The difference between ‘being rich’ and ‘feeling rich’ at one glance: the mediocre position of The Netherlands on the European map for purchasing power!

These days, Twitter is the equivalent of the water pump in a small village, where all the people in the nineteenth century gathered to discuss their whereabouts.  

Via Twitter, news and interesting graphs are spread with the speed of sound. Such graphs often lead to fruitful and insightful discussions.

Today was again such a day: someone started to circulate a very interesting and tell-tale map of the purchase power within Europe:

GfK Purchasing Power Map of Europe
Data courtesy of: GfK and www.spatialmag.com
Click to enlarge

At this map, most countries took with their purchase power the position that you would more or less expect from them: financial giant Luxemburg and oil behemoth Norway on the top-positions and the East-European countries and Turkey still in the bottom half.

However, there was one significant outlier in this map: The Netherlands!

While The Netherlands is among the wealthiest countries in Europe (at the sixth position), when it comes to GDP per capita (see the following chart by Wikipedia), this is not at all reflected in the purchase power of the Dutch.

European ranking of countries with the
highest GDP per capita
Data courtesy of: en.wikipedia.org
Click to enlarge

There a numerous reasons for this strange phenomena, but perhaps the most important reasons are: 

• A policy of (relative) wage restraint that has been continued for almost thirty years: it has been excellent for exports, but killing for domestic consumption in The Netherlands;
  
• The garguantous mortgage debt and other forms of private debt in The Netherlands, which are still slowly, but surely choking Dutch families;
  
• The fact that the rents for social rental and free-sector rental housing increased by (much) more than the annual inflation rates for a number of years, which took a very large chunk out of the income of lower and lower-middle class citizens;
  
• The considerable pressure from direct and indirect taxes and other community costs on the purchase power, like parking costs, traffic penalties and the costs for issues like child care;
  
• The unpleasant Dutch habit to deploy income policy and equalization – which are by itself very defensible indeed– through a forest of taxing rules, special levies and surcharges, which nobody comprehends anymore. 

Wage restraint

The concept wage restraint has been a regular ‘visitor’ of these lines (see also this article), because of the devastating effects that is has on consumption.

You could safely state that since the eighties – with an exception for the period between 1996 and 2002 – The Netherlands has been in a situation of constant wage restraint. During this stretched period the wages and salaries always grew with very moderate numbers of 1% - 3% per year max, except (of course) for the highest incomes. Please look at the following tell-tale chart:

Income development of the four income categories
between 2000 and 2013
Chart created by: Ernst's Economy for You
Data courtesy of: www.cbs.nl
Click to enlarge

This development has been excellent for the exporting Dutch companies: the exporting small and medium enterprises (SME), as well as the large, multinational companies, who saw their market share increase as a result of the wage restraint and the very efficient production techniques in The Netherlands.

This prolonged wage restraint caused that the lower and middle class incomes had to use an ever increasing share of their monthly income for housing expenses and basic comsumption goods, leaving less and less money for fun-shopping and durable consumption. 

This, in combination with the considerable unwinding of private debt, caused the ubiquitous consumer strike that struck The Netherlands in 2008/2009.

Mortgage debt

Since 2006 / 2007 [yes, that was indeed well before the official credit crisis started in The Netherlands – EL ], the Dutch have declared that ‘enough was enough’ for the ever rising housing prices in The Netherlands. It started with ubiquitously dropping housing sales, to be followed a few years later by dropping housing prices (please have a good look at the charts that come with this article).

This was really a housing crisis in disguise, as for all other consumption in The Netherlands, the sky still seemed the limit: probably financed with borrowed money from term loans and revolving credit lines. Only after the real credit crisis took off, the normal consumption started to drop.

The effect of this housing crisis was that people, whose houses and mortgages went underwater, got stuck with a financial millstone hanging around their necks. Their houses became litterally unsaleable, when the people didn’t want to end with a substantial residual debt, due to the dropping housing prices.

This did not only lead to a totally stalled housing market, but also to Dutch people who got stuck with a mortgage that they almost could not afford, but also could not get rid off.

This effect, however, has fortunately been dampened by the still really low interest rates in The Netherlands. When you look at it this way, these interest rates and the Mortgage Interest Deductability have saved the day for a lot of Dutch families, during the last five years.

Nevertheless, the excess mortgages definitely had a negative effect on consumption.

