What is the Danish connection between high taxes and happiness?

Twitter recently introduced me to a US-based enterprise called Blue Zones, which says its aim is show communities, schools, businesses and individuals how to be healthier, to live longer, and to be happier.

It is based upon the work of Dan Buettner, who written a popular book about “blue zones”, places known for longevity. According to this National Geographic site, Buettner’s research was funded in part by the National Geographic Expeditions Council and the National Institute on Aging.

Twitter had directed me to this Blue Zones blog saying that much can be learnt about health and happiness from Denmark. I asked health economist Professor Gavin Mooney to comment on its analysis, knowing that he and I share connections to that country (and a fondness for the Danish sense of humour).

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What can we learn from Denmark?

Gavin Mooney writes:

The Danes are happy despite paying such high taxes. But why?

There are now numerous surveys that tell us that the Danes are the happiest people on the planet. Melissa passed to me this almost eulogistic recent assessment of the happiness of the Danes.

I lived there for 5 years and it does seem to me that they are a happy bunch. In fact they seem more interested in being happy than healthy! Indeed they are pretty healthy but just not as healthy as their Scandinavian colleagues in Sweden and Norway.

There are some lovely comparisons made between these three countries. My favourite is from a Norwegian psychiatrist friend who did his PhD on compulsory admissions to psychiatric hospitals in the three countries. The Swedes do more locking up than the Norwegians and the Danes are bottom of this particular ladder. His (tongue in cheek – I think) explanation? As the Swedes are terribly serious and formal, in Sweden anyone who is a bit funny gets locked up; while in swinging Denmark nearly everyone is a bit funny so such funniness fails to get recognised and very few get locked up.

Nice one but what is intriguing to me is that when I taught in Scandinavia to groups who would have little knowledge of mental illness, just as a little bit of fun I would ask participants what order they would think there would be on this dimension across the three countries. Without fail, they would get the order right!

The Danes are acknowledged as being different and different in ways that seem to make them happy: they cycle (a lot) – there are far more bikes in Denmark than people; they eat black (rye) bread – often smeared with lard; they smoke and drink rather a lot; they have a language designed to prevent all foreigners from understanding them – the Swedes claim that the Danish language is a throat disease; they have some wonderful philosophers and footballers; they like being Danish – they fly the flag but with joy rather than nationalistic pride; and they have marvellous (largely) free public education and  health care.

These happy Danes pay 25% GST. The top marginal rate of tax of 66% that I paid has come down but still cuts in at relatively low incomes, giving them another ‘first’ – the highest taxed country on the planet.

They are not happy about their high taxes but they are happy with what their taxes do to this very even society. Indeed the Danes are generally a very equal society.

The relative flatness of their incomes seems to reflect the relative flatness of their country, which is quite extraordinarily flat – the highest point is Mons Klint, which is all of 300 metres above sea level!

But this still does not really explain their happiness. Nearly 50% (48.2% to be precise) of GDP in taxation and they are happy?

Here in Australia we are well below the OECD average of 34.8% at 27.1%.

So does forking out on taxation make people happy? Hardly but the benefits of that higher tax take just might. There are lots of things that the market cannot provide or cannot provide well. Universal health care is one. Look at the mess of US health care.

But then that word “universal” in front of health care makes so many shudder at least in Australia. Medicare is under attack from both main parties. Why do governments seek to commodify what is a social good?

When the people of Australia were choosing more and more to see health care as a social good and opt more and more for Medicare, what happened? The Coalition Government gave massive incentives to encourage us to see health care as a commodity. And now Labor does the same!

That might make the private insurance industry happy and presumably it makes doctors richer (but I do not necessarily equate that with happier). But the population at large?

Would the Danes be happier – yet happier still – if they paid less tax and paid for their health care through private health insurance? I very much doubt it.

The evidence to support the idea that money brings happiness is just not there. As Zarri (2006) remarks: ‘Recent evidence suggests that money is less and less able to buy happiness and, in this light, Rabin (1993) correctly remarks that “economics should be concerned not only with the efficient allocation of material goods, but also with designing institutions such that people are happy about the way they interact with others”.’

There may lie the Danish secret to happiness – that they have institutions designed ‘such that people are happy about the way they interact with others’ – dare one say even to the extent of recognising that paying taxes is a way of interacting with others to build cohesive social solidarity.

Along with a Swede, an American, an Englishman and a Dutchman, I was part of a team of ‘experts’ asked by the Danish authorities to appraise their health care system. This was in the mid 90s when the commodification of health care was seen as the international road to salvation.

We reported that the Danish health care system – the very largely public system – was in good shape and best left more or less as it was. That was exactly what the Danes had wanted us to say and indeed expected us to say. In their own quiet way they think they have a good system but bringing in ‘experts ‘ from overseas was a powerful way of saying ‘we have asked foreign experts and they have said we are doing OK – so we will leave well alone (which is what we intended to do all along)’. Very neat – very Danish.

Australia? Lower and lower taxes and bigger and bigger cars and more and more status-filled houses – and more and more inequality. And more and more Australian flags trying to prove somehow we are ‘better’ and that nationalistic pride is the way to show it. A government that caves into the mining industry and the clubs and an opposition which reduces electioneering to ‘one big tax’ and then ‘another big tax’.

Time to take stock. We do not have the Danish ‘social solidarity’ that pervades so much of that society. We have a racist history and a society built on the dispossession of the land and culture of the original people.

But we can change. I am not suggesting we become Danes, but we can learn from them.

First and foremost we can realise that the seemingly endless pursuit of material wealth for the wealthy does not bring happiness. The social solidarity of the Danes and the social equality of the Danes are things we can seek to emulate. The acceptance that high taxation can lead to a good, fair and trusting society is something to think about.

Uwe Reinhardt (1992: 315), in my view the leading US health economist, writes that ‘to begin an exploration of alternative proposals for the reform of our [US] health system without first setting forth explicitly, and very clearly, the social values to which the reformed system is likely to adhere strikes at least this author as patently inefficient; it is a waste of time’. And he goes on to ask ‘would it not be more efficient to explore the relative efficiency of alternative proposals that do conform to widely shared social values?’

What is striking about Danish public policy and in particular the Danish health care system is that they are based very clearly on their ‘social values’ and given these social values they are prepared to pay for that system through higher taxation. Various surveys have shown that Australians are prepared to pay higher taxes for their health care.

Why can’t governments hear? Maybe this takes us back to the mining industry and the mining tax and the pokies and the clubs.

In the end it is our – the Australian people’s – health service. Would all the vested interests please acknowledge that and then act accordingly?

More than anything the Danish health care system reflects Danish social values. I submit that the Australian system does not. Time to change.

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Additional References

Rabin M (1993) Incorporating fairness into game theory and economics, American Economic Review 83 1281-1302.

Reinhardt U (1992) Reflections on the meaning of efficiency: can efficiency be separated from equity? Yale Law and Policy Review 10 2 302-315.

Zarri L (2006)  Happiness, morality and game theory.  Working Paper Series 37. Verona: Department of Economics, University of Verona.