• Capitalism and Crisis in Denmark

  • Auteur Anders Lundkvist | 20 May 09
  • Anders Lundkvist analyses the financial crisis in Denmark and shows through a discussion of capitalism and democracy that democratic organisation of the economy can hardly be less efficient than the crisis-ridden, anti-competitive rule of capital.

    Modern Danish capitalism

    Capital is divided into productive capital which produces something, whether commodities or services, and financial capital which transfers the savings of business and households to productive investments that can give an income in the future, e.g. pensions. That, in any case, is the idea, but a lot of savings are actually lost on the way, wasted on speculation.

    Productive capital is today organised in corporations. They account for around 80% of sales in Denmark, up from 67% in 1980, while smaller, personal businesses have declined. A. P. Møller-Mærsk (oil, shipping, retail) is by far the biggest company. In accordance with this trend, the share of independent producers (farmers, carpenters, shop owners etc.) has declined from 12% to 7% in the same time span, thus increasing the share of wage-earners (“‘dependent producers”) from 88% to 93%. The hero of liberalism – the entrepreneur – has fared ill, because the corporations have taken over. This trend is probably valid for all capitalist countries (in the USA corporations now have a share of 90%). 

    Financial capital is organised in financial corporations (especially banks, real estate and insurance) and funds (pension funds, mutual funds, private equity funds, hedge funds etc.). Through a number of mergers Danske Bank has acquired 50% of all banking business and, with its interests in real estate, insurance and pensions, at least 40% of the whole financial sector. I know of no other capitalist country, where finance capital is concentrated to such a high degree, but in Denmark no one seems to be worried by it, least of all the authority that is supposed to supervise the sector (‘Finanstilsynet’), which – like the EU authorities, by the way – approves of almost all mergers and acquisitions. The interests of big capital seem to weigh heavier than considerations of competition.

    A. P. Møller-Mærsk owns 22.23% of the shares of Danske Bank –  thus the No.1 of productive capital controls the No. 1 of financial capital, a relation which is confirmed by numerous cases where chief executives move from the one corporation to the other. Thus, we have an enormous concentration of power at the very top of Danish capitalism, though no one seems to notice.

    The increased concentration of capital power is confirmed when we widen the scope. In 1980 the ten largest corporations had sales which were equal to 20% of GNP; in 2006 this figure had increased to 50%, now – not surprisingly – with A. P. Møller-Mærsk and Danske Bank as, respectively, No. 1 and No. 2 (actually, they ought to count as one company).

    The Danish pattern of increased concentration of capital, thus increased power to capital, can also be observed on the global level. In 2001 multinational corporations controlled 67% of world trade, measured by export, making so-called “free trade” tantamount to freedom for the multinational corporations and reduction of tariffs tantamount to reducing a fee on these companies. There seems to be a certain discrepancy between the abstract discussion of “free trade”, preferred by the liberals, and the more sordid realities. The percentage was ca. 59% in 1990, so there is no doubt about the trend, namely that liberalisation unsurprisingly has given more power to big capital.

    If we look at the separate branches of the Danish economy, the same pattern of increased concentration emerges; competition seems to give way to oligopoly (few sellers).

    This goes for the primary sector (oil from the North Sea – controlled by A. P. Møller-Mærsk – as well as agriculture), and the secondary sector, where the three biggest companies within the different industrial sub-branches have on average increased their market share by more than 2% in five years, from 1999 to 2004.

    Looking at the tertiary sector (services), concentration has especially increased within finance (as mentioned above) and retail. In a typical process, retail has been transformed from a competitive market into oligopoly, because the few corporations have forced the many independent firms to cooperate in so-called “voluntary chains”, which coordinate procurements, selection of commodities, marketing, campaigns etc. These chains are now either bought by private equity funds or their head offices have assumed more and more power, effectively transforming the chains into corporations.

    This Danish trend towards increased concentration, thus less competition, corresponds to the general experience. On the global level most of the important branches are now dominated by 4 to 5 large corporations, after numerous waves of mergers and acquisitions. 

    The crisis

    It seems likely that the economic crisis will hit Denmark more severely than many other European countries (extremes like Iceland and Ireland excepted).

    The right-wing administration of Anders Fogh Rasmussen has been governing since 2001. Its stated goal is to restructure the Danish economy so as to boost the private sector and marginalise the public sector. According to the so-called “2010 Plan”, the growth in the public sector should be limited to 0.5% annually, much less than that of the private sector. The government has been only partly successful in achieving this goal, but its main instrument has been a tax freeze since 2001, combined with occasional tax reductions.

