In its report (2014), Forbes Magazine concludes that Denmark’s business climate is extremely positive
If you live in Denmark, you can’t avoid hearing good news about how Denmark compares with the rest of the world. Danes are ranked as the happiest people in the world, and also have the lowest levels of corruption. The explanation often goes that this is, at least partly, due to a generous social safety net and low levels of poverty and inequality. While making Danes happy and trusting, one is also led to believe that these features of the Danish state and society must lead to difficult conditions for businesses. This is however very far from the truth.
Best country for business
In fact, Denmark is a great country for business, indeed the best country for business in Europe according to the World Bank’s 2015 ‘Doing Business’ report that measures the ease of doing business across the world. Looking beyond Europe, Denmark is the best country in the world for business according to the renowned Forbes magazine (2014). In its report, Forbes Magazine concludes that Denmark’s business climate is extremely positive. Denmark scores highly across the board, finishing in the top 25 in each of the 11 categories included in the analysis. In their motivation, Forbes highlighted the fact that the regulatory climate in Denmark is one of the most efficient in the world.
Efficient regulatory climate
But what does an efficient regulatory climate mean for businesses? In other words, what are the concrete reasons behind such praise for the Danish business climate?
One of the keys to Denmark’s pro-business climate is the flexible labor market known as “flexicurity”, where companies can easily hire and fire workers with out-of-work adults eligible for significant unemployment benefits. Unemployed workers are also eligible for training programs, which creates one of the most productive workforces in Europe. For the employer, this entails being entitled to dismiss employees at any time, without incurring costs, making it easier for an individual business to adjust the size of its workforce in Denmark.
Competitive labor costs
Beyond the dynamics of the flexicurity model, the actual day-to-day costs for employers in Denmark are also low. While Danish wages may seem high compared to other European countries, the competitiveness of Danish labor costs is, however, visible when one takes into consideration both wages and non-wages. Employers have low cost burdens in terms of social security, labor taxes etc. While Denmark as a society offers a high level of social security for people who get ill or lose their job, the employer’s contribution to social security is minimal, making the overall labor cost very competitive. Combined, this makes Danish labor regulations the best in the world, as seen in this comparison:
Regulation and taxes
Beyond the labor market, where Danish employees are ranked as the most motivated employees in the world (IMD 2014), smart Danish regulation also affects other sides of business operations. One of the reasons the World Bank ranks Denmark as the easiest place in Europe to do business, is that dealing with authorities is comparatively quick and easy. If you are an entrepreneur or a foreign company, you can set up a business in just one day and have residence and work permits issued in 5 weeks. Foreign companies also benefit from an easy plug ‘n play registration when setting up a business in Denmark. In terms of costs, the corporate tax rate of 23.5% in Denmark, which will be reduced to 22% by 2016, is below the current EU average. The effective rate is even lower, as business expenses and depreciations are tax deductible.
That Danes are ranked as the happiest people in the world no doubt rests on many factors. But maybe the vibrant private sector environment has something to do with it?