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Sunday, 30 June 2013

Current Dutch Minister of Traffic and Waterways ‘forgot’ in 2010 to mention her husband’s stock interest in important business partner of her former Ministry of Infrastructure and Environment.

Ignorance is bliss
Problem solved with just one kiss

In The Netherlands, the liberal-conservative VVD is the party of ‘law and order’: small crimes and misdemeanours must be punished vigorously. Also people who receive state welfare or unemployment benefits and who violate the conditions for receiving these social security arrangements, must be penalized for their faulty behaviour: here is the tax-payer’s money at stake.

VVD politicians and members of parliament have traditionally strong opinions on these ‘spongers from the civil society’. They show no mercy or understanding, when it comes to reducing or totally cutting off social security payments from (first-time) offenders. Explaining that you made a mistake, won’t help you with the Dutch law-and-order party. “If you can’t stand the heat, get out of the kitchen” is the general opinion among VVD-members.

The same VVD-politicians and MP’s, however, are NOT so harsh and straightforward, when it comes to judging their own faulty behaviour. The condemnable behaviour of province delegate Ton Hooijmaijers for Noord-Holland or the soap opera concerning ex-senator and alderman for Roermond Jos van Rey did not lead to a massive ‘mea culpa’ by VVD party members.

Neither did “billboard-gate” for the current state secretary of Tax Affairs Frans Weekers: the earlier mentioned alderman Jos van Rey, in cooperation with the local real estate tycoon Piet van Pol, paid a large billboard along the highway for Frans Weekers.  At the time, both Van Pol and Van Rey already had been under heavy fire for reputedly paying/accepting bribes and for claims of corruption. It was a typical ‘Limburg-style’ gift for Weekers, who wanted to reclaim his position as MP for the VVD: a gift seemingly ’without obligations’ towards the generous donor.

When the news about the billboard leaked to the national newspapers and Weekers got into political trouble, his defence was something like this: ‘In my opinion I did not do anything wrong, and if I did, I am sorry about it’. He promised to be a good boy and remained in his position, due to votes in his favor by PvdA (the coalition-partner of the VVD) and VVD itself, during ‘a vote of no confidence’. That was all. People, who don’t understand by heart that their behaviour has been condemnable, are not easy to scratch, as they simply ignore their own lack of morality.

Yesterday, the news was spread that another very prominent VVD-member has been accused of condemnable behaviour. This time, it is the current Minister of Traffic and Waterways and former Minister of Infrastructure and Environment, Melanie Schultz van Haegen.

KIWA is a commercial bureau, which has been appointed for the execution of official assessments and certification stages, by the Ministry of Infrastructure and Environment. KIWA is a former state agency, which has been privatized a few years ago. Melanie Schultz van Haegen’s husband had been the longterm owner of a large package of shares in KIWA.

Haro Schultz van Haegen had already a longlasting relation with KIWA and had been involved in the earlier privatization process of the bureau, well before his wife became Minister of Infrastructure and Environment. When his wife was applying for the position of minister, Haro Schultz created some ‘artificial’ distance between him and KIWA, by abolishing his position as counsellor of KIWA. However, the large package of shares was never mentioned during the job application of Melanie Schultz. In 2011, Haro Schultz sold his package of shares in KIWA for €3 million, earning a considerable profit from this deal.

The Dutch newspaper ‘Volkskrant’ discovered this grave omission a few days ago and wrote an article upon it. Here are the pertinent snips of this article:

During her inauguration as minister of Infrastructure and Environment, Melanie Schultz van Haegen didn’t mention to PM Mark Rutte that her husband was owner of a large package of shares in a company, which held close ties with her future ministry. In August 2011, Haro Schultz van Haegen earned almost 3 million euro with the sale of the special investment vehicle, which held the shares of this company.

The mentioned company is the certification bureau KIWA from Rijswijk, which takes care of the issuance of permits for the transport industry, by order of the ministry.

As a minister, Schultz van Haegen had a big influence on KIWA’s main business. She set the tariffs that KIWA was allowed to charge and she assessed the company, via the Inspection Living Environment and Transport. She also had to justify her decisions against the members of parliament and trade organizations, who complained about the permit monopoly and high charges of KIWA

In August 2011, KIWA was purchased by the private equity fund NPM Capital. With this sale, the shareholders of the holding company which held KIWA earned dozens of millions of euro’s. Haro Schultz earned €2.9 million, just as his business partner. He states: “KIWA’s growth soared at the time and all kinds of companies were added to it. Besides that, my counselling firm contributed substantially to the growth and success of the company”

The financial interests of Schultz van Haegen […] remained unnoticed, until now. In official records, kept by the Dutch market authority ACM, the business interest of the minister’s husband in KIWA remained invisible. However, this business interest can be found in a publication of the Italian peer of the ACM, the Autorità Garante della Concorrenza e del Mercato (i.e. ‘the Authority for Protection of Competion and Market’).

Haro Schultz van Haegen states that it was not necessary to mention his business interest in KIWA at PM Mark Rutte, when his wife was approached for a ministers position in the autumn of 2010: “I resigned as counsellor of KIWA. My possession of KIWA-shares was not of any importance. We wanted to play by the rules; that is how we are. Everything is arranged as written in the ‘Handbook for entering government officials. I was just an indirect shareholder and had no influence”.

[If you understand Dutch and want to investigate all the paperwork and data that the Volkskrant used for its investigation yourself, please use the aforementioned link to the article. The Volkskrant printed a number of PDF’s with additional information, like for instance the transcripts of an interview with the spokesperson of the minister.]

I am flabbergasted by the arrogant and stupid naivety of both the minister Melanie Schultz and her husband Haro. “My possession of KIWA-shares was not of any importance. We play by the rules”.

‘Trust us, we are decent people. Yes, really!’

Yes, Haro Schultz resigned his counselling position before his wife’s installation as minister.  And according to Melanie Schultz herself, she didn’t make any decision on the future of KIWA, during the time of Haro's KIWA share ownership: she stated this in the remainder of this article (not mentioned here). Although I personally find this very hard to believe, I cannot prove differently. 

Nevertheless, how could the minister and her husband ignore their possession of a package of shares with a sales value of €3 million?! ‘I was just an indirect shareholder’. Yeah right! With €3 millions in shares, you can hardly be called a simple, indirect shareholder. Then you are one of the big guys. 

