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Okay, so there is new money, there is old money, and then there is the Netherlands.
The Dutch were arguably the first to embrace modern economic systems as they exist today.
They were early pioneers of international trade, corporations, financing for those corporations,
and also overfinancing things until they turn into a speculative bubble.
Whether it's a feature or a bug in our economies, there's a good chance that the Netherlands
has dealt with it in its extended history, and it's an economy that has clearly learnt
from those victories and failures as well.
Today it's one of the most productive countries per capita in the world, only really been
surpassed by outliers like the USA, and a selection of small resource rich or business
friendly countries like Singapore, Norway, and Switzerland.
This productivity has translated into real quality of life for Dutch citizens as well.
It has some of the highest levels of human development in the world, and the ability
to make certain economic trade-offs favouring living standards over outright economic efficiency.
The country has the highest rate of part-time workers in the OECD by a significant margin
thanks to a culture and laws that favour all-round quality of life over headline output figures.
The country also has a wealth of natural resources, including as much as 25% of the natural gas
within the EU, that it's just decided not to extract due to a combination of environmental
issues caused by the industry.
The country was the birthplace of the resource curse, so much that it's literally called
Dutch disease, so it's also learnt the hard way not to become too dependent on any one
industry.
Even still, foregoing the hundreds of billions of dollars in revenue that these resources
could bring into the country, right at a time when the rest of Europe is desperate for
energy, is a move that could only really be made by a truly unique economy.
So how did the Netherlands develop into what it is today?
Why does it do everything so differently from other wealthy economies?
And finally, should the Dutch model be something that more major economies adopt?
Once we have done all of that, we can put one of the most unique economies in the world
on the Economics Explained leaderboard.
Netherlands is well known for its financial sector, with Amsterdam being home to one of
the oldest stock exchanges in the world.
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to the economy to finance projects such as infrastructure or innovative technologies.
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The Netherlands was the first economy to do a lot of things but something that is often
overlooked in its storied history is that it was one of, if not the first countries
in the world to truly benefit from skilled migration.
After it claimed its independence, it became a refuge for Protestant traders fleeing persecution
in France.
This community helped to build what the Dutch economy has been most proficient in throughout
the centuries and that is trade.
By the 17th century, the Netherlands was the largest trading empire in the world and its
merchant class shared almost as much wealth and power as its nobility, although to be
fair, they were often the same people.
Even still, the state was the first to introduce surprisingly modern systems like stock exchanges
where people could buy into the productive industries of the country and share in their
prosperity.
This both acted as a way for people to improve their station, motivating them to innovate
in their own businesses but it also funded much larger operations.
Most notably of course, the Dutch East and West India companies which operated thousands
of ships had their own militaries and ran brutal operations to harvest the wealth of
their colonies.
Tim Blanning, one of the world's foremost experts on European economic history, estimated
that at its peak, the Dutch merchant marine fleet had 568,000 tonnes of capacity which
made up roughly half of all of the shipping capacity in Europe at the time.
The dominance of the Dutch West India Company and in particular the Dutch East India Company
have led many to claim that they were the most valuable companies of all time, even
beating out modern giants like Apple and Microsoft.
Now, something of a personal side note is that I hate this claim.
The Dutch East India Company was arguably the first multinational and it was incredibly
dominant for its time.
But the wealth of that time period was a rounding error compared to the world today.
The collective capacity of all of the ships in the Dutch merchant marine fleet would
fill about three large container ships today and the modern merchant marine fleet has thousands
of these ships.
A value of $7 trillion in today's money is often thrown around using dubious inflation
adjusted figures but at the time the global economy had a collective GDP of around $600
trillion, again making adjustments for changing purchasing power over time.
If this was true, the Dutch East India Company would have a market cap more than seven times
greater than global output and while market capitalisation and economic output measure
two different things, that would be like Apple today having a market capitalisation of $700
trillion.
Not very realistic.
To make matters worse, even if we wanted to ignore the complexities of adjusting early
18th century guilders to 21st century US dollars, then well at around about the very
same time the Mississippi Company had more shares trading at a higher price.
