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Myths about sell-out refuted

Speech | 06-09-2007 | Amsterdam, Minister

Discussions about the investment climate should not take place on the basis of "Orange" sentiments but on the basis of facts. There is no sell out of Dutch businesses going on. However, the business sector and government should respond quickly to new developments. Minister Bos made these remarks during a speech at a conference on the investment climate for financial institutions.

6 September 2007
Amsterdam

The Netherlands’ financial strength

In his book The Affluent Society, the economist John Kenneth Galbraith coined the term ‘conventional wisdom’.
That is, wisdom that is widely accepted but not necessarily true.
Stories or statements that are repeated over and over until everybody thinks they are true.
Also known as urban myths or political truths.
Urban myths like the story of the cheque that was written on the side of a cow, the poodle that was put in a microwave oven to dry, and the crocodiles in New York’s sewers.
Political truths like the strange notion that conservatives are good for the economy, social democrats can’t be trusted with taxpayers’ money, and the Dutch economy is selling out to globalisation.
And that is the conventional wisdom I want to address today.

Galbraith argued that conventional wisdoms can be an obstacle to introducing new theories or explanations; they can induce inertia or even an absurd denial of reality.
And what I see in the Netherlands is that despite lacking totally in foundation, they can arouse nationalistic feelings.
Strong Dutch feelings – we call them ‘oranjegevoel’ - that are usually reserved for our national football team and the royal family.

What am I referring to?
To the clearly deep-rooted concerns voiced by MPs and columnists about KLM’s merger with Air France, ABN/AMRO’s takeover by another bank, or Stork’s sale to ‘foreigners’.
I am referring to headlines like the following, which – by Dutch standards – are very emotional: ‘The Netherlands is being sold off’, ‘Companies plundered by financial barbarians’ and ‘The Chinese are coming’!
And I am referring to the way the other side of the coin, like the takeover of ICI by AkzoNobel or of Antonveneta by ABN/AMRO, seems to have been almost entirely forgotten.

These emotions, this ‘oranjegevoel’, is caused by a myth, a conventional wisdom.
Namely, that Dutch companies are Dutch, and that internationalisation and globalisation are a threat to the Dutch identity and will undermine our prosperity.
I only need look around me to know that this is far from true today, and in fact it never was.
History and the facts and figures confirm this.

The Netherlands has traditionally had an open economy. Since almost the time of the Batavians, a large proportion of our income has come from international trade.
Dutch companies and organisations have substantial financial interests all over the world.
Dutch governments have for years tried to promote the free movement of goods, capital and persons, both in Europe and worldwide.
We would have invented globalisation ourselves, if it had been possible!

So what about the concerns that have been aroused by several recent mergers and takeovers?
How did the sell-off myth originate?

Galbraith wrote: ‘The enemy of the conventional wisdom is the march of events.’
So let us take a look at the march of events regarding mergers and takeovers of Dutch companies: fact versus fiction.

Fact: there is nothing new under the sun.

Statistics from the CPB, the Bureau for Economic Policy Analysis, show that the number of takeovers of Dutch companies is not increasing dramatically.
Rather, there is a steady upward trend. Let’s consider a few examples.

HEMA? From 2004 it was in the hands of a Dutch/American private equity club, and since the start of this year it has been in the hands of the British company Lion Capital.

Kruidvat? It has been owned by the Chinese company A.S. Watson since 2002.

Johma salads? It has been part of the British listed company Uniq since 1999.

‘Our’ Douwe Egberts coffee? It has been in American hands since 1978 and I’ ve not heard any complaints.

The Dutch Gazelle bicycle? It has been in American hands since 1987.
But has just been brought back by the Dutch.
By a private equity club, admittedly.

As I said, there is nothing new under the sun.
But then, how Dutch is the Netherlands?

Fact: 80% of Dutch listed companies are in the hands of foreign investors, almost 90% of Dutch companies’ turnover is generated outside the Netherlands, 80% of the workforce of these companies does not live in the Netherlands, and 80% of head offices in the Netherlands use English as their official language.
And this did not happen within the last year.
It is an ongoing development that began long ago.

Fact: the number of foreign companies taken over by Dutch companies is higher than the number of Dutch companies taken over by foreign concerns.
The number of takeovers abroad by Dutch companies has almost doubled in the past two years: from 132 to 216. The number of foreign takeovers in the Netherlands rose by less than 10%, from 135 to 145. Dutch takeovers abroad were worth 80 billion euros in 2006; foreign takeovers in the Netherlands were worth less than 50 billion euros.