Besides that, every decision upon the future of KIWA by his wife's ministry (certification tariffs, KIWA's monopoly position as a certification bureau etc.) directly influenced the value of his shares and thus - in the process - their financial future.

The fact which makes it more sickening, is that the VVD is the ruthless law-and-order party, especially for the poorest part of the Dutch society. At the same time, the party spreads ‘an enduring stench of not knowing where public interest stops and private interest begins’. 

You cannot blame unemployed or poor people for illegally receiving unemployment benefits and welfare or for working without paying taxes, when your party is enduringly involved in actions that are either straightaway illegal or at best travel the edges of legality and moral business conduct.

Ton Hooijmaijers, Jos van Rey, Frans Weekers and Melanie Schultz van Haegen seem to form a growing line of VVD-representatives, who went over to the dark side, without ever acknowledging that they did something wrong. When minister Melanie Schultz van Haegen has some conscience after all, she resigns and apologizes for indignified ministerial conduct. However, when looking at her predecessors in this ‘line of shame’, she will not do so.

I hope that the Second Chamber of Parliament (which probably means the PvdA in practice) has the ‘cojones’ to send her away, like it should!

Friday, 28 June 2013

Ernst’s Economy in discussion at BNR Newsroom: Will 2013 be the end of the classic retail stores, as we know them? Pt II

In the second part of the evening, Paul van Liempt spoke with Oger Lusink, the Dutch grandmaster of men’s business and luxury clothing and Jeroen Hubert, the marketing manager of  

First, Michel Koster of ABN Amro shared his comments upon the webstore, as a way of doing business. Paul’s question was whether brick & mortar stores could survive without having a webshop, nowadays.

Michel Koster of ABN Amro
Picture by: Ernst Labruyère
Click to enlarge
According to Michel, people should not underestimate the costs of maintaining a few brick & mortar stores and a well-designed professional webshop. It is an expensive way of doing business, which you should not enter thoughtlessly.

Designing a efficient and customer-friendly, high-throughput webshop is expensive, just like setting up and operating the distribution center that comes with it. Also the marketing operation (getting people to know your webshop) and the high rate of (often toll-free) return-shipments make it an expensive way of doing business. Often the best way to go, is cooperating with other B&M stores in a collective webshop, like ‘’, or stepping into initiatives by the trade organizations.

Oger Lusink stated that he was a ‘reluctant’ webshop owner. He knows that the majority of his customers wants to feel his top-of-the-line fabrics himself and see the stitching and fine details of his men’s suits. That is simply impossible through a webshop. Nevertheless, he and especially his sons are aiming for a 80/20 division between brick & mortar store and webshop.

F.l.t.r. Oger Lusink of Oger and Jeroen Hubert of
Picture by: Ernst Labruyère
Click to enlarge
The webshop is fine for selling ties, accessories and also for clothes for customers, whose detailed sizes already have been entered into the Customer Relation Management (CRM) system, which Oger operates.

Oger uses his CRM-system also for marketing actions towards his customers. When, for instance, he buys rare fabrics in special colours, which are sought after by some customers, he sends these customers a special notification.

Jeroen Hubert of has no reluctancy at all, when it comes to online shopping. Wehkamp's strategy is ‘fully online’; even without one or two B&M ‘service’ stores. 

That was a conscious choice. With 145 million visitors per year and 1.8 million customers, their strategy can be called succesful. Although Hubert does not think that the brick and mortar store will ever decay, he points at the advantages of online shopping: “you can shop at your own favorite time, we have an enormous assortment and we have everything in stock, ready to deliver. When you don’t like it, you send it back or we collect it at your home: no questions asked.”

One of the biggest threats for is that everybody can start a webshop himself in only a few days. There are many off-the-shelf webshop applications for sale and an ‘amateur webshop, run from home’ does not cost very much time and money to set up. 

Hubert: “Currently, there are 38,000 webshop in The Netherlands and every single one of them wants to beat All traditional B&M store chains start webshops, in an increasing number of product categories”.

Michel Koster challenges Wehkamp’s choice to operate without a few B&M stores. He states that Coolblue, an electronics chain, uses the combination strategy to great success: their lately opened B&M stores currently have the largest sales per square meter within the chain. Consequently, CoolBlue is planning to open more B&M stores, as some consumers want to see, touch and feel the products of their choice and are very much willing to drive a few kilometers for that desire.

Blokker is a very common chain of stores in household appliances, which can be found everywhere in The Netherlands. Ernst’s Economy asks if Oger Lusink fears the ‘Blokkerisation’ of the Dutch shopping centers: the phenomena that an increasingly small number of store chains fills 75% of the shopping space in the shopping streets and centers. As this phenomena makes shopping centers less ‘special’ and suitable for fun-shopping, this could prove bad news for a luxury store chain, like Oger.

Oger does not agree. He states that Blokker and Hema have an important function. They enable a good and diverse selection of products in shopping centers and have a complementary function, next to Oger’s stores. What frightens him, however, is the soaring number of empty shops in the shopping centers and streets.

Shopping streets in the center of town are often cannibalized by large shopping centers at the rims of the cities. This development causes many ‘ghost shops’ in the centers and bad margins for everybody in the business. Municipalities often only have euro-signs in their eyes and don’t think of the consequences of having too many shops.

The battle between online and brick & mortar stores is not the only battle going on in the retail industry. Also the battle between the supermarket chains is an interesting one.

Gerard Rutte, a genuine supermarket expert, and formula manager Geert-Jan Smits of the biological food-stores EkoPlaza talked about this. Paul van Liempt started the discussion with the question, if there would be a bloodbath among the supermarkets?

Paul van Liempt of BNR Newsroom
Picture by: Ernst Labruyère
Click to enlarge
Gerard Rutte confirmed that small supermarket chains definitely will be eaten alive. Yet there are 4,200 supermarkets in The Netherlands, of which many are small ones. In the next five years 500-600 supermarkets will disappear and a number of unsuccessful formulas will ‘melt away’. Only the good formulas will stay. 

Smits' EkoPlaza can be such a good formula: it is a chain of genuine biological foodstores with 100% biological products: not 'biological food-in-name-only'. 

