receive up to 90%

9:40 of their previous salary for up to two years

9:42 depending on their work history and union agreements.

9:44 And instead of handing out benefits,

9:46 Denmark actively helps workers with job training,

9:48 upskilling and helping them find new work.

9:50 The result?

9:51 Companies aren't afraid to hire,

9:53 and workers aren't terrified of losing their jobs.

9:55 The Danish system also supports workers

9:57 through life's major transitions.

9:58 Parental leave policies are generous and shared between

10:01 partners with up to 52 weeks of leave available, much of it paid.

10:05 Flexible work options like

10:06 part-time schemes and remote work help both men and women stay in the workforce,

10:09 especially after becoming parents,

10:10 and all of this helps explain why Denmark has one of the highest labour

10:14 market participation rates in the world,

10:15 with more than 77% of working age adults actively

10:18 employed.

10:18 That's comparable to Norway and slightly higher than Sweden, countries with

10:22 similarly advanced economies and social safety nets,

10:24 and significantly higher than the USA,

10:27 where there isn't the same level of social security,

10:29 so theoretically people should be

10:30 more motivated to hold on to a job.

10:32 But here's the catch.

10:33 High taxes in a strong social welfare

10:35 system only work if people trust their government, and the Danes do.

10:39 While all Nordic countries score

10:40 high on trust and transparency, Denmark often tops the list.

10:43 Government spending is transparent,

10:44 services are high quality, people see what they get in return for their taxes,

10:48 so instead of seeing high taxes as a burden, they see them as an investment.

10:51 That trust is also why inequality is low.

10:54 Denmark has one of the lowest levels of income inequality

10:56 in the world as reflected in its Gini coefficient,

10:58 a measure of how evenly income is distributed

11:00 across a population.

11:01 A Gini coefficient of zero represents perfect equality, and one represents

11:05 complete inequality, meaning one person holds all of the income.

11:08 The Gini coefficient of Denmark

11:10 is 0.28, far lower than the US at 0.41 or the UK 0.32,

11:14 despite both countries having some form of

11:17 welfare.

11:17 One of the clearest indications of this income

11:20 equality is how much CEOs earn compared

11:22 to the average worker.

11:23 Danish CEOs typically earn 60 times the average worker, in the US it's closer

11:27 to 290 times.

11:28 Denmark also reduces inequality through policy.

11:31 Low-income earners benefit from

11:33 personal deductions and a progressive tax system.

11:35 These policies mean that some low-income families

11:37 in Denmark can pay an effective negative income tax rate,

11:40 where they get back more in support than

11:41 they put in.

11:42 Housing policy helps too.

11:43 Danish homeowners can lock in fixed mortgage rates for

11:46 up to 30 years, even between different houses.

11:48 This prevents the so-called lock-in effect where

11:51 homeowners are stuck in place because rising interest

11:53 rates make it too expensive to move out

11:55 of a home purchased at a time when interest rates were low.

11:57 At the same time, Denmark provides

11:59 significant rental housing support for low-income families,

12:01 keeping housing affordable even in

12:03 major cities.

12:03 All this contributes to a rare outcome, a strong stable middle class that drives

12:08 growth.

12:08 So yes, the Danish model works, but it raises a bigger question.

12:12 Can other countries actually copy it?

12:15 Well, it's complicated.

12:16 Because while high taxes don't seem to hurt Denmark,

12:19 that doesn't mean the same setup would work everywhere.

12:22 Denmark has advantages that most

12:23 countries simply don't.

12:24 One of those is simply size.

12:27 With just 5.9 million people, Denmark is

12:29 small enough to maintain a high-trust high-tax

12:32 economy without the complexity of governing a

12:34 massive diverse population.

12:35 Compare that to the US with 345 million people, or even Germany with 84

12:40 million.

12:40 Smaller countries can move faster,

12:41 they're easier to manage, public services are simpler to

12:44 coordinate, and policies are easier to tweak when things go wrong.

12:47 It also helps that Denmark is one

12:49 of the most homogenous countries in the world.

12:51 Over 84% of its population is ethnic Danish,

12:53 and most people share a common cultural and historical background.

12:57 Economists, for obvious reasons, want to be careful about how they say this,

13:00 but it's human nature that a small,

13:02 similar group creates a foundation of trust,

13:04 especially when it comes to things like taxes.

