Remarks by Angel Gurría, OECD Secretary-General
18 March 2014, Prague, Czech Republic
(As prepared for delivery)
Good morning Prime Minister, Ambassador, Ladies and Gentlemen,
It is a great pleasure to be here in Prague to launch the 2014 Economic Survey of the Czech Republic. Thank you, Prime Minister, for your hospitality today. The OECD is very much looking forward to working with you and your new cabinet.
The Czech economy is finally coming out of a prolonged recession and recent data points to a nascent recovery. Performance in the decade prior to the recession makes us confident that the return to higher growth is possible.
The core message of this year's survey is that to sustain this momentum, and restore the income convergence process vis-à-vis European economies, the Czech Republic must strengthen its domestic economy. The successful growth model of the past, based on Foreign Direct Investments in export-oriented manufacturing and low labour costs, needs to be adapted and broadened.
We suggest three key pillars to stimulate the domestic economy: creating a more competitive environment; boosting skill use in the labour market; and improving school-to-work transitions.
The competitive environment needs to be strengthened
The Czech Republic has put in place an impressive reform agenda to strengthen its business environment. Indeed 10 years ago, the OECD’s Product Market Regulation Indicator showed higher barriers to entrepreneurship than in most other countries. Today, on the basis of our indicator, the regulatory environment is at par with the OECD average. This is a remarkable transformation.
However, there is still broad scope for improving the competitive environment. A stronger competition framework will carry double dividends: it will promote a thriving business sector, while boosting consumer welfare through greater choice and lower prices.
Expanding the private services sector, one of smallest in the OECD as measured in value-added terms, would help to stimulate the economy’s international competiveness, as services are important intermediates used in manufacturing. Services also contribute to stimulate innovation. Lowering barriers to entry in professional services would contribute to promote a more open and competition-friendly market environment. So would improving the implementation of competition policy by enforcing anti-cartel rules and reducing delays for contract enforcement.
State ownership in energy and transport sectors, and public sector involvement in commercial activities, deter the growth of Small and Medium Enterprises (SMEs). Further privatising and divesting the business activities of State-owned enterprises would level the playing field, benefiting society. There is also scope to improve governance and managerial integrity of the remaining State-owned enterprises by concentrating ownership control into a single authority, with a hands off corporate governance system, professional boards and management.
Likewise, there is room to improve competition policy. We encourage the recent reforms, such as the leniency programme and surveillance of public procurements. But will this be enough to enhance enforcement and deterrence? As we need to monitor these measures, we recommend bolstering competition law enforcement, via greater scope for private litigation and use of sector inquiries.
Network industries are another area for policy action. They need special attention because of their natural monopoly characteristics. Independent sector regulators are needed to secure non-discriminatory network access for new entrants. An element in achieving this is the effective separation of the network from other activities. An example in this respect is the telecommunication sector, where the entry of mobile virtual network operators (MVNOs) has driven prices down, but where additional measures are needed to secure prices that are at par with the most competitive actors in Europe.
Barriers to higher employment of youth and women should be removed
The transition to a market economy has led to important changes in the labour market. Unfortunately, our analysis indicates that, at the regional level, the loss of jobs during the transition was not fully offset by job-creating investment. Today, long-term unemployment is stubbornly high: more than 40% of the unemployed have been without a job for longer than one year. Two additional issues to be addressed are: the unskilled youth and female workers.
It is difficult to make-up for a bad start in the labour market. With unemployment of unskilled youth close to 20% in the country, young people are denied the opportunity to develop on-the-job skills, and at the same time are losing the competencies learnt at school. This increases the probability of repeated and prolonged unemployment later in life.
Initiatives like increasing spending in active labour policies, enhancing the capacity of the Employment Office and the recently introduced youth guarantee programme are important steps in the right direction. Establishing a contractual relationship between a company and students in vocational education is a particularly promising measure.
Another important concern is the need to facilitate family and work choices. Mothers of young children face multiple obstacles when they wish to work. You have less ‘crèches’ facilities than higher education institutions! The consequences are clear. Tertiary education attainment rates are similar for men and women. Yet, the employment rate of women with tertiary education is much lower than their male counterparts, and far below the OECD average. Reducing obstacles for female labour market participation can put existing skills into effective use, which will contribute to gender balance and also help with counteracting the consequences of ageing.
Providing an adequate supply of affordable and high-quality early childcare facilities is therefore essential to support families' free choice of balancing family and working lives. You have another double dividend here, as investing in high-quality early childhood education can be an efficient strategy to ensure that children can start strong in their education careers, as highlighted in the OECD Skill Strategy.
The education system needs to adjust to changes in labour market needs
The general skill level is high in the Czech Republic, with very few left behind. More than 90% of the working-age population has attained at least upper-secondary education, the highest share among OECD countries.
However, education performance has been declining over time. The education system has not kept pace with the structural changes in the labour market, generating a gap between the skills employers look for, and what workers can actually do. More needs to be done to support growth in the education system by adjusting faster to labour market needs. Upgrading the skills of the labour force will allow the country to match technology-driven changes in labour demand, and move up global value chains. Improving participation of employers, and expanding workplace training in vocational education are crucial milestones in this respect.
The Czech Republic has made considerable progress in raising tertiary education attainment rates but expansion in resources has not kept pace with the rhythm of student intake, which has raised concerns about how to secure quality. A more diversified source of additional financing, including by introducing tuition fees, given the high private returns in the Czech Republic, may be justified. Other challenges include strengthening the links with the private sector and foreign research networks.
Prime Minister, Ambassador, Ladies and Gentlemen:
Let me conclude by highlighting the impressive trajectory of the Czech Republic since it became an OECD member nearly 20 years ago. Now, closing the income convergence gap with more advanced economies means that you need to adopt best practices and aim for the top.
The OECD stands ready to support your country in achieving this goal and raising living standards for all. I hope that our Economic Survey will help the new government design, promote and implement better policies for better lives!
Czech Republic is recovering, but more must be done to jump-start income convergence with euro area countries, OECD says
The OECD Secretary-General in Prague, 18 March 2014