The Netherlands has played a special role in the European economy for many centuries. Since the 16th century, shipping, fishing, trade, and banking have been leading sectors of the Dutch economy, and trade with the country's colonial empire was important in the 19th and the first half of the 20th centuries. Since the independence of Indonesia in the late 1940s, the Dutch economy has been redirected from colonial trade to that with European nations; a diversified manufacturing base was created as employment in agriculture fell; and the country became a major energy exporter as large deposits of natural gas were discovered. In all these changes the national government played a major role, particularly by its economic planning. The government's influence is great even though most firms are privately owned, because it distributes nearly half the Dutch national income. Also important in the economic growth of the Netherlands are the activities of a number of large private firms.
In the early 1990s gross domestic product (GDP) of the Netherlands was measured at $320.3 billion. Between 1980 and 1992, the country's GDP in real currency grew at an average yearly rate of 2.2 percent. About 30 percent of GDP is produced by manufacturing, construction, and energy-related activities; agriculture contributed 4 percent, and the service sector was also a major contributor.
Of the approximately 6.6 million employed workers, about 60 percent work in trade and services. One quarter are employed in manufacturing and industry, 11 percent are in business and finance, and 4 percent work in agriculture, forestry, and fishing. Approximately one-third belong to labor organizations, the largest of which are the Netherlands Trade Union Confederation and the Christian National Federation of Trade Unions in the Netherlands. The government systematically enters into negotiations between employers and unions in order to secure collective bargaining agreements that are consistent with its economic plans.
Despite the small size and dense population of the Netherlands, agriculture is highly productive and a major generator of exports. The export value of meat, flowers, vegetables, butter, cheese, and other dairy products substantially exceeds the value of imported grain, tropical products, and animal fodder. This specialized agriculture occurs mainly on small family farms. Meadows and pastures occupy about 32 percent of the nation's land area, while 27 percent is devoted to cultivation. Annual crop production in the early 1990s (in metric tons) included potatoes, 7.7 million; sugar beets, 7.5 million; vegetables and fruits, 4.4 million; wheat, 1 million; and other cereals, 323,000. There were 4.8 million cattle, 15 million pigs, and 96 million chickens. The Netherlands became famous for its tulip breeders in the 18th century, and today flowers and bulbs are important exports. The need to increase yields on limited tracts of land has made Dutch farmers heavy users of chemical fertilizers, which can contaminate groundwater. To combat this problem, the government has promoted efforts to reduce pollutants.
Because little of the Netherlands is covered by forest, timber production is of minor importance. Fishing, however, is a traditional activity that continues to be significant despite the reduction of the stock resulting partly from water pollution in the North Sea. Atlantic horse mackerel, Atlantic herring, European plaice, blue mussel, Atlantic mackerel, common sole, Atlantic cod, blue whiting, and shrimp are leading components of the annual catch, which totaled 443,100 metric tons in the early 1990s.
The Dutch manufacturing sector is highly diversified, and much of it is of recent origin; industrial production was relatively unimportant until after World War II (1939-1945). Heavy industry, such as the manufacture of steel, transportation equipment, and large machinery, is much less important in the Netherlands than in neighboring countries. The rapid post-1945 growth of manufacturing has been led by the chemical and electronics industries. Also important to the manufacturing sector are the production of processed food, beverages, and tobacco products, machinery, transportation equipment (particularly merchant ships), metal products, and printed material.
The industrial structure of the Netherlands is closely related to the country's sources of energy. For centuries the Dutch relied heavily on windmills and peat for energy. As these became outmoded, coal increased in importance. Deposits in Limburg Province supplied a part of Dutch needs, but most coal was imported. Petroleum and natural gas became increasingly important after World War II; these fuels also were imported, and the port of Rotterdam became a leading center for receiving and refining petroleum. In the 1950s and 1960s the Dutch discovered large reserves of natural gas in Groningen Province. Production rose rapidly, permitting the last domestic coal mines to be closed in 1973 and making the Netherlands a major exporter of natural gas. In the early 1990s the annual output of crude petroleum was 19.5 million barrels, and of natural gas, 82 billion cu m (2.9 trillion cu ft), making the Netherlands the world's fifth largest producer. Installed electricity-generating capacity was 22.2 million kilowatts; the output of electricity totaled 63.5 billion kilowatt-hours.