So even at the time it wasn't the most valuable company by market capitalisation which is
just multiplying the market value of a company's shares by the total number of outstanding shares.
Now the Mississippi Company was a little bit of a scam so in terms of actual operational
breadth the VOC was far more dominant for the time.
But again, that time in history just didn't have anything on the wealth of the world today.
Anyway, rant tangent over, a lot of these early lessons carried through to the modern
day.
By the 19th century, following an occupation by France, the country reformed as the Kingdom
of the Netherlands which also includes Curacao, Aruba, Saint Martin and it did include Belgium
until they claimed independence a few years later.
By this time the country only had a shadow of its former influence.
It was not industrialising as fast as other European powers and its international trade
had been massively surpassed by the British Empire.
Despite insult to injury, even Belgium, the breakaway state, started to exceed it in industrial
might for most of the 19th century.
But the country turned out around by doing what they did best and creating a system where
they combined a private industry-friendly environment and modern mechanical technology.
Following the Second World War, the country was also blessed with finding large reserves
of natural gas to service the energy needs of a rapidly developing Western Europe.
But of course, this was a blessing in disguise.
We have addressed the issue of Dutch disease many times on this channel before, but we've
never actually explored its namesake.
The Netherlands found a massive gas field in its north in 1959 which made it a highly
competitive energy provider given its proximity to Europe and its ability to trade this energy
globally.
Now, in short, a natural resource discovery should be a good thing for an economy because
it gives it a source of revenue that it can use to improve the lives of its citizens.
But it can also drive up the value of the economy's currency, making industries uncompetitive
in export markets.
It also makes imports comparatively cheaper, which means people spend more of their money
abroad rather than domestically.
A single dominant and highly profitable industry like natural resources often also sucks up
investment into the economy because why would investors put their money into some kind of
risky new industry with uncertain returns when they could just invest it into extracting
natural resources with far more predictable returns?
Above all else, having an economy overly dependent on one single industry also makes
it highly unstable because if that industry hits hard times, it will take the entire economy
down with it.
Now, strangely enough, Dutch disease wasn't as bad for the Dutch as it was for a lot of
other countries because they had the benefit of being a relatively wealthy country beforehand.
One of the best ways to fight the impacts of Dutch disease is to tax the short-term revenues
from the industry and use them to invest long-term into building out other industries or developing
a long-term fund to drip feed revenues into the economy slowly over time.
Now this is eventually what the Netherlands did, but that strategy is much more difficult
to accomplish politically in a poorer country where people could genuinely see a significant
quality of life improvement from using those short-term revenues as soon as they become
available.
Today the country is once again an economic powerhouse thanks to a diverse array of highly
valuating industries that leveraged the global economy rather than just its domestic industries.
The country is still very accommodating to global businesses and it's a popular hub
for international companies to use as a base of operations within the European Union.
The country's efforts to attract international business have been so generous in fact that
it has in some cases got the country into a bit of trouble because it was starting to
act like a bit of a tax haven within the EU.
Even outside of loophole tax codes, the Netherlands has just established itself as a very easy
place to operate a foreign office.
It has a lot of highly skilled workers thanks to a major investment into education, it has
an incredibly robust legal system, and it has a huge diversity of native-spoken languages
on top of Dutch.
This might not sound like a big deal, but it makes it easy for primarily English-speaking
international businesses to work within the multiple major markets within Europe from
a convenient central point.
And Airbus, a European company with its operational headquarters in France, has its legal headquarters
in the Netherlands because it makes certain operations that much easier.
Now there are business-friendly economies everywhere around the world and as international
trade and finance have grown there is more competition than ever for those international
dollars.
But what makes the Netherlands so interesting is how it has balanced this business-friendly
environment with a remarkably egalitarian culture that offers a lot of liberties to
its people.
The Netherlands is an outlier by the number of people who work part-time over full-time
in the workforce because the government passed laws to make it possible for workers to request
this arrangement from their employer without ramifications.
