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Tuesday, 31 December 2013

Ernst’s Economy: The outlook for The Netherlands for 2014; Pt I

all this time
spinning round and round
made the same mistakes
that we've always found

Looking back at 2013

Today is a good time to take a brief look back at 2013: the final days of the year are (almost) done.  At the same time, it is a good day to look forward to the next year. Therefore I will do both in this article, that will be split up in two parts.

Saying that 2013 has been a wild ride, would be an understatement.

While the global stock exchanges celebrated one peak after another (also in The Netherlands), high as they were on their QE-drugs, the situation in the real economy deteriorated rapidly in The Netherlands:
  • There was a surge in negative consumer confidence;
  • The unemployment soared in the early months of 2013, after the relatively calm year 2012;
  • There were soaring numbers of people and companies that were (on the brink of) defaulting;
  • Some strong and financially healthy companies and government organizations have been choking their suppliers, by paying their invoices ever later, while having at the same time more and more demands towards the same suppliers;
  • The personnel of similar companies has also been under increasing pressure of achieving more ‘at gunpoint’ for the same wages or less: “you’re up or you’re out!” is the new slogan of a large bank in The Netherlands;
  • There was the fall from grace of the Rabobank, which turned The Netherlands’ formerly most trusted bank into ‘a bunch of cheap frauds’;
  • There was the downfall of former ‘darling of the stock exchanges’ Imtech and the nationalization of SNS Reaal;
  • There was also deteriorating mood among the Dutch people, causing them to be more nationalist, more chauvinist, more N.I.M.B.Y. and more aggressive against government officials (policemen, firefighters and paramedics) and especially the European Union, which is increasingly seen as the root of all evil;
  • The European Union itself is still hanging on by a limb. 
Still, there were events in 2013 that were binding the whole country, including almost all its citizens:
  • The abdication of Queen Beatrix and the coronation of King Willem-Alexander;
  • The public outrage against Russia’s new law against LBGT (lesbian, bisexual, gay and transgender) people and (again) Russia’s treatment of the Greenpeace activists;
  • The public grief after the death of Nelson Mandela;
  • The achievements of the Dutch football team ‘Orange’, which was qualifying for the Football World Championships in Brazil for 2014. 
On a personal level, 2013 has been not a bad year: until now, my company survived the crisis and there is plenty of work to be done at an assignment that I love, albeit at a lower salary.

And the most important thing: my loved ones and family are all healthy and happy. That is something that I really cherish in times like these.

Outlook for 2014


Perhaps one of the surprises for me was the fact that the ‘handicapped’ Cabinet Mark Rutte II (VVD/PvdA), with its minority in the Dutch Senate (‘First Chamber’) and its quartet (cardgame) government agreement  (“this policy is for you and that policy is for me”), has actually survived 2013.

To put it even stronger:  it seems more and more that the cabinet – after a shaky start – is now finally on the road to reforms, although it are often the wrong ones:
  • The reforms of the Dutch housing market are mainly striking rental housing and hit especially the building cooperatives – who have to enable affordable social housing – full frontal:
    • Tenants that are just too rich for receiving rental subsidies, but still too poor to buy a house will get the painful blows of this policy, as their rent is rising, with little or nothing in return;
    • Besides that, this was nothing more than an ordinary tax increase, in order to replenish the state’s treasury. It won’t do anything for the housing industry at all;
    • From 2014 on, the Mortgage Interest Deductability will be reduced to 38% from 52% with steps of 0.5% per year. In ‘just’ 28 years (!), this legislation will be in total effect. This is about the same as doing nothing;
    • While the sales numbers of housing are slightly increasing, the sales price dropped by 5% year on year in November, showing that the measures of the Cabinet Rutte didn’t hit target at all;
  • The building industry, especially for Commercial Real Estate (and to a lesser degree Residential Real Estate) is almost left unchanged in 2013, as no significant policy is deployed: something that the cabinet could and (IMHO) should have done:
    • While the outlook for 2014 is ‘shaky’ at best for these industries, the cabinet missed the opportunity to do something about the structural overcapacity in this industry;
    • The Dutch cities and municipalities are still sitting on billions of Euro’s in excess building ground, that has been bought in anticipation by these municipalities of a revival of the Dutch ‘building frenzy’. The Dutch taxpayers are always the ones to foot the bill for this foolish policy.
  • The reforms of the labour market by Rutte II made it somewhat easier to dismiss workers;
    • At the same time it is has become easier for these (often older) workers to fight their dismissal legally, now that they received the right to appeal against the decisions of the cantonal judge, where they could not do so before. Theoretically, this could lead to dismissal cases that will drag themselves along for years;
    • Although the (often much younger) flex-workers got better protection from the government on paper, in reality this protection will work out the wrong way, due to the circumstance that these flexworkers will now probably be fired before the end of their final flex-contract;
    • The effect of the current labour legislation is:
      • There is a group of (often older) workers that enjoys a. still strong legal protection and b. the almost exclusive blessing from the labour unions (as these older workers are almost the only members);
      • The younger workers have almost no legal protection and no job security at all. This situation will probably not change until the economy improves strongly or until the people, who are now in their forties, finally retire;
  • The reforms of the Dutch pension system seem rather targeted at saving a lot of tax money, instead of making the pension system more robust for the future:
    • The number of build-up years will be increased to a maximum of 47 years (20- 67) in 2014,  where it has been 40 years ( 25-65 yrs);
    • At the same time, the maximum annual build up percentage –for the second pillar of the Dutch pension system – will be decreased to 1.875% in 2015 from 2.25% (based upon a median wage pension);
    • Although somebody can theoretically build up the same pension as today’s retirees, this will be impossible for many workers: especially the ones who start working at 25 or older (for various reasons); 
You definitely can’t accuse the Rutte / Asscher cabinet of sitting on their hands. That is good news. 

