How does the Netherlands maintain prosperity?

The Wennink report, "THE ROUTE TO FUTURE PROSPERITY," was recently published. It was a good idea to ask the former CEO of ASML to consider how we can sustain and, ideally, increase our prosperity. Such a person can be expected to bring a fresh perspective.

Much has already been said and written about his report, so what more can I add? The problem with such reports is that commentators often take a critical stance, each within their own area of ​​expertise, which quickly leads to discussions becoming bogged down. This, in turn, hinders decisive action. At the risk of joining the ranks of critics, I will offer my own, independent opinion here, with compliments, criticisms, and additions.

When I received the report, I noticed a list of names at the back of the people who formed the "sounding board." Peter Wennink and his team reportedly spoke with many entrepreneurs, but apparently, a sounding board was also necessary. That list contained 23 names. These are names everyone knows. In other words, they're the establishment. That disappointed me enormously. How did that work? Were those 23 people merely "babysitters" who were supposed to prevent overly rash suggestions and keep Wennink on track with political correctness? Who selected them? Those 23 have been playing a role in policymaking in our country for years. Why haven't they already implemented the things Wennink proposes? I would have found it more interesting if they had locked Wennink in a cage and written a much shorter report. Much more independent and authentic. Anyway, now we have a report of over 150 pages.

Excellent diagnosis
I completely agree with the diagnosis. Our economy is lagging behind and is not investing enough in the future. Some people consider economic growth a dirty word, but I agree with Wennink that we need to boost our growth potential to maintain and preferably increase our prosperity, while simultaneously successfully meeting the challenges of the (near) future. Prosperity depends on how many hours we work and how productive we are during those hours. It's clear that we primarily want to focus on increasing productivity (growth).

I also agree with Wennink that we have a considerable number of strengths and that optimism is warranted if we fully utilize them. Actually, that doesn't even have to be too full. Better utilization of our potential would already make a huge difference. I won't provide a comprehensive summary of the report here. Since Wennink—and of course he's not alone—advocates the increased use of AI, I asked Copilot for a 100-word summary. Here it is:

Peter Wennink's report warns that the Netherlands is losing economic ground due to slow decision-making, fragmented policies, and insufficient investment. To secure future prosperity, the Netherlands must invest specifically in four strategic technological domains: digitalization & AI, security & resilience, energy & climate technology, and life sciences & biotechnology. Europe is falling behind China and the US, while the Netherlands has strong knowledge and businesses but is hampered by complex regulations and a lack of scale. Wennink advocates for a long-term investment program, faster procedures, better cooperation between government and business, and a clear national technology strategy.

The choice of the four strategic technological domains surprises me somewhat. Are we going to centrally determine the winners again? Why is "safety and resilience" on this list? Of course they're important, but can we make a difference in these areas that will strengthen our business model? I doubt it. I would rather choose water management, because we've been good at it for centuries and the world may need it greatly in the coming decades. Apparently, the king wasn't consulted about this report. What a shame.

Perhaps the most interesting and worrying picture in the report, I've pasted below. It shows that in the specific field of quantum technology, we're doing quite well internationally in terms of scientific research and patents, but we're seriously lacking in commercialization, where prosperity is created. What applies to quantum technology may apply much more broadly.

Wennink advocates action on four points:

• Acceleration of permit issuance and simplification of regulations
• Active talent policy
• Ensuring affordable and available energy
• Improving our economic infrastructure

Distrust of success
I wonder if these four points tell the whole story. In fact, I think there's much more to be said. Successful entrepreneurship is viewed with suspicion rather than admiration in our country. The tax burden is also high. Businesses also face high costs. Wennink explicitly writes that the obligation to continue paying wages to long-term sick employees for two years should be abolished. I agree, but I find that remark a curious detail in such a "big picture" report. Financially successful people are viewed with suspicion (they shouldn't drive very expensive cars) and are seen as a perfect fit for (even) heavier burdens. Take the discussion about inheritance tax. Does anyone ever wonder how inheritance tax affects the business climate? Let alone the significant increase in that tax advocated by some.

