Remarks by Angel Gurría, OECD Secretary-General, delivered at the press conference
2 July 2014 – OECD, Paris
Good morning ladies and gentlemen,
Welcome to the OECD Global Forum on Development, and to this briefing on our fourth edition of Perspectives on Global Development. I would like to share with you the highlights of this important report before handing over to Mario Pezzini, Director of the OECD Development Centre, who will elaborate on the findings in more detail.
The “shifting wealth” phenomenon is slowing
Since we began the series in 2010, our Perspectives on Global Development reports have investigated trends in what we call “shifting wealth”: the increasing weight of emerging and developing countries in the world economy.
In retrospect, the first report couldn’t have been better timed. What we didn’t know at the time – but what new data just released has shown us – was that 2010 was the very year that the share of non-OECD countries in the global economy surpassed that of OECD countries, when measured in terms of purchasing power parity.
The rate of this shift has been remarkable. Just ten years earlier these countries accounted for 40% of the global economy. China and India are leading the charge and together account for almost one quarter of the global economy. However, there has recently been a slowdown in the growth of emerging-market economies. The BRIICS – Brazil, Russia, India, Indonesia, China, and South Africa – were growing at an average rate of 6.3 per cent before the crisis, and at 5.3 per cent after the crisis. Going forward, their average GDP is projected to grow by 4.7 per cent a year until 2020. China will continue to have the fastest growth among these countries.
Based on recent trends, many middle-income countries are not growing fast enough to reach average income levels in the OECD countries by 2050. This includes several lower middle-income countries – such as India, Indonesia and Viet Nam – but also countries in the upper middle-income bracket, such as Brazil, Colombia, Mexico, and South Africa.
These trends are worrying. Growth in emerging-market economies has been an important driver in bringing living standards in these countries closer to those of advanced economies.
Productivity matters for growth, but is rising too slowly in many countries
Boosting productivity will be the key to boosting growth – and in turn sustaining improvements in living standards – in middle-income countries. This is the focus of the report we are launching today.
Over the past decade, productivity growth in a number of middle-income countries was insufficient to close the gap in productivity with advanced countries. In Brazil, Mexico and Turkey, the gap even widened. In contrast, China’s record is impressive, with labour productivity in manufacturing and services rising by 10 per cent, year on year.
Middle-income countries can boost productivity in several ways
Our report identifies four key ways in which the productivity challenge facing middle-income countries can be addressed:
First, countries need to diversify into higher value-added activities. This is particularly important in middle-income countries that are seeing rising wages, as well as those that are rich in natural resources. Over time, countries need to move away from a growth path which is driven by low-cost labour to one which is driven by innovation and the accumulation of knowledge.
Second, middle-income countries have a lot of room for technological catch-up. They can do this by tapping foreign knowledge, but also by developing domestic capabilities for innovation.
Third, in many middle-income countries, firms are often constrained by an inadequate regulatory environment and a lack of the right skills. Product, labour and financial markets need to be designed carefully in order to support the development of competitive, innovative firms. Equitable, quality education systems are also essential.
Finally, the service sector holds enormous potential for productivity. The domestic service sector can grow to meet the demands of the growing middle classes. It can also be a source of export earnings, as India has shown. The growth potential is particularly high in financial and business services in middle-income countries.
A final word of caution: Development is about more than growth
Before handing over to my colleagues, allow me to add a final word of caution. Development is not only about economic growth. For growth to result in lasting, tangible improvements in people’s well-being, it needs to be both inclusive and environmentally sustainable.
Many developing and emerging economies have seen good progress in reducing poverty in the last two decades or so. But at the same time, the gap between rich and poor is increasing in many of these economies. As the social unrest of the Arab Spring ¬illustrated, more attention has to be paid to social cohesion and to equality of opportunity. The benefits of economic growth need to be shared more broadly. This is true for many OECD countries as well.
Pursuing a policy of ‘growth at any cost’ can also have devastating consequences on the environment. Middle-income countries can explore ways of diversifying into less energy-intensive sectors, and strive to become leaders in energy-efficient technologies.
At the OECD, we work with governments on all these fronts: we are re-visiting how we conceptualise and measure well-being through our Better Life initiative; we have embarked on an initiative to explore how best to promote inclusive growth; and we will, in the run-up to the COP climate summit in Paris next year, be intensifying our work on the policies needed to support the transition to a low-carbon economy.
Today’s report is one piece of a much bigger OECD “jigsaw” of work on development and, ultimately, on Better Policies for Better Lives.
I will now give the floor to Mario Pezzini and Carl Dahlman of the OECD Development Centre, who will guide you through this report and its policy implications in more detail.
Boosting productivity key for developing economies to close income gap with advanced countries, says OECD Development Centre