Social Evolution Forum
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Something is ‘Off’ in the State of Denmark

Wilson and Hessen wrote a very interesting and thought-provoking article. I am substantially in agreement with the conceptual framework, based on cultural multilevel selection theory, that they employ to make sense of the Nordic model, as well as their consideration of how to improve cooperation on the global scale. Although their emphasis is on the latter, “Organizing the Global Village,” I’d like to focus on the question of how sustainable the Nordic model itself is in the face of globalization.

I will use the case of Denmark, with which I am most familiar, having recently lived there while visiting at Aarhus University. Judging by both subjective impressions and objective data from cross-national comparisons, Denmark is a remarkably cooperative society that delivers a very high standard of living to the overwhelming majority of its members. Yet there are worrying signs.

One of them is that economic inequality has been increasing in Denmark. The difference between the better-off and the worse-off in Denmark is nowhere near the gulf we see in truly unequal societies, such as many Latin American countries, or even the United States. It has been increasing nonetheless. This is important because both theoretical models and empirical studies show that increasing inequality corrodes the ability of human groups and whole societies to cooperate.

Why has inequality been increasing in Denmark? There is no universally accepted answer to this question for any country, but most often the finger is pointed at “globalization.” Globalization has many different aspects, including immigration flows, movement of jobs to countries with cheaper labor, and movement of companies to countries which constitute tax shelters, such as Luxembourg.

One underappreciated aspect of globalization is the global spread of ideas, or “globalization of ideology.” Although we tend to think of ideas as “good,” current trends in the global ideological landscape have some troubling implications for the Nordic model and its emphasis on equality and cooperation.

The collapse of the Soviet Union and the adoption of the capitalist model of development in China has seemingly validated the idea that prosperity is best attained by letting free markets rule, while limiting, or even completely eliminating, the role of government in regulating economy. Untrammeled competition is thought to be an unalloyed good. Any increases in inequality resulting from some members of the society failing to benefit from the fruits of economic growth, are treated as an unimportant side-effect. In more extreme versions of this ideology, the rich are deserving of their riches – by virtue, perhaps, of their hard work or great talent (and the poor, by implication, are deserving of being poor).

Historically, ideas about the importance of competition versus cooperation have changed in a cyclical manner. Around 1900, during the heyday of Social Darwinism, economic inequality in the United States (and such European countries as the United Kingdom and France, shown by Thomas Piketty and colleagues) was at a peak. Then, during the middle of the twentieth century, inequality decreased. From the New Deal until the Great Society (the 1930s to 1960s), the United States experienced a remarkable period of social cooperation between the economic elites (corporate managers), workers, and the state. In fact, during this period, the United States approached quite closely the Nordic model. But during the 1970s, the ideological consensus that underlied this cooperative model unraveled. A harsher ideology extolling individualism and competition gained ground. During the last three decades in the United States we have seen a simultaneous increase in economic inequality and decrease in social cooperation between employers and employees, between the state and society, and within the political elites.

The trend reversal of the 1970s in the U.S. indicates that we cannot assume that the trend to greater social cooperation, which has characterized the Nordic countries until quite recently, will necessarily be sustained. In fact, there are reasons to believe that ideologies extolling individualism, competition, untrammeled free markets, and, conversely, disparaging cooperation and equality, are diffusing from the United States and other Anglo-Saxons countries (remember Margaret Thatcher’s famous dictum that there is no society) to the rest of Europe, including the Nordic countries.

One possible example of such ideological diffusion is the sale of a stake in Dong Energy by the Danish government to the American investment bank Goldman-Sachs last winter (2013-14). There were many troubling aspects of this deal. It was prepared in great secrecy without any public discussion and implemented rapidly. The great majority of the Danish public was against the deal because the Danes would prefer that Dong was owned by Danish investors. In fact, a coalition of Danish pension funds offered to match the price offered by Goldman-Sachs for the shares, but this offer was summarily rejected by the government.

Goldman-Sachs has a rather unsavory reputation. Many have questioned its role in the financial crisis of 2007-8, or its alleged help to the Greek government to massage its financial figures. One particular worry is that the deal will result in a diminution of taxes that Dong pays in Denmark, because Goldman-Sachs is using Luxembourg, Delaware, and Cayman Islands-based tax haven affiliates to manage its investment in Dong. Nearly a quarter of the coalitional cabinet walked out – all six Socialist People’s Party members. Parliament, dominated by the supposedly center-left Social Democrats, nevertheless ignored the public outcry and the loss of a coalition partner, pushing ahead with the deal.

