Remarks by Angel Gurría
Monday 16 July 2018 - Prague, Czech Republic
(As prepared for delivery)
Dear Deputy Minister Očko, Ambassador, Ladies and Gentlemen,
I am delighted to be here at the Technology Agency of the Czech Republic. I would like to thank Mr. Pavel Komárek, Deputy Chairman of the Technology Agency for the invitation.
Just earlier I had the privilege of presenting the 2018 OECD Economic Survey of the Czech Republic to Prime Minister Babiš and to journalists at the Hrzansky Palace. This is the seventh Czech Economic Survey that I have launched as Secretary-General.
I was happy to deliver some good news, as the Czech Republic’s economy is in pretty good shape from a macro-perspective, with robust employment, expanding exports and falling government debt. The growth acceleration in 2017 to 4.6% is more balanced than in previous years. The economy is projected to keep growing at above 3% in both 2018 (3.8%) and 2019 (3.2%). This economic dynamism is reflected in a low unemployment rate, which, at 2.4%, is among the lowest in the OECD.
These are positive signs. However, the Czech Republic is still facing many important challenges. One of the key challenges, which goes to the heart of your work, is overcoming low labour productivity.
While average living standards are improving, with per capita GDP at 82% of the OECD average in 2017, or 88% of the EU average, labour productivity is still lagging behind. Labour productivity is only 75% of the OECD average.
This low level of labour productivity is what explains the differences in wage levels compared with advanced OECD economies. Compensation of employees represents 41% of GDP compared to 45% for most advanced economies (or 51% in Germany). Moreover the share of wages and salaries in value added is only 34% compared to 42% in Spain and the Netherlands, and 46% in Germany. While labour shortages recently boosted wages across sectors, this increase has to be backed up by increases in productivity to be sustainable.
Boosting productivity is vital not only to move up global value chains but also foster growth that is inclusive. The OECD Productivity-Inclusiveness Nexus, launched in 2016, which is part of our Inclusive Growth Initiative has shown that countries can expand the productive assets of their economy by reducing inequality, investing in skills and fostering an environment where all firms have a fair chance to succeed, including in lagging regions.
This comes also at a time when the digital revolution is transforming the future of work, with automation in particular raising concerns. Recent OECD work has estimated that around 14% of jobs in OECD countries are at high risk of automation, and a further 32% of jobs could face substantial disruption. This reflects quite accurately the situation in the Czech Republic, where 15.5% of jobs are at a high risk of automation and an additional 31.2% of jobs may experience significant changes to how they are carried out. Generally, here as elsewhere, the highest risk is concentrated in routine jobs with low skill requirements and often low wages.
The Survey underlines the importance of equipping all workers at all career stages with the right skill set through education, reskilling and lifelong learning. However, simply improving skills is not enough, achieving inclusive growth in the digital age requires a broader holistic policy framework to contain the risk of increasing inequality while promoting productivity growth. This should include measures to strengthen the social security system to adapt to new forms of employment, promote mobility and ensure adequate coverage for workers on non-standard work contracts.
Another crucial element of getting the policy mix right is strengthening R&D, which is the subject you have asked me to speak about today. R&D is integral to harness the potential of technological change, boost competitiveness and promote innovation.
So let me highlight a few of the key recommendations in this area from the Survey.
Firstly, it is essential to actually increase investment in R&D and innovation policies. This goes to the heart of the mission of the Technology Agency. The Czech Republic is doing well in terms of R&D spending. But more could be done. R&D spending relative to GDP has been in decline, from 2% in 2014 to 1.7% in 2016 compared to 2.3% in the OECD. A further boost in spending could leverage business spending in research and development.
Second, more targeted financing schemes could improve the effectiveness of R&D spending. The Czech Government has put in place programmes to encourage greater business R&D spending by intensifying collaboration between businesses and research institutions. However, direct government funding remains modest. The Survey calls for developing more co-financing schemes to incentivise firms to mobilise their own resources. The government could also target those Czech firms that seem to invest less in R&D than foreign-affiliated firms, which would also broaden the scope of R&D activities undertaken in the country.
Thirdly, the Survey makes recommendations to improve the practical conversion of research into innovation in goods, services and processes. I am pleased to learn that important steps have been made recently to reinforce R&D and innovation policies with infrastructure programmes and the creation of competence centres. But more needs to be done. Programmes run by the Technology Agency could be reinforced to bolster the transformation of research developed in public entities into marketable goods and services.
Ladies and Gentlemen,
Investment in R&D, along with investment in people and skills, are crucial elements to promote more inclusive and sustainable growth. The Czech Republic needs to get R&D policy right, not just in terms of quantity, but also in terms of quality and effective targeting. This will be integral to ensure that the Czech Republic continues to move up the global value chain and converges further towards OECD living standards. Count on the OECD’s unwavering support.
I look forward to our discussion. Thank you.