Smits defends the 'A-minus' locations and lay-out of the EkoPlaza stores, against mild criticism of Rutte and states that his shops give a satisfactory shopping experience for his customers. Nevertheless, Rutte urges Smits not to wait with buying new store space, but act quickly. “If EkoPlaza doesn’t gather critical mass quickly, your chain is doomed”.

Among the winners will definitely be Lidl, the immensely successful German supermarket chain, according to Rutte. 

Lidl has its discount prices, its German quality products and its often surprising and very limited ‘hit & run bargains’: luxury products, like laptops and desktop computers, tablets, DIY-equipment and household appliances, that are for sale in very limited numbers at absolute bottom prices. Diehard shoppers sometimes flock together two hours before the store opens, if the product at offer is very cheap and rare.

According to Rutte, Lidl causes managers of Dirk van de Broek and Albert Heijn sleepless nights. Rutte is especially harsh about Albert Heijn (AH), the absolute number one in the Dutch supermarket landscape.

Rutte: "In better times Albert Heijn was a specialty store with an excellent assortment. These days, it has turned into a dull logistical supermarket ‘without flavour’. They concentrate too much on the online business and too little on the brick &  mortar stores"

The flipside is that AH is the only successful supermarket chain, when it comes to online business. Ahold N.V., the owner of AH, is also doing very well with, an immensely successful book and convenience products store. 

Ahold purchased from Bertelsmann for €340 million, which Rutte considered to be an absolute bargain price.

In spite of its dominant position on the Dutch groceries market, AH is not ‘home free’ yet.

Rutte: “AH is untouchable nationally, but locally their stores are very vulnerable. AH doesn’t want to cooperate with independent entrepreneurs, who know the local situation by heart. Ahold doesn’t have the tools to do so and it can’t fully support its local supermarkets, like it should.

Successful supermarkets know what is going on in ‘the hood’ and do something in return for their neighbourhoods. You can’t spend your time on your assortment and your communication alone; you also should connect to schools, sports clubs and neighbourhood guest houses. This could cause problems for Albert Heijn in due course”.

[EL: I actually don't endorse this remark by Gerard Rutte. In Almere and other cities, there are a lot of neighbourhoods where Albert Heijn (almost) holds a monopoly position. People might not like AH, but they actually don't have a choice for their last minute groceries. Their dominance is still paramount]

Rutte: “think global and act local, that is the name of the game today”. 

Ernst’s Economy in discussion at BNR Newsroom: Will 2013 be the end of the classic retail stores, as we know them? Pt I

Last Monday, 24 June 2013, I was again present at BNR Newsroom: the live radio-talkshow from BNR News Radio, with my friend and eminent anchor man Paul van Liempt.

Paul van Liempt of BNR Newsroom
Picture by: Ernst Labruyère
Click to enlarge
This week’s topic of Newsroom was the difficult situation in the Dutch retail industry and the invigorating battle between webshops and brick & mortar (B&M) stores:
  • Who will be the winners and who the losers in the retail industry, in the coming years?
  • Will the crisis cause a massacre among the old-fashioned, Dutch ‘mom & pop’ retail stores?
  • Will AH manage to keep its extremely dominant position among the supermarket chains?
  • Can the classic brick & mortar store, as we know it, survive the battle against the soaring number of webshops ? 

Paul had invited a number of figureheads from the Dutch online and B&M retail industry, in combination with some of the smartest analysts in this line of business:
  • Ronald van Zetten, CEO of the ‘Dutchest’ department store chain HEMA
  • Oger Lusink, founder of the finest men’s clothes boutiques chain ‘Oger’ in The Netherlands
  • Jeroen Hubert, marketing manager of, a company that made a successful transition from an oldfashioned mail-order firm to a state-of-the-art multi-million online store
  • Geert-Jan Smits, formula manager of EkoPlaza, the Dutch biological food supermarket chain
  • Wil Wurtz, consultant Customer-centered Entrepreneurship of ‘Metrics & More’
  • Gerard Rutte, retail specialist and editor of online retail magazine ‘
  • Michel Koster, Sector Banker ‘Retail’ for food, non-food and automotive at ABN Amro 

The contrasts between Jeroen Hubert, as a successful representative of the 'online generation' and the genuine brick & mortar (B&M) retailers Oger Lusink and Ronald van Zetten made up for some informative discussions. 
In a way, it also showed the gap between the older B&M generation, who look at online shops reservedly and the fully online-minded ‘youngsters’, who think of real stores, as a kind of museum. 

Nevertheless, the most successful online and B&M stores have much in common, concerning service, customer-friendliness and a clear and decisive strategy.

Until now, 2013 turns out to be a disastrous year for the Dutch retailers, in which already 377 retail stores and store chains went bankrupt, year-to-date: an increase of 50 stores YoY.

Among those defaulted stores were high profile chains like iCenter (Apple reseller), Free Record Shop (a chain of record stores with 100+ stores) and Selexyz, a chain of mega book stores.

According to Michel Koster of ABN Amro, these soaring defaults are caused by the unfavorable mood of the consumer and a 3% drop in spending power in 2013 YoY. Consumers were severely hit by this government’s  austerity measures and the soaring costs for healthcare insurance and energy bills.

Michel Koster, sector banker Retail of ABN Amro,
Picture by: Ernst Labruyère
Click to enlarge
In the remainder of 2013, the number of defaults will accelerate. Koster predicts havoc among the ‘mom & pop’ stores: since 2008, non-food turnover dropped by 15%, while on the other hand the number of shops and available shopping space exploded. Much more people are now 'eating a much smaller pie'. The weakest shops will have 'too little to eat' to live through this survival-of-the-fittest.

According to Koster, winning stores like Hema and Action (a discounter in excess supplies and liquidation stocks of small, non-food articles and food stuffs) offer much value for money. Small ‘mom & pop’ stores must offer exceptional service and tailor-made formulas, like ‘shopping at your convenient time’, in exchange for customer loyality. Thus they can survice, in spite of their higher price-level.

Chains with a balanced mix between B&M stores and online webshop could prove to be winners in the years to come.

HEMA’s Ronald van Zetten made a frank confession that he would have preferred a Dutch shareholder above current British HEMA-owner Lion Capital: “they know my opinion and respect it”

Although by itself the country of origin didn’t matter for Van Zetten, he is convinced that a Dutch owner would have better supported HEMA’s expansion strategy. “In the past, there was a rumour about a market party, which could further profesionalise HEMA. We believed that the HEMA formula would have fitted very well to this party. A Dutch owner probably would have taken a quicker decision in this situation.”

