Windfalls without public consensus can become a curse

Audio report: written by reporters, read by AI

Kim Sung-jae

The author is a business administration professor at Furman University and the author of “The Story of Tariffs” (2025). 

The Netherlands, located at the mouth of the Rhine, built a strong shipbuilding and maritime industry on the strength of its geographic advantages. Its refining sector also flourished around Royal Dutch Shell, once among the world’s largest oil companies. Manufacturing was equally competitive, symbolized by Philips Electronics and Unilever consumer goods. By the 1970s, the Netherlands ranked among Europe’s top five industrial economies.

Then came an unexpected windfall. In 1959, one of the world’s largest natural gas fields was discovered in Groningen. The Netherlands connected European countries through pipelines and became a major supplier of gas. After the 1973 oil shock sent natural gas prices soaring, the country accumulated enormous current account surpluses. The government used rising tax revenues to expand welfare programs. Disability insurance and unemployment benefits grew dramatically, and public spending eventually accounted for 57 percent of GDP, far above the 30 to 40 percent typical of other advanced economies.

Prosperity, however, carried a cost. The current account surplus sharply increased the value of the Dutch guilder. The exchange rate rose from 3.62 guilders per dollar in 1970 to below 2 guilders by 1978. As the currency appreciated by nearly 50 percent, exporters lost price competitiveness. Annual wage increases exceeding 10 percent pushed labor costs to among the highest in the world, eroding the foundations of manufacturing. Companies reduced domestic production and relocated overseas. By the early 1980s, the economy had entered a recession, and effective unemployment exceeded 20 percent.

When gas prices later fell, fiscal deficits surged into double digits as a share of GDP. Households, businesses and government finances all approached crisis. Only in 1982 did labor, management and government seek a broad compromise. Under the Wassenaar Accord, unions accepted wage restraint. Businesses guaranteed regular employment while expanding part-time hiring, and the government pledged fiscal discipline. The agreement proved successful. A decade later, unemployment had fallen near full-employment levels and women’s labor force participation had risen sharply.

Korea now faces a similar debate as semiconductor exports and tax revenues surge. Large bonuses at semiconductor companies are widening income gaps across industries and social classes. Discussions are also growing over how to use higher tax revenues, including support for vulnerable groups.

The Dutch experience offers a clear warning. Temporary windfalls should not be consumed immediately. Just as gas prices eventually fell, semiconductor cycles will also end. Korea needs a national compromise focused on education, infrastructure and sovereign wealth investment to strengthen long-term competitiveness and future income sources.

This article was originally written in Korean and translated by a bilingual reporter with the help of generative AI tools. It was then edited by a native English-speaking editor. All AI-assisted translations are reviewed and refined by our newsroom.