Fact: our business community consists of far more than a few prominent listed companies.
Small and medium-sized enterprises represent a powerful economic force in the Netherlands.
It is here that we find the rising stars of the Dutch economy.
They offer traditional Dutch products such as Van Bommel shoes, Bugaboo prams and Camelot property guardians.
And thanks to their excellent international credentials and contacts, they could readily grow into a new Shell or a new TomTom.
But they do need our attention, because, as well as opportunities, they also face risks resulting from insufficient international connections.

For how does a company grow?
By inventing a good product and then selling it to as many people as possible in as many countries as possible.
In other words, through innovation and an international outlook.

The internationalisation of our economy is therefore not a weakness, or a sell-off, but a sign of the Netherlands’ economic strength.
For the government, this means that it is far more important to create more space for what is small and dynamic, than to protect what is large and old.

What is more, the Netherlands is part of a larger Europe. I agree with Mr Groenink that we need to pay more attention to the positioning of Europe.
Many years ago, the key issue was the operation of the internal market, but today it is Europe’s position as a single market with specialised clusters of activities.

All these are facts, they are all events that should, in my view, be sufficient to refute most conventional wisdoms about international sell-offs.

I am, however, the first to acknowledge that it’s not as easy as that.
Although the debate about our ‘oranjegevoel’ has little basis in fact, it should still – for that very reason – be taken seriously.
It articulates the broader uncertainty that people feel in a world of rapid change and growing complexity; a world where many people feel that they are losing control over their destinies.
To my mind, politicians have only one option: to expose falsehoods, take people ’s concerns seriously and help to create new certainties.
Clinging to ‘oranjegevoel’ as the basis for sound economic policy is an old certainty.
Which of our companies is still strictly Dutch is not particularly important.
In fact, it is irrelevant as far as our prosperity is concerned.
The only thing that counts is that companies want to locate in the Netherlands – where they will create jobs, innovate and pay tax.
And if that is what you want, you will not get far with ‘oranjegevoel’ .
Instead the emphasis should be on our business climate.

As an open economy with internationally operating companies, that is what the Netherlands needs: a competitive business climate.
Not only for big companies but also for new, small companies.
Especially companies in the financial sector – the theme of today’s meeting.

Of course, I don’t need to tell you why the financial sector is so important to our economy.
But I will indulge in a brief summary.
The financial sector is the fastest growing sector in the commercial services industry.
It creates many jobs, both directly and indirectly, especially highly skilled jobs.
It creates demand for all kinds of support products and services.
Its products (including insurance and pensions) offer long-term prospects for individual citizens and society as a whole.
And it is essential for the optimal allocation of capital.

For the past year, my ministry has been intensively occupied with the future of the financial sector, a future closely connected with the quality of our business climate.
Business climate means many things: knowledge and expertise, infrastructure and logistics, office buildings and workforce, landscape and living environment, arts and culture.
But it also means clear legislation, taxes, flexibility, transparency and reliability.
It is precisely in the financial sector, with its mass of legislation, that the government plays a vital role.
And not just one ministry, but several ministries – in fact every ministry, if you take a very broad view.

But if we leave aside congestion, childcare, schools, health care, arts and culture, four ministries in particular are very closely involved in the future of the financial sector: the Ministry of Finance, the Ministry of Economic Affairs, the Ministry of Social Affairs and Employment and the Ministry of Ju stice.
Over the past year, these four ministries, individually and collectively, have taken stock of the problems affecting the business climate, with a view to attracting financial institutions and keeping them here.

We have spoken with virtually everyone concerned: government officials, administrators, business representatives and politicians.
The findings range from minor irritations to pain and suffering.
For example: there are too many rules, rules are not modified quickly enough, oversight and legislation are unfriendly and incident-driven, there is insufficient high-quality training, we are unwelcoming towards immigrants.

On the basis of these findings, and because a strong, innovative and anticipatory financial sector requires a strong, innovative and anticipatory government, an action programme has been drawn up.
It contains a raft of measures for improving the investment climate in the financial sector and making it internationally competitive.
The package was developed and will be implemented not only by my own ministry but in close cooperation with all stakeholders: the four ministries, the financial sector and financial regulators.
And of course the Holland Financial Centre, which was established in July.
Thanks to this successful initiative (and the list of founders is impressive!), on the basis of last week’s talks between the government and the business community, and the turnout here yesterday and today, I can conclude, with satisfaction, that there is broad support for preparing the Netherlands for the new era.

Our ambitions are by no means modest.
What we want is an innovative, competitive, international financial services industry in the Netherlands.
The Netherlands has always been an important financial centre.
Our ambition is to improve this position so that we become one of the main global financial centres, just behind London.