If I'm to limit myself to the above list, I'm reminded of my modest footballing past. My talent was modest. During a tactical meeting before a match against a much stronger opponent, my then-coach told me to try to get in the way of the opposing team's attackers as much as possible. I succeeded quite well. We lost by a wide margin, but it could have been worse. Wennink's list shows that our economy functions the same way. There's a lot of "getting in the way," though they probably didn't do it intentionally. If we were to do that less, we'd be able to score more easily. Wennink wants future earning capacity to become the prime minister's "Chief Matter" and for a "Commissioner for Future Prosperity" and a "National Investment Council." That sounds far too bureaucratic to me. In my opinion, that would just lead to even more people getting in the way. In the past, I've advocated for new legislation to include a "productivity impact report," just as "environmental impact reports" are mandatory for large projects. That seems more effective to me.

Wennink isn't the first to advocate for reducing regulatory burdens, but how do you put that into practice? The report remains rather vague on this point, in my view. I sometimes think there are two ways of looking at regulations. Some people have an attitude of "rules are there to be followed," while others think "rules are there for the people, not the people for the rules." Wennink also talks about "excessive accountability pressure." I completely agree, but what can you do about it?

Tears in my eyes
Regarding talent, I fully agree with what the report says. I've pasted a second image from the report below, which I'm looking at with frustration, anger, and tears in my eyes. Wennink writes that we've spent more on education as a percentage of GDP since 2000, although he doesn't substantiate this. In any case, our educational performance has deteriorated and is still deteriorating, both in absolute terms and compared to other countries. When the current government wanted to cut education spending, a storm of criticism erupted. But you hear surprisingly little about the deterioration in our educational performance. That really infuriates me. Who will hold us accountable for this? More importantly, how do we reverse the trend? Wennink does address this, but not enough in my view.

Wennink also calls for more opportunities for knowledge migrants. That seems like a very good idea to me. But what have we done in recent years? We are a country with high taxes and, internationally speaking, small income disparities. That's not attractive for knowledge migrants. To make it attractive for them to work in the Netherlands, we have the 30% tax ruling, which exempts the first 30% of the income of a knowledge migrant who meets certain conditions from income tax. However, this ruling has been significantly reduced in recent years.

I can only endorse the call for available and affordable energy. In fact, I regularly write about it. It's also important to explain why our energy is so expensive, both in absolute terms and compared to other countries. In my opinion, several factors contribute to this. Firstly, it's a European problem. Whether we like it or not, we are and will remain dependent on fossil fuels for a long time to come. But we have, knowingly and willingly, allowed our self-sufficiency in oil and gas to decline for 20 years. We don't want fracking and limit exploration. Well, that makes you dependent on others. If you then get into a dispute with one of them, prices can rise. Climate policy also plays a role here. We levy high taxes, preferably higher than in neighboring countries. Some argue that we should accelerate the energy transition. That seems like a bad idea to me. All available figures suggest that energy costs rise as the share of renewables in the energy mix increases. Especially after Fukushima, Germany has invested heavily in the "Energiewende" (Energy Transition). Just look at the cost of electricity and the state of the German economy!

When I drive past a solar field on a rainy day, I often wonder if that's an inefficient use of what's probably some of the most fertile soil in the world. I also wonder about the biodiversity under the panels and where the meadow birds are. I often think of an old farmer's adage that often came up in our family: "Cold and wet, then something grows; cold and dry, then nothing grows." But when it's cold and wet, those solar panels produce very little.

In my view, Wennink doesn't sufficiently explain why our energy prices are so high that they're stifling our earning power. But then again, my view isn't politically correct. I can write that down anyway, because I don't have a sounding board from the establishment.

I also fully agree with Wennink about the economic infrastructure. I find what he writes about Schiphol particularly remarkable—and actually quite exciting. He particularly praises the airport's "hub function." According to his report, this makes Schiphol unique in Europe and is a key factor in attracting foreign companies. It is precisely Schiphol's hub function that is under fire.

Wennink also advocates for the establishment of a national investment bank and an "agency for breakthrough innovation." These institutions should ensure sufficient financing for promising innovative companies to grow. Many believe this is lacking in Europe. I have my doubts and wonder whether the preconditions, the business climate, aren't simply not attractive enough. What I find quite amusing is that Wennink writes that these institutions should be distanced from politics and professionally managed. Obviously, I'd say. Especially that last point. No one would advocate for such institutions to be run in a non-professional manner. Apparently, Wennink is saying here that this has often happened in the past.

