What other measures are needed to increase productivity growth?
Another plank in the government’s strategy to increase productivity growth is to strengthen the national innovation system. The major problems in this system are a relatively low level of private sector R&D and inadequate interactions between science/higher education and industry at a time when such interactions become an even more important driver of knowledge creation, transfer and commercialisation. The government has increased its innovation budget and created the Innovation Council to tackle these problems. The traditional focus on generic R&D support has been widened to incorporate specific subsidies, namely those granted on a competitive basis to joint public-private R&D projects, and their effectiveness should be closely monitored. Moreover, public support to start-up finance should be more closely targeted to innovative firms to provide starters with an incentive to innovate.
Low R&D investment in SMEs in spite of large tax incentives
1. For the Netherlands and Norway, 50 to 199 employees instead of 50 to 249. For New Zealand, 50 to 99 employees instead of 50 to 249 employees. For Japan and Korea, fewer, than 299 employees.
2. Tax subsidies are calculated as 1 minus the B index. For example, in the Netherlands, 1 unit of R&D expenditure by large firms results in 0.35 unit of tax relief.
Source: OECD STI Scoreboard, 2003.
Raising the quality of human capital is also an important means of increasing productivity growth. Vocational education is being strengthened by the move from an attainment-based to a competency-based system of qualifications and the requirement for educational institutions to update their curricula regularly. The academic output of Dutch higher education could be improved by making funding more dependent on performance criteria. The government should also consider increasing higher education tuition fees and granting student loans with income-contingent repayments to meet demands for increased funding as this is likely to be more efficient and fairer than raising general taxation given that returns on tertiary education are mainly private.
Expenditure on tertiary education institutions
1. Net of tuition fees paid by government.
Source: OECD, Education Database and Statement of Financial Performance for tertiary education institutions in New Zealand.
Improving corporate governance would also increase productivity by contributing to financial market development, a lower cost of capital for enterprises and stronger company performance. Corporate governance practices have been relatively poor as shareholders have had little power to ensure the accountability of supervisory boards and management has had powerful anti-takeover devices at its disposal. A new code of corporate governance specifies practices that would rectify many of these problems and a new law which has to be approved by the Upper House of Parliament would underpin the code and grant shareholders meaningful rights. The government should move quickly to implement the proposed law, which will require listed companies to apply the code or explain their reasons for not doing so, and will also strengthen supervision of financial reporting.
The full edition of the OECD Economic Survey for the Netherlands is available from:
Return to the OECD Economic Survey - Netherlands 2004 homepage
A printer-friendly Policy Brief (pdf format) may also be downloaded. The Policy Brief contains the OECD assessment and recommendations, but does not include all of the charts available from the above pages