In terms of GNP per capita, today Denmark is ranked among the top five countries in the world. It has the lowest unemployment rate in the world with the highest degree of income equality.

The Kingdom of Denmark is the southernmost and the smallest of the Scandinavian countries and borders the Baltic and the North Sea. Denmark was one of the first European colonial powers controlling Iceland, Greenland and parts of Asia and Africa. Today, Denmark is a highly developed welfare state ensuring free health care and promoting secure public sector employment. It has been ranked first in the European pension barometer survey. The large public sector, which forms around 30% of the entire workforce, is financed by the world’s highest taxes, overtaking Sweden. Denmark’s current income tax average is 47.4%. Denmark has few natural resources but manages to keep itself self-sufficient in energy. Its principal exports are machinery, instruments and food products with the U.S. being its biggest non-European trader accounting for 5% of total trade volumes.

History

Of kings and Vikings

Denmark was peopled by reindeer hunters during the melting moments of the last Ice Age and the post-glacial period saw the growth of settlements and the creation of deep fjords which are some of the most beautiful places in the country today.

With the arrival of the fierce Vikings from Norway around 800 AD, Denmark entered the European historical scene. The Danish monarchy, which is the Western world’s oldest, traces its roots back to the Norwegian Viking chieftain Hardegon’s son Gorm the Old who established his reign early in the 10th century. Gorm's son, Harald Blataand, completed the conquest of the Danes, speeding their conversion to Christianity. The word “Bluetooth” is the anglicized version of Blaatand’s name and is popularized today through the eponymous electronic device. Blataand, whose biography is recorded on the famous carved Jelling rune stones, was responsible for uniting the Danes. Under him Denmark emerged as an independent state. The Viking Age lasted for three centuries and during this time they settled in Iceland, Greenland and Newfoundland. This time was crucial for the establishment of Denmark’s identity, and transformed the country from an unknown heathen land to an organized kingdom.

The murder in 1086 of Canute the Holy (Canute IV) by the Danish nobles put an end to the great Viking Age and medieval Denmark underwent dark upheavals until the momentous marriage of King Valdemar’s daughter Margrethe to the King of Norway, Hakon IV. She was soon appointed Queen of Denmark in 1387 after Hakon’s death, and she successfully united Denmark, Norway and Sweden forming the Kalmar Union.

However, the Union dissolved and the Reformation ravaged the country in the 16th century with burnt churches and massive civil wars all around. This movement lasted until the powerful Catholic Church was ousted and the Danish Lutheran Church was established in its place, with the monarchy at its head. Denmark was involved in numerous wars for almost two centuries, but it recovered and prospered during the latter half of the 18th century.

A constitution is laid

Democratic movements in Denmark led to the adoption of a constitution in 1849, which created a constitutional monarchy. But the country was forced to give up Schleswig in southern Jutland to Germany after its inhabitants, people of both Danish and German heritage, revolted against the new constitution. The 19th century was not just a time for political revolution but also a time of economic and cultural changes. The Industrial Revolution changed the face of Denmark by modernizing agricultural equipment and bringing railroad networks. The world famous Tivoli amusement park was established in 1843. Hans Christian Andersen’s stories began to be popular and Søren Kierkegaard’s existentialist philosophies launched new ways of thinking.

Denmark has a highly skilled and trained personnel intended to be sent on peacekeeping missions, and is particularly active in Afghanistan. In January 2007, reconstruction assistance for Afghanistan increased by 60% from $18 million to $30 million. In 2006, 1.41 % of the Danish GDP was spent on defense.

Denmark maintained its policy of neutrality during both the World Wars. But during World War II, the country was stormed by “Operation Weserübung” in 1940, and submitted to the Germans. Even as Germany took control of Denmark, the Norwegian colonies of Iceland, Greenland and the Faroe Islands now began to break away from Danish dominance. Iceland declared its complete independence from Denmark in 1944 and although Greenland and the Faroe Islands still come under the purview of the Kingdom of Denmark, they are essentially self-governing.

Win some, lose some

Post-war Denmark became one of the founding members of the United Nations and NATO, and in 1973 joined the European Community (now the European Union). The Danes have always been hesitant in supporting the expansion of the EU. Denmark rejected the EU’s ratification of the Maastricht Treaty, which established the terms of a European economic and political union. Later, Denmark rejected the adoption of the Euro in 2000. Many surmise that Denmark is simply wary of losing its political independence and national sovereignty.

