The government too often gives the wrong incentives to the business community when it comes to major social problems such as climate, public health and the labor market, according to the Scientific Council for Government Policy (WRR). The “pampering” of the current major players must stop and innovation must be more stimulated, the Good Business report recommends.
“Government policy keeps established companies out of the loop too much: this makes them wait and see and hinders innovation,” the researchers warn. “Innovative companies that want to tackle challenges are lagging behind and it undermines citizens’ confidence in companies and government.”
“Companies have enormous innovative power,” explains WRR researcher Marthe Hesselmans. “They can offer solutions to many social problems: healthier food, recycling, energy transition. But that does not happen automatically.”
Christmas tree on tax schemes
According to her, the government far too often gives existing companies a head start. As an example, she mentions the Innovation Box, a tax benefit that should stimulate research by entrepreneurs. “To get that advantage, you have to already make a profit, so the subsidy goes to past results. The scheme is also complex, so it is difficult for the innovative companies that we want to stimulate to join. Then such a subsidy has little effect. – or even a counterproductive – effect.”
Subsidies for fossil fuels, which are currently the subject of many protests, “absolutely” fall into the same category as far as Hesselmans is concerned. “We are critical about that, but we also see it more broadly. An enormous Christmas tree of tax schemes has been set up for all kinds of companies. You can no longer see the forest for the trees.”
According to the WRR, the schemes should be much more targeted and less long-term: support should only be a “temporary boost” for social developments. “For example, look at charging stations for electric cars. You can use a very specific subsidy for this. As soon as they are there, that subsidy must end. Then the market must do it itself.”
The government can influence the procurement policy, according to the WRR. Because social entrepreneurship currently pays too little, hoping for voluntary steps from entrepreneurs is “asking for disappointment”. The WRR calls carbon compensation by fossil companies or supermarket promises about better nutrition “a good thing” because the undesirable behavior remains the norm. By “taking on the role as a major customer”, the government can ensure that innovations are “socially and business attractive.”
End of mild supervision
At the same time, the government could gradually make the standard that must be achieved more and more strict. Hesselmans mentions an example from the past: fuel standards for vehicles. “If you tighten things up a little further, you see that companies are moving towards that. This made it perfectly possible for companies to come up with more economical engines.”
She does note that the government has an obligation to properly monitor compliance. Taking the inadequate supervision of Tata Steel as an example, the WRR believes that with “flexible supervision” governments “pay too much attention to established parties”.
The report calls this harmful to society and business. “Innovative companies that want to tackle challenges are lagging behind and it undermines citizens’ confidence in companies and government.”
Hesselmans does not think that a different subsidy policy and stricter supervision will put Dutch companies at a disadvantage compared to competition from abroad. “You can also consider this approach internationally. If we consider it a risk that we are too dependent on China for batteries, then you are in a stronger position with a subsidy in a European context. But be cautious: the issue must be central, not the maintenance love companies.”
Hesselmans does not fear patronization by the government with stricter rules for emissions or salt and sugar in food. “As a society, we are facing major challenges, such as the pressure on the healthcare system or the staff shortage on the labor market. If we as a society set goals for this in a democratic process, the government can provide clarity with clear standards.”
“That is not patronizing, but using the innovative power of the business community for social solutions.”