Observer Daily Summary, Thursday May 13, 2004

Special Lecture: In Defence of Globalisation
Morning, Thursday 13 May 2004

Nurturing globalisation

Moderator: John Rossant , European Editor, BusinessWeek

Special guest: Jagdish Bhagwati, Professor of Economics, Columbia University, New York.

"With all the trade ministers here in Paris for meetings (at the OECD), I've been tempted to invite them all into a room with Professor Bhagwati, lock the door, and try to get Doha moving again." John Rossant's compliment, though delivered with a smile, was entirely merited. As author of more than 40 volumes in economics and advisor to the WTO, Jagdish Bhagwati's views on how trade can help development might just help to give the Doha Development Agenda the momentum it needed just hours before the OECD Forum's trade panel and the Ministerial Council, which was to pronounce on the issue.

Prof. Bhagwati said that when Cancún broke down in September 2003, his first reaction was to say, "don't cry for Cancún". He said that the session was in fact a step forward because at last everyone could see the United States starting to make the right concessions from the outset. The EU, he said, was the one doing the foot-dragging during negotiations - even to the point where several US concessions to southern countries had to be scaled back to accommodate the Europeans.

That was then, and Prof. Bhagwati was now optimistic about new breakthroughs to restart full trade talks. "Both the Europeans and the Americans have taken the right steps recently, and some of the southern countries, notably Brazil and South Africa, have been making the right noises." The South, he said, has to understand that if it wants agricultural subsidies removed in the rich countries, it has to be done multilaterally; it cannot be done bilaterally. He remained positive, he said, because of what he sees as a growing perception that multilateral talks are necessary.

In defence of globalisation in general, Prof. Bhagwati spoke of the positive trends it has brought. Some examples: at a global level, schooling for children had increased while child labour was on a decline. He described the anti-globalisation movement as people belonging to one of two camps - the stake claimers and the stake holders. "The stake claimers are like Dracula: they wield a big stake with which they hope to pierce the heart of globalisation and kill it", he said. This group proposes little in terms of solutions, he said, adding that it is very difficult to dialogue with them, though they are quite useful for flagging problems.

"I view this camp as losing ground, as witnessed by the recent calm at international meetings", he said, compared with riots in previous years. "On the other hand, the stakeholders who still oppose globalisation have become more realistic; they're willing to sit down, discuss the issues and try to change the system that way". The main concern of anti-globalisation activists, he said, revolved around a certain anxiety over the social implications of globalisation - an argument Prof. Bhagwati considers valid.

But in what direction is globalisation going? And is there a consensus about the model of society it breeds? In some large European countries, the decline of the welfare state has been blamed on a form of Americanisation rather than globalisation.

Both Gerhard Schröder and Bill Clinton have said that "globalisation needs a human face", and Prof. Bhagwati agreed. But he felt that governments must help accelerate and improve globalisation.

Prof. Bhagwati warned against policy changes that may be too radical. "European countries that are reforming the welfare state should be careful not go too far, because a thinner social safety net means more reliance on the family, which in turn may cause family disintegration - a problem to any society."

When workers have little room to manoeuvre, he added, protectionism for local jobs gains support. But he did not think that workers issues necessarily belonged to trade talks.

A questioner from the floor raised the issue of trade unions and labour rights. Prof. Bhagwati replied that while a serious matter, it was one that required the use of a "good tongue-lashing", which was very effective in forcing change in employer behaviour. Regulation, sanctions, and international trade agreements, he argued, were not the ideal way to go about improving workers rights since they were open to bureaucratic and legalistic interpretation, and so not even workers should rely on them. Advancing an agenda for workers' rights depends on "a choice as to which instruments to use".

Developments in mass communications have had mostly positive effects on globalisation, Prof. Bhagwati said. "In the past, the farther one was away from events, the less important they were to him. But today, because of media attention, far-off events are becoming more and more important to people - sometimes even more important than local events."

Media attention can also foster protectionist sentiments, which for Prof. Bhagwati stood in the way of progress. The recent buzz over outsourcing jobs to less-developed countries has caused several US politicians to push for protectionist legislation, and even Democratic candidate John Kerry has been sensitive on the issue, despite his basic support for open trade. "Normally, the big countries are content with globalisation, because they expect to win (from it). But the US, for example, regularly goes into trade panics over issues like outsourcing - with the Yellow Scare of job migration to China, and now the Brown Scare over India." He said that the US Democratic Party is in an awkward position, since trade unions constitute a major part of its political base. But, he said, economic reality will help and "John Kerry is moving back to the middle of the road on the issue."

The threat of international terrorism was raised. Did it constitute a threat to globalisation? To this, Prof. Bhagwati offered the following insight: "There appears to be fundamentalism everywhere, even in the OECD. It is important not to confuse a reaction against modernism with a reaction against the West." Prof. Bhagwati was more concerned about vestiges of feudalism in the world and felt confident that movements to reduce feudalism through openness were working well.

©OECD Observer

Undoing Doha log-jam
Afternoon session
Thursday, 14 May 2004

Creating Momentum for Doha

Moderator: John Rossant, European Editor, BusinessWeek

Panel: Youssef Boutros-Ghali, Minister of Foreign Trade, Egypt
Fernando Canales, Minister of Economy, Mexico
Danuta Hübner, future European Commissioner
Mukhisa Kituyi, Minister of Trade and Industry, Kenya
Leif Pagrotsky, Minister for Trade and Industry, Sweden
Martin Redrado, Vice-Minister of Foreign Affairs and International Trade, Argentina
Jim Sutton, Minister of Agriculture and Trade Negotiations, New Zealand

A crucial agreement to reduce export subsidies is in the air, said panelists - all members of the World Trade Organization were also scheduled to meet later Thursday and Friday in Paris for a working session to help unblock talks in the so-called Doha Development Agenda, an international round of trade talks launched in Doha in 2000.

