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OECD Secretary-General

2018 IMF and World Bank Annual Meetings - Written Statement to the Development Committee

 

Written Statement to the Development Committee by Angel Gurría

OECD Secretary-General

13 October 2018 - Bali, Indonesia

 

 


Introduction

1. Global pacts such as the 2030 Agenda, the Paris Agreement, and the Addis Ababa Action Agenda have raised the level of ambition and financing needs for sustainable development, yet a number of factors are impeding domestic and external capacities to meet these needs. Insufficient investment in development, growing indebtedness, and rising trade tensions have dampened growth prospects worldwide , thereby jeopardising sustainable development objectives.


2. While no silver bullet exists to resolve such complex issues, three priorities for the global community merit particular attention:

  • strengthening human capital; 

  • managing the impact and leveraging the opportunities of disruptive technologies to promote inclusive growth and sustainability; and 

  • assisting emerging and low-income economies to address debt vulnerabilities.

 

Strengthening Human Capital

3. As laid out in the World Bank Group’s Human Capital Project, economic growth and development depend on both physical and human capital, and factors affecting the productivity of both. However, current global trends point to slowing productivity gains, and rising inequalities; and OECD research and empirical evidence suggests these trends have common foundations and linkages. These trends pose enormous obstacles to better economic performance and citizen well-being, as higher productivity and more inclusive growth benefit all parts of society through improved living standards and opportunities.


4. Policymakers need to adopt a broader, more inclusive approach to productivity growth that considers how to expand the productive asset of an economy through different avenues, notably by investing in human capital.


5. Human capital, notably knowledge and skills, drives better jobs and better lives, generates prosperity, and promotes social inclusion – all necessary to achieve global goals. However, the education and set of skills required to fully participate in and benefit from today’s hyper connected societies and increasingly knowledge-based economies has changed profoundly. In both advanced economies and developing countries alike, the challenges to the development of human capital remain significant.


6. The OECD supports its member countries and a large range of partners in the development of capacity in education systems and skills, to support investment in people and their productivity and well-being at all stages of life. Evidence shows that use of skills both cognitive (literacy, numeracy) and “soft” (communicating, influencing, negotiating) in the workplace and maintaining them over a lifetime is strongly related to greater skills proficiency – which, in turn, is related to economic and social well-being.


7. In addition to measuring skills in student and adult populations, the OECD also works with countries to develop skills strategies tailored to specific needs and contexts. The OECD Skills Strategy framework helps support the development and implementation of national skills strategies through a tailored approach that focuses on the unique skills challenges, context and objectives of each country. The OECD Programme for the International Assessment of Adult Competencies (PIAAC) is conducted in 40 countries and measures the key cognitive and workplace skills needed for individuals to participate in society and for economies to prosper, including literacy, numeracy and problem solving in technology-rich environments. The OECD also helps countries better support the school-to-work transition by examining education outcomes and varying policy challenges, including vocational education and training.


8. The OECD also supports the promotion of human capital through data collection, capacity building activities and policy advice in education.


9. Inequalities in education outcomes are acute in many low- and middle-income countries, where there is a large rural-urban divide. Despite significant efforts to ensure that every child completes at least primary education, and while secondary dropout rates have been reduced, children and youth in rural areas continue to be left behind and existing jobs do not match aspirations and skills. OECD research finds that many young workers in developing countries experience skills mismatch, resulting in job dissatisfaction, and only 44% of young workers are, on average, adequately qualified for their jobs.


10. Measuring education and skills opportunities and outcomes is an important element to better supporting the development of human capital and the achievement of SDG 4: Ensure Inclusive and Equitable Quality Education and Promote Lifelong Learning Opportunities for All. The OECD Programme for International Student Assessment (PISA) studies the key knowledge and skills that are essential for full participation in modern societies through the surveys of 15-year-old students nearing the end of compulsory education across a range of activities including creative and critical thinking skills, and their capacity to apply what they have learned in reading, mathematics, science and 21st century real-world skills. The PISA for Development (PISA-D) initiative further develops and differentiates the PISA data collection instruments to produce results that better support evidence-based policy making in middle and low-income countries. OECD Education Policy Reviews provide countries with independent in-depth analysis and policy recommendations on key education policy areas to help them improve the performance, equity and efficiency of their education system.


11. In addition, OECD reviews conducted in developing countries provide in-depth analysis of human capital in developing countries through different perspectives, ranging from equity issues (Social Cohesion Policy Reviews) to growth performance (Multi-Dimensional Country Reviews) to youth labour market inclusion (Youth Well-Being and Policy Reviews). These diagnoses are used to support country-level policy dialogues to enhance the level and the quality of human capital in developing countries.

 

Managing the Impact and Leveraging the Opportunities of Disruptive Technologies to Promote Inclusive Growth and Sustainability

12. Strong education outcomes are crucial to prosperity, yet a wide-ranging and ongoing digital transformation represents both an opportunity and a threat. Properly harnessed, it can boost skills and drive growth; if not, it has the potential to exacerbate inequalities and reverse post-crisis gains in employment rates.


13. The digital transformation affects all economic sectors, characterised by leaps in global connectivity, and drawing on the generation and utilisation of vast amounts of data. The data revolution can provide cheaper and quicker access to insights informing decision-making. Advancements are emerging in digitalisation, biotechnologies, advanced materials, and energy. Developing countries in particular can seize leapfrog opportunities from digital technologies, with the Internet, digital platforms, smartphones and mobile money offering new paths to entrepreneurship, education, health services and employment, and reduced gender divides.


