Economist charts the Danish economy’s journey to and from the brink of collapse

How can a country move from a balance of payments crisis, high inflation and skyrocketing debt to economic robustness, high employment and large surpluses?

That question is the focal point of the new book ‘The Road to and from the Brink of the Abyss – Danish Economic Policies 1891–2024’, written by Per Callesen, a researcher at the Department of Economics at the University of Copenhagen and former governor of Danmarks Nationalbank.

The book is based on several years’ work collecting, systematising and analysing more than 130 years of economic data, regulations and institutional changes. The result is a comprehensive historical analysis of the decisions which, according to Per Callesen, led the Danish economy to the brink of the abyss in the early 1980s, and the reforms that subsequently reversed this trend.

‘When you view developments from a long-term historical perspective, it becomes clear just how significant economic policy decisions are. Major crises do not usually arise overnight. They have built up over many years, and it is therefore crucial to understand the underlying driving forces,’ says Per Callesen.

The crisis began long before the 1980s

In public discourse, the economic problems of the 1970s and early 1980s are often linked to oil crises, inflation and rising unemployment. But according to the book, the explanations go back much further.

Through analyses of historical data, Per Callesen argues that the growing imbalances can be found in the way the expansion of the welfare state was financed, combined with a lack of economic planning and long time lags between the recognition of problems and political action.

Per Callesen also points out that some of the most significant explanations for these developments can be traced back to decisions regarding the tax system and its structure around the beginning of the 20th century.

‘One of the most surprising aspects of this work has been how far back some of the causes of the later problems can be traced. Many of the decisions that had a major impact in the 1970s and 1980s were taken decades earlier under completely different economic conditions,’ he says.

New insights from historical data

A key contribution of the book is the construction of a comprehensive database on the Danish economy and economic policy.

Per Callesen’s work includes long time series on taxes, public expenditure, pension savings, housing finance, the labor market and the balance of payments. A large number of historical sources have still not been digitised, and the many overviews bring together information that has hitherto been scattered across archives, printed books and older reports. This makes it possible to identify patterns and correlations across generations of economic policy.

‘The analyses show that sound public finances, high savings rates and well-founded decision-making on tax- and labor market reforms have been crucial elements in the economic turnaround since the 1980s,’ emphasises Per Callesen.

Historical experience can prepare us for the future

Although the book is primarily historical in nature, it also aims to contribute to the debate on future economic policy.

Denmark is in a significantly stronger position today than it was four decades ago. However, history shows that economic imbalances can build up gradually and be difficult to rectify if action is not taken in time.

‘The most important lesson is that economic resilience does not come about by itself. It is created through long-term decisions and by consolidating the economy in good times. History also shows how costly it can be to postpone necessary reforms,’ says Per Callesen.

He hopes that the book can serve as a reference work for economists, students, decision-makers and others with an interest in the development of the Danish economy and society.

‘The Road to and from the Brink – Danish Economic Policy 1891–2024’ is published by DJØF Forlag. Read more about the book here.