Will Europe Go Dutch?

The Dutch are showing the rest of Europe how it can keep the welfare state alive, while also creating an American-style lean and mean economy.

The winning formula was endorsed by Dutch voters last week with the reelection victory of Prime Minister Wim Kok's Labor Party.

His recipe? Keep a generous social system while injecting flexibility and incentives into the labor market.

Mr. Kok has cut unemployment and disability benefits so that it no longer pays better to stay on the dole than go to work. He also has pushed through rules making it easier for companies to hire temporary and part-time workers. But the government still supplies free public health care and pays students to attend university.

"We want to be good for those who need support, but not for those who can really take care of themselves," the silver-haired prime minister explains.

"This country must be strong and social," Kok adds.

The combination works, say analysts. During the past four years since Kok took power, more than 500,000 jobs have been created in this northern European country of 15 million people, and unemployment is down to an almost American level of only 5 percent.

Kok's left-wing Labor Party gained eight seats in the May 6 parliamentary vote, boosting its total to 45 in the 150-seat legislature. Its senior coalition partner, the right-wing Liberals, won seven seats, for 38, while their junior partner, the centrist Democrats 66 Party lost 10 of its 24 seats. They are expected to hold negotiations on forming the next government.

To its partisans, the Dutch model demonstrates how reform can be achieved without a Thatcher or Reagan-style purge of the welfare state. Other small European countries, such as Denmark and Austria, also have succeeded at forging a consensus to keep wages down and increase labor flexibility.

"Small countries have learned to deal with increased international competition by building on labor consultation," says Jelle Visser, a sociology and labor relations professor at the University of Amsterdam.

But because of its size, the Netherlands' success may not be relevant to European giants Germany and France. Both are struggling with double-digit unemployment and problematic public deficits.

Here in Utrecht, the main shopping street, Steenweg, is packed with eager customers who take a break by sampling everything from Australian ice cream to the more traditional Dutch chocolate.

Casual is 'the Dutch way'

Kok arrived on foot for a pre-election debate without a single bodyguard. "That's the Dutch way," an aide explains.

The setting was a cafe where Kok mingled with the youthful customers. In this compact, cozy, and consensus-obsessed society, democracy still resembles a New England town meeting.

No Dutch prime minister rules alone. Even though he won a big victory, it could take Kok weeks to form a new coalition government.

"For 20 years now, we have had a consensus between right and left through various governments that we must change our labor market," says Frits Bolkestein, leader of the Liberal Party.

Kok's own career mirrors this entire period.

In the early 1980s, the Netherlands suffered from the so-called "Dutch disease," with public spending out of control and unemployment above 10 percent. At the time, Kok was a union leader who agreed to wage cuts and other concessions to business.

'Bringing people together'

Since becoming prime minister in 1994, he has continued his frugal ways, reducing government spending and fighting for low budget deficits in the run-up to Europe's single currency.

"Workers have said 'OK, we will abstain from wage increases, but in return we get jobs,' " Kok says. "My job has been explaining and bringing people together and organizing this trade-off."

Kok also is strongly pro-NATO and pro-European. While some of his opponents came out against the North Atlantic Treaty Organization's enlargement into Central and Eastern Europe, Kok strongly supported it.

He also pushed hard for strict Dutch monetarist Wim Duisemberg to be named the European Central Bank's first president, backing German demands to keep the bank independent from political interference and to insist on small budget deficits. But due to French opposition, the Dutchman will serve only half of his planned eight-year term.

"Duisemberg's fate is another sign that we remain a small country," says John de Mol, CEO of the nation's biggest TV company, Endemol. "We can't impose our vision on others."

A good combination

Here in Utrecht, the Dutch seem happy just to go their own way.

"Wim Kok balances the economic and social factor and that's a good combination," says university student Wendy Janssen. When she graduates this June, she expects to find a position as a social worker easily. In contrast, more than 1 in 4 French young people below the age of 30 are unemployed.

"It's always possible to get a job," adds Ivar Bijvoet, a lawyer in his 20s. He also is about to graduate, and already has been offered places with half a dozen law firms. "The economy is going very well, so everybody loves Kok," he says.

Some economists would like to see Kok move even faster to reduce public spending and Holland's still-high public debt. And with the labor market tightening, particularly for high-skilled information technology workers, some say the up to 60 percent taxes for upper-level incomes also need to be slashed.

"We will never accept American levels of inequality," retorts Kok.

For this European politician at least, a gradual reform of the welfare state is working better than an all-out assault.