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The Economy of Holland

28 Dec 2016Economics Essays

Netherlands, unofficially known as Holland, is located on the North Sea at about 52 degrees north latitude and 5 degrees east longitude. West Germany lies to the east; Belgium is to the south. The West Frisian Islands lie offshore in the north. It is one of Europe’s smallest and most densely populated countries. The country’s capital and largest city is Amsterdam.

The Kingdom of the Netherlands is a parliamentary democracy with a constitutional and hereditary monarchy. Executive power is vested in the crown (the monarch reigns but does not rule) and in a council of ministers responsible for carrying out government policy. Legislative authority rests with the crown and the States-General, a bicameral parliament. The Netherlands is made of 12 provinces: Drenthe, Flevoland, Friesland, Gelderland, Groningen, Limburg, Noord-Brabant, Noord-Holland, Overijssel, Zuid-Holland, Utrecht, and Zeeland. Each province is governed by a commissioner appointed by the monarch and a popularly elected legislature (Provincial States).

The early economy of the Netherlands was based on fishing and commerce. The western areas later developed shipbuilding, diamond cutting, and industries manufacturing cocoa, chocolate, gin, and liqueurs (Grolier Academic Encyclopedia, p. 100). Some 24% of the Gross Domestic Product, which increased at an average of 2.7% annually from 1990-1999, is produced by manufacturing, construction, and energy-related activities; agriculture and fishing contribute 3.0%; 73.0% is contributed by the service sector, which includes trade and financial activities (Encarta 2004).

In 1999, the Gross Domestic Product of The Netherlands was measured at $393.7 billion. Netherlands is extremely open to world trade. Much of the goods manufactured are intended for export, mainly to the other members of the European Union. Germany is the most important single trading partner, accounting for one-quarter of Dutch trade. Other leading purchasers of exports are Belgium and Luxembourg, France, the United Kingdom, Italy, the United States, and Spain. In most years, the country has a favorable balance of trade, with exports slightly exceeding imports in value. In 1999, for example, the country’s imports cost $188 billion, and its exports earned $200 billion.

Export items include mineral fuels (petroleum products, natural gas), chemical products including organic chemicals and plastics, machinery and transport equipment, and foodstuffs. Major import items are crude petroleum, machinery, chemical products, and foodstuffs. Though densely populated, agriculture is highly productive and a major generator of exports.

The labor force is composed of 7.3 million workers, 73.0% of which are engaged in trade and services; 22.0% are employed in industry, including manufacturing and mining; and 3.0% work in agriculture, forestry, and fishing. The government systematically enters into negotiations with its labor organizations, the two largest of which are the Netherlands Trade Union Confederation and the Christian National Federation of Trade Unions in the Netherlands.

Industrialization was encouraged after the Second World War. The maintenance of internal monetary equilibrium was given importance and the government has largely succeeded in this task. The government introduced a policy of easy credits and a "soft" currency. However, after the Netherlands had fully recovered from the war by the mid-1950s, a harder currency and credit policy came into effect. In the social sphere, stable relationships were maintained by a deliberate governmental social policy seeking to bridge major differences between management and labor. The organized collaboration of workers and employers in the Labor Foundation has contributed in no small measure to the success of this policy, and as a result, strikes (other than an occasional wildcat strike) are rare. At present, unemployment is equally under control. From 5.5% in 2007, unemployment rate dropped by 4.1% in 2008 (CIA World Factbook 2008).

Successive wage increases helped bring the overall wage level in the Netherlands up to that of other EC countries by 1968. The Dutch government's policy, meanwhile, was directed toward controlling inflation while seeking to maintain high employment. In 1966, the government raised indirect taxes to help finance rising expenditures, particularly in the fields of education, public transportation, and public health. Further attempts to cope with inflation and other economic problems involved increased government control over the economy. Wage and price controls were imposed in 1970–71, and the States-General approved a measure granting the government power to control wages, rents, pidends, health and insurance costs, and job layoffs during 1974 (Nationsencyclopedia.com 2008).

During the mid-1980s, the nation experienced modest recovery from recession; the government's goal was to expand recovery and reduce high unemployment, while cutting down the size of the annual budget deficit. The government has generally sought to foster a climate favorable to private industrial investment through such measures as preparing industrial sites, subsidizing or permitting allowances for industrial construction and equipment, assisting in the creation of new markets, granting subsidies for establishing industries in distressed areas, and establishing schools for adult training. In 1978, the government began, by means of a selective investment levy, to discourage investment in the western region (Randstad), while encouraging industrial development in the southern province of Limburg and the northern provinces of Drenthe, Friesland, and Groningen.

The Dutch currency unit is the Euro, formerly guilder. In 1966, the government raised indirect taxes to help finance rising expenditures, particularly in the fields of education, public transportation, and public health. Further attempts to cope with inflation and other economic problems involved increased government control over the economy. Wage and price controls were imposed in 1970-1971, and the States-General approved a measure granting the government power to control wages, rents, pidends, health, and insurance costs, and job job layoffs during 1974.

Indeed, inflation rate is stable and has been under control since it fell at 2.1% in the year 2004 from 3.4% 2003. It dropped further at 1.4 in the year 2005, rose slightly in 2006 at 1.7%. Present inflation rate stands at a good 1.6% although average consumer prices rose at 2.353 this year from 1.583 in 2007 (IMF 2008).

Beginning in the 1980s, Dutch governments began stressing fiscal discipline by reversing the growth of the welfare state and ending a policy of inflation-based wage indexing. The latter policy represented a spirit of consensus among labor and management. At a time when other labor unions fought losing battles with management, Dutch unions agreed to a compromise on this cherished issue in return for a business promise to emphasize job creation. By the late 1990s, these reforms had paid off as Dutch unemployment plummeted to below 5%.

As of the early 2000s, the Netherlands had among the lowest unemployment rates in the industrialized world. The Netherlands' economy was adversely affected by the global economic downturn that began in 2001, however, as gross domestic product (GDP) growth fell to 0.2% in 2002, and was forecast to fall to -0.2% in 2003. The Netherlands has favorable tax structures for investors, which has made the country one of the top recipients of foreign direct investment in the European Union (Nationsencyclopedia.com).

Netherlands is a prosperous and rich country. It has earmarked financial contributions involving transnational issues particularly on financial aspects.

Works Cited

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