A Danish Conspiracy; the Secret to Denmark's Success Is a Knack for Niches, and a Labor Peace Pact That Larger Economies Will Find Hard to Copy

Newsweek International, January 9, 2006 | Go to article overview
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A Danish Conspiracy; the Secret to Denmark's Success Is a Knack for Niches, and a Labor Peace Pact That Larger Economies Will Find Hard to Copy


Byline: Karen Lowry Miller

Bang & Olufsen assembles high-end speakers and televisions by hand in rural Denmark from parts sourced worldwide. The company can pull this off in one of Europe's cushiest welfare states because shop stewards like Grethe Krabbe and operations chief John Bennett-Therkildsen are often on the same side. The latter can demand up to 40 hours a week, for example, as long it averages out to 37 hours over the course of a year. For even greater flexibility in the pre-Christmas rush, "I want to go to 45 hours," says Bennett-Therkildsen over tea near the factory in Struer. "You already get 43 with overtime," counters Krabbe, grinning broadly from across the table. But with B&O moving 200 jobs to the Czech Republic to save 7 million euros per year, she admits she will most likely have to concede one day. "If it means survival of the company, then it must be done," says Krabbe.

In most of Europe, CEOs can only dream of this kind of cooperation, not to mention civility, in dealing with unions. Denmark has created the competitive advantage that the rest of Europe lacks--a flexible work force--without abandoning a very European commitment to social welfare. CEOs can hire and fire easily because dismissed workers collect generous benefits and are quickly guided into new jobs. Trade unions go along because, unlike most European counterparts, their aim is to boost employment in general rather than to defend each and every job.

The key to the system is that it reduces the burden of welfare on business, says Jorgen Sondergaard, director-general of the Danish National Institute of Social Research. Welfare is financed by income taxes, not the hefty company contributions required elsewhere in Europe, so managers do not see hiring new people as a huge financial risk. As a result, people gravitate to where they are most needed. Each year, some 30 percent of Denmark's workers change jobs, a rate outpaced only by the United States and Britain. And Danish unemployment now stands at 4.7 percent, or just half of the euro-zone average of 8.6 percent. "We don't think [consciously] about the Danish model because there is no alternative," says Niels Jacobsen, CEO of Oticon, one of the world's leading makers of hearing aids. "But it seems to work."

Others do think about it, a lot. The delicate Danish balance of flexibility and security in the labor market has captured the imagination of Europeans in more sluggish economies. Denmark is expected to grow 2.7 percent this year, compared with 1.2 percent in the euro zone. French TV crews have flocked to Copenhagen, and Danish scholars are in high demand at economic conferences in Brussels, Paris and Berlin. With Europe's giants--France and Germany--searching for a politically workable approach to economic reform, NEWSWEEK decided to take a closer look at some of Denmark's most competitive companies to understand exactly how the system works.

The success of the model rests on a realistic understanding of Denmark's place in the world. Particularly now, in the face of wage competition from Eastern Europe and China, Danes in labor and management essentially conspire to find clever ways to keep the high-end jobs at home. Jacobsen says he has no intention of producing in China because he wants his workers near his world-class R&D center, so he can keep his hearing aids a step ahead of rivals. (His latest Syncro model uses artificial intelligence to interpret sounds.) While elsewhere, union leaders are fighting a rearguard battle against globalization, Harald Borsting, confederal secretary of the Danish Confederation of Trade Unions, says he sees instead "a world of possibilities." What makes this conspiracy thrive is a strong foundation of trust, which may be difficult to replicate in larger nations with adversarial labor relations, like France, says Sondergaard.

In contrast even to small Nordic neighbors, Denmark (with a total population of 5.

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