"Paris is a unique opportunity to advance free trade, and to enhance humankind and development in the broadest sense of the word," said Fernando Canales, Mexico's Minister of Economy. Movement is needed now, said Martin Redrado, Argentina's Vice-Minister of Foreign Affairs and International Commerce, as international economic conditions have worsened dramatically just in the past two weeks with higher interest rates. "If we don't do it now, it will take another generation," said Leif Pagrotsky, Minister for Trade and Industry, Sweden.

Asked by a journalist to rate chances for a breakthrough in coming days, Jim Sutton, Minister of Agriculture and Trade Negotiations, New Zealand, tried to lower expectations. "It's just a discussion to identify the way forward," he said, warning that a key announcement now might only provoke scepticism. Nevertheless, he gave a 50-50 chance for "a real deal" ahead of a key WTO meeting in July.

The stakes are high, as consensus on this hot topic promises to breathe new life into world trade talks, which collapsed in September 2003 in Cancún, Mexico. There, the so-called Group of 20 (G20) larger developing countries including Brazil, South Africa, India and China, united against the EU and US and demanded reform of agricultural subsidies and tariffs. This past week, the two economic powerhouses promised to do just that. The proposals revived prospects for an agreement on key issues by the deadline of 1 January 2005 set in Doha.

But the goal is not, Mr. Redrado said, "to change something not to change anything." He called for a real and effective commitment to reduce export subsidies. The minister, like others on the panel, was reacting to the EU proposal by European trade commissioner Pascal Lamy to end about 3 billion Euros of subsidies. The proposals, which were issued in the so-called Lamy letter (see http://trade-info.cec.eu.int/doclib/html/111277.htm), answered a call, again by letter, from US Trade Representative Robert Zoellick to trade ministers of WTO members (see http://www.ictsd.org/ministerial/cancun/docs/Zoellick-letter.pdf) to revive trade talks and avoid "losing 2004". The EU would go as far as to cut "all forms of export subsidies," said Danuta Hübner, future European Commissioner, if "we can get a deal on the two pillars of agriculture. … the EU can't do it alone." The Lamy letter shouldn't be seen as a chip on the bargaining table, said Swede's Mr. Pagrotsky, if trade talks are to succeed. "Countries should bite because they truly believe it's in their interest."

Other ministers echoed Mr. Redrado's skepticism though: we have been here before, was a widely held sentiment. "The letter is definitely motion, but we need to translate that into progress," said Youssef Boutros-Ghali, Minister of Foreign Trade, Egypt - one of G20. One stumbling block is indeed a "minimum agricultural package that will by agreed by everyone," said Mukhisa Kituyi, Kenya's Minister of Trade and Industry, for whom the devil was in the detail of the EU and U.S. proposals.

Mr. Redrado of Argentina, also a G20 member, wondered what formula for ending subsidies would be effective. "We need to give specific signals that we're moving toward a market-driven agricultural system." Mr Sutton generally disliked the idea of allowing the smallest and poorest countries to opt out of the subsidy cuts. "Countries must pay for exemptions," he maintained, because in negotiations you get "nothing for nothing."

Mr. Redrado was asked by a French economist in the audience whether the G20 is really ready to make radical cuts in market access itself. slightly on the defensive, Mr Redrado called for "political will" to make a more coherent proposal on the issue, but stopped short of making promises.

Suspicions had already been raised by an EU move to relax its efforts to open up markets in the G90 group of least developed countries. Mr Redrado thought this would be "harmful" because it put on hold a discussion of market access for some countries and not others, "dividing developing countries on geographic grounds." Ministers identified the attitude towards the least developed countries as yet another obstacle to overcome. Mr. Boutros-Ghali said the real reason Cancún failed was a lack of respect for their concerns, as illustrated by cotton trade. Cotton featured strongly at the Cancún Ministerial meeting, particularly in a debate about how high subsidies given to cotton farmers by some OECD countries adversely affected cotton exporters from some West African countries, notably Benin, Burkina Faso, Chad and Mali. But at Cancún, ministers did not forge a deal "that on the face of it they should have accepted," because of the ill will at the talks. "This discourse to the least developed countries must change." The sense of frustration by the LDCs runs deeper and predates Cancún, said Mr. Kituyi of Kenya. Although trade has been in theory connected with development for decades, he said, "we don't have much development to show for it."

Politics was a sticking point. As Mr. Redrado said: "What can the US do on export subsidies in an election year?" Because of the political timetable, he saw a need for ministers in Paris to deliver a breakthrough in the next 24 hours. Mr. Sutton said that the agricultural lobby in the US would only accept cuts in subsidies in exchange for better access to markets around the world.

©OECD Observer

Relationships that work
Partnerships in Research: Government, Business and Civil Society
Afternoon, Thursday 13 May 2004

Moderator: Gérard Kouchner President, Education & Communications Department, Medimedia, France;
Arnoud De Meyer, Deputy Dean, Insead, France; Alain Dutheil, Corporate Vice President, Strategic Planning, ST Microelectronics, Switzerland; Jean-Michel Ghidaglia, Scientific Director, La Recherche Magazine, France; Heather Munroe-Blum, principal and Vice Chancellor, McGill University, Canada; Joaquim Pina Moura, Deputy, Assembly of Portugal, Portugal

California's Silicon valley is an obvious example of how academic research and private industry can work in tandem to spark technological developments that in turn spur economic growth.

"Increasingly … universities and healthy cities play an important role in producing R&D (research and development) systems," said Heather Munroe-Blum, principal and Vice Chancellor, McGill University, Canada. "A couple of cities and innovative