Ronald van Zetten, CEO of HEMA
Picture by: Ernst Labruyère
Click to enlarge
And about HEMA’s eternal Dutch competitor V&D, which didn’t make a profit in 2012, while HEMA did, Van Zetten stated: “V&D’s stores and assortment are just too big and their preselection has not been adequate. It is definitely not the right mix to be successful and profitable”.

Van Zetten is glad with the arrival of Marks & Spencer, the famous English retail chain, which started opening stores in The Netherlands. With their English style and food-to-go assortment, M&S is an enrichment of the Dutch retail landscape, according to him.

HEMA is not afraid about being taken over by M&S: “we are too small for them”. Also Ahold, the Dutch multinational supermarket and retail chain will probably not take over HEMA anymore, after it tried to do so five years ago.

“First, we are not for sale at this moment and second, we are now very successful with our expansion strategy in France, Germany, Belgium and Luxemburg. Only a large party, that is willing to support our international growth strategy would be a suitable candidate to take-over HEMA, in due course”.

Van Zetten is a strong adversary of the last decade’s quick growth of shopping space; he states that only new shopping space should be built, when at least the same amount of shopping space at other locations is withdrawn from the market. 

Concerning HEMA’s online strategy, Van Zetten states that HEMA’s ideal mix is 80% brick & mortar vs 20% online. Besides from being an extra sales channel, Van Zetten sees the online store as an additional service for his B&M customers. It offers customers the possibility to deliver temporary sold-out articles directly at home, through a special terminal in the shops.

Wil Wurtz talked about customer-centered retailing: “a customer-centered retailer has two very important questions. In the morning: how can I make a difference today for my customers and shareholders?! And in the evening: “how did I actually make that difference today?”

Wil Wurtz, consultant customer-centered 
entrepreneurship of 'Metrics & More'
Picture by: Ernst Labruyère
Click to enlarge
Wurtz is annoyed by shops, like “Media Markt” (electronics and household appliances) , who register a lot of customer data, but seemingly don’t do anything with it in their marketing mix. He thinks that this data should be used to build a solid relation with their customers. This doesn’t happen yet.

On the question of Ernst’s Economy, why exactly the discount stunters and pallet sales stores do so extremely well these days, Wurtz answers: “The average customer wants three things: pleasure, comfort and benefits. Many customers, however, just target the benefits, while skipping the comfort and the pleasure in these trying times. This explains their success”.

Tomorrow, the second part in this short series 

Wednesday, 26 June 2013

“Getting out of the swamp, by pulling yourself up by your own hair”. Why the proposal of PvdA party-leader Diederik Samsom is Dead On Arrival!

“I reject your reality and substitute my own”

Less than one year ago, Diederik Samsom was the very promising party leader and chief-whip of the PvdA, the Dutch social-democrat labour party: young, dynamic, intelligent, eloquent and decisive.  A ‘cooled-down’, former activist, political whiz-kid and also a scientist with a background as nuclear physicist.

In 2011, he had his finest moments on Twitter, directly after the Fukushima nuclear incident: there he was a source of important, accurate, reliable and understandable information, instead of being someone who just howled with the wolves in the wolfpack.

In 2012, he seemed to be exactly the man to bring some ‘leftish’, social-democrat weight in against the then almighty liberal-conservative VVD of Prime Minister Mark Rutte. He seemed…

The first cracks in his image came during the weeks after the deployment of the new government agreement. Everybody could read that this agreement in fact consisted of two independent documents, which were loosely glued together. Not the mutually borne result of hardball negotiations between two opposed parties, but an exchange of big and small topics: ‘one for you and one for me’. Also the half-baked, unclear and ambiguous social, healthcare and housing agreements, that this cabinet entered into during the last half year, could be seen as blemishes on Samsom’s image.

However, during the last months of 2012 and the first half year of 2013, Samsom did what a loyal, smaller coalition partner must do in a Dutch government coalition:
  • looking happy and ‘at the ball’;
  • defending the government policy firmly, but without acting like a dog;
  • swallowing a big lump every now and then, when he had to accept unfavorable or impopular measures from the biggest government party VVD; 
He left the battles within the cabinet for PvdA vice-PM Lodewijk Asscher and remained in the Second Chamber as chief-whip.

Although I strongly disapproved of most government plans and measures of this VVD/PvdA cabinet, I respected how Samsom sticked with Rutte’s master plan, without sacrificing his beliefs too much. Samsom didn’t even raise one eyebrow, when PM Mark Rutte made a total fool of himself with his motivational speech. I thought that this merely said something about the loyality of Samsom towards this cabinet:

Until today…

Today, in an interview with De Volkskrant, Diederik Samsom held almost the same motivational speech as Rutte did mid-April. However, this one seemed to be on steroids, smashing Samsom’s image as a bright, intelligent and emphatic leader to smithereens in the process. It seemed rather the speech of a cheap populist, than a visionary statesman. And that’s a sad conclusion.

Here are the pertinent snips of this interview:

At this summer's political negotiations upon new austerity measures for 2014, the PvdA tries to steer towards a master plan, in order to pump billions of euro’s in hoarded cash back into the Dutch economy. This is disclosed in an interview with PvdA party leader Diederik Samsom.

Pension funds, banks, large investors, housing cooperatives and private citizens must spend their money. The cabinet needs to take care of tax-breaks, state guarantees and other stimulus in order to make these spendings and investments as attractive as possible.

Samsom calls the cabinet 'not to stick with fixing the government budget alone'. To achieve the latter, the coalition is looking for €6 billion in additional austerity and tax increases during this summer. ‘The time of ‘hoping and praying for better times’ is over. We have to produce the goods. It is time to make an impulse to the economy, in order to create new jobs and build new houses and offices.’   

Samsom concludes that ‘only asking, like Rutte did this spring, is obviously not enough’. “We must seduce people. I expect that the cabinet will drop all restraint now”. Samsom is thinking about financial advantages for pension funds and large institutional investors, which enter the mortgage market.The government should also pledge for small and medium enterprises, which want to borrow money at the bank, for investments.

