The Netherlands: A Manmade Marvel
Where the broad ocean leans against the land – this is how the famous Anglo-Irish writer and poet, Oliver Goldsmith, described the Netherlands. The charming, picturesque country in northwestern Europe is embraced by the North Sea on its north and west. Germany lies to its east and Belgium to its south. Half of the Netherlands´ land area lies at or below sea level; yet the ingenious and industrious Dutch built dykes and sea walls to literally carve out the country from the sea. Geographical size does not seem to matter much to this diminutive but densely populated country, ranked 134th in the world according to area, but 16th in terms of GDP. In fact, this manmade marvel is a towering economic force in the European Union (EU) and home to five international courts.
The country that gifted the Dutch Masters to the art world is also known worldwide for its windmills, tulips, cheese, clogs, bicycles, dykes, and Gouda pottery. The country is heralded for its liberal thinking society and dominance in cutting-edge technology. And leveraging its strategic position, the Netherlands is a David among the Goliaths, earning the soubriquet “The Gateway to Europe.”
Such a long journey
Though the Netherlands’ recorded history dates back to the first century BC, the country emerged as a distinct entity only in the 16th Century AD. In the first Century BC, Roman forces led by Julius Caesar conquered the region, which was inhabited by Frisians, a Germanic tribe, and some Celtic tribes. The next 300 years saw peace and prosperity in the area. However, as the Roman Empire weakened, the Franks, another Germanic tribe, occupied the western and southern parts of the region that comprise the Netherlands today.
The Franks ruled the land until the ninth century. After their reign disintegrated around 925 AD, the land became a part of the Holy Roman Empire. In the ninth and tenth centuries, frequent invasions of the coastal areas by raiders known as Vikings necessitated self-defense. This led to the emergence of powerful local rulers in the coastal towns of the area. By the 14th Century, many of these towns were flourishing. They were inhabited by artisans and merchants who had reclaimed land from marshes and lakes. This was the beginning of the Netherlands´ evolution as a strong trading center.
The region fell into the hands of the dukes of Burgundy during the 15th and early 16th centuries. Subsequently, it was taken over by the Habsburgs, the powerful rulers of Spain. However, the Dutch rose in revolt in the late 16th Century because of religious and economic suppression by the Habsburgs. The uprising gradually became a full-fledged war of independence. The 80 Years´ War from 1568 to 1648 culminated in the formation of an independent Dutch Republic.
The end of the 18th Century saw France occupying the country briefly. The rule of the House of Orange-Nassau was restored in 1815 after the defeat of Napoleon Bonaparte. Its first king was a descendent of William the Silent, the leader of the Dutch revolt against the Spanish in the 16th Century. The House of Orange-Nassau’s reign is a glorious era in Dutch history. It was during this period that the Dutch became a great imperial power. The Dutch East India Company colonized Indonesia, South India, Sri Lanka and South Africa, while the Dutch West India Company occupied the West Indies.
However, the wave of democracy sweeping across Europe in the mid 19th Century also enveloped the Netherlands. The Dutch lost confidence in the monarchy and established a parliamentary democracy in 1848. During World War I, the country successfully adopted a neutral stance and avoided deaths and destruction. But the strategy failed in World War II and Nazi forces occupied the nation in 1940. This marked the beginning of a tumultuous period when the monarchy and the government were forced into exile and the Jews of the land suffered the worst genocide in human history. With the end of World War II in 1945, the country was liberated from the Germans. Today, the Netherlands is a constitutional monarchy. Queen Beatrix is the Head of the State, and Jan Peter Balkenende is the Prime Minister.
Tolerance and cultural wealth aplenty
The Dutch have always been considered one of the most progressive, tolerant, and culturally liberal societies in Europe. A host of foreign influences as well as the desire to explore and adapt to new approaches have shaped the forward-looking perspective of the people. The country is well-known for its liberal policies toward globally controversial issues like recreational drugs, euthanasia (mercy killing), abortion, prostitution, and homosexuality.
