The real Dutch disease: the innovation paradox

The Dutch National Growth Fund Commission hit the nail on the head. “The Netherlands has a lot of world-class knowledge, but we don’t reap the economic and societal benefit, or at least not enough,” reads an evaluation published last June. TNO observed this phenomenon in 2012 and dubbed it “the innovation paradox.” At the time, Dutch organizations had top-notch expertise in solar energy, wind power and nanotech when these technologies were taking off commercially. Sadly, today the Dutch market position in these industries is marginal – at best.

The Dutch government is investing substantially in innovation through the Climate Fund and the National Growth Fund. These investments are very welcome and could – and should – address the innovation paradox as one of the central issues holding back the Dutch economy. Unfortunately, they don’t manage to do so – or at least not enough.

The Climate Fund of Rob Jetten, Minister for Climate and Energy, aims to fund a significant part of the transition to clean energy by realizing, for instance, large hydrogen plants. These are needed for providing a green alternative for the substantial part of our economy that can’t be electrified. However, budgets for product development and scaling of production are lacking. Apparently, the plan is to buy systems abroad as cheaply as possible.

We’re missing an opportunity to build a strong new manufacturing industry with a global market, even though we have excellent academic knowledge in materials sciences, systems engineering and production technology. Mark Rutte has said several times that transitions are economic opportunities. That’s true! So, where are the governmental investments to help realize these opportunities?

The National Growth Fund (NGF) at least tries to do better. But in practice, again, universities and knowledge institutes receive the largest part of the budgets, as noted by the NGF Commission itself. Often, 100 percent of their costs are funded. For companies, such rates aren’t allowed due to state-aid rules. Even so, I have yet to encounter an NGF project where the rates that are allowed (up to 70 percent for SME participants) are granted. It’s not even close.

Often, companies have to pay in cash or in kind to be able to join. And often, subsidy rates and rules are unclear until very late in the process, and they can vary even within a project. The playing field for companies in the NGF is not level, not fair and not clear – that’s one reason for companies to reconsider their role.

Another reason is the sheer size and complexity and therefore cost of the application process. Only large companies and institutes have the means and stamina for this. Large companies have little to gain; for universities, there’s a lot to win.

You can’t blame anybody; this is how the system works. For innovative companies, the process from idea to proposal (over 1 year) to accepted project (over six months) to signed contract (over 1 year) is way too slow. “We started this project three years ago, but I haven’t seen a penny yet,” I’ve heard several companies complain. The combination of high cost and low success rate (10 percent of the proposals were awarded in the subsidy route, winning 7 percent of the budget requested) is too big a hurdle. The competition is fierce, partly because no focus has been defined in advance.

Compare this to the situation in Finland, where societal issues are used to set challenges. Imagine the impact a challenge to reduce nitrogen emissions would have! Or compare the Netherlands to Germany and France, which demand that hydrogen plants are sourced from their own countries and apply state-aid rules in ways that we can’t even imagine.

Thus, we’re beaten by other countries, even within Europe. Let alone the competition by the Inflation Reduction Act in the US and strategic and supersized investments in China. The National Growth Fund Commission has stated time and again that the international component of the proposals it receives isn’t good enough. Much the same applies to the NGF itself: we need to perform an international benchmark and learn from it.