Oecd Economic Surveys : Netherlands 1982-1983.

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by  OECD

OECD
ECONOMIC SURVEYS
1982-1983
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NETHERLANDS
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JANUARY 1983
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OECD ECONOMIC SURVEYS
Archives -
RÉpÉRENCEs
- DOCUMENT Prêté -
NETHERLANDS
JANUARY 1983
ORGANISATION FOR ECONOMIC CO-OPERATION AND DEVELOPMENT
Pursuanttoarticle 1oftheConventionsignedinParison 14thDecember,
1960,andwhichcameintoforceon30thSeptember,1961,theOrganisation
for Economic Co-operation and Development (OECD) shall promote
policiesdesigned:
- toachievethehighestsustainableeconomicgrowthandemployment
andarisingstandardoflivinginMembercountries,whilemaintaining
financial stability, and thus to contribute to thedevelopment ofthe
world economy;
- to contribute to sound economic expansion in Member as well as
non-membercountriesin the processofeconomicdevelopment; and
- to contribute to the expansion of world trade on a multilateral,
non-discriminatory basis in accordance with international obliga¬
tions.
The Signatories oftheConvention on the OECD are Austria, Belgium,
Canada, Denmark, France, the Federal Republic of Germany, Greece,
Iceland, Ireland, Italy, Luxembourg, the Netherlands, Norway, Portugal,
Spain,Sweden,Switzerland,Turkey,theUnited Kingdomand the United
States.ThefollowingcountriesaccededsubsequentlytothisConvention(the
datesarethoseonwhichtheinstrumentsofaccessionweredeposited):Japan
(28thApril, 1964), Finland (28thJanuary, 1969), Australia (7thJune,
1971) and New Zealand (29th May, 1973).
TheSocialistFederalRepublicofYugoslaviatakespartincertainworkof
the OECD (agreement of28thOctober, 1961).
©OECD, 1983
Application for permission toreproduceortranslate
all orpart ofthispublication should be made to:
DirectorofInformation, OECD
2, rueAndré-Pascal, 75775 PARIS CEDEX 16, France.
CONTENTS
Introduction
I. Features of medium-term performance 8
The present position 8
The origins 11
Energy influences 13
The exchange rate, income determination and inflation 16
The labour market 17
The public sector 18
Savings, profitability and investment 18
II. The influence of economic policies 22
The recent thrust of economic policy 22
Wage restraint 25
Exchange rate and monetary policies 27
Structural adjustment policies 30
Tax policies 32
Outturns and policy response 36
IT!. The current situation 43
Overview of 1981-1982 43
Details of 1981-1982 developments 44
Current policy plans 53
Prospects for 1983 57
IV. Conclusions 63
Annexes
A. Chronology of macro-economic policies 66
B. Chronology of structural policies 81
Statistical annex 86
TABLES
Text
1. A summary of recent developments 8
2. Economic structure, 1980: a comparison 9
3. Output, productivity and cost trends 10
4. Labour market trends 11
5. Employment trends: a comparison 12
6. Natural gas and the economy 14
7. The impact of two oil price shocks: a comparison 15
8. Profits and investment in two recessions 19
9. An international comparison of investment performance 21
10. An analytical summary of developments in 1978-1981 23
11. Monetary policy influences 28
12. Incomes policies 33
13. Development of general government revenue 35
14. Fiscal influences from tax changes 36
15. Development of general government expenditure 37
16. Additional expenditure programmes 38
17. Budget cuts 40
18. Fiscal summary: assumptions, policies and outturns 42
19. Alternative measurements of the public deficit 43
20. Contributions to the volume change in private consumption 44
21. Trends in residential construction 46
22. Government expenditure on goods and services 47
23. Export performance 49
24. Contributions to the volume growth of merchandise imports 50
25. Forecasts for 1983 57
