Denmark Should Not be Rich

Denmark should not be rich. It's small, it's cold, it has almost no oil wealth, no vast industrial base, and it taxes nearly half of everything its economy produces. Income taxes are sky high, there's a 25% VAT on almost everything, and Danish workers spend some of the fewest hours at their desks in the developed world. And yet, somehow, Denmark is one of the most prosperous countries on the planet. Its economy is stable, its companies are global giants, its people enjoy free education, and while much of the developed world is struggling with rising debt and stagnant wages, Denmark just keeps getting richer. So how is this possible? At first glance, it might seem like just another Scandinavian success story. But unlike Norway, it didn't get rich off fossil fuels, and unlike Sweden, it's not powered by global tech giants. Yet, by many measures, it's outperforming them both, with faster GDP growth, higher per capita wealth, and one of the lowest public debt levels in Europe. But, before we crown Denmark the perfect economy, it's worth noting the cracks in the foundation. Rising housing costs, labour shortages, and pressure on its welfare system, particularly from immigration and an ageing population, mean the Danish model isn't without its problems. Still, it's a system that works remarkably well. So the question is, how? How is Denmark pulling this off? Is it a fluke, or is there a formula behind its success? To find out, we need to as always answer a few important questions. Why haven't high taxes gotten in the way like they were supposed to? Are there any special advantages that Denmark has had over its peers? And finally, is this equitable dreamland really sustainable in the long term? Once we have done all of that, we can put Denmark on the Economics Explained leaderboard, a country with a real shot at taking the top spot. If there's one thing Denmark proves, it's that long-term planning, especially around money, really pays off. 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It would be easy to assume that Denmark has always been rich, but for most of its history, it was anything but. For centuries, Denmark was a poor, agricultural country. It relied on farming, fishing, and small-scale trade, while its neighbors in Germany, Britain, and France raced ahead with industrialization. Even as factors transformed Europe in the 19th century, Denmark remained heavily reliant on dairy and meat exports, with little in the way of high-value industries like machinery, chemicals, or advanced manufacturing. By the end of the 20th century, Denmark was struggling. It faced economic crises, war disruptions, and weak industrial development. But after World War II, everything changed. Although occupied by Nazi Germany from 1940 to 1945, Denmark escaped the war with most of its infrastructure intact. And it faced a major choice. Stay a low-productivity agrarian economy, or modernize and integrate into the rapidly developing global trade. It chose the latter. In the decades that followed, the country opened up its economy and joined the Nordic Council, the European Free Trade Association, and eventually the European Economic Community, which later evolved into the European Union. By integrating into the world's largest trading bloc, Denmark gained access to vast new markets, allowing its industries to expand far beyond its tiny domestic economy. At the same time, alongside its Nordic neighbors, Denmark embraced what would become the Nordic model, a hybrid system combining capitalism with a strong welfare state. Education was one of its first big investments. University became free, and so did vocational training. Workers also stayed skilled and adaptable, thanks to a national commitment to lifelong training. Compared to most other advanced economies, where people will commit the first few years of their life to training and then hope that carries them throughout the rest of their career. And it paid off. Danish workers became some of the most productive in the world. Universal healthcare followed. Unlike in many other countries, where medical costs can derail families and businesses, Denmark provides high-quality healthcare to all citizens. This isn't just seen as a social policy that's nice to do for people, but rather it's considered a prudent economic strategy. Healthy workers take fewer sick days and have longer careers, which means more people working and contributing to the economy. And then there was something even more unexpected. Bicycles. Copenhagen's consistently ranked one of the most bike-friendly cities in the world, but this wasn't by accident. Since 2005, the government has invested over $200 million in cycling infrastructure. Why? Because cycling makes people healthier, less stressed, and more productive. And to top off the personal perks, biking has helped Denmark reduce traffic, improve air quality, and slash commuting times, making life easier for workers and the economy more efficient. But none of this came cheap. In the late 1960s, Denmark made a radical decision. It expanded its welfare state dramatically, funding free healthcare, free education, and social protections with higher taxes. Its tax-to-GDP ratio rose from 29% in 1965 to nearly 50%. Critics warned, like they do in most economies, that high taxes would make businesses uncompetitive. But instead, something unexpected happened. A well-educated and healthy population became one of Denmark's greatest strengths. But that alone didn't make Denmark rich. It's more what it enabled, which was genuine, high-value innovation. Take Novo Nordisk, for example. Founded in 1923, this Danish pharmaceutical giant focused on a niche market, diabetes treatment, and became the world leader. Today, it controls nearly one-third