European Union

Going Dutch

Should America follow the model of the Netherlands on taxation and regulation? Absolutely.

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On April 30, during the annual Dutch parade celebrating the royal family, a 38-year-old former security guard named Karst Tates drove his black Suzuki hatchback into a group of spectators, killing six. The intended victim, he told police officers, was the Netherlands' 71-year-old monarch Queen Beatrix. Interviewed by the Dutch paper De Telegraaf, Tates' landlord offered a possible motive: "He had been dismissed and could no longer pay the rent…He was due to have come today to transfer the keys to a new tenant."

If only Tates had waited until the following Sunday, when he could have logged on to his subsidized broadband connection, clicked over to the New York Times website, and read American author Russell Shorto's paean to the cradle-to-grave "Dutch model" of social welfare. If what Shorto tells us is accurate—the state-funded cleaning ladies for new mothers, government-financed summer vacations, free copies of Paul Verhoeven movies—Tates might simply have applied at the local welfare office for a bucket of SSRIs and a top bunk in a Rotterdam borstal.

In this time of economic uncertainty—a phrase that one hopes will be expelled from our vocabulary soon enough—ever-curious journalists are seeking out alternatives to Anglo-American capitalism and finding them in the happy and healthy states of Western Europe. Shorto isn't merely providing an unbiased accounting of how things work in the Netherlands, but wonders "whether some form of [the Dutch system] could be adopted" in the United States. Ezra Klein, a newly minted blogger for The Washington Post, cheered this suggestion, arguing that President Barack Obama should also look at "relative mobility in other Nordic countries"—nevermind that the Netherlands is not a Nordic country.

Shorto's question piqued readers' interest too, becoming the "most emailed story of the week" (and is currently in contention for the most emailed story of the month). And if the permissive Dutch attitude towards drugs and prostitution isn't your cup of tea, the following week the Times offered an A1 story on the wonderful success of Norway—the only country whose citizens shop in Sweden for tax relief—with the unambiguous headline, "Thriving Norway Provides an Economics Lesson." The lesson goes something like this: If your country has a small, relatively homogenous population and enormous oil deposits (a fact introduced in the eighth paragraph), you too can weather the current economic storm.

But back to the Dutch. Like its neighbors to the north, the Netherlands has "succeeded" by greatly reducing state intervention into the economy and, in bargaining with the powerful Dutch labor unions, scaling back generous sick leave and unemployment benefits. The Economist recommends the Dutch model, too—as a model for liberalization of markets and shrinking of the welfare state: "A welfare state that is too generous, and a labour market that is too rigid? Follow the Dutch example of chipping away at the first and quietly introducing flexibility into the second. Taxes that are too high and public spending that defies cutting? Look at the Dutch tax reforms that sharply lowered the burden of direct taxes, and at the finance ministry's tough spending controls."

As the Dutch economist Ruud A. de Mooij points out, public expenditure as a percentage of GDP decreased from 62 percent in 1982 to 44 percent in 2007, helping spur much of the growth in the previous two decades. But with shifting demographics and generous benefits for those who opt out of the job market, the system, he notes, is still in a perilous state:

The Dutch welfare state is under pressure. Ageing makes public finances unsustainable and globalisation tends to worsens[sic] the position of low-skilled workers. At the same time, welfare state institutions seem insufficiently adapted to changed socio-cultural circumstances and cause inactivity among elderly workers, women and social benefit recipients.

Shorto argues that the top Dutch tax rate of 52 percent might seem high (In the 1980s, it was a more Scandinavian 72 percent), but when all of the various taxes in this country are tabulated the differences melt away. But as the Dutch writer Jurgen Reinhoudt points out, Shorto ignores the panoply of indirect taxes that push that rate significantly higher: "New vehicles sold in the Netherlands, for example, are hit with a 40 percent 'vehicle tax' in addition to the 19 percent value added tax that is added to cars as well as many consumer goods sold in the country. Dutch gasoline costs more than $6 a gallon, of which roughly 70 percent goes to the government in the form of various taxes including the VAT. The highest estate tax rate (that some people really do pay) is 68 percent: for the sake of reason this rate will be reduced to 50 percent in the years ahead."

But it is also worth noting that the Netherlands ranks extremely high—12th overall—in the 2008 Index of Economic Freedom. As the report's authors observe, the country "enjoys very high levels of business freedom, trade freedom, monetary freedom, investment freedom, financial freedom, and property rights."