Also private wealth should be dipped into. As an example, Samsom speaks about ‘stamrecht B.V.’s’: private limiteds, created as special interest vehicles for wealthy citizens, who looked for (legal) tax avoidance, after receiving a golden handshake or a lay-off reimbursement from their former company. ‘I can imagine that there are methods to seduce these people into setting their wealth free, like we did before with the ‘spaarloonregeling’ (a former tax-free savings arrangement between employees and their employers)

I can handle this  proposition by Samsom the easy way or the hard way.

The easy way would be that Keynesian stimulus has proved at more than one occasion, that it didn’t work, but only led to ‘bridges to nowhere’ and ‘cities for no-one’. Especially China and Japan offer plenty of examples of failed Keynesian stimulus, like the city of Ordos in China: a completely built new city, where millions of people could have lived, but nobody actually lives.

However, I want to dive in Samsom’s interview and show you why his plans are ridiculous, based upon his exact propositions:

Samsom: Pension funds, banks, large investors, housing cooperatives and private citizens must spend their money. The cabinet needs to take care of tax-breaks, state guarantees and other stimulus in order to make this as attractive as possible.

Ernst: The chairman of Dutch pension fund ‘Zorg en Welzijn’ (i.e. Healthcare and Wellbeing), Peter Borgdorf, stated today, when asked if ‘he felt seduced by Samsom’s proposal’:

“No, not that quickly and surely not by Mr. Samsom. However, it is a more important question, whether pension funds are the ATM’s of the Dutch economy. Samsom suggests here (wrongfully) that pension funds can spend their bucks at will. Pension funds cannot spend money with nothing in exchange. Our most important mission is to take care of good pensions; not to save the Dutch banks”.

Pfew, someone here has his brains in working condition.

Or hasn’t he?!

Borgdorff stated later in the interview that his pension fund is willing to supply money to private banks for the deployment of new mortgages. In collaboration with the largest Dutch pension fund ABP and through a special syndicated mortgage bank. Zorg & Welzijn's main condition is that there should be a state warrant, assuring that the MBS’s (mortgage backed securities) are offered to the pension funds at marked-to-market conditions: “we only invest money, in order to earn enough money for our pensions’. Regular readers of this blogs understand why I am not very enthusiastic about this plan: the Dutch housing market is still a big mess and will probably remain that way for years to come.

At this moment, the largest Dutch banks still have their share of worries about their liquidity and solvability, when measured according to Basel III standards. Not even to mention their naked debt-to-equity ratio, which has substantially improved since 2008, but which is far from rock-solid yet. This, and the dire situation of many, many small companies themselves, explains the reluctancy of banks to lend money to small and medium enterprises. So don't expect any large impulse to the economy on the banks' behalf, in the coming months or years.

Dutch housing cooperatives have to cope with hundreds of millions in special taxes, that were established by the Cabinet Mark Rutte I and maintained by the current cabinet Rutte II. They hardly have enough money to refurbish and maintain their current housing portfolio, so “please don’t count on us for large investments, Diederik!”

Remain the (wealthy) citizens and large investors. The former category probably doesn’t want to put their private capital at stake, through shaky investments in small and medium enterprises. 

The latter category might have the money and the guts, but probably sees too little viable investment objects in The Netherlands, as the country is in a deep(ening) crisis currently.

Besides that, Samsom seems to be a member of the school, which thinks that state guarantees don’t cost you any money. If the Dutch state gives tax-breaks and state guarantees to everybody and their sister, this will definitely not improve the quality of the investments. People, who are targeting shaky or risky investments, could take a gamble with the Dutch taxpayer as backstop. I don’t like this idea… at all.

Samsom: ‘The time of ‘hoping and praying for better times’ is over. We have to produce the goods. It is time to make an impulse on the economy, in order to create new jobs and build new houses and offices.’  

Ernst: The Netherlands still is in a situation wherein excess production facilities, excess consumption, excess Commercial Real Estate (CRE) and shopping space and excess public, corporate and private debt must be abolished. 

Whether you like it or not, ‘austerity is the new reality’. People are not in the mood for 'hedonistic' consumption anymore and they are certainly not in the mood for taking up new debt and spending their life's savings.

How can you create new jobs, when the Dutch demand for consumer and B2B products and services in The Netherlands is still much lower than the current supply?

Exporting these goods and services abroad?! To whom? 

To the European Union with its enduring economic crisis? 

The USA with its totally government-driven, artificial mini-growth? 

Or China and Japan, which both suffer from a deepening economic crisis? 

Get real, please, mr. Samsom.

Besides that, hundreds of thousands of Dutch workers have their jobs on the line currently. The unemployment will grow well into 2014 and – according to my predictions – at least into 2015 or 2016. These people are NOT going to spend their savings on consumption and durable luxury goods, when they can avoid it. The simply don’t do that!

And why should we sponsor the Building and Construction industry, when we already suffer from a totally locked-up housing market, millions of square meters in excess shopping space and 15%-30% in (largely structural) vacancy within the national Commercial Real Estate (CRE) portfolios. 

Is it so hard to understand that there is structural excess capacity within the B&C industry, that should disappear first before this industry gets healthy again?!

Samsom: “Only asking, like Rutte did this spring, is obviously not enough. We must seduce people. I expect that the cabinet will drop all restraint now”

Many people and companies are already sick-and-tired of this seductive and unreliable government. Hans Biesheuvel, chairman of employer’s association 'MKB Nederland'(i.e. SME) and a big Rutte-supporter only months ago, is totally fed up with this cabinet. He feels sorry that he entered into the Social Agreement on behalf of MKB Nederland:

“We feel set up by the cabinet. Last week, the cabinet stated that it is going to deploy no less than €6 bln in additional austerity measures after all. That is fuzzy, inconsistent policy and the discord among our members is soaring. The cabinet letter about the €6 bln was for me a slap in the face”.

Hans Biesheuvel deserves a special ‘Razzie award’ for being naive, blind and, consequently, unfit for his jobI blame him for his naive belief that the additional austerity measures for 2014, which were already hanging above his head like Damocles' sword, could be avoided, due to sudden economic growth in the second half of 2013. Nevertheless, I can understand his frustration and considering the fuzzy, inconsistent policy and false promises of this cabinet, he is totally right.

Biesheuvel won’t be seduced by this cabinet anymore and neither will the other Dutch citizens, except for some brainless mavericks.