The price development of rental houses

A third important factor for loss of consumption in The Netherlands is the price development of social rental and free-sector rental houses. The price development for these rental houses is especially important, as these houses are often inhabited by people from the lower and lower-middle classes, for whom every euro counts. These people are not wealthy enough to buy an owner-occupied house and have no choice, but living in rental houses.

Although the price development of rental houses differs per city and location, the average price development for rental houses has exceeded the official, annual inflation rate no less than 17 times, during the last 23 years!

Development of rent versus inflation
between 1990 and 2013
Chart created by: Ernst's Economy for You
Data courtesy of: www.cbs.nl
Click to enlarge

Since the eighties and nineties, the subsequent Dutch cabinets have been on ‘war’ with the tenants of social rental housing and free sector rental houses, by allowing rent increases to be well above the inflation rates in most of the cases.

While these price-increases were supposed to be in synch with the vast price increases in the owner-occupied housing market, it led to rental houses that were generally much too expensive. 

These excess prices for rental houses led to stagnation in the Dutch rental market, especially as some price increases would only be deployed upon the next inhabitant of a rental house and not on the current inhabitant. This meant in practice: staying in your current rental house is cheap, while moving to a new rental house is expensive.

Of course the mortgages went also skyhigh as a consequence of the price increases on the owner-occupied housing market. However, the redemption-free jumbo-mortgages and the extremely low interest rates for mortgages, led to the monthly interest payments still being quite affordable.

The effects of these circumstances  have led to the following strange situation: for instance my own house costs less than €500 per month as an owner-occupied house, while it would cost at least €850 - €900 per month as a free sector rental house. Besides that, this would be exclusive additional costs for gas and electricity. 

And you should take the following into consideration: in the former situation I even own the house, while the latter means that I only use it as inhabitant, without ever owning it.

Summarizing, the people who live in rental houses spend a large (and growing) part of their income on housing and don’t have much money left for consumption of luxury and durable goods.

Central government, cities and municipalities taxing and cashing the ‘living daylights’ out of the people.

You can't say that the income taxes are very high in The Netherlands. In countries like France, some of the taxes are much higher.

However, with 21% the VAT (i.e. value added tax), as well as the levies on cars, gasoline, tobacco and alcohol are extremely high. You could rightly state that the Dutch central government is taxing the living daylights out of the Dutch people

Besides that, many cities and municipalities have been seriously strapped for cash during the last years. This situation worsened for the cities, since their building ground  and commercial real estate trades went awry and since the Dutch government decided to outsource a large share of the national tasks to the local governments, with respect to social security and healthcare .

The snag was that the local governments only received about 80% of the total budget [unfortunately, I don't have the exact data - EL], which the central government used for the execution of these tasks. 

This left the local governments with the obligation to save as much expenses as possible and with the need to hoard cash, in order to pay the remaining 15%-20% of the bills. And these local governments know who to turn to, when they need cash: the law-obiding, tax-paying citizen:

• Parking fees, as well as the number of locations were parking fees should be paid, both have soared in The Netherlands. Parking fees of €1 per hour or less have turned into an exception, while parking fees exceeding €4 per hour are no exception anymore, alas;
  
• The local property taxes (calculated as a percentage of the estimated property price) have (considerably) risen since 2008, while the housing prices only have dropped.
  
• In the case that the yields of the property taxes would have been too low, using the original tax rates against the new, lower housing value, the municipalities just raised the tax rates again: heads, we win and tails, you lose;
  
• The costs for all kinds of permits and community services (passports, driver's licenses, municipal registration forms etc.) have also soared in many cases. Many communities deliver the same or less service at much higher expenses.

And the central government added a spoon or two from the same recipe, by increasing the height of traffic penalties to such levels, that: 

• The Netherlands has become the most expensive country in Europe with respect to traffic penalties;
  
• These traffic penalties act as an enormous cash cow for the central and local governments. Traffic penalties are not used in order to make the traffic saver and more environmentally friendly, but just to cash in ;

The results of all these extra, often unavoidable expenses have been perfectly clear: less consumption.

The unparalleled Dutch ways of equalizing the income

Many political parties and special interest groups in The Netherlands strive for the noble goal, to let the differences in income not grow too big. This is something that I am fully in favour of. A wise government would achieve this goal by maintaining a few simple rules for taxes and subsidies, which everybody can easily understand and apply.

The Dutch government, however, chooses for the creation of an impenetrable forest of special taxes, subsidies, healthcare charges (f.i. first claim-charges), surcharges for rent and healthcare and pace lists for income-dependent healthcare costs. 

