Gert Den Bakker

The interwar period is a unique period in Dutch economic history. However, before 1987, adequate statistical information was not available to properly analyse the economy in those years. To improve this situation, a dataset with national accounting data was compiled in this study. Based on these new figures the economic developments in the interwar period are analysed.

Chapter 2 provides an overview of the available data on the Dutch interwar economy over time; from the first official national income estimate for 1929 (CBS, 1933) to the figures of this study. The new estimates are compiled within the integration framework of the system of national accounts. They form a consistent dataset that is also more detailed than the existing fragmentary figures. At the start of this study, the most recent figures available were those of ZWO/CBS, which were compiled in the 1950s. The new estimates differ substantially from the ZWO/CBS figures. For instance, GDP was adjusted downwards on average by 2.7 percent and net national income was revised upwards by an average of 2.5 percent. Furthermore, according to this study average annual real growth of net national income during the interwar years was 2.2 percent and 1.9 percent according to previous figures. The differences between the new and old figures are larger for individual years and for variables at lower aggregation levels.

In the ZWO/CBS project no new figures about employment and unemployment in the interwar years were estimated. In the course of time, only a few isolated figures were published by the CBS. The differences between the new and existing figures are quite large; unemployment was much higher than previously assumed. In 1935 total unemployment exceeded 657 000 working years, which was 19.4 percent of the total labour force. The old unemployment figures varied from 368 000 to 539 000. The highest unemployment among wage labourers was 22.6 percent of the dependent labour force. The figures at industry level were even more dramatic. For example, unemployment in the metal industry in 1935 was 42.6 percent. A year later that percentage was 47.0 in construction and even 53.5 in the building materials industry.

The Dutch economy in the interwar years, especially the 1930s, was the subject of an overwhelming number of studies. In chapter 2, the debate about the development of the Dutch economy in the years 1921-39 is presented, starting with the interpretation of the contemporaries Tinbergen and Keesing. Most authors concluded that economic and monetary policy in the 1930s was responsible for the seriousness and long duration of the economic crisis in the Netherlands. Other reasons mentioned for the crisis are, for example, the structure of the Dutch economy and the very large population growth in the Netherlands. The publication of the first provisional results of this study led to much media attention; especially the comparison of the crises in the 1930s and the 1980s. The publication also gave rise to some criticism that is partly incorporated in the current publication. For example, the development of GDP per capita volume is now also being analysed and placed in an international perspective.

The figures in this study are estimated within the framework of the national accounts, including a social accounting matrix. In chapter 3, some aspects of these integration frameworks, which are important for this study, are discussed. The chapter also deals with international guidelines for national accounts that are used in almost all countries. This makes comparisons between countries possible. The concepts used in this study were those of the 1968 SNA. Volume changes of economic variables play an important role in describing an economy. An example is the GDP volume change (economic growth or economic contraction). A discussion of the most important theoretical and practical aspects of determining price and volume changes of (historical) national accounting data is presented. Moreover, some issues in compiling time series of national accounting data are discussed.

The subject of chapter 4 is the data sources and estimation methods used to estimate the national accounting figures for the interwar period. A wide variety of source material was used, both published and unpublished. In most cases, it concerned data collected and processed by the CBS. Data were also from ministries, government agencies and companies. In the data sources many different classifications were used. In this study, industries were classified according to the SBI 1974 industrial classification of the CBS. This meant that reclassifications had to take place in order to arrive at the SBI 1974. More information is available for 1920, 1930 and 1938 than for the other years, which makes it possible to choose those years as benchmark years.

In chapter 5, the macroeconomic developments in the interwar period are analysed. They are also compared to those in the 1970s and 1980s. These years have, in some respects, remarkable similarities with the period 50 years earlier. Furthermore, the Dutch interwar figures are placed in an international perspective. Dutch average annual economic growth during the interwar period as a whole did not differ substantially from the average of the OECD-24 and the EEC-12. The Dutch figure was slightly better in the 1920s, but worse in the 1930s. Analyses of the 1930s usually conclude that the economic crisis in the Netherlands was deeper than abroad and lasted longer. However, the figures from this study show that those conclusions must be nuanced. When comparing Dutch economic growth with growth in other countries, the question is which countries or group of countries should be included in the comparison and for which years or periods the comparison can best be done.

