Does the Netherlands owe its economic strength to the polder model?

The Dutch polder model, a consensus-based approach that brings together government, employers, and labor unions, may have saved the Netherlands tens of billions of euros in interest costs. That's according to BNR, citing research by trade credit insurer Allianz Trade. Does the Netherlands really outperform comparable countries economically? And to what extent is that due to the polder model? We gave APG macroeconomist Charles Kalshoven a quick call.

Allianz Trade argues that political instability in Europe alone has led to €100 billion in additional interest costs over the past four years, with the Netherlands standing out as an exception. Is it true that we are economically more successful than the countries around us?
"That depends on which metric you use, but broadly speaking, the answer is yes. If you look at employment, labor force participation, public finances, and economic stability, the Netherlands has performed well over the past few decades. As for the specific issue of interest costs: when the world becomes more uncertain, capital tends to flow to safe-haven countries, which lowers our borrowing costs relative to countries such as Italy.

At the same time, there are countries, such as Denmark and Sweden, that outperform us in certain areas. Our productivity growth, for example, has lagged for years. But overall, it's fair to say that the Netherlands has been relatively successful economically over the past forty years."

Can that success be credited to the polder model?
"To some extent, yes. But it would be too simplistic to attribute all of the Netherlands' economic success to the polder model. Any discussion of the polder model quickly leads to the Wassenaar Agreement of 1982. At the time, the Netherlands was known as the sick man of Europe: unemployment was high, inflation was high, and public deficits were large. Agreements between employer organizations and labor unions on wage restraint improved the country's competitive position and helped boost employment.

The fact that the Netherlands is now often viewed as a relatively successful economy shows just how significant that turnaround was. At the same time, economic performance is also shaped by education, infrastructure, institutions, entrepreneurship, and sometimes a bit of luck.

The reason the German economy has struggled in recent years is that industry plays a much larger role there. And that sector, especially the automotive industry, has faced intense competition from China in recent years. The Netherlands, with its service-based economy and strong logistics sector, has been less affected.

The polder model is particularly valuable because it helps keep conflicts manageable and enables a coordinated response during crises. During the financial crisis, the eurozone crisis, and the COVID-19 pandemic, the government, employers, and workers were able to find common ground relatively quickly. Rather than seeing the polder model as a growth engine, it may be more accurate to see it as a shock absorber."

What are some of the other benefits of the polder model?
"The biggest advantage is stability. This culture of consultation runs deep in Dutch history. People in the Netherlands have lived in a delta for centuries. When the water rises, it doesn't matter whether you're Catholic, Protestant, socialist, or liberal. You have to work together to keep your feet dry.

The polder model helps build support for difficult decisions. It also creates predictability. And predictability is exactly what investors, businesses, and households value."

Consultation can also lead to delays or indecision. Is that the downside?
"The flip side of broad support is that it can slow things down. Reaching agreement takes time. The polder model works well in acute crises, but it is less effective when dealing with problems that build gradually over time. Think of the housing market, nitrogen emissions, or congestion on the electricity grid. In many cases, we've known for years that these challenges were coming. Yet decisions have often been postponed, although that is sometimes more a reflection of political division than of disagreements between social partners.

Take pension reform. It eventually happened, but only after fifteen years of discussion and negotiation. You could argue that the polder model often prevents problems from escalating. But sometimes it also prevents problems from being resolved in time. That's the fundamental tension: a trade-off between resilience and decisiveness."

Given today's challenges, do we need more or less of the polder model in the future?
"Actually, both. The polder model has helped keep Dutch society together during difficult periods. And with the challenges we face today and in the future, such as population aging, the energy transition, defense spending, and new technologies, it provides a strong foundation for addressing those issues collectively. Public support remains essential, and you don't create that without consultation.

At the same time, we need to make sure consultation does not become an end in itself. Not every problem benefits from yet another discussion table. Sometimes decisions simply have to be made.

So perhaps what we need is not less consultation, but smarter consultation. Continuing the conversation is ultimately better than seeking conflict, but consultation must lead to decisions. The challenge now is to ensure that this culture of consensus remains fast enough to keep up with the major changes of the coming decades, and that stability does not turn into stagnation."