Over the last decade, this 'forest' of regulations has become much too complicated for normal people to understand and it sometimes only attracts cunning con men, who are successfully finding the loopholes in these outrageous tax and subsidy laws. This means: money down the drain!

The Dutch Internal Revenue Service is constantly fighting a losing battle with new tax regulations, countless internal reorganizations and (on top of that) the new surcharges for lower class families. 

These surcharges are necessary for these families, in order to pay for their rising rent and healthcare expenses and for the rising costs of living, but they are a genuine pain in the neck for the IRS. 

And probably the worst enemy of the Dutch IRS is the bolted, ADHD-suffering law-making machine in The Hague, which is spitting out one bad plan after another, without ever thinking about the negative implications.

Many citizens don’t get subsidies and surcharges that they are entitled to and other citizens get subsidies and surcharges that they are not entitled to, without having bad intentions in advance. 

Except for a few taxing and income experts and con men, nobody in The Netherlands really grasps the system.

All this would almost be funny, if it would not have such bad consequences for many retailers and small and medium enterprises in The Netherlands, as a result of the nearly ubiquitous consumer-strike.

So many retailers and SME companies are currently clinging onto life by the skin of their teeth, while living from one month to the next in their struggle for survival.

Many more already perished in this struggle: not only single-store retailers, but also important store chains with dozens or even hundreds of stores:

• Siebel (jewellers);
• Polare (giant book stores);
• Harense Smid (small electronics and household appliances stores);
• Free Record Shops (record stores);

to name a few.  And their are many, many more store chains on this default list.

Although you could safely state that these particular store chains all had some (fatal) flaws in their business plans, the dropping consumption in The Netherlands has sped up the process of defaulting enormously.

When will the Dutch government and Dutch employers understand that you cannot neglect the Dutch consumers, if you want to have stable, economic growth in The Netherlands?! 

It is just impossible that this stable growth will emerge without them!

The nasty prelude towards the nationalization of SNS Reaal: letter from a reader, whose construction firm is falsely accused of criminal behaviour!

On 3 February, 2014, I wrote my article about the mounting problems for the Dutch Finance Minister and chairman of the Euro-group Jeroen Dijsselbloem. In this article, I printed a list of blunders and less fortunate actions, done by this chairman in distress.

The day after, I received an intriguing letter from a reader in Spain, Jaafar Jalabi. Mr. Jalabi is the managing director of the Spanish construction and exploitation company "Parcelatoria de Gonzalo Chacón" (PGC).

Jaafar Jalabi wanted to know why I didn’t mention the turbulent prelude to the nationalization of SNS Reaal in the list of unfortunate actions of Jeroen Dijsselbloem.

Besides that, Jalabi stated that he had become the victim of evidently slanderous accusations by the temporary managing director of SNS Property Finance, Buck G.

He dearly wanted an answer to the question why the board of directors SNS Reaal didn’t do anything to stop the slanderous (criminal) lawsuits, which were filed against him. Especially as he had sent multiple warning letters to the executives of SNS Reaal, that they didn´t have a case at all and subsequently won all lawsuits that were filed against him and his company.

Here is the almost integral letter of Jaafar Jalabi:

Dear Sir,

I have been following your Blog for a while. I was wondering in your commentary today why you did not mention the debacle of the nationalization of SNS REAAL as another issue of concern for the Dutch Minister of Finance.

I know that the current Minister of Finance formed in early 2013, the committee to investigate the failure of proper supervision by the Central Bank of Holland and the Ministry of Finance, of SNS REAAL, since SNSPF purchased Bouwfonds in 2006 and until the takeover by the Dutch State of SNS REAAL. However; and out of direct private information that I have, I could prove that the current Minister of Finance is not cleaning up Propertize B.V.[this is the new working title for SNS PF – EL] fast enough.

Let me introduce myself first, my name is Jaafar Jalabi and I am the managing director and a major shareholder of a Spanish company called "Parcelatoria de Gonzalo Chacón" (hereafter: PGC) that is involved in a serious dispute with a Spanish affiliate of Propertize B.V. (formerly SNSPF) called PROCOM Desarrollos Urbanos (hereafter ¨PDU¨).

Propertize B.V. fully controls PDU and has 2 members in the board of directors. PGC was a co-developer, partner, and operator in a very successful shopping centre in Spain called Madrid Xanadu and wanted to do the same project with PDU in Valencia, Spain.

The dispute involves a total of 4 lawsuits that were started by Buck G. and his corrupt team in Spain back in 2010 in order not to pay PGC a contracted amount of € 6.46 million in June 2011.

