An Interview With Claus Frederiksen

Nayan Chanda: We are very happy to have in our studio Claus Frederiksen, the minister of Employment of Denmark. Mr. Frederiksen has been a senior official in the ruling Liberal Party since 1971, and from 1985 to 2001 he was the secretary-general of the Liberal Party. Since 2001, he has been minister of Employment. And Minister Frederiksen's record in the Liberal Party has been something of an envy to most European capitals because under his leadership Denmark has achieved the highest employment rate in Europe. The unemployment rate is now 4.5%, which is kind of a thirty-year low, compared to the 1990's, when Denmark had about 12% unemployment. So this is a very enviable achievement. On top of that, Mr. Frederiksen and the prime minister and the deputy prime minister have founded a Globalization Council, one of the first in Europe to address the question of globalization head-on and come up with some very concrete solutions. So we are very happy to have Mr. Frederiksen in our studio. Welcome to Yale, Mr. Frederiksen.

Claus Frederiksen: Thank you very much.

Chanda: So my first question to you would be, how do you do it? This lowering of the unemployment rate to 4.5% is quite remarkable in Europe, where the unemployment rate is so much higher than 12% in some places.

Frederiksen: In the short term we looked at figures in the 2002, 2003 and everybody was expecting things to change in Europe. You know that the German economy was doing poorly, the French economy was doing poorly, but the economists told us all the time that the upswing was just around the corner, so we should just have some patience. But at a certain time in 2003, 2004, we decided that we would create our own economic upswing and we started a consumer-driven drive in the economy. We made some tax reductions, some public investments, and people had more money on their hands. And from that time on the Danish economy has performed very well, and I think is – you shouldn't brag, but – I think it's the best, the most solid economy you have in all Europe. We pay off our debts, we have surplus on the balance of payments and we have, as you said, very low unemployment.

Chanda: Now, Denmark is now very well-known for this model of flexicurity, combining flexibility for the employers to hire and fire workers, and job security for the workers at the same time. Now this is, in apparently, a very contradictory task. So how did you go about addressing these two different goals in one package?

Frederiksen: In a way, it is a paradox that you have a country with the highest, or second-highest, tax burden in the world – the cost of living is very high, and you have very high allowances if you lose your job or you get sick, you get practically the same amount as if you were working. And then we have so low unemployment. And I often say that if we had discussed this 15 years ago, my answer would have been that we should reduce the allowances, we should reduce the subsidies for people, and we should reduce the taxes. But it shows that the combination of having high allowances and a very easy hire-and-fire system – you can hire people, you can fire people very easily. That combination makes people braver, I think, in changing jobs, in willingness to try something else.

Chanda: Because I understand that once a worker is fired, he or she normally gets a job back within a year, normally 70% of them.

Frederiksen: Yes, get a job within that period of time. Then we have the third leg of our policies, we have an active labor market policy, where if people have been unemployed for some months, not finding an adequate job within their field or profession, then we start with upgrading their qualifications –

Chanda: Retraining them.

Frederiksen: Retraining people. So we have a very active retraining, we have high allowances so they don't have to leave house and home when they lose their job. And then, for the employer, the very important thing that, if he gets orders and needs more staff, he can hire them immediately. If he loses orders, he can fire people. And that gives us a very, very high flexibility. I can give you a number – you should normally be careful with numbers. But the Danish work force is 2.5 million people, and each year 800,000 people change jobs. And that means that there is a very underlying strong movement in the labor force.

Chanda: And there's social security, medical benefits, stay all the time?

Frederiksen: Yes, we have a – you get 90% of your income for a four-year period when you get unemployed, quite a long period. But it stresses the need for us to see to it that people apply for jobs, because that is, of course, the weakness in our system. When you have higher allowances that are comparable to your earnings, then the system has to be very consequent and very strict, that if you do not seek jobs, if you do not take adequate jobs, then of course you are sanctioned by not getting your allowances.

Chanda: The allowance is reduced –

Frederiksen: Or disappears for a period of time.

Chanda: I see. So that's the bit of stick to make sure that people do seek jobs and don't stay on the dole.

Frederiksen: Yes.

Chanda: Right. Now, of course, this high insurance that you are paying the workers, it costs the government a lot of money, and you are raising high taxes to pay for that. So does that cause any discontent among people that they are paying such high tax?

