A country running into the limits of growth needs to carefully consider which economic activities are preferable over others.
The Dutch caretaker cabinet has cobbled together a plan to woo ASML, NXP and other Brainport Eindhoven companies. A sizable contribution to the infrastructure, housing and education of the region is meant to ease the pain of ‘unfriendly’ measures adopted by parliament last year. (Partially) reversing those is on the agenda as well.
There’s something uncomfortable about multinationals with billions of euros in profits expecting governments to be at their beck and call. Sure, the anger over throttling the inflow of foreign students and expats is completely justified – talent is the lifeblood of the high-tech industry. But in other areas, the Netherlands is a pretty good place to be. For example, ASML won’t find a better home base when it comes to profit taxes. “The rate can’t be lower, ASML is crying crocodile tears,” tax law professor Jan van de Streek told RTL Nieuws (link in Dutch).
Yet, this isn’t the time to start talking about taxpayers having to serve shareholder interests; there’s a bigger picture to consider. Financial Times columnist Simon Kuper noted as far back as 2022 that the Netherlands might be one of the first countries in the world to hit the limits of growth. Housing, labor, environmental pressure – we’re at capacity. This means choices need to be made about our economy.
Klaas Knot, president of the Dutch Central Bank (DNB), recently compared the Netherlands to a hotel trying to rent out more rooms than it has to offer. You may be able to drum up another couple of beds occasionally, but sooner or later, you run into hard limits. In such an economy of scarcity, you have to examine which activities you want to keep and which ones you don’t. Obviously, highly productive sectors deserve preference.
In the Netherlands, the trend is the opposite, according to a recent study published in the economics journal ESB (link in Dutch). Growth of labor productivity in the Netherlands has been declining for years, largely due to the relative growth of low-productivity sectors. In other words, we owe our economic growth in large part to the fact that more people have started working in the hospitality and horticulture sectors.
That’s not a sustainable growth model for this chuck-full country. To be able to continue growth – growth that’s badly needed to be able to bear the costs of an aging population, climate change and a higher defense budget – we have to rely on increasing labor productivity. The Netherlands must therefore make a firm commitment to highly productive sectors, including high tech. If high tech would get the love and attention from The Hague that agriculture has enjoyed all these years, beautiful things would happen.
The government needs to energize R&D and venture capital markets, invest in education, be generous to foreign knowledge workers that move here (even with a 30 percent tax exemption, an average ASML worker brings in more money than a waiter), and yes, also pamper Big Tech.
Geopolitical developments are forcing us in this direction as well. The Netherlands and Europe lag behind in almost every key technology, from AI to electric cars, and risk becoming almost entirely dependent on the US and Asia. That not only makes us economically and physically vulnerable, but it also hurts our long-term growth potential. After all, the brightest minds and most innovative companies go where they do best.
In recent years, our government has launched some excellent initiatives, particularly the National Growth Fund. However, the recent plundering and pausing of the NGF and now ‘ASML-gate’ demonstrate that commitment to such long-term investments is fragile. Hopefully, our policymakers quickly internalize that structural and national stimulus measures are dire necessities, although given the election results, we must fear the worst.