Academic journal article International Advances in Economic Research

Does the Dutch Model Really Exist?

Academic journal article International Advances in Economic Research

Does the Dutch Model Really Exist?

Article excerpt

M. PETER VAN DER HOEK [*]

The policy that led from the "Dutch disease" (in the 1980s) to the "Dutch miracle" (in the 1990s) consists of three tracks: wage moderation, retrenching public expenditure and reducing the tax burden, and slimming the welfare system. The wage moderation track seems to have been the most important. The term "Dutch model" refers to the socioeconomic system of the Netherlands. Most observers point particularly to the relatively low unemployment rate to indicate the success of this model. However, the economic inactivity rate in the Netherlands is not lower than in neighboring countries. This suggests that open unemployment in the Netherlands has been partly replaced with hidden unemployment. In particular, the disability scheme seems to contain a large component of hidden unemployment. Another feature of the Dutch model is its consensus-seeking nature, which is fostered by its institutional structure. (JEL H50)

Introduction

Unemployment is one of the main socioeconomic problems of the European Union (EU). In 1999, an estimated 17 million people were unemployed in the EU, resulting in an unemployment rate of 10.1 percent of the labor force [Organization for Economic Cooperation and Development (OECD), 1999, p. 247, 249]. This compares with an unemployment rate of 4.2 percent in the U.S. and 4.9 percent in Japan. Obviously, the European economies performed relatively poorly in the 1990s. Table 1 shows that Luxembourg has the lowest unemployment rate of all EU member states (3.1 percent). Other countries performing relatively well are the Netherlands (3.9 percent) and Portugal (5.0 percent). Spain suffers the highest unemployment rate (17.4 percent), but Italy (12.1 percent), France (11.3 percent), Belgium (11.1 percent), Germany (10.7 percent), Finland (10.6 percent), and Greece (10.2 percent) are neither very successful in fighting unemployment. Projections for 2000 show a slight decrease in the unemployment rate m the EU, but i t is not expected that this will significantly change the rank order of member states.

This paper will focus on the Netherlands, [1] a country that has attracted much attention from foreign observers. In the 1970s, the Netherlands gave rise to the concept of the Dutch disease. By the end of the decade, the economic situation was considered to be, more or less, deplorable. In the early 1980s, the country served as a kind of bugbear to other countries. Within a quarter of a century, however, the Netherlands seems to have experienced a metamorphosis, witness a leader in The Wall Street Journal Europe [1997a] on April 25-26, 1997: "Compared to its European neighbors, the Netherlands is a case apart. The Dutch have successfully kick-started their economy by reforming their generous welfare state despite the generally reform-stifling constraints of consensus politics. The 'Dutch miracle' was helped by cross-party agreement of a generally positive nature."

This seems a rather flattering comment which is largely true. In 1997, the Dutch model was even awarded a prize of 300,000 Deusche marks by the Carl Bertelsmann Foundation. The president of the biggest federation of trade unions, Lodewijk de Waal, and his counterpart on the employer's side, Hans Blankert, received the prize on September 19, 1997. Obviously, the Dutch model is considered a success and seems to be admired by some observers. Another dimension of the Dutch model was stressed by The Economist [1996] on October 12, 1996:

"One quality that suffuses Dutch political and social mores is the notion of gedogen, a nigh-untranslatable term that means looking the other way when you must. It seems to feed a national need to compromise at all costs. It is often translated as 'tolerance,' but could also come to mean something pretty close to sogginess, fudge or even hypocrisy."

Though less flattering, this statement also seems fairly realistic. The observation in The Economist of a national need to compromise at all costs seems fairly telling. …

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