The Dutch have earned themselves a unique, if paradoxical reputation. On one hand, their social liberality and tolerant approach to human vice has become world famous, the envy of backpackers who have been flocking to Amsterdam for years. Yet, on the other hand, the Dutch have also proven to be unwaveringly prudent with their national finances, a rarity today among developed nations. One of Europe's last remaining AAA credit countries, the Dutch seem almost like "Germany Light," with strict and careful financial policies that have been anchoring a reeling European Union.
Yet, the Netherlands is not so different than most other modern societies in one regard: it's getting old. Like the rest of the world, the population of the Netherlands is aging because of falling birth rates and increasing longevity. And, like their neighbors in Europe and their counterparts in North America and Asia, the Dutch are failing to realign their social and economic policies to account for the transformational shift of young to old. The Dutch are living as long as anyone in the world, and their birthrates are 1.7, a number well below replacement level. But, as their demographic balance undergoes this unprecedented shift, they continue with business as usual.
So as the Dutch near a crisis, what does that mean for the fate of the EU? Greece, Spain, Italy, and Portugal are teetering at the edge of fiscal ruin, and the French elections are revealing how polarized the country has become, especially in questions of European solidarity. With the Dutch government falling apart last weekend, the Netherlands is threatening to join the ranks of the other "Club Med" countries of Europe. With no fewer than ten Dutch parties disagreeing over budget cuts, one of Europe's most dependable economies faces tremendous uncertainty.
So what is the debate in the Hague? Predictably, the early talk is about austerity. For Europeans, this means agreeing upon which programs need to be cut, which need to be reeled back, and which need a small financial haircut. In other words, the key idea here is reduction. Behind the German-led austerity philosophy, debt can be solved by reducing spending.
This view certainly has merit, but it also misses a significant piece of the equation. At the core of the Dutch problem is not so much the fiscal challenge -- though it certainly exists -- but the structural sovereign issue of an aging population. But if the cause of the trouble is the disconnect between the 20th century social welfare programs and the 21st century aging population, then this can also be the solution.
In other words, the Netherlands can look to its aging population as the solution for economic growth. In no uncertain terms, aging populations are the world's greatest untapped economic resource. And this is especially true for the Dutch, where 15% of the population is currently over 65, and by 2050 it is set to reach 26%. With over one-quarter of the population set to be "retired" and withdrawn from economic life by mid-century, the Dutch can only save their national economy if they can enable the aging to grow GDP.
To an extent, the Council of Ministers of the Netherlands have begun to realize this. Last May, they adopted a proposal to raise the official retirement age to 66 in 2020, a change that would save the government roughly $1 billion USD. But, in terms of the profound underlying structural challenge, this is barely a drop in the bucket. People need to start contributing to economic growth into their seventies and eighties if we are going to prevent a global economic meltdown. While the Netherlands plans to raise retirement to 68 by 2040, the ratio of workers to pensioners is still projected to be around two-to-one. And this ratio is, of course, entirely antagonistic to growth.
Raising the retirement age is part of the solution, but by itself it is only a band-aid, and the wound that it is trying to conceal will slowly bleed unless more significant reforms are made. Most importantly, what the Dutch need is for the private sector to respond to the demographic changes so that "seniors" are encouraged to remain a part of economic life and contribute to growth. BMW has done this in Germany, and now Dutch companies like Shell, Aegon and ING must follow suit. It is not simply enough to modify an arbitrary retirement age. In addition, seniors need to be incentivized to remain in the workplace, even if they have passed the ever-more irrelevant state-established retirement ages.
If the Netherlands economy spirals downward like the Greek and Italian economies, it may spell the end of the European Union. Yet, if the Dutch can manage to bring their forward-thinking social sensibility together with their fiscal prudence, they may end up setting a model that the rest of Europe and the world can follow. Indeed, we are just at the beginning cusp of the era of aging populations, and we are all searching for a leader to follow. Perhaps this most recent "crisis" in the Netherlands isn't really a crisis at all. Perhaps it is the opportunity that we have all been waiting for.
This article appears in full on CFR.org by permission of its original publisher. It was originally available here.