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Econ 050: Inequality in the Netherlands

Date:13 September 2019
Econ 050 is a podcast on the economics and business topics that matter to the Netherlands and the wider world, made by the Faculty of Economics and Business and the Northern Times.
Econ 050 is a podcast on the economics and business topics that matter to the Netherlands and the wider world, made by the Faculty of Economics and Business and the Northern Times.

Financial security is not the only measure of the welfare of a population. Safety, access to housing, medical care and education are just as important to your sense of well-being. But on a regional level, those can be somewhat misleading indicators: it was announced a few months ago that the inhabitants of Drenthe were the happiest and wealthiest in the Netherlands, even though the province has long had fairly limited job opportunities. Part of the reported satisfaction levels came from access to unspoiled nature, but more of was due to the fact that there were a disproportionate number of retirees living there. Recent research has also found that people with a recent migrant background and those without higher education feel that they do not experience the same degree of equality as other Dutch people.

What is the reality of inequality in the Netherlands?  Professor of economic growth and development Marcel Timmer discusses why it is a vital topic of research at the Faculty of Economics and Business in the latest episode of podcast Econ 050. You can listen to the full episode online here, or in your favourite podcast app such as Spotify or iTunes. Don't forget to subscribe!

What are the ways that welfare is measured in a society, and how equitable is the Netherlands?

Marcel Timmer: There was a big study being done by the Central Bureau of Statistics, the CBS, in the Netherlands where they actually tried to find out inequality across the Netherlands in various dimensions. So they looked at material well-being, so this is in terms of consumption possibilities and in terms of possession of a house or a car, but hey also looked at more immaterial well-being domains, so for example leisure time, your health situation, feelings about safety, feelings about comfort in your environment, even things like social trust.

Which groups in society experience more inequality?

Timmer: This year, for the first time, [the CBS] actually were looking at differences across particular groups in Dutch society along these domains. And what they found actually is that the main split – the most inequality is not between males and females or between young and old, but along two other dimensions. One is the dimension of educational attainment, so the low versus middle and high educated part of the population, and the other is the population with Dutch nationality and Dutch background versus non-Dutch background. So there are various domains, especially in terms of income and having the feeling that you are actually able to organize your own life.

What is the Netherlands Bureau for Economic Policy Analysis?

Timmer: It’s quite unique. It was established by Jan Tinbergen, who is one of the few Nobel Prize winners The Netherlands has. So he won a Nobel Prize in Economics and he actually founded this this institute. One of the first things they did was to develop a big macroeconomic model of the society in order to plan and to see where investments were needed in this new economy. And that became a defining characteristic of the CPB. But it's hard to find a sister organization. So in England, for example, there is the Office of Budget Responsibility. But that is really geared towards keeping check on the government revenues. That's also part of what the CPB does, and in addition to that, they also have a forward-looking analysis trying to forecast or to think about scenarios where the Dutch economy will be going in the medium and long term.

Can some inequality – but not unfairness - be seen as a good thing for society?

Timmer: Inequality as such is not necessarily bad, right? I mean, you can take a normative stance towards whether you find inequality a bad thing or a good thing. But I think from an economic perspective that it's clear that we need some inequality in outcomes across society in order to incentivize people. That's basically one of the hallmarks of economics. People make investments because they think they can improve their situation.

So needing inequality as kind of an impetus for innovation?

Timmer: Yes, definitely. That doesn't mean that we need to strive for inequality, but it's better to believe that the perfect, equal society also is lacking in incentives. But clearly, there's kind of an inverted U shape, and t's clear that in this society, you have too many unequal outcomes. That's a society which is not functioning well for all involved. So there is a kind of optimum, but what's even more important is that people talk about inequality. They are concerned about how unfair and unequal things are. So in poverty, most people accept that there is inequality. But if you say that inequality is undeserved, then that's something where people get concerned about. I think as a society, what you should strive for is this fairness, and that means that actually, you should give people equal access to opportunity. People are different in terms of the talents and motivations, but at least give them all equal opportunity to develop the talents they have.

What is the role of regional strong suits in a global supply chain?

Timmer: Take the example of Philips in Drachten. It's not just that factory in Drachten, but it's the network actually in which it is embedded. So people talk sometimes about pipelines, so they’ll say that the northern provinces need pipelines to other hubs in the national economy, but also internationally, so that there is a flow of knowledge continuous flow of knowledge and of talent. So we should actually prioritize those activities not ones which are just isolated advance which are actually part of a global system of production. And that might be a way actually for the northern provinces to improve.