Paradoxes of the Nordic Model II

By Peter Turchin October 23, 2013 10 Comments

(Continued from Part I)

I had to get a temporary account in a Danish bank, anyway, so I decided to wait with paying the bill until I had it. Two weeks later I had the requisites and I went back to the nearest Danske Bank (DB) branch to get an account. I filled the form and was assured that I’ll get everything within a week. To cut a long story short, it took three more visits to the branch and two more weeks to finally get the account. I also learned that I would have to pay the bill myself electronically.

The next installment in my saga involved two days and phoning three different people trying to figure out how to fill the electronic form. In the process I had to download a Java application that would ensure secure transactions. So the next morning after going through all of that I thought I was finally ready to pay the bill. But as I was logging on, I got a message telling me that I had to install the new version of Java, as the previous one was not secure. OK. But as soon as I installed the next version, the DB Java applet stopped working…

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I could go on, but I will just say that by the time I solved all the problems, I spent at least 15 hours trying to pay the damn bill (and that’s a conservative estimate). And the whole process extended over 6 weeks.

What can we conclude from this empirical evidence? First, it was not just an isolated problem. The system failed me on at least three separate occasions. As James Bond liked to say, once is a happenstance, two a coincidence, but three is a pattern.

Second, it wasn’t just me not knowing the system. At several steps problems arose as a result of human error (for example, the bank employee used the wrong address, and in addition miskeyed my e-mail).

Third, I don’t want to demonize the DB. I have now dealt with three separate organizations in Denmark, and I had similar experience with all of them. So it’s a pattern.

It is my considered and empirically backed opinion that Danish organizations work less efficiently than the American ones (even taking into account that today things work in America noticeably worse than 20-30 years ago).  One interesting cultural difference I discovered was that the Danes are quite good at telling you firmly and politely that doing something is not part of their competence (even if after additional dialogue we find out that it actually is…)

Finally, and most importantly, even if the banking system worked perfectly, it would achieve its high labor productivity by off-loading 90% of the work on the customer. I actually don’t mind – I’d rather do my finances electronically than by mailing checks, or (worse) through bank tellers. But that’s a strange way of accounting for productivity. And electronic banking works so poorly here or in the US (for anything non-standard) that the total amount of time spent by both bank employees and customers probably increased as a result of this transition.


And now we are back to the paradox of the Nordic Model. Although the Nordics work fewer hours and they are not noticeably more productive than, for example, Americans (if at all), they enjoy a very high standard of living. The general impression is that people here are better off than in the States. You simply don’t see poor people in Denmark. And various objective measures of well-being put the Nordic countries at the very top of the list in international comparisons.

So what are the possible explanations? I don’t know, and I’d welcome ideas from the readers of this blog. Here are some possibilities that come to mind.

1. The most likely possibility is that this is a result of income compression, which lops of both ends of the distribution: the rich and the poor. The rich are often invisible to the naked eye (sequestered in gated communities, or at exclusive resorts), but the poor are highly visible. So when both tails are cut off, the visible result is a prosperous society.

2. A related possibility is that Danish wages kept up with their productivity (such as it is). In the US, as I wrote in a series of blogs, this was not the case. Just to illustrate the magnitude of this effect. Today (in 2012) the average hourly compensation of production workers (according to the data of Lawrence Officer and Samuel Williamson) is  $27.15 (in current $$). Assuming 2,000 working hours per year this translates into a yearly salary of $54,300. Now, if beginning in 1960 the salaries of American workers increased in step with the GDP per capita, the average now would be not $54,300 but $81,000. Now that is quite a difference.

3. The Danish society is not a consumer society. They are not into conspicuous consumption. Women dress simply and inexpensively (here I must rely on the observations of my wife: I wouldn’t recognize high fashion even if it came close and bit me). As a rule, they don’t wear much jewelry. The majority rides bikes. Those who drive, drive small cars. I haven’t seen a single Hummer since coming here!


(Photograph by the author)

4. Denmark is a high trust, highly cooperative society. There is very low crime. Most parked bicycles are not even locked. Bank employees may not work very efficiently, but nobody tried to swindle me. In theoretical terms, what it means is that when there are very few defectors, the amount of common good produced overall is maximized. So everybody is well of, even though they don’t work hard – but they don’t free-ride, either. The Danes are very disciplined and follow the rules. All you need to confirm this observation is to see a group of them waiting patiently for a green light to cross the street, even though there is no traffic.

5. A related factor is that huge conglomerates, like Maersk, chose not to move their headquarters to Luxemburg to minimize their taxes. The head office is apparently still in Copenhagen. Which means that they pay their taxes in Denmark, thus contributing to the overall common good.

So all these observations seem to point to a hypothesis. Back in 1930 John Maynard Keynes famously made the prediction that within a century (and that’s now only 17 years away) a 15-hour week will be all that is needed to sustain our civilization. This prediction went spectacularly wrong, it is now clear. Except, perhaps, in the Nordic countries?


Disclaimer: This blog should not be construed as a critique of the Danish people and Denmark. That would be quite ungrateful, because I am here as a result of an invitation by my Danish colleagues. Furthermore, my wife and I are greatly enjoying our sojourn here. It’s also a great opportunity to observe another society from the inside. These remarks should be taken in the spirit of scientific inquiry.

