Secretary-General

Shifting Wealth and Global Economic Challenges - An OECD Perspective

 

Remarks by Angel Gurría, OECD Secretary-General, delivered at the World Conference of the Bilateral German Chambers of Industry and Commerce


14 May 2014, Berlin, Germany

(As prepared for delivery)


Mr. Wansleben, Mr. Dercks, (Minister Fisher ?), Excellencies, Ladies and Gentlemen,

It is a great pleasure to speak at this World Conference of Germany’s Chambers Abroad on the occasion of my visit to Berlin to discuss today’s economic challenges with Chancellor Merkel and to launch our latest Economic Survey of Germany.


Before talking about broader global economic developments, let me start by saying a few words about the German economy and this Survey, which I launched yesterday together with Minister Gabriel.


The German economy has performed well over the past years, but challenges remain

Germany has weathered the economic crisis extremely well. The country’s GDP per capita level is 3½ percent above its pre-crisis level. While many European countries are fighting against double-digit unemployment rates, the unemployment rate in Germany has fallen from 8% in 2008 to 5.1% in the first quarter this year. This performance is remarkable. And the future outlook is promising, too. We project growth to gradually rise to 1.9% this year and 2.3% next year.


Still, a number of important challenges remain. They are discussed in the Survey, together with specific policy recommendations to tackle them:


First, while German banks have navigated the euro area crisis fairly well, a number of vulnerabilities remain. Risks arise in particular from the euro area debt crisis, the low interest-rate environment and large derivative exposures.


Germany needs to ensure that the recently introduced separation requirements are strong enough to provide the right incentives for banks to clearly distinguish between commercial and investment banking. It also needs to address remaining risks that emanate from the Landesbanken.


Secondly, while income inequality in Germany is lower than in most OECD countries, the share of low-paying jobs is high and rising. Our figures show that 22% of all workers earned less than two thirds of the median income. A minimum wage can be an effective instrument to address this problem, provided it is not set too high. International experience shows that this can best be achieved if the minimum wage is set by an independent expert commission. In addition, education reform is needed to ensure that children from poor socio-economic backgrounds are no longer put at a disadvantage.


Thirdly, Germany needs to boost its potential growth rate, which on current policy settings is estimated to hover around 1 percent per year over the next 20 years, due to demographic changes. To raise potential growth, we recommend Germany to remove remaining barriers to full-time employment of women and to improve the competitiveness of its services sector by dismantling regulations that inhibit competition.


For Germany it is important that it acts now to address these challenges. The good performance during the recent past may give rise to “reform fatigue”. It is easy for countries to fall into this trap, and it is also very dangerous. In today’s globalized world, governments do not have the choice to lay back. They need to continuously improve policy settings so that the country can keep its competitive edge vis-à-vis other competitors, which today include emerging markets.


The economic weight is shifting from OECD to non-OECD countries

And this brings me to the main topic of my remarks, the shift in wealth from advanced to emerging countries. Strong growth in emerging countries over much of the past decade has substantially boosted developing countries’ share of the global economy. In 2011, non-OECD countries accounted for more than 50% of the world’s GDP, expressed in purchasing power parities. The BRIICS alone accounted for about 30%. This is remarkable since the share of non-OECD countries stood only at around 40% in 2005.


Still, many middle-income countries are not on course to converge with OECD per capita incomes. The difference in the rate of economic growth between OECD and non-OECD countries has recently narrowed.


At their average growth rates between 2000-12, several lower middle-income countries, including India, Indonesia and Viet Nam, but also countries in the upper middle-income bracket such as Brazil, Colombia, Hungary, Mexico and South Africa will fail to converge with the average OECD income level by 2050.


Even though income convergence has slowed down, we cannot ignore the central role that non-OECD countries are playing in today’s world. Mr. Fischer has already talked about the political implications. Of course, with the increasing economic weight, non-OECD countries also seek a greater say in defining the rules of the global economic and governance system.


This process involves both economic opportunities and challenges. Increased consumption and growing middle-classes in emerging economies open up new opportunities for investment and exports for OECD countries. Emerging countries are also an increasing source of direct foreign investment and exports to OECD countries. At the same time, the rise of emerging economies leads to increased global competition.