The Dutch currency unit is the guilder, or gulden (1.65 guilders equal U.S.$1; 1995). It is issued and regulated by De Nederlandsche Bank (1814), the Dutch central bank. The exchange rate of the guilder is closely tied to that of other major Western European currencies, particularly the German mark. Amsterdam is the leading center of Dutch banking and insurance and the home of the country's principal stock exchange. The international commodity exchange for petroleum operates in Rotterdam.
The Dutch economy is extremely open to world trade. Much of the flow of goods into its ports is intended for transshipment to other countries, mainly other members of the European Union. Throughout the 1980s and early 1990s the value of Dutch exports generally exceeded that of its imports; in 1992, for example, the country's imports cost about $130.3 billion, and its exports earned about $139 billion. Leading exports are basic manufactures; food products, chiefly fruit and vegetables, dairy products and eggs, and meat; machinery; chemicals and chemical products, including organic chemicals and plastics; transportation equipment; petroleum products; and natural gas. Major imports are machinery; basic manufactured items, principally paper goods, textiles, and metals; food and live animals; chemicals; transportation equipment; and petroleum and petroleum products. Fellow members of the European Union account for the majority of Dutch imports and exports. Germany is the most important single trading partner, accounting for more than 27 percent of Dutch trade. Other leading purchasers of exports are Belgium and Luxembourg, France, Great Britain, Italy, the United States, and Spain. Principal sources for imports in addition to Germany are Belgium and Luxembourg, Great Britain, France, the United States, Italy, and Japan. Natural-gas exports have helped increase Dutch foreign exchange earnings, as has the influx of tourists. More than 3.9 million foreigners visit the Netherlands every year, attracted by its sandy beaches, by boating on its rivers and lakes, and by historical sites and cultural activities. The Dutch are themselves fond of traveling, however, and they generally spend at least twice as much money abroad as foreigners spend in the Netherlands.
Because the Dutch economy is internationally oriented, good transportation facilities have long been essential to its prosperity. Rotterdam is one of the world's leading seaports, and Amsterdam also is a major port. Both ports owe their importance to canals and rivers that provide easy access to the sea as well as to the interior of Europe.
The New Waterway links Rotterdam to the North Sea, which is connected to Amsterdam by the North Sea Channel. Dutch canals and rivers navigable by vessels of more than 1000 gross registered tons have a total length of about 2398 km (about 1490 mi) and reach almost every part of the country. The Dutch oceangoing merchant fleet comprised 2.8 million gross registered tons in the early 1990s, and some 5500 Dutch commercial vessels plied inland waterways.
The government-owned railroad network of some 2753 km (some 1711 mi) of operated track, about 72 percent of which is electrified, densely covers the Netherlands and provides frequent passenger train service. Barge competition prevents the railroads from being major freight carriers.
About 2118 km (about 1316 mi) of limited-access highways and numerous bridges, tunnels, and ferries help to speed the flow of Dutch motor-vehicle traffic. The number of automobiles in the early 1990s was 5.8 million, or nearly one for every three inhabitants. Bicycles are an important means of local travel, and many roads have separate bicycle lanes.
The busiest international airport of the Netherlands is Schiphol, near Amsterdam, and smaller airports serve Groningen, Maastricht, Rotterdam, and other cities. Domestic air travel is of little importance. Royal Dutch Airlines (KLM) is the country's leading air carrier.
