Every now and then you hear new theories and concepts, that
almost sound too good to true. But sometimes it happens that such ‘good’ news
is actually a burden-in-disguise.
Mathijs Bouman, the distinguished financial/economic columnist
and co-host of the Dutch economic television magazine RTL-Z presented such “good
news as bad news-in-disguise” in his
weekly column in Het Financieele Dagblad.
The following lines contain the most important snippets
from his
column of Saturday, September 20th.
Starting
this year, the Dutch Gross Domestic Product is calculated in a new way. A
better way, according to the Dutch Central Bureau of Statistics (CBS), using
new sources and in accordance with new, international agreements.
This
revision of the national accounts, as the operation is called, has considerable
consequences for the most important core data of the Dutch economy. Apparently,
the Dutch GDP is 7% higher than previously calculated by the CBS. Consequently,
the state debt as a percentage of GDP is immediately much better bearable. The
revision also changed the economic history of the past crisis years.
This
news made this week’s Macro Economic Outlook (i.e. MEV) from the Dutch Central
Planning Bureau – the first one based on the new CBS data – particularly interesting.
According
to the new data, the investments have dropped less considerably than initially
estimated. The gloomy trend of constantly decreasing investments and thus decreasing
economic growth potential is not visible anymore in the new data. One worry
less…
There
is another story which should be rewritten: that of the dropped available
income.
According
to the old data, there had been a steep drop of total available income coming from
labour, by over 7%. It made sense that the consumer had been so frugal, that
consumption dropped for years and years and utter silence struck the shopping
malls and streets.
However,
in the new MEV things look much more favourable. The total available income
from labour actually rose during the crisis years and in 2015 it will end
almost 4.5% higher than in 2008. This is the consequence of a bigger-than-initially-forecasted
growth in 2009, when Finance Minister Wouter Bos skipped the employees’ share of the unemployment benefit premiums.
Nevertheless,
this does not mean that national consumption also developed more favourable.
The old and new consumption data differ marginally. Why has the consumer been
so frugal, when the available income developed much more favourable than
expected. The answer is: as a consequence of the dropping housing prices.
The
development of the available income from labour had and will have a positive
effect on consumption during the period from 2008 until 2015. Only in 2013,
this factor suppressed consumption.
But
then look at the dropping housing prices; these have suppressed consumption
during all years since 2010.
The
cashing of surplusses in residential real estate value, through new and higher
mortgages, came to an sudden end. The comforting idea of the eternally rising
housing prices got replaced by the fear that the own house would come
underwater. The shopping streets became empty and abandoned, as a consequence
of the plummeting value of owner-occupied houses. The house as private ATM came
to a bitter end…
How is that for a bombshell…?!
Personally, I always get a little uptight, when research
bureaus of impeccable reputation, like the Dutch CBS, suddenly adopt a new
methodology, which is (almost) a new paradigm.
Was their old methodology that wrong?! Have their
earlier data in fact been unreliable for all those years? Or is it just a small
twist in the reliability of the data: merely a drop of water in the ocean?
Hence, a 7% higher GDP than initially estimated is more
than a drop of water. It is rather a landslide difference in these crisis years,
even when this higher percentage is earned during 7 crisis years.
If the new CBS methodology is more accurate than the
old one indeed, we were actually all much richer than we thought we were.
Nevertheless, we FELT much poorer instead, as we couldn’t
use our own house as ATM anymore, due to the steadily dropping housing prices.
Personally, I consider this quite hard to believe and not only because my own
salary is back at pre-2008 levels these days.
The last seven years have been the years of wage
restraint for many middle- and lower class citizens, with a fixed contract in
The Netherlands.
It have also been the years of endless flex-contracts for
youngsters. And of freelancers, having a race to the bottom with their tariffs
and fees, as they have been in fierce competition with knowledge-workers and
professionals from the low-wage countries, who were willing to do the same work
for much, much less salary.
Yesterday, my dear neighbour told me that her 17-year
old grandson had to work long and hard hours in the supermarket, in exchange for
very low payment; sometimes even without having a break during six or seven
hours of working. And the foreman of this kid still had the nerves to complain
that he worked too slow.
As the boy had a zero hour contract without any formal
rights, he had to hope and prey every week that his supermarket had some work
for him to spare. The “salary” this kid earned, was €3 per hour. This is roughly
the same hourly fee as I earned 30 (!) years ago, as a “professional” dishwasher.
However, the purchase power of this boy’s money is a fraction of what it was in
the eighties.
So, when the CBS states that we – as a nation – earned
7% more money than we thought we did, I take this news with a few grains of
salt. Can I be wrong?! I can be wrong!
Yet, if this new methodology of CBS is indeed better
and more reliable, and it were actually the dropping housing prices which caused
the stalling consumption in The Netherlands and not a stalling or slightly
dropping average in personal income, this might have fierce implications on
future consumption in The Netherlands.
This is the reason….
I expect that the Dutch economy will cautiously start
to grow again in a few years, when the worst effects of the crisis have become a
thing of the past. As the aging population has a narrowing effect on the labour
market, skilled (knowledge) workers could become scarce, in spite of the influx
of foreign workers.
It is implausible that these foreign workers can totally
fulfil the demand for ICT-workers, engineers, skilled craftsmen and
administrative personnel in The Netherlands. English is the ‘lingua franca’ in
many multinational companies, but Dutch SME companies often require thorough
knowledge of Dutch, as their main operational language.
I also don’t believe in the full robotization of human
labour, which some pundits see as our immediate future; simply for the reason
that people are still suckers for top notch quality and handmade objects.
In other words: the average quality of Chinese, robot-made
products still distinguishes Dutch,
French, German and Italian quality as exceptional. I do believe that people still
want to pay top-dollar for exceptional craftsmanship in any aspect.
This means that salary increases close to or even substantially
higher than the Dutch inflation rates are very likely to occur in the near
future.
However, when the new CBS data are indeed more reliable
and it were indeed the dropping housing prices, which were to blame for the
lackluster consumption in The Netherlands, the increased salaries in the near
future will not matter much for domestic consumption. Arguably, we already ‘have
been there’ after all, during the last seven years.
This would be extremely bad news for the retail
industry in The Netherlands, which is already suffering from blatant, excess store
capacity, the comeuppance of online shopping and plumetting numbers of spending-happy
consumers.
A housing frenzy,
like the one we had between 1995 and 2007, is unlikely to ever happen
again within the next 70 years. The mixture of artifical housing scarcity and interest
rates hitting rock-bottom in The Netherlands, is really unique and one-off.
This means that the soaring housing prices during those
years and the emergence of owner-occupied houses, used as ATM’s for mass consumption,
will never come back again. Yet, almost the whole Dutch retail industry and the
shocking amount of excess shopping space is based on particularly these years
of exuberance and conspicuous consumption.
The result of the coming, prolongued period of reduced
growth in housing prices will be – when CBS is right – that the whole retail
industry will go through a long and painful process of starvation and
annihilation of the weakest representatives in the retail industry.
Contrary to what you might think, these are not necessarily
the owner-operated small shops and unique niche-stores. No, those could very
well be the massive store chains with lackluster performance and a boring
assortment, which have turned Dutch shopping centres in oceans of boredom, monotony
and lack of surprise. I bet you can name one or two of such chains…
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