Something Is Golden in the State of Denmark

Over the past couple of years, no new pharmaceutical drug—perhaps no product, period—has had such widespread impact as the diabetes medication Ozempic and the weight-loss drug Wegovy, both made by Danish company Novo Nordisk. Most obviously, the drugs have changed the lives of the millions of people who now count on them to help control their appetite. These two products have taken Novo Nordisk from a successful but second-tier drugmaker to the most valuable company in Europe.

The drugs are also having ripple effects across the business world. To take one example, snack and soda makers have wondered whether they need to adjust their strategies for a world where people’s cravings for their products have diminished. Some stock analysts have even suggested that the drugs’ popularity might boost airline profits—because their passengers will weigh less in the future.

Ozempic and Wegovy have also exerted huge influence in Denmark, giving the GDP of Novo Nordisk’s home country a sizable boost. The billions of dollars in profits that the company is now bringing home—$5.7 billion in the first half of this year—and converting into Danish krone has driven up the value of the currency, which in turn has allowed Denmark’s central bank to keep interest rates lower than it otherwise might have done. Novo Nordisk has also become Denmark’s biggest taxpayer by far: In 2022, it handed over 9 billion krone (about $1.3 billion) in corporate tax; the number will be even higher this year.

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You might think that this all sounds like unalloyed good news. But no good deed—or good fortune—goes unpunished; so of late a surprising amount of fretting has come from pundits and economic analysts about the risks that Novo Nordisk’s success poses to the Danish economy.

Last year, two-thirds of the country’s GDP growth came from the pharmaceutical industry (in which Novo Nordisk is by a large margin the biggest player). And in the first quarter of this year, pharmaceuticals accounted for 89 percent of the country’s economic growth; indeed, without it, the rest of Denmark’s economy barely grew at all. That kind of dependence, the argument goes, is dangerous: If Ozempic and Wegovy fall out of fashion or are eclipsed by competitors, not just Novo Nordisk’s stock price would suffer. All of Denmark would.

A catchy label has been coined for this problem: the Nokia trap. In the early 2000s, the Finnish company Nokia was an enormously influential tech company and the world’s dominant mobile-phone maker (in 2006, it controlled more than 35 percent of the global market). Nokia was also the engine of Finland’s economy—accounting, at its peak, for a fifth of Finland’s exports, more than 40 percent of its R&D spending, and 14 percent of its corporate tax revenue. And the company became the center of an entire industrial ecosystem that led to a boom in demand for tech workers and gave rise to a host of Finnish start-ups.

Then it all fell apart. Nokia failed to recognize how touch-screen, app-driven smartphones like the iPhone were going to change the mobile-phone business, and within five years of Samsung and Apple entering the market, in 2007, demand for its products vanished. Its sales and profits cratered, taking with them a big chunk of Finland’s exports. Nokia laid off tens of thousands of workers worldwide. And what followed was a decade of slow growth for Finland.

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What happened to Denmark’s Nordic neighbor makes a good cautionary tale—but there are reasons to doubt that Denmark is in danger of falling into the Nokia trap. To begin with, the suddenness of Nokia’s decline was, if not totally unprecedented, certainly very rare. Lots of countries have had such “national champions”; few have seen one fall so far, so fast. Besides, the market for Ozempic and Wegovy is really just getting going, and patent protections are likely to insulate Novo Nordisk to some degree from competition.

More important, although it’s true that the company hitting a rough patch would be bad for the Danish economy, that’s not the same as saying the company’s success is a bad thing for the economy. Unquestionably, for instance, the benefits to Finland of Nokia’s ascendance far outweighed the eventual costs of its fall. The Finnish economy had been in the doldrums for most of the 1990s, and Nokia played a key role in yanking the country out of that slough and putting it on a steady growth path for more than a decade. Nothing guaranteed that happening without Nokia.

To borrow an analogy from the NBA, if you have Giannis Antetokounmpo on your team and he decides to leave, you’re going to have a huge hole to fill. But you’d still rather have had Giannis than not.

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Policy makers can be lulled into thinking that because one company is enormously profitable, the economy as a whole is doing great—that is a legitimate risk. To some degree, in fact, that did seem to happen in Finland, where government officials and politicians took a long time to begin countering the consequences of Nokia’s decline. But the chances of that happening in Denmark seem small—precisely because Danish policy makers are well aware of, and have been discussing, the divergence between the pharmaceutical industry and the rest of the economy. The reason we know the scale of pharma’s contribution to Denmark’s growth rate is that the Danish government makes a point of publishing GDP numbers with and without the pharmaceutical industry.

Such signs of awareness about a possible Nokia trap are valuable: Thinking about the risk as a potential reality should help policy makers mitigate any problems. In the meantime, Denmark has nothing to gain from Novo Nordisk being any less successful—and the notion that Danish civil servants and their political masters could intervene to rev up alternative new industries is fanciful. Although diversification can benefit an economy, small countries can reap an outsize advantage from specialization in the global economy.

Ultimately, of all the problems an economy can have, the success of a company like Novo Nordisk is a good one to have. The Danes should look their gift horse in the mouth, by all means. They just shouldn’t try to return it.