“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”

Adam Savage – Myth Busters

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:

Diederik Samsom: Seduce the citizen to spend his money

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 job. I 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!