Chairman of the Association for SME entrepreneurs (MKB Nederland) misses the point by a light-year in FD Op-Ed of Saturday December 24.

Hans Biesheuvel, chairman of the ‘Association for Entrepreneurs in Small and Medium Enterprise’ (SME) in The Netherlands (aka MKB Nederland) wrote an Op-Ed to the Dutch financial newspaper Het Financieele Dagblad (www.fd.nl; no link available). This Op-Ed contained his ideas for getting out of the current recession in The Netherlands.

Unfortunately, in his Op-Ed Biesheuvel misses the point (of getting out) of the current crisis, by a light-year.

Here are the pertinent snips of his article, accompanied by my comments:

The Netherlands has a strong economy, thanks to a very diverse trade and industry. […] There is a good foundation. The peak segment policy for business with a large SME involvement. Innovative companies can profit from the €0.5 bln in the national innovation fund. The new pension agreement will bring peace of mind to retired and working people.

The peak segment policy might help to focus government support to companies and reduces fragmentation of subsidies. One of the inevitable side-effects, however, is that innovative and strong companies outside these peak segments will hardly get government support and thus become less competitive. This could force other innovative companies to solely focus on the top segments, which will cause attenuation of Dutch business.

And then the subsidy amount of €500 mln: compared to the amounts that were used to save the banks, this is nothing more than petty cash, especially when you consider the cutbacks in education that have been made by this and earlier governments in The Netherlands. And a pension agreement that was able to disintegrate the biggest labor union in The Netherlands, will not bring peace of mind to retired and working people.

Together we have a lot to do to keep our prosperity and well-being. What does the agenda for 2012 look like?! One problem should be solved before others: saving the Euro and stabilizing the financial markets. The current loss of consumer and producer confidence is caused by the lack of trust in the Euro and the unstable financial markets. The Netherlands lives from its exports and we need to secure this. There are hundreds of thousands of jobs at stake when the Euro falls or the financial industry implodes.

One of the problems in Europe currently, are the current imbalances in the trade and capital accounts. The Dutch and German export surplus is the import surplus of the PIIGS (Portugal, Ireland, Italy, Greece and Spain) countries. If we keep those imbalances fully intact, the credit crisis in Europe won´t be solved. This is a very simple problem, but if you do not understand or accept this, it is impossible to solve. This is where Biesheuvel misses the point.

And unfortunately, the financial industry itself put its life on the line with the explosive expansion of its balance sheets, its enormous leverage and its irresponsible lending behavior in the recent past. The Dutch financial industry is 'too big to save' for a small country as The Netherlands.

It would be unwise to let our own government finances lose track and alienate the parties that buy our government bonds. Growing interest as a consequence of a financial downgrade of our country would make our problems soar. Therefore we have to arrange extra austerity measures on top of the current measures. But we have to do that in a way that doesn´t harm our companies. Therefore it is undesirable to flee to tax increases.

I don´t agree with the first three lines. In our state budget and state debt, there is still room for some extra debt, without running the risk of a serious downgrade. With that extra debt it would be possible to spare the Dutch citizens that already suffer badly from other tax increases and austerity measures.

With the extra austerity measures, the situation for the Dutch citizen will inevitably deteriorate. And people with less money will consume less. You cannot make cutbacks without consequences. That is something that politicians and other public figures don´t want to understand or admit. I happen to agree with the last two sentences in this paragraph, but you can´t make an omelet without breaking an egg.

We will have to look to the Dutch housing market, although we should be very careful with the Mortgage Interest Deduction (MID); that MID should stay. Let us start a vast housing insulation program, now the production of new Residential Real Estate is stalling.

Biesheuvel is also one of the fools that believe in the eternal power of the MID. In reality, the MID is one of the most market-disturbing government measures that has ever been taken and it consumes €12 bln of taxpayer money per year. Biesheuvel stays firmly in the ostrich position and wants to start a program for housing insulation. As if such a bogus program could save the whole building and construction industry that is formed during a time of structural excess consumption and lending. And who is going to pay for this program? The Dutch tax-payer? Or the house owner that is already drowning in debt? Get real!

When concerning healthcare, the users (i.e. patients) should pay more by themselves. Living longer is beautiful, but if we think this is part of our prosperity, than we should have to choose and pay for this, at the expense of other expenditures.

“Sorry, Grandpa. Mr. Biesheuvel thinks that you are too old and as you can´t afford your medical costs and I don´t want to pay for those, we suggest you go to Japan and ascend Mount Fuji to die there; just like the traditional Japanese people did”.

This is flawed reasoning by Biesheuvel. Whether we pay for healthcare via income and value added taxes or via our net income, we ALWAYS pay for our health expenses. The real points are:

• Do you skip the solidarity principle (everybody pays partially for the healthcare costs of all Dutch people via social insurance) or not?
• Do you want to pay for all life-enhancing treatments for elderly and seriously ill people that are currently possible or not?

But Hans Biesheuvel doesn´t say that and therefore misses the point again!

The labor market should be reformed. The duration (and not the amount) of the Unemployment Benefit(UB) should be decreased. The earlier people start to look for a new job, the bigger the chance they will find it soon. And it should be made more attractive to take older employees under contract. This is now obstructed by the high costs for dismissal.

Again Biesheuvel misses the point by a light-year. Most people without a job that want to work (!), start applying for a new job almost immediately. The duration of their UB won´t have much influence on their behavior, just like a dismissal fee that they perhaps received won't. The only people that don´t want to apply for a new job immediately are people that are stuck in a legal battle with their former employer and hope for a return to their old job.

However, when the going gets very tough, a longer lasting UB might prevent unemployed people from dropping back to welfare level. This is good as companies are often very reluctant to hire someone out of welfare, as they are afraid that these people can´t/won´t work. And people that really don´t want to work are often already unemployed for a long time and already ´enjoy´ welfare.

And towards elderly people, Biesheuvel clearly has the mindset that these people mostly don´t want to work anymore or that they are often ill. Therefore it should be easy and inexpensive to ´get rid of them´. Many employers have such a distorted world view, unfortunately.

I finish with a public call for a national agreement on keeping a zero per cent wages increase, where government wages, social benefits and private sector salaries are kept at the same level as this year. This not only divides the pain, but delivers much money instantaneously. This should enable really necessary reforms.

What Biesheuvel ´conveniently´ forgets is that a 0% salary increase at 2.6% inflation in fact means a 2.6% salary decrease. I don´t want to start a discussion on the right way to measure inflation – deflation, but these are the official inflation figures. What Biesheuvel also doesn´t state is that the top level salaries in smaller and larger companies soared during the last twenty-five years, while the medium and lower salaries actually decreased in purchasing power. People are more and more reluctant to consume already and the prospect of further loan reduction will not help to trigger this consumption again. Therefore Biesheuvel misses the point hugely.

My advice to Biesheuvel is: back to the drawing board and come up with something better. Neither labor unions nor independent workers will accept these limited measures that happen to totally miss the point.