A New Dutch Disease? The Netherlands Ranks Most Competitive, Least Sustainable

As recent numbers show, the Netherlands ranks very high in international rankings on innovation and competitiveness. It ranks fourth in the 2019 editions of both the Global Innovation Index and the Global Competitiveness Index, making it Europe’s most competitive economy. At the same time, its energy usage is least sustainable of all countries in Europe and its air is one of most polluted in Europe too. What is going on? Do we have a new “Dutch Disease?”

The old Dutch Disease

The term “Dutch Disease” was coined by The Economist in 1977. As they explain in a 2014 article, it refers to a situation in which discoveries of large amounts of natural resources could be harmful to the economy in the long-term. At that time, it referred to the discovery of significant amounts of natural gas in the Dutch part of the North Sea and a resulting economic decline.

There are at least three explanations for this paradoxical economic decline. First, it results from changes in currency exchange rates following a large inflow of foreign currency, leading to a worse competitive position, reduced export and increased unemployment. Second, the discovery of significant natural resources can disturb the national economy. The income generated with the natural resources can lead to an increased demand for luxury goods and services, triggering workers to go there and leave other sectors like manufacturing. Third, the discovery of natural resources also can trigger governments to overspend on social security and other public means, which are counterproductive and untenable in the long run (see also this article for a good explanation of the original Dutch Disease).

A New Dutch Disease?

The current situation in the Netherlands is obviously very different than in 1977. There are no new discoveries of natural resources and there is no economic decline. On the contrary, as the rankings referred to above indicate, the Dutch economy is doing very well. And with respect to natural resources: due to increasing earth quakes caused by the extraction of natural gas, the Dutch usable gas reserve actually quickly decreases as well as the political and public support for further extraction.

But nevertheless, the extreme opposing rankings in terms of economy (top) and sustainability (bottom) are indicating something is going on in the Netherlands that is not quite right. Hence, the question: is there a New Dutch Disease?

On the surface there are two simple explanations for the contrasting rankings. The first is that the high rankings on innovation and competition are a direct result of efficient use of available natural resources rather than spending expensive money on alternative energies and clean air. Seen as such, it is simply old school smart business. The second explanation is that every Euro can only be spent once: either in the economy or elsewhere, such as in reducing a country’s climate impact. Seen from that perspective, it is not more than logical that the Netherlands’ high scores on economy are accompanied by low scores on sustainability—they simply reflect the priorities set by the Dutch government.

But such trade-off thinking is too simple. It suggests improved sustainability and economic prosperity are opposite goals and cannot be improved at the same time. Countries like Sweden and Finland show this is just not true. These countries rank 2nd and 6th in the Global Innovation Index, 8th and 11th in the Global Competitiveness Index and 1st and 2nd in Europe in terms of use of renewable energy. This means that the two can go hand in hand very well indeed.

A third simple explanation of why this is not possible in the Netherlands can be given. It is a small and densely populated country, making it much harder than Sweden and Finland to use alternative sources of energy and keep the air clean—there simply is too little space for solar panels and windmills and with more people and cars per square kilometer, the air gets polluted quicker.

Like the first two explanations above, there is of course an element of truth in this third explanation too. Yet, it is not entirely convincing and together they don’t explain well enough what is going on. There is one important—mental—element missing: comfort, or lack of willingness to change.

From an economic point of view, the situation in the Netherlands is comfortable. The economy is doing well, all resources that are needed are available or can be bought elsewhere and there is no direct danger or urgency requiring change. This has made my country, in Pink Floyd’s terms comfortably numb.You can also call it lazy.

In this sense, this “new” Dutch Disease is not so different from the “old” Dutch Disease. Even though the mechanisms for economic decline in the Dutch Disease work via currency exchange rates, export, shifts in employment between sectors and so on, the real issue in the 1970s was the same as today: because of a short-term comfortable position, choices are made that harm the country on the long-term.

Being Dutch and living in the Netherlands, I prefer to be proud of my country. Along those lines, I’ve written about beautiful companies such as Coolblue, Tony’s Chocolonely, Fairphone and KLM. However, in this case I feel embarrassed to be Dutch. Especially about living in the country with the lowest share of renewable energy in Europe. With such great innovation power and such great competitive position, it should be easy to climb up the sustainability ladder in a fast pace. So, it is time to get out of the comfort zone. Or, I would almost say, let’s make the Netherlands great again.

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I am a strategy consultant, trainer, writer and speaker. As strategy professor and consultant I help leaders and organizations across the globe deal with the strategic challenges they face in an uncertain, complex, and fast-changing world. My drive is to bring strategy to the next level with new and effective approaches and tools. Along that line, I wrote the two-volume “The Strategy Handbook”—a practical and refreshing guide for making strategy work and “No More Bananas”—a nine-step approach for keeping your cool in today’s madness. You can reach out to me via jeroenkraaijenbrink.com, LinkedIn or jk@kraaijenbrink.com.

Source: A New Dutch Disease? The Netherlands Ranks Most Competitive, Least Sustainable

The explanation for why some countries with natural resources see their economies weaken and jobs disappear.


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