Although known for its cynicism of a pan-European identity, Denmark is also recognized for running one of the healthiest economies in the world. The country’s employment levels are the envy of other countries. Today Denmark is ruled by Queen Margrethe II, together with Prime Minister Anders Fogh Rasmussen. His center-right government was re-elected for a third term in November 2007 when voters endorsed its policies to boost the economy and tighten immigration.

Culture

A global meeting point

Denmark has something for everyone. Copenhagen delights people with its sultry nightlife, while Aarhus pleases with its music festivals and performances. History buffs can scout around the city of Roskilde, which echoes the time of the Vikings, while swimmers and surfers can hit the Skagen shores. Sport enthusiasts can go cycling, as Denmark is quite cycle-friendly with wide and extensive biking routes laid throughout the country. The more sedate can go canal hopping since much of Denmark is built along canals, and shoppers can walk along Stroget, the longest pedestrian shopping area in Europe.

The LEGO Group was founded in 1932 by Ole Kirk Christiansen, a carpenter. Now owned by one of his grandchildren, the Lego company claims that the popular toy bricks are so meticulously manufactured that out of every one million pieces made, just 18 will be declared defective. In 2007, the company’s revenue was $1.584 billion, compared with $1.539 billion in 2006, representing a 2.9% increase.

Denmark’s icons range from golden beer and Legos to deep fjords to fairy tales. The ubiquitous Lego bricks had humble beginnings and were originally invented in Denmark in 1932 by a carpenter. The name Lego comes from the Danish phrase “leg godt” which means “play well”. Hans Christian Andersen wrote his stories sitting in a house in Odense on the island of Funen, which makes for an enriching visit. Danish architects of the last century such as Arne Jacobsen, Jørn Utzon, Hans J. Wegner and Børge Mogensen are revered icons of the design world. Boasting Danish modern design, it is common to see minimalist cafes dotting the cityscape and funky buildings made of an assortment of materials lining the harbors and squares.

Food and drink are much loved by the Danes and probably forms the basis for the well known Danish saying that the only time one is likely to find a Dane with a knife in hand is when s/he has a fork in the other. Pølsevogns¹ are found around every other corner while the Smørrebrød² is a staple food in every house and the Frikadeller is the Danish national dish, consisting of fried flat dumplings of minced meat and it remains popular with visitors and locals alike. The Danes consume more beer on average than any other country in the world, and Denmark has a number of beer gardens where people unwind in the evenings. Carlsberg, one of the most popular brands across the globe, is made in Denmark and has its brewery in Copenhagen. Culturally, vibrant Denmark regales locals and visitors alike with its evident love for the lighter side of life.

Built in the 17^th century, the Danish Stock Exchange, or Børsen, is a historical icon of Denmark. Active until 1974, the Copenhagen Stock Exchange then took it over and today is rated as one of the best in the world. Over the past five years the exchange has outperformed most European stock markets. In 2005, according to The Economist Intelligence Unit's list of the world's investment magnets, Denmark was ranked as the world’s top investment country.

Economy

Grassroots economy

The Danish economy witnessed great growth during the 19th century, outperforming most other European countries. Denmark began as an agricultural economy, and the arrival of industrialization in the 1870s served to accelerate and improve the agricultural sector. With the gaining popularity of cooperatives starting in the 1880s, creameries began to be set up where steam driven cream separators were used, hastening the process. This gave birth to the iconic Danish dairy. The Danish dairy industry captured over a third of the rapidly expanding British butter-import market, establishing a reputation for consistent quality that was reflected in high prices. Today the Danish dairy figures among the world’s top five exporting nations for dairy products.

Denmark’s traditional neutralism left it unaffected during World War I and it was even allowed to continue exporting from both sides of the conflict. By the time the Great Depression hit Denmark, agriculture still employed one-third of the workforce and agricultural goods made up 80% of total exports. During World War II, Denmark once again was spared the worst consequence due to its neutrality and the Marshall Plan supported the country’s rapid economic reconstruction.

