“If the Dutch lived in Ireland, they’d feed the world but if the Irish lived in Holland, they’d drown.”
This old joke came to mind when reading about Clontarf this week. Rather than address the fundamental problem of too many cars on the road at rush hour, Dublin City Council will seek to make the daily “traffic-jam experience” more bearable by lowering the sea wall to improve motorists’ view of Dublin Bay.
It is difficult to imagine the Dutch, a nation of serial land re-claimers, undertaking to increase the likelihood of flooding in a flood-prone, agricultural basin in northern Holland, let alone in one of the most densely populated urban districts of a capital city.
The Dutch have been waging a war with the sea for millennia. At first, the Romans found the behaviour of the locals in the lowlands perplexing as they battled with constant flooding on their isolated polders. The ancient Hollanders proved themselves industrious and ingenious in their dogged insistence on settling such an inhospitable flood plain.
Over the years, not only did the Dutch master the elements, they also mastered commerce. While the Spanish plundered and spent, the Dutch invested and saved, becoming the traders of Europe. They built the most commercially successful economy in the world.
By the 17th century, Amsterdam was Europe’s mercantile capital. Its stock exchange dwarfed all others and its companies were globally pre-eminent. The Dutch, from their sodden unprepossessing polders, became the princes of globalisation, with the most impressive navy, the most sophisticated trading networks, and the most ruthless dealmakers.
To give you a sense of how commercially dominant Holland was, consider that in 1637 the Dutch East India Company was valued (in today’s money, adjusted for inflation) at $7.9 trillion. This commercial behemoth was bigger than the world’s top 20 companies today, including Apple, Google, Facebook, Samsung, Walmart and Microsoft.
Holland remained an extremely wealthy country throughout the 18th, 19th and 20th centuries, tolerant of dissenters and always open to commercial opportunity.
In business, the Dutch have a reputation for being both meticulous in their attention to detail and global in their strategic planning. An example of this productivity is seen today in agriculture. The Netherlands is the world’s second largest agricultural exporter – second only to the US. Though its land mass is smaller than Munster, it exports $70 billion (€58 billion) worth of food per year.
Given this impeccable commercial CV, it is surprising that one of the most severe economic afflictions that can befall a small economy is known as “Dutch disease”. This refers to the phenomenon whereby an apparent windfall – like an oil or gas find – can make a country poorer and less stable.
In the 1950s, the Netherlands discovered large gas reserves in the North Sea. For a small energy-dependent country, this was seen as a Godsend. By the 1960s, these gas fields were operating at full tilt, revenue was flowing in and economists expected a national windfall. However, something unexpected happened.
Rather than boosting the Netherlands’ economic performance, the gas fields did the opposite, because the entire economy pivoted towards gas. Investment gushed into the gas industry, away from the rest of the economy. Too much money sluiced towards the gas bonanza; too little to the rest of the country.
Workers also moved out of other industries hoping to find work in the better-paid gas industry. Rents started to rise and, as the gas industry wages were higher, they dragged up the national wages in all other industries.
The rest of the Dutch economy started to become uncompetitive. The government too, beguiled by easy gas money, favoured infrastructure directed towards the gas industry. Taxes from gas began to eclipse others, making the country dangerously reliant on gas.
But no one could talk about anything else. The newspapers became cheerleaders for the marvels of the gas industry. Prices, rents, and wages driven by the gas boom kept rising, choking off the international competitiveness of the general economy.
Like Ireland today, it was a trading economy. The Dutch then, like the Irish now, needed to remain competitive on world markets. But they started to be priced out of global markets as a result of the surging price levels at home.
By the 1970s, the Dutch economy was going backwards.
This is what can happen when an economy contracts Dutch disease: the economic equivalent of too many eggs in one basket.
Why is this relevant to Ireland right now?
It is important for Ireland because Dutch disease doesn’t necessarily stem from a resource find, like oil or gas, but can be triggered by any new industry that locates in a country and skews the focus of the economy towards it.
Should we regard the multinationals and in particular the tech multinationals through the prism of Dutch disease? Could we be in danger of becoming too dependent on them, particularly as their capital is mobile, their tenure by definition temporary, and their impact on local taxes, rents, wages and general prices is unambiguous?
In recent years, the tech companies’ presence in Ireland has soared. Silicon Valley is buoyed up by cheap money and, while some companies’ technologies will change the world, many others are nothing more than leveraged get-rich-quick schemes funded by venture capitalists looking to make a twist.
Many companies’ implied riches are nothing but “hope-valuations” right now. The problem for Ireland, as host to some of these highly valued but yet-to-be- profitable companies, is no one knows which ones will survive and thrive and which will crash and burn.
Don’t get me wrong. Ireland is experiencing the problems of success. It is far better to have them here than not. Without American capital, Ireland would be an economic backwater – a sort of Croatia with bad weather.
These companies have plugged our economy into the global supply chain, led to enormous technology transfers into the country and employed hundreds of thousands. There is no going back, nor should there be.
However, the key now is to secure their presence while insulating the rest of the economy from a debilitating Irish form of Dutch disease, where the tech companies’ interests would supersede all others, sucking in resources, driving up rents and prices, and starving local start-ups.
When things are going well it is easy to be blasé, but we should be vigilant and strategic about the years ahead. If the canny Dutch can fall foul of their disease, anyone can.