DUTCH DISEASE. Sound like something that might devastate your garden? In truth, it’s an economic term coined in by The Economist magazine in 1977—and it refers to the economic fallout that followed the 1959 discovery in the Netherlands of Europe’s largest natural gas field.
The natural resource was initially a great boon to the economy, causing the value of the Dutch currency—then the guilder—to rise sharply in the foreign exchange market. All good? Not exactly.
There were many other Dutch industries, from machinery to cheese, that suffered. Their products became too expensive to compete in foreign markets, thanks to the strong guilder. Around the world, buyers turned to substitute suppliers from other countries. The longer-term effect of the Netherlands’ singular focus on its natural resource “boon” was a rise in Dutch unemployment from 1.1% to 5.1% and a decrease in capital investment.
If extreme enough, the Dutch disease can help bring down entire empires. The influx of gold and silver into Spain’s economy in the 16th and 17th centuries helped create the first worldwide empire where the sun “never set.” Problem is, the diversion of so much of the Spanish imperial attention to extracting these natural resources, coupled with the dedication of an inordinate amount of the nation’s economic resources to producing silver goods, caused a rise in the value of Spain’s currency. Result: All other industries suffered, including the bedrock export of Merino wool. English wool was not as good, but it was cheaper and buyers switched.
What’s the lesson of all this? For nations, there’s a need to balance their country’s business output and develop a well-rounded economy, rather than focusing solely on one booming sector. In addition, countries should keep a watchful eye on their currency’s foreign exchange value to make sure it doesn’t become overvalued.
But I think there’s also a lesson here for individuals.
Our “natural resource” is our talents, which we use in our jobs. In return for our industriousness, we might earn a salary, commissions, bonuses and other compensation. Many folks will commit almost every waking hour to their career, with an eye to extracting the biggest reward they can. This rising compensation increases the value of an individual’s ultimate currency, which is his or her time.
So who loses? The parts of a person’s life that can no longer afford that currency. An executive’s family, friends, the executive’s physical health and even the executive’s mental health may suffer, as he or she cuts back on relaxation or is present at events in body but not in mind.
These other activities may not seem as immediately profitable. In the busy executive’s calculus, they might become secondary to what can yield a more immediate and tangible profit. Meanwhile, the people who cannot afford the executive’s time may seek out alternative suppliers of time and attention. One doesn’t need to be religious to see the wisdom of the Bible’s rhetorical question, “For what will it profit them to gain the whole world and forfeit their life?”
Just like a nation, it’s incumbent on each of us to achieve a balanced personal economy, with attention, care and time devoted to all the things that give us value, both tangible and intangible—rather than focusing solely on the things that promise the largest short-term reward.
Jim Wasserman is a former business litigation attorney who taught economics and humanities for 20 years. His previous articles include Falling for Flattery, Buying Power and Weighty Decisions. Jim is the author of a three-book series on teaching behavioral economics and media literacy, Media, Marketing, and Me. His latest book is Summa, a children’s story for multiracial, multi-ethnic and multicultural families. Jim lives in Granada, Spain, with his wife and fellow HumbleDollar contributor, Jiab. Together, they write a blog on retirement, finance and living abroad at YourThirdLife.com.