Frederiksen: Funny enough, all the surveys you see these days, people are not asking for lower taxes. They are asking for higher quality in the social services. So there is no pressure for lower taxes, but of course Denmark faces a long-term challenge in globalization, with lower production costs, lower taxation elsewhere in the world. So eventually, we have gradually to change our tax system and lower our taxes. We realize that.

Chanda: So your corporate tax, how does it compare to other European countries?

Frederiksen: It is about the same, yes.

Chanda: But compared to the developing countries, it is pretty high.

Frederiksen: Yes, that's what it is. Two years ago, we realized that we had some challenges in the Danish society. We have, first of all, a demographic challenge. The people who live longer and longer, who are healthier, and the generations to take over are much smaller. I can give you a figure that the 1947 generation is the biggest generation in our country. It had some 94000, 95,000 newborns. The 1986 generation, which is now about to take over, is only 52,000, so this puts a challenge on our society. Then we set up a welfare commission, asked some independent economists to describe the challenges that the Danish society will face in the coming 10, 20, 30, 40 years. They came up with proposals in January this year. They were looking at, how can we increase the workforce in Denmark. They pointed at three things: If we could get the young people faster through the educational system, so that they could come out a year or half a year earlier, that would give a contribution to the work force. If we could have much higher participation by immigrants from Third-World countries – the unemployment among them is unfortunately much higher than among the Danes – but if we could reduce it to the same level as the Danes, it would give a very good contribution for the future work force. And then, thirdly, if we could persuade the older people to stay one or two years on the labor market –

Chanda: What is the retirement age?

Frederiksen: It is 65, and then we have some early retirement schemes where you can withdraw at 60. Then we made a compromise in the Danish Parliament with 158 members out of the 179 members of Parliament where we postponed over the next 20 years the retirement age from 65 to 67, and on the early retirement scheme from 60 to 62. And that gives us sufficient power to take the sting out of the demographic problem that we have. Then we set up a tri-part commission, the government, the employees and the employers to see if we could establish what we have been talking about for many years: how can you establish a system of lifelong learning, where you save money for education at a later stage of your life, because maybe your line of business is threatened by globalization, it moves to China or India, and then you have to do something else. And we made an agreement with the partners, the social partners, that at the first coming tariffs negotiations they will try to make this a part of the tariffs so a percentage is paid into a personal account for each employee in Denmark. And in 25 years or so there will be sufficient money so that you can have your pay compensation through these funds. And the state guarantees that education is always available.

Chanda: In your globalization strategy that you launched this August, you have three components. One is education, stepping up education and giving people higher education. Right now 45% only go for secondary, university education. You want to step that up.

Frederiksen: Yes.

Chanda: And in this three-pronged strategy that you have, if you could explain a little bit as to what it entails.

Frederiksen: The whole exercise was to get more people on the labor market in the next 10, 20, 30 years. And we made that primarily by postponing the retirement age and also by postponing the age for the early retirement scheme. We then established a lifelong learning system which is because people are challenged by the globalization. And more and more of us may realize that we have to change our line of business within our life. If you are trained in one profession, you do not have the guarantees as you had before and see that you will be pensioned in that trade. So that is why we concentrate on lifelong learning.

And then the Prime Minister himself set up a globalization council where there were CEO's, there were union leaders, there were heads of universities and other institutions. They were not representing these institutions but they were in their own capacity, but it was of course 25 Danes with influence in the Danish society. And they discussed globalization – what are the challenges we meet? And they came up with, I think, 375 recommendations within the fields of education, research, innovation and things like that. Because we realize we have to strengthen the education system. We have seen the PISA – I don't know if you are familiar with the PISA examinations where the European school system as such is tested so you can see which country has the best school system. And we, unfortunately, could see that in math and in science we were in the middle, and that was, in our opinion, not good enough to be in the middle of these countries. So we decided to spend billions that we saved from postponing the retirement age and the early retirement schemes, we used this money for science research and innovation.

Chanda: Well, 4% GDP for R & D, that's your target.

Frederiksen: Yes.

Chanda: In the globalization strategy that I read, I did not see much reference to immigration. What is your policy in terms of encouraging immigration?

Frederiksen: We have, first of all, the task of getting the immigrants that we have in Denmark today out on the labor market. I'm sorry to say that we have not been successful enough in integrating immigrants in the labor market. We have for many years had a wrong philosophy. We thought that when people came to Denmark it was important that they learned the language, that they learned about the Danish society, that they were prepared for coming out in the Danish society. But as everybody realizes, integration goes through a job. And as we kept these immigrants away from a job too long, I know and you know that one of the big problems in our societies are that the longer you are away from a job, the more difficult it is to get back to a job, and by having that policy for many years that they should learn Danish first, we failed on this issue. We have now changed things, and we are now doing everything we can to get people a job as fast as possible after they arrive in the country. And we have been confirmed in that since we've been here and seen how you do that, people manage much better than they do in our system.