The contract was signed back in 2005 in the presence of a Notary Public. PDU has lost all 4 lawsuits including a criminal lawsuit that they filed against me in 2011. The damage to PGC and to me has been tremendous and I will seek compensation through the courts in Spain.

What is not clear to me (and this is my question to you) is the following: that Buck G. started all of this (before going to jail) and thus has opened the door for criminal and civil actions that I could take against the hierarchy of SNS REAAL, SNS Bank, Propertize and possibly NLFI.

Why nobody took corrective measures in spite of the fact that I wrote several letters to the top managers of SNS REAAL, SNS Bank and SNSPF asking them to stop this conduct of tort?

I would like to state clearly that the dispute is about a contracted payment to "Parcelatoria de Gonzalo Chacón" (PGC) of € 6.46 million that PGC was able to collect through the court system in Spain. However, in order to collect the payment, it suffered serious damage particularly after PDU filed a criminal lawsuit against me that they recently lost. Propertize has already paid € 8.06 million to the court (€ 6.46 million principal that PGC had already collected  + € 1.6 million as a provision for delayed interest and legal costs) and I am sure that Propertize has paid millions in legal fees to its lawyers. I will eventually ask the courts for criminal responsibilities and fraud of the Propertize team and for damages that are in the many many millions of euros.

I am sure that Propertize is full of such examples (please look at the English version of the prospectus to raise € 4.056 billion guaranteed by the Dutch State, page 24 under the paragraph titled Litigation or other… and on page 25 under the paragraph titled A Significant Portion of Propertize…). Continuing futile legal fights that were started by Buck G. (may be for corrupt reasons) will only exacerbate the damage that will eventually be borne by the Dutch tax payer. I feel sorry for him and her!

I have been following this file very closely and with my Dutch lawyers for the past 3 years. If you are interested in any further information then do not hesitate to contact me.

And yesterday, Jaafar Jalabi sent a second letter:

Second letter of Jaafar Jalabi

Second, as you would expect, I have been following the issue of SNS REAAL, SNS Bank and SNSPF now Propertize ver carefully and with the help of my Dutch Civil Lawyers. My civil lawyers are kept up to date continuously and this is why I was in Rotterdam yesterday.

Under Buck G., and for suspicious reasons a series of lawsuits were started by PDU, but highly influenced by SNSPF, the last of which was a criminal lawsuit against me. The criminal lawsuit was dismissed earlier on this week and in a form that is very definite.  

Usually when criminal lawsuits are dismissed in Spain they are dismissed provisionally, something like 95 % of the dismissals are as such, in my case the dismissal is in a form that is definite and that allows me to go criminally in Spain against top people in Propertize, SNS Bank, and SNS REAAL.

So far PDU have lost all civil and criminal lawsuits against me and in a very condemning manner and at a huge cost to the Dutch tax payer which I have proof of.

As a matter of fact and purely through the courts, I was able to obtain some PDU board resolutions that are very incriminating. I have proof that so far SNSPF has accumulated losses of around € 175 million + in PDU in addition to the SNSPF exposure in the now infamous shopping center in Zaragosa.

Third, I know that both the FD reporters and the NRC reporters are following up on the matter and I could be of extreme help to them in relation with the Propertize exposure in Spain, as I have a very significant amount of documented information.

I have a team working for me whose job over the last 3 years and 3 months has been purely PDU and SNSPF. I am more than happy to share the information with whoever you think should get it as, as I said before I really feel that the clean up in Propertize is not deep enough, or fast enough and it will cost the Dutch tax payer more money.

Propertize has recently issued in excess of € 4 billion notes that are guaranteed by the Dutch State, should this not be better scrutinised by the public and for the sake of the public!

For Buck G., I only use his first name and initial, as this is the habit in The Netherlands. Interested readers, however, will not have much difficulty to acquire his full name.

Mr. Jaafar Jalabi
Owner / Managing Director of Parceletoria de Gonzalo Chacón
Picture copyright of: Ernst Labruyère
Click to enlarge

Further, I checked the credentials of Mr. Jaafar Jalabi, as well as his company Parceletoria de Gonzalo Chacón, and I also checked Jalabi’s referral to Madrid, where his company would have worked in cooperation with others to build the Xanadu shopping centre. All the information that Jaafar Jalabi supplied to me seems to be genuine and right.

What I print here is Jalabi’s  side of the story.

