future view

The economy after the corona vaccine: how the Netherlands can innovate its way out of the crisis

11 May 2020 • 4 min reading time

Now that the ‘intelligent lockdown’ is gradually being eased, more and more attention is being paid to the future. With the banking crisis at the back of our minds we want to do everything we can to prevent our economy from grinding to a halt for any length of time. The question is: how can we tackle the situation more effectively than ten years ago?

Read our position paper ‘The economy after the coronavirus vaccine’.

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Germany has been increasing national investments in research and innovation since 2008. While it took years before surrounding countries emerged from the crisis, our neighbours to the east actually experienced a ‘golden decade’ of rapid economic growth. Can we follow the German example and innovate the Netherlands out of the crisis? TNO believes we can. We explain how and why in our new position paper entitled ‘The economy after the coronavirus vaccine’.

It goes without saying that the most important thing right now is to resolve the coronavirus crisis itself. That will only be possible if a suitable vaccine is found. Nevertheless, it is a good idea to start reflecting on how the Netherlands can grow out of the crisis in the longer term, because an imminent recession as a consequence of the coronavirus measures is inevitable.

From shrinkage to growth

The expectation is that we will experience unprecedented economic shrinkage this year which, for the Netherlands, is estimated as being between 7.5% (IMF) and 1.2-7.7% (CPB) of GDP. The key question is therefore: how can we climb out of this dip, the like of which we have never seen before? Direct hefty cutbacks are not a logical option because that would negate the effect of the support the government is currently providing. Instead, we have to look towards the long term. Research and innovation should play a crucial role in any future plans.

In theory, economic growth is generated by getting people into work and by increasing labour productivity – in other words, creating more value per employee. Because we are all living longer and having fewer children, the working population is set to decrease in the coming decades. For that reason, increasing labour force participation is not a realistic option.

One of the ways of increasing labour productivity is through research and innovation, and this is where there is indeed an opportunity for the Netherlands. We can create value and growth with new or improved products, services and production processes and by doing so, make the Netherlands more competitive.

"With the German example in mind, TNO is proposing a rapid increase in investments in research and innovation, so that we can ‘innovate out of the crisis’."

New priorities

In addition to issues such as the energy transition and digitisation, the coronavirus crisis could also lead to new innovation policy priorities. In recent decades, some companies moved part of their production process to other parts of the world for the purpose of saving costs. The pandemic has, however, revealed how vulnerable and dependent European companies have become due to globalisation.

The companies in question are not only ‘low tech’ but also, for example, producers of essential medical products. A trend of bringing back production processes to Europe was already emerging. For example, planter manufacturer Capi Europe moved its production operations back to the Netherlands from China. The crisis could reinforce this trend, certainly in terms of, for example, medical technology or technology which is critical for our ICT infrastructure.

Recent examples have shown that new technology, such as robotics in combination with 5G technology, is essential in order for this to happen. The ambition should also be to ensure that the production operations which are brought back to Europe become more sustainable and circular, with less waste and less use of raw materials.

The German example

The fact that investments in research and innovation indeed lead to higher labour productivity is confirmed in, among other things, the government’s Growth Letter to parliament, which states that every extra euro results in four and a half extra euros of economic growth in the long term. In terms of research and innovation, the Netherlands scores well in many respects, but there is certainly room for improvement.

While the Netherlands cut expenditure on research after the banking crisis, Germany has actually increased private and public spending in this area since 2008. Agreements regarding investments in research and education are not being reversed under the pressure of budget cuts. By doing so, the Germans have built up a lead compared to the rest of Europe by consistently investing in innovation.

Innovating out of the crisis

With the German example in mind, TNO is proposing a rapid increase in investments in research and innovation, so that we can ‘innovate out of the crisis’. It would be good to focus on research into key technologies that can result in economic activity within four years.

Now that all the stops are having to be pulled out to get the economy up and running again, it would appear to be sensible for additional research to focus more strongly on the short term. That would also provide a solution for the problem that the Netherlands has been struggling with for years, namely a lack of success when it comes to turning knowledge into value (application).

In short, we can do things differently this time around if we bear the German example in mind and innovate our way out of the crisis through smart investments.

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