The “Dutch outlook” is manifested in the country’s culture and arts as well. The Netherlands was home to genius philosophers like Erasmus and Spinoza. In fact, the period between 1584 and 1702 is referred to as The Golden Age, which symbolized the pinnacle of cultural expression in the Netherlands. This was the age of renowned painters such as Rembrandt, Johannes Vermeer, and Jan Steen. Europe’s cultural revolution – the Renaissance – also peaked in the Netherlands during the Golden Age. However, the country’s contribution to art did not end here. Dutch artists like Vincent van Gogh and Piet Mondrian made their mark in the 19th and 20th centuries with their brilliant paintings. In the field of music as well, the Concertgebouw Orchestra of Amsterdam is famous worldwide. Rotterdam is home to a major Dutch symphony orchestra.
Dutch is the official language of the Netherlands. But the country has the distinction of being the most multi-lingual society in Europe. Besides being fluent in English, most Dutch speak French and German as well. The major religions of the nation are Christianity and Islam. A small percentage of the population comprises Jews, Hindus, and Buddhists. Nearly 70% of the population resides in cities and towns. The country predominantly has an urban character.
Dutch cuisine is partial to vegetables and dairy products more than meat. Special Dutch cheeses such as Gouda, Edam, and Leiden are relished the world over, as are pastries and cookies. In fact, the name cookie is derived from the Dutch word koekje, which means little cake.
Europe’s small sensation
A symbol of prosperity and globalization, the Netherlands is as a pocket-sized powerhouse. The country’s economic accomplishments belie its name, which literally means ‘low land.’ Strong economic growth, fairly low unemployment and inflation, a sizable current account surplus, and a healthy fiscal position are some of the positives that make the nation one of Europe’s most lucrative markets. An open and trade-friendly economy, the Netherlands ranks among the top ten exporters of goods and services worldwide. The country is also extremely open to foreign investments. The outward orientation of the economy is apparent from the fact that exports of goods and services represent more than 70% of the GDP. With more than 80% of the exports going to EU and other European countries, the country’s extent of integration with the EU is all but obvious.
The country’s business environment is one of the best in the world. The Netherlands finds a place in the top 10 least-corrupt countries. The nation is ranked 30th by the World Bank on the ease of doing business across different countries. On its scale, the Economist Intelligence Unit has rated the Netherlands as the number five country to do business in during 2006-2010.
The Netherlands is often referred to as The Gateway to Europe because of its strategic location vis à vis trade. Two of its cities – Amsterdam and Rotterdam – occupy a very important position on the globe’s trade map. The nation boasts a state-of-the-art network of roads, railways, inland waterways, airports, and seaports. Amsterdam’s Schiphol Airport ranks third in Europe in cargo traffic, and a whopping 90% of all goods that enter or leave Europe filter through the world famous seaports of Amsterdam or Rotterdam. Ranking second on the World Bank’s Logistics Performance Index for 2007, the country’s supremacy in logistics is clear.
After stagnating in the first half of the decade, the Dutch economy has been surging ahead since 2005, with increases in labor utilization and productivity driving economic growth. The GDP growth rate virtually doubled to 3% in 2006 from 1.5% in 2005. In 2007, the economy expanded at the rate of 3.5%, but slowed down to about 2% in 2008, due to the adverse impact of the global economic crisis.
Blossoming beyond tulips
The Golden Age stood for not only cultural accomplishments but also the economic prosperity of the country. The Dutch honed their business acumen during the period, and by the mid-17th Century the Netherlands had become a commercial and maritime hub of Europe. This business expertise is reflected in the success of the famed flower- the tulip. The Dutch created and later exploited the demand for the prized bulbs especially among the rich and famous of Europe who willingly paid exorbitant prices for the flower. To this day, the country supplies 60% of all the world’s flowers, including tulips, lilies, hyacinths, and daffodils.
Though the country is the third largest exporter of agricultural goods globally, especially products related to dairy farming and horticulture, the service sector contributes about 74% of the national GDP and manufacturing about 24%. These sectors are ably supported by a well-educated, multilingual, and motivated workforce, which boasts of the lowest percentage of days lost due to strikes within the EU. Ranked ninth globally on the Human Development Index, the Dutch have successfully established and leveraged the business links between academia and commercial enterprises to ensure that training and research are in sync with the needs of the business community.
