In Europe, a Tiny Nation Blooms

Deregulation Helps the Dutch Break Out Of Europe's Malaise Over High Joblessness

Marco Bussemamer, an unemployed computer technician, enters the Randstad Temps office in this Dutch city. Ten minutes later, he walks out with five job offers.

"They're not my dream positions," he says. "But all my friends found work the same way."

Europe's economic despair and threats to its welfare state suddenly vanish at the Dutch border. A flexible labor market has brought the country's unemployment down from nearly 10 percent only three years ago to 6.1 percent today.

Dutch public finances are so solid that Amsterdam currency handlers chortle: "The best deutsche mark these days is a Dutch guilder."

And both consumer spending and industrial exports are booming in the Netherlands, pushing up economic growth to above 3 percent after inflation.

The surprising success story is important.

Some other small European countries, notably Denmark, Norway, Ireland, and Luxembourg also are demonstrating economic strength. But with its 15 million population, the Netherlands offers the largest example of how other European nations could reignite their creaking economies while guarding an extensive social security net.

In France, for example, gainfully employed youngsters are rare; more than a quarter of French under 25 struggle without a job. Little wonder French Prime Minister Alain Jupp has mentioned the Dutch as a model alternative to ruthless American- and British-style capitalism - an opinion the Dutch themselves share.

"We didn't go through a confrontational Thatcher-style purge," says Klaas de Vries, chairman of the Social and Economic Council, referring to the severe cuts in social spending Britain experienced in the 1980s. "We used a practical approach, injecting more incentives and responsibility into our social system."

Of course, the Dutch model has its flaws. Many potential workers continue to claim - perhaps falsely - generous disability payments, driving up the real unemployment rate. And as with Bussemamer, many of the new Dutch jobs being created are temporary, not full-time, positions.

Still, the Dutch have come a long way fast. In the early 1980s, the country's economic policy was best known as an example of what to avoid. The expensive welfare state had become a monster, generating a whopping public deficit of almost 10 percent of gross domestic product. In one particularly notorious example, almost 1 million people claimed disability payments.

"We have one of the best health systems in the world and one of the healthiest populations," says Jan Klaver, deputy director of Economic Affairs at the Federation of Dutch Industry. But on paper, it looked like all Dutch were sick and handicapped."

Beginning in 1982, the government slashed spending. Thanks to continuing cost-cutting, the Dutch now look set to cross the looming European single currency finishing line without breaking a sweat. The 1997 Dutch budget will bring the public deficit to 2.25 percent of GDP, well below the 3 percent maximum that France and Germany are struggling to achieve.

The man behind much of this startling economic turnaround is no conservative ideologue, but a former unionist and left-winger, Prime Minister Wim Kok.

"The Dutch private sector appreciates Kok," says Mr. Klaver. Since assuming power in 1994, the pragmatic Mr. Kok has imposed reforms attacking the roots of Dutch economic liabilities and weakness. Eligibility for disability benefits have been tightened and the size of benefits cut. The result: During the past two years, more than 100,000 "disabled" suddenly have returned to the work force.

The socialist prime minister also has deregulated what once was one of the world's most regulated economies. Officials at the Economic Affairs Ministry point proudly to a new law prohibiting price-fixing and cartels. Professions such as painters, furniture makers, toy shop owners, and others no longer need to obtain special diplomas before going into business. In The Hague, John Becker says he studied hair cutting for seven years. But his assistant only had to study two years. "It's definitely becoming easier to get a license," he says.

Rigid shopping hours similarly have vanished. Since last July, stores have been allowed to stay open until 10 p.m. and on most Sundays. Before, almost everything closed at 6:30 p.m. "People used to have to rush to finish all their shopping," says Hans Gobes, senior vice president of the retailer Ahold, which also owns America's Stop and Shop food chain. "Now they take their time."

The extra shopping hours helped boost Christmas buying. "People have a lot of confidence in the economy," says Gobes, "and we sold a lot of caviar."

Joblessness halved

An even more important Dutch success has come in fighting Europe's No. 1 economic evil: joblessness. In the past two years, the economy has created 200,000 jobs, and the unemployment ranks have fallen to about half the average European level.

One key reason is declining pay levels, agreed to by understanding Dutch trade unions. "In 1982, the economic situation was so bad here that everybody talked [negatively] about the Dutch economy," recalls Cor Inja of the FNV, the biggest Dutch trade union. "So we sat down with employers and worked out a moderate wage policy."

Fred Pallada, an economist at ING Bank Group, says wages rose only 1.7 percent in 1996, compared to a 1.9 percent inflation rate. At the same time, social security taxes on labor were cut from 32 percent to 21 percent on low income workers. "Entrepreneurs now have a reason to hire," Mr. Pallada says. "Labor is becoming relatively cheap.

Limber labor market

Just as important, the Dutch labor market displays far more hire-and-fire flexibility than continental competitors. More than 3 percent of all Dutch workers are temps, the highest percent in the world, about twice the US level and three times the level in Germany. That's because temping still is restricted in much of Europe. In Italy, for example, it is illegal. In France, temp agencies must pay employees more than full-time employees for the same job. And in Germany, temp agencies must employ all temps full-time - emptying the temp system of its flexibility.

Initially, Dutch unions criticized part-time jobs for wiping away job security and offering few opportunities for advancement. "When temping began to explode in the 1980s, we had big problems with this trend," says the FNV's Inja. "The wages for temps were worse than with normal jobs and so were their labor conditions."

But as unemployment soared, the unions soon were forced to become more accommodating. "Many of our members wanted to work and more and more found jobs only as temps," Inja says. "Many women coming back into the labor force preferred the temporary jobs so they could take care of their children."

These days, even the smallest Dutch city boasts a street clogged with temp agencies. Margaret de Mol began working as a temp secretary three years ago at the Eindhoven headquarters of the Dutch electronics giant Philips. Philips has a hiring freeze in the Netherlands, but continues to hire temps.

When she started working, Ms. De Mol didn't enjoy benefits normally given to full-time Philips employees. But in keeping with the Dutch desire to guard their welfare state, that now has changed.

Last April, unions signed a pathbreaking agreement with temporary work firms to provide temps with pensions, educational opportunities, and improved health care. "I really feel equal now to all the full-timers," De Mol says. "If anything, I have a better deal because I have more flexibility with my work."

The temp agencies also appreciate the union agreement. "We want to give pensions to our long term workers," says C.T.M.J. Farla, executive vice president of Randstad Holding NV, the biggest Dutch temp company. "It shows our commitment to them."

That commitment demonstrates the Dutch talent for consensus. In France, truck drivers have blocked highways and train workers have paralyzed the country to block welfare reforms. In Germany, powerful unions have resisted almost all attempts to cut social security spending and liberalize the labor market. Dutch success shows that the essentials of the European welfare state can be saved - but only by joining together to accept needed benefit cuts and more flexibility on working rules.

"Things got so bad here during the 1980s that all of us felt the need for change, but change that kept intact the good parts of our system," Mr. De Vries explains. "I'm convinced other Europeans could take a similar measured view and prosper."