Angel Gurría, Secretary-General of the OECD
What is the state of world economy as we enter 2011? Have we made progress over the past 12 to 18 months in putting an end to the worst economic crisis in our lifetimes and laying the foundations for a stronger, cleaner and fairer world?
The scorecard is mixed. We have made good headway in ending the crisis, thanks to co-ordinated international efforts over the past two years, and a recovery is on the way. This is welcome news, since growth is badly needed to help governments deal with massive fiscal pressures, create jobs and address other major challenges. But we are not out of the woods yet. The recovery has been slower than we had hoped. Government finances have deteriorated sharply across the advanced economies in the OECD area, with public and private debt stretched to extremes in several countries. The aggregate budget deficit for the OECD was around 7.5% in 2010, while public debt as a share of GDP could be some 30% higher in 2011 than it was in 2007.
Unemployment remains intolerably high, averaging 8.5%, and has reached into double digits in some countries. People are worried about their jobs and their living standards. Ongoing difficulties in banking, the prospect of austerity and still weak housing markets are weighing down on the recovery.
In contrast to advanced economies, emerging markets are forging ahead. China’s output is projected to average just short of 10% in 2011-12, thanks to strong domestic demand. India’s growth should regain its trend of around 8.5% from mid-year, while Brazil, Indonesia and South Africa will also continue strong. In the OECD areas, some emerging economies, such as Mexico, Turkey and Poland, are also contributing with higher rates of growth.
But emerging markets also face policy challenges of their own. For instance, inflationary pressures are appearing in Brazil and China, while India has to tackle its fiscal deficit. There is also a growing need for these countries to focus more spending on social goals, and on advancing the structural reform agenda.
Poorer developing countries face a more difficult time, particularly in Africa where growth rates have slowed sharply, to around 2.5% in 2009, bringing GDP per head to a standstill. Though activity picked up in 2010, the situation does not augur well for meeting the Millennium Development Goals for 2015, with nearly a billion people still at risk of being trapped in poverty in five years time.
Slower growth than envisaged in the international trade arena has not helped, adding to global nervousness in currency markets and threats of protectionism.
Addressing these issues will remain a priority in 2011. Policy approaches required in most developed countries clearly differ from those needed in emerging markets. However, because the economic effects of these policies can be global, they must be co-ordinated through multilateral co-operation. This need has increased the prominence of the G20, which brings major developed and emerging markets around the table with the support of other countries and international organisations, including the OECD.
Meanwhile, we have stepped up our co-operation efforts to address other urgent matters too; at the UN Climate Change Conference in Cancún in December, for instance, all major players reaffirmed their commitment to tackling greenhouse gas emissions and we are addressing issues of mitigation, adaptation, financing and technology transfer.
So, while the overall economic scorecard for 2010 was disappointing, we nonetheless enter 2011 on a positive footing. Everyone realises that this recovery, fragile as it is, must be nurtured and strengthened if we are to build the bright future we all want. In short, we must get it right in 2011.
Promoting a sustainable recovery, fostering new sources of growth
The challenges that different countries face vary, depending on their level of development. However, the structural reform agenda–to enhance the productive capacity of our economies–is a unifying link in current policy discussions. At the G20 summits, I have emphasised this point, given the limited room for manoeuvre on the fiscal and monetary fronts. Structural reforms help by dealing with fiscal and international balancing issues, while fostering new sources of growth, and are part and parcel of the G20’s most innovative initiative: the Framework for Strong, Sustainable and Balanced Growth.
As a guiding light in this structural agenda, innovation is key to solving many economic problems. The OECD Innovation Strategy, launched in 2010, provides a set of policy recommendations to integrate this concept into the growth plans of OECD and partner countries. We see innovation in its broad sense, starting with R&D, but going well beyond it. Innovation calls for intelligent competition policies; investment in human resources, including in higher education and its links with businesses; better regulatory environments for firms; and the fostering of an entrepreneurial spirit.
