Trust may explain the good state of Danish economy and the country’s successful welfare society

Trust plays an important role in Denmark’s welfare society. This society is founded on our very belief that our fellow citizens do not cheat their way out of working or paying taxes, and that the authorities administer our taxes successfully.

2016.04.08 | Ingrid Marie Fossum

In their new book “Trust, Social Capital and the Scandinavian Welfare State - Explaining the Flight of the Bumblebee”, the brothers Gert and Gunnar wish to provide an answer to the question: “How is social capital applied in practice to generate wealth in contemporary Danish society?” Photo: AU

Professor of Political Science Gert Tinggaard Svendsen is optimistic about the future of the welfare society, but only if politicians and citizens are conscious of the importance of trust in our society. One thing to fear is more control, e.g. in the healthcare sector where the hands of doctors and nurses get “cold” from all the administrative work, or in terms of long contracts and legal assistance every time an agreement must be made. Control is in fact very expensive, and 100 per cent control equals 0 per cent trust, which would destroy the welfare society. 

In the following, you can read our interview with Gert Tinggaard Svendsen:

In your new book “Trust, Social Capital and the Scandinavian Welfare State - Explaining the Flight of the Bumblebee”, you and your brother Gunnar wish to provide an answer to the question: “How is social capital applied in practice to generate wealth in contemporary Danish society?”
“Yes, we offer our suggestion. The whole book came about because we were puzzled by why Denmark is so wealthy. If you look at the traditional production factors, education may serve to explain approximately half of a country’s wealth. A quarter of a country’s wealth stems from its physical capital such as North Sea oil, factories and bridges. It is, however, difficult to explain where the last quarter stems from. To explain the Danish wealth, you need to look beyond the normal factors. And here trust is an obvious choice.”

[The interview continues after the video.]

A south corean tv crew came all the way to Denmark to learn about trust. Here you can see the interview with Professor Gert Tinggaard Svendsen and Ida Warburg from political science. Professor Francis Fukuyama did also participate in the programme. Video: KBS, Sydkorea 

How can trust boost the economy?
“The presence of trust means that things can be done in cheaper ways. The transaction costs (i.e. the costs connected with trade or with making a deal) are lower when there is a high level of trust. For example, we do not need a written contract for our meeting today. You trust that what I say makes sense, and I trust that you use what I say sensibly. There is lots of trust. We have open doors, and we can move around on the streets in the belief that we will not get assaulted.  Oral agreements are sufficient.

In this way, you could say that the higher the level of trust, the easier it is to cooperate, because the risk of being cheated is low. The Scandinavian countries have some of the highest levels of trust, and this is beneficial to the economy.

The high level of trust also allows for a universal welfare state like the one we have in Denmark. Here, a precondition is the existence of a certain level of trust. You must be able to trust that you are not the only one working, paying taxes and contributing to society, but that your fellow citizens also do so if they are able to.

The other precondition is that you must be able to trust that the authorities spend our tax money sensibly and actually pay us back in terms of education, health care, roads and bridges.”

What about the people who might cheat the system?
“The Scandinavian system as such very much invites cheating. It might be a completely rational strategy to simply be lazy, lean back and be a passive receiver of different welfare benefits - to not work, but to let other people pay for you.

Luckily, so far not many people are doing this! It is also very, very important in terms of the future that we try to ensure that the number of free-wheeling people is kept at a minimum. If there are too many of such people in a society, financing the welfare state becomes a problem as the number of tax payers contributing to paying for the welfare state is reduced.  In addition, tax payers may in time grow very tired of the situation, as taxes increase when fewer and fewer people must provide for more and more. The risk is that they will suddenly say stop, that they refuse to do so anymore, they leave the country or stop working themselves.”

Do you also have any suggestions for how to prevent cheating?
“First of all, it’s important to ensure good access to the Danish labour market. The labour market policies must allow for a smooth and easy access. Also for low-skilled people. This is especially relevant for non-Western immigrants, who are often keen to get a job, but who find it very difficult to enter the Danish labour market. We are not geared to integrate people from other cultures, and this is something we must become much better at. 

Another aspect is that it must pay to work. The social benefits must not become too high compared to what you can earn by working. The system must be designed in such a way that you are rewarded for doing the ‘right’ thing.”

Are you optimistic about the future of the Danish welfare society?
“Yes, I’m optimistic, provided that we are aware of the things that we are talking about. We need to be completely aware that trust is a defining prerequisite for the joint insurance system represented by the welfare state. We pay towards a joint fund which insures you against accidents. You could say that we are actually dealing with redistribution from the fortunate to the less fortunate. You just don’t know who the fortunate ones are. The joint insurance is very much based on trust and on people contributing to the system. It’s very important to appreciate the people who pay taxes and contribute to the joint fund - the everyday heroes, so to speak.”