    The freeze on housing taxes inflated the housing bubble, helped by exempting owners from repaying loans during the first years; it is the same effect that we saw in the case of the US-American subprime loans, where interest payments were very reduced in the beginning. Private housing became more attractive, and prices soared, especially in the Copenhagen area. The OECD therefore expects that prices will fall further than in most European countries. The crisis will also hit hard, because Danish banks and pension funds have speculated heavily in foreign securities. Danske Bank lost at least ?70 million on Lehman Brothers, and bank loans have generally exploded, so that in 2008 they exceeded deposits by ?80 billion (in 2004 deposits equalled loans). In 2008 a number of pension funds lost 30 to 40% of their value, meaning that many people must work up to 5 years more in order to secure the same annual pensions. So the problems are to a large extent self-inflicted, though finance capital and the government naturally prefers the tsunami theory: “We did nothing wrong, all the problems originate abroad”.

    On the other hand, Denmark can better afford an economic depression, since the country is rich and has very low unemployment (but it is increasing, especially within the building and export industries). Also, the public budget is nearly balanced, as is the balance of payments.

    Responses to the crisis

    The crisis has forced a number of small and middle-sized banks to close, sell themselves to other banks or seek public assistance, thus increasing the already very high concentration within the financial sector. Shares of Danske Bank have lost more than 70% of their value since last summer, due to a large number of bad loans.

    Under these circumstances, banks naturally hoard money (liquidity) as a safeguard, not wanting to extend loans to business. The central bank lowered the official rate of interest without much effect, also because Denmark as a non-euro country must protect the Danish krone, which limits the possibilities of reductions. As in all capitalist countries, Keynes has been proved right: Traditional monetary politics do not work in a crisis where no one wants to take risks and all prefer cash. Therefore, in December and February the government – together with the opposition – decided to extend loans to the banks and at the same time issued unlimited guarantees on deposits, thus promising to bail out big – especially foreign – investors. The first intervention did not work, and there is no reason to assume that the second will, since the loans are not conditioned on the banks actually extending loans to business. Probably banks will use the public credit to cover their bad loans.

    What should have been done?

    Since it is unfettered capitalism, also known as neoliberalism, which has created this mess, it makes sense to start curbing it by increasing taxes on capital income, especially speculative capital gains. For many years, there has been a strong trend in the opposite direction.

    Since private banks previously lent irresponsibly to speculative companies, or invested in very risky securities, and since they presently are unwilling to lend at all, a public bank should be established, which can extend credit to worthy companies, especially of an environmental type. Neoliberals argue for competition between private and public suppliers, in, for example, care for the elderly, so why not in finance, one might ask them? The Minister of the Economy was horrified by such ideas, labelling them a “North Korean state of affairs”, thus exhibiting a troubling inability to distinguish between a Stalinist dictatorship and a democracy.

    The basic reason for the crisis is that the financial sector, thanks to deregulation, has swollen to become almost equal in size to the productive sector, in other words, the sector that only has a mediating function carries almost the same weight as the sector which actually produces something. That can never be a stable situation, and unless it is rectified we will have another crisis in five years. Therefore, finance capital should be deprived of its two main sources, namely the funds from pensions and housing. These two vital areas should be part of the public sector, thus substituting capitalist by democratic regulation. Since 1980 the trend has been in the opposite direction. The publicly financed People’s Pension (“Folkepension”) has been marginalised and substituted by private, tax-favoured pension schemes; in fact, the so-called universal welfare state, where taxes finance health, education and pensions for all citizens independent of income, has crumbled under the neoliberal attack, which also has succeeded in privatising parts of health care while education is increasingly organised on market principles.

    At present, few would support such a clear-cut anti-capitalist reform, but when housing prices plunge and pension wealth evaporates, many people will question the rationality of submitting these areas to the vagaries of the global financial markets. After all, most people simply want decent and affordable housing and a safe income in their old age; few consider their housing and their pension “investments”, and fewer aim at winning the lottery. These areas should be part of the welfare state, not of capitalism, and on a par with health and education.

    What about the coming crisis in the real economy?

    The opposition – the Social Democrats and the Socialist People’s Party – has argued for public investments, in order to prevent a steep increase in unemployment, but also in order to repair some of the damage done to schools, hospitals etc. by the government’s starvation policies in the previous years (in accordance with its goal of marginalising the public sector).

    Of course, the government, with its supporting party, the xenophobic Danish People’s Party, does not want to hear of this. Instead, it realised that times of crisis are also times of opportunity, namely to radicalise the neoliberal agenda. It has agreed on a tax reform, which lowers taxes in general, and especially for the rich. Probably this will have no effect on unemployment (though – strangely – the government has argued that the reductions in taxes on work will lure us to work more, which – if true – will increase the supply of labour and thus unemployment). 

