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Thursday, 30 January 2014

Ernst’s Economy in discussion at BNR Newsroom: the Lex Hoogduin show!

This economic, semi-live talk radio show of Dutch radio station BNR News Radio, hosted by the distinguished and savvy Paul van Liempt, had again a series of quite interesting guests: 
  • Ronald van Raak of the Socialist Party;
  • Mark Harbers of the liberal-conservative VVD;
  • Three female CEO’s:
    • Thecla Bodewes of Bodewes Shipyards;
    • Jacqueline Zuidweg of Zuidweg and Partners, insolvency mediators;
    • Marjan Oudeman, chairwoman of the Board of Directors for the Utrecht University;
  • Han de Jong, the chief economist of ABN Amro;
  • Lex Hoogduin, professor in Monetary Economy at the University of Amsterdam and the University of Groningen. 

The official subject of this week’s show was ‘Growth in The Netherlands in 2014’. Officiously, however, there was only one subject in the show: the article that professor Lex Hoogduin had written in Het Financieele Dagblad at the very beginning of 2014.  

In this rather short, but nevertheless groundbreaking article, Hoogduin objected against the ‘lazy’ muddle-through scenario that the Dutch government had been following since the beginning of the crisis in 2008. 

And he objected also against the lackluster reaction to the downgrade of The Netherlands by Standard and Poors, which flabbergasted Hoogduin.

Lex Hoogduin, former crownprince of Dutch national bank DNB, power-twitterer (‘@lexhoogduin’ is always a good read) and very eloquent professor, was in reality the guest of the evening. 

The other guests were only the 'supporting program', to put it somewhat bluntly. Although the other guests – with one exception, in my humble opinion – had sometimes quite interesting things to say, I therefore write this article solely upon the statements of Lex Hoogduin. 

It was an outstanding interview by Paul van Liempt and Hoogduin had very important things to say. 

The only objection that the objective listener could have had against this particular radioshow, was that one of the most important enablers for growth – the Dutch consumer – has hardly been discussed in it. I gave it a serious try, but that was all.

Here is the integral interview with Lex Hoogduin during BNR Newsroom and the snippets of an interview, held by Elfanie toe Laer of Het Financieele Dagblad, moments after the show:

Paul van Liempt: What was the reason for you to start this discussion about the Dutch growth the way you did it? 

Lex Hoogduin: The reason for me was the downgrade for The Netherlands by Standard and Poors. That event scared me. 

What also annoyed me was the lackluster reaction of the Dutch politicians to this gamechanging event: "What does that one stupid A change for us?! We have economic recovery now and we are not going to pay one cent more in interest rates, actually"

Lex Hoogduin, professor Monetary Economy
Picture copyright of: Ernst Labruyère
Click to enlarge
Well, it wasn't indeed that single A, but rather the report that came with it. A relative outsider, like Standard and Poors, stated that only in 2017(!) The Netherlands would be back at the economic level of 2007. 

When this prediction would indeed come true, then it will mean ten 'lost' years of economic stagnation in The Netherlands! People reacted so lackluster to this shocking conclusion.

My opinion was: "Wow, this is urgent". 

During the last few years, we had discussions in The Netherlands about the Japan scenario. Well, here you had your Japan laid down before you! Ten years of stagnation!

Paul: What is Dutch politics doing wrong?

Lex: It is not so much about what politics has done wrong. You can react to the current events in two ways: 
  • You could argue that economic recovery is now on its way and that everything will be hunkydory soon. Serenity and stability on a national front and the market will do its work by itself. 
  • However, you could also argue that we have to solve a number of structural problems in The Netherlands. That is my opinion. We had years and years of societal change and - as a matter of fact - a paradigm shift in The Netherlands. This shift will continue in the coming years, but until now, we reacted much too slow to this societal paradigm shift. 

Paul: This explains the urgence for this necessary change in attitude?

Paul van Liempt of BNR News Radio
Picture copyright of: Ernst Labruyère
Click to enlarge
Lex: Yes, normally I'm very much in favour of gradual change, but we, as a country, took so many fundamental societal changes for granted that the Dutch economy is seriously lagging now.

We cannot avoid the fact that we have to make more decisive choices right now. The Dutch political landscape and society have changed during dozens of years, but the Dutch governance model is still struggling very much with these changes.

Paul: You had an argument with Wouter Bos, the former finance minister, who does now have a column in the Volkskrant. He quoted Thomas Friedman from the New York Times, who argued in favour of gradual change, and wondered why you didn't understand Friedman's lessons?!

Lex: Wouter Bos did not understand me. I'm not against compromises and I'm not in contempt for Dutch politicians. Rather to the contrary.

Nevertheless, I notice that the Dutch political landscape has become so volatile, fragmented and polarized on main issues and ideas, that it has almost become impossible to reach a viable compromise between different groups.

Paul: You stated about the Dutch labour party PvdA and the liberal-conservative party VVD - and I quote - that: "these parties became faceless, amorphous clubs, who only deal with the partial interests of special interest groups". You still stand by this quote?

Lex: Yes, indeed I do. Over the years political parties became advocates of partial interests. Since then, it has become very difficult to discover the various conservative, religious or social-democrat origins in these parties.

An example about the liberal-conservative VVD. Before the elections, the VVD promised tax reduction, but after the elections they refused to do so. 

Initially you could argue, that this was a result of their coalition with the social-democrat PvdA and understand the logic behind it. 

However, one day both PM Mark Rutte and VVD chief whip Halbe Zijlstra stated in unisono that the VVD could not have avoided tax increases: even when the party would have governed the country on its own. 

Do you understand that? It is not an event caused by mother nature, isn't it?!