Not surprisingly, innovation is a key pillar in our Green Growth Strategy, which we will be presenting to our 50th anniversary Ministerial Council Meeting in May 2011. The issue is not just about greening old activities or making them cleaner, but about harnessing knowledge and new technologies to create jobs and wealth in a sustainable manner. It requires overcoming barriers to green growth, including eliminating environmentally harmful subsidies, and reviewing the structure of taxation systems and trade barriers. It also requires implementing regulatory frameworks to foster a shift away from inefficient and polluting consumption and production patterns.
Our message that “green” and “growth” go well together was delivered clearly at the UN Climate Change Conference (COP 16) in Mexico in December 2010, where important breakthroughs on agreements were achieved. This helped re-inject confidence into both the international climate change negotiations and the multilateral process overall. In 2011, the OECD will continue to build on such progress towards the next Climate Change Conference (COP 17), in Durban, South Africa.
In the quest to rebuild the international economy and put it on a sounder basis, we should also address the growing gap between how conventional macro-economic statistics such as GDP are read, and how people perceive their own economic situations. A broader range of indicators must be used alongside standard economic measurements to better capture peoples’ well-being and quality of life. At the OECD we are working to develop such measurements, as well as to distil the policy implications of this broader approach.
Jobs, skills and knowledge: Catalysts for a new economy
High unemployment has been the tragic human face of this crisis, and only when we bring unemployment down will we be able to declare the crisis over. Keeping vulnerable people attached to the job market, including the long-term unemployed, is essential.
A key requirement is to boost skills. This applies particularly to young people, who are more than twice as likely to be unemployed than the average worker. Since the crisis started, 3.5 million young people have joined the ranks of the unemployed in the OECD area, while still more have left the workforce altogether. This is a waste of resources which no country can afford. We must do more to avoid a lost generation and to tap into the potential and creativity that the young generation has to offer.
The post-crisis world will likely evidence the need for new skills. Workers will need to continue upgrading their skills to increase their chances of employability. We already observe an important change in policy focus from “life-long employment” to “life-long employability”. To make this happen, lifelong learning will be one of the most important features in the successful economies and societies of the future. Improving jobs and skills, regardless of gender, age or background, must go hand in hand, and the OECD is developing a skills strategy to show how this can be achieved.
As we look for new sources of growth, we must not forget that in many countries, women’s participation in the labour market lags below potential.
The crisis has made it clear that failing to realise the full potential of women carries huge economic and social costs. Yet enabling women fully to participate in the labour market and contribute to economic development promotes prosperity and stability, reduces child poverty, helps address the pressures of population ageing, and increases productivity. The OECD will be assessing the best policy practices needed to promote gender equality and take fuller advantage of women’s potential.
Advancing global development
Development is a central priority for action in 2011. It has always been at the heart of the OECD’s mission, and indeed was a central motive for creating the organisation in the first place. In half a century of development assistance, there are many success stories to tell, with millions being lifted out of poverty, and the rise of emerging markets being prime examples. The developing world now accounts for over a fifth of total trade and is an integral part of the world economy. This is to be celebrated as it is what the OECD has worked towards since its creation.
In 2011 we must work harder to lift people out of poverty. The OECD is stepping up its co-operation with developing countries, by going beyond aid to assist with institutional and capacity building in areas such as taxation. We are promoting “whole-of-government” approaches that embrace innovation and green growth, which can help reduce food and water scarcity problems, and improve healthcare. The aim is to build resilience. Developing countries must be able to play a fuller role in building a better world, and, as our convention says, it is our duty to help them do so.
The role of emerging markets is critical in this regard, and this gives extra relevance to the G20. We must all work together to solve trade and currency tensions, conclude the Doha round of trade talks and restore balance to the global economy.
Addressing such problems is the bread and butter of our organisation. It can only be done through co-operation. Indeed, if “co-operation” is part of our title, it is largely because our founders were convinced it was vital for the “peaceful and harmonious relations among the peoples of the world”.
Restoring trust in public and private institutions
No fundamental reform will work without taking action in 2011 to strengthen the governance of our economies. For people who had been used to years of continuous growth, the crisis came as a shock, undermining not only the institutions themselves, but the public’s faith in them. The crisis uncovered serious failures in governance and regulation. Livelihoods collapsed, and people are demanding better management of their economies. Failure to restore trust could fuel an even more serious crisis in the future.
