Dutch central bank warns falling labor productivity threatens future Dutch wealth
The Dutch central bank says falling productivity is endangering the country’s future prosperity and that economic growth in the coming decades must come primarily from higher productivity, not from simply adding more workers or hours.
De Nederlandsche Bank, known as DNB, made the warning in a new analysis released May 9. Bert Colijn, ING's chief economist for the Netherlands, fully endorsed the assessment.
“In an aging society, we have fewer and fewer people who can work, which makes it important to spend the hours as efficiently as possible and get more output from them,” Colijn told BNR.
The real gains, he explained, will come from using available production resources more effectively. “Think of machines, capital, our space, and of course also our people,” Colijn said. The goal is not to make people work more hours, but to raise the output generated per hour worked.
DNB said stronger productivity growth requires more competition and healthier business dynamics. The number of new company formations in the Netherlands remains low compared with other European countries. Consequently, less productive firms continue to trap capital and labor, preventing them from shifting to the most productive firms.
“It is important that more companies are founded with good ideas that lead to innovation,” Colijn said. In an ideal economy, less-productive companies would simply fare worse, he added. While some Dutch firms successfully scale up, small companies in particular tend to stay less productive and show little progress.
DNB said the government has a key role in breaking this pattern by creating better conditions for competition and renewal. Colijn agreed. “The Netherlands simply has an economy with limited production resources; we are a place where an awful lot of economy is conducted and where we want to do even more, but we are coming up against the limits of what we can,” he said.
The central bank noted that unguided government support and some fiscal rules distort market processes. It pointed to the state aid provided to many companies during the coronavirus pandemic. “Although the support in that crisis situation was justifiable, the inefficient distribution of labor and capital has strongly increased,” DNB said.