To achieve this, we need to work on the following five points in particular:
- the responsiveness of government and regulators to business needs
- a fair and predictable legal environment
- an attractive regulatory environment
- the availability of professional workers
- exploring niche markets in which we have a competitive edge.

The following strategic aims support our vision and are designed to promote competitiveness.

Our first aim is to stimulate innovation.
That is why what we call the ‘Innovation Room’ has been set up.
It aims to be a nursery for new ideas and new partnerships.
Companies with innovative products can get together with all the relevant government organisations (including from different ministries) and regulators.
Not at the end of the process, but at the start.
In other words, we want an intensive dialogue with you about how we can have flexibility where necessary and tailor-made measures where possible.
Taking the market and consumers into account of course.

Our second aim is to make sure we have world class skills: to provide highly skilled people to work in the financial sector.
For example, by setting up the Duisenberg School of Finance, but also by means of other courses for students and employees.
This will enable the financial sector to find the people it needs.
People who have the knowledge to develop and market innovative products, people who can work in an international environment, people with all kinds of skills that the financial sector needs.
We are now investigating exactly what these skills are.

We also want to update the legal environment.
Now that the dust of the Financial Supervision Act has settled, it is important to step back and see whether legislation on financial supervision can be improved.
The focus will be on more fundamental choices.
For example, the choice between principle-based or rule-based supervision.
I will invite the sector to discuss these matters with me next year.

During the previous government’s term of office, great efforts were made to reduce the administrative burden for business.
I think that we have plucked the low-hanging fruit, so to speak.
It’s now time for the next step: European rules.
We are going to look at how things can be done better, and present our findings to the European Commission.

In the past few years we also improved our investment climate by implementing a number of new (tax) measures.
The most noticeable result has been achieved with the reduction of corporate income tax rate, which has come down from 34,5% in 2003 to 25,5% in 2007.
Furthermore the incorporation tax (or stamp duty) is abolished and the withholding tax on dividends has been reduced from 25% to 15%.
And a new tax legislation has come into force which is favourable for the financial industry, especially the investment institution.

But we also need to do more to market the Netherlands. The government and the financial sector need to join forces to improve the way we do this.
There is no reason to be modest about our qualities. This conference marks the start of the promotion campaign.

These are some of the broader, more general plans and objectives we will be working on in the coming period. But there is more.
Far more.
We have compiled a long list of issues.
Many are included in the action plan.
But many of the more technical points are not, though they are still very important.
I have brought a list with me.
Our strength will ultimately come from jointly identifying where we can make improvements and finding joint solutions.
I am referring to matters such as:
- providing information on the identity of shareholders
- an exhaustive list of grounds for reliability assessment
- dematerialisation of securities transactions
- asset separation for derivatives
- broadening exemptions for credit institutions
- changing of the conditions of collective investment schemes
- evaluation, benchmarking and cost-benefit analysis of supervision
- setting up a monitor group for the implementation of each EU directive
- tightening up and improving regulations on asset separation for investment institutions.

Most of these points are rather technical and they are of great practical importance, but not really suitable for detailed discussion at a seminar like this.
How did we draw up this list?
On the basis of the talks we have held over the past year with you and your colleagues, government authorities, regulators and other stakeholders.
The fact that we have compiled a list does not mean that we necessarily agree on all the points.
But they will all be addressed in an improvement programme, a flexible document that will serve as a basis for discussions between the government and the financial sector.
As well as listing the problems identified, it will also suggest solutions.

As I’m sure you understand, improving and strengthening the financial sector is not something we can settle today. It is a process that will take years of joint efforts.
That is why this is billed as the first annual conference on the future of the financial sector.
But the first steps have been taken: we have identified the main problems, we have worked out the initial solutions, and – even more important – we have joined forces.
Every step we have taken so far we have taken together. I hope that this will apply to every subsequent step as well.
Because the idea that the government is little more than a giant with feet of clay is, in my view, just another conventional wisdom, not based on fact.
I hope that we have been able to demonstrate this and will be able to continue doing so.
So I challenge you to make your voices heard – to come forward with your ideas and comments at the conference today, and also on our website.
We will note them and implement them wherever possible.
And we will do the same with all the suggestions already included in the list of action points.
As I said earlier: it is a flexible list. For in this ever-changing financial world, your requirements change too. That’s why we need to continue our dialogue.
Today and tomorrow, around the table and on the Web.

I look forward to seeing you all again next year, and I hope that we will be able to look back on a successful ‘march of events’.

Thank you.