Keynote by Angel Gurría,
2 June 2015
OECD Headquarters, Paris(As prepared for delivery)
Distinguished guests, friends and colleagues from businesses and social partners,
The OECD’s Economic Outlook – to be published tomorrow – will show global GDP accelerating to close to 4% in 2016. This sounds like good news after many disappointing years since the crisis. But, it’s not “great-great” news. A number of major economies have slowed or are still growing sluggishly.
Our growth projections rest on the assumption that annual investment growth gradually strengthens from less than 2.7% in 2014 to 4% in 2016 on average in the OECD. Higher public and private investment is crucial for stronger and sustainable growth, higher productivity and wages, more and better jobs.
This is why it is the core theme of our Ministerial Council Meeting (MCM) and this is why it is the topic we chose for a special chapter in our forthcoming Economic Outlook. And it’s not a coincidence that investment is also one of the 3 “I”s of the G20 agenda under the Turkish presidency.
But the OECD is equally very supportive of the other two “I's” of the Turkish Presidency:
Implementation of the 800 new policy measures, endorsed by G20 leaders in Brisbane last year, to generate 2% of additional growth of G20 GDP, equivalent to more than USD 2 trillion additional GDP, and thereby create millions of additional jobs by 2018. The OECD is helping the G20 to assess its progress towards this ambitious, yet realistic, objective.
The Turkish Presidency is also and most importantly shaping the growth debate into one on strong and inclusive growth. For growth to be strong and lasting, it needs to be socially sustainable and equitable, as the just-released OECD report entitled In It Together - Why Less Inequality Benefits Allconvincingly shows. I will elaborate on this aspect in a moment.
So let me indeed turn to so-called megatrends and related challenges and policy requirements.
OECD projections for long-term growth [Policy Challenges for the Next 50 Years] show that in a central scenario [i.e. in the absence of reforms], growth will slow almost everywhere – in advanced and emerging economies alike – between the next decade and the middle of the century. Growth will also become increasingly dependent on rising multifactor productivity. In this context, the core medium and longer-term megatrends and challenges are:
Addressing these megatrends and changing the faltering growth performance will require more drastic policy changes in five key areas:
First, on investment and productivity: In a short-term perspective more should be done to encourage public and private investment in infrastructure in advanced and emerging economies alike. OECD work for the G20 on the financing of long-term investment by institutional investors has shown how important the role of governments is in setting the right regulatory framework for long-term investors like pension funds to invest in real assets, including infrastructure. But we also need to look into the quality of investment and its impact on productivity: we need to focus our efforts, therefore, on boosting innovation and productivity growth, which has been slowing significantly since before the financial crisis. Worryingly, our assessment is that the diffusion of technology from the leading firms, and the creation and growth of new innovative companies have slowed.
Governments and businesses have the tools to “unblock” the productivity channel. Innovation and global market integration in general are key drivers of productivity gains and should be strongly encouraged. In particular, productivity growth can be unleashed by reducing restrictive regulations and moving towards smart regulations, and policies to foster investment in R&D and knowledge-based capital (KBC), such as software and intellectual property, as well as supporting investment in basic research, data and digital infrastructure like broadband. If the conditions are right, there are huge opportunities in the digital economy and in linking the manufacturing with the digital world - better known in our host country as ”Industry 4.0”.
Second, promoting inclusive growth by investing in skills will be key: Results derived from the OECD survey on adult competencies [i.e. PIAAC] shows that skills transform life – for the better - and drive economies. In some countries, the difference in economic and personal achievements between low and highly literate adults is huge: up to 1 to 5 for wages, 1 to 3.5 for jobs and 1 to 3 for health . Also OECD analysis shows that inequalities in skills and incomes are closely related. Investing in skills is definitely key to making inclusive growth happen.
Capitalising on the potential of skill development policies to promote inclusive growth requires concerted efforts to ensure that people at all ages and stages in their lives are able to develop relevant skills, activate those skills on the labour market, and utilise them effectively in the workplace and across economies and societies.
Third, creating an economic and social framework for lifelong “employability” in ageing societies: Demographic change and a reduction in labour force can partially be offset through increases in labour force participation and employment rates, implying that future gains in GDP per capita will become more dependent on accumulation of skills and, as I have already pointed out, on gains in productivity driven by innovation and knowledge-based capital.
There is much to be expected from the B20 when it comes to skills: It has a key role to play in the development and mainstreaming of quality apprenticeships which will be central to the upskilling of the coming generation and its integration into the labour market.
Fourth, green growth, green investment and curbing emissions to mitigate climate change: Investment and innovation to increase energy efficiency, make renewable energy sources financially and technologically competitive but also to curb emissions that harm our living conditions need to be fostered. One of the biggest challenges on this way is the fact that most of the existing world’s infrastructure is using fossil fuels as the primary energy source. The sine qua non condition for a substantive game-change is the economic viability of clean energies, which depends on the putting in place a clear, stable and supportive regulatory framework for green investment. Only credible, predictable and coherent policy signals and actions will allow the economy to adapt. As to climate action, it is both urgent and vital. The costs of measures to mitigate climate change are easily weighed against climate change’s negative impact on economic growth. New OECD projections suggest that world GDP in 2060 may be lowered by between 0.7% and 2.5% due to the effects from a selected number of climate change impacts including falling agricultural productivity, and capital and land losses related to sea level rise. At the COP 21, there will be the chance to send clear signals that will drive action for the decades to come.
Fifth: To enhance global integration, further multilateral trade and investment agreements must be implemented. Migration has to facilitated too to allow for optimal allocation of all production factors, especially in light of continuing demographic change.
These are some of the megatrends, their challenges and solutions that lie ahead, and we better start addressing them together today than tomorrow. The private sector is a key driver and partner in this effort. While governments need to find ways to introduce policies and the regulatory framework and take care of those that are on the losing side of structural change, the private sector is ultimately the vehicle and the source of value and jobs creation.
The B20, in its recommendations to G20 leaders, justly demand consistent and effective regulation, on a national and international level, for a reliable and conducive business environment. It speaks to the B20’s and BIAC’s huge credit that they are equally adamant on integrity and credibility in corporate governance and commerce. Accountability goes both ways.
The gargantuan task of steering economies toward sustainable growth falls rightly to the G20 as the “premier forum for international economic cooperation” because, to be successful, efforts have to happen on a global scale and be coordinated and co-operative. In other words, all stakeholders – governments, the business, the Unions and those which are equipped to analyse problems and suggest ways forward – such as the OECD – have to work together.
Looking ahead to the 2016 Chinese G20 Presidency, the OECD will continue to support the G20 and B20 work and the priorities of the incumbent presidency by providing its tailored expertise and policy findings with an emphasis on the new, more inclusive and innovation-driven, growth model.
We at the OECD remain convinced that to continue along this depicted path of “inclusive and innovative growth” is the right way to go forward and we will be delighted to pave the way with the B20 and with BIAC!