The Scandinavian Model

The Scandinavian Model

Keld Hvam[1]

Abstract

In recent years, the Danish welfare model and management philosophies have proved to be a great competitive advantage for Denmark. The social welfare system introduced in the 1930s was originally a burden for society as it necessitated keeping a very high tax rate to pay for the services. And the high tax rate in turn made it difficult for Danish industry to compete as the high tax rates made employees demand very high wages and salaries. In the 1990s, however, the situation has been reversed due to continued development of the welfare system, but also the general world situation.

The philosophy behind the welfare system is a belief that all people are created equal and have equal rights, a way of thinking that originates in Danish history and national culture. There is also a strong belief that the weak must be protected and helped for the benefit of all, because it will eliminate social tensions.

To understand this thinking we will take a brief look into Danish history and use a well-known culture scholar like Geert Hofstede to explain the ensuing cultural characteristics. The national culture of Denmark of course influences the way companies work and are managed. So, when we talk about the Scandinavian model today, we normally refer to the social security system with its flexicurity, but also to the way in which companies are managed. There are several similarities between the three Scandinavian countries, but developments in recent years have actually made the three countries move a little apart in this respect. So, to get a clear and true picture of the “Scandinavian Model” I will mainly focus on the Danish Model, which represents the clearest example.

A situational and personal view

History and Culture

Danish history is long and turbulent. We can trace the nation state back for more than 1000 years to the Viking age, when fierce warriors and settlers travelled all over the northern hemisphere, where they traded, plundered and also settled down. They crossed the Atlantic in their open sailing boats and reached North America around the year 1000. They settled down in especially Britain and made a lasting impact on the English language of which about 10,000 words are of Danish origin. The Vikings were very democratic. They chose their chieftains by popular vote, and when going abroad on raids the individual warrior chose himself which chieftain to serve under and which ship to go with. In the year 930 they set up a fully democratic assembly on Iceland, in a situation and driven by motivations that much resembled the later immigration of European settlers to North America. So, the idea of democracy and egalitarianism are not new concepts.

After the Viking Age when Denmark actually dominated Northern Europe, the country was entangled in countless wars, most of which we lost. So, from 1066 to 1864, there was a long period in which the country was shrinking to becoming what might today be called a mini-state. This resulted in a conviction that Denmark was surrounded by enemies, and therefore we had nobody to rely on except ourselves. Consequently, over the centuries, we created a strong belief that we can and will survive if we stick together, work hard and help each other. This resulted for instance in the creation of the revolutionary new organization form called the co-operative movement, which was established by 26 poor farmers in Western Jutland, who pooled their limited resources, borrowed some money, agreed to share everything equally and set up the world’s first co-operative dairy. This became the start of the subsequent success of the Danish farmers, who are today among the most efficient in the world and who have both contributed very heavily to Denmark’s GDP over the years and initiated a strong industrialization drive which transformed Denmark from the 1890s and onwards. So, the farmers, and thus most of the Danish population at the time, learnt that by sticking together and working hard, you will not only survive, but also be successful.

They also learnt that by accepting and adapting to situations that you cannot change and trying to get the most out of them, you will do better than by trying in vain to fight against the unavoidable. This is clearly seen nowadays when globalization is progressing rapidly. Instead of seeing outsourcing as a problem, Danish industry decided to take up the challenge and outsource as much as possible. This is now a great advantage for Denmark, as we are now spending our resources on developing new things rather than sticking with old production methods and procedures.

The culture of the country has of course been created over the years through our history. And to understand modern Danish culture it might be useful to illustrate it by using some theories and models developed by Geert Hofstede. He set up some very useful models 30-40 years ago which can be used to describe any culture. In his 4-D model he has four dimensions or scales going from 0 to 100 (or a little more).

Power Distance

The first one is called Power Distance and it explains the difference between high power distance at one end and low power distance at the other end. Power distance (PDI) refers to the degree of inequality that members of a culture (be it national or organizational) accept and expect. In high power distance societies (a high index score), people readily accept differences in power and wealth whereas relations between people in low power distance societies (a low index score) are more egalitarian.

High Power DistanceLow Power Distance

Uncertainty Avoidance

Uncertainty avoidance (UAI) describes a culture’s way of coping with the uncertainties of life. Consequently, the dimension i.a. deals with the extent to which people in a culture prefer formal rules and structured patterns or the opposite. For example people in low UAI cultures (a low index score) find it easier to cope with future events without extensive planning than people from high UAI cultures (a high index score)

High Uncertainty Avoidance Low

Individualism vs Collectivism

Individualism, as opposed to collectivism, describes the extent to which people in a culture learn to act as individuals and look after themselves. In individualistic societies (high IDV) the high index score covers a tendency to seek own goals over the group’s goals. As a contrast the low index score of collectivistic societies (low IDV) signals interdependence and an inclination to maintain group harmony.

IndividualismCollectivism

Masculinity vs Femininity

This dimension deals with the extent to which a culture puts emphasis on so-called ’masculine’ values (e.g. money, competition, success, career, performance) or ’feminine’ values (e.g. social goals, relationships, quality of life, care for the weak). Masculine cultures get a high score in the figure with index scores for the various countries, and the lower the score, the more feminine the culture.

MasculinityFemininity

Some comparisons:

For more details on Geert Hofstede’s findings see

The consequences of this historical and cultural development can then be summarized as follows:

There are generally harmonious labour relations (no “them and us” attitude). The power distance is low, so managers tend to regard employees as equals and respect their points of view.