The OECD has been leading the charge, with our Anti-Bribery Convention which criminalises bribery of foreign officials for business contracts, with our 2010 guidelines to make lobbying more transparent and ethical, and via our corporate governance principles. Additionally, our Guidelines on Multinational Enterprises are currently being strengthened. Members and partner countries alike have endorsed these powerful instruments, but should do far more to use them in their efforts to restore confidence in 2011.
One area where action is needed is in our financial markets, to deepen reforms which improve bank resilience and reduce the exposure of our economic systems to excessive risk-taking. The international community has spent trillions of dollars rescuing the financial system, but the sector is still not back to full health.
One thing we have learned is that bank bailouts and guarantees are not enough. We must fix a system where losses made by greedy investors during boom times are passed on to ordinary taxpayers during bad times. This is not only an unfair way to share the risks, it is also a market distortion that increases the likelihood of another bank-led crisis in the future.
Shifting wealth, the G20 and the OECD
The crisis also emphasised an emerging trend that the OECD has characterised as “shifting wealth”. This trend means that countries like China and India are increasing their economic power and their say in the global economy. By the first quarter of 2010, developing countries held approximately two-thirds of global currency reserves, up from only a third a decade earlier. By 2030, we estimate that emerging economies will account for nearly 60% of world GDP. In the developing world, this shift in wealth has brought substantial improvements in growth and poverty reduction. The number of people in the world living on less than a dollar a day has fallen by more than a quarter– approximately half a billion–since 1990. About 90% of these people were in China.
But the challenges associated with this rapid change in global economics are significant: how can we ensure global financial stability? How can we deal with climate change? How can we manage natural resources in a sustainable way, while protecting everyone’s right to a decent way of life?
The emergence of the G20 as the premier forum for economic discussions and action is probably the greatest transformation in global governance since 1945. Indeed, the G20 facilitated a quick response to the immediate, short-term challenges posed by the financial crisis. But it is also gradually providing a forum for promoting a multilateral approach to structural issues, ranging from taxation and combating corruption, to the promotion of trade and investment.
How can an organisation like the OECD help foster global governance and promote multilateral co-operation in this rapidly changing world? Here, I must quote former Chilean President Michelle Bachelet, who once described the OECD not as “the club of rich countries”, as many people wrongly characterise us, but as a “club of best practices”.
Since its inception, G20 leaders have called on the OECD for our contributions on a wide range of issues. These include substantive analytical work and policy advice on fossil fuel subsidies, on employment and social policies, on investment and trade, on bribery and corruption, on taxation and on the Framework for Strong, Sustainable and Balanced Growth, particularly the structural aspects. Thanks to several decades of experience on development issues, we are also actively contributing in the creation of the G20’s new Development Action Plan.
Yet, while the scope of the OECD’s work is vast and unique, maximising our effectiveness and relevance means that we must also become more global. In 2010 Chile, Estonia, Israel and Slovenia became members of the OECD and accession talks with Russia are advancing. We are designing innovative arrangements to engage with non-member countries, particularly through our Enhanced Engagement programme with Brazil, China, India, Indonesia and South Africa. Some 100 non-member countries participate regularly as equals in the work of our committees, expert meetings and forums. We also work closely with business, trade unions, foundations and not-for-profit organisations.
Expectations are high, and we look forward to working with the French presidency of the G20 in 2011 to get the job done in these and many other areas.
Using our past to build a better future
Our organisation has played an important role in forging this better world, by setting standards and acting as a pathfinder for better practices. We will continue to work alongside members and partners to help them meet those standards, and to steer a course through current difficulties. As well as providing facts and insights, our advice will assist them in the tricky task of making reform happen.
The world economy has made giant strides in 50 years. But it is a more complex world and the challenges before us are as serious as any we have faced in the past. Yet, the goals our founders set for this organisation remain true today. Indeed, the OECD Convention, which was signed on 14 December 1960, could have been written precisely with today’s challenges in mind, and in particular with our main objective of promoting “better policies for better lives”.
©OECD Yearbook 2011