As I am not a real journalist, who is doing this work for a living, I am not in the position to thoroughly check both sides of the story. However, everything about this story by Jaafar Jalabi seems impressive and genuine. It undoubtedly sets the impression that SNS Property Finance (now Propertize BV) has acted like a cornered cat during the last years, when it tried to recover some of its Spanish investments gone awry.

Nevertheless, if Buck G. feels obliged to respond to these accusations, please let him feel free to get in touch with me, through the email address in my profile. I want to say to him, however, that he must have a darn good story, as the accusations towards Jalabi and his company have seemingly been slashed by the Spanish civil and criminal courts, as being false and unjustified.

Now I will try to give an answer to the urgent and justified questions of Jaafar Jalabi, which he put in the red and bold text in the first letter. I summarized those to the following two questions:

Why did Buck G. started these false accusations against me, even if this could lead to legal actions against him and his company?

Why didn’t the executive management of SNS PF and SNS Reaal stop him? Or perhaps even De Nederlandsche Bank or the Dutch Finance Minister?

With respect to the first question, there is only one answer in my opinion:

Buck G. had rigged a team, consisting of himself and a few befriended and probably very well-paid ‘hotshot’ lawyers. Such teams have to fight some battles and deliver something, in order to justify their high expenses and – as a matter of fact – their very existence.

Therefore I suspect that Buck G. and his team have chosen a few Spanish companies to fight legal battles with, just for the purpose of it. Spain is far away and they hoped that the ‘communis opinio’ in The Netherlands would be that ’the Spaniards were wrong and SNS was right’.

They probably hoped also that the “pomp and circumstance” around such legal battles would generate sympathy and understanding among the supervisors in The Netherlands and the Dutch population: “Well, at least these guys are fighting for every cent of their investments”. Image is everything in the banking business!

Thus, they took for granted the risk that they could lose all cases, probably, as the benefits of FIGHTING these battles were probably bigger than the burdens of LOSING them.

People have to realize that SNS Reaal was in a very awkward position in those days. The losses coming from Property Finance were mounting through the roof and the DNB had finally come out of its micro-prudential ‘hibernation’, after the fiasco’s with ABN Amro, Fortis, Icesave and DSB Bank. This meant that time was running out for SNS Reaal.

Besides that, SNS Reaal hoped at the time, that they could ditch SNS Property Finance in a so-called bad bank, so that SNS Reaal could go on without it. If SNS Reaal would have accepted its losses without a (legal) fight, they might have lost the sympathy of the supervisors and their willingness to cooperate with their plans.

And the answer to Jalabi’s second question is:

The executive management of SNS Reaal could have had the same reasons as Buck G. Not giving the Spanish losses up without a legal fight, ‘for the audience’.

One more thing: before Buck G. had been arrested on allegations of fraud, he had been a very well respected ‘banker turned businessman’. I remember that some colleagues of mine, who had personally known Buck G., hardly could believe that he was accused of fraudulent behaviour. The news hit them like a hammer.  

I guess that Buck’s reputation in those days and – again – the argument that Spain is so far away, has stopped the SNS Reaal executive management from really digging into Jalabi’s written arguments and objections.

Even the loss of the first legal cases against PGC will probably not have changed their mindset, that they had a genuine case against this construction company. Probably, they have thought something like “the Spanish justices have presumably been biased against SNS Reaal”. People know how such things work.

At the time, when Buck G. was arrested, it was probably too late to stop the whole legal battle from unwinding…

And the Dutch Finance Ministry and DNB? They have probably had a race against the clock in order to save SNS Reaal, in which there was no time to dig into legal matters like this case. This was probably the reason that they let these legal cases continue, unfortunately.

I have gotten in touch with Jaafar Jalabi again: if he sends me some interesting information and leads, I will definitely write a follow-up story on this extremely interesting case.

Large percentage of Dutch freelancers works for a remuneration, which is well under their cost price. In this demand market, ‘you are down or you are out’ as a freelancer.

The longterm crisis, which already lasts for almost six years, has made life much more difficult for the large – and growing – group of freelancers in Dutch society.

Their main principals had to battle with dropping sales (in case of procyclical companies, small and medium enterprises and especially building and construction companies) or higher demands with respect to capital buffers (the whole financial industry).

In combination with the ubiquitous cost awareness of most companies, this led to dropping investments in innovation and research, costs of labour, maintenance (when it could be postponed) and large change programs.

In many service industries, companies did only the unavoidable projects and changes. Further they ‘kept open the shop’ and hoped that they would survive the crisis.

As a consequence, there has been a substantially dropping demand for both manual labourers and highly skilled knowledge workers; especially in industries, like building & construction, transport and distribution, telecommunication, ICT services, commercial services, financial services and facilitary services.