Statistical annex
A. National product and expenditure 86
B. Origin of gross domestic product at factor cost 87
C. Income and expenditure of households and private
non-profit institutions 88
D. Industrial production and productivity 89
E. The labour market and employment 90
F. Prices and wages 91
G. Money and banking 92
H. Merchandise trade 93
CONVENTIONAL SIGNS
nsa not seasonally adjusted Ql, etc. Calendar quarters
sa seasonally adjusted L II Calendar half years
saar sa, annual rates of growth mbd million barrels per day
ben billions of cubic meters mtoe million tons of oil equivalent
NNI Net national income at
market prices
CPB Central Planning Bureau CBS Central Bureau of Statistics
BASIC STATISTICS OF THE NETHERLANDS
THELAND
Area(thousandsq.km.in 1979) 41.2 Majorcities,April 1982(thousand
Agriculturalarea(thousandsq.km. inhabitants):
in 1979) 20.4 Amsterdam 698
Tillageandtemporarygrassland Rotterdam S66
(thousandsq.km.in 1979) 8.7 LaHaye 454
Forest(thousandsq.km.in 1979) 3.2
THEPEOPLE
Population, 1981 Employmentin 1981 (thousandman
(thousands) 14246 years): 4627
Persq.km.oflandarea 421 Agriculture,fishing 274
Netincreaseinpopulation(average Industry 1424
1976-1981,thousands) 94 Otheractivities 2929
THEPUBLICSECTOR
Governmentemployees(incl.military) Expenditureongoodsandservices
inpercentoftotalemploymentin inpercentofgrossdomestic
1981 13.4 productin 1981 21.2
Contributiontonetnationalincome Taxrevenue(incl.Sec.Sec.com.)
atfactorcostin 1981 (percent) 16.0 inpercentofnetnationalincome
in 1981 59.8
PRODUCTION
Grossdomesticproductin 1981 Growthofrealinvestment,
(USdollarsbillion) 140.47 1979-1981 (annualrate,percent) -6.8
GrowthofrealGDP, 1979-1981 Growthoftotallabourproductivity
(annualrate,percent) -0.1 intheenterprisesector, 1979-1981
Grossfixedinvestmentinpercent (annualrate,percent) 0.7
ofgrossdomesticproductin 1981 19.0 ofwhich:Manufacturing 3.1
FOREIGNTRADEANDPAYMENTSIN 1981
(million USdollars)
Commodityexports,fob 63020 Percentagedistributionofforeigntrade:
Commodityimports,fob 59018 Exports Imports
Services,net 564
Transfers,net -1492 Byarea:
Currentbalance 3074 OECDcountries 83.1 71.8
Long-termcapital -2188 Otherdevelopedcountries 2.6 4.8
Basicbalance 886 Developingcountries 12.0 23.4
Exportsofgoodsandservices BySITCgroups:
inpercentofGDP 58.3 Food,drinks,tobacco(0, 1) 20.1 12.8
Importsofgoodsandservices Materials(2,3,4) 29.7 33.5
inpercentofGDP 54.6 ofwhich:Petroleumand
products(3) 24.1 26.6
Finishedmanufactured
goods(5,6,7,8,9) 50.2 53.7
THECURRENCY
Monetaryunit:Guilder CurrencyunilsperUSdollar,
averageofdailyfigures:
Year 1981 2.4955
November 1982 2.7868
Note: An internationalcomparisonofcertainbasicstatisticsisgiven inanannextable.
ThisSurveyisbasedontheSecretariat'sstudypreparedfor
the annual review of the Netherlands by the Economic and
DevelopmentReview Committeeon6th December 1982.
Afterrevisions in thelightofdiscussionsduringthereview,
final approval ofthe Surveyfor publication was given by the
Committeeon 23rdDecember 1982.
INTRODUCTION
The Dutch economy is in its most severe post-war recession. Output
started to fall in the course of 1980, it has been falling ever since, and another
fall is likely next year. Unemployment is already at record levels, profitability
and investment in the non-gas enterprise sector are low, the government deficit is
unprecedented. Part of the problem has been world recession and interest rates,
with their inevitable influence on an economy as open as the Netherlands. But
domestic problems and policy implementation have also played a role. The
result has been a worse downturn in economic activity than in most European
countries. In EEC, European or OECD terms, the Netherlands has gone from
a "low" to a "high" unemployment country, and from "average" to "high" in
terms of the public deficit.