Indeed, many see the country as a tax haven—the use of which, says President Obama, helps "ship our jobs overseas." The Rolling Stones, a billion dollar rock band, have long kept their large amounts of money in the country, due to Holland's exceptionally low rates of taxation on royalties. According to British press accounts, the band has paid a paltry $7.2 million in taxes on earnings of $450 million, which, The New York Times calculates, is "a tax rate of about 1.5 percent, well below the British rate of 40 percent." When Ireland killed the "artist tax exemption," the band U2, despite its consistent agitation for taxpayer-funded aid to Africa, followed the Stones' lead and set up shop with the very same Dutch tax shelter specialists.

Despite budget shortfalls, the Netherlands doesn't seem interested in returning to its 1970s model of confiscatory rates of taxation. When their economy stagnated, the government quickly moved to slash the corporate tax rate from 35 percent to 25.5 percent. (In the United States, it's roughly 40 percent) A recent proposal by the right-leaning government of Jan Peter Balkenende would lower inheritance tax rates from 27 percent to 20 percent for family members, and from 68 percent to 40 percent for non-family members. And with government coffers thinning and an aging population, a recent piece of legislation would push the retirement age from 65 to 67.

Like most acolytes of the European social model, Shorto also focuses on the wonders of the Dutch system of universal health care, while neglecting to mention that in 2006 the government undertook a series of market-based reforms in an effort to save what was once a sclerotic and expensive system.

According to a 2007 World Health Organization report on the 2006 overhaul, the previous system of government mandates suffered from "a high level of government interference (supply side control) leading to inefficiencies and [the] hindering [of] innovation." As Swedish economist Johnny Munkhammar argues, the new system, which allows patients to shop for the best rates amongst private insurance companies, "provides a blueprint for successful, market-oriented healthcare reform."

But still, the system suffers from significant cost shortfalls. Last month, Radio Netherlands reported that, "To make the necessary savings, between 13,000 and 20,000 jobs in the healthcare sector would have to be cut—the equivalent of closing down between eight and 12 hospitals—by 2014." Health Minister Ab Klink, De Telegraaf reports, is "considering introducing a charge to people who visit hospital Accident and Emergency departments without a doctor's referral" to plug holes in the health budget.

While the Netherlands has introduced significant tax reform and market-oriented health care reform, the OECD nevertheless warns that the "economy is now facing labour shortages, related to the greying of the population and the continued weak labour market participation of several groups."

Still, Shorto isn't wrong. There are indeed lessons to be learned from countries like the Netherlands. Which means that supporters of the "European model" must acknowledge that most of these successes—as is the case in many other European countries—are the result of a significant overhaul of base social democratic assumptions about government control of labor markets and health care systems. In other words, as the U.S. moves towards them, they continue to move towards us.

One final thought for Shorto's readers: Netherlands' current prime minister, Jan Peter Balkenende, was elected on a platform of "Mee doen, Meer Werk, Minder Regels." Translation: Participation, more employment, less regulation.

Michael Moynihan is a senior editor at Reason magazine.

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  1. “Thriving Norway Provides an Economics Lesson.”

    Yes, and that lesson is Drill for some Overshore Oil, Baby!

  2. Great piece. The Dutch “gov’t portion of GDP” number are very interesting.

    I wonder how much of that is because large sectors of the underground ecomomy have been legitimized?

  3. Denmark is another example. In all my travels and work there, two things became clear:

    1) There are no really poor people and no really rich people in Denmark.

    2) Every Dane who makes any real money (outside the two families who own Maersk and Lego) lives in Switzerland or Luxembourg.

  4. My office is co-located in a Norwegian company’s headquarters. I’ve heard enough about that country to know it’s hardly a utopia. Yes, they have pre-cradle to grave welfare just for being alive. But they also have the highest prices of food in Europe. A beer is $15. And not a good beer either, that’s $15 for a generic pilsener indistinguishable from the other generic pilsener’s of Scandanavia. But that’s okay to the Norwegians in the office (who have voluntarily left their nation to live in horrible capitalistic US) because “you have more money to spend because you don’t have to buy health insurance or save for retirement!”

  5. Please, no more stringing the three words “in these times”. I’ve had enough, and take this as notice!

  6. Disclosure, my last marketing letter started out with “In these uncertain times”. Then I realized the error of my ways and began my new letter with “aren’t you sick of those ‘in these times’ sales leads?
    Sugerfree, if your library needs library labels, tell your people that the best deal is at discountlibrarylabels.com. Don’t ban me Nick, my wife made me do it.