    Capitalism versus democracy

    In the neoliberal era there has been an unmistakable trend from market economy toward capitalism, more specifically toward oligopolistic capitalism, in Denmark as well as globally.

    Many, also on the left, do not recognise the difference between the two systems, but it is fundamental. The principle of market economy is competition among so many producers and buyers that no one has economic power; Adam Smith’s “invisible hand” rules and is supposed to create order. The principle of capitalism, however, is maximisation of profit, and in that pursuit competition is an impediment, since it erodes profit. This impediment is to a large extent overcome in present day oligopolistic capitalism, where the principle of the market economy is turned upside down, since the large corporations rule over the market – they have “market power”. Markets exist, certainly, under oligopolistic capitalism, but the corporations can to a high degree determine the prices and other market conditions; and genuine competition between independent companies gives way to “strategic alliances” between the few dominant corporations.

    This is not all. As mentioned above, 67% of world trade is controlled by multinational corporations, but half of this trade takes place within the corporation, between mother company and daughter companies or between daughter companies, e.g. unfinished products are made in Thailand and then sent to the main office in the USA to be finished. This so-called “intra-firm trade”, which thus comprises 33% of world trade, takes place at prices decided unilaterally by the head office, while in normal trade there are two independent partners, a buyer and a seller, who have opposed interests as to whether the price should be high or low. This implies that 33% of world trade has nothing whatsoever to do with a market economy; it is capitalist planned economy.

    There is thus a lot of work to do for liberals who sincerely adhere to their principles. I have not, however, encountered much apprehension about the demise of market economy and competition; on the contrary, the trend has been encouraged. Liberal politicians and institutions have approved almost all mergers and acquisitions (reassuringly called “consolidations”). To liberals, market economy and the economic freedom associated with it is a facade, an ideology whose function is to conceal the capitalist reality. Competition is “Schein” (illusion), as Marx – a little prematurely – said. 

    Words are important. The left had a losing cause, as long as it accepted the concept of “globalisation” (which you can be against only if you are against history), but a winning cause when the deregulation of capital was politicised with the concept “neoliberalism”. Similarly, it is important to debunk all talk of “market economy” and instead name “capitalism”; all the facts here benefit the left.

    The alternative to capitalism is socialism, but what is socialism? If it is not anti-capitalism it is nothing, but what is the positive definition? 

    Classical social democracy lost the struggle over the economy, but won political democracy. The left must build on this victory, and work for the extension of the democratic principle to the economy. Modern socialism is democracy fulfilled, nothing more and nothing less. From this perspective, public employees do not represent a detour from the real struggle (supposedly between labour and capital). The public sector must be defended, extended and cleansed of marketisation, because essentially it is ruled by parliament and thus is the democratic sector; as opposed to the private sector, where influence depends on the amount of money you can spend on consumption or investments.

    Democracy encapsulates the basic principles of socialism. “One person, one vote” means that we are equal when deciding, thus assigning us all equal value; and the obligation to accept the will of the majority institutes solidarity as a basic value. These are powerful principles that can stand up without a problem to the basic value of liberalism, namely individual freedom (which is, from the critical point of view, equal to selfishness and asocial behaviour). “Liberal democracy” is a self-contradiction, since individual freedom implies a negative attitude towards the state, democratic or otherwise. This fundamental apprehension about democratic rule is clearly stated in the official programme of the Danish Liberal Party (Venstre), which favours minimal democracy: “Elected assemblies should concern themselves with as little as possible, as competently as possible.”

    There can be no going back to market economy. As Marx pointed out, this way of coordinating the economy is unstable, since competition means that the big fish eat the small fish, thus ushering in capitalism and, eventually, monopoly capitalism (which in his terminology actually includes oligopoly). The hand has gone from being invisible to being extinct. Economic coordination has to be planned consciously. The choice is whether this planning should be directed by capital, through oligopolies, strategic alliances and intra-firm trade, or by democracy. Should the governing principle of a planned economy be influence according to how much money we have, or should we have equal influence according to the principle: one person, one vote?

    But principles are one thing, what works is another. The present economic crisis seems to show that democratic organisation of the economy could hardly be less efficient than rule by capital. 


    Dunning, J. H. (1992): Multinational Enterprises and the Global Economy, Addison-Wesley 1993.

    UNCTAD: World Investment Report

    Lundkvist, A. (2009): Den danske kapitalisme og demokratiets forfald (Danish capitalism and the demise of democracy), in: A. Lundkvist (ed.): Dansk Nyliberalisme. Frydenlund

    Lundkvist, A. (2004): Hoveder og Høveder. En kritik af det private samfund (Democracy vs. Capitalism. A critique of the private society), 3. vol., Frydenlund

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