13:06 According to a Gallup poll,

13:07 88% of Danes say they're happy to pay taxes because they believe

13:10 their government uses them efficiently.

13:11 Now compare that to the US, where only 16% say they trust

13:15 the federal government to do the right thing.

13:17 In a low-trust society, high taxes are seen as

13:19 theft.

13:19 People assume their money has been wasted,

13:21 and decades of political gridlock, corporate

13:23 lobbying, and bloated bureaucracy only reinforce that belief.

13:25 But trust isn't the only thing that

13:28 Denmark has going for it.

13:29 It also benefits from geography and trade.

13:31 Denmark sits in the heart

13:33 of Europe, surrounded by some of the wealthiest markets on earth.

13:35 Nearly 70% of its exports go

13:37 to European countries,

13:38 and its trade-driven economy thrives on stable international relationships.

13:42 Now compare that to a country like Brazil,

13:44 where exports rely heavily on volatile commodities like

13:46 soybeans and iron ore.

13:47 When global prices fall, the economy takes a hit.

13:50 So a Danish-style, high-tax,

13:51 high-welfare model would be much harder to sustain an economy with huge income

13:55 disparities, weaker institutions, and political instability.

13:58 And then there's history.

14:00 Denmark didn't build its model overnight.

14:02 It took decades of gradual reform and fine-tuning,

14:04 supported by trust between government, business, and labor.

14:07 Countries with a history of political

14:09 instability, weak institutions,

14:10 or corruption would struggle to implement a similar system.

14:13 So can other countries just copy and paste the Danish model?

14:16 Not quite, but they can learn from it.

14:18 One of the biggest takeaways is that high

14:20 taxes don't automatically destroy an economy if they're

14:22 structured the right way.

14:24 Many countries rely too heavily on taxing businesses and payrolls,

14:27 which discourages hiring and expansion.

14:29 In France, for example, employers pay over 45% in social

14:32 security contributions on top of wages,

14:34 and that makes hiring expensive, slows job creation,

14:37 and pushes unemployment higher.

14:38 Denmark avoids this issue by keeping corporate and payroll

14:41 taxes lower while relying on bat and income tax instead.

14:44 Another key lesson, investing in

14:46 long-term productivity pays off.

14:48 Denmark spends almost 6% of its GDP on education,

14:51 keeping its workforce highly skilled.

14:53 It also invests over 3% of its GDP in R&D,

14:56 making it one of the most innovative driven economies in the world.

14:59 Compare that to Italy,

15:00 which spends just 4% on education and 1.4% on R&D,

15:03 and unsurprisingly, it struggles with

15:05 stagnant productivity and a shrinking industrial base.

15:07 The takeaway, investing in people and

15:09 innovation as Denmark does, is crucial for sustained economic growth.

15:13 And finally, labor market flexibility matters.

15:15 For countries struggling with rigid labor laws or higher

15:18 unemployment,

15:18 finding a balance between work protections and business flexibility could be

15:22 the key to unlocking higher economic growth.

15:24 But here's the thing, even Denmark faces challenges.

15:28 Since 1980, almost all of Denmark's population growth has come from immigration.

15:32 Despite all of the protections afforded to people starting a family,

15:35 people still aren't doing it.

15:36 Immigration has helped fill labor shortages

15:38 and healthcare construction and services,

15:40 but it's raised uncomfortable questions about

15:42 the future of Denmark's welfare model.

15:44 Studies suggest that low-skilled migrants have

15:46 higher unemployment and lower tax contributions,

15:48 which raises concerns about long-term sustainability.

15:50 In response, the government has

15:52 made benefits more conditional,

15:53 new arrivals must meet stricter residency and employment

15:56 requirements, and Denmark has adopted a work-first approach,

15:59 prioritising integration and job

16:01 placement over long-term support.

16:02 At the same time, the country still relies on skilled migration

16:05 to support key industries,

16:07 so it's introduced fast-track visa programs for high-demand professions

16:10 like engineers and IT specialists to attract foreign

16:12 talent that can contribute to its economy.

16:14 It's a delicate balance and it may be Denmark's

16:17 biggest policy challenge in the decades to come,

16:19 but immigration isn't the only challenge Denmark faces.

16:22 Like all developed nations,

16:23 Denmark is also grappling with an ageing population.