  7. I would also repeat Milton Friedman’s quip after a Swede said there was no poverty in his country: “That’s funny; there’s no poverty among Swedes in America, either.”

    If Norway or the Netherlands were REALLY worthwhile countries, Mexicans would be trying to sneak in!

  8. Yes, it’s odd that America’s media elites are shitting their pants with joy at the supposed new turn toward European social democracy, almost exactly at the same moment that Europe has largely decided to move away from it.

  9. considering introducing a charge to people who visit hospital Accident and Emergency departments without a doctor’s referral

    WTF, so if I fall off a ladder in Holland and break my arm I have to get a referral to go to the emergency room? I’m pretty sure I can make the determination that I need to go to the emergency room. Maybe it wouldn’t be as absurd if there was an exception for actual emergencies as opposed to having the flu or something but still….

  10. “If Norway or the Netherlands were REALLY worthwhile countries, Mexicans would be trying to sneak in!”

    Somehow Mexicans are supposed to be the paragons of travel and real-estate? Really now. It’s not like Mexicans know where the best places on Earth can be found, much less be able to afford to go there.

  11. Do you know why Mexico wins so few Olympic events?

  12. “If Norway or the Netherlands were REALLY worthwhile countries, Mexicans would be trying to sneak in!”

    Watch it.

  13. All these articles seem to want to make the US a lot whiter. Who knew that the NYT was a tool of the Aryan Nation?

  14. To be fair, the Netherlands would do better with Mexican immigrants than ones from Muslim countries, who like illegal aliens from Mexico in this country, refuse to assimilate to the new culture and wish to become their own little colony of their old country in their new country. Because, with the exception of the criminal Latino gangs, Mexicans aren’t prone to violent rioting and calls for jihad against the infidels.

  15. Brandybuck: “My office is co-located in a Norwegian company’s headquarters. I’ve heard enough about that country to know it’s hardly a utopia. Yes, they have pre-cradle to grave welfare just for being alive. But they also have the highest prices of food in Europe. A beer is $15.”

    Keep in mind that Norwegians (yes I’m one) always gripe about food and beer prices to foreigners. We’ll apologize about it to tourists, and introduce the subject to anyone we meet abroad.

    Why? Because to a Norwegian it’s the most obvious difference between Norway and other countries. It’s the first thing you notice when you step off the plane. “Ooh, beer is cheap! Ah, sweet liberty!”

    That doesn’t make it a good indicator of economic success, though.

    And as always, I’ll add a general warning that almost anything you read about Scandinavian society (for or against) is wrong. One reason is that we’re so small that nobody cares what happens here except when they’re looking to make a point.

    Btw, I agree entirely with Michael’s conclusion: “In other words, as the U.S. moves towards them, they continue to move towards us.” Norway, certainly, has become far more economically free over the last 30 years, (and I for one would like to continue that process).

  16. Because, with the exception of the criminal Latino gangs, Mexicans aren’t prone to violent rioting and calls for jihad against the infidels.

    What na?vet? ! You’ll love the cheap labor until you’re forced, on your knees of course, to climb those steps and do obeisance to Our Lady of Guadalupe !

  17. ‘You’ll love the cheap labor until you’re forced, on your knees of course, to climb those steps and do obeisance to Our Lady of Guadalupe !’

    Hey, how did you know about the Church’s secret agen . . .

    I mean, I have no idea what you’re talking about. I never even *heard* of Opus Dei’s secret Mexican Project.

  18. I should have said SecretMexicanProject.

  19. My office is co-located in a Norwegian company’s headquarters.

    Little does Brandybuck know that libraries the world over are mocking him for his misuse of the term “co-located.”

  20. @ TallDave – Because any Mexican that can run swim or jump is already in the States

  21. A month and a half after President Obama was sworn in I exercised my rights as a dual EU/US Citizen and moved to Europe.

    America over the last 20 years that I have lived there has so drifted away from what it was in the 1970s that I felt that I was not left with much of a choice in the matter.

    The USA has turned into a coast to coast, sea to shining sea, ghetto, and anyone over a certain age who does not see this is being willfully ignorant.

    Good for you.

    If you don’t believe that there has been a decline in the USA talk to any adults under the age of 25 and ask them what they know of Richard Nixon, or where to find their own State on a map. Think that is going to get any better over time, or worse?