Denmark was exhausted after the war and its economy still subsisted on agriculture and agro food. The industrial base was quite thin and whatever private services existed were involved with agriculture, construction or shipping. The fifties brought in a slow but major transformation in the economy with the shifting of labor from agriculture to manufacturing and services and towards the end of the decade the manufacturing industry had overtaken that of agriculture. In the next decade there was a strong growth in public sector activities related to education, health and childcare. Agriculture began to dwindle as trade among countries began to flourish due to liberalization of the flow of goods and capital in Western Europe within the framework of the Organization for European Economic Cooperation (OEEC). The export share of industrial production doubled from 10% to 20% around 1957 around the same time that employment in industry surpassed agricultural employment.

Denmark became the first European Union economy to contract, shrinking by 0.6% in the first quarter of 2008. Consumer confidence hit the lowest since 1999, dipping to -6.6 from -3.5 in May this year.

In the 1960’s several major developments took place. Denmark joined the European Free Trade Association (EFTA) created under the British, its largest trading partner. Denmark then went through a high growth period as the importance of agriculture waned and the share of employment in the public sector began to grow rapidly. The modern Scandinavian welfare state began to reprise when public expenditure as a share of the GDP exceeded that of most other countries. The public health care system and education expanded, both free for all citizens even today. With the expansion of public facilities for the aged and children in day care, the number of public employees increased as married women were now able to join the workforce.

Denmark’s golden period lasted until the mid-70s when unemployment started dipping and economic growth slackened. GDP growth stood at 2.3% per year down from a rate of about 4.5% during 1960-70, due to a spate of structural problems like deficits in the public budget and balance of payments. This forced the Danish government to increase its intervention in the economy. Subsequent oil shocks compounded the country’s problems, causing serious internal recession. The government counteracted through fiscal policy adjustments, which included devaluating the Danish Krone twice. The decade from 1973 to 1982 is known as the period of stagflation, characterized by low economic growth, averaging less than 2% a year.

During the 1970s, which was one of the worst times for the Danish economy the only industry that was given attention was that of wind power. Propelled by the energy crisis Denmark focused its attention on the fledgling wind power industry and the government promoted the industry through tax incentives and subsidies enabling it to grow. But it was the emergence of the IT sector in the late1980s and 1990s that whipped the economy into action. From 1992 to 2002 the IT sector experienced a very high growth of employment of 131%, growing from 18,100 to 41,700 employees.

Denmark today relies heavily on renewable energy resources, with around 20% of its energy being supplied by wind power. Danish companies manufacture 40% of the world’s supply of wind turbines and exported US$7.45 billion in energy technology and equipment in 2005.

The potato cure and Whitsun package

In the 1980s interest rates rose to over 20% and national debt ballooned drastically. But a host of policy measures including a tight income policy, the reining in of public expenditure, and the reworking of exchange rate policies brought a turnaround to the economy by 1986. The steep interest rates slid with the deregulation of capital movements between Denmark and other countries, which in turn led to a hike in property prices, rising private consumption and an increase in investment activity. From 1983 to 1986, annual economic growth averaged over 3.5%, and unemployment fell to below 8% in 1987, the second-lowest level in the EU. As such, the country achieved a public budget surplus in 1986-87 for the first time since 1975. Then Denmark tried the “potato cure”, which consisted of a package of direct and indirect tax hikes, to counter erosion of competitiveness. This led to a very high current account deficit and a surge in overseas debt. Growth in private consumption and investment was curbed and the potato cure miraculously healed the imbalanced economy leading to a substantial drop in property prices.

Denmark’s bleak period was almost coming to an end. In 1993, the Social Democrats came into power and tried to stimulate production and employment by abolishing some of the fiscal policies introduced during the potato cure. This led to a fall in interest rates and a decline in unemployment to just below 7% in 1997, resulting in growth in the economy. In 1998, the “Whitsun package” was adopted, which included increased pension contributions, heavier property taxation and additional green taxes, all of which, swung back the current account to a surplus in 1999.

The 21st century dawned on Denmark with the burst of the IT bubble, critically affecting exports and bringing the average annual growth down to a mere 0.6%. The employment rate which had been falling since 1993 suddenly shot up to 7% in 2003. But during 2004 the economy pulled itself up by the bootstraps. The recovery was driven by a boost in private consumption, as income tax breaks and large wealth gains substantially increased household purchasing power.

Copenhagen is the largest cruise port in northern Europe. In 2007, more than 420,000 passengers arrived in the city on 289 cruise ships, providing a total turnover of approximately $134.68 million. Tourism is an important source of foreign currency and employment in this city. In 2007, the tourist sector in Copenhagen alone employed around 52.300 people and had a turnover of $ $5.4 billion.