There are many things that seem to be “off” about this deal. Government officials were unable to explain why the sale was needed, apart from platitudes about economic efficiency, cutting costs, and bolstering investments. They rejected the Danish pensions’ bid to buy the Goldman-Sachs share. It almost seemed that they wanted to sell to Goldman-Sachs because that’s just what a forward-looking government should do. In this, they were behaving much more like center-right parties of other countries.

We don’t know whether the Dong incident represents a single happenstance or a new trend, and we don’t know why the Danish government was so eager to push the deal through, despite significant reputational losses. But one possible explanation is the one I mentioned above—the diffusion of free-marketeer ideology, which has now made substantial inroads into the Danish political elites. If this is correct, then the future of the Nordic model in Denmark becomes very uncertain.

6 Comments

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6 Comments

  1. susiemorrow says:

    Regarding the Dong deal, could it not be down to individual benefits from making the deal with Goldman-Sachs as opposed to with the Danish investors. The individuals doing the deal will have been able to make connections within Goldman-Sachs that may well benefit them once they are no longer in political power in the wider marketplace. I’m sure everyone has noticed the trend in western politics at least, towards political individualism and preparing yourself for your future post politics (Tony Blair springs to mind as being particular good at networking to further his own future career path). Long gone are the days of the passionate politician who wanted to make society a better place.

  2. tew says:

    Cheap terms like “free-marketeer ideology” don’t belong in a lowercase “s” serious discussion, especially one that would purport to use rigorous frameworks, honest intellectual investigation, and facts. Then there are weak statements like “There are many things that seem to be ‘off’ about this deal”. That is a phrase I’d expect from those whom Paul Krugman calls “Very Serious People”.

    I first found this blog interesting even for the non-specialist like me. It seemed a cut above typical closed-minded and biased academic work masquerading as free-thinking and truth-seeking. But more and more blog posts have seemed to indicate those same old angles that make the work of the author suspect. As a non-specialist, I have to unsubscribe from this blog, since I no longer feel that I won’t simply be misled by someone with an agenda. (At least I was able to see through this piece as nothing but a person’s biases with a few ad hoc data references thrown in for good measure.)

  3. JohnS says:

    Interesting comment susie. I have myself thought about these ‘post politics’ careers. What better (and quieter) way to corrupt politicians?

  4. Sp says:

    This is transparently about the global revolving door corruption racket, not about “free marketer ideology”. Mr. Turchin should be smart enough not to take ideological claims at face value.

  5. Peter Turchin says:

    Susie and John,

    Two responses. (1) You may be right, and of course I am aware that there could be individual incentives – in plain language, the politicians could have been bought off. But it’s easy enough to accuse people of corruption. Are there any data that support such accusations? We are talking in a systematic shift in attitudes towards the role of free market in the Nordic countries. If corruption has increased, it must be detectable with the methods of social science. Can you point to any studies that demonstrate it?

    (2) More broadly, we are not talking about a few individuals here and there, but the whole legislature voting in favor of a dubious deal. Are all of them hoping for lucrative post-office positions? Even if yes, the fact that such positions are available en mass says something about the shift in collective attitudes at the European level.

  6. O.Voron says:

    It looks like a trend – not just Denmark sold their grid to Goldman, other Nordic countries are busy selling theirs too. Goldman is eager to buy. 🙂 Again, “details of the process are not public”. Again, it is not clear why state-controlled Fortum is not interested in “long-term, relatively safe returns” while so many investors are.

    Fresh in the news:

    Mon Oct 6, 2014 11:48am EDT

    Fortum to launch sale of Swedish grid this month -sources

    STOCKHOLM, Oct 6 (Reuters) – Finland’s Fortum this month will launch a sale of its Swedish power grid… The sale follows Fortum’s divestments of its smaller Finnish and Norwegian grids and is part of a trend. European energy firms are selling distribution networks, while electricity prices are low, and focussing on power generation and renewable energy.

    The sources, who declined to be identified because details of the process are not public, said the sale could be completed around the end of the first quarter next year. Fortum declined to comment.

    Citi and Danske Bank, which also managed the Finnish sale, are handling the process as advisers for state-controlled Fortum.

    Many of the potential buyers for the Swedish grid had also taken part in the auction of the Finnish grid…The sources said Borealis Infrastructure, part of the consortium that bought the Finnish grid; Macquarie European Infrastructure Funds ; and Cheung Kong Infrastructure Holdings (CKI), an investment entity controlled by Hong Kong billionaire Li Ka-Shing, were among those planning to bid. Private equity firm 3i and the private equity arm of Goldman Sachs, plan to make a joint bid, according to the sources….All of the potential bidders either declined to comment or did not immediately respond to a request for comment.
    ….
    Power grids and other infrastructure assets are interesting to investors such as pension funds and other institutional investors, who look for long-term, relatively safe returns.

    link to reuters.com.