Strengthening Investment and Innovation: Key Reforms to Sustain the Netherlands’ Economic Growth and Global Competitiveness
The Netherlands, a highly developed small country, has long leveraged its strong institutional framework, advanced infrastructure, and highly skilled workforce to maintain a solid position within the international trade system. However, with profound shifts occurring in the global economic landscape, the Dutch growth engine now faces unprecedented challenges. According to the latest economic survey released by the Organisation for Economic Co-operation and Development (OECD), although the Netherlands’ economy shows considerable resilience, structural reforms—especially in investment, innovation, housing markets, and green transition—are urgently needed to sustain its competitiveness in the future.
It is undeniable that the Netherlands has been known for its fiscal prudence, maintaining government debt levels well below the EU average and a relatively robust social security system. Yet, since 2023, there has been a noticeable shift in policy emphasis: a growing focus on short-term improvements in purchasing power rather than long-term structural investments. While this approach may gain broad political support, its suppressive effect on long-term economic growth risks being seriously underestimated. Cuts in public spending on education, research, and infrastructure, if continued, will severely undermine future productivity and innovation capacity.
The experience of the United States offers a cautionary tale. During the early 2000s, in the wake of the 9/11 attacks, the US government spurred economic recovery through interest rate cuts, tax reductions, and increased military spending. However, it also significantly reduced funding for basic research and education. This resulted in a decline in America’s leadership in fundamental scientific research, as countries like Germany and China quickly caught up, particularly in critical fields like semiconductors and biotechnology. Today, Washington is attempting to regain lost ground through the CHIPS and Science Act, underscoring a lesson that the Netherlands would be wise to heed.
The Dutch housing market also reveals deep structural imbalances. Real estate prices have been rising steadily over the past decade, particularly in cities like Amsterdam and Rotterdam, making it increasingly difficult for young people to buy their first homes. The root cause lies in housing supply growth failing to keep pace with population and economic expansion. Dutch policies have traditionally supported homeownership through tax incentives and low-interest loans, which help invigorate the market in the short term but ultimately stifle rental market development and exacerbate supply-demand mismatches.
In this respect, some American cities provide instructive examples. Minneapolis, for instance, boldly reformed land-use regulations in 2018 by eliminating single-family zoning restrictions, allowing for multi-family housing construction in areas previously limited to detached homes. This policy has encouraged the development of affordable housing, easing rental price pressures. Additionally, many U.S. states have revisited rent control policies, increasingly opting to boost housing supply by streamlining permitting and unlocking public land rather than imposing price caps.
Beyond housing, the Netherlands faces pressing challenges with its electricity infrastructure. As renewable energy sources gain a larger share, existing grid capacity and management systems have struggled to keep up. This bottleneck directly impacts business investment decisions, especially for industries with strong green ambitions such as data centers, green hydrogen, and electric vehicle manufacturing. The OECD report stresses that without accelerating grid expansion and upgrading smart grid technologies, the Netherlands risks falling behind in the green transition race.
California’s experience offers a contrasting case. Despite high electricity costs and frequent natural disasters, California has made notable progress in grid modernization and energy storage solutions. Projects like the partnership between PG&E and Tesla, which deploy large-scale battery storage, have helped smooth power fluctuations. The state also incentivizes households and businesses to install solar-plus-storage systems, reducing reliance on the main grid. If the Netherlands could adopt similar approaches and improve coordination among government agencies, grid operators, and end users, it could resolve its current electricity transmission challenges.
Turning to trade and innovation, the Netherlands’ role as a global trade hub is increasingly tested by rising protectionism and supply chain reconfigurations. Growing uncertainty has dampened business investment enthusiasm. Improving the business environment and accelerating industrial digitalization are critical priorities. The OECD recommends that the Dutch government, as it updates its industrial strategy, avoid protectionist tendencies that overly favor incumbent large firms and instead foster a more open, transparent, and competitive market landscape.
The U.S. experience here is instructive as well. While major tech giants dominate the market, the federal government has recently ramped up support for entrepreneurship and innovation through initiatives like the Small Business Innovation Research (SBIR) program. This program funds startups and encourages the commercialization of university research, particularly in fields such as AI, green technologies, and advanced manufacturing. Adopting similar measures could help the Netherlands build a more vibrant innovation ecosystem by bridging academia, research institutes, and private enterprises.
Overall, the challenges facing the Netherlands are not a traditional economic crisis but rather a “future-proofing” dilemma: how to maintain fiscal discipline while ensuring sufficient policy support for long-term growth. The OECD report serves as a wake-up call. Amid demographic aging, shifting global trade patterns, and climate change, economic resilience no longer depends solely on past achievements but requires constantly refreshed policy tools to navigate new competitive realities.
If reforms are delayed or insufficient, the competitive advantages that the Netherlands has long relied upon may erode over the next decade. Missing this reform window will make restoring confidence and momentum all the more difficult. For policymakers, forward-looking vision and resolute action have never been more essential.