Productivity
Back to the observation that our productivity growth has been declining for decades and that we need to reverse that trend. Productivity is an easy concept to grasp. It's simply the amount of value someone can create in a unit of time. It's much more difficult to measure it accurately for the economy as a whole, and once measured, to interpret the results.

Gas extraction is not labor-intensive. It is therefore an activity with high labor productivity. When we decided to end gas extraction in Groningen, activity in this "highly productive" sector declined so much that average productivity in our country also decreased. But what does such a figure tell us?

Wennink argues that we should reduce activity in low-productivity sectors and increase it in high-productivity ones. This will automatically increase average productivity. Theoretically, there's no arguing with that, but I question whether that's how it works. And even if it does, I wonder why resources, such as labor and space, don't automatically flow to the high-productivity sectors.

Wennink's former employer, ASML, undoubtedly pays its staff excellently. I don't know exactly, but I assume ASML is still having trouble recruiting staff. ASML's profit margins are over 40%. The company could easily pay its employees much higher salaries. It seems likely to me that staff would then be much easier to find, although that might take some time. More generally, I would say that the pay gap between low- and high-productivity sectors should be much greater. Then labor would undoubtedly move much more from low-productivity to high-productivity companies. I hear you thinking, "What about healthcare?" That's simple. You have to set pay in healthcare high enough to ensure sufficient employment. That would likely be higher than it is now, and thus the measured productivity in that sector would also increase.

The same applies to land use. The most disappointing part of the Wennink report, in my opinion, is what he writes about nitrogen. We need to get rid of the nitrogen lock; that much is clear. According to Wennink, the recommendations on this matter from the 2022 Remkes report must be followed. This is disappointing because so much criticism has been written and said since then about the nitrogen standards in our country, how it is measured, etc. This is a governance problem. Wennink concludes that the livestock farming sector is particularly responsible and needs to be drastically restructured. In a recent podcast, Marianne Zwagerman and Wouter de Heij criticized this. HERE. I have a strong suspicion that Wennink was strongly influenced by the sounding board group on this point.

If highly productive farms don't have room to expand and, according to Wennink, too much land is being consumed by agriculture, the conclusion seems obvious to me. Then that land is simply priced wrongly. If farmers were allowed to sell their land to businesses at any price (or for housing development) and then let them build their businesses (or homes) on it, you'd quickly see land quickly diverted to highly productive uses. But that's not allowed, because we find it socially unacceptable for a group, in this case farmers, to enjoy such a windfall.

summarizing
I agree with the Wennink report on a large number of points, but not on others, and in my view the report still needs some additions.

I completely agree with Wennink on these points:

• The diagnosis: we are lagging behind and that threatens our prosperity
• We have a lot of potential, but we don't use it enough because we often make things difficult for ourselves
• We need to reduce the regulatory burden – but we have been doing the opposite for years
• We need to improve the quality of our education – but for years the opposite has been happening
• We must welcome knowledge migrants – but we are limiting the influx and reducing regulations that could make our country attractive to knowledge migrants.
• We need to keep energy available and affordable – but we've been doing the opposite for years
• We need to improve the economic infrastructure – but we are doing the opposite, such as limiting the number of flights at Schiphol

I would like to add a few things:

• I would replace 'safety and resilience' from the list of four strategic domains with 'water management'
• I have less confidence in the feasibility of the future than the report suggests. Therefore, I would be cautious about creating even more bureaucracy.
• In fact, I would reduce burdens on citizens and businesses by having a smaller government
• When it comes to legislation, I would always ask the question what impact it has on our earning capacity.
• I would like to advocate a change in mentality that sees entrepreneurship and success as something positive and admirable
• I would give the price mechanism much more room to ensure that factors of production will flow from low-productive to high-productive inputs.

Hans de Jong

Han de Jong is a former chief economist at ABN Amro and now a resident economist at BNR Nieuwsradio, among others. His comments can also be found on Crystalcleareconomics.nl

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