Benchmarking the German and Dutch Welfare States

Several times a year competitiveness reports are published in which countries are ranked according to their economic performances. These reports as a rule conceive welfare state institutions to be improductive and detrimental to the growth potential of economies. The incidence of institutions, such as a large share of public expenditure on social security, statutory minimum wages and a centralised bargaining structure in industrial relations, in these reports is subtracted from economic performance on, what is basically no more than an assumption that it is a competitive disadvantage (see, for example, Sachs and Warner 1996). Yet, this has left observers of the sound economic performance of extensive welfare states in the past and the present puzzled. The Dutch Ministry of Social Affairs and Employment has published a competitiveness report in 1996 that explicitly focuses on the impact of the welfare state on economic performance. This chapter draws primarily on this report. It will address two questions: i) to what extent are economic performances determined by welfare state institutions? and, more specificly ii) are there differences in German and Dutch institutions that explain the current diverging economic performances of both economies? To examine these questions the Federal Republic of Germany and the Netherlands are compared with two liberal market economies: the United States of America and the United Kingdom, and another welfare state: Sweden.