America’s looming presidential election will likely present voters with a clear choice between moving the country further toward a European-style welfare model or bucking the trend of increased public spending. This choice not only has consequences for the economic future of Americans but also for their freedom.
For a while, the success of Scandinavian welfare states seemed to disprove the notion that high taxes, generous benefits, and a large public sector inevitably lead people down the road to serfdom. Indeed, by intellectuals such as Francis Fukuyama and celebrities such as Oprah Winfrey, Denmark has been hailed as a model state, successfully combining freedom and prosperity with “social justice.” But now, the combination of a debt crisis, an aging population addicted to public welfare benefits, one and a half decades of low growth rates, and increasing competition from countries in rapid development is revealing the dark underbelly of welfarism. As a result, the friendly compassionate face of the Danish state is increasingly being replaced with intrusive measures that were unthinkable just a decade ago. It is not an overstatement to say that the balance between the state and the individual has been shifted decisively in favor of the state. A few non-exhaustive examples may help illustrate how far down Hayek’s road Denmark has gone.
It was recently revealed that Danish tax authorities have demanded that travel agencies disclose the identities of customers who have spent more than $8,000 on vacations. This information is then compared with their tax returns in order to determine whether such vacations have been paid for with undeclared income. The Danish tax authorities also have the right to demand information from telecommunications companies about when, where, and how Danish citizens have used their mobile phones. Unlike the Danish Intelligence Services, the country’s tax authorities need no probable cause or court-ordered warrant to force the disclosure of such sensitive information. In other words, a suspected terrorist has more legal protection than the ordinary Danish taxpayer. This is far from an isolated example. Currently, 235 different laws and regulations allow various public authorities access to businesses and private homes without a warrant. Public authorities also have full and unhindered access to certain retirees’ financial information, and Danish pensioners have to inform their municipality when they leave the EU for more than three months as well as when they return.
While abroad, pensioners risk being spied on by Danish “control teams,” which operate in countries such as Thailand, Turkey, and Spain in order to investigate whether Danes abroad have undeclared assets. Danes should not be surprised if they are met at the airport by an employee of the Danish Pension Agency who demands to see their boarding card as well as their social-security number. Again, no probable cause, reasonable suspicion, or warrant is required. Meanwhile, the vast majority of Danish municipalities have set up hotlines or websites encouraging citizens to anonymously inform on their neighbors if they suspect them of receiving benefits to which they are not entitled.
None of these initiatives has provoked much outrage, nor do most Danish citizens feel that they are being deprived of their basic freedoms. Civil libertarians who vocally oppose intrusive anti-terrorist measures that affect a tiny fraction of the population seem to have no problem with even more wide-ranging measures affecting the majority. And since Danes have come to think of the welfare state as the guarantor of freedom and prosperity, they have concluded that the government should have the powers to ensure its survival. This explains the lack of a Danish Tea Party movement; virtually every Dane — whether rich or poor — is a client of the government in one way or another.
Since all have a ticket for the Danish public benefits gravy train, all also have an incentive to try and pay as little tax as possible. But at the same time, Danes need their fellow citizens to pay as much as possible in tax and to make sure that they don’t cheat the system. Denmark has now reached the critical point at which there are more people outside the labour market than in, and with private-sector employees — who finance the welfare state — being in an even smaller minority, the situation is only likely to get worse. After all, if a majority is dependent on the fruits of other people’s labor, the politicians who get elected by dishing out benefits (mostly to various sections of the middle class) have little incentive to stop feeding Leviathan.
Denmark is still a free and prosperous country when compared with most other nations in the world. But this worrying development towards increasing the arbitrary power of public authorities at the expense of the citizen, civil society, and families highlights that the reason Denmark is (still) free and wealthy has little to do with the increasing size of the welfare state.
Take a few facts that are conveniently forgotten in the Danish debate. Up until the 1960s, Denmark had a lower level of taxation than the U.S. and the public sector was nowhere near its current level. Denmark still has relatively flexible labor markets, efficient and honest civil servants, a free and independent judiciary, respect for private property, and the country is open to free trade and foreign investment. In fact, since the 1990s, Denmark has consistently featured in the top 20 of the Fraser Institute’s annual Freedom of the World Index, despite the size of its government and level of taxation. It is primarily these traits that have secured Danish success. Not the ever-expanding welfare state.
The expansion of the welfare state was possible only as a result of the very capitalist virtues that created the wealth that is now being redistributed in the byzantine labyrinth of benefits and public agencies that are guarded by an increasingly jealous state. The growth of the welfare state will initially be welcomed as a sign of progress. But once the balance between public welfare and the free market becomes skewed in favour of the former, the welfare state will reveal its cannibalistic tendencies eating away at the capitalist foundation which sustains it. And ultimately who you call, where you travel, and who you live with becomes a matter for some government agency. Welfare, therefore, comes not only at the expense of economic freedom but also individual freedom and choice.
— Jacob Mchangama is the director of legal affairs at Danish think tank CEPOS
editor’s note: This article has been amended since its initial posting.