Control is costly
“Another thing which is very important in connection with the future welfare, is that control does not repress trust. Right now we are lucky enough to be living in a society of trust. But if we allow control to take over, the risk is that it represses trust. 100 per cent control will lead to 0 per cent trust.

In relation to the economy, Denmark’s competitiveness is based on how good we are at showing trust. Because we have the highest levels of trust in the world, we also have the least control. This allows us to save money on all the costs related to control that most other countries have to deal with.

In the US, the costs of making a deal are often enormous. It’s incredible the lengths they will go to in order not to be cheated. Lawyers are involved, and so are contracts that are several meters long. So control is costly. If you can avoid some of these costs, you can allocate resources to other more productive initiatives. So it’s important not to take it too far.

One example is the New Public Management tradition which tends to measure everything and everyone all the time. Today, people spend a lot of time at work ticking boxes and documenting that they have done this and that. In the healthcare sector, filling out forms makes the hands of healthcare employees grow “cold” when they ought to be “warm” by looking after the patients - which is what the staff really wants to be doing.”

Why is it that Denmark has the highest levels of trust in the world?
“This is the key question: Where does all this trust come from? It’s fairly safe to say that trust and corruption are interrelated: The higher the levels of trust, the lower the levels of corruption. The two things go neatly hand in hand. The big question is whether trust creates less corruption, or whether less corruption creates higher levels of trust. This is the million dollar question.”

So you haven’t yet found the answer?”
“No. But one suggestion could be the anti-corruption movement, which has been explored by historian Mette Frisk Jensen. She writes that after the introduction of absolutism in 1660, where Denmark had shortly before been almost conquered by the arch enemy Sweden, the nobility was deprived of some of its political power. Instead, when filling positions, emphasis was put on the professional competences of the civil servants as well as on their loyalty towards the absolute king and the state finances. At the end of the 17th century, embezzlement and the acceptance of bribes by civil servants were prohibited, and the public were allowed to complain to the king. Gradually, the administration was made more effective and became professionalised, and overall, this led to an increased income in taxes.

Countries with low levels of trust and high levels of corruption can thus learn from Danish history and actively fight corruption by introducing harsher punishments, rewarding whistleblowers and making credible people head the initiative."

How can we maintain the society of trust?
“Trust is an important pillar of our welfare society. When we are aware of this, it is easier to pick up on the warning signs. If trust is slipping between our fingers like grains of sand, it’s important that we issue a warning and do something about it. Otherwise we lose trust and thus the foundation for this type of society as such."

Do you think that the politicians are doing a good job in this connection?
“I don’t think that all politicians are aware of the importance of trust and the idea that control can repress trust. Typically, individual cases often prompt politicians to be resourceful, and then they suddenly start controlling lots of people. One example could be a home help who fails to do her job properly. The result is that suddenly all home helps in the country are regulated.  Setting up a control system to monitor all home helps costs a fortune. In stead, you should address and talk to the few people who represent a problem, but there is no reason to distrust the rest who are doing their job.”

Avenging the system
“We don’t like distrust. When people feel distrusted, they will secrete the aggressivity hormone testosterone, and this leads to a desire for revenge. You start thinking how you can get back at your superior. You could do so by working less, by taking all the days of sick to which you’re entitled, by doing as little as possible. Whereas before you might have enjoyed your job, were trusted and wanted to perform well at work, you might start feeling the opposite. In this way, distrust may create a backlash."

Denmark is the land of opportunity
“In international society research, you find the expression “Getting to Denmark”. We have the highest level of trust and the lowest level of corruption, so naturally many countries in the world would like to get to where we are.

The world record in trust, our welfare society and good economy make Denmark the land of opportunity. As professor Robert Putnam from Harvard puts it in his new book “Our Kids”, this is no longer the case with the US. If you have the “wrong” parents in the US today, you have no chance of climbing the ladder. You still have that in Denmark. In principle, you have the opportunity to do well in Denmark regardless of who your parents are, provided that you can be bothered and are talented. As long as we have well-functioning schools, clubs, associations and public libraries you have every opportunity as long as you have the abilities. We are lucky! It would be nice if we could keep our two gold medals for having the most trust and the least corruption in the world.”

Further info:
Gert Tinggaard Svendsen, Professor of Political Science
Aarhus BSS, Aarhus University
Telephone: +45 8716 5693  

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