Nevertheless, the policies deployed by Cabinet Rutte are not the kind of policies that will either spur the Dutch economy or at least the consumer confidence in 2014. That is the bad news.

My complaints that the Cabinet Rutte does little or nothing about better education in The Netherlands and little or nothing about developing special policies for the manufacturing industry and the financial, commercial and ICT services industries are still intact, unfortunately.

I have also mixed feelings about the impression that The Netherlands makes within the European Union:
  • Jeroen Dijsselbloem is improving as chairman of the Euro-zone and the European Banking Union – in spite of its limited range and cautious goals – is indeed a success for him;
  • However, the utter lack of vision of Mark Rutte and his lack of will to help the other, less fortunate countries in the European Union with rebuilding their economies, makes that The Netherlands is rather a mill stone than a catalyst for the economic development of the EU. 
Summarizing, the current Cabinet Mark Rutte will not be the factor that helps the Dutch economy to improve strongly in 2014. This is one of the reasons that I don’t expect strong economic improvement in that year.

Employment and Unemployment

Whatever happens: 2014 will not be the year of the employee and Captain Entrepreneur won’t save the day as well!

According to the Central Planning Bureau, the unemployment will rise in 2014, albeit not so strong as in the disastrous year 2013. 

I happen to believe them when I look at the current consumer confidence and  take into account the hard times that the Small and Medium Enterprises are going through currently.

Yes, there are some greenshoots in the economy and yes, the labour unions are aiming at a 3% wage increase as a starting point for negotiations in some industries.

Nevertheless, the vast majority of workers will only receive a wage increase well under the official inflation rate or they will receive no wage increase at all. Some unlucky people will even get a wage DEcrease, as their cash-strapped employers can’t or won't pay their full salaries anymore. 

Unfortunately, I know first hand that this is not a figment of my imagination. 

People, who are looking at the (record-high) stock exchanges as a predictor for emerging economic growth and employment growth in 2014 could be gravely mistaken. 

Apart from the fact that perhaps much of the increased production capacity at manufacturing companies will be used for the creation of stockpiles, it remains of course the question who is ultimately buying those stockpiles.

Companies, specialized in b-2-b (business to business) delivery and services might show good results at this moment, but it is ultimately the b-2-c (business to consumer) sales that should really spur economic growth, except for increasing exports.

Lately, there are signs that the consumer confidence is increasing marginally and the Central Bureau of Statistics (CBS) stated ‘cheerfully’ that ‘the decline of household consumption is slowing down’. Perhaps, the latter is caused by the circumstance that consumption can’t further decline anymore (to make a bold suggestion)?!

The big question remains: if the exports probably won’t spur economic growth and increased employment (see the second part of this article tomorrow) and there probably will not be structurally increased production and consumption to spur economic growth and increased employment, what WILL spur economic growth and increased employment in 2014?!

Asking the question is answering the question!

In the meantime, the situation for fixed and flexible personnel is not improving at all:
  • As mentioned before, a very large bank has as a new slogan: you are up or you are out!Although I am generally in favour of the idea that people must constantly educate themselves in order to stay competitive, I don’t like the senseless aggression in this slogan of ‘education at gunpoint’.

    Some people are very good at their job and their work is still in high demand within their employer’s company. Why would an employer force such employees to change in something that they don’t want and in which they are no good at all?

    Many workers flourish in a constantly changing environment, but many other workers flourish in a fixed environment with stabile work and a stabile workload. You need both categories of workers, although the second category is not as ‘sexy’ as the first category.

    By the way, this same bank, just like many other banks, has strongly forced down the remuneration for their contracted workers during the last few years. In this case it was not ‘you’re up or you’re out, but you’re down or you’re out’.
     Their (much less powerful) suppliers signed these contracts toothgrindingly, as less money is still better than no money at all!
  • Yesterday, the paper version of Het Financieele Dagblad (FD) printed an Op-Ed, with the following quote in it: ‘flexworkers enter four times more often into the Unemployment Benefit as workers with a fixed job and 20% - 25% of workers has a flexible contract these days’. Are these the people that are going to save the economy in 2014?!
  • Also yesterday, in the same FD newspaper, the former CEO of Sodexo, a large employer for catering and facilitary services, repudiated the plan of the Dutch government to offer their cleaners and facilitary employees a (fixed) contract with the government itself: “This is a hobby of the PvdA (Dutch labour), but an expensive one: the costs of it are 20% to 30% higher”. 

    In other words: as the Dutch government is definitely not planning to pay ‘top dollar’ for their ‘new’ employees, you could come to the conclusion that the normal employees of Sodexo are probably underpaid by 20% to 30%.
Among many employers, there is still too little respect for their workers, irrespective whether these are fixed or flex workers. Workers that don’t feel appreciated by their employers probably won’t bring more dynamics into the economy.

Fortunately, this is not how all employers think about their personnel. The best employers see their workers as the reason for their success and appreciate them: in words and in money.

Still, in my opinion this is not common among the employers in 2013 and this probably will not be common in 2014.

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