Hamish McRae: We could go Dutch on this one

What can we learn from the Dutch? Tony Blair is spending the weekend in Barcelona lecturing his fellow EU leaders on the merits of British flexibility, but to many continental Europeans there is an alternative model in the Netherlands.

It is on most measures the best-performing of the European economies. It has the lowest unemployment and is second only to Ireland, a rather special case, in terms of growth. It manages to combine this with a highly-developed welfare state.

The charge against the Netherlands is that while it has been successful at bringing flexibility into some aspects of its economy, it is merely good at running an existing economy rather than creating a new one. Thus its labour market is extremely flexible, with the highest level of part-time workers in Europe. But its low unemployment level, just under 2 per cent, conceals the highest level of disabled unemployment (some 10 per cent of the workforce) in the developed world. Unless you think the Dutch are uniquely unhealthy, something's amiss. What is happening is that anyone who says they are disabled can claim 70 per cent of their salary from the state. Plans to check the abuse are politically stalled. Despite these burdens the country has been doing well. The great question is, can it continue? Looking ahead, one of the most important determinants of economic success will be the rate at which new businesses are created.

Last week, from a firm of economic consultants in the Netherlands produced a report* criticising the lack of attention Dutch schools paid to preparing young people for an entrepreneurial career. Few people, it said, regarded self-employment as a serious career option: a paid job as an employee was still the dominant perspective in Dutch society. The government was sufficiently concerned about this to have set up a National Programme on Entrepreneurship and Education to try to correct this balance.

This might seem an unremarkable observation. The cultural impetus to set up a business, rather than find a job, is not strong in most of Continental Europe or in much of the UK. But it is intriguing that the Dutch government should be so worried about this, for on several measures the Netherlands does rather well.

Two such measures are shown in the charts. One is the league table of barriers to entrepreneurship compiled by the OECD. Britain comes out top by a large margin, ahead even of the US. But the Netherlands does well by continental standards. On the other measure, venture capital investment in high-technology companies as a proportion of GDP, the Dutch are second only to the Americans.

So the money is available and the regulatory barriers to setting up a business are not particularly high. In addition young people are mobile and the physical infrastructure for setting up businesses is good. So what is missing?

Aside from the lack of attention in the educational system, consultants cite several other areas where attention is needed. These include: a failure to transfer knowledge from universities to new and small enterprises; the extent to which the Dutch welfare state encourages people not to be self-sufficient and the fact that some administrative barriers remain.

The first lesson for us is that we need to work to get the message to the schools that young people should think strategically about careers. Not just asking what they want to do or what they might be good at, but how to gain the skills they'll need.

Schools are not natural places to learn entrepreneurship: people who become teachers have chosen not to set up businesses. Indeed the educational establishment can still quite hostile to business. But encouraging young people to think broadly about the way they will spend their lives ought to be part of the schools' agenda.

Universities, on the other hand, are natural breeding grounds for entrepreneurs. Ideas are money. We are almost certainly ahead of the Netherlands in building clusters of businesses around established universities. Cambridge, of course, but also the London Business School, the LSE, UMIST and many others have been very successful in using the knowledge in the university to create new businesses. But – lesson two – we should watch the success or otherwise that the Netherlands has in developing such knowledge transferral. I suspect it is the best model in Europe.

Third, we should look at the changes the Netherlands has made to small business regulation. The OECD chart shown here was drawn up before recent changes were made to simplify the procedures for business start-ups. By contrast our government has made it more difficult to start businesses, or at least increased the bureaucracy associated with employing people.

But most important of all, we need to think of entrepreneurship not just as a selfish, individualistic activity. Yes, it takes an individual or a group of individuals to start a business. But the key message of the Dutch report is the need to create an entire society that tries to be more efficient, more responsive to consumers' needs, that continually questions how it does things.

I suspect that fostering entrepreneurship within existing businesses and in the public sector is just as important as encouraging entrepreneurship to create new firms. It is just as important to have the same sense of, "How can we change things and do them better?" in the civil service, too. We have too narrow and confrontational a view of the role of entrepreneurs. The Netherlands has a tradition of social co-operation that we should watch.

*'The Long Road to the Entrepreneurial Society', EIM Business and Policy Research, www.eim.nl