Samsom: Also private wealth should be dipped into. As an example, Samsom speaks about ‘stamrecht B.V.’s’: private limiteds, created as special interest vehicles for wealthy citizens, who looked for (legal) tax avoidance, after receiving a golden handshake or a lay-off reimbursement from their former company. ‘I can imagine that there are methods to seduce these people into setting their wealth free, like we did before with the ‘spaarloonregeling’ (a former tax-free savings arrangement between employees and their employers).

Personally, I don’t have much symphathy for people who avoid taxes through fiscal constructs. Nevertheless, the lion share of the money in these ‘stamrecht-BV’s’ is legally theirs.

Either these people are ‘forced at fiscal gunpoint’ to put their money in uncertain, risky and shaky investments or these people are lured, through all kinds of tax breaks, government warrants and other teasers, to do so. Both scenario’s are an extremely bad idea.

During his daily interview with Paul van Liempt, macro-economist Kees de Kort of BNR News Radio made the following statement upon Diederik Samsom, in his very blunt, but concise ‘trademark style’ language: ’There must be some drug in the water of Leiden, as this morning Diederik Samsom ‘was clearly a runaway train never going back’.

Also his fellow-MP’s of the Dutch opposition parties made minced meat of Samsom today and met his proposal with scornful laughter.

I can only conclude that Samsom’s proposal is Dead On Arrival, for the reasons that I described in this column!

Monday, 24 June 2013

“You can’t save the Building & Construction industry by just throwing money at it”: Open letter to Maxime Verhagen, chairman of the B&C Association Bouwend Nederland

Dear Maxime,

Please let me introduce myself. I am Ernst Labruyère, 47 years old and an ICT expert, as  well as an amateur-economist. I consider myself to be one of those Dutch people with a firm and fair opinion on the Dutch and European economy. I print this opinion on my personal website on a nearly daily basis.

You are a distinguished and well-respected former statesman. You had a great political career as a longterm MP for the Dutch Christian-Democrat party CDA, with as absolute highlights:
  • your position as Minister of Economic Affairs, Agriculture and Innovation;
  • chief whip of the CDA fraction in the Second Chamber of Parliament;
  • Political leader of the CDA from 2010-2012; 

Very little people can show a resume like yours and that is something to be proud of. Therefore I want to thank you for taking your responsibility for the benefit of The Netherlands, which is one of the hardest jobs in the country.

Nowadays, you are the successor of Elco Brinkman as chairman of the Dutch building & construction association ‘Bouwend Nederland’.

With my wife and children, I am living in the youngest, large city in The Netherlands: Almere. Almere is a promising and beautiful city, but with its firm share of growing pains, due to excessive expansion within a limited number of years. In more than one way Almere has been the testing labatory for the rest of The Netherlands: for education, city planning and design, as well as for rapid expansion, bottom-up neighbourhood design and many other innovations.

Almere just offered more opportunities than other cities. Some experiments turned out very well and others didn’t…  And now Almere is a big city with some familiar big city problems: petty crime, problems with certain minorities and subsiding neighbourhoods, due to poverty and drug-related problems. The only difference with f.i. ’s Hertogenbosch is that Almere is less than 45 years old. Nevertheless, Almere is a good city to live in.

Just like many other cities in The Netherlands, Almere suffers from:
  • Very large structural vacancy among Commercial Real Estate (CRE), due to excess building activities in the recent past;
  • A locked-up housing market with dropping prices;
  • Cash-strapped retailers in newly built shopping malls, who are clutching at straws, due to excess shopping space and too little demand;
  • and, last but not least, a city council that took and still takes a bigger bite with housing and CRE development than it could chew; 

This can’t come as a surprise to you, I guess?!

And even today, now that the CRE and RRE (residential real estate) markets have almost totally dried out in The Netherlands, Almere keeps developing new industrial zones and housing areas: ‘Nobelhorst’ is the latest one called. Will it be ‘Noblesse oblige’ or just ‘Dead on Arrival’?! I am afraid that it might be the latter.

That is the reason that I write this open letter to you, as new chairman of ‘Bouwend Nederland’. The cause was your interview with Het Financieele Dagblad of last Saturday.

If you don’t mind, I will go through some statements of your interview and add my comments to it. As my site has been written in English from the beginning, so will my response to your interview be.

Verhagen wants to claim hundreds of millions in subsidies from the Dutch state, in spite of the current austerity measures by the Dutch government of PM Mark Rutte. He hopes to convince construction workers that they should compromise upon their terms of employment. And he wants the Dutch pension funds to invest more in Dutch building projects. All these measures should pull the Dutch building industry loose.

Ernst: It is ‘utopia’ that these measures will pull the Dutch building industry loose. You clearly missed the big picture. There are just too many office buildings in The Netherlands, already. And too many shopping malls and too much shopping space too.

Building yet more office buildings and more shopping space would be ignoring this simple truth. Structural vacancy of Dutch CRE is already 16%, according to the most conservative valuations and even 25% or more, according to other measurements. No pension fund in their right mind will invest in the Dutch CRE-market, as this would be money thrown away.

And when there is indeed so much need for new housing in The Netherlands, why does it take so many months to sell even the most basic house? That is, Maxime, because the prices are too high: banks don’t want to lend and Dutch people don’t want to borrow so much money anymore. Building new houses won’t help to solve this problem, unless these new houses would be sold for prices that are 20%-30% below the current sales prices. That is something that I won’t see happening in the near future.

You can’t save the Dutch building industry by just throwing money at it. Construction workers, changing their collective labour agreements, won’t change the fact that there is structural excess capacity in the building industry. It is a sad truth, but that’s just the way it is. And I know you know that too, as you are an intelligent man.

Verhagen: The cabinet should make the existing subsidy available to stimulate home insulation and durable building development. The goal is to generate 16% durable/renewable energy in 2020. Homes, offices, hospitals and schools are good for 30% of the national energy usage, so there is an opportunity if we could use this subsidy.

Ernst: This argument is again quite naive. In these trying times in which many people are seriously strapped for cash, people won’t invest tens of thousands of euro’s to further insulate their homes; not even when the government would pay 30% to 40% in subsidies. Banks won’t lend them the necessary money and people don’t have such amounts of cash available at this very moment.