The country’s labor laws are very flexible. In fact, the Netherlands has one of the longest workweeks in Europe. Further, the nation’s competitive tax regime has had a positive influence on productivity. Compared to other European countries, the Netherlands has a higher proportion of temporary and part-time workers, a factor that also has a salutary impact on employment. At 3.2%, the country has the lowest unemployment rate in the EU compared to the 7% average of other EU members. While the main corporation tax rate was reduced to 25.5% in 2007 from 29.6% in 2006, a lower rate of 20% applies to the first €25,000 ($38,729) in profits and 23.5% on profits up to €60,000 ($92,951).
The Netherlands prides itself as being the home ground for many industry titans, spanning the breadth of a multitude of sectors. While the country was once considered scant in natural resources, in the 1950s and 1960s the discovery of large reserves of natural gas in the Groningen Province, turned the Dutch into major exporters of natural gas. Today, with immense pride, the Netherlands touts Europe’s largest global energy and petrochemical company, and a virtual fossil fuel giant. The company, which ranks third globally in the Fortune 500 according to revenues, is also the second most profitable company in the world, with its operations spanning more than 110 countries.
The Netherlands is also home to the second largest food and consumer products multinational. With an array of 400 brands spanning 14 categories of home, personal care and foods products, the company hails consumers in over 150 countries. The country also houses the world’s largest steel major, which represents 10% of the global steel output, and the fifth largest food and drug retailer in the world.
The Dutch have traditionally been leaders in the world’s paint and coatings industry for over two centuries, accounting, either directly or indirectly, for more than 20% of the world’s production of coatings. Reigning supreme, the country boasts over 120 paint manufacturers including the world’s largest paint company. The country also has the world’s premier teaching facility for paint-making technology at the University of Eindhoven.
In a bid to strengthen hi-tech industries, the Netherlands has developed thriving clusters in technology-intensive industries such as biotechnology, fine chemicals, food, pharmaceuticals, electronics, telematics, computer products, medical technology, new materials, and printing. Firms located in these clusters derive significant advantages from the concentrated presence of similar businesses, supplies, related industries and specialized institutions. For instance, commercial biotechnology in the country is clustered around the centers of scientific research.
The life sciences industry has been flourishing in the country largely by capitalizing on the immense R&D capability of the Dutch, especially in the fields of veterinary healthcare, food and agricultural products, as well as fine chemicals. Not surprisingly, leading life sciences companies operate in the Netherlands. The nation has also made its presence felt in the nascent field of environmental biotechnology.
The Netherlands has a booming Information and Communications Technology (ICT) sector, which now accounts for nearly 20% of GDP growth. The number of broadband subscribers and broadband penetration levels in the country are among the highest in Europe. With telecommunications costs among the least in the region, the e-commerce readiness and new ICT acceptance of the Dutch are extremely high. Therefore, the nation is an attractive location for ICT investment projects in Europe. In fact, the Netherlands vaulted five spots to the fifth position in the EIU IT Competitiveness Index 2009, possessing a highly developed IT infrastructure and strong support for technology R&D. The chemical industry is also an important segment of the Dutch economy, contributing about 18% of the country’s total industrial output and 17% of industrial products exports. The sector’s forte is the production of base chemicals such as ethylene, propylene, ammonia, benzene, methanol, chlorine, and bulk intermediates. The Dutch chemical industry represents over 10% of total base chemical production in Europe, and its revenues make up about 3% of the country’s GDP.
Thanks to its strategic location, businesses have embraced the Netherlands as an ideal destination for distribution and logistics functions. The country facilitates penetration into markets over a wide geographical spread, covering Europe, Middle East, Africa, and beyond. Moreover, the country also facilitates access to principal Western European markets like Germany, France, and the United Kingdom, with commercial hubs such as London, Paris, Brussels, Frankfurt, and Hamburg located within few hours driving distance from the Netherlands. Therefore, it is no surprise many global companies have chosen the country as the prime location for their European Distribution Centers.