At the same time, there has been a large influx of workers from the European and global low wage countries (f.i. Poland, Spain, Portugal, the Baltic states, Romania, Bulgaria, Ukraine and India).  These were people, who were willing to work very hard for a fraction of the price that a Dutch worker or freelancer charged.

Especially when the working skills of the foreign worker were as good as those of his more expensive Dutch competitor, the foreign worker often got the job. This was not only true for low qualified, hands on-jobs, but also for the highly qualified knowledge jobs.

These two factors have put enormous pressure on the remuneration fees for especially the many freelancers in The Netherlands.

Both their awkward negotiating position against large principals and the strongly diminished number of available assignments, as well as their need for a constant flow of work and income, makes that freelancers have been quickly giving in on their remuneration demands.

Today, the economic online economic newspaper Z24 presented the results of this deflationary development for the almost one million freelancers in The Netherlands. Here are the pertinent snips:

The hourly fees are currently too low for almost 60% of the freelancers

Almost 60% of the freelancers charges remuneration fees to their principals, which are way too low. This is stated by Martijn Pennekamp of ‘ikwordzzper.nl’ (i.e. ‘I become freelancer’) and Arjan van den Born, professor Creative Entrepreneurship of Tilburg University.

Freelancers receive lower hourly payments than they would have preferred. This was disclosed by both an inquiry among freelancers and analysis of the data from a special calculation website for freelancers: zzptarief.nl.

That freelancers can ask less money than they desire seems obvious: everybody would like to earn more money than they do. However, in this case it is the price that is necessary for freelancers to cover all their expenses and owe decent monthly wages on top of that.

On average, these wages should supply a gross income of €2,850 per month. To reach this basic income, a freelancer has to charge €49.92 per hour. Realistically, a freelancer works only 29 chargeable hours per week at his principal. The other 12 hours are needed for unpaid labour, like acquisition and bookkeeping.

About 38% of the freelancers charges 25% less than the minimal hourly rate that covers their expenses;  this rate can of course be lower or higher than the €49.92 from the example. Only 18% is above the minimum rate, while the other freelancers own their minimum rate or a little less.

The freelancers, who earn too little money can stay in business by saving on their insurances and retirement expenses, or by just being satisfied with less income per month.

To start with: I am not very impressed with the math that has been done in the article.

I know now that only 18% of the freelancers earns more than their minimally required wage, but nowhere is disclosed (not even in the full article) how they reached the 60% rate of underpaid workers. I consider this the weakest part of this quite poorly elaborated press release.

Nevertheless, I am convinced that, by itself, these data are right. They simply match with my personal impressions from my own line of business, where the battle for lower remunerations is fought the hard way by the main principals.

“You are down (with your price) or you are out!”

That was, roughly translated, the message that many freelancers in the ICT business and financial and commercial services heard from their (often large) principals lately: especially when their skills were quite commonly available and replacement for them would be easy to find. In the building and construction industry and in the transport business, it is undoubtedly the same story.

As a long-term ICT consultant, I heard similar stories from all around me. Stories of how freelancers had to accept what they were offered, even if this meant 10% - 20% less money than just months before. Senior ICT consultants suddenly became juniors again and juniors became trainees.

At the same time, the list of demands from the principals soared, as they knew very well that there were ample highly qualified and highly skilled freelancers available.

Nowadays, the best freelancers sometimes work for the tariffs of trainees and unexperienced workers.

And I read what happened with the numerous freelancers in the building &c onstruction or the transport & distribution industries: how they had to adjust their prices to the prices of their peers from Poland, Lietuva or Romania.

In the short term, freelancers can still survive this way, as the aforementioned article shows. They live more austere and save money, by reducing their income and working incapacity insurances and by saving on their education and trainings. Or by simply postponing the payments for their retirement plan.

However, when these freelancers will get injured or ill or when their retirement age is approaching quickly, they will pay the price for the fact that they have worked under their cost price for too long.

Either they have to continue working as an elderly worker or they have too live in poorer circumstances than they would have anticipated initially.

And the worst case is, when such a freelancer becomes unassigned/ unemployed for an extended amount of time. His reserves (if any) will run out soon and then he will have to live from welfare payments, as he is not entitled to unemployment benefit; this means in practice that the freelancer first has ‘to eat’ his financial belongings (house + savings accounts), before he will receive welfare. 

This is a nightmare scenario for many freelancers and unfortunately a very plausible one too…