Growth, Jobs and Structural Reform in the Netherlands

The late 1960s and early 1970s can now be described as the heyday of demandmanaged macro-economic policy making. That certainly was the case in the Netherlands. The combination of Keynesian oriented demand management policies, the increasing relevance of the CPB1, the Dutch Bureau for Economic Policy Analysis, and the use of tailored macro-models had created a climate, within which many economists, policy-makers and civil servants believed they knew how the economic development could be steered in an optimal way. How disappointed it must have been during the 1970s and early 1980s, when it became clear that Keynesian-oriented demand management policies could not prevent the return of a long period with sluggish growth, rising unemployment, high inflation rates and increasing budget deficits. Whatever policy was applied in those years – more government expenditures, lower taxes, investment subsidies and the like –, they all failed in restoring economic development back to its stellar performance of the 1960s. The Keynesian paradigm did not work properly anymore, a message which was, at that time, difficult for many people to accept. For a long time, the old views were still prevailing but at the end of the 1970s new ideas burst through, thereby demolishing much of the confidence people had in economic policies and government interventions in general.