‘The Dutch government needs to do more cost benefit analyses’

What Jesse Klaver, newly-appointed GroenLinks leader, calls ‘economism’ could well be the life-line of compassion in society instead of its nemesis, writes economist Mathijs Bouman.

Lesson 1 in the Politician’s Handbook: create an enemy. Choose an element in society which will serve as a scapegoat. Provide people with a focus for their anger. Then promise to eliminate the problem.

It’s not a lesson wasted on Jesse Klaver. During his first speech as the new leader of GroenLinks he revealed the party’s latest enemy: ‘economism’. Public debate in our society is dominated by it, says Klaver. Every aspect of our society is reduced to a simple cost and benefit calculation when all around us more important matters are pushed to the side lines. Justice, for instance, and sustainability. And, lest anyone forget, compassion.

Nihilism

Beautiful words. At last here’s a party which promises to end the nihilism of the profit prophets, the efficiency preachers and the spreadsheet politicians. Down with the whiners about costs and benefits, long live compassion! This country has been ruled too long by bureaucratic bean counters whose favourite pastime is to torpedo great plans by coming up with uninspired arguments about viability and cost effectiveness. This dreary bookkeeper’s mentality is what ruined healthcare, destroyed art and changed schools into talent devouring factories.

That is the perception. Now let’s have the truth. People who mind about costs and benefits are very few and far between in our government departments. Effectiveness is a paper tiger. Political interests will always prevail over economic arguments. Economism is sadly lacking in The Hague and that is why obscene amounts of money are being wasted.

Political

Political, not economic, arguments convinced politicians to go ahead with the Betuwe railway line without looking into the little matter of a connection with the German railway system. It was politicians who dreamt up the expensive HSL tunnel under the empty fields in Zuid-Holland. No economist would have spent €11m on a train line sinking slowly into the muddy Dutch soil.

Economists have warned for decades about the negative economic consequences of mortgage tax breaks, the poverty trap, an aging population, lack of investment in education and R&D, the failure to take environmental damage into account, obsolete labour market regulations and so on.

Politicians do not make good listeners. If they take any measures at all, they usually come up with weak compromises which only address part of the problem. A bit more economism and a bit less ‘politicism’ would vastly improve policy-making.

Subsidies

In 2011, the audit office looked into the way the government evaluates subsidy schemes and it came up with some baffling results. The government spends around €6bn via 633 different subsidy regulations. Between 2005 and 2009, no more than 121 were evaluated. This is less than 20%.

Most of the evaluations did not look at essential things, such as the effectiveness of the subsidy. Only 59 of the evaluations did, without much success. The audit office found only nine evaluations with a conclusion regarding effectiveness. In five cases effectiveness was deemed to be insufficient, and in four effectiveness was only partially sufficient. So of all the subsidies provided by the government we know that fewer than 1% are effective. About the rest no one has a clue.

Tax cuts

The government not only doles out subsidies, it also tries to get things done via tax cuts. A lower tax on energy-saving cars and premium exemptions for small businesses are two examples. Every year the government spends €18.5bn on measures such as these. The audit office had a look at these as well.

It turned out that fewer than half of the 86 tax measures in existence are evaluated for effectiveness. Of these, 28 were shown to be effective, a slightly better score than achieved by the subsidies although the government is still in the dark about whether over two-thirds of this tax expenditure is actually doing any good.

If only more cost and benefit calculations were made in The Hague, of the simple kind that Klaver dislikes so much, we would have a more effective government and save a bit of money for policies, including the GroenLinks agenda. It’s economism that makes compassion affordable.

This article appeared earlier in the Financieele Dagblad