    In fact, in a bit of odd timing that has long been a part of my life, I just so happened to be inside an Amsterdam Coffee Shop when I first read Mister Shorto’s piece on the 52% Dutch taxation rates that he wrote about in the NYT’s earlier this month.

    Now, given that 80% of all Americans do not even possess a US Passport, I’m going to assume that 4 out 5 commentators here have no first hand experience with what life is like outside America.

    In a nutshell, by almost any measure that you can think of, we live much, much better in Europe than you poor Americans do.

    Even our impoverished, lower classes of people.

    Sure we pay upwards of $7 tp $10 a gallon for gas, but the majority of cars on the roads here are not Stupid Ugly Vehicles, but fuel efficient small cars, that are, BTW, quite safe to drive at freeway speeds, or else they’d never have been allowed on the roads here.

    Higher fuel efficiency means that we pay less per mile and of the taxes we pay on the gas we get something back, instead of it vanishing into Exxon’s coffers.

    Our schools work. The typical European High School student receives an education on par with that of an American College student and is a hell of lot cheaper than the financial boondoggle that Higher Education has devolved into in the United States.

    We don’t have a Prison Industrial Complex. The Dutch, who lock up 7 times less as many people as we do in the US are actually *closing* 8 of their their prisons due to dropping crime rates.

    In politics, one’s Religious Affiliation is not seen as prerequisite for elected office, but something that you keep to yourself if you want to be taken seriously by the electorate.

    I could go on and and on, and ya’all can swallow the PR Spin about how great that Potemkin’s Village that the USA has become over the last couple of decades is, and you’re welcome to it.

    I wish you lots of luck with all that.

  22. I wish you lots of luck with all that.

    Thanks, smug novice European!

  23. labrets,
    wow, you got just about everything wrong.
    you are right that we lock up too many people, especially for silly drug “crimes”.
    you are right about religious affiliation being a prereq for office, that is stupid. (though the american/obama solution, to fake it, seems to be okay for now).
    on everything else you are an ill-informed nut.
    us secondary ed is sorry, but our post-secondary is still the best in the world.
    1/5 americans have passports because the us is 3rd in the world in both land mass and population. germany is the largest eu country, and is 14th in pop. the reason eu citizens travel to other countries more often is because that is like an american going to another state! but since we arent fools, we dont brag about going to another state!
    when you add up all transportation costs, (public transport taxes, fees, higher gas etc) american transportation is always cheaper per mile than eu transportation.

    and lastly, the 70s werent 20 years ago, bra! they were 30-40 years ago…
    im glad you left the us, you thankfully raised our mean iq!

  24. “In a nutshell, by almost any measure that you can think of, we live much, much better in Europe than you poor Americans do.”

    No European country squanders its wealth maintaining over 700 military bases in more than 130 foreign countries in an effort to police the entire world like we do (in addition to fighting 3 trillion dollar elective wars). Do all the countries in Europe collectively have 700 foreign military bases?

    So what if we have crappy schools, exploding prison populations, and half of all personal bankruptcies are caused by medical expenses (3/4 of which bankrupts were insured at the onset of illness)? That’s the way we like it.

  25. I love the Netherlands for a number of reasons, none (perhaps shockingly) having to do with drug legalization (to each their own).

    But… I do recall hearing from some entrepreneurial friends there around the turn of this century, that after a favorable exit from their startup, one had bought a nice and (by Dutch standards) large house.

    Apparently the government (they didn’t mention whether it was the country or the locality) decided that having only one person living in such a house wasn’t in keeping with their sensibilities and sent one of my colleagues a letter to that effect.

    As long as it’s just griping it’s fine, but one wonders when the other wooden shoe will drop.

  26. “Apparently the government . . . decided that having only one person living in such a house wasn’t in keeping with their sensibilities and sent one of my colleagues a letter to that effect.”

    Sounds like something out of the Cultural Revolution. That this happened in the Netherlands shocks me. Would it happen in the U.S.? I don’t think so. But then I never thought the U.S. government would adopt torture as a policy.

  27. “If you don’t believe that there has been a decline in the USA talk to any adults under the age of 25 and ask them what they know of Richard Nixon, or where to find their own State on a map.”

    Those are the worst possible examples you could have given. If you said “They don’t know anything about Eisenhower, and they can’t find Kansas on a map,” then MAYBE I’d agree.

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