Remarks by Angel Gurría,OECD Secretary-General, delivred at the Doosan Global Business Forum, in Manchester, 20 July 2012
(As prepared for delivery)
Ladies and gentlemen,
It is a pleasure to be here at the Doosan Global Business Forum. Thank you for the opportunity to share with you the OECD’s perspective on growth challenges for the world economy. Before I focus on the longer term, let me first emphasize where we stand at the moment.
The outlook is sombre
We are not yet in a post-crisis mode. Five years after the crisis erupted, the global economy is still on the brink of a slump that would reverse any progress made so far. GDP growth across the OECD may slow to 1.6% in 2012, before recovering to 2.2% in 2013. And we may find these forecasts, published last May, overly optimistic. Employment prospects are equally tepid. The unemployment rate is likely to remain at 7.7% for the OECD area through the end of 2013, leaving 48 million people out of work. 14 million jobs would need to be created to bring the employment ratio back to pre-crisis levels. Youth unemployment is double, triple, even five times the average, and long term structural unemployment is now prevalent.
These are global concerns. Europe faces a banking and sovereign debt crisis; America is heading towards a fiscal cliff that risks derailing the economy; China and India – the world’s engines of growth in recent decades – have slowed. Brazil is flat. It is therefore imperative that those countries that can do so, coordinate and implement additional fiscal and monetary measures to support demand and boost job creation.
In addition, a generalised lack of confidence is taking its toll on financial markets. The recent scandals concerning libor and money laundering don’t help. Despite the important decisions made recently to shore up Spanish banks, markets are still wary about the euro area. They are pricing in the cost of disintegration, rather than integration, of the euro area.
Urgent action is required in Europe
To push back once and for all those fears of European disintegration, European leaders must work towards greater banking and fiscal integration. Yes, this path is filled with financial and legal uncertainties. Overcoming these obstacles requires convincing answers and clear leadership.
European leaders also have to revive economic growth. A well-articulated strategy, coupled with ambitious medium-term programmes, can be more effective than financial stopgaps, which only buy time.
The question is: How can governments drive economic growth while trying to consolidate their public finances at the same time?
The OECD is convinced that this can be achieved. We say: Go Structural; Go Social; Go Green!
Structural reforms can spur economic growth. Growth-friendly tax reforms, pro-competition market regulations, or educational and labour market initiatives that facilitate the transition from education to employment will drive growth, improve public finances and generate employment prospects. Innovation, R and D, liberalisation of labour and product markets, deregulation, health, infrastructure.
Policymakers should not delay structural reforms for fear that they will only yield benefits after many painful years. On the contrary! They can start to bear fruit already in the short term if these are well explained and well communicated. The UK reports saving £12bn in just five years through tax reforms. This is a shining example.
Besides dealing with the challenge of unemployment, in designing pro-growth policies, it is vital to ensure that “all are on board.” We cannot let growth improve prospects for some people while others are ignored. Income inequality in OECD countries is already at its highest level for the past half century. The average income of the richest 10% of the population is about nine times that of the poorest 10% across the OECD, up from seven times 25 years ago.
In some countries, inequality has increased further from already high levels; that is the case of the United Kingdom, Israel and the United States for example. Other traditionally more egalitarian countries, such as Germany, Denmark and Sweden, have seen the gap between rich and poor expand from 5 to 1 in the 1980s, to 6 to 1 or 7 to 1 today.
These trends are worrying! Citizens are losing faith in banks, governments, political parties and institutions at large. The middle classes in many societies feel uncertain, excluded and unduly burdened. Many feel they are paying for a crisis for which they have no responsibility, while those with higher incomes are spared.
Rising inequality threatens the social compact. This dangling sense of “unfairness” drives social unrest, as we’ve seen from Los Indignados in Spain, the Occupy Wall Street movement in London and New York, the student protests in Montreal, Santiago de Chile and elsewhere.
There is nothing inevitable about rising inequality. We can repair our decaying social fabric before it fully erodes. Improving employment prospects - by upskilling the workforce - is a promising way to tackle increasing inequalities. Investing in people from their childhood, throughout their formal education and beyond, is a crucial step. In emerging economies, improving access to public services, like family or health care should be high on the agenda. These reforms will ensure inclusive growth for the future we want.
Growth and inequalities, however, are not the only challenges we face. Economic expansion has come at a price to the environment. We are on a collision course with nature! Failure to responsibly manage the natural assets upon which our life depends will have serious economic and social consequences, especially for the poor. This can ultimately undermine growth and human development.
Environmental degradation can be prevented. Green growth strategies can unlock opportunities for economic growth and better welfare through many channels: (i) by freeing-up scarce fiscal resources for anti-poverty programmes and other public priorities, (ii) by enhancing productivity through a more efficient use of natural resources and energy, (iii) by opening up new markets for green technologies, goods and services, and (iv) by creating new employment opportunities.
Going green can bolster innovation, enhance productivity and open new markets. Reducing pressure on the environment will remove costly resource bottlenecks and minimize systemic risks.
Green growth should start in cities
While these benefits are relevant for continents and countries, they are most tangible in cities. Here is where the majority of our populations live. Here is where we see the signs of our environmental challenges on the streets. As we will discuss tomorrow, we must find and implement solutions at an urban level.
The OECD is ready to contribute. From Chicago to Paris, from Stockholm to Busan, the OECD’s green cities programme demonstrates that green policies can foster jobs and generate new economic activities. Our studies prove that cities have a greater ability than countries to identify and employ green growth strategies.
But greening our cities requires investment. To make the world’s 40th largest cities carbon neutral we would need to invest $3 trillion dollars in infrastructure. That is about three times Korea’s or Mexico’s 2011 nominal GDP. A tall, but manageable, order.
These forty cities generate an estimated annual GDP of $11 trillion dollars, and must constantly renew their infrastructure. Therefore, it is not a question of spending or not on new infrastructure but rather on how and when we do it.
We do not need to go too far to find an innovative approach for funding green urban infrastructure. The creation of the Greater Manchester Metropolitan Authority, and its capacity to leverage private money to extend the city’s light rail network provides a great benchmark.
Ladies and Gentleman,
Growth is weak or negative; unemployment is at record levels; deficits and debt are sky high; and we are on a collision course with nature. It is therefore imperative to take a new approach. That’s why we say go structural, go social and go green!