The Dutch Make Welfare Reform Looks Easy

They're showing Europe how to shrink the welfare state

Around the corner from the Dutch parliament in The Hague, wineshop owner Jan Wynhoren points to his most expensive Bordeaux and says: "We're selling more grands crus than ever before." At a Foot Locker store, Ruud Nicmeyer shows off his most expensive Nike Airs. "People have more money to spend," he says. "They buy more sneakers, they buy more clothes, they buy more everything."

Much of Europe faces a grim autumn, with the French contemplating strikes against budget cuts and the Germans wondering where the jobs are. But as for the 15 million Dutch, well, they're shopping--and feeling a quiet satisfaction with their newly flexible labor markets, a jobless rate of 6.1%, freshly deregulated markets, and the prospect of easily qualifying for monetary union. This Dutch portrait is not without its blemishes, of course. The government still lets able workers drop out of the market by claiming disability payments, a practice that keeps several percentage points off the jobless figure. But even with that big caveat, the Dutch are showing their bigger neighbors how a European welfare state can be shrunk.

It's a valuable lesson, because many Europeans are paralyzed by the fear that the only way to achieve reform is through economic revolution. "We didn't go through a confrontational Thatcher-style purge," says Klaas de Vries, chairman of the country's Social & Economic Council. Meanwhile, despite the strong guilder, exports are booming. The bank ING Group expects the economy to grow 2.2% this year and 2.4% in 1997. With the glaring exception of electronics maker Philips, many big companies are reporting strong profit increases.

Such performance is a big turnaround. In the early '80s, the deficit ballooned to nearly 10% of gross domestic product. Unemployment climbed above 10%. The number of "disabled" reached 900,000, as some employers found it politically easier to declare unneeded workers disabled than to lay them off.

The Dutch have been trimming their budget deficits for years, but the real payoff came after the 1994 election of Prime Minister Wim Kok, a former unionist who took steps no conservative could get away with. Kok got the unions to end their opposition to temporary work. Now, temps make up more than 3% of the workforce. "The Dutch seem culturally readier than [others] for temping," says Jon Chait of Manpower Inc. At Philips, temps and part-timers make up 15% of local employees. They can be easily laid off, but the unions for now are accepting the trade-off. "We're ready to do almost anything to make it easier to hire new workers," says Margaret Schuite, an economist at FNV, the main Dutch labor group.

PUNY RAISES. To encourage hiring, Kok has pushed through cuts in the social security taxes employers pay for low-wage workers, from 32% to 21%. Unions are also accepting small pay raises of 1.7% this year. Says Fred Pallada, an economist at ING Group: "Labor is becoming relatively cheap compared to capital goods, giving entrepreneurs a reason to hire." In the past year, the economy created about 100,000 new jobs--including temps--and Nico Klene, an economist at ABN-AMRO, expects another 100,000 new jobs in 1997.

Starting this year, workers such as painters and furniture makers no longer have to meet onerous standards before getting an operating license. In The Hague, hairdresser John Becker says he studied seven years before he could work. But his assistant had to study only two years. "It's definitely becoming easier to get a license," he says. And since July, stores have been allowed to stay open until 10 p.m. instead of 6:30 p.m. In Delft, the C1000 supermarket is packed late in the evening. "Since we extended our hours, business has jumped by 25%," says store manager W.G.C. van Zow, "and we've hired two new sales clerks."

The Netherlands still has flaws. Tougher scrutiny has thinned out the disabled, but they still number 800,000. Another issue is the increasing demand for skilled workers, which may push wages up and spark inflation. But give the Dutch credit: They are changing. Germany and France, take note.

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