Is criticism of the Dutch business climate by big companies justified?

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: Thijs Knaap, chief economist at APG, on whether our country’s business climate is under pressure.

When it comes to competitiveness, the Netherlands still scores high in international rankings. However, these rankings are based on historical data, argues VNO-NCW president Ingrid Thijssen in an opinion piece in De Volkskrant and a letter to the House of Representatives. In it she expresses her concerns about the future of the Dutch business climate just as our country is gearing up for the fundamental transition to a new, sustainable economy. Earlier, Boskalis’ top executive threatened that the dredging company would leave the Netherlands if parliament passed the Responsible and Sustainable International Business Act. Is the business community’s criticism justified and is it true that the business climate here is under pressure?

Hurdles
To answer this question, Knaap cites the framework by which APG, as an institutional investor, determines whether or not to invest in a country. He says this involves three questions. “In a nutshell, the first question is economic in nature: is there money to be made? Suppose you want to open a factory, for example, you want to know what raw materials are available and whether the labor force is well-trained. The second question is about who has the power. If you invest in something, you want certainty in advance about the political climate, taxes and regulations. And then there is question three: how much does it cost to open or invest in a business somewhere?”

The first two questions, about economic conditions and who has the power, are reflected in VNO-NCW’s letter, Knaap observes. “It talks about the infrastructure, the level of education of young people and the regulatory pressure from the government, among other things. But what they don’t mention is the cost of establishing a business here. That is a change though, because previously, the employers’ lobby always pushed for wage restraint. That resulted in many companies moving here in the 1980s and 1990s. Now the wind seems to be blowing from a different direction, and the employers’ organization is arguing that we should focus on knowledge, innovation and infrastructure, among other things. The fact that the issue of cost is not mentioned is also not that surprising. There is a record shortage in the labor market, so it makes sense to focus on how people can work as efficiently as possible and pay less attention to (wage) costs. It does say something about what hurdles currently need to be overcome in the Netherlands.”

Interplay
On a number of points, VNO-NCW certainly has a point, Knaap suggests. “For example, they are concerned about the declining PISA scores (international comparative research that tests the skills of 15-year-olds, ed.) of Dutch students in terms of reading and writing. Those scores are indeed falling, and you could also say that there is quite a lot of regulatory pressure in the Netherlands.” What the employers’ lobby proposes for maintaining the business climate is fine, the economist continues. “After all, no one will object to people being better educated or new clean energy networks being built. At the same time, however, you then fail to recognize that other social aspects are receiving less attention. VNO-NCW looks at the world as an entrepreneur. However, most people are consumers and employees and other things are important to them, such as equality. If many people feel disrespected, the high trust society can be put at risk.”

It is precisely this high trust society, a scientific term, that is one of the reasons why the Netherlands ranks so high in international rankings, Knaap said. “Social trust is positive for the business climate. It ensures that as an entrepreneur you don’t have to worry so much about whether a counterparty will keep the agreements made. This trust is an important public good that we have all built up together. It comes under pressure when there is great inequality in society.” That is going on now to some extent, according to Knaap. “There’s a tension there. If, as a government, you invest in infrastructure and put little in the way of businesses, that can conflict with the aim of using higher wages and taxes to help lower income groups get ahead financially. The danger of only listening to companies is that you only hear one side of the issue, even though as a government you have a responsibility for the whole of society.” While VNO-NCW's concerns are justified on some points, “ultimately it is an interplay of many, many factors that determine whether a country is attractive,” Knaap concludes.