Now having a lot of part-time workers might sound nice, but if these workers are not part-time
by choice then this is probably not something that should be celebrated.
Fortunately in the Netherlands most reports indicate that a majority of these part-time
workers do so because they want more time to look after their families, tend to other
commitments or simply because they don't feel like working that hard.
Now economists around the world have been quite interested in this quirk of the Dutch
economy for a while now because it has the potential to be a solution for a lot of the
most pressing issues we face in our own economies.
A majority of the part-time workforce is comprised of women and a lot of the motivation behind
the laws that make that part-time work so popular in the Netherlands is that it was
hoped it could get people working who otherwise wouldn't and also encourage more people who
are working to have a family.
On the first point this has been a great success.
The Netherlands has a higher labour force participation rate than even the workerholics
in the USA and this is despite the fact that the country has a far more generous social
safety net.
The popularity of part-time work also means that people work until they are older alleviating
a lot of the issues of an ageing population.
As for encouraging people to have a family, well the Netherlands like most advanced economies
is still well below the replacement rate of new births and roughly in line with most of
its European peers so it hasn't had too much of an impact here.
However if and when pressures from automation and AI start to impact the workforce the Dutch
model may be a great case study to learn from because instead of people losing their job
entirely an economy in the process of automating would probably function a lot better if most
people just started working less.
There is of course one other benefit which is that not working so much is a genuine economic
luxury in and of itself and it has shown that a country can still be highly competitive
without overworking its people.
Now that being said it's always nice to look at highly advanced economies that have the
luxury of making trade-offs like letting people work part-time or opting out of natural resource
revenues but the Netherlands can do this because it's already rich.
It has had centuries to build up physical infrastructure, financial infrastructure and institutional
infrastructure that makes it the success story that it is today.
This is not to mention a nice infusion of cash from natural resources right before one
of the most prosperous economic times in history and a geographic position that makes it an
ideal trading nation.
The Dutch economy does do things differently but this is a little bit like the difference
between a rich person and a poor person doing unusual things.
If the rich person does it they are eccentric, if the poor person does it they are just crazy.
So copying and pasting the Dutch model onto other economies might not work but at the
end of the day even though it has been very lucky it has capitalised on that luck to build
an economy that works and an economy that works for its people.
Ok now it's time to put the Netherlands on the economics explained leaderboard.
Starting as always with size the Netherlands has a highly productive country but it is still
relatively small in terms of land mass and population.
And still with a GDP of over $1.1 trillion it's the 17th largest economy in the world
just behind in Asia which takes a very different economic approach to get there.
The Dutch economy gets an 8 out of 10.
That output is achieved by a very small population of just under 18 million people which means
the country has a GDP per capita of $63,750.
This makes it one of the most productive countries in the world but it still falls behind the
true outliers so it gets a 9 out of 10.
Stability and confidence is very high.
One of what makes it so attractive as a business destination tourist hotspot and trade hub
is the institutional stability of the country that has been doing modern economics longer
than anyone else.
Being a member of the EU is both a blessing and a curse in many ways but it does mean
it has a certain safety net and it uses the world's second most widely recognised currency.
The Netherlands gets a 10 out of 10.
Growth has been sluggish.
The Netherlands was not immune from the Eurozone crisis and the general slowed down an activity
that came from it.
It is starting to trend in the right direction again but over the past decade it's barely
achieved an annualised growth rate of 1% so it gets a 3 out of 10.
Finally, industry.
The country has diversified its economy extremely well.
Even if it does truly follow through and completely shut down its natural gas industry it still
has tourism, finance, trade and even astonishingly productive agriculture to fall back on.
All industries that are far more stable and value adding.
It gets an 8 out of 10 only really losing points because its smaller size means that
it doesn't have much in the way of its own global companies or world leading industries.
Altogether this gives the Netherlands an average score of 7.6 out of 10 putting it way up here
on the leaderboard.
Now, we've mentioned the dynamics of global shipping a lot in this video because it's
clearly been an integral part of the Netherlands success story over the past 5 centuries
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