There are more encouraging aspects in the current situation, notably good
inflation performance and a strengthened competitive position on international
markets. The Netherlands also has long-term strengths which will stand it in
good stead, for example a skilled and well-educated labour force, a long tradition
of high technological and entrepreneurial standards, good standing on international
goods and financial markets, and energy self-sufficiency.
Given the considerable potential, there has been a good deal of frustration
with performance for a number of years. Various attempts have not managed
to combine satisfactory short-term outturns with progress on longer-term issues.
There have been many explanations offered, both inside and outside the country,
why this potential is not being mobilised efficiently. The "Dutch disease" is
a widely discussed "special case". But if there ever were a simple, comprehensive
explanation of the "disease", many of the secondary effects seem now to have
been engrained by lengthy experience, and compounded by the latest recession.
They have become important structural problems in their own right. For
example, labour markets and industrial structure do not seem to respond quickly
enough to rapid change to avoid dislocation ; lower growth, outdated capital
stock and reduced profits have bred expectations (and the likelihood) of secular
reduction in economic advance; social policies which seemed humane and viable
in a more buoyant environment have been faced with increased demands and
revenue shortfalls, putting pressure on government finances.
Previous Surveys suggested that energy self-sufficiency should, in principle,
give the Netherlands more room for manoeuvre in facing the second oil shock
and its aftermath. This room for manoeuvre has not proven sufficient, or
has not been used sufficiently well, to halt the vicious circle of worsening economic
performance. This Survey tries to identify to what extent the problems have
been inevitable, whether they could have been eased by different policies. The
goal is not to provide a logical analysis leading to a unique, optimal mix of
policy which would greatly improve economic conditions. The aim is more
modest: to question whether limited changes in policy priorities under present,
difficult circumstances might raise performance relative to recent trends and
allow a more ambitious notion of the economy's potential.
I. FEATURES OF MEDIUM-TERM PERFORMANCE
The present position
The Netherlands is among the richer economies. GDP per capita is in
the top tier of the OECD, despite the lowest activity rate total employment as
a proportion either of working age population or of total population among
member countries (Table 2). Productivity is among the highest, so are real
wages and labour costs. It is also a society with strong collective and egalitarian
feeling. About 60 per cent of national income is re-allocated outside the market,
opening a large gap between labour remuneration and personal disposable
incomes: in 1981, average compensation was close to $ 1 400 a month1; the
disposable income of the typical wage-earner was about $ 1 100 a month. The
social security system, one of the most developed in the OECD, includes a
guaranteed minimum income of about $ 750 a month. Considerations of personal
income distribution play a prominent role in many policy areas, being of special
relevance to incomes policy and agreements on aggregate movements in pay
and profits. The aggregate profit share is slightly higher than in most other
countries, but significantly lower outside an energy sector where natural gas
production accounts for about 1\ per cent of national income.
Table 1. A summary of recent developments
1979 1980 1981 1982
Demand and output (% change)
Real GDP 1.8 0.9 -1.2 -1.2
Private consumption 2.2 -0.4 -2.6 -2.0
Business non-residential fixed investment 1.8 -6.7 -12.1 -2.1
Net exports' 0.6 1.1 4.1 0.5
Employment
Private sector employment (% change)1 1.0 0.1 -2.1 -2.9
Total employment (% change) 1.3 0.5 -1.3 -1.8
Unemployment rate, dependent labour force 5.2 5.9 8.9 12.0
Unemployment rate, total labour force 4.2 5.2 7.8 10.8
Prices and incomes (% change)
