What if your entire economy was based on one product? TV commercials joke that America runs on Dunkin', but for all intents and purposes, Denmark quite literally runs on Ozempic, a diabetes medication that is now widely used by consumers to lose weight.
Ozempic is proving to be a powerful growth engine. Its worldwide sales have increased by over 60% in the past year alone. In the United States, which is one of its largest markets, prescriptions for Ozempic and similar drugs quadrupled between 2020 and 2022. And even with those blockbuster sales, demand is so high that there has been a persistent shortage of Ozempic in the U.S. for a large part of the past few years.
Ozempic's manufacturer, the Danish company Novo Nordisk, is reaping the fruits of the craze. Its net profit more than doubled between 2019 and 2023, and its stock has soared to new heights. At the end of 2023, Novo became the largest company in Europe. And its rise has eclipsed the Danish economy, creating a lot of value on the one hand, but an imbalanced economy on the other.
You might have heard of "petrostates," countries where fossil fuel extraction dominates the economy. By that measure, you might call Denmark a pharmastate, because Novo now dominates the Danish economy.
Nearly 1 out of every 5 Danish jobs created last year was at Novo. And that's just directly. If you also include the jobs that Novo has created indirectly — like, for example, at its suppliers, or from all the newly wealthy Novo employees spending their money at shops and restaurants — nearly half of all private-sector nonfarm jobs created in Denmark can be traced back to Novo.
More than that, Denmark's gross domestic product would have shrunk last year without the contribution of the pharma sector. In other words, the company has almost single-handedly rescued the country from a recession.
Novo Nordisk's meteoric trajectory raises a question about economic growth that's much bigger than just Denmark: Namely, what are the risks of having one giant company driving your entire economy? And crucially, what happens if that company's fortunes take a turn for the worse?
Danish disease
In economics, too much of a good thing can sometimes be a bad thing. One such case is a phenomenon called Dutch disease, named after the experience of the Netherlands in the 1960s. And some economists worry that Novo Nordisk's rise may cause Denmark to suffer from it too (for more on Dutch disease, listen to this episode of The Indicator from Planet Money).
When the Dutch discovered vast natural gas deposits in Groningen in 1959, they started extracting and exporting the gas as fast as possible. The high exports increased demand for the Dutch currency, the guilder, which caused its value to skyrocket relative to other currencies. And that in turn made other, non-gas Dutch exports too expensive to compete on international markets. This ultimately decimated the manufacturing sector and raised unemployment in the country. Paradoxically, the huge windfall ended up hurting the economy.
Dutch disease is usually associated with the discovery of natural resources like oil or gas, but it can happen from any development that causes a spike in global demand for a currency. Such as: the discovery of a miraculous weight loss drug that everyone in the world wants to buy.
Indeed, Novo's surging drug sales have boosted Danish exports and brought a lot of foreign currency into Denmark. For instance, the bulk of Novo's sales come from North America. Novo then has to exchange a large amount of the foreign currency it earned abroad into Danish kroner to pay its employees' salaries and its taxes in Denmark, expand its factories there and so on. This puts pressure on the krone to increase in value relative to other currencies, like the dollar.
However, the krone isn't allowed to increase much in value because Denmark keeps its exchange rate fixed to the euro. To offset the strengthening effect on the currency, Denmark's central bank has had to respond by keeping interest rates low. "It may seem strange that weight loss medicine affects interest rates in Denmark, but it does," Jens Nærvig Pedersen, director of foreign exchange market and rates strategy at Danske Bank, told Bloomberg.
Novo's activities have had a noticeable effect on the krone, but the central bank's interventions have been sufficient to keep its value stable. Though a fixed exchange rate can't always save you from Dutch disease, Denmark has managed to avoid it so far, and it continues to export a wide variety of goods today. And the central bank continues to monitor Novo's effect on the currency.
The new Nokia
The dominance of Novo Nordisk in the Danish economy has prompted many to caution Denmark against falling into the same trap that its Nordic neighbor Finland fell victim to years ago: the Nokia trap.
Back in the early 2000s, Nokia, a telecommunications company, was the hottest game in town. The appeal of its iconic brick phone has long since been forgotten in the shadow of a new generation of smartphones, but in the early 2000s, Nokia was the world's largest maker of mobile phones. And like Novo Nordisk, it was a business behemoth in its home country: In its heyday, Nokia was responsible for almost a quarter of Finnish growth and generated over 20% of Finland's exports.
But then disaster struck: In the mid-to-late 2000s, Nokia started rapidly losing market share to Apple and other smartphone manufacturers. The global financial crisis hit at the same time, and Finland's economy was sent into a tailspin. Compared with its Nordic neighbors, Finland's economic decline was steeper, and its post-crisis recovery was much slower.
The widespread perception was that Nokia's downfall took the Finnish economy down. "Steve Jobs took our jobs," the then-prime minister said in an interview. The geographic proximity and economic similarity of the situation raise a question: Is Denmark in danger of falling into the Nokia trap too?
As is often the case with economics, the real answer is complex. To start, Nokia's circumstances were quite extreme. It might be unusual to have a company of Nokia's size in a small open economy like Finland, but it's even more unusual to have a company go from being the global market leader to cutting tens of thousands of jobs and getting acquired by another company within the space of a few years.
The fact that the global financial crisis happened at the same time also meant that many of the factors at the root of Finland's economic troubles were unrelated to Nokia. The Research Institute of the Finnish Economy estimated that Nokia's direct contribution accounted for over 30% of the GDP decline and 20% of the employment decline between 2008 and 2014. That is an astounding amount for one company to be responsible for, but it's nowhere near the majority.
While it's unlikely that Novo will suffer from a Nokia-style collapse soon, some obstacles are on the horizon that could hamper its growth in the future. Countries are already talking about implementing stricter price controls on Novo's drugs, and Novo's patents on Ozempic expire within a decade, at which point it will probably have to fight against a wave of competition from generic-drug manufacturers. And as we see from the data, if Novo stops growing, Denmark likely stops growing too. That's the Nokia trap for Denmark.
The best way to avoid this would be for other Danish companies to grow faster and generate more value, so that economic growth in the nation becomes driven by many companies rather than one. But that's easier said than done, especially given Europe's stagnant economic environment.
The other aspect of the Nokia trap is that Denmark might become complacent, equating Novo's success with the success of its economy as a whole. But partly because they have Finland's experience to learn from, Danish policymakers are carefully monitoring the economy for signs of underlying weaknesses that might get masked by the "Novo effect." The country's national statistical agency recently published GDP figures with and without the contribution of the pharmaceutical industry, and the economic ministry referenced the company 31 times in its recent economic report.
If dealt with carefully, Denmark's problem can be a good one to have. Novo Nordisk's astounding success is great for the Danish economy, of course, but only if policymakers understand the risks that come with having too much of a good thing. For now, it seems like they do.
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