Chanda: They integrate much better.

Frederiksen: Yes. So, we're active on several fronts. We'll have a very pragmatic task now to take the immigrants we have, so to say, by the hand, and take them to the companies, because the problem is that the companies do not seek the immigrants and the immigrants do not seek the companies. So we have a very low practical task to do to connect the two parties. And then we have significant programs that subsidize their salaries when they come out to the employer, and we can buy colleagues off for hours during the week to function as mentors for them, helping them on the job. That is one very, very important task that we have. And we have some success with it and as we started out this conversation we had very low unemployment, and that of course helps us immensely in solving this problem.

Chanda: The general unemployment rate is 4.5%, but what is the unemployment rate among the immigrants?

Frederiksen: From Third World countries, as the OECD definition goes, it is 50%.

Chanda: 50%, yes. So that is actually a major problem you have.

Frederiksen: Yes. And if we can reduce that percent to 4.5, or even 10%, this will be an immense contribution to solving our long-term problems. But then of course we have green-card arrangements and Europe was – eight new members came into Europe in 2002. And of course we employ many Poles, Lithuanians, Latvians that can come to Denmark.

Chanda: I wanted to ask you, because since the EU open immigration policy adapted, what has been the impact on Denmark in terms of arrivals from Eastern Europe?

Frederiksen: It's been very moderate, you know, every time Europe is enlarged, there are these big scare campaigns that we will be overwhelmed –

Chanda: Swamped…

Frederiksen: - by people, but it doesn't happen, and it's been a very organized way. But it has helped us immensely in construction, for example, in agriculture, where we have a big need of manpower, and people from Poland, Lithuania and so-on are helping us tremendously, here out of that problem.

Chanda: Even, I understand, the Postal Service is not able to get enough labor.

Frederiksen: That's right, and that is a contradiction that to deliver post and to deliver newspapers we have to import people from Poland to perform that job.

Chanda: Now, the recent Danish – Danish Muslims from Odenz. Is that a confirmation that your diagnosis was correct, or is it a challenge that you have to encounter?

Frederiksen: I think our diagnosis is correct, that you have to integrate through jobs, and if, especially, young people walk around unemployed, I guess they develop dissatisfaction, a feeling of inferiority, of forgettedness by the society, even though I think most immigrants find themselves at home in Denmark. Of course, while you cannot solve these problems, and do not get these young people jobs, it creates a frustration that will unfortunately, sometimes, break out in very unpleasant things.

Chanda: The question, though, is this: that this evident alienation of some youth who believe that, being Danish themselves, they actually want to blast a bomb in Denmark, is something of a shock, I'm sure, to the population. The question is, are they unhappy because they are unemployed and they feel inferior in the society, or is it because they are unhappy with the Danish foreign policy of taking part in Iraq and Afghanistan.

Frederiksen: I think it's a mixture of both things. I think for the young, most Muslims in Denmark, they like Denmark, that's what we hear, that they are treated well and treated equal. But of course in all societies there are people who listen to extremists, and you find pockets somewhere where this is something that could occur, and we in Denmark have – haven't had these experiences in many years. But of course since the cartoon crisis last winter, the consciousness of these problems has become much clearer to us.

And that is why we put an extra effort to get the young people in the educational system and get them jobs. Because we must realize that too many of them drop out of the school system, end up with too bad qualifications in Danish, and this is where we have to start. So now we are making new apprenticeships for jobs with a more practical entrance to an education. If you in Denmark want to be a carpenter or a plumber, you are after school being placed at an advantage, starting with the theoretical things. But this group that had some failures in their school career, they are not too keen to be put on a school bench one more time. So we have to find other entrances, and I think, with some success, we do that so that they can come out, using their hands, in practical work, at the beginning.

Chanda: This cartoon controversy of course cost Danish business quite an amount in the Middle East. How is it doing? Are things back to normal?

Frederiksen: What we hear is that it is back to normal, fully back to normal, and there are no repercussions

Chanda: Arla [Foods] is one of the hardest hit. Is Arla back to normal?

Frederiksen: Arla's back to normal.

Chanda: I see. And so what lesson did you draw from this cartoon controversy, how can it be avoided in this kind of situation?