14. However, disruptive technologies come with challenges, for developed and developing countries alike. The wide scope of technological change creates significant uncertainty about their future directions and impacts, and there are important questions about the broader potential effects of technologies such as artificial intelligence on societies and economies. In a policy environment of uncertainty, the OECD is helping members use strategic foresight to understand the opportunities of the digital transformation - while minimising negative effects. For example, blockchain technology provides potential decentralised solutions to transfer value by generating trust without governments or banks. However, significant challenges exist for the development community to adopt blockchain technology, including: (1) knowledge and education (most actors do not yet understand frontier technologies, including blockchain, AI, big data, machine learning); and, (2) risk aversion (there is a lack of comfort with disruptive technologies). The OECD is fostering information sharing between the policy and practice communities.


15. The OECD has recognised the widespread need for policymakers to understand better how to leverage the potential of digital transformation. The OECD is developing its analysis of digital transformation across all policy fields, from tax to transport, from energy to education. Its Going Digital project is bringing this wealth of knowledge together, exploring how digital transformation is driving change and helping policymakers to develop coherent and integrated strategies to support growth and well-being in the digital era. Its transversal approach is highlighting the need for governments to promote technology diffusion and adoption, pursue framework conditions that are conducive to experimentation and competition, and maintain efforts to boost digital infrastructure and access to digital technologies. The OECD is also leading efforts to support international policy debates and coordination on critical issues, recently launching a Global Forum on Digital Security for Prosperity, establishing an Expert Group on Artificial Intelligence in Society, and hosting a major event on Blockchain.


16. The impact of technological change on jobs, skills needs and social protection coverage is considerable. The OECD estimates that, on average, around 14% of jobs in the OECD are at high risk of automation and an additional 32% will see significant change in task composition. Automation, however, will not necessarily translate into large, net job losses as the digital transformation also creates new job opportunities. Yet, the new jobs that are being created are different from the ones that are disappearing. The occupations with the highest estimated risk of automation typically only require basic to low level of education; at the other end of the spectrum, the least automatable occupations almost all require professional training and/or tertiary education. We are also seeing a rise in new forms of employment. These trends may diminish labour market inclusion and heighten inequalities.


17. Governments will need to promote technology adoption and diffusion, framework conditions that are conducive to experimentation and competition, and ongoing efforts to boost digital infrastructure and the access to and use of digital technologies. The OECD Future of Work project, also as part of the Going Digital project, provides countries with information on the challenges raised by technological change – along with globalisation and demographic changes. This work highlights the importance of a comprehensive plan to adapt skills, employment and social policies and institutions to changes in the world of work. The need to adapt social policies to changing social and economic risks – giving everyone the opportunity to benefit from the digital transformation – was at the core of the 2018 OECD Social Policy Ministerial. Policy resilience and adaptability are also at the heart of the new OECD Jobs Strategy.


18. Skills policies will be critical to ensuring that workers are equipped for the jobs of the future. It is not just a matter of building the right skills but also a matter of providing opportunities for upskilling and reskilling all along the working lives, with a greater focus on low-skilled workers. Employment regulation will need to be balanced across different forms of employment and to provide adequate social protection to all workers, particularly non-standard workers. Active labour market policies – through job search assistance, measures to improve employability, and adequate income support – will be important levers to ease the redeployment of workers. Social partners have an important role to play in anticipating and managing change, and will themselves need to adapt to new forms of work. 

 

Assisting Emerging and Low-income Economies to Address Debt Vulnerabilities

19. Even if the global community can harness the potential of the digital revolution while protecting the labour force from its disruptive effects, the OECD’s latest projections suggest that global growth is peaking and is less synchronised, and financial risks are again intensifying. In this context, indebtedness remains worrisome for many developing countries, where it has reached an average of 47% of GNI.


20. Stronger international action is needed to support low and middle-income countries that face acute debt vulnerabilities. The critical debt situation of small island developing states (SIDS), in particular, requires urgent action. With small, undiversified, and resource-constrained economies, SIDS have limited scope for economic activities that can generate foreign exchange, incomes and tax receipts. They also have large current expenditures, as the high unit costs of providing services to small and scattered populations takes public sector expenditures above the average levels of other developing countries (29% of GDP in SIDS, compared to 22% in other developing countries in 2014). Severe climate events and natural disasters have heavy fiscal impacts too: the costs of humanitarian responses, recovery and reconstruction divert scarce public resources and lead to the accumulation of new, more expensive debts, while entire economic sectors are at risk of setbacks from natural disasters, derailing the pace and scope of future growth. These combined factors lead to 20 of the 35 SIDS being at “moderate” risk, “high” risk or “in debt distress” in 2017, as assessed by the IMF.


21. Policy responses should focus on enhancing resilience, productivity and inclusiveness. To assist low and middle-income countries facing acute debt vulnerabilities, the international community needs to promote measures including state-contingent debt instruments, which can help governments that face delay of repayments linked to a disaster. The OECD also promotes innovative debt relief options, including “debt for climate swaps” and new proposals for a High-Indebted Country Initiative. In tandem, we must help to improve the efficiency of tax revenue collection and enlarge the tax base. The challenges associated with domestic resource mobilisation in developing countries are compounded in SIDS. The OECD-UNDP Tax Inspectors Without Borders programme, together with OECD work on revenue statistics, are concrete contributions to these efforts.


Conclusion

22. Human capital sits at the very heart of the global development agenda. Disruptive new technologies can accelerate, or slow, its development. Poor education outcomes force workers into low-skill, low-pay jobs – jobs that the digital revolution may render obsolete. And governments drowning in debt are poorly equipped to rescue their most vulnerable citizens. The OECD is working to study and address these complex, interlinked concerns. We are helping develop solutions to maximise the benefits and minimise the damage. But we must work collectively to make it happen.

 

 

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