Dutch Competitiveness Improves

Dutch Competitiveness Improves

The Netherlands equals open economy. Its geographic location serves as an attractive hub for multinational companies moving products in and out of Europe. As a result, in 2008 the Netherlands was rated by the WTO as the fifth biggest exporter in the world only being surpassed by Germany, China, US and Japan. However, the downside with an open economy is of course its vulnerability to swings in the world economy. Consequently, the Netherlands was hit hard during the financial crisis.

How to deal with this vulnerability and exposure? Every careful and successful investor will answer this question with the good ol’ golden rule: “don’t put all your eggs in one basket”. But when reading the Global Competitiveness Report 2010-2011 of the World Economic Forum my attention was caught by the fact that the Netherlands had improved its competitiveness compared to 2009 due to heavy investments in physical infrastructure as ports, railways and airports. Although this improved competitiveness is impressive, I can’t help but think that we are actually placing more weight on the vulnerability of our open economy as better infrastructure will attract even more investments from importing and exporting multinationals.

Diversification is nowhere to be seen here, even though Dutch governments in the past decade have been focusing on the knowledge-economy, where a significant part of economic growth is generated by (technical) knowledge. In 2003 the Innovation Platform was therefore created to catalyze this development. Great initiative and a smart strategy. However, as Volberda, who conducted the WEF research on the competitive position of the Netherlands, pointed out, the Netherlands in fact has not come any closer to this goal. In fact, the Netherlands is significantly behind in innovation. Investments of private sector in R&D are decreasing and it was already far below the OECD average, i.e. 1% in the Netherlands compared to 1,6% with OECD average. General budget for education, research and innovation was 7,6% of GDP while in countries as Finland, Sweden and Denmark around 10% is spent.

Volberda’s criticism on Dutch innovation policy was not agreed by the Dutch Minister of Economic Affairs Maria van der Hoeven who stated that a lot of work on improvements in the Dutch innovation climate had been done. However, the Global Competitiveness Report does not show the results. The investments in infrastructure do. With her remark that the Netherlands does “not have control of its own economic recovery”, she shows the perceived powerlessness towards our open economy. I realize that control in an open economy is difficult but it is not impossible. Diversification is the medicine to less dependency on the world economy and less vulnerability to economic downturns. The Innovation Platform has stated that €6 bln of investments in education, research and innovation is needed to bring the Netherlands back into the top 5 of most competitive countries in the world where we once were.

Note that the past years we have been circulating around the 10th position. If this policy of substantial investments in education, research and innovation is executed, I foresee three outcomes. First, we can make the sustainable jump to the top 5 of most competitive countries in the world. Second, it makes the economy less vulnerable to shocks in the world economy. And third, we attract more foreign investments from other industries than the exporting/importing industry. Isn’t that outlook worth some extra baskets?

Frank Peterse
Senior Consultant - ICA