Global trends change the Dutch economy
Globalisation and technological developments impact the nature of the Dutch economy. Due to ICT and developments in logistics, different stages of production processes are located across various countries. Dutch enterprises increasingly specialise in high-quality, knowledge-intensive parts of the production process such as product design, marketing and aftersales services. These sectors also provide the most value added.
Two other trends – population ageing and household’s increasing interest in services – are likely to make domestic expenditures more important relative to exports. Consumption will shift towards domestically produced services. As a result, the services sector will be more significant for total labour productivity growth. Improving the performance of the market for services is essential. This is also beneficial to exporters, because they are increasingly dependent on the quality and price of domestic services for their exports.
Human capital and a more dynamic economy foster productivity growth
In the past decades, the rising labour participation rate was one of the drivers of economic growth. In the future, labour productivity growth will be the only permanent source of economic growth. Due to its high-quality infrastructure, investment climate and well-educated labour force, the Netherlands is in a good position for future productivity growth. From a historical perspective, the level of investment is also relatively high. In the future, higher levels of investment may be required, for example for the transition towards a carbon-neutral economy. Promoting productivity growth also calls for investment in education, a more dynamic economy and labour market resilience.
Due to specialisation in high-quality services and advancing technological developments it is essential to make the most of people’s skills. The Dutch educational system is of high quality, but could be strengthened, by investing more in the development of young children, in particular those growing up in vulnerable socio-economic environments. Investment in young children pays off longer, fosters skill development at later stages in life and helps reduce lags in development.
Removing barriers to enter and exit markets and barriers for post-entry growth, could also increase labour productivity. In this respect, reviewing bankruptcy law, by shifting its focus from liquidation to restructuring, could contribute. In the services sector, removing barriers to competition and using economies of scale could boost productivity. Strengthening the European single market for services, the trade agreement between the European Union and the United States and a reduction in the regulatory burden for professional services could all be beneficial.
Sufficient flexibility on labour markets is also essential for a more dynamic economy. Nowadays, this flexibility to a large extent comes at the expense of a growing group of self-employed people and other flexible workers. Reducing the institutional differences between workers with permanent contracts, temporary contracts and the self-employed strengthens economic resilience, promotes the transition from temporary to permanent employment and encourages the utilisation of all skills. Permanent education further promotes the employability of the workforce.