Complacent capitalism: Productivity growth and secular slowdown in the Dutch economy, 1982-2020

Since the 1970s, economic development in the western economies has been characterized by a persistent slowdown of productivity growth, carrying a deceleration of overall income growth in its wake. The initial phase of this deceleration is typically attributed to the exhaustion of postwar catch-up potential, shared suppositions of macroeconomic policy, the disintegration of the Bretton Woods system and higher energy prices after 1973. Yet with regard to the period since the 1980s at least in the case of the Dutch economy its persistence is paradoxical, as conditions to growth have been favourable. The profitability of business has been high, real interest has consistently fallen, and the growth of labour costs was kept down by means of a corporatist compact and a flexibilization of contracts. Even so, productivity has stalled even beyond the continued slowdown in other European economies, edging towards a standstill since the start of the financial crisis in 2008. The Dutch growth path instead has been characterized by a dominance of labour input and a slower growth of capital intensity. As a general phenomenon, the persistence of the productivity slowdown is attributed to a low rate of technological change. However, given that this period witnessed ICT-related changes that revolutionized production, work and communication, this is a problematic position. Focusing on the Dutch experience as an extreme, we suggest an alternative explanation that is rooted in the economic-historical literature on the emergence of modern economic growth: that of labour-saving technological change in response to the scarcity and enhanced cost of labour. Harking back to postwar wage constraint as a panacea, Dutch wage growth has stalled since the 1980s, both in a comparative sense and relative to labour productivity, blunting incentives for technological change. Additional mechanisms came from a stimulated increase in labour participation and finance, among other things in the shape of an early reliance on loan capital. As a result, the ‘complacent economy’ that emerged from the1980s is characterized by weak incentives for change, explaining low productivity growth. Our data and analysis pertain to the Dutch context. Only to the extent that it can be shown that the same mechanisms applied elsewhere does it offer an explanation for the wider productivity slowdown. However, in the light of the inevitably central role of productivity as a source of growth in coming decades, our findings do suggest that basic tenets of macroeconomic policy should be reassessed.