Abstract
INTRODUCTION
How has a small high-income country with high wages, high taxes, a large
public sector, an export specialization in low-tech products (with a few
exceptions) and a relatively low proportion of people with a higher education
in science and technology been able to adjust to changing international
market pressures and stay competitive and wealthy for decades? In particular,
two interdependent explanatory factors have been put forward in recent
studies of the Danish national system of innovation (NSI) (Lundvall, 2002).
The first explanatory factor is the Danish welfare state model. Since the
1960s, Denmark has emphasized social cohesion and a relatively equal
income distribution based on comprehensive redistribution mechanisms.
Since the 1930s the country has had strong trade unions and a strong political
presence of the Social Democratic Party even in periods when that
Party did not form the government. A central institution in the formulation
and implementation of economic policies has been the corporatist system
of interactions between the state, the trade unions and the employers. This
has created a labour market with a high degree of ‘flexicurity’, combining
high flexibility for employers to hire and fire with relatively high degree of
income security for the employees (Madsen, 2006). A crucial related aspect
of the social cohesion model is the high labour market participation rate
for women in combination with an extended public service scheme for child
and elder care.
The second and related explanatory factor has to do with the ‘mode of
innovation’ dominated by small and medium-sized enterprises (SMEs) continuously
making incremental innovations based on learning by doing,
learning by using and learning by interacting, especially with customers
and suppliers. One exception to this general picture is the traditional scaleintensive
agro-industrial sector with a high degree of standardization. This
sector has stayed relatively competitive due to high efficiency in the
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processing industries, heavy EU subsidies to primary production, forceful
marketing and efficient distribution channels. Another exception is pharmaceuticals
– a science-based industry with a high level of patent activities.
In a study of Danish competitiveness, Maskell (2004) shows that many
small countries pursue a specialization strategy based on low-tech goods,
but that the Danish case also has specific features. In particular, informal
institutions such as the negotiated economy, egalitarian social values and
the role played by established trust relations in easing the exchange of information
are pointed out as significant elements (Lundvall, 2002; Maskell,
2004). This type of ‘village economy’, stable macroeconomic conditions,
and an advanced public service sector are important keys to understanding
how Danish industry has remained relatively competitive without substantial
inputs of formal research and development (R&D).
However, in recent years the two fundamental pillars of the Danish NSI
have come under increasing pressure. First, the social cohesion model is
under political pressure from neoliberal tendencies common to most of the
Western world and also from an increasingly introverted approach to tackling
immigration issues. Second, ongoing globalization implies changes in
the international division of labour and, consequently, the prevailing mode
of innovation.
The current Danish government has established two different committees
to come up with solutions to these challenges. One committee has
investigated how to change the income redistribution mechanisms of the
Danish welfare state and the other – with the prime minister in the forefront
– has discussed challenges of globalization, with a special focus on
how to stimulate innovation and adaptive capabilities of the labour market.
However, a closer look at the evolution of the existing strongholds of the
Danish NSI shows that they have relied, to a large extent, on the unique
combination of a welfare state emphasizing social cohesion and a mode of
innovation based on interactive learning and international trade. The following
sections provide further documentation for this statement.
Original language | English |
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Title of host publication | Small Country Innovation Systems : Globalization, Change and Policy in Asia and Europe |
Editors | Charles Edquist, Leif Hommen |
Place of Publication | Cornwall |
Publisher | Edward Elgar Publishing |
Publication date | 2008 |
Pages | 403-441 |
ISBN (Print) | 978-1-84542-584-5 |
Publication status | Published - 2008 |