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Is Denmark the new “American dream”?

Summary:
If there was an undisputed winner in the Democratic presidential debate on February 19, it was…Denmark! Its star turn came first when presidential candidate Pete Buttigieg stated flat out that the “Number One place to live out the American dream right now is Denmark,” because of the upward mobility of its citizens. Meanwhile, Senator Bernie Sanders once again invoked universal health care and other benefits as comparable to “what goes on in countries like Denmark, where…they have a much higher quality of life in many respects than we do.” Are these assertions a sort of Hans Christian Andersen fairy tale? Not exactly. Buttigieg’s comment appeared to have come from a recent study of social mobility in different member states of the Organization for Economic Cooperation and Development

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If there was an undisputed winner in the Democratic presidential debate on February 19, it was…Denmark! Its star turn came first when presidential candidate Pete Buttigieg stated flat out that the “Number One place to live out the American dream right now is Denmark,” because of the upward mobility of its citizens. Meanwhile, Senator Bernie Sanders once again invoked universal health care and other benefits as comparable to “what goes on in countries like Denmark, where…they have a much higher quality of life in many respects than we do.”

Are these assertions a sort of Hans Christian Andersen fairy tale? Not exactly. Buttigieg’s comment appeared to have come from a recent study of social mobility in different member states of the Organization for Economic Cooperation and Development (OECD), the research organization supported by the world’s advanced industrial democracies. The study found that it takes two generations for low income families in Denmark to enter the middle class—one definition of the “American dream.” This rate was the quickest in the OECD. The same study said it takes five generations to achieve the same goal in the United States.[1] If social mobility measured this way epitomizes the “American dream,” then Denmark rates higher than other advanced economies—and far higher than the United States.

According to the OECD, high social mobility is related to the low level of income inequality in Denmark: “[A]cross generations, earnings mobility prospects tend to be usually weaker in countries where inequality is high, and stronger in countries where inequality is low. Earnings mobility is negatively correlated with overall levels of income inequality a generation ago.” The OECD refers to this correlation as the so-called “Great Gatsby curve,” in deference to F. Scott Fitzgerald’s peerless invocation of American inequality in his greatest novel.

Senator Sanders, a self-proclaimed Democratic Socialist, would no doubt be comfortable with the fact that Denmark has achieved its low income inequality levels at least partly through high levels of taxation and income redistribution, as well as government provided health care and free secondary and tertiary education.

But in Denmark, as well as the United States, there is no free lunch. Its top marginal tax rate is 60.2 percent, compared to 37 percent for American citizens. Government spending (including state and local) as a percentage of GDP in 2019 in the United States was 36.2 percent; in Denmark, it was 51.5 percent. The Danish government also spent 28 percent of GDP in 2018 on social welfare programs, compared to 18.7 percent in the United States. On the other hand, Denmark taxes benefits heavily, levies high value-added tax on all consumption, and offers few tax breaks for social purposes, but Danes spend little in private social expenditures. When factoring in these hidden cost savings and low private expenditures, true Danish social spending totaled 25.4 percent of GDP in 2015, almost 5 percentage points lower than the 30 percent of GDP in net total US social expenditures.

In a memorable moment, Sanders effectively proposed literally taxing billionaires out of existence. Billionaires, he said, “should not exist," while barely looking over at his billionaire opponent, former New York City mayor Michael Bloomberg. But ironically, billionaires exist even in paradise, or at least in Denmark and other Nordic countries.

According to the 2019 Forbes global list of billionaires, there were 10 people worth more than $1 billion in Denmark, including fortunes made in Legos, fashion, and shoes. Given Denmark’s population of 5.7 million, about the size of the greater Atlanta metropolitan area, this corresponds to 1.74 billionaire per 1 million inhabitants. This level pretty much matches that in the United States, where Forbes listed 585 billionaires in 2019, which with 327 million Americans equals 1.79 billionaire per 1 million inhabitants. Even more striking, the 2019 Forbes list shows billionaire intensity was even higher in the other Nordic countries Norway and Sweden, with 2.80 and 3.21 billionaires per 1 million inhabitants, respectively.

What these statistics prove is that Denmark and the rest of Scandinavia can be home to billionaires while still having far higher levels of taxation, income redistribution, and government services than the United States. The existence of wealth is much easier to accept politically when social mobility is high, and a welfare state is much easier to finance when the wealthy are numerous.

Note

1. Defined in the study as born into the bottom 10 percent of households and reaching the average income of the country.

Jacob Funk Kirkegaard
Jacob Funk Kirkegaard, senior fellow, has been associated with the Institute since 2002. Before joining the Institute, he worked with the Danish Ministry of Defense, the United Nations in Iraq, and in the private financial sector. He is a graduate of the Danish Army's Special School of Intelligence and Linguistics with the rank of first lieutenant; the University of Aarhus in Aarhus, Denmark; the Columbia University in New York; and received his PhD from Johns Hopkins University, School of Advanced International Studies.

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