Wage moderation and consensus among businesses and trade unions have led to stable economic growth in the Netherlands. Mark Milner reports from Amsterdam
IT is called the Dutch model, the Delta model, even, somewhat predictably, the Tulip model. Call it what you will, it has given the Netherlands a combination of low inflation, low interest rates, low unemployment and, by European standards, relatively robust growth rates.
Little wonder, then, that Dutch economic performance is attracting attention from countries where growth rates are low and unemployment uncomfortably high. Yet it all used to be rather different. During the 1970s the Dutch saw their economic performance slip in comparison with the other founder members of the European Union.
From being the country with the highest per capita gross domestic product (GDP) among the six, it slumped to the lowest. Unemployment quadrupled between 1975 and 1982, corporate profitability took a hammering and government finances spiralled out of control.
The cost of unemployment and sickness benefits almost doubled in a decade; a modest surplus turned to a deficit amounting to a hefty 8,4% of GDP in the decade up to 1982.
In an effort to stop the rot, the employers and trade unions, encouraged by the then prime minister Ruud Lubbers’s administration, struck a deal in 1982 known as the Wassenaar accord, named after the village just outside The Hague where it was negotiated.
The Wassenaar agreement fell some way short of a fully fledged economic model. Essentially, the unions agreed to give up automatic wage rises twice a year in exchange for an overall reduction in working hours. That might not look too spectacular. Indeed, according to some economists, the early benefits were more to employers’ advantage than the trade unions’, in that higher profits flowed through faster than new jobs.
However, it did mark the development of wage restraint in the Netherlands. “The moderate wage development has been one of the keys to the success of the Dutch economy,” according to Nico Klene, head of domestic economics at Dutch bank ABN-Amro.
Analysts in his department have calculated that while labour costs in the Netherlands have remained broadly stable over the last 15 years, they have risen by 47% in Germany and 62% among the 15 European Union members overall.
During the 15 years since the Wassenaar accord, the Dutch labour market has seen a series of developments designed to promote greater flexibility.
The number of people in part-time work has rocketed. Proportionately more Dutch people now work part-time then anywhere else in the world, which, according to some, has helped increase the low number of Dutch women workers. More workers are employed on short-term contracts or through employment agencies – organisations once frowned upon in the Netherlands.
During the 1980s social security spending was cut and, latterly – with the Budget deficit and the overall debt level falling – the government has moved to reduce the costs of employment and employees’ social security contributions.
All this is against the background of a monetary policy geared to keeping the guilder within a narrow range against the German mark. The crucial point of the Dutch system is that it is based on consensus between the government, unions and employers.
Even the briefest glance at the number of days lost to strikes in Holland bears eloquent witness to the peaceful nature of industrial relations.
In a recent speech, Johan Stekelenburg, general secretary of the federation of Netherlands trade unions, acknowledged that politicians, employers and union officials had had “ding-dong” battles, but they had always remained on speaking terms.
“I’m not trying to talk anyone into adopting the Dutch model. Any system is good, provided the people working within it realise it is necessary to invest in consensus on the main points of social and economic policy.”
Social Affairs and Employment Minister Ad Melkert argues that the Dutch system is inclusive, contrasting the situation in the Netherlands’s urban areas with those in neighbouring countries. “We try to anticipate and avoid real poverty.” Although welfare payments have been cut, they remain at a “sustainable and acceptable level”, he said. “You do not see the kind of social fall-out you see in, say, Paris or Lyons.”
Nor does Melkert expect the system to become a victim of its own success. Despite the growth in the economy and the fall in unemployment, he believes that the Dutch recognise the dangers of abandoning pay restraint. “There is an awareness among the main players that leaving wage moderation behind us would immediately have repercussions in the unemployment figures, and that would set off a negative spiral of higher [social] premiums which would mean lost jobs.”
It is a moot point whether the Dutch model could be replicated elsewhere. Indeed, it is arguable whether there actually is a “model” in the strictest sense of the word. William van den Braak, at the Dutch employers’ organisation, VNO NCW, argues that the Dutch labour market system is “developing from day to day, it is dynamic”.
Even if the Dutch experience could be reduced to a formula, there would still be more to it than whether others have the Dutch taste for consensus. The Dutch economy is an exceptional one, with more than 50% of GDP accounted for by exports, a large chunk of which come from the agricultural and food-processing sectors, not as vulnerable to economic downturn as other industries. Nor do many countries have the natural gas reserves, revenues from which have helped to finance the welfare state.
Despite its success and the admiration the system has attracted, it does have its critics and its challenges.
Some argue that during the last 15 years the Dutch have simply made up ground lost during the 1970s. They suggest that the system has just shared the jobs available within the economy more widely, and that those jobs which have been created have been too concentrated in low-skill areas in the service and public sectors. Unemployment in the Netherlands may stand up to international comparison, but productivity growth does not invite such favourable scrutiny.
The government is already facing calls for more spending on infrastructure, for more spending on education and training, and on research and development in an effort to increase the proportion of value-added operations within the economy. Such a development might sit uneasily with traditional pay restraint.
“There are still problems. We don’t want to be complacent, there are still challenges for the future. We will have to continue to adapt our policies,” says Van den Braak. “Paradise is never coming.”