of the world's insulin supply, and has had big successes in other fields like weight-loss drugs that aren't technically weight-loss drugs, but still helped it recently become Europe's most valuable company, with a market cap exceeding $350 billion. Then there's Maersk, the Danish shipping company that moves 14% of global trade. Founded in 1904, Maersk expanded aggressively, taking advantage of Denmark's strategic location between the North Sea and the Baltic. Today, it's one of the largest shipping companies in the world, while the world is trading more than it ever has. For now, at least. And then there's wind. Back in the 1970s, while most countries were doubling down on fossil fuels, Denmark made an unusual bet. It invested in wind power. At the time, this seemed strange. Remember, this was more than 50 years ago now, so there wasn't nearly the same consciousness around emissions. Oil and gas were still the backbone of the global industry, and renewables were seen as expensive and unreliable. But Denmark stuck with it. Today, that investment has paid off massively. Denmark now produces over 50% of its electricity from wind power alone, far ahead of most other developed nations, which by itself would be a great accomplishment as energy security becomes such a concern. But it also took that knowledge and commercialised it. Again, today, it's a global leader in renewables, with companies like Vestas exporting turbines worldwide. It also has some of the lowest CO2 emissions per capita amongst developed nations, showing that economic growth doesn't necessarily have to come at the expense of environmental sustainability. For a small country with limited natural resources, Denmark's economic success is remarkable. But it's not perfect. As a heavily export-dependent economy, it faces rising risks from global trade tensions and shifting tariffs. A slowdown in demand from pharmaceuticals, now one of the most dominant sectors, could ripple across the entire economy. And with global freight rates increasingly volatile, Denmark's shipping industry is exposed to shocks that could hit a high-employment industry. So how does this all hold together, especially with some of the highest tax rates in the world? Why hasn't that scared off business, slowed growth, or crushed its global competitiveness? The answer doesn't lie in how much Denmark taxes, but in what it taxes. Unlike countries that lean heavily on taxing businesses and payrolls, Denmark shifts much of its tax burden to personal consumption and income. Payroll taxes are costs that employers pay on top of salaries, things like social security contributions and unemployment insurance. Income taxes are paid directly by workers on the money they earn. And in Denmark, they are high, with a top marginal tax rate exceeding 55%. Then there's the value-added tax, or VAT, a consumption tax added to nearly every purchase. At 25%, Denmark's VAT is one of the highest in the world. Now that might sound like a nightmare for workers, but here's the trade-off. Corporate taxes are relatively low. At just 22%, Denmark's corporate tax rate is below the OECD average of 23.6%, far lower than Germany's 29.9% or France's 25.8%. That means businesses face fewer barriers when hiring, reinvesting or expanding. And it works. Denmark now has one of the highest startup rates in Europe. It supports entrepreneurs with grants, minimal bureaucracy and a tax system that rewards reinvestment instead of punishing profits. In fact, the World Bank ranks it amongst the easiest countries in the world to do business, thanks to its digital-first administration and streamlined regulation. That's why cities like Copenhagen have become major startup hubs, Now the thing is that eventually corporate profits are distributed to individuals anyway. Shareholders can't fund themselves with business profits alone. They need to be paid out as dividends or shares sold to make a capital gain. So just taxing the individual when that happens achieves the same end result. And here's where it gets even more interesting. Despite its high personal tax rate, Denmark doesn't burden employers with heavy payroll taxes like many other European countries. That makes hiring more affordable, even compared to countries with lower income tax rates but higher labour costs. So businesses save money, workers take home solid wages, and the government still collects enough revenue to fund universal healthcare, free education and generous benefits. But Denmark's hybrid model doesn't just make life easier for businesses, it also makes life less risky for workers. Like Sweden and Norway, Denmark offers strong worker protections, but it stands out for a unique system called Flexsecurity, which makes hiring and firing easy while still giving workers a strong safety net. Unlike in countries like France or Italy, where strict labour laws make layoffs expensive and legally complex, Danish companies can let employers go with minimal restrictions. But the key difference is that when workers are let go, they aren't left behind. Instead, laid-off employees receive up to 90% of their previous salary for up to two years depending on their work history and union agreements. And instead of handing out benefits, Denmark actively helps workers with job training, upskilling and helping them find new work. The result? Companies aren't afraid to hire, and workers aren't terrified of losing their jobs. The Danish system also supports workers through life's major transitions. Parental leave policies are generous and shared between partners, with up to 52 weeks of leave available, much of it paid. Flexible work options like part-time schemes and remote work help both men and women stay in the workforce, especially after becoming parents. And all of this helps