Current issues related to economy, (responsible) investment, pension and income: every week an APG expert gives a clear answer to the question of the week. This time: macroeconomist and expert strategist at APG Charles Kalshoven on the question of how the Netherlands should earn its money in the future. The answer is not conclusive.
The academic year is just around the corner. A good time for the FD to interview Robert-Jan Smits from TU Eindhoven. And that yielded a number of stark statements from the chairman of the board of the technical university, including about Dutch merchandising. “Sustainability provides so many opportunities for the Netherlands to make money in the future,” he says. “If we go to green hydrogen, electrolyzers have to be manufactured. Well, VDL can do that. There are plenty of opportunities for the Dutch manufacturing industry to make money from the energy transition. But then the government will have to do some things in a fundamentally different way.”
Smits believes that the government should stop the top sector policy (sectors that are doing very well in the Netherlands have been getting extra money from the government since 2010 to make sure they are doing even better. The chemical industry, the transport sector and life science, for example), and link that entirely to the major transitions of our time. Like the energy transition and the digital transition. “Sector policies should be replaced by linking subsidies to innovations that contribute to these transitions,” Smits said. But what does this mean for the economy? How should BV Nederland earn its money in the future?
“First of all, future growth does not have to come from the same things that caused growth in the past,” Kalshoven says. Growth engines, he says, can perish from their own success. “That sounds contradictory, but it’s true. In sectors with rapid productivity growth, wages also tend to go up rapidly. That pulls wages in less productive sectors up with it, otherwise workers would switch sectors en masse. The result is rising prices in the lagging sectors.”
APG’s macroeconomist backs it up with a classic example: the hairdresser. “They don’t have more customers than say, 20 years ago, but their prices have risen sharply.” His point is that with technological advances, sectors need fewer and fewer people. “As a result, an increasingly big group is working in the lagging sector. This is also called the Baumol effect (or Baumol’s disease, ed.).”
In addition to this development in macroeconomics, the so-called Schumpeterian effect also plays a role, Kalshoven knows. “Many technologies are promising, such as ASML chips, AI, sustainable energy solutions, water management and biotechnology. But it is still difficult to talk about the new engine of the Dutch economy. Again, success does not lead to a lasting large share of the economy. Take the lightbulb as an example. It replaced the candle and that was a huge market for Philips. Yet at some point its importance declines again as production becomes ever cheaper and the market becomes saturated. And that incandescent lightbulb itself has, in turn, been replaced by more attractive alternatives such as LED.”
On top of that, it also matters where production takes place, where knowledge is invested in and where profits and taxes flow. “Philips did not invent the incandescent lightbulb, but improved it considerably. With the proceeds from that technology, they started doing systematic research and many other inventions rolled out of their lab. Not all of those have become growth engines for the Dutch economy, because, the better VCR, for example, lost out to a foreign competitor that sold better. But take ASML. Surely you can call that a growth engine. It really is a top company in the world and it started as a subsidiary of Philips.”