In the 1990s, the Netherlands played an important role in popularizing the concept of Shared Service Centers (SSCs), which entail off-shoring and centralization of key back office functions of companies, such as finance, human resources, and information technology. Several companies set up such centers in the country to reduce as much as 15-40% of their costs and to support large-scale ERP implementation projects. The SSCs have proved to be an excellent way for firms to curb the expenses they incur for supporting processes such as financial services, human resources, ICT, logistics, and customer management.
A favorable business environment, excellent infrastructure, and proclivity toward R&D have encouraged many companies to set up operations in the Netherlands. The country seems to be a particular favorite of technology start-ups, which constitute 2-3% of the total number of new businesses.
As the charming and iconic windmills that dot the country’s landscape prove, wind energy has always been a popular source of electricity generation in the Netherlands. Modern wind turbines are now complementing the traditional windmills. Currently, the country’s installed wind power capacity accounts for around 3% of the nation’s electricity requirements.
As the global financial crisis took the world economy by storm, its repercussions dealt a blow to the Netherlands economy as well, which has strong trade and financial linkages with the global economy. The Netherlands entered recession in the last quarter of 2008, a quarter after the broader 16-member Euro-zone. As the global economy sputtered, Dutch exports, a driving force of the economy, declined sharply, shaving off nearly 3% from GDP growth. In 2009, the Netherlands economy is expected to contract by 4.5% before returning to a modest growth of 0.75% in 2010. Exports are forecasted to shrink nearly 12% in 2009. This is the deepest slowdown that the Dutch economy has encountered since the World War II.
Households are facing an erosion of their wealth and purchasing power, a result of falling share prices, dividends, as well as a drop in average house prices. Having lost about €60 billion ($90.5 billion) since the onset of the crisis towards the end of 2008, domestic consumption in the Netherlands has taken a beating and is expected to fall about 0.25% in 2009, despite subdued inflation levels.
Business investment also substantially backtracked, as enterprises were confronted with tumbling domestic as well as external demand. Capacity utilization is expected to take a hit in 2009, bringing down labor productivity. Business investments are estimated to contract 11% for 2009 as a whole. While traditionally, the country has experienced a shortage in its labor market, it is now facing rising levels of unemployment as economic activity ebbed. The unemployment rate has climbed from 2.8% in 2008, to 3.7% towards the end of 2009. However, the economy still sports one of the lowest unemployment rates in the EU. Inflation has also substantially diminished from 2.2% in 2008 and is estimated to clock below 1% for 2009 as a whole. Higher levels of unemployment coupled with lower inflation levels are also likely to have a dampening impact on the overall wage levels.
In order to support the economy, the government announced an economic stimulus package of €6 billion ($9.05 billion) which included fiscal measures aimed at improving corporate liquidity. In addition, a sum of €20 billion ($30.19 billion) was injected in the money markets to guarantee interbank transfers and hence restore investor and consumer confidence. Another €200 billion ($301.94 billion) was offered as loan guarantees to the Dutch banking sector. As the economic crisis took its toll on the globally integrated Dutch financial sector, the country nationalized two of its major banks to prevent their collapse, and provided funds to support a leading global insurance company as well as a reputed financial institution.
Higher government spending and receding revenues due to declining economic activity, have taken a toll on the economy’s fiscal front. While the Netherlands had recorded healthy budget surpluses during 2006-08, it is expected to clock a large deficit of 4.5% in 2009, which is likely to worsen further to about 6% of GDP in 2010. The issue of an aging population has also cast a cloud over fiscal sustainability, as aging-related expenditures such as health, old-age care and pensions are touted to increase steeply. The challenge confronting the Dutch economy will be to trim aging-related expenditures by such measures as raising the retirement age and increasing user-fees of health services. Sustained productivity increases in health-care services would also curtail spending in this area. To ease the fiscal deficit, the maximum duration of unemployment benefits could be restricted.
The Netherlands is proud of its achievements in all imaginable domains. The resourceful Dutch have built a nation from the sea, and with remarkable ingenuity, have taken it to glorious heights. In fact, open-minded and thriving on trade across the globe, the Dutch have been the true proponents of liberalism and globalization since the 14th Century.