The Dutch economic performance was relatively weak in the first half of the 1930s. However, the view that the recovery in the second half of the 1930s was weaker than abroad should be changed. In the years 1935-39, Dutch average annual growth was equal to the average of the EEC-12 and only 1.0 percentage point lower than the average of the OECD-24. The low point in the Netherlands (9.5 percent below the 1929 level) was much less deep than the OECD-24 average (15.5 percent below the 1929 level) and just a little deeper than the EEC-12 average (9.0 percent below the 1929 level). The fall in Dutch GDP volume in the years 1930-34, together with that of France and Germany, exceeded that of all EEC-12 countries. The Netherlands was the last country in the OECD-24 to reach its low point in 1934, two years later than the average in the OECD-24 and EEC-12. In the years 1935-1939 Dutch growth exceeded that of all EEC-12 countries, apart from the exceptionally growing axis countries. In the Netherlands, the pre-crisis level was reached again in 1937; the average in the OECD-24 was reached one year earlier and in the EEC-12 that was two years earlier. The recovery in the Netherlands was relatively strong and the recovery period was one year shorter than the OECD-24 average and the same as the EEC-12 average.

GDP per capita volume is a better indicator to evaluate a country’s prosperity than GDP volume. The Dutch interwar economic performance in an international perspective was much less favourable when looking at the GDP per capita volume. This is a consequence of the relatively high population growth in the Netherlands. In the 1930s as a whole Dutch average annual GDP per capita volume growth was lower than the average in both the OECD-24 and the EEC-12. Of the European OECD-24 countries, only in the Netherlands and Spain average annual GDP per capita volume growth was negative. In the first half of the 1930s, Dutch average annual GDP per capita volume change was -3.3 percent, which was lower than the average in the OECD-24 (-2.7 percent) and the EEC-12 (-1.0 percent). At the low point of the crisis, Dutch GDP per capita volume was 15.5 percent below the pre-crisis level; for the EEC-12 and the OECD-24 that was 10.7 and 17.7 percent respectively. The low point in the Netherlands was two years later than the average of the OECD-24 and the EEC-12.

In the 1930s, unemployment in the Netherlands was persistent and only reached its maximum in 1935 and 1936; the unemployment rate of wage labourers in those years was 22.6 and 22.5 percent of the dependent labour force respectively. In 1939, this unemployment was still 12.6 percent. Unemployment in the 1930s was the highest ever in the Netherlands. The picture of unemployment was very poor at the macro level, but was even more dramatic at the industry level. The unemployment of wage labourers showed great differences between industries. Construction and related industries were hit hardest: half of their workers were unemployed in 1936. Unemployment in services was on average about one third of that in industry during the crisis years. Only in transport, storage and communication unemployment was about the same as in industry.

In chapter 6, the mesoeconomic developments in the interwar period are analysed. The industries were not all equally affected by the economic crisis and the recovery was also different. The metal industry and construction were hit hard by the crisis. In the years 1930-32, the volume of the value added in the metal industry decreased on average by 17.1 percent per year and in constructions and related industries this percentage was 11.0. The decline was the lowest in the food, beverages and tobacco industry: an average of -1.2 percent per year. The metal industry was hit the hardest by the crisis and showed a correspondingly strong recovery. The recovery in construction, which was also badly hit, was much less pronounced. These large industries had a major negative impact on the development of the economy. They did not recover from the crisis before the outbreak of the Second World War. In services the low point of the volume of the value added was 2.0 percent below the level of 1929, which was much less than in the economy as a whole (8.2 percent below the level of 1929). The great importance of services in the Dutch economy had a moderating influence on the severity of the economic crisis in the 1930s.

Despite the crisis, the average annual increase of the real wages in the years 1930-34 was still clearly positive at 1.5 percent and even slightly higher than during the period of recovery in the second half of the 1930s. In 1939, real wages were on average 15.4 percent higher than in 1929. During the 1930s, construction and related industries and the metal industry were hit hard by the crisis, followed by a strong recovery in the years after 1935. However, in construction and related industries the pre-crisis levels of real wages were not reached again. The development of the real wages per wage labourer was remarkable. Even during the first three years of the economic crisis, real wages of wage labourers increased. In 1933 they were 24.4 percent above the pre-crisis level.

