Fifty Years of Industrial Policy in the Netherlands: Origins and Legitimacy of Motives for Industrial Policy

Abstract

This paper presents an overview of fifty years of industrial policy in the Netherlands and discusses the current legitimacy of historic motives. This paper is based on a five year research project in which a committee of the Prof. Mr. B.M. Teldersstichting (the scientific bureau of the Dutch Liberal Party) studied the history of and motives for industrial policy in the Netherlands between 1949 and 1991.

The historic overview in this paper describes six distinct eras in the Dutch history of industrial policy. It start in 1949 with post-WWII offensive industrialisation policy, followed by growth policy. This lasted until the first oil crises, after which a more defensive and selective growth era began. In the eighties industrial policy became more offensive again, this time focussing on technology policy. Starting 1989 defensive and even direct state support for companies regained the upper hand, only to end in 1994 when a new minister took over to focus on promoting a knowledge intensive industry.

The paper will discuss the eight motives that were used to legitimise specific government intervention in favour of the manufacturing industry in the studied period. These motives were (1) protecting employment, (2) protecting higher value added per employee, (3) promoting networking, (4) stimulation of innovation, (5) reducing the failure of the capital market, (6) avoiding destruction of capital, (7) promoting exports and (8) Matching.

In this paper a framework is build by which motives for specific government intervention in favour of the manufacturing industry can be tested on their legitimacy from a liberal economic perspective. This framework consist of three criteria: the market must evidently fail, the government must have an effective instrument to correct the market failure and the cost - benefit relation of the intervention must be reasonable.

When applying these criteria to the motives that were mentioned to legitimise industrial policy, this paper will conclude that only the stimulation of innovation is a legitimate motivation. The other seven motives do not hold against the liberal economic framework for industrial policy. The paper did discover another motive for industrial policy that did not came up in the historic overview; providing or protecting collective goods, such as infrastructure, the environment, science and education. This led to the conclusion that the Netherlands has too much industrial policy and that the way forward was to start abolishing historic dead wood in a forest that has grown wild in the last fifty years. The room that is created by abolishing unnecessary old policy can then make room to improve specific collective goods or to lower taxes for companies in general.

Keywords: industrial policy, Netherlands, liberalism, market failure

JEL Classification: A13, B25, H11, L16, L52, L60, N64, O21