Innovation is one of the results of the low power distance. Employees will normally not hesitate to tell their superiors if they think that things could be done differently and better. And if they do so, they are normally rewarded, often by being given more responsibility that motivates many Danes more than money (we pay high taxes anyway). This has consequently developed into a spirit of entrepreneurship and intrepreneurship, which are again further encouraged by the fact that it normally only takes a few hours to incorporate or get the necessary permission to set up a new company. Danes normally consider bureaucracy a waste of time and totally unnecessary. Informal behaviour and work relations are the norm. The direct communication form is also a characteristic that sometimes gets Danes into trouble when communicating with people from other cultures.

The Protestant work ethics that characterize Danish industry originated in the fact that our history taught us that nobody will help us. We only have ourselves to depend on, so we have become a race of hardworking and efficient survivors. This has also resulted in an egalitarian work ethic that puts men and women on equal terms everywhere. Women are for instance highly respected in business and generally receive equal pay and have access to senior positions.Working mothers can easily arrange flexible hours so that they can maintain both a career and a family. And Danish women expect to be treated with respect in the office.

Denmark has had a stable economic development for many years partly due to a concept called “Consensus democracy. This entails that all decisions in Parliament and local assemblies are made in harmony – usually not forced upon a minority by a majority. Discussions are open and transparent, and the aim is always to get as many people as possible to agree. If decisions were made with a narrow majority they would most likely be changed when the majority and thus the political power changes.

Danish culture has developed an ability to get the most out of adverse situations. This was seen for instance between 1864 and 1920 when the country lost a large part of its land mass and had nearly given up hope that it could survive as an independent nation. It was also seen during the 2nd World War and now most recently after globalization has set in. Instead of trying to fight it and keep production in the country we have started to offshore and outsource much more and actually turned it into an advantage for Denmark.

International Trade

Danish industry is also highly competitive, because we have focused on specific (farming) and often niche industries which we have developed to key industries and sometimes to perfection:

Because of a belief that we can compete and often overcome adverse trading conditions Denmark believes that openness and transparency are important. We do not need or want trade barriers and the whole political and economic system is open and transparent. The government's policies on foreign investment, rules and regulations are also clear and transparent, with virtually no limitations to foreign ownership of companies.

Companies are operating internationally, and in spite of the country’s relatively small size some companies have achieved international positions and respect. Companies like Maersk, Carlsberg, LEGO, ARLA, ECCO, VELUX, VESTAS and Danfoss operate and are known worldwide.

Flexicurity

The term flexicurity refers to the fact that the Danish labour market is both flexible and secure – at the same time. Most employees may be fired at a month’s notice and after that the company in question has no obligations. Insurance, pension schemes and retraining are mostly the responsibility of the public welfare system. Once an employee has been laid off he/she will report to a public job centre that will take over responsibility for helping to find a new job for the person in question or retraining him/her.

Unemployment benefits are very high, only a little lower than minimum wages. This means that the purchasing power and living standard of the individual will be upheld, but it may also in some cases mean that the motivation to start working again may be low. This has, however, proved of less significance nowadays, because most Danes are motivated by challenges and interesting work situations rather than by money. Most Danes also find their identity in their work, so if you do not have a job there is very little status.

All education up to and including university is free for Danish citizens as is hospital service. Students are paid a generous student grant each month enabling them to live on their own. All of this ensures and are examples of the egalitarian attitude that characterizes Danish society.

When the burden of taking care of the general well-being of employees is taken off the shoulders of companies, they have much more flexibility. They will not hesitate to lay off people in adverse business conditions and in the same way they will also willingly and quickly hire new staff, knowing that they can get rid of them again easily.

The employees on the other hand feel secure, because they know that should they lose their jobs, the authorities will take care of them, and at the moment it is actually quite easy to find new jobs, so easy that some employees sometimes decide to quit their jobs before they have found a new one knowing that this will be no problem.

Key characteristics of Flexicurity

Flexibility in hiring and firing
Security in an extensive social welfare system
An active education and employment policy

For more detailed information on flexicurity the reader is referred to:

Management Culture

Due to the above cultural characteristics and the flexicurity system, Danish management has adopted a management philosophy which is based on the following keywords:

Democratic management
Openness and transparency
Participative decision-making
Encouragement of employees rather than control
High level of information and direct communication
Encouragement of an egalitarian work ethic
Empowerment
Innovation is encouraged
Decisions and ideas come from below
Appreciative Inquiry

The consensus democracy ideas are often employed in industry because management tend to believe that consensus in decision making makes for more satisfied employees, and satisfied employees work better. It also seems natural that ideas emanate from below as it is the employees who are in direct touch with customers and/or production facilities. An important characteristic is also that employees’ opinions are valued and encouraged, and employees do not work because they have to but because they like it. They often take initiatives themselves, and management’s responsibilities may thus be reduced to evaluating ideas and delegating work and responsibility to employees.

As a consequence of this attitude, most Danish companies are also project-driven with employees working in small self-contained and controlled work groups.

A Final Comment

All this may sound very positive. But there are of course also problems occasionally. All companies do not work like this, but the fact remains that the Danish people have been designated the happiest people on earth in several surveys (see eg ) and the unemployment rate remains below 2 % - even today (9th January 2009), well into the financial crisis. But, of course, things may change…..

[1]Associate Dean, IBA, Kolding, Denmark. Website E-mail: