Austerity in Holland

May 19, 1947

AMSTERDAM—Holland suffered far more from the war than Belgium did. The Germans had to evacuate Belgium in a few days without time to destroy. Holland was occupied for months longer. Rotterdam and other cities had been ruthlessly bombed; the retreating Nazis systematically demolished houses, factories, power plants, railroads, and bridges. They systematically looted cattle, farm equipment, locomotives, cars, barges, cranes, thousands of industrial machines, and scores of factories, including a complete steel mill and Holland’s sole aluminum plant. They broke the dikes and flooded the land. Holland, which had had one of the highest living standards in the world, lost more than 40 percent of its productive capacity. Industry was paralyzed. It had to start again from the bottom.

Holland has lost also, as a present source of income, the Dutch East Indies, with more than seven times the population and more than 50 times the area of the mother country. It has lost Germany as its largest single source of supplies and second largest customer. Half the machines used in Holland are of German origin. With Germany an “economic desert,” broken or worn parts cannot be replaced and whole machines become useless. For good or evil, the economy of Holland depends heavily upon that of Germany. The Dutch do not carry their hatred of the Germans, as some of them put it, “to the point where we want to cut off our own right hand.”

When one keeps this history and situation in mind, the extent of Holland’s recovery is amazing. A miracle of reconstruction has been wrought on the railways. Destroyed bridges have been rebuilt. The rubble of bombed towns has been cleared away. Housing progress has been made despite shortages of wood and glass, which must be imported. The inundated ground is dry again; the dikes repaired. Most of the flooded land has been brought back to cultivation far earlier than anyone had dared hope.

The Dutch Government has embarked on a program of national austerity. The motto is: “work hard, consume less, save more.” A factory, indeed, is not allowed to set a work week of less than 48 hours without special permission from the government. The unions have accepted a wage freeze. A tax running up to 90 percent has been imposed on all increases in capital value during the war even though these are measured in depreciated guilders. A bill now under discussion will impose a general capital levy of a smaller percentage.

The Netherlands economy is tightly controlled inside and out. Every import and export requires both a foreign-exchange permit and a special permit. Rents are frozen. There is strict price control and rationing of food, clothing, and cigarettes. Membership in a trade group is compulsory in every firm. Raw materials are allocated on the basis of use in 1938. No new firm may be started and no existing firm expand without a special license obtainable only if it can prove “need” for its own existence.

Businessmen complain that controls have been multiplied to a point where no one any longer understands them. Initiative is smothered. Even the traditional Dutch integrity and respect for law crack under the strain. As every business firm depends for its very existence on the good will of some civil servant, the inevitable result is the emergence of corruption. People complain that the rations are too small. Black markets have developed in cigarettes, eggs, gin, butter, meat, clothing and ration coupons.

There is heavy smuggling between Holland and Belgium, which is uncontrollable because the border runs through village streets and even houses. Austerity has been driven to a point where it undermines effort. People lose the incentive to work when they cannot buy what they want with the money they earn.

Holland tries to solve its formidable exchange problem by separate bilateral agreements with more than a dozen countries, but all such agreements undermine a free multilateral market and the freedom of consumers. Though Holland, like most of its neighbors, regards these bilateral agreements as a temporary expedient, they are tying themselves into an entangling web from which extrication will not be easy. The expedients they adopt perpetuate the very conditions they are intended to cure.