explain why Denmark has one of the highest labour market participation rates in the world, with more than 77% of working-age adults actively employed. That's comparable to Norway and slightly higher than Sweden, countries with similarly advanced economies and social safety nets, and significantly higher than the USA, where there isn't the same level of social security, so theoretically people should be more motivated to hold on to a job. But here's the catch. High taxes and a strong social welfare system only work if people trust their government, and the Danes do. While all Nordic countries score high on trust and transparency, Denmark often tops the list. Government spending is transparent, services are high quality, people see what they get in return for their taxes, so instead of seeing high taxes as a burden, they see them as an investment. That trust is also why inequality is low. Denmark has one of the lowest levels of income inequality in the world, as reflected in its Gini coefficient, a measure of how evenly income is distributed across a population. A Gini coefficient of 0 represents perfect equality, and 1 represents complete inequality, meaning one person holds all of the income. The Gini coefficient of Denmark is 0.28, far lower than the US's 0.41 or the UK's 0.32, despite both countries having some form of welfare. One of the clearest indications of this income equality is how much CEOs earn compared to the average worker. Danish CEOs typically earn 60 times the average worker, in the US it's closer to 290 times. Denmark also reduces inequality through policy. Low-income earners benefit from personal deductions and a progressive tax system. These policies mean that some low-income families in Denmark can pay an effective negative income tax rate, where they get back more in support than they put in. Housing policy helps too. Danish homeowners can lock in fixed mortgage rates for up to 30 years, even between different houses. This prevents the so-called lock-in effect, where homeowners are stuck in place because rising interest rates make it too expensive to move out of a home purchased at a time when interest rates were low. At the same time, Denmark provides significant rental housing support for low-income families, keeping housing affordable even in major cities. All of this contributes to a rare outcome, a strong stable middle class that drives growth. So yes, the Danish model works, but it raises a bigger question. Can other countries actually copy it? Well, it's complicated. Because while higher taxes don't seem to hurt Denmark, that doesn't mean the same setup would work everywhere. Denmark has advantages that most countries simply don't. One of those is simply size. With just 5.9 million people, Denmark is small enough to maintain a high-trust, high-tax economy without the complexity of governing a massive diverse population. Compare that to the US with 345 million people, or even Germany with 84 million. Smaller countries can move faster, they're easier to manage, public services are simpler to coordinate, and policies are easier to tweak when things go wrong. It also helps that Denmark is one of the most homogenous countries in the world. Over 84% of its population is ethnic Danish, and most people share a common cultural and historical background. Economists, for obvious reasons, want to be careful about how they say this, but it's human nature that a small, similar group creates a foundation of trust, especially when it comes to things like taxes. According to a Gallup poll, 88% of Danes say they're happy to pay taxes because they believe their government uses them efficiently. Now compare that to the US where only 16% say they trust the federal government to do the right thing. In a low-trust society, high taxes are seen as theft. People assume their money has been wasted, and decades of political gridlock, corporate lobbying, and bloated bureaucracy only reinforce that belief. But trust isn't the only thing that Denmark has going for it. It also benefits from geography and trade. Denmark sits in the heart of Europe, surrounded by some of the wealthiest markets on earth. Nearly 70% of its exports go to European countries, and its trade-driven economy thrives on stable international relationships. Now compare that to a country like Brazil, where exports rely heavily on volatile commodities like soybeans and iron ore. When global prices fall, the economy takes a hit. So a Danish-style high-tax, high-welfare model would be much harder to sustain an economy with huge income disparities, weaker institutions, and political instability. And then there's history. Denmark didn't build its model overnight. It took decades of gradual reform and fine-tuning, supported by trust between government, business, and labor. Countries with a history of political instability, weak institutions, or corruption would struggle to implement a similar system. So can other countries just copy and paste the Danish model? Not quite, but they can learn from it. One of the biggest takeaways is that high taxes don't automatically destroy an economy if they're structured the right way. Many countries rely too heavily on taxing businesses and payrolls, which discourages hiring and expansion. In France, for example, employers pay over 45% in social security contributions, on top of wages, and that makes hiring expensive, slows job creation, and pushes unemployment higher. Denmark avoids this issue by keeping corporate and payroll taxes lower, while relying on BAT and income tax instead. Another key lesson? Investing in long-term productivity pays off. Denmark spends almost 6% of its GDP on education, keeping its workforce highly skilled. It also invests over 3% of its GDP in R&D, making it one of the most innovative-driven