Dutch miracle breaks down

Dutch miracle breaks down

By Danielle Rossingh BBC News Online business reporter

The boom has come to a halt

Only a few years ago, the thriving Dutch economy was hailed as a prime example of the so-called Third Way by then-US President Bill Clinton and UK Prime Minister Tony Blair.

But recently, the shine has worn off the Dutch economic miracle as unemployment hit its highest level in 20 years and economic growth ground to a virtual stand-still.

Former Dutch PM Wim Kok travelled the world to spread the word on the Third Way, or Polder Model, as they say in the Netherlands.

This model took its name from the Low Countries' famous land reclamation projects, which were called polders, and referred to policymaking by consensus between the government, unions and employers.

The Dutch Polder Model was lauded by international leaders

Over the past decade or so, the Polder Model kept wages low, which led to an unprecedented economic boom in the latter half of the 1990s, with virtually no unemployment, thriving growth figures, low inflation and strong exports.

Unemployment

But come 2003, the economy is sliding, with inflation making a reappearance and unemployment reaching 5%.

One in 20 Dutch workers are now without a job, contrasting sharply with only a few years ago when Dutch employers were desperately recruiting foreign workers to fill the employment gap.

Last year, the Dutch economy, which had outperformed average economic growth in the European Union during most of the 1990s, came to a halt, clocking up the lowest percentage growth in 20 years.

DUTCH ECONOMIC GROWTH

1999: 3.9%

2000: 3.3%

2001: 1.3%

2002: 0.2%

The volume of exports and goods, an important growth driver during the booming 1990s, fell for the first time since 1982.

"The most important reason the economy has faltered is that, since 1997, wages here have increased much more than in the rest of Europe," said Jan Klaver, chief economist at VNO-NCW, the Confederation of Netherlands' Industry and Employers.

"This has made our goods and services less competitive than the rest of Europe."

Mr Klaver said employers were simply forced to increase workers' wages.

"During the economic boom, thousands of jobs were created but there were not enough people to fill them, putting intense pressure on the labour market."

Rocky political climate

Ironically, the breakdown of the Dutch economic miracle coincided with the destabilisation of the country's once rock-solid political climate in the past year.

Pim Fortuyn stirred up stale, consensus-driven Dutch politics

The Polder Model took a backseat when the gay, socially liberal but economically conservative pin-striped bald professor-turned-politician Pim Fortuyn burst onto the political scene.

The stellar rise of his Pim Fortuyn List (LPF) party and his assassination a year ago shocked Dutch politics to its core.

Political in-fighting in his inexperienced LPF party quickly led to the downfall of the cabinet, sending the Dutch to the polls for the second time in a year.

But much to the chagrin of an exasperated electorate, a new cabinet is still nowhere in sight after talks to form a centre-left coalition government broke down last week after 77 days.

Sick leave

Adding to the country's woes is a uniquely Dutch problem - the alarming number of workers on sick leave benefits (wao).

The economy is facing a couple of enormous bleeders

Casper de Vries
Erasmus Universiteit Rotterdam

That number is set to reach one million next year, a significant amount In a population of some 16 million.

Dutch politicians have been discussing the problem for years, but so far no consensus has been reached on how to solve it.

"The economy is facing a couple of enormous bleeders, such as the wao but also spiralling health care costs," said Casper de Vries, Professor of macro-monetary economics at the Erasmus Universiteit Rotterdam.

"As long as these issues remain unresolved, they will continue to put pressure on the budget."

Mr Klaver of VNO-NCW agreed.

"The costs of our health care system have increased tremendously over the past year and one million people on wao benefits is too much for the budget, particularly with less tax revenues coming in."

Polder Model to the rescue?

But there are signs the old consensus model is starting to work its magic once again.

Last November, Dutch unions and employers cut a deal on workers' wages, pledging they would not increase more than 2.5%.

"That was the Polder Model at work," said Mr Klaver.

"As we have become less competitive, the Dutch economy will be faced with some tough choices in the near future," he warned.

"For two years now, the economy has not really grown and unemployment is on the rise. Structural changes need to be made if we want to make it to the top of the EU tables again."

But he added the current caretaker government was on the right track, having already implemented some measures to fight the influx of sick workers.

"The Dutch economy will get a boost once the global economy picks up as we have always been more reliant on international trade than other economies," added Professor de Vries.