Secretary-General

The Reform Agenda

 

Remarks by Angel Gurría, OECD Secretary-General, delivered at the meeting with Heads of International Organisations, at the invitation of Chancellor Merkel


13 May 2014, Berlin, Germany


(As prepared for delivery)


Chancellor Merkel, Colleagues,

We meet at a time when there are encouraging signs in the global economy, but the cylinders of growth – credit, investment, employment and trade - are not at a full speed. The recovery is also uneven, and Europe continues in a slow path. Actually, the risk of deflation calls for strong action by the ECB, and the financial repair should be finished so banks can channel the necessary resources to productive activities, which is still not happening at a required level. Bank capitalization; -in Europe and in Germany in particular, continues to be a pending agenda.


More than 46 million persons are still unemployed in the OECD area, 13.5 million more than before the crisis, with prolonged periods of unemployment in some countries raising concerns that structural unemployment has increased.


The legacies of the crisis are having an impact in the growth prospects of our economies. According to OECD projections to 2060, growth will be mediocre and certainly lower than in the past, due to low investment, high unemployment and lower growth in emerging economies.

 
13 May 2014 - Angel Gurría, OECD Secretary-General with Chancellor Angela Merkel and other Heads of International Organisations

This scenario is compounded by secular trends that were already there before the crisis, in the form of lower productivity growth, increased inequality of income and opportunities and the rapid ageing of the population in many countries. The goal of achieving a low carbon economy in the context of climate change adds up to the complexity of the policy challenges. 



What should be the appropriate policy responses?

This slow growth “new normal” is not, however, inevitable. Economic reforms to improve the productive capacities of our economies (through innovation, competition, regulations) will be crucial.


We welcome –and supported- the decision of the G20 to focus on growth, and to commit to lift GDP by more than 2% above the baseline over the coming 5 years, which represents almost 20 million additional jobs.


Services Sector

Services Sector is one such area where economic reforms could yield higher dynamism, stimulating growth, jobs and productivity. Last week, the OECD released the Services Trade Restrictiveness Index (STRI) to define which services sectors (telecommunications, accounting, infrastructure, legal services, broadcasting) are in need of reform. The conclusions are straightforward for a sample of 40 major economies and 18 sectors: all are in need to improve their performance.


This is important as the services share of our economies is continuously increasing (the “servicefication” of our economies), accounting for more than two thirds of Global GDP. Services are also crucial for international trade, and when measured in value added, they account for a higher share of trade even for manufactured products. Indeed, Global Value Chains, and services trade offer new opportunities and reinforce the call for ambitious trade policies (4.7% growth in 2014 and 5.3% in 2015 vs an average of 6% to7% “cruising speed”).


Besides improving the functioning of the services sector, more can be done to promote complementary policies such as investing in people’s skills and education, improving competition frameworks and ensuring international regulatory cooperation.


A second line of policy action needs to be directed at labour markets.

The growing risk of structural unemployment underscores the need for reinforced active labour market policies, such as jobs search assistance and training policies, as well as further labour and product market reforms to promote employment creation. In emerging economies, the immediate issue is not so much unemployment and the lack of jobs per se, but tackling informality.


At the same time, enhancing women’s integration into the labour market should be high on policymakers’ agendas. The economic case for women empowerment could not be clearer.


Low female participation in the labour market is a huge waste of human potential and skills that countries can hardly afford, particularly those with ageing populations – such as Germany.


Reducing high taxes or disincentives to work for second earners, enhancing access to childcare services, increasing flexibility at the workplace, and eliminating discriminatory practices can definitely make a difference in this area.


Third, we need to invest in skills.

In the near term, skills are critical to avoid high youth unemployment and to get people back to work; but in the longer run, skills and education are also critical for competitiveness, innovation and growth as well as for addressing rising income inequality stemming from technological and economic changes.


OECD’s PISA and PIAAC tests show wide differences in performance across countries regarding what the kids and adults can do in maths, science and literacy, as a result of differences in policies. Thus, bold and innovative reforms are needed to improve the outcomes of skills, education and training systems in many countries to allow individuals to fulfil their full potential, and have a better chance to succeed in life.


Fourth, we need to tackle climate change


We need to accelerate the transformation towards a low carbon economy, based on a different business model, on long term investment in clean energy and taking full advantages of technological progress. Our OECD Ministerial just gave us the mandate, in cooperation with our sister institutions IEA, NEA and ITF, to look for the roadmaps and the targeted policy options to achieve this economic transformation.


We need to look take a hard look at our ageing societies. Ageing will affect not only public finances, pensions, health and long-term care systems but also economic development more broadly and will put the solidarity between generations to a test. This will be the theme of the OECD’s reflections on Generation Next: How to Prevent Ageing Unequally, a newly launched initiative – the preliminary results of which I’ll be glad to share with you at out next meeting.


Inequality

Let me go back to the question of inequality. Any reform agenda will need to consider the impact it will have on this front. Inequality in income from work and capital increased more in the first three years of the crisis than in the previous 12 years. In fact, many countries entered the crisis with already high levels of inequality.


This is why at the OECD Ministerial last week, chaired by Prime Minister Abe, we launched the “Inclusive Growth Initiative”, proposing a growth model that is multidimensional and that focuses on the wellbeing of people.


It will provide policy makers with a framework to test policies and reforms regarding the impact they will have in different income groups in the society. This will also contribute to the fight against poverty.


This is quite an impressive, but urgent agenda. When working on this, let’s remember our appointment with the future next year. 2015 will be the year of COP 21; the year for the Post-2015 MDGs and the 20th anniversary of the UN World Conference on Women in Beijing. The balance will not be very encouraging.


Thank you.

 

 

 

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