economies in the world. Compare that to Italy, which spends just 4% on education and 1.4% on R&D, and unsurprisingly, it struggles with stagnant productivity and a shrinking industrial base. The takeaway? Investing in people and innovation, as Denmark does, is crucial for sustained economic growth. And finally, labour market flexibility matters. For countries struggling with rigid labour laws or high unemployment, finding a balance between work protections and business flexibility could be the key to unlocking higher economic growth. But here's the thing, even Denmark faces challenges. Since 1980, almost all of Denmark's population growth has come from immigration. Despite all of the protections afforded to people starting a family, people still aren't doing it. Immigration has helped fill labour shortages and healthcare construction and services, but it's raised uncomfortable questions about the future of Denmark's welfare model. Studies suggest that low-skilled migrants have higher unemployment and lower tax contributions, which raises concerns about long-term sustainability. In response, the government has made benefits more conditional, new arrivals must meet stricter residency and employment requirements, and Denmark has adopted a work-first approach, prioritising integration and job placement over long-term support. At the same time, the country still relies on skilled migration to support key industries, so it's introduced fast-track visa programs for high-demand professions like engineers and IT specialists to attract foreign talent that can contribute to its economy. It's a delicate balance, and it may be Denmark's biggest policy challenge in the decades to come. But immigration isn't the only challenge Denmark faces. Like all developed nations, Denmark is also grappling with an ageing population. Today, nearly one in five Danes is over 65, and an older population means higher healthcare costs, fewer working-age taxpayers and growing pressure on the pension system, a serious test for any welfare state. But here's where Denmark's strength really lies. Adaptability. The same model that helped it bounce back from war, modernise its economy and build a thriving middle class, is now being used to tackle the challenges of tomorrow, like demographic shifts, automation and climate change. Denmark is already raising the retirement age gradually to 70, linking it to life expectancy to keep the system sustainable. It's digitising public services at one of the fastest rates in Europe, with over 90% of Danes using digital ID to access healthcare, banking and government portals. And it's investing heavily into healthcare innovation, All of this is intended to ease further labour shortages. Denmark is also experimenting with automation and AI across industries, from autonomous farming to smart port logistics, including at Maersk, where machine learning is already optimising global shipping routes. For a long time, Denmark's greatest asset has been its people. It's invested a lot into them, and expected a lot from them in return. As these people get older, the country is going to need this technology to fill in the spots where its people can't. Fortunately, with a lot of wealth, and the trust that these technologies will be used to support people, instead of just replacing them, Denmark is probably one of the best positioned countries in the world to face these challenges. Okay, with all that in mind, it's now time to put Denmark on the Economics Explained leaderboard. Starting as always with size, Denmark has a GDP of just over $407 billion, making it the 35th largest economy in the world, just behind Vietnam and just ahead of Iran. Not massive, but still very respectable for a country with fewer people than New York City. It gets a 7 out of 10. With only 5.9 million people, its per capita GDP sits at around $75,000, one of the highest in the world. That's more than Germany, the UK, the Netherlands, and even Qatar, a country with almost endless oil wealth. However, it must be noted that it still falls slightly behind the USA. However, its people don't need to work nearly as hard to get there. It gets a 9 out of 10. Stability and confidence is high. Denmark is one of the most trusted, transparent, and well-run democracies anywhere in the world. Low corruption, strong institutions, and a population that actually trusts its government? That's rare. It gets a 10 out of 10. Growth has been steady, not explosive. But in a world of economic shocks, and for a country already so wealthy, steady isn't a bad thing. The economy has been driven by high productivity, smart innovation, and strong exports, especially in shipping, pharma, and renewables. It gets a 7 out of 10. And finally, industry. Despite its small size, Denmark punches way above its weight. It's home to Nova Nordisk, Europe's most valuable company, Maersk, one of the biggest shipping giants in the world, and Vestas, a global leader in wind energy. At a booming startup scene and massive R&D spending, and this is a serious innovation hub. It gets an 8 out of 10, only losing points because no matter how innovative it is, it's still small and specialized compared to the true industrial powerhouses of Germany, Japan, and of course China and the USA. That gives Denmark an average score of 8.2 out of 10, putting it all the way up here on the leaderboard. Now, unfortunately, if a certain someone gets their way, the country might end up being even smaller still. The Kingdom of Denmark also includes Greenland, a very barren, very isolated landmass in the middle of the arctic, that the world's most powerful economy wants very badly. We've already made an entire video on why, which you should be able to click to on your screen now. Thanks for watching, mate. Bye.