Published in Insights, The New Zealand Initiative’s newsletter, 7 September 2012

I am in Prague attending the general meeting of the Mont Pelerin Society, a network of distinguished liberal academics and intellectuals. One of the best speeches at the conference, however, was delivered by a businessman with no academic affiliation – and contained an implicit warning to countries like New Zealand.

Lars Christensen, co-CEO of the Danish Saxo Bank, presented a worrying account of the economic and political conditions in Denmark.

Denmark is not a Eurozone member, and many commentators still believe Denmark is a good example of a successful mixed economy. They should think again.

Denmark’s economy has become unsustainable. Consider this: out of 5.6 million Danes, only 1.8 million (32%) work in the private sector. The rest are either too young or too old to work, unemployed and on benefits, or working for the Danish government and its agencies. Even most private sector employees receive state income support payments.

This means the Danish government’s focus is inevitably on redistribution, not wealth creation.

Is it any wonder then, that only 28,000 Danes (0.5% of the population) earn an annual income of more than $1 million kroners (NZ$207,000)? High taxes have driven a whole generation of ambitious Danes abroad.

Danes recently debated the case of a welfare recipient who has spent the last 20 years on benefits, despite having no disability or any other condition preventing work.

What enraged those few hardworking Danes was that she is still complaining about her tight finances. Apparently it was not enough for the state to cover her ‘fixed costs’, including accommodation, dog food, cigarettes, TV package subscription, internet, phone, and her son’s football coaching. After all of that, she only had NZ$1,060 left to live per month – which she found grossly inadequate. Judging by the public outcry that followed, most Danes disagreed.

In Europe, Denmark is not the exception but the rule. Governments have grown too big, squeezing out private enterprise and undermining individual responsibility in the process. The end result of such developments is visible in countries such as Greece, Portugal and Spain. But even Denmark may not be far behind.

Countries such as New Zealand should study the European experience closely. You cannot become prosperous by redistributing wealth. Any successful society needs a strong private sector. And you also need it to pay for the services delivered by the state.