And as far as the offices, hospitals and schools are concerned: what should happen with those?  Should all existing buildings be refurbished? And who is going to pay for that?

Or should those buildings just be simply abandoned, in favor of newer and more environmentally friendly ones? Like open scars in the cities?

I know f.i. that Medical Centre Alkmaar, the local hospital in this North-Holland city, is moving to a new location at the outer rim of Alkmaar. What will happen with the old hospital building in the center of this city? Will it be left there to erode away or to be demolished? And again I ask you, who is going to pay for all these new commercial and non-commercial buildings? As this is often the tax-payer, in the end!

Question to Verhagen (in the FD interview): How do you want to make the pension funds invest more in roads and bridges?

Verhagen: I am going to talk about that with (Dutch) Finance Minister Jeroen Dijsselbloem. It can’t be explained that pension funds mostly invest abroad. Lately, there was a beautiful pilot project with the N33 (national road) in Assen. The pension funds wanted to invest in it. Everybody happy. Nevertheless, at the end Dijsselbloem informed us that the Finance Ministry didn’t want to be in on this deal, because the pension funds demanded yields that depended on the height of the inflation. An open end-arrangement, according to the Minister.

The Finance Ministry is too reluctant, traditionally. It argues that it almost gets its money back immediately, when it invests in projects itself. Formally, that is right. Unfortunately, the state doesn’t want to lend anymore, as we have to diminish our state debt. The result is that we don’t make investments anymore. Most concrete bridges need refurbishing. Just as roads and sewerage infrastructure. It has to come one time.

Ernst: Pension funds don’t have an obligation to invest in The Netherlands, fortunately. Pension funds are independent organizations, which have one responsibility first and foremost: they have to supply their members with a good pension payment for the rest of their retired lives.

Forcing those funds to invest in The Netherlands and – to be more precisely – in commercial real estate or infrastructure projects, could jeopardize their future profits and subsequently, the future of their retirees. This would be an unwelcome kind of government interference.

The reason that pension funds traditionally don’t invest in The Netherlands is presumably that our country has very few large, billion euro projects to offer, except for government projects. Such large projects are necessary for the pension funds, in order to make investments worth their while. When such a large project, in collaboration with the government, is actually available, the pension funds try to maximize the cash flows from such investments. That is their right and perhaps even their duty, in the name of their members.

However, it is the duty of the Finance Ministry and the other ministries to invest the taxpayer’s money with the greatest discretion, especially in these times of ubiquitous austerity and increasing unemployment. The Finance Ministry should not warrant open ended payments to the pension funds, not even when it would help the building and construction industry.

So here is clearly a conflict of interests that cannot be solved easily. I agree with you that a good infrastructure is of the utmost importance, but not at any price. And I’m afraid that large infrastructural projects after all won’t be sufficient to keep the whole B&C industry afloat.

Verhagen: There is a latent demand for new houses. There are two million households, that want to move. Youngsters keep living at home longer. This cannot go on forever.

Also, the rents for “scheefwoners” [‘wealthy’ people that live in a cheap rental house and don’t want to move out to a more expensive house – EL]  are increasing. These higher rents could make the ‘scheefwoners’ to want to move to an owner-occupied house in the future.

The costprice for newly built houses has dropped by 15%, as construction companies build cheaper nowadays. However, the ground-prices, which communities demand, didn’t drop sufficiently yet. Building companies with ground-positions did write off on their possessions, so why can’t the communities do the same?!

Ernst: I do agree wholeheartedly with your last remark. Communities are still much too expensive with their ground-prices and they don’t (want to) see the writing on the wall yet.

However, this is a. a matter of time and b. the question who wants to pick up the bill for the losses, which these communities must suffer on their past ground investments.

What I don’t agree with, are the two million people that would be ready to move, if they could. Even if these two million people could get the money to buy the house of their dreams, they still will be very reluctant to move.

People are currently in a very risk-averse mode, since they left the years of conspicuous consumption and endless debt behind them. People count their blessings and amortize their mortgages, instead of hoarding new debt on a different house. Besides that, many people have their job on the line. If you run the risk of becoming unemployed,  then you don’t buy a new house. You simply DON’T!

The youngsters that remain living at home do so for a reason: presumably, they are either unemployed, they are still following education or they have a job with a contract for limited-time. Neither of these circumstances are spurring these youngsters to buy a new owner-occupied or (expensive) rental house. So, don’t count on those youngsters as future customers for your houses-to-be-built yet.

Summarizing: I understand that you do everything from your position to help the building and construction industry. I would do that too in your position. Still, you must understand that during the 20 years before 2008, the building industry grew into a hydrocephalic child, to put it bluntly.
Since 2008, the situation improved slightly,  due to the defaults of companies and lay-offs of construction workers. This is a sad, but truthful conclusion, as it is very unfortunate for those companies and people, but good for the b&c industry as a whole.

Nevertheless,  there are still just too many B&C companies and too many construction workers for the current RRE, the CRE and the infrastructural market in The Netherlands. It is really impossible that all these companies survive and all these workers keep their job, as there is just not enough work to do for them at the moment. And there won’t be enough work for them either in the next 15-20 years to come. Denying this is naive and even cruel in a sense.

What your organization ‘Bouwend Nederland’ should do is creating and executing a plan to reorganize this whole industry, in such a way that healthy companies survive and unhealthy companies get liquidized, with as little harm done as possible. And you should offer re-education and extra trainings for all those thousands of excess construction workers in this industry. So that all these workers might find a different job in an industry that does offer ample possibilities.

Creating such a strategy would make you a visionary in this troubled industry: perhaps not esteemed in the beginning, but undoubtedly seen as a saviour in later years.

I know you have the guts to make hard decisions, against all odds. May these guts help to make the right decision this time.

Yours sincerely,

Ernst Labruyère

Sunday, 23 June 2013

George Orwell and the end of anonymity: we are guilty, without a chance for parole, for the crime of ‘being around’.

Can I take this for granted, with your eyes over me?
In this place, this wintery home, I know there's always someone in

Someone is innocent, until proven
guilty in the court of law…

In 1949, a few years after the second World War ended, the Englishman George Orwell published a book. The book, called ‘nineteen eighty-four, a novel’, was set in a fictious country in a totalitarian future, in the year 1984.