In 2006, Denmark was voted the most competitive and dynamic economy by the World Economic Forum. The Danish economy reaped multiple benefits from globalization and its export-oriented economy profited from the general expansion in international trade. Denmark’s exports of products and services constitute approximately 50% of GDP and around 75% of the exported goods include a wide range of industrial products. Machinery and instruments constitute the largest individual category. Services make up around 74% of GDP while industry makes up 24.6%. Foreign trade is very important to the Danish economy, and 65% of the trade is done with other EU countries, with Germany as the country’s most important trading partner.

The model welfare state

The formula for the Danish welfare state is expressed in the lyrics of a Danish song which describes that a country has progressed far when “few have too much and fewer too little”³ . With the taxes as a tool, an equalization of income is achieved so that everyone has the necessary material framework for living a reasonable life. The basic principle of the Danish welfare system is that all citizens have equal rights to social security and one of its distinctive features has been its focus on the needs of the individual rather than the family. Public expenditure in Denmark accounts for 26% of the GDP and the Danish welfare model is subsidized by the state. As such, Denmark has one of the highest taxation levels in the world. The Danish economy is organized along the principles of the Danish Model, with 33% of the taxes are paid back to the citizens as transfer income and the public sector is so large that it accounts for about 30% of all employees.

At the center of the current Danish model is a labor market strategy called “flexicurity”, where the adaptive nature of companies is reflected without affecting the employees’ job security. Denmark offers an ingenious blend of free markets and social democracy – despite heavy unionization, there are no regulations against laying off workers other than the requirement of advance notice. Flexicurity runs on two cornerstones – the flexibility of employers to hire and fire and the security that employees enjoy in terms of generous unemployment benefits. The mix has been credited by many as the cocktail that has helped to reduce Denmark’s unemployment from 10% in 1995 to 4.5% at the end of 2006.

Challenges and triumphs

The Danish organic industry is a vital contributor to the economy with a 65% increase in organic sales in the past three years. The consumption of organic foodstuff grew from a market share of 5.5% to 7.5% in 2007, while turnover increased by 33% in 2007 year-on-year. Denmark, recently chosen as the Organic Country of the Year 2009, was the first country in the world to introduce a state-controlled organic certification represented by the red Ø-label as far back as 1989.

But Denmark has its challenges despite running a seemingly well-oiled economy and topping various surveys as the happiest country in the world in 2006 and in 2008. One of the country’s first priorities is to tackle the imminent overheating of the economy, which can be averted only through continued fiscal restraint, an early implementation of policies to increase labor supply, as well as moderate wage increases. Denmark became the first European Union member technically in recession in 2008 when it announced two consecutive quarters of negative growth, the final quarter of last year and the first quarter of 2008.The country's low unemployment rate of just 1.8% - compared with a eurozone average of 7.2% - is both a blessing and a curse. Labor shortages and higher wages have added to inflation, pushing up interest rates at a time when Danes are feeling the pinch of rising world food and oil prices. Rising food prices have restructured the personal budgets of Danish households and have curbed their spending. This has led a fall in economic output of 0.6% in the first three months of 2008. The development of the real estate sector is one of the biggest risks in the Danish economy as house prices across the country fell 3.9% year-on-year and by 2.1% compared with the first quarter. With the end of the housing boom, consumer confidence scraped rock bottom, hitting a 16-year low in July 2008.

Yet, Denmark has earned the title of most networked economy, the happiest country and the best place to do business in Europe according to the World Bank. Its capital, Copenhagen, has been voted the most livable city and the best design city for its easy navigation and urban life-enhancing systems. In fact, the Danish design industry is a huge contributor to the GDP and today there are more than 4,500 businesses with a total turnover in excess of $586.27 million. The export share of turnover generated by design businesses grew from 15% in 1995 to 24% in 2005 and currently it amounts to $134 million. Over the next four years, the government, being well aware of Danish design’s international potential, will use $0.75 million to support more architectural projects in Denmark. This collection of accolades is part of the Danish path to the attainment of hygge, (pronounced hoo-guh), a word roughly translated as a warm, cozy, snug and a comfortable feeling of well-being. Although reaching hygge is relative to an individual and it can be anything from soaking in the lightness of a chilled beer or sharing an evening by the fireside with family. Ultimately, it is a way of reaching personal peace. As a country then, Denmark has embraced hygge and has arrived.