Talking points by Angel Gurría, Secretary-General, OECD
B20 Plenary Session,
Saint Petersburg, 20th June 2013
- Mention the need for the business, in particular through the B20, to continue voicing its concerns vis-à-vis G20 Leaders. We are 5 years into the crisis. The recovery is still weak and hesitant. The output gap, 17 quarters after the start of the crisis, is wider [6%] than in any other economic shocks since the 70’s, including the two successive oil shocks. So it it critical that the business continues to put pressure on G20 governments so that they take the necessary policy steps to create the conditions for your business to do what they are best at: having the confidence to take risks, investing, innovating, creating value and jobs. This is the reason why the OECD has been so and constantly supportive of the B20 since its inception at the Toronto Summit in June 2010.
- Command the priorities identified by the B20 this year [investment, anticorruption, the financial system, trade and innovation and employment] and note the alignement with the OECD’s own priorities. Share your analysis of the economic situation and some of OECD’s policy recommendations with the audience.
- Start with a brief presentation of the economic situation. The global recovery is being hindered by multiple speeds and different paths towards self-sustained growth. Current account imbalances are still large and could be rising in the near future, while new imbalances are starting to affect a large and heterogeneous group of “innocent bystanders”, both in advanced and emerging economies, through inflationary pressures and rising asset prices.
- Stress that structural reforms remain key to achieve an upside scenario. G20 countries need ambitious and wide-ranging economic reforms on the supply-side. The OECD recommends a full-fledged and comprehensive competitiveness programme, ranging from strengthening competition in network industries, reducing barriers to foreign ownership and investment and reducing the informal sector; to reducing restrictions on labour mobility and labour market dualism, reforming the wage bargaining system to bring trend in unit labour cost in line with productivity, or improving labour force participation. Now is the time to deliver on them and the business community should maintain the pressure!
- A strong message that should be sent by the business community to Leaders is on the need to promote job-rich growth, to cushion the impact of job losses in the short term, but also to facilitate the return to work before unemployment becomes entrenched.
- Stress that important steps in this direction have been taken in many countries, through changes in tax and welfare policies, wage bargaining and job protection regulation. But more needs to be done, including measures to lower the barriers to entry of new competitors in various services where the potential for rapid employment gains is probably largest.
- Note that in many emerging economies, pervasive informality represents a drag on potential growth, with large economic and social costs. Improving incentives to create and take-up jobs in the formal sector is clearly a common priority. Doing so requires extending the coverage of social protection, easing hiring and firing regulation, and providing adequate resources for primary and secondary education.
- Mention that, in spite of generally very low interest rates and rising portfolios of institutional investors, the financing of long-term investment, including in infrastructure and climate-related projects, is challenging. This may reflect numerous factors, some of them structural, others stemming from the crisis.
- Mention therefore that the financial system needs to be examined, in particular the role of banks and institutional investors. This gaping disconnect between the financial sector and the real economy should be a source of concern. Banks need to refocus on traditional lending. This can only be achieved by an effective separation of banking activities, between those which are risky (deritaves trading) and the more traditional ones such as retail banking. Trust in the banking sector must be restored, notably in Europe where banks are still undercapitalized: banks in the Eurozone need a US TARP-style recapitalization to get to a clean 5% leverage ratio.
- Stress that trade liberalisation is the mother of all structural reforms. This is why it is imperative that G20 governments strengthen their commitment to resist protectionism in all forms and engage in further market opening initiatives as an integral part of the structural reform agenda. We have been working closely with others, especially the WTO, to better understand the dynamics of global value chains and their trade policy implications. This project develops a broader approach to competitiveness, highlighting that success in international markets depends as much on the capacity to import high-quality inputs as on the capacity to export, with over 50% of goods and 70% of services trade in intermediate inputs. In other words, the rapid expansion of global value chains - as documented by OECD – WTO analysis – is magnifying the cost of protectionism, making the case even stronger for multilateral liberalisation.
- Mention that this crisis has also opened a window of opportunity for governements to be innovative and identify new sources and modes of growth and the private sector is an essential partner for governments to build on this momentum.
- Stress that Investment and growth in OECD economies is increasingly driven by intangible or knowledge-based capital (KBC). OECD research also shows that countries that invest more in KBC are also the best at reallocating resources to innovative firms, the main drivers of employment growth in OECD economies. As a share of GDP, the United States invest about twice as much in KBC as Italy and Spain, and their patenting firms attract four times as much capital.
- Note that Knowledge-based capital drives productivity growth, helping firms to move up the value chain. A number of emerging technologies – such as 3D or additive printing, advanced robotics, industrial biotech advances in plastics, new nanotechnologies, the embedding of ICT – could significantly impact the nature of production through the components and feed stocks required for production, reducing the importance of manufacturing processes and increasing the value associated with KBC-type services that are bundled with the good.
- Mention that the policy implications of this continued trend should be explored both through traditional trade policy as well as new issues such as telecommunications liberalization, privacy rules, the treatment of factory-less manufacturing and the rise of R&D as a traded service.
- Finally remind that we need to unleash the potential of green technologies and innovation as a new and sustainable driver of growth. Amongst others, we must introduce bold policy options to help governments make pollution more costly; remove environmentally harmful subsidies; value and price the natural systems and ecosystem services; and encourage green innovation. More can be done by the global community to achieve these ambitious goals.
- Conclude that looking ahead, we should also examine the unintended consequences of our policies, to improve our understanding of policy trade-offs and synergies related to growth, inequality, and the environment. We need the support of the business in this endeavour. Because, what people need now, after several years into the crisis, is Jobs, Equality and Trust.