It was clearly a book of its time, as it was written in the uncertain and frightening time of the mounting cold war between the western world and the – in those days – very totalitarian Soviet Union, with its ruthless, ultra-violent and paranoid leader Josif Stalin.

The book dealt with what perhaps were Orwell’s biggest fears at the time: a socialist domination, an omnipresent government and a time of not having any privacy whatsoever, in a society in which individualism and independency of mind were considered to be illegal ‘thoughtcrimes’.

‘Nineteen Eighty-Four’ became a book with a reputation that was undoubtedly bigger than the book itself. Even without having read it, many people could imagine the dismal feelings that ‘a totalitarian society with total thought control’, as described in this book, offered.

When I lived in the real year 1984, it was a time in which the Cold War was very much alive and kicking. The last old-school General Secretary of the Communist Party Konstantin Chernenko ruled the Soviet Union and President Ronald Reagan of the United States made bad jokes and bold remarks about ‘pushing the red button to blast away the evil empire’. It was – in other words – not exactly a time of worldwide peace and quiet. Nevertheless, I couldn’t help myself, but thinking in those days that ‘Nineteen Eighty-Four’ must have been the biggest pile of b*llshit that had ever been written.

The year 1984 was a time of true sexual and religious freedom in the Western World, outrageous clothing, ‘big hair’ and make-up. It was also a time of fantastic British and Irish, alternative music from groups, like U2, Duran Duran, the Simple Minds, The Eurythmics, Tears for Fears, The Cure, Echo and the Bunnymen and countless other bands. For me personally, it was the time of the ultimate freedom for me and my soul-mates in those days: riding on our mopeds, hanging round in bars and discotheques, taking holidays abroad without our parents and looking for girls. A time of great personal freedom and happiness.

However, in the years after 1984, when the large computer networks, identification cards, as well as closed circuit camera’s slowly became part of our daily lives, I started to think more often about Orwell’s visionary book and its discomforting content. This was mainly due to a mixture of technological development, expanding ICT coverage and growing government paranoia.

(Semi-) government, public and private organizations all started to collect more, and more extensive data about their citizens and customers. Besides that, these data became increasingly intertwined, due to government policy and regulation.

Large file collections from government databases, the Dutch internal revenue service, the social security management organization SVB, unemployment agencies, financial institutions and local communities became interconnected and acted as fine-darned fishing nets, from which no human could escape anymore.

The risk that one cent of tax money was unjustifiably spent on criminals, ‘moonlighters’ and ‘persons on the dole’ had to be mitigated everywhere within the (semi-)government and financial industry, even when it came at the expense of vast, billion euro computer systems and almost total control of mostly innocent people. People, who didn’t want to be part of these systems were suspicious in advance, as they had obviously ‘something to hide’.

In the meantime, the secrets of DNA had been slowly unraveled and its usability as a means of proof in the court of justice improved strongly. Although this was initially a very positive development, it had negative side-effects too.

Old-fashioned detective work and ‘looking for clues’ were increasingly replaced with hi-tech methods to collect human evidence and scan for perpetrators through DNA databases. Government officials everywhere became more and more “lazy” over the years and started to use large-scale DNA collections from whole populations in certain areas as a means to find criminals. If DNA evidence had been found, the rest of the evidence was just a matter of time, patience and a little bit of pressure on the defendant…

At the same time, these government officials became increasingly reluctant to destroy DNA that had been collected as ‘collateral’ in this process of crimefighting: ‘why should we throw away something, which could be useful after all in the near future’. Since then, growing numbers of Dutch, British and United States officials have been advocating storage of DNA and other personal trademarks, like fingerprints, retina scans, face proportion scans etc. from all their citizens. Personal trademarks should not only be present on personal identification papers, like passports and ID’s, but also in central databases. Just in case…

And so, we slowly, but surely started to grow something that comes darn close to a totalitarian regime. Strangely enough in hindsight, the danger for a totalitarian regime had clearly not come from the disintegrating Soviet Union or China, which one might have expected in the fifties or seventies of last century.

To the contrary, it came from within our own, free societies, under pressure of what we should call ‘the total security doctrine’. This doctrine states that security for the leaders, the VIP’s and (to a lesser degree) the masses in one country must be omnipresent and that every individual person’s rights, privileges and freedoms can be and eventually should be sacrificed, when this demand for omnipresent security requires this.

This doctrine, which already started to develop in the nineties of last century, became of course really fired up after the ‘9-11’ attacks on Manhattan and the Pentagon in the United States and the attacks on Madrid and London in Europe. At the same time, the emergence of the internet made it much easier for government official of the various secret services to read the opinions, emotions, proceedings and even thoughts of individuals from all over the globe.

From an innocent person, until proven otherwise, the global citizen (EVERY citizen) became ‘possibly guilty, without a chance for parole, for the crime of being around’.

And now, thanks to one of the bravest and boldest persons on this earth, Edward Snowden, we know that the American NSA scans all our telephone calls, emails and internet proceedings. And that the British Government Communications Headquarters (GCHQ) logs almost the total global internet and telephone network for 30 days.

And we know by heart that this is probably only the tip of iceberg, as it always is. And that everything is allowed by every government, because of the ‘total security doctrine’. But that’s not bad, isn’t it? Because we do not have anything to hide, do we?!

The following description about the novel Nineteen Eighty-Four by George Orwell comes from Wikipedia:

Nineteen Eighty-Four is a dystopian novel by George Orwell published in 1949. The Oceanian province of Airstrip One is a world of perpetual war, omnipresent government surveillance, and public mind control, dictated by a political system euphemistically named English Socialism (Ingsoc) under the control of a privileged Inner Party elite that persecutes all individualism and independent thinking as thoughtcrimes. Their tyranny is headed by Big Brother, the quasi-divine Party leader who enjoys an intense cult of personality, but who may not even exist. Big Brother and the Party justify their rule in the name of a supposed greater good.

Isn’t it scary, how close this description comes to the world that we are currently living in? Especially, when you replace ‘perpetual war’ with ‘the war on terrorism’ and think about the NSA and GCHQ, when you read ‘omnipresent government surveillance’.

And in your mind, you get from the American Patriot Act to ‘public mind control’ in the blink of an eye; only in the name of the surposed greater good that we lovingly call the ‘totally security doctrine’. 

Considering this, it is not hard to understand why George Orwell’s masterpiece has turned into an absolute best-seller lately.