The Delta-model revisited: recent trends in the structural performance of the Dutch economy

The rapid growth performance of the Dutch economy in terms of growth in real GDP, employment and per capita income can be traced back to the mid-1980s. This paper suggests that the growth acceleration of the Dutch economy has primarily been the result of a below-average performance during earlier times (i.e. the 1970s and early 1980s). Wage moderation and strict exchange rate and fiscal policies have contributed to the fact that the Netherlands has more or less returned to the Northwest European average of GDP per capita. This paper argues that this catch-up effect may disappear in the near future. According to many authors the acceleration of growth in the Netherlands is also related to recent structural reforms in the labour and product markets. If this were to be the case, we may expect that the Dutch economy will continue to perform on a structurally higher growth path than economies where such reforms are slower or absent. This paper begins with a review of GDP and GDP per capita growth performance of the Netherlands in an internationally comparative perspective. It then presents an overview of structural reform measures and evaluates to what extent deregulation of product and labour markets has enhanced the economic growth performance. Next, it is shown that the increase of the participation rate is an important factor behind the improvement of the Dutch economic performance. Despite the improved GDP and per capita income performance, labour productivity growth in the Netherlands has slowed down since the mid 1980s, and the productivity bonus of the Netherlands over other Northwest European countries has eroded. This strengthens the view that the recent growth performance may in fact be no more than a catch-up process in terms of labour market expansion at the expense of productivity. The decelaration of productivity growth occurred across the board: in almost all sectors growth in labour productivity and multifactor productivity slowed down. However, the productivity problem should not be mixed up with a technology problem "per se". As multifactor productivity growth is weakest in service sectors, it is suggested that technology diffusion and organizational innovations require at least as much attention as technology creation.