Other nation's benefit from trade with The Netherlands by purchasing their competitively priced goods and services.  Their exports are widely diversified.  They export oil and other chemicals, machinery, and transportation equipment.  At the same time, the nation is Europe's largest exporter of agricultural products (fruits, vegetables, and flowers); and international services such as transportation, construction, and finance are the fastest growing industries of the trade sector.  Amsterdam, the nation's capital, is the gateway to Europe for American and Asian travelers.  The Netherlands is also the sixth largest international investing country in the world.

The country is a charter member of the European common market (EC) and is currently a participant in the new European Monetary Union (EMU) which introduced the euro in January of this year and plans to phase in euro currency in the year 2002.  Most of The Netherlands exports go to the euro zone countries.  Three of its neighboring countries (Germany, Belgium, and France) account for 50% of its export market.

As a member of a regional trading bloc, the Dutch consumers reap the gains of free trade along with the other members.  Imports are purchased from the lowest cost producers in the region.  At the same time, it expands its own export market making it possible for Dutch producers to realize cost saving economies of scale.  Regional trading blocs are a dynamic stimulus to investment, innovation, and technological progress because of the competitiveness that occurs within the region.  Direct investment from countries outside the region (e.g., United States and Japan) also increases to avoid the European Union's external tariffs.

For the past two decades, The Netherlands has focused on supply-side economic policies.  Early in the 1980s, the economy suffered from a mild case of stagflation: The combination of sluggish economic growth, unacceptable inflation, and relatively high unemployment was referred to as the Dutch Disease.  After signing the Wassenaar Agreement in 1982, the Dutch have adopted the polder model of wage restraint.  This model entails agreements between employers, the unions and the government to strive for wage moderation in exchange for shorter working hours and job security.

During the 1990s the government initiated a series of supply-side economic policies aimed at increasing productivity.  Budget deficits were brought down through spending restraints and cuts in entitlement programs.  This made it possible to keep interest rates low to stimulate investment.  Several deregulation measures (most notably in the area of new business formation) were adopted.  Priorities were given to education, training, and incentives for innovation and investment.  In January 1998 The Competitive Trading Act went into effect to bring Dutch rules on anti-competitive behavior more in line with EC regulations.

The subsequent transformation of the Dutch economy from stagflation to prosperity has been dubbed the Dutch Miracle.  In 1998 The Netherlands was one of the best performing economies in the world in terms of macroeconomic indicators.  The real GDP grew at nearly 4%, unemployment fell to nearly 5%, and inflation was held to just under 2%.  (See Pictorial Below).

Economic Growth does not occur at zero cost.  Growth and the environment are frequently in conflict in the modern urban economies.  In order to accommodate economic growth and increasing travel, tourism, and trade, The Netherlands government is in the process of renovating the Schiphol airport in Amsterdam.  Upon completion, it will be one of the most modern, innovative air terminals in the world.  New shops are being built.  There will be a casino and an art gallery.  However, as new construction is underway, authorities have clashed with environmental activists.  To demonstrate their disapproval of growing air traffic and noise pollution, the environmentalists purchased some of the land that is proposed for a new 5th runway at the airport.  Then they planted trees on the land, and each tree owner has taken legal action to delay the new runway project.

The current airport renovation is considered to be an interim project to accommodate travel and trade for the next decade.  The government is considering two longer term options.  One is to completely redesign the airport at its present location.  The other is to build an entirely new airport on a man-made island in the North Sea.  This latter plan would be keeping with the Dutch tradition and constant struggle to reclaim land from the sea.  It is something that they know how to do, and there are other airports like that in Japan and Hong Kong.

Environmental concerns and land reclamation are not the only problems facing the Dutch economy.  Export-led growth countries like The Netherlands are vulnerable to cyclical fluctuations that occur in their trading partner economies.  Even though consumer spending and business investment in The Netherlands is strong this year, economic growth in terms of real GDP is forecast to fall below 3%.  This is due primarily to the recent economic slowdown in Europe and Asia which has slowed down Dutch exports.  Although the United States is importing more (from just about every country in the world), US imports represent only about 5% of The Netherlands' export market.

Over the long-term, the gains from free trade in open economies like The Netherlands tend to more than compensate for any short-term cyclical set backs.  Given the industriousness of the Dutch people with their remarkable emphasis on education, innovation, and entrepreneurial talents, the long term outlook for The Netherlands economy continues to be one of the most promising in the world.

Sources and Recommended Links

Financial Times (September 9, 1999)

The Netherlands Foreign Trade Agency

Netherlands Economic Institute

CPB Netherlands Bureau for Economic Policy Analysis

De Nederlandsche Bank

Some images in The World Game of Economics and World Game News articles are adapted with permission from and through the courtesy of NVTech.