Compensation per employee, private sector 6.2 6.0 3.9 6.5
Compensation per employee, public sector 5.3 3.2 0.4 2.2
Consumer prices 4.4 6.9 6.5 5.9
GDP deflator 4.1 5.0 5.2 6.5
Real disposable income, average wage earner 1 -1} -3* -2
Real disposable income, total 1.7 0 -1.2 -0.9
Financial
General government net lending, % GDP -3.7 -4.1 -4.9 -5.6
General government borrowing requirement, % NNI' -5.3 -7.2 -8.5 -9.5
Current balance, % GNP -1.3 -1.5 2.4 4.1
Profits, % private sector value added* 215 21 23 23i
energy 12i 9i 9 10
1. ContributiontorealGDP growth.
2. Excludingnon-commercial services.
3. Cash-basis. Thisisthe mostfrequentlyusednationalindicator.
4. Adjustedfortheimputedlabourincome oftheself-employed.
1. At current exchange rates. The figure would be about 20 per cent higher at
1978-1979 exchanges rates.
Table 2. Economie structure, 1980: a comparison
Nether¬ United Major Smaller OECD
lands States Germany Seven1 Europe' Total
GDP per capita (1975 $'000) 7.0 8.0 8.1 6.7 4.1 6.2
GDP per capita ($'000) 11.9 11.4 13.3 10.4 6.6 9.3
GDP per person employed ($'000) 35.9 26.1 32.4 24.3 18.3 23.3
Population 15-64 (% total) 66.2 66.2 66.3 65.9 61.7 65.0
Labour force (% popn. 15-64) 53.8 70.9 65.4 69.7 65.7 68.9
Civilian employment
(% labour force) 92.1 91.1 94.7 92.9 93.6 92.3
(% population 15-64) 50.0 65.9 61.9 65.3 59.4 64.0
(% population) 33.1 43.6 41.0 43.0 36.8 41.6
Unemployment rate' 4.9 7.0 3.1 5.6 5.8
Employment shares (%)
Agriculture 6.0 3.6 6.0 6.6 23.0 10.0
Industry 31.9 30.5 44.8 34.6 30.0 33.7
Services 62.1 65.9 49.2 58.8 45.0 56.3
% GDP
Non-residential investment 15.1 14.2 16.8 16.7 14.4 16.4
Residential construction 5.9 4.0 6.8 5.1 7.1 5.4
Exports* 53.1 10.1 27.0 17.5 35.8 20.2
Total government outlays' 62.5 33.2 46.9 38.3 46.6 39.3
Gross savings 20.1 18.3 23.1 21.9 20.6 21.7
Net savings 10.3 5.2 11.3 9.5 10.9 9.8
Net household savings* 11.2 6.0 13.8 11.4 10.2 11.3
Gross operating surplus' 38.3 31.1 34.2
1. US, Canada,Japan,France,Germany,Italy,UnitedKingdom.
2. Norway, Sweden, Denmark, Finland, Iceland, Belgium, Netherlands, Luxembourg, Ireland, Spain,
Portugal,Greece,Turkey,Yugoslavia,Switzerland,Austria.
3. Standardisedrates,OECD definitions.
4. Goods andservices, Nationalaccountsbasis.
5. OECD NationalAccounts definitions.
6. % disposableincome.
7. % grossvalueaddedinindustry.
Source: HistoricalStatistics1960-1980,OECD.
While living standards are high, the rate of progress has slowed. Economic
growth decelerated from Ai per cent in 1960-1973 to \\ per cent in 1976-1982
(Table 3), and to only 1 per cent if real income is adjusted for terms of trade
changes. Furthermore, there seems to have been a further deceleration of
output trends in the course of this period of weaker growth since 1976. The
weakness of world trade has clearly had an influence, but is not a sufficient
explanation; the discrepancy between historic and more recent growth rates
has been more pronounced than in the rest of the OECD, particularly in terms
of domestic demand. Real GDP fell by \\ per cent in 1981 and a similar rate
of decline is estimated for 1982. A sustained fall in living standards has been
one of the most striking features of recent developments. Private consumption
decreased by £ per cent in 1980, by 2\ per cent in 1981 and by 2 per cent
in 1982 (Table 1). On a per capita basis, this set-back was even more pro¬
nounced. Business fixed investment in real terms also declined particularly
sharply, at a cumulated 23 per cent over the three years 1980-1982. The drop
in economic activity has brought the job situation to the forefront of economic