Denmark - Overview of economy

Denmark has a technologically advanced free-market economy, mainly involved in high value-added production such as processing and finishing products, rather than extracting and producing raw materials. Main exports are industrial products, followed by agricultural products— chiefly livestock-based products such as cheese, pork, and other meats. Denmark's reliance on export trade has meant that its economy has been sensitive to fluctuations in world demand, although its generous welfare state policies since the 1960s have cushioned the population from suffering much from this volatility. Because of its geographic location, Denmark is an important distribution

point for Eastern Europe, Scandinavia, England, and the rest of Europe.

Denmark's high-tech agricultural sector is the latest development in a long history of Danish farming. Before the late 1800s, Denmark's chief agricultural products were grains, but at the end of the 1800s an influx of cheap grains from the Americas and Russia caused prices to plummet. Danish farmers, supported by the government and the Folk High School Movement (a cultural and educational movement that encouraged knowledge-sharing, adult education, and agricultural research and reform, especially in rural areas), switched to livestock production, feeding their animals on the cheap grain. Danes developed an industry making processing machinery for its agricultural products. By the 1960s, industry had overtaken agriculture as the largest sector of the economy.

From the 1960s to the 1980s, the Danish economy followed a fairly regular cycle: increases in wages and benefits raised costs for firms, which led to price hikes and thus less ability to compete in foreign markets. This upset Denmark's balance of trade , as the high wages raised demands for imports, so the government would attempt to control rising consumption, usually by tightening credit and imposing a new tax. The 1970s and 1980s saw labor, political, and economic troubles as the government attempted to impose austerity measures such as harsh savings programs. Strong public opposition (including labor strikes) to various plans led to the repeated dissolution of the ruling coalition governments. After 1973, rising oil prices and the international recession led to high unemployment and low domestic demand.

External debt stayed high during the 1980s, consisting mainly of bonds bought by outside investors that required interest payments by the government. However, the extent of debt was not enough to discourage foreign investors, thus Danish business did not have to worry about financing drying up. While Denmark's balance of trade was positive from 1990 to 1997, that surplus was used to pay off the debt, which gradually fell from over 40 percent of GDP in 1990 to 24 percent in 1997. The budget deficit was not eliminated until the mid-1990s, but since then government has generally run a small surplus.

Businesses in Denmark are mainly small- and medium-sized. Over 75 percent of Danish industrial companies employ fewer than 75 people. Most farms are family-owned, a tradition that was partly supported by a law prohibiting public companies from owning farms. This prohibition was lifted in 1989. The increasing accessibility to consumers in Europe has begun to encourage Danish businesses to look at ways to supply these consumers on a larger scale, including the possibility of merging small companies together into larger ones, as well as developing networks of coordination and communication between several companies.

Across most of the political spectrum, Danes are committed to ensuring a basic level of economic equality, which has been the impetus behind the creation and maintenance of a large and generous welfare, social security, national health care, and education system. The public sector in 1999 employed close to 800,000 people, over 25 percent of the labor force . Since the 1960s, the public sector has ensured that despite economic fluctuations, everyone in Denmark has completely free access to health care and education, as well as unemployment benefits, sick leave, parental leave, and housing and childcare subsidies . Although unemployment has been one of Denmark's most persistent problems, in the new century it has fallen remarkably, to a current low of just under 6 percent.

In 2000, Denmark opted out of the final stage of the European Monetary Union (EMU), choosing to keep their own currency rather than join the euro. However, as the krone is closely tied with the euro, the Danish economy is not autonomous. Arguments against the EMU in Denmark mainly accentuate the need to retain political autonomy. These opponents stress that integration into the EMU could result in a threat to Denmark's commitment to economic equality and the environment, especially if Danish businesses were required to compete with those based in countries which do not require them to comply with similar environmental or labor regulations.