The OECD’s work reaches beyond member countries

What does this shift in economic and political power imply for the work of the OECD? The key implication is that the more advanced countries need to work effectively with developing countries to address global challenges. Opening OECD’s expertise and its instruments to emerging economies, listening to their perspectives and integrating them into our activities has been one of my priorities as Secretary-General.


Our Global Relations Strategy seeks to make the Organisation a more effective and inclusive global policy network through engagement with Key Partners – Brazil, China, India, Indonesia and South Africa – and our Regional Programmes.


In these Regional Programmes, ownership and oversight are shared between OECD and regional partners, and work is built around working groups, seminars, and policy dialogues where OECD standards are presented and good practices shared.


One example is the Southeast Asia Regional Programme, which we launched at the OECD’s Ministerial Meeting last week. Other examples are the Southeast Europe Investment Compact, the Eurasia Competitiveness Programme, and the MENA-OECD Initiative on Governance and Investment for Development, more recently strengthened by the Deauville Partnership.


The OECD has also become increasingly involved in global governance fora. The most visible demonstration of such involvement has been our active partnership with the G20. Here, we are shaping policies at a global level in a wide range of domains by providing data and analytical reports, by offering our existing instruments, and by ensuring the implementation of G20 decisions. For instance, under the Australian G20 Presidency, we are contributing to the National growth strategies for the Brisbane Action Plan by helping countries identify the structural policy reforms needed to lift growth by 2% over the next 5 years. (decided by Finance Ministers of the G20 in Sydney last February.)


BEPS and MNE Guidelines - two examples of the OECD’s work at the global level


Let me give you two concrete examples of how the OECD is shaping governance at a global level.


The first one is our work on base erosion and profit shifting (BEPS), launched in 2012 upon a request by the G20. BEPS refers to the planning strategies that exploit gaps and mismatches in tax rules to make profits ‘disappear’ for tax purposes or to shift profits to locations where taxes are low.


While such behavior is mostly legal, it is widely considered unfair. Taxation lies at the heart of the modern democratic state. It underpins the social contract, and it is a powerful instrument to reduce inequality and create opportunities for all citizens and companies to prosper. Moreover, BEPS has deprived governments from much needed tax revenues, crucial to invest in infrastructure, implement sustainable growth policies and move people out of poverty.


As a result, we are working on new international tax rules for the 21st century. All non-OECD G20 countries participate in the BEPS project on an equal footing, and we have also established an in-depth engagement approach to better understand the most significant BEPS issues of developing countries. We have put in place a 15-point Action Plan that we will roll out over the coming 18 months. This Action Plan will allow all countries to draw up co-ordinated, comprehensive and transparent tax standards which match up with modern business practices.


The second example I want to mention is the OECD Guidelines for Multinational Enterprises, which are the leading international instrument for promoting responsible business conduct. These guidelines provide governments and multinational enterprises with business conduct norms based on the core values of transparency, non-discrimination and investment protection.


The Guidelines were updated in 2011, notably by extending the “do no harm” principle to all areas of business ethics. We aim at helping companies carry out effective risk-based due diligence to prevent or mitigate harm on the ground.


The focus of our current work on responsible business conduct is on extractive industries and conflict minerals, textiles and garment, the financial sector and agricultural supply chains –sectors where the challenges are greatest. We are also strengthening the National Contact Points mechanism so that it can effectively contribute to mediated solutions to problems that arise from the activities of MNEs.


To foster engagement with non-member countries, we launched the Global Forum on Responsible Business Conduct in 2012. The inaugural meeting in June 2013 provided the first opportunity to discuss the aftermath of the Rana Plaza tragedy in Bangladesh at an inter-governmental level.


We are also developing a comprehensive outreach program for China, India and South East Asia, we have concluded a cooperation agreement with UN ESCAP, and are actively engaging with the new investment frontier of Myanmar.


Ladies and Gentlemen,

In today’s interconnected world, problems are global and therefore need global solutions. The OECD is providing such solutions through its expertise in a wide range of policy domains and its interactive work with governments, businesses and trade unions as well as NGOs.


The OECD represents a global platform for international best practices, benchmarking and standard-setting. The examples I have given today are just a snapshot of the scope of the OECD’s work to assist governments in OECD member and non-member countries alike to provide better policies for better lives.


Thank you.

 

 

 

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