Dutch battle to shake off the welfare habit

Neighbours are watching as Holland looks for ways to cut Europe's most lavish benefits

Marco Jensan slumped in front of the Real Magic fruit machine in Tivolino's Casino in The Hague, watching the numbers flash. Around him rows of young arms were yanking levers, releasing trickles of guilders. But Real Magic was simply not paying out for Marco, a skinny 22-year-old, who lost his job in a shop two months ago. "I don't seem to be having any luck, do I?" he grinned, fiddling with rings clamped to his left ear.

Marco's luck is running out on other fronts too. He currently claims about 800 guilders (pounds 320) a month in unemployment benefit, which, at 70 per cent of his previous wage, he admits is "not a bad deal". He says many of his friends prefer to hang out at places like Tivolino's rather than seek low-paid work. But the level of unemployment benefit has already been cut in The Netherlands by 10 per cent, and now further ways are being examined of getting people like Marco "off welfare".

Holland's sick and disabled are also beginning to realise that money doesn't flow like magic any more. Wim Kok, the Dutch Prime Minister, is implementing a radical reform of the benefits system, renowned as one of the most generous in the world. About 46 per cent of gross domestic product is spent on social welfare and public service payments - higher than anywhere else in Europe. After an injury or other disability, workers have until now been able to claim 80 per cent of their salary until the age of 65. Now all disabled workers must have new medical checks to see if they are fit for any other job. For years any Dutch person whose working spouse died has been entitled to draw his or her salary, but last week this benefit was abolished.

The debate on social security reforms is intensifying throughout Europe, and Mr Kok's effortsare being carefully watched in Germany, Belgium and France, where preliminary reforms have already sparked mass protests. Slashing benefits is part and parcel of the European drive to ease the tax burden on employers, create more jobs and cut public deficits, which is becoming ever more urgent as countries try to meet the Maastricht criteria for European Monetary Union. John Bruton, Prime Minister of Ireland, which last week assumed the EU presidency, has declared social security reform a priority.

The Netherlands scores high marks on most economic tests, with unemployment already down to 6.5 per cent and growth at 2.5 per cent. Commuters can measure their country's dynamism as they sit jammed amid the lorries which snarl up motorways around Rotterdam, on the edge of the "blue banana" - the industrial heartland of northern Europe.

Whatever the apparent successes, however, a bloated welfare system holds long-term dangers which the Netherlands is now battling to pre- empt. Unemployment may be low, but working patterns in Holland mean large numbers are continuing to enter the workforce, particularly women, and families of immigrants. With classic inner-city problems of drug addiction and crime on the increase, the Netherlands is determined to avoid the divisions of large scale social exclusion.

Reforming welfare is particularly sensitive in the Netherlands, as it challenges assumptions, deeply rooted in Dutch society, about liberal values and consensual politics. Some speculate that the country's belief in the values of social support may first have been entrenched centuries ago as the early Dutch found that the only way to live bunched up so close to each other on this small slab of watery land was to share and to help. The Netherlands is today one of the most densely-populated countries in the world.

A stroll through The Hague's glistening new city hall illustrates the efforts made to "include" the socially "excluded". In the main concourse of the building, housing a library, cultural centre and council offices, welfare claimants wait for their cheques under the glass atrium, intermingling with the shoppers and council employees. Tourists nip out of taxis (driven by men in suits) to admire the City Hall exhibition of "the flexible workforce", directed on their way by countless staff apparently doing nothing behind neat little desks.

During the 1960s and early 1970s, when North Sea gas helped to fuel the economic miracle of annual growth between 3 and 4 per cent, the generous welfare payments seemed a logical part of a brave new world. But during the economic decline of the 1980s, the facts began to speak for themselves. By 1991 more than 900,000 people, out of a possible workforce of 6 million, were defined as "disabled" and therefore able to claim lifelong benefit. As this year's economic survey of the Netherlands, by the Organisation for Economic Co-operation and Development states starkly, "The number of disabled remains totally out of line with the general health status of the population."

A programme of changes to the welfare system was first agreed by the Labour-Christian Democrat coalition government in 1989, and in the early 1990s the first reforms were greeted with mass protests, leading to a loss of support for the coalition. The attempt to weld market forces on to traditional Dutch altruism continues to be viewed with suspicion by the unions. Nevertheless, as the second round of reforms go ahead this year, the social partners are largely holding their fire. Lessons have been learnt from the past, they say, and changes may be necessary as long as they do not go too far. Sickness absence has already been reduced by 40 per cent.

The unions say there is no reason to go the British-US route of total deregulation, and hold out the hope that the new Dutch model could still be in the vanguard of sensitive "neo-liberal" reform. There is no harm in making people - employers and claimants alike - aware of what benefits cost, they say, as long as money is directed to the needy.

Mr Kok has been warned that his privatisation of sickness and disability benefit could deter employers from taking on "at risk" workers. At the same time, however, it is generally acknowledged that obliging employers to pay insurance premiums gives the bosses new incentives to ensure the health of its workforce.

Other liberalising changes have also been welcomed. Shop opening hours have been extended, and cartels - in the taxi ranks, for example - are about to be broken up. Although the drivers may not wear suits in future, at least more people will be able to afford them.

Meanwhile, the government is promising that by saving all this money it will invest in a new high speed rail link, which will bypass the Rotterdam jams.