Lex Hoogduin, professor Monetary Economy
Picture copyright of: Ernst Labruyère
Click to enlarge
The cabinet states that it wants to get the state budget in order. That is a clear goal by itself. However, even with respect to this goal, the cabinet is opaque.

The agreement with the EU is that we not only should reduce the state budget deficit to 3% max [Stability and Growth Pact - EL], but that we should totally resolve this deficit eventually. Every politician knows of the existence of this agreement.

Why does the cabinet not create a clear roadmap, in which it explains, which future steps we should take to reach this 0% budget deficit?

Politicians could do more than they do at the moment. Take for instance the Dutch pension system: we are now five years after the start of the crisis, but these days we will start yet another discussion about the pension system.

Where is the speed and where is the urgency?

Paul: And what about poldering and the famous Dutch 'polder model' [a governance model in which all societal stakeholders and interest groups have discussions with each other and decide about the road ahead for The Netherlands - EL]?

Should the polder model be left behind in The Netherlands?

Lex: What I'm talking about is the fact that the largest Dutch parties represent less than 20% of the Dutch voters population. This simple fact makes it virtually impossible to sketch a long-term perspective in The Netherlands.

Ernst: How can we enable economic growth in The Netherlands, when the consumers don't get more purchase power? During the last five years, our purchase power only diminished, as a consequence of wage restraint and (largely) government-spurred inflation. The Dutch export can't supply the whole economic growth, can it?!

Lex: I know what you mean... 

What stands out blatantly when you look at the development of wage expenses in The Netherlands, is that this development has been extremely moderate during the last thirty years.

In the eighties, the reason for this moderate wage development was crystal-clear. With our soaring wages in those days, we had outpriced ourselves. This had a very negative influence on the profitability of companies.

However, such is not the case at all nowadays. Nevertheless, the wage increases are still extremely moderate, which has negative effects upon the income development in The Netherlands. Hence, it has definitely negative effects on Dutch consumption too.

Paul: You said that politics is too much influenced by lobby clubs like labour unions and employer's organizations: people of whom it is not clear at all, who they actually represent these days.

What should happen with the polder model, which officially institutionalizes this influencing process by these lobby clubs?

Lex: The polder model worked fine in the eighties, when it brought indeed serenity and stability towards the Dutch political landscape.

However, for such a model to be widely accepted, it should represent people from all layers of society. That is not the case anymore these days. 

The labour unions go through a very rough time nowadays, with rapidly diminishing numbers of members. When you look at the people who are still member, then you see an overrepresentation of older, white men in traditional industries in the labour unions. Freelancers are seldomly member of these unions and they are hardly represented, with only two seats in the executive structure of the unions.

Paul: Together, the labour unions and employers' organizations - both institutions with diminishing and unclear grassroots - form the basis of the Dutch Social-Economic Council (SER). What should you do with this council? 

Continue with it 'till the end of time?

Lex: You simply can't go on, like we do today. To quote an old remark by ex-European Commissioner Frits Bolkestein (VVD) in the early nineties: it is not an social-economic council anymore, but a social-economic "handbrake".

We should make a clear choice now: either we revitalize the SER, with new representatives for all different grassroots in society, or we should abolish it and leave its work to the politicians, like it happens almost anywhere else in the world!

People - even the guests of this show tonight - are reluctant to get the bull by the horns and change things. When you like the SER, than revitalize it!

On the other hand, politicians should really ask themselves how the enormous polarization and volatility in Dutch society could be reduced to more sustainable levels. In my humble opinion, it would help when the ridiculous number of (small) political parties would be brought back to a few stronger and more moderately aimed parties.

Parties of which the Dutch people know what they stand for. And parties that could form a viable coalition, instead of being at war with each other all the time.

This was the end of Hoogduin's impressive stake in this week's BNR Newsroom. 

As I promised earlier, here are the snippets of Hoogduin’s interview with FD reporter Elfanie toe Laer, moments after the show:

Elfanie toe Laer: Do you have doubts about the 'reason for being' of the Dutch Social-Economic Council (SER) these days?!

Lex Hoogduin, professor Monetary Economy
Picture copyright of: Ernst Labruyère
Click to enlarge
Lex: You either have to revitalize the social-economic council and make sure that all groups of grassroots  in The Netherlands will be represented in it, to make it effective again. 

Or you have to simply abolish this council, due to it being obsolete.

Elfanie: Do you consider it a viable plan to revitalize the SER or will it probably be in vain?!

Lex: That strongly depends on the desire of the people in charge there. 

Anyway, it will be darn hard, in my humble opion. The underlying problems is that there are no clearly identifiable groups of grassroots anymore, which can be represented in the SER.

For instance, the freelancers are not represented in the SER yet. Besides that, the common workers should normally be represented by the labour unions. 

However, the current labour unions do actually represent quite few common workers and employees, as most workers don't bother to
become a member anymore. 

The demography among the union members is totally uncomparable with the demography of the population of workers on the Dutch labour market. Today's labour unions mainly represent older men from the 'traditional' industries and also higher educated people are very poorly represented within the unions.

Summarizing, it will be very awkward to revitalize the SER.

Elfanie: How much time would you give the SER at this moment?

Lex: I think that the problem should be solved urgently, instead of the muddle through scenario that has been chosen years ago.

Elfanie: Would it not be a shame to abolish a respectable institute like the SER?

Lex: That would be true, if only this abolishment of the SER would happen and politicians would not do anything to enhance the support for politics and political parties among the Dutch population.Then it would indeed be a shame. 

When there are people that still entrust the SER with its social-economic tasks, they should do anything to revitalize this institute. 

Personally, I don't see it happen, but who am I?! Anyway, we should start this now and not hesitate any longer.

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