An NSI in transition? Denmark

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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 403 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 languageEnglish
Title of host publicationSmall Country Innovation Systems : Globalization, Change and Policy in Asia and Europe
EditorsCharles Edquist, Leif Hommen
Place of PublicationCornwall
PublisherEdward Elgar Publishing
Publication date2008
ISBN (Print)978-1-84542-584-5
Publication statusPublished - 2008


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