Blog | November 1, 2010

Denmark’s Active Investment in Entrepreneurship

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The following is a collaborative post by Jonathan Ortmans, president of Global Entrepreneurship Week and a senior fellow at the Kauffman Foundation, and Anders Hoffman, Director of Entrepreneurship and Innovation Policy for Erhvervs- og Byggestyrelsen

Denmark is in many ways a paradoxical country. It has the world’s highest taxes and yet Danes are among the happiest people in the world according to the U.S. National Science Foundation. Denmark has generous social benefits, a large public sector and yet is quite innovative and entrepreneurial. The Global Competitiveness Report and the Index of Economic Freedom both rank Denmark 9th on their world lists, and the Legatum Prosperity Index ranks the country 6th in entrepreneurship and innovation. Denmark did not end in the top ten of these world lists by chance. What steps and policy initiatives made this possible?

Making fun of government is a popular sport among entrepreneurs around the globe, but one must never forget it is government that sets the rules and incentives. Government needs to be a partner even if it cannot always be the ideal partner that embraces messy, entrepreneurial capitalism. Unlike most other European countries, Denmark has limited public involvement in business affairs and has a very flexible labor market. The difficulties that employers face in hiring and firing workers are significantly lower than in most OECD countries, as shown by the World Bank’s Rigidity of Employment Index, which places Denmark 9th in the world in the ease of employing workers, and the Heritage Foundation´s high Index of Labor Freedom for the country, 93.7 on a 100 point scale. This is a result of major growth enhancing policy reforms in the late 1980s and the 90s. Most importantly, stimulating entrepreneurship moved to the main part of the growth agenda in 2005, when a Liberal-conservative government set the following four goals to place Denmark in the global economy:

  • Denmark as a leading knowledge society: The goal is for public and private sector enterprises to jointly boost efforts in the area of research and development so that Denmark by 2010 reaches a figure exceeding three per cent of gross domestic product.
  • Denmark as a leading entrepreneurial society: The goal is for Denmark, by 2015, to be one of the societies in the world where most growth enterprises are launched.
  • World-class education: The goal is for pupils in primary and lower secondary school to be among the best in the world in reading, mathematics and science. The Danish Government wants all young people to complete post-secondary education, at least 85 per cent by 2010 and 95 per cent by 2015, and at least 45 percent to complete further education by 2010 and 50 per cent by 2015.
  • The most competitive society in the world: The goal is for Denmark to be the world’s most competitive society by 2015.

The second goal is most directly relevant for entrepreneurship, but all of them are key to building a healthier entrepreneurial ecosystem in the country. But goals alone are not enough. Denmark appears to have had some success in translating them into concrete pro-growth and pro-entrepreneurship action. The 2005 policy statement was followed by several changes in the structural conditions for entrepreneurship. For example, the country’s policymakers changed bankruptcy legislation, reduced administrative burdens and improved the access to capital. Denmark has since noticeably improved its framework for entrepreneurship and is actually one of the OECD countries that has improved its framework conditions most during the last 10 years. The 2008 an OECD review of Danish Entrepreneurship policies concluded that “Overall entrepreneurship policy in Denmark can be evaluated as positive, having resulted in a healthy business environment and very conducive to entrepreneurial activity.” Worldwide, Denmark currently ranks 6th in the overall ease of doing business, according to the World Bank’s Doing Business project.

Denmark’s leaders have also worked on creating an entrepreneurial mindset and culture, an important decision that has shown results. According to the latest European Commission (EC) Survey on Entrepreneurship, conducted by Gallup, Danes are the most likely to reject a negative image of entrepreneurs and they have, together with the Irish, the highest readiness to give failed entrepreneurs a second chance compared to respondents in other EU Member States.

In this regard, Denmark has also put a lot of effort into Global Entrepreneurship Week (GEW). The Minister of Business and Economic Affairs directly hosts the annual campaign and participates in several meetings and conferences during GEW. Denmark has been part of the GEW since its first year and the evaluations of previous years’ efforts show very positive results. Denmark has managed to get almost all of the major Danish stakeholders involved in the organization of the week, resulting in more than 100 events - which for a nation of 5.5 million people is extraordinary. At this year’s GEW in November, the Minister of Business and Economic Affairs is hosting an Entrepreneurship Summit that will bring together all the key players in the Danish entrepreneurial ecosystem to discuss how Denmark meets their ambitious goals.

There are of course many unsolved issues. For example the educational system leaves much to be desired when it comes to encouraging an entrepreneurial mindset. According to the EC´s Survey, Danish respondents are the least likely to say that their education helped them to develop entrepreneurial spirit and understanding. Denmark’s leaders, who see the power of growth-enhancing entrepreneurship, continue to seek ways to address this and in 2009, launched a comprehensive strategy for integrating entrepreneurship education at all levels. This strategy involves creating a new Foundation for Entrepreneurship that will promote the training of teachers and the development of teaching methods and courses in all branches of education.

Another interesting component of this education strategy is to create a Partnership for Education and Training in Entrepreneurship between the Ministry of Culture, the Ministry of Science, Technology and Innovation, the Ministry of Education and the Ministry of Economic and Business Affairs. The inter-ministerial partnership will cooperate on implementation of the strategy, including the coordination of other initiatives aimed at achieving targets and collaborating with the Foundation for Entrepreneurship.

Few countries so far have actively invested in entrepreneurship education the way Denmark has by involving every level of education, earmarking funds and including entrepreneurship in the management of educational institutions. Following these educational initiatives over time will be very interesting. Best practices could emerge and lessons will serve the world for sure. No doubt there will be some new lessons also for others as to what did not work.

Denmark’s entrepreneurship incubator-type programs should also be observed. Accelerace, for example, is an interesting business development program for Danish entrepreneurs, structured as a five-month training. The program runs two times a year and is free of charge for the participating entrepreneurs. Accelerace’s goal is to give entrepreneurs the knowledge and tools that enable them to establish or grow their business internationally.

Despite all the great things going on in the Denmark, some major challenges remain in new firm formation. The recently released 2010 World Bank Group Entrepreneurship Snapshots shows that the number of new firms registered per working age population (normalized by 1,000) is among the highest of the 112 countries studied, but according to the Danish Entrepreneurship Index Denmark is still lagging in the number of young high growth firms compared to performing countries. Furthermore, productivity growth at the macro level has been slow over the last 10 years.

Will Denmark address these challenges successfully and realize the government’s ambitious goals for entrepreneurship? Nobody knows for sure. Our guess is that these efforts will in the end lead to more growth entrepreneurs. During the upcoming Global Entrepreneurship Week, policymakers around the world should take careful note of the Danish experience. As for Danes? We hope they will seize this year’s Global Entrepreneurship Week starting November 15th and help their leaders with more bottom-up energy, ideas and solutions to the remaining challenges. After all, for all we do, it is the powerful ideas and persistence of the entrepreneurs themselves that develops a startup nation where lives are improved and strong economies are built.