Chapter 7 provides an analysis of the standard of living by socioeconomic subgroup in 1938. After years of crisis and recovery, the distribution of income and outlays among socioeconomic subgroups was rather unequal. For example, the difficulty of the poorest categories to fulfil more than just basic needs was indicated by their very high budget share of food: about 50 percent. In the more affluent subgroups this percentage was 20 percent. Chapter 7 also compares the socio-economic situation in 1938 with that in 1987. Those years take approximately the same position with respect to the years of crisis and recovery. The figures for 1938 are based on the historical social accounting matrix compiled in this study. A comparison between the two years shows that remarkable socio-demographic changes have taken place in 50 years. For instance, the average household became much smaller: 2.5 persons in 1987 versus 4.0 in 1938. Furthermore, the number of farmers’ households fell from 10.4 percent to 1.6 percent of the total. In 1987, the volume of consumption per capita was almost three times as high as in 1938. Furthermore, the distribution of income and expenditure among household subgroups has become much less unequal. The food budget share has more than halved in five decades. The variance in food budget shares was much smaller in 1987 than in 1938.

There have been three serious economic recessions in the last 100 years. In chapter 8 they are compared: the crisis in the 1930s, the crisis in the 1980s and the crisis of 2008. The crisis in the 1930s was the heaviest of the three: the fall in GDP volume was the largest and the crisis lasted for a long time: six years. The duration of the 2008 crisis was the same, but the decline in GDP volume was much less. The crisis in the 1980s was relatively short and the decline in GDP volume was the lowest of the three crises. The development of the volume of household consumption shows some remarkable differences between the three crises. During the crisis in the 1930s, the volume increased every year except in 1934. In contrast, during both the crisis in the 1980s and the 2008 crisis, the volume decreased substantially in the first crisis year and remained below the pre-crisis year in all crisis years. During the 2008 crisis the development of the volume of household consumption was the worst of the three crises.

During the crisis in the 1930s, the volume of general government expenditure showed a moderately anticyclical pattern, but during the first crisis years this pattern was rather strong. From the mid-crisis years onwards, general government expenditure cannot be considered anticyclical. Both during the crisis in the 1980s and the 2008 crisis, the pattern of general government expenditure was cyclical. The development of foreign trade was very different during the three crises. This applies to both exports and imports. During the crisis in the 1930s, foreign trade was hit more heavily than during the other two crises. During the crisis in the 1980s, the volume of exports decreased only in 1982. The volume of exports did not come below the pre-crisis level. During the 2008 crisis, the volume of exports fell only in 2009, but it fell sharply. The overall picture of the development of imports during the crises was the same as that of exports.

Unemployment rises considerably at the time of an economic recession. Unemployment was by far the highest during the crisis in the 1930s and the lowest in the 2008 crisis. In the 1930s, unemployment peaked at 19.4 percent of the labour force. The peak in the 1980s was 10.2 percent and the maximum during the 2008 crisis was 7.4 percent. Both during the crisis in the 1930s and the 2008 crisis unemployment was persistent; the decline started only after six years. During the crisis in the 1980s, that was the case after three years. Unemployment increased rapidly during the crisis in the 1930s and was exceptionally high. During both other crises, the increase in unemployment was less explosive. In all three crises, unemployment reached the highest level in the last crisis year when the economic situation was already improving. Furthermore, during all three crises unemployment was highest one year after GDP volume reached its low point. Moreover, in case of all three crises, the crisis was over a year after unemployment peaked.

Two periods can be distinguished in the interwar period. The 1920s with strong economic growth and the 1930s with a deep economic crisis that was accompanied by extremely high and persistent unemployment. In the second half of the 1920s in particular, the Dutch economy outperformed the rest of the world. The Netherlands was the last country to reach the lowest point of the crisis. The subsequent recovery was more powerful than abroad.