Published On: October 23, 2013

Peter Turchin

Peter Turchin

Curriculum Vitae

Peter Turchin is an evolutionary anthropologist at the University of Connecticut who works in the field of historical social science that he and his colleagues call Cliodynamics. His research interests lie at the intersection of social and cultural evolution, historical macrosociology, economic history and cliometrics, mathematical modeling of long-term social processes, and the construction and analysis of historical databases. Currently he investigates a set of broad and interrelated questions. How do human societies evolve? In particular, what processes explain the evolution of ultrasociality—our capacity to cooperate in huge anonymous societies of millions? Why do we see such a staggering degree of inequality in economic performance and effectiveness of governance among nations? Turchin uses the theoretical framework of cultural multilevel selection to address these questions. Currently his main research effort is directed at coordinating the Seshat Databank project, which builds a massive historical database of cultural evolution that will enable us to empirically test theoretical predictions coming from various social evolution theories.

Turchin has published 200 articles in peer-reviewed journals, including a dozen in Nature, Science, and PNAS. His publications are frequently cited and in 2004 he was designated as “Highly cited researcher” by Turchin has authored seven books. His most recent book is Ultrasociety: How 10,000 Years of War Made Humans the Greatest Cooperators on Earth (Beresta Books, 2016).

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  • j1932 says:

    Danske Bank (DB) is rather infamous for its terrible online banking system and other technical problems in Finland, too. In 2008, a Finnish bank called Sampo was acquired by DB. Sampo used to have very good online banking, but after the acquisition they had to adopt DB’s IT systems. That did not go smoothly, to say the least. Because of all sorts of technical problems Sampo lost tens of thousands of customers after the transition. Things don’t seem to have gotten better over time for DB, either, because their electronic banking service were judged dead last in a recent comparative review of Finnish online banking services.

    So, I think poorly functioning banking services and the like may be a Danish specialty rather than a feature of the Nordic model. Finland, for example, has had rather good online banking services since the 1980s.

    • Peter Turchin says:

      Maybe, but as I said in the blog, two other services also did not impress me with their efficiency. The main point is so far evidence that the Nordics work more efficiently than, e.g., Americans is lacking.

  • O.Voron says:

    All of the above plus low corruption too, perhaps?
    I wonder for how long the Nordic model can last with ‘globalization’

    • Peter Turchin says:

      That’s right – and thanks for formulating it. This is what I really meant in my point 4. In a high trust, highly cooperative society resources are not wasted on corruption, or on implementing costly measures to fight corruption. This should result in high social efficiency (as opposed to the individual efficiency of various people working in the services).

  • Just throwing out an idea here, I don’t have any evidence to back this up, but…what if I told you the infamously bad IT you saw in banks is the reason for their great economy/society?

    Currently, and for most of the last few decades, there are more IT professionals needed, than available, in the U.S. as much as anywhere else. In the U.S., a large portion of them are spending their time working in finance, in everything from banking to day-trading. Finance is essentially shuffling 1’s and 0’s around, and by definition IT professionals are people who can make that happen. But is it the best way to deploy a limited resource?

    I admit that the recent debacle of the U.S. healthcare system has brought this to mind, but that’s not the most damaging case of U.S. inability to improve critical systems, all while it throws huge IT resources (human and otherwise) at creating and trading financial products that are probably on balance more damaging to the economy than beneficial.

    There is, for any kind of talent (not only IT), a limited supply. People don’t (any more) get born into a profession and industry and stay there regardless of where the money or prestige is. Japan still considers work at Toyota prestigious, while the U.S. does not consider work at G.M. prestigious. It is no coincidence that their manufacturing is still better than ours. A big factor in how prosperous a society is, is where they deploy their talents.

    It is apparent from your tale that the best and brightest IT talents of Denmark are not working in finance. Perhaps that is evidence that they are working somewhere else more productive?

    • Peter Turchin says:

      Perhaps. But unless you show where the best and brightest are employed, and that is where they produce a lot of value added, this is a rather weak response.

  • Barry says:

    As mentioned, Denmark is internationally competitive.

  • Jan Løth says:

    It’s always interesting to read spontaneous personal accounts of foreigners visiting one’s country. You are however missing a few key points. We may not be conspicuous consumers in the “american” way (although getting there fast) but we do have the world’s most indebted households due to a decade of mindless credit-expansion (housing bubble). The interest payments on this debt have already impacted the future of our “Nordic” state and it is getting worse. The problem with Danske Bank is not its blatant inefficiency but the fact that it has been allowed to grow to a size of twice the danish GNP. World Record here too.

    As for Maersk (one of Danske Banks major shareholders) … they virtually pay no corporate taxes relative to their yearly turnover (family foundation, you know). And we get no no income-taxes from the Philippine and Chinese employed by the Maersk-family either.

    Curious fact: Denmark is an oil-exporting nation (North Sea). We have however not put the profits from this natural resource in a sovereign fund like the norwegians – our politicians gave most of to … guess which family.

    The official number of poverty-stricken individuals in Denmark is 300.000 (OECD) … even if you don’t see them.

    As for red-light behavior, womens dress-habits … things look differently in Copenhagen 😉

    Liked your Bloomberg article from yesterday though 😉

    • O.Voron says:

      Jan Løth, what about Vestas, Nova Nordisk, Norsk Hydro, Carlsberg? I mean, do you know whether they pay corporate tax in Denmark or are they like Maersk using all kinds of loopholes to avoid paying it?
      I see it not just as a paradox, but a contradiction that such a laid back (kind of) society as Peter described it is able to create and run so many ( relative to the country size ) highly competitive companies. I can easily think of a number of bigger countries which have none! It just doesn’t add up…

      When you mentioned ‘the world’s most indebted households’, did you mean Danes live on credit, beyond their means like Americans do, so it’s just the question of time when it all ends up in tears as it always does?

      I will really appreciate your answers.

    • Peter Turchin says:

      Jan, thanks for this feedback. It’s very helpful to learn more about Denmark, so that I can correct my understanding of the Nordic model.

      Question: what is the threshold income under which a Dane is considered to be poverty-stricken?

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