Frederiksen: I think there will be a general awareness of it, because I have to make a personal confession in that field. I was never aware that it was forbidden to make a picture of the Prophet. And we're so used to cartoons – I see myself cartooned every day in newspapers. So, frankly, I didn't react when it came up. But on the one hand we shall respect people's religious feelings. But on the other hand I think it's very important to stress that when you live in a democratic country, you play by the democratic rules, and we have to be very firm on the right for every individual within the frame, the framework of legislation to express his or hers opinion. And we cannot accept that there are some things that cannot be said. So both parties have to learn from each other. We do not wish to offend people's feelings. But on the other hand, when you live in a democratic state, you must fully understand the conditions of such a state.

Chanda: Denmark has been a very open country which strongly supported the US intervention in Iraq and still has about 500 troops there. How has been the Danish reaction to this involvement in Iraq?

Frederiksen: It has been supported all the way. We were of course – when the request came from the United States in the beginning, there was I think an animosity that we should participate in the war. But since the decision was made, there has been a majority in all polls in support of the engagement, and even though we have suffered loss of life in the conflict, the Danes are backing the efforts of trying to make a modern, democratic state out of Iraq.

Chanda: You have just recently decided to set up a knowledge center for the Middle East. Is that going to be a government organization, or is it a private think tank?

Frederiksen: I think it's a private think tank that will be set up in that respect. Of course, we shall do our best to help in the Middle East to create democratic institutions. My ministry is engaged in supporting – I think we were working in Morocco to find ways for unions to organize so you can have better working conditions and so on. We have a dialogue institute in Cairo trying to get in contact so we can learn each other better than we do today. So I think we are on the right track in these respects.

Chanda: One last question. I also saw in your globalization strategy that you are keen to expand the Danish presence in high-growth countries like China and India. This presence, is it investment, or trade? What do you have in mind?

Frederiksen: I think on all scopes, we as a result of these exercises we have been through in the past years on globalization – what is Denmark's role, what are Denmark's chances, what are the risks – this whole debate has created a big understanding among the Danes for globalization. The latest poll I saw showed that 70% of the Danes thought that globalization was an advantage and a chance. Compared to the other European countries, it's only 40% who share that opinion. What we can see from our surveys is that when companies decide to move production to China or India or wherever it is, if this is done in an orderly way, that it is planned in advance, that it isn't a panic solution because you have red figures on the bottom line and you have to move there to survive. But if it's done in a proper way, then these companies are also the companies that create the most workplaces back home. And that is interesting, because it means that you can go out on the markets in China, have your production there and still increase the labor force in Denmark.

Chanda: At home is it more than designing products?

Frederiksen: Sometimes it is in development, but of course it's also irrational, if you make pumps for example, and there is a huge market for pumps in China, it would be – it would sort of be natural for the company to produce the pumps where the market is. And it would not – but we still need pumps in Europe, so you can combine here the development, the innovation and things like that here. We have a perfect example in textile industries, because in the 1980's the textile industry died because it didn't pay to have production in Denmark, it's much cheaper in China. But today we earn very much money on textiles, but now it is in developing quality materials, in designing, the fashion industry. So money-wise, we are better off today than we were before.

Chanda: Last question. You had a meeting with the US labor secretary. In your discussion with US officials, including the labor secretary, what could you sense about their position on the challenge of globalization and how do you see the US approach and the Danish approach agree or disagree on some issues?

Frederiksen: Of course, our systems are so different that our solutions are different. The US is per se, so to speak, much better geared for globalization because you have a strong, market-geared economy and you replace production very well and you have, you're developing into a service society. And by that way you are very – I guess that you in 10 or 20 years will top the list of people who are ready to take the challenge and will be number one. For us, it's a little different because we have a big public sector, so reform is not coming through the market in our country, but it has to be a political reshaping of the public sector and of the labor market. So we represent, actually, opposite, we come from opposite sides. But often the means we end up with, we do the same, stressing education of workers so you can take up other jobs and take new opportunities in the future. So in many ways it is similar. The most striking difference, in my mind, is that we do not talk about tax relief as a way forward but as is discussed here. That is because of our flexicurity system, that we do not combine tax relief with transformation of the public sector and the private market.

Chanda: That's a big, big difference – that the US is one of the lowest paying tax, whereas Denmark is one of the highest. Mr. Frederiksen, thank you so much for coming to Yale.

Frederiksen: Thank you for inviting me.