Remarks by Angel Gurría,
Paris, 26 October 2015
Ladies and Gentlemen,
We gather here today at a pivotal moment for the global economy. OECD countries are facing up to the prospect of a ‘secular stagnation’ measured not in years, but in decades, whilst our partners in emerging markets and developing countries have seen their breakneck pace of growth begin to falter.
But as mounting fears over a widespread slowdown focus the minds of governments the world-over on the pursuit of growth, it is vital that we do not lose sight of the fact that growth alone will no longer cut it. If we want growth to be sustainable over the long-run, then we need to take action to reduce inequalities and ensure that everyone has the opportunity to get on in life. In short: we need to ensure that growth is inclusive.
That recognition is why we are here today. And in that light, it gives me great pleasure to welcome you all here for the launch of the OECD Centre for Opportunity and Equality.
The vision for this centre is simple: to create a global, cross-cutting and comprehensive platform for promoting, conducting and discussing research on the trends, causes and consequences of inequality. The OECD is the perfect home for this initiative. It will build on over thirty years of multidisciplinary work on inequalities drawn from across the organisation to provide reliable data and robust analysis. And it will work to impact on policy to help governments in the OECD, and partner countries, rise to the challenge of promoting inclusive growth.
The moment could hardly be more opportune. Over the past few years the inequality debate has risen to the top of the political and economic agenda, as slow growth and the unhealed social scars of the crisis have exacerbated long-running trends in rising inequality. The global community is now waking up to the necessity of taking action. Only a few weeks ago, the UN General Assembly approved a set of 17 Sustainable Development Goals, with a specific goal on inequality.
In this context it is more vital than ever for the OECD to leverage its vast experience of working on inequality! This is precisely what the Centre is for: to collect global data and generate leading analysis on inequalities and, most importantly, to impact upon policy, helping to construct concrete recommendations to promote inclusive growth.
The OECD already has a reputation for being the go-to place for data and analysis on inequalities, and our most recent numbers paint a bleak picture. The average income of the richest 10% of the population is close to 10 times that of the poorest 10% across the OECD, up from seven times 25 years ago. In Turkey, Chile, Mexico and other Latin American countries income inequality fell, but levels remain significantly higher than most other OECD countries.
The situation is even worse with wealth. The evidence for 18 OECD countries shows that the top 10% households owned half of all total household wealth in 2012, while the bottom 40% owned a meagre 3%.
But inequalities go well beyond money. They reach into every area of people’s lives affecting health, access to quality jobs, educational attainment, and almost every important aspect of well-being. They reduce opportunity and ensure that people’s life chances essentially boil down to their wealth, age, gender, or place of residence.
We have seen this in the wake of the crisis, as across the OECD vulnerable groups have borne the brunt of increased unemployment, whilst non-standard working arrangements and in-work poverty have boomed.
We also see this in the case of health. Despite remarkable progress in life expectancy over the past decades, there remain large inequalities across OECD countries and population groups. A new set of data on inequalities in life expectancy that we are currently collecting shows that the gap in life expectancy at age 25 between men with university education and those with primary education is close to 10 years.
We have long known that inequality causes social misery and generates political instability. But in our recent publication In It Together we produced compelling analysis which shows that the observed long-term rise in income inequality in OECD countries has actually had a negative impact on growth, by discouraging people on low incomes from investing in their human capital. The increase in inequality observed between 1985 and 2005 in 19 OECD countries knocked 4.7 percentage points off cumulative growth between 1990 and 2010.
The scale of the challenge we face is immense. Collecting good data and producing robust analysis is an absolutely essential part of doing something about it. But it is just the beginning. In recognition of that fact, the ultimate goal of the Centre for Opportunity and Equality is to promote concrete and cross-cutting policy recommendations to promote inclusive growth.
Our All on Board for Inclusive Growth initiative is already breaking new ground trying to help governments rise to the challenge of fighting inequalities. It sets out a new approach to economic growth that looks beyond money alone to see how people are faring in other areas of life like jobs, and health. It also recognised the importance of looking past simple aggregates, to see how different parts of the population benefit from growth.
This approach shows not just that we can promote strong growth and greater equity, but that we must. Neither is sustainable without the other over the long-term. Allow me to share a few of key policy recommendations with you.
To begin with, transfers and taxes are part of the policy package used by many countries to moderate differences in the market distribution of income and wealth. Yet, in recent decades, the effectiveness of redistribution weakened in many countries and especially in advanced economies. A renewed focus on redistribution is important; redistribution does not have to be bad for growth if properly targeted, implemented and “activated” for employment purpose.
An effective policy package also needs to expand the opportunities that people have to benefit from growth. Promoting inclusion in the labour market for women and other under-represented groups is essential. As an example, income inequality in the OECD area would have increased by much more if the employment patterns of women had remained the same as in the early 1990s. Promoting access to good-quality jobs is another important factor. Labour market policies need to improve working conditions, wages and their distribution.
Finally, supporting investment in education and training among lower-middle class and working class families will also be essential to tackling inequality and will pay long-term dividends for individual and collective well-being. Investment in skills must begin in early childhood with a strong focus on kids from lower and middle income households. Investments then need to continue through the working life, to increase employment and employability, reduce wage polarisation and promote social mobility.
Ladies and gentlemen,
The level of inequalities that we see before us today is bad for our societies, bad for political stability and bad for growth. We need to take action to promote more Inclusive Growth, so that everyone has the chance to benefit from and contribute to stronger economic performance. The founding of the OECD Centre for Opportunity and Equality today is a defining first step!