The Dutch Economy
For a small country with a small population, the Netherlands has a large and powerful economy.
It is the world’s eighth-largest exporting country (third-largest in the export of food), the sixth-largest source of investment, and its gross domestic product (GDP) is the 15th-highest in the world. The workforce numbers 7.3 million, 60% of whom work in the service sector, with a relatively low 40% in manufacturing, agriculture, and government.
The per-capita GDP was app 27.000 US dollar (2002), and unemployment stood at around 5%.
The Dutch economy is extremely open to world trade. Much of the flow of goods into its ports is intended for transshipment to other countries, mainly other members of the European Union.
The Dutch economic system is widely regarded as a model of consensus*. Stability is maintained by close and regular contact in the Socio-Economic Council between the trade unions, employers’ organisations, and independent consultants appointed by the government. The two sides of industry also have permanent contact in the Labour Foundation. The government interferes as little as possible in industrial relations.
Strategic position
The Netherlands is an important centre for multinational businesses. Its attractions include its advanced infrastructure for telecommunications and goods and passenger transport. What is more, many foreign companies come to the Netherlands because of its central geographical location, its flexible working hours and its educated, multilingual workforce. The port of Rotterdam and Schiphol airport are the two most important international transport hubs. The Netherlands has long had a balance-of-payments surplus: More than half the Gross Domestic Product (GDP) comes from international trade. Many Dutch companies have subsidiaries in other countries.
The service sector
In the past twenty years, services have grown into one of the Netherlands' main economic sectors. The export of commercial services has risen more rapidly in the past ten years than the export of goods. Trade is the main activity in the service sector, followed by transport and communications, construction, banking and insurance, and other commercial services. Most Dutch companies are active mainly in the Netherlands. Most international business is conducted by transport companies, technical consultancies and trading companies. ABN Amro and ING are the largest Dutch commercial banks, with branches worldwide serving both Dutch and non-Dutch companies as well as governments.
The Netherlands' three largest international trading companies are Ahold, SHV Holdings and Hagemeyer. Many manufacturers, such as Unilever, Philips, Akzo Nobel and Shell, also do a great deal of trading.
Dutch transport companies are clustered around the two major centres of import and export: Schiphol airport and the port of Rotterdam. The best-known are KLM Royal Dutch Airlines, Nedlloyd, Frans Maas and Smit International. The dredging companies Boskalis, HAM and Ballast Nedam have larger foreign operations than domestic ones. KPN Nederland is a big name in international telecommunications and works with many non-Dutch companies.
Manufacturing
The Dutch manufacturing sector has an international outlook. Dutch manufacturers export all over the world, have branches in many countries, and often join forces with foreign companies. The main manufacturing industries are chemicals, food processing and metalworking. There are also highly developed printing and electrical engineering industries. Production processes in all of these industries have been largely automated in the past ten years, making them strongly competitive on world markets, with plants both in the Netherlands and abroad.
The Netherlands is home to the world's largest chemical companies. The Dutch metalworking industry specialises in making machinery, Its advanced electronic control systems have made it a world leader in the manufacture of vehicles, food processing equipment and machinery for the chemical industry. This has also boosted the development of a strong electronics industry. The main markets for Dutch manufactured goods are Germany, France, Belgium and the UK. The Netherlands is the second-largest supplier of industrial high-tech equipment and consumer goods to these very demanding markets. Germany imports more from the Netherlands than from the USA or the UK.
Economic sectors and their share of GDP in 2002 :
Agriculture and fisheries: 3%
Construction and installation: 5%
Industry: 20%
Services: 60%
Public sector: 12%
Energy
There are huge natural gas reserves in the north of the Netherlands, making it Western Europe's largest producer. Drilling companies operate in gas and oil fields both on land and in the North Sea (in the Dutch part of the continental shelf).
The port of Rotterdam is a crucial link in Western Europe's energy supply chain. Large quantities of crude oil arrive there by ship for use throughout the region. The port has many refineries and terminals, and pipelines transport crude oil and oil-based products directly to the industrial centres of Germany and Belgium.
The presence of refineries and offshore installations has led to a wide range of activities serving the oil and gas industries. Four large steel construction firms, for instance, design and build entire refineries and offshore installations. And dozens more companies produce specialised equipment. Several Dutch research institutes have laboratories for simulating offshore conditions.
In the late 1980s, the Dutch government introduced strict environmental legislation. This encouraged researchers to develop technologies for purifying wastewater, neutralising waste gases and processing industrial and domestic waste. The Netherlands' production plants are now among the world's cleanest. Around 40 Dutch companies are making electricity generators driven by biomass, sunlight or wind. More than 2% of electricity now comes from these renewable sources. The goal is to make that 10% by 2020.
