Known for windmills, tulips, tall people, and stealing the land from the sea…
the Netherlands is among the top 20 biggest economies in the world,
and a GDP per capita of over fifty thousand dollars.
If you are Dutch, don’t forget to share your opinions in the comment section below.
The geographic location of the country is both its best and worst feature. Best because it
serves as a European trade hub, worst because a quarter of the country is below sea levels. But,
the country’s nonstop battle against water has made it an expert in water management,
dredging, and flood protection. It is truly exceptional to see how the Dutch managed all
the Delta works, dams, dikes, and polders. It’s a story of remarkable engineering and
human resilience from which the world could learn a lot,
considering the rising sea levels is a topic of concern for many countries.
The Dutch are highly individualistic. There is this topic that individualistic societies are more
likely to gain economic success collectively. But it’s debatable. On the other hand, the government
traditionally had a higher regulatory role in the economy. The government’s economic interventions
were significantly reduced back in the 1980s when 'market economy' was professed worldwide.
This resulted in considerable privatization as well as the restructuring of welfare programs.
Nonetheless, it remains highly regulated but still a ‘market economy.
In fact, it is arguably often referred to as the birthplace of modern capitalism. Forget
about Amazon, Apple, Google, etc., back in the 17th century, The Dutch East India Company,
also known as the VOC, was the most valuable company of all times. It did
commit many atrocities and misused its powers with colonialism, nonetheless, it formalized
many modern-day economic principles that serves as a blueprint for modern era corporations.
It was not until the late 1700s that they were replaced by the British as the world's
leading trading nation. The tradition of being merchants and traders carries on
as the country’s economy continues to be highly dependent on foreign trade.
But there are many lessons one could learn from the economic history of the Netherlands.
Tulips were introduced into Europe from Turkey after 1550. The vibrantly beautiful flowers
became immensely popular. Infected by a virus, some varieties of tulips showed varied patterns.
As the rich sometimes collect rare items like paintings for ridiculous prices,
many wealthy individuals began to collect and display these rare tulips. The demand
for mixed-colored tulips exceeded the supply, and prices of these rare bulbs skyrocketed.
In early 1600 a single bulb of a new variety was satisfactory as dowry for a bride, or as a payment
for a thriving brewery in France. The madness reached its peak in Holland during 1633–37.
Many people thought that the whole of Europe and possibly the whole world would want to own tulips.
The prices elevated to an extent that a single flower was priced more than some houses.
While trades were done as cash for the bulbs, many bulbs were sold and
resold as a future contract without even leaving the ground. Eventually,
the madness ended in 1637 with a drastic collapse in prices and many losing their fortunes.
TulipMania often described as the first recorded speculative bubble,
is a perfect example of how people forget how much of an intrinsic value an asset holds.
They bought more and more in hopes to sell them later for profits.
It may seem silly to buy a tulip bulb for let’s say 1 million dollars, but if you believe you can
sell it for 2 million after a certain time, then it just seems like a very reasonable
decision as well as a rational investment. This is known as the "greater fool theory”.
Some people have compared TulipMania with numerous
economic bubbles including Bitcoin and cryptocurrencies. While others oppose
the similarities between the two with different set of arguments.
Recently some historians have highlighted that TulipMania was highly exaggerated
and not many people were involved in it. But, these history corrections were only
meant to emphasize that TulipMania arguably didn’t impact the rest of the Dutch economy.
Tulipmania is a cautionary tale of how speculative bubbles are generated.
It shows our irrational biases. It shows our tendency to get carried away with anything.
Then they collapse and we move on to find a new madness. And the pattern repeats.
In 1959, the discovery of natural gas in Groningen had a huge positive impact
on the Dutch economy. This discovery was as important for the Netherlands as oil for Norway
or banks for Switzerland. While natural gas helped the Dutch economy stretch its wings,
it also negatively impacted the overall economy. If it sounds like a paradox,
then you are right. Because that’s what it is.
The Dutch Disease, a term coined in 1977 by ‘The Economist’, highlighted a causal relationship
between the economic growth of one sector, compared to a decline in other sectors.
The growing sectors are usually natural resources but not limited to them,
while the other sectors could be manufacturing and agriculture.
The Netherlands began exporting natural gas. But when the revenues started pouring in,
the country’s currency Guilder began to appreciate. It happens due to the
currency’s higher demand in the international market. This may sound good but it wasn’t. The
appreciation made the Netherlands exports became expensive for other countries to purchase,
putting pressure on the other sectors. Also, the appreciated currency made the imports more
affordable for consumers who started preferring imported items over domestically made products.
This resulted in further decline of the local manufacturing industry.
The growing sector with tons of revenue from exports offers better wages which
pushes the other sectors to pay more to their workers, who would otherwise flee
towards the growing sector. But there are only limited people the growing sector could hire.
This along with the decline of other sectors increases unemployment.
Even investors flee towards the growing sector for better profits.
The growing sector also brings more revenue for governments which results in increased
government spending that manifests in public infrastructure, military spending,
and welfare programs. The welfare programs make the government look good in front of the voters
but if this is done carelessly, it could lead to further issues. For example, if something happens
to the growing sector, the welfare programs need to be restructured which people dislike.
The more complex and diverse and economy is,
the less likely it is to be impacted by the Dutch disease.
The Dutch disease is a result of wealth managed unwisely.
The resource curse is real. It shows the riches could be a curse sometimes rather than a blessing.
It’s a lesson that you shouldn’t put all the eggs in one basket.
The only thing that cheers up a Dutch more than an unexpected discount is if they could
get something for free. The bicycle-friendly people are less inclined towards spending money
on branded products. They would rather choose a good product that works for little money.
