The Netherlands a top-5 competitive economy in WEF index
Global reforms needed to improve productivity and break out of the ‘new normal’
The Netherlands has risen from 8th to 5th place in The Global Competitiveness Report 2015 – 2016, published by World Economic Forum. This annual assessment of competitiveness has been carried out amongst 140 countries.
As a partner of the World Economic Forum, the research institute INSCOPE: Research for Innovation headed by Professor Henk W. Volberda from Rotterdam School of Management, Erasmus University (RSM) collected the data for the Netherlands.
The full report (in Dutch) can be found here. The Netherlands’ increased competitiveness and its top 5 place have several contributory factors:
① The Netherlands in the top 5 because of its excellent school system, efficient infrastructure, reliable public administration and permanent focus on innovation.
Professor Volberda said: “The Netherlands is one of the most advanced and innovative economies in the world with competitive and open markets. Furthermore, it continues to excel in education, standing in third position; in infrastructure, also in third position; and the quality of its health care, sixth position.” Volberda also argues that the quality of the Dutch government and regulating authorities – which put it in 10th position – also contribute to a good competitive environment.
② The macro-economic policies implemented by the current Dutch government and reforms in the financial sector and labour market, which have significantly enhanced competitiveness
Macro-economic policies have boosted the health of public finances and produced a rise of 13 places in the macro-economic environment because of reduced government deficit and collective savings. However, Prof. Volberda argues that the reforms in the financial sector – which saw a rise of 6 positions – and labour market, which saw a rise of 4 positions, have led to a significant improvement of the competitiveness of the Netherlands compared to last year.
③ An Achilles’ heel: Dutch financial and labour markets
Despite the improvements achieved in financial and labour markets, they continue to be the Achilles’ heel of the Dutch economy. The financial markets in the Netherlands (31st position) are still not operating at the level they were in 2007, before the financial crisis. The improved health of banks, a rise of no less than 20 places, has led to a faltering supply of credit to small and medium-sized enterprises, and declining availability of risk capital to entrepreneurs and start-ups. Despite an improvement of the labour market (17th position), the high costs of hiring and firing personnel (89th position) and the lack of flexibility in wage formation (131st position) continue to place strains on the Dutch economy.
④ The top sector policy of Dutch government contributes to an advanced and innovative knowledge-based economy
According to Prof. Volberda, the continued efforts of the Dutch government to focus on those sectors which it has identified as priorities (known as ‘top sectors’), and the fostering of entrepreneurship are starting to pay off. The co-operation between universities and businesses in the various top sectors has significantly improved (9th position) and the quality of Dutch scientific research institutions is world class (6th position).
“The Netherlands continues to be a breeding ground for new knowledge, as demonstrated by its 9th position for the number of developed patents. Moreover, public tenders issued by the government are increasingly taking into account innovation criteria and contribution to social issues (21st position),” concluded Volberda. He also said the top sector policy has contributed to a more innovative ecosystem and is helping the Netherlands make the transition to a knowledge-based economy.
⑤ Innovation capacity of Dutch companies lagging, despite the positive innovation climate
Despite improvements in the competitiveness of the Netherlands, Prof. Volberda is concerned about the innovation capacity of Dutch companies. "Their capacity to innovate has fallen by no less than five places to 16th position,” he comments. Volberda said investments by Dutch companies in Research & Development have declined, leaving it in 18th position, and claims this decline can be attributed mainly to companies in other countries investing in more R&D and creating more innovation capacity. “Dutch companies really must increase their effort," he said.
⑥ The Top 10: Switzerland, Singapore and the US retain leading positions; Germany rises to 4th, but big drop for Finland
By investing in talent and innovation, Switzerland (1st place), Singapore (2nd place) and the US (3rd position) managed to retain their leading positions. Finland has dropped four positions to 8th place due to a deterioration of the macroeconomic conditions, dependence on vulnerable industries such as paper and IT, and a decline in exports to Russia. Germany moved closer to the top three thanks to improvements in its labour and financial markets; it also has highly advanced companies using state-of-the-art technologies in their production processes (also known as Industry 4.0, a collective term for technologies and concepts of value chain organisations). Such companies invest significantly in R&D, commented Prof. Volberda.
⑦Increasing gulf between reform-implementing European countries and ‘those that don’t’
Despite there being six European countries in the top 10, many European countries performed markedly worse, according to this year’s report. What’s more, the gap between the competitive frontrunners and the vanguard countries is growing. Countries which have reformed their labour markets and implemented market liberalisation in favour of competitiveness have risen in the global competitiveness index; they include France, Ireland, Italy and Spain. But countries like Cyprus (65th position) and Greece (81st position) are still failing to improve these levers for competitiveness.
The report on the Netherlands’s competitive standing, prepared by Henk Volberda, is published here (in Dutch).
Rotterdam School of Management, Erasmus University (RSM) is a top-tier European business school and ranked among the top three for research. RSM provides ground-breaking research and education furthering excellence in all aspects of management and is based in the international port city of Rotterdam – a vital nexus of business, logistics and trade. RSM’s primary focus is on developing business leaders with international careers who carry their innovative mindset into a sustainable future thanks to a first-class range of bachelor, master, MBA, PhD and executive programmes. RSM also has an office in Taipei, Taiwan. www.rsm.nl
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