Science and technology
The Netherlands has few natural resources. Dutch society therefore focuses on developing and applying knowledge. More than 60,000 researchers work in Dutch companies, universities and research institutes. Each year, € 4.6 billion is spent on research - half by companies and a quarter each by universities and research institutes. Dutch researchers produce 7% of the EU's scientific publications and hold 6% of its patents. Around 5,000 Dutch companies conduct their own research to develop new products and make production more efficient. The country's five largest multinationals - Philips, Shell, Akzo Nobel, DSM and Unilever - are at the forefront of industrial research and development.
Innovation is a matter for business, but government supports it too, by encouraging universities to apply and disseminate knowledge, by ensuring that knowledge is protected by patents, by supporting blue-sky technologies, and by attracting knowledge-intensive companies to the Netherlands from abroad. Government also encourages Dutch companies and centres of learning to take part in European research and innovation projects.
Agribusiness
Agribusiness is an important industrial sector in the Netherlands. It includes all kinds of activities related to the agricultural sector: the production of food, alcohol, tobacco and other non-food agricultural products, along with all the trade and services related to farming. More than half the produce of Dutch agriculture and market gardening is processed by the food, alcohol and tobacco branches. The highest turnovers are found in slaughtering, meat processing, dairy products and the production of animal feed, tobacco products and alcoholic beverages.
*Model of consensus: the "Poldermodel"
In recent years, the Dutch economy has performed extremely well. High economic growth has gone hand in hand with a significant rise in the number of jobs. This excellent performance - also known as the 'Dutch miracle' - stands in sharp contrast to the 'Dutch disease' that afflicted the Dutch economy in the early 1980s.
The basis for the Netherlands' excellent performance was laid in the early 1980s, when policy focused on restoring the economy to health. The bleak economic climate at that time made a change of course essential. The recession from 1981 to 1983 was more severe in the Netherlands than in other OECD countries. During this period, 100,000 jobs were lost every year, partly due to the sharp rise in labour costs. Furthermore, public finances had got completely out of hand. Both the government and workers and employers realised that drastic changes were needed to put the economy back on its feet. Since then, three important changes of policy have radically altered the Dutch economy.
The first new policy was the emphasis on controlling public spending in order to reduce the budget deficit and taxes on businesses. Putting public finances on a sound footing helped to bring down inflation and interest rates. This was facilitated by linking the Dutch guilder to the German mark in the early 1980s.
The tax cuts contributed to the second important new policy: wage moderation. In 1982 employers and trade unions signed the Wassenaar agreement aimed at reducing unemployment by moderating wage demands. Work was placed above income.
The third new policy introduced in the early 1980s involved a thorough overhaul of the social security system. This system caters for people who cannot support themselves as a result of long-term illness, unemployment or old age. Most benefit levels were reduced to 70% of the last-earned salary, instead of 80% as had been customary hitherto. The statutory minimum wage was frozen for a decade, with the result that benefits, too, lagged behind the average wage increases.
In the 1990s, the reforms were supplemented by measures aimed at strengthening the economic structure, with a view to improving the operation of markets for goods, services, capital and labour. More flexible markets encourage businesses to lower prices and to produce new and better goods and services. A major step towards improving the operation of goods markets was the introduction of the Competitive Trading Act on 1 January 1998, which brought Dutch rules on competition into line with those of the European Commission. Companies may no longer restrict competition by making agreements or abusing their powerful market position. Consumers will benefit from the ensuing pressure to reduce prices, and small and new companies will have greater opportunities to develop.
Other government policies also give companies greater freedom. In many sectors, e.g. estate agents, the legal profession and road transport, the scope for competition has been increased by freeing charges and fees, for example. That this policy of deregulation is benefiting consumers and employment can be seen in the telecommunications market. Since this market was opened up to new operators eight years ago, many new telecommunications products have been put on the market, prices have fallen sharply by 10 to 35% and employment has risen by 120%.
Finally, the government is encouraging innovation, especially in the field of information and communications technology. As well as providing subsidies, it increasingly brings researchers, companies and venture capital together. The Twinning Concept, for example, brings young companies into contact with experienced managers and venture capital.
Creating scope for an entrepreneurial approach also requires investment in space. Within the limits of a small and densely-populated country such as the Netherlands, sufficient space needs to be found for industrial estates. Infrastructure must satisfy the increasing need for mobility. To preserve the Netherlands' role as a gateway to Europe, the government is investing in the modernisation of Schiphol Airport, the port of Rotterdam and links with the rest of Europe. In view of the growing volume of road traffic in the Netherlands, the government is also seeking to make optimum use of the existing infrastructure, e.g. by introducing road pricing, whereby a toll is levied electronically for journeys within the Randstad conurbation.
Source: Ministry of Foreign Affairs