16:25 Today, nearly 1 in 5 Danes is over 65,

16:28 and older population means higher healthcare

16:30 costs fuel working-age taxpayers and growing

16:32 pressure on the pension system, a serious test for any welfare state.

16:35 But here's where Denmark's

16:36 strength really lies.

16:37 Adaptability.

16:38 The same model that helped it bounce back from war modernised

16:41 its economy and build a thriving middle class is

16:43 now being used to tackle the challenges of tomorrow,

16:45 like demographic shifts, automation and climate change.

16:48 Denmark is already raising the retirement

16:50 age gradually to 70,

16:51 linking it to life expectancy to keep the system sustainable.

16:54 It's digitising public services at one of the fastest rates in Europe,

16:57 with over 90% of Danes using digital

16:59 ID to access healthcare, banking and government portals,

17:01 and it's investing heavily into healthcare

17:03 innovation from robot assistance surgeries

17:05 to AI-driven diagnostics in hospitals.

17:07 All this is intended to ease further labour shortages.

17:10 Denmark is also experimenting with automation and AI

17:13 across industries,

17:13 from autonomous farming to smart port logistics including a mask,

17:17 where machine learning is already optimising global shipping routes.

17:19 For a long time,

17:21 Denmark's greatest asset has been its people.

17:22 It's invested a lot into them and expected a lot

17:25 from them in return.

17:26 As these people get older, the country is going to need this technology to

17:29 fill in the spots where its people can't.

17:31 Fortunately, with a lot of wealth and the trust

17:33 that these technologies will be used to

17:35 support people instead of just replacing them,

17:37 Denmark is probably one of the best positioned countries

17:40 in the world to face these challenges.

17:42 Okay, with all that in mind,

17:44 it's now time to put Denmark on the economics explain leaderboard.

17:47 Starting as always with size, Denmark has a GDP of just over $407 billion,

17:51 making it the 35th largest economy in the world,

17:53 just behind Vietnam and just ahead of Iran.

17:56 Not massive,

17:56 but still very respectable for a country with fewer people than New York City.

18:00 It gets a 7 out of 10.

18:02 With only 5.9 million people, its per capita GDP sits at around $75,000,

18:06 one of the highest in the world.

18:08 That's more than Germany, the UK, the Netherlands and even Qatar,

18:11 a country with almost endless oil wealth.

18:13 However, it must be noted that it still falls

18:16 slightly behind the USA,

18:17 however its people don't need to work nearly as hard to get there.

18:20 It gets a 9 out of 10.

18:22 Stability and confidence is high.

18:23 Denmark is one of the most trusted,

18:25 transparent and well run democracies anywhere in the world.

18:29 Low corruption, strong institutions

18:30 and a population that actually trusts its government, that's rare.

18:32 It gets a 10 out of 10.

18:35 Growth has been steady, not explosive,

18:36 but in a world of economic shocks and for a country already

18:40 so wealthy, steady isn't a bad thing.

18:42 The economy has been driven by high productivity,

18:44 smart innovation and strong exports,

18:46 especially in shipping, farming and renewables.

18:48 It gets a 7 out of 10.

18:51 And finally, industry.

18:52 Despite its small size, Denmark punches way

18:54 above its weight.

18:55 It's home to Nova Nordisk, Europe's most valuable company, Maersk, one of

18:58 the biggest shipping giants in the world and Vestas,

19:00 a global leader in wind energy.

19:02 At a booming startup,

19:03 seen a massive R&D spending and this is a serious innovation hub.

19:07 It gets an 8 out of 10,

19:08 but only losing points because no matter how innovative it is,

19:10 it's still small and specialised compared to

19:12 the true industrial powerhouses of Germany,

19:14 Japan and of course China and the USA.

19:17 That gives Denmark an average score of 8.2 out of 10,

19:20 putting it all the way up here on the leaderboard.

19:22 Now, unfortunately, if a certain someone gets

19:24 their way, the country might end up being even smaller still.

19:28 The Kingdom of Denmark also includes

19:29 Greenland, a very barren,

19:30 very isolated landmass in the middle of the Arctic that the world's

19:34 most powerful economy wants very badly.

19:36 We've already made an entire video on why,

19:39 which you should be able to click to on your screen now.

19:43 Thanks for watching, mate.

19:45 Bye.