Squeezing out the most for less is a preference. But before you call them greedy,
you should know that the Netherlands is among the top countries that spend most
on development aid per capita as well as a percentage of Gross National Income.
There is this Dutch saying that roughly translates to: “Just act normal,
then you're already acting crazy enough!” Not trying to stand out and being content
with ‘the normal’ is the key. This also manifests in people’s financial decisions.
Also if you brag about your wealth, the orange-loving people could put
your in your place with their stereotypical Dutch straightforwardness and directness.
The Netherlands has one of the highest Employment Rate, which is a measure of people employed in the
working age population. But what stands out is a huge number people who works part-time.
The country has a flexible working culture. The Dutch are relatively
more inclined towards working in the evenings or on the weekends.
The Netherlands is among the countries with the lowest income inequality. However,
wealth inequality is debatable. Although it does bring quite polarized opinions.
We do like to add that countries with a big middle-class population
usually give an impression of low wealth inequality. But that does
not mean there aren’t super-rich people owning a big chunk of the total wealth.
Countries with the highest levels of social spending are considered as the welfare states.
Public social welfare spending is high in the Netherlands but
it is not among the highest as one would expect,
considering they are vocal about their social security and one of the best pension systems.
Household debt has reached above %230 of the
net disposable income which is among the highest in the world.
If there is anything to complain about other than the rainy-windy weather, that would be the
high rents in Amsterdam. The Netherlands ranks high on the cost of living index.
The Netherlands has a combination of growing elderly population and
a low fertility rate which is below the replacement levels.
But immigration is a touchy topic in the country. They are less inclined towards
more open immigration policies to increase the working-age population like Canada or Australia.
The world’s oldest professional is fully regulated and legalized by the government.
While it provides safety and fixes many issues, it is also a way for the
government to tax it instead of letting it drift away as an underground economy.
The Netherlands is among the countries with high tax revenue to GDP ratio,
which is a share of a country's output that is collected by the government through taxes.
The Dutch residents and companies are among the biggest investors in foreign countries.
The country is also home to some of the world's biggest companies,
including Royal Dutch Shell, Heineken, Philips, etc.
People have high trust in the government. The Netherlands ranks among the least
corrupt countries. However, it also ranks among the top ten list on the Financial
Secrecy Index that ranks countries based on their financial secrecy,
offshore financial activities, and illegal financial flows.
Which are sophisticated terms for saying it’s a tax haven. The country also ranks high on the
Corporate Tax Haven Index helping multinational companies to underpay income taxes. It would be
interesting to see if the recent EU harmonization tax plan could influence this whole matter.
While the country acts like its virtuous and on the high
moral grounds with the clean energy initiatives,
the unusual earthquakes are the real reason behind the discontinuation of natural gas extraction.
The Netherlands has a vital position in Europe’s distribution network with Schiphol Airport,
Rotterdam and Amsterdam ports as well as a connection to the Euro-corridors.
With warehouses and distribution centers, the Netherlands offers its services to big
international corporations to supply their goods to Europe. Rotterdam port is also
called the largest German port due to its significance for the economy of Germany.
Being part of the Euro Zone, the country’s monetary policy is controlled by the
European Central Bank. The Dutch economy is more strongly tied to the European Union than the UK,
so it has more to lose if it goes towards the same path that the United Kingdom took.
You can share your opinion on the possibility of Nexit in the comment section below.
The Netherlands' inclination to adopt technology for agriculture is impressive
but also natural considering it has a high population density.
The Dutch agricultural sector is highly mechanized with greenhouses and associated technology, geared
towards automation, and employing the smallest workforce for the maximum output possible.
Wageningen University is like the Stanford of Agriculture and consistently ranks as number one.
The Netherlands is the second biggest EXPORTER of agricultural products in the world. But if you
see rankings of the biggest food PRODUCERS from different sources, you will notice the Netherlands
is nowhere among the top. Many sources on the internet are linking the value of exports with the
innovation happening in the agricultural sector in the Netherlands. This is false advertising.
Because many of the exported agricultural products are first imported from other countries,
including some countries with low wages, where all kinds of farming techniques are
used instead of the high tech methods used in the Netherlands. Subsidies, as well as high tariffs on
cheap foods from developing countries, keeps the European Union agricultural sector profitable.
A big chunk of agricultural exports include inedible products such as flowers which are also
partly imported from other countries and traded through the Netherlands. However, the country is
the European Union’s largest meat exporter with veal and beef exports to Germany, poultry to the
United Kingdom, and pork to China. The Dutch can produce more inexpensive pork for China than the
Chinese could produce in their own country. Other important exports are dairy and some vegetables.
The Dutch high agricultural exports are based on the value and not by volume.
They have access to high-paying countries where quality premium-priced products could be sold.
There are many other contributing factors that leads to the the agricultural success such as
the logistics, warehouses & distribution network,
an ideal port at the crossroads of Europe with access to large markets.
Bulk transport is also comparatively inexpensive and a homogenous trade bloc also helps. If you
don’t have all these benefits, you can’t be as successful as the Netherlands even if you try to
adopt all the fancy equipment and techniques the Dutch agricultural sector is utilizing.
The Netherlands is playing with a new theory named “Doughnut Economics” by Kate Raworth,
who suggests thinking beyond the traditional economics of infinite growth. The theory is
advocating to rise everyone to sufficiency while lowering unsustainable consumption.
It sounds more like a proposition for a better management system than a new economic theory
which it is desperately trying to become, packaged into fancy catchwords and morality.
We are off to hit some coffee shops. Bedankt (Dutch word for thank you) for
watching the video. We will try to reply to everyone in the comment section below.
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