Remarks by Angel Gurría, OECD Secretary-General, delivered at the Enlarged Debate of the Parliamentary Assembly of the Council of Europe (PACE) on the Activities of the OECD
1 October 2014 - Strasbourg, France
(As prepared for delivery)
President Brasseur, Members of Parliament, Ladies and Gentlemen,
I am delighted to be reporting to your Assembly today on the OECD’s latest activities. Let me start by congratulating you on having celebrated this past August the 65th anniversary of the Parliamentary Assembly of the Council of Europe. I want to pay tribute to you all for promoting the concept of a large and united Europe and for sharing values that transcend national and political differences.
This debate has become a regular appointment, one which I deeply cherish. It is an opportunity for me to report on the many activities carried out by the OECD to one of our main partners. Even more importantly, this debate is an occasion for us to hear your views and discuss with you the challenges faced by our economies and our societies, and explore ways of tackling them effectively.
The Need to Develop a New Growth Model
Where are we six years into the crisis? Global growth and employment are expected to pick up moderately in the second half of 2014 and into 2015, helped by continued policy support, favourable financial conditions and growing confidence. Yet, most economies have not recovered the pre-crisis levels of GDP. The euro area, for example, continues to experience a 6% output gap.
In addition, there is a growing degree of divergence between our major economies. The recovery in the United States is more solid, while it is expected to reassert itself in Japan. But it remains fragile in the euro area in the near term, as weak domestic demand and low inflation raise the risks of prolonged stagnation. Emerging economies will continue to strengthen and nourish global growth, although many still face significant challenges and remain vulnerable to financial market shocks.
There are also many additional and significant risks that could knock the recovery off course. Notably, geopolitical risks which have grown in recent months, with the intensification of tensions in Ukraine and the Middle East.
And let’s keep very much in mind the scars in the labour market. 45 million people in the OECD area are still unemployed, almost 12 million more than before the crisis. 16 million – a third of the unemployed – have been out of work for more than a year. This is twice the number in 2007 and points to structural unemployment which will be difficult to reverse, especially as the global economy expands at a moderate and uneven pace. Youth unemployment has reached alarming levels; surpassing 50% in countries like Greece and Spain. The danger of a lost generation remains very real.
Let’s also strengthen our efforts to reduce inequality. The financial and economic crisis has exacerbated rising inequality and fuelled a social crisis. In OECD countries the income of the top 10% of the population is 9.5 times that of the bottom 10%, up by more than 30% in 25 years. Anchored poverty has increased by approximately 2 percentage points between 2007 and 2011, with much larger increases in countries that have experienced the deepest and longest downturns. The number of those living in households without any income from work has doubled in Greece, Ireland and Spain. And worryingly for our future, the youth have now replaced the elderly as the group experiencing the greatest risk of income poverty.
It is no wonder that trust in government and institutions is plummeting. According to the latest World Gallup poll, on average, only four out of ten citizens in OECD countries say they have confidence in their government. This not only reflects the social consequences of the crisis, but also the yet unanswered challenges of ageing and climate change. Citizens are losing confidence in their institutions to provide better prospects for the future.
It’s high time for a change! We need to address these challenges through a different growth model, focused on building resilient, inclusive and green economies.
The OECD’s Vision for a Sustainable and More Inclusive Growth
At last year’s debate, I mentioned that the OECD had launched the New Approaches to Economic Challenges Initiative (NAEC). It began as a reflection on the lessons to be learned from the crisis; a total of 29 projects to think more creatively about the complexity of our world. NAEC is now delivering results, translating new approaches to economic thinking into practical advice for our member countries. Let me give you a few concrete examples of areas in which we have been focusing our efforts.
First, emanating from NAEC, the OECD’s Inclusive Growth Initiative has shown that greater inclusiveness and the opening of economic opportunities for all can act as drivers of strong economic performance. On the other hand, neglecting investment in the most disadvantaged of our societies can result in poor levels of economic growth. In addition, our models now look beyond traditional monetary indicators to dimensions that better reflect the quality of life: income distribution, access to health, education and skills.
We need active labour market policies and other policy tools to bring the unemployed back to work. Unemployment is the biggest source of inequality and declining trust. We also need better quality jobs, considering critical features such as employment security, the quality of earnings and of the work environment. Our work on skills has also been expanded further, with the launch of a new survey on adults’ skills (PIAAC) and the development of national skills strategies.
Second, to jumpstart growth, we are increasingly focusing on developing new policy advice on innovation, science and technology, and the digital economy. Policies need to favour investment in Knowledge-Based Capital (KBC) such as: research & development; software and big data; organisational know-how and intellectual property. KBC will be key for our future: in the US and the EU, KBC already contributes more than 20% to average productivity growth.
Third, to help countries increase their participation in international trade flows, we have designed a new metric to measure global trade flows – Global Value Chains (GVCs). GVCs challenge our conventional wisdom on how we look at economic globalisation and in particular, the policies that we develop around it. We are working on several fronts to help policy makers to understand the effects of GVCs on a number of policy domains including: trade policy; investment policy; and risk assessment, to name but a few.
Fourth, it is imperative to focus on green growth. We urgently need to make the shift to a low carbon economy. New OECD projections carried out under NAEC suggest that world GDP in 2060 may cumulatively shrink by between 0.7% and 2.5%, should global temperature increase between 1.5º and 4.5ºC. The OECD is continuing to develop an array of tools to help countries tackle climate change, including on carbon pricing and eco-innovation.
I just participated in the climate change talks at the UN last week where we witnessed a phenomenal mobilisation by the community, local governments and civil society. Their role will be central in catalysing action and securing the necessary political will to finalise an ambitious, global legal climate agreement at COP 21 in 2015.
And let me conclude with our latest major contribution, our work on tax issues. I am proud to report that the OECD delivered to the G20 Finance Ministers in Cairns, Australia, on 20th September, a package of actions covering 7 key areas of international tax rules to combat Base Erosion and Profit Shifting (BEPS). 44 OECD and non-OECD G20 countries have worked together on an equal footing and agreed by consensus on all of these measures; while 80 developing countries have provided input through regular consultation.
After Finance Ministers approved the BEPS package, it will become one of the most important “deliverables” of the 2014 G20 Leaders Summit, which will be held in Brisbane, in November. These measures will help reduce tax treaty abuse, better deal with the fiscal implications of the digital economy, and neutralise hybrid mismatches. The OECD is now looking forward to forthcoming discussions on the feasibility of a multinational instrument to streamline implementation.
Last but not least, earlier this year, we released a single common standard of Automatic Exchange of Information in tax matters: More than 65 countries have now committed to the implementation of this standard which will help countries fight tax evasion, with more than 40 having committed to a specific and ambitious timetable leading to the first automatic information exchanges in 2017.
President Brasseur, ladies and gentlemen:
I hope that this quick overview of our key contributions to a better world have captured your attention and will stimulate our debate. Your feedback and your input into this discussion remain essential. As parliamentarians, you are in a unique position to measure the pulse of the societies in your respective countries. More importantly, you are able to provide a ‘voice’ to the people who are feeling increasingly ‘lost’ in our fast-paced globalised world.
The Parliamentary Assembly of the Council of Europe is a fundamental forum through which you are able to share invaluable national experiences and lessons learned. And in this respect, our dialogue today does not only lead to a more open and transparent debate, but also feeds into our thinking and contributes to our common goals of building the sustainable, inclusive and green economies of tomorrow.
I thank you for this opportunity to speak before you. I very much look forward to our discussion.