Competitiveness Analysis: The Netherlands

The Netherlands is the most competitive country in Europe, according to the Global Competitiveness Report 2019. The country shows consistently high levels of performance in macroeconomic stability, health and infrastructure quality. The Dutch people benefit from a highly developed innovation ecosystem, supported by a highly skilled workforce, vibrant business dynamism and advanced innovation capability. The Netherlands also scores relatively high in the institutional framework, particularly in terms of security, checks and balances, efficiency and commitment of the government to sustainability. The Netherlands’ high competitiveness ranking is certainly not surprising considering:

• excellent location—situated between the North Sea and the Rhine River— that has allowed the development of Europe’s largest seaport;
• social tolerance, as evidenced in the legalisation of drugs and same-sex marriage, and even the ideological diversity and acceptance that the country has displayed since the Habsburg days; and
• the people’s attitudes toward practicality, with heavy emphases on direct communication, the widespread use of English, punctuality, minimisation of power distance between people, etc. serving as an added advantage in competitiveness.

As for weaknesses, several news articles (investinholland.com, dutchnews.nl and iamexpat.nl) mention the Netherland’s need to increase investments—both public and private—in research and development of new technologies. They also cite the mismatch between labour supply and demand, which makes it difficult for companies to find qualified staff and hinders economic growth. Other areas of possible improvement include the cost of starting a business, flexibility in the way wages are determined and in terms of trade, the complexity of tariffs, as well as product market and market size. Still, all these ‘weaknesses’ are relative. Since the Netherlands performs exceptionally well in all areas, trying to find explanations for those weaknesses is not quite a straightforward task.

Alternatively, we could ask this golden question: why were the Dutch leaving their country at historical record levels in the mid-2000s? What about the Netherlands were they not happy? According to a survey by Van Dalen and Henkens (2008), the quality of the public domain in one’s life was the most critical determinant that prompted the Dutch to leave their country. This is confirmed by Bovens and Wille (2008), who concluded that the most plausible explanation behind the Netherlands’ negative net migration rate was a combination of an economic decline, combined with high political instability and contestation during the first Balkenende cabinets. The two charts below show that the period of low trust in public institutions coincides with the period of negative net migration from 2003 to 2007, shaded in light blue.

Conceding to those arguments, Hendriks (2009) went further to identify three major underlying currents: consensus democracy, the emotional culture and the risk society. He noted that consensus democracy had long been the dominant political model in the Dutch system. In consensus democracy, collective decision-making is undertaken through joint consultation among representatives of various sections of society. This model has been the foundation for a functioning system in the Netherlands, enabling the Dutch to keep their feet dry, to cultivate and parcel out the land effectively, and to boost prosperity and well-being to heights that often inspired awe abroad. In a strongly divided society, the system managed to keep the vital parts together in a practical sense. Then, an emotional culture began to take root in several waves: a postmaterialist culture emerged in the late 60s, and the digital and the commercial media exploded in the 90s. Departing from the severely tempered public emotions that the Dutch were famous for, emotional expressions became much more diverse and loose. Personalism, expressionism and emotionality, which had been kept at a distance, are now sought after. The difficulty is that the Dutch model of consensus-building has not evolved in connection with such phenomena.

Furthermore, the Dutch experienced an unprecedented level of anxieties as the world around them began to change drastically. The world underwent significant social changes, characterised by the falling of the Berlin wall and the introduction of the internet. In the Netherlands, resistance to processes of internationalisation (especially EU enlargement) and multiculturalisation (especially the ‘Islamisation of Dutch society’), latently developing in the source of the 1990s, was manifestly and increasingly voiced in the early years of the new millennium. Resistance deepened, especially around the Dutch no-vote in the referendum on the new ‘European Constitution’ (2005). Hendriks concludes that the accumulation and interaction of these three currents formed the basis for the explication of the declining levels of trust in politics.

Like the Netherlands, many other European countries are already highly competitive, and actualising any significant improvement would not be easy for them. Nonetheless, their greatest vulnerability might be the people’s distrust in public institutions and politics. (Hendriks suggests similar problems may be also found, but to a lesser degree, in Austria, Switzerland, Belgium and Germany which also practise consensus democracy.) Consensus democracy, as Hendriks notes, has been the core foundation for the Netherlands’ exceptionally high level of competitiveness. However, it has become a liability because it failed to evolve quickly enough to accommodate the changing culture and social conditions. This serves us as a reminder that a society that stops evolving will eventually fall behind.