In addition to the many dozens of regional and local newspapers, the Netherlands has several nationally distributed newspapers, each tending to be associated with a particular political or social position. For example, the NRC-Handelsblad (published in Rotterdam) is liberal and nonsectarian, the Volkskrant (Amsterdam) has Roman Catholic ties, Trouw (Amsterdam) is close to the Reformed church, and Het Vrije Volk (Rotterdam) is linked to the Socialist party. The daily with the largest circulation is the independent Telegraaf of Amsterdam. Under the Media Act of 1988, two national organizations coordinate radio and television broadcasting: an independent consortium provides production facilities, while a firm representing both government and the private sector transmits general-interest programming. Most programs are produced by nonprofit associations that are given funds raised by taxing radio and television owners and are allocated air time according to the number of members they have. The major producers include VARA (socialist), NCRV (Protestant), KRO (Roman Catholic), and AVRO and TROS (both nonsectarian). The country has many smaller producers, making Dutch radio and television pluralistic. In the early 1990s some 12 million radios were in use and 5.6 million television sets were licensed.
The Netherlands is a constitutional monarchy with a parliamentary system of government. It is governed under an 1814 constitution, as amended.
The head of state of the Netherlands is the hereditary monarch, who has had little power in running the government since the constitution was revised in 1848. The principal executive official of the country is the prime minister, who is appointed by the monarch and heads a cabinet that is responsible to the parliament, called the States-General.
The States-General consists of a First Chamber, composed of 75 members elected to terms of four years by the provincial legislatures, and a Second Chamber, made up of 150 members popularly elected to terms of up to four years under a system of proportional representation. Either or both chambers may be dissolved by the monarch on condition that new elections be held within 40 days. The Second Chamber is by far the more important of the two; the First Chamber has little more than a rarely exercised veto power over the legislative process.
The judicial system of the Netherlands includes four main levels of courts. The highest tribunal is the High Court of the Netherlands, which sits in The Hague. Other major judicial bodies are courts of appeal, district courts of justice, and canton courts. All Dutch judges are appointed for life by the monarch.
The Netherlands is made up of 12 provinces—Drenthe, Flevoland, Friesland, Gelderland, Groningen, Limburg, Noord-Brabant, Noord-Holland, Overijssel, Zuid-Holland, Utrecht, and Zeeland. The political identity of each province can be traced back to the Middle Ages. Today each is governed by a commissioner appointed by the monarch and a popularly elected legislature (Provincial States). The country is further divided into nearly 650 municipalities, ranging from the largest city to the smallest village. Each is governed by a popularly elected council and a burgemeester (mayor) appointed by the government. These lower levels of government have only limited taxing power and depend on the central government for most of their finances. The Netherlands has universal suffrage for all citizens beginning at age 18.
The Netherlands uses systems of proportional representation in electing municipal, provincial, and national assemblies. This allows even small political parties to win representation. In the 1994 Second Chamber elections, for example, 12 parties won seats. On the national level, the Netherlands has always been governed by coalitions of parties, the formation of which has often proved difficult.
In the early 1990s, the largest parties were the Christian Democratic Appeal (CDA), a moderate group; the Labor party (PvdA), a socialist organization; the People's party for Freedom and Democracy (VVD), a liberal, business-oriented party; and Democrats 66 (D66), a relatively new party seeking greater direct citizens' participation in the political system. Of the many smaller parties, most are extremely liberal or extremely conservative.
The Dutch government administers one of Europe's most comprehensive welfare states. Taxes and social security premiums together give the government command over nearly half the national income. Much of this revenue is spent on education, health, employment stimulation, and social welfare. To reduce a growing budget deficit, however, the government has trimmed social services in recent years. Participation in the health insurance system is compulsory for everyone earning less than a certain wage (about 70 percent of the population). The Dutch are also protected by unemployment benefits; sick pay; a guaranteed income for those physically unable to work; pensions for widows, orphans, and the elderly; minimum-wage regulations; and family allowances.
The military defense of the Netherlands is secured by the participation of its army, navy, and air force in the North Atlantic Treaty Organization (NATO). All males must serve nine months in the armed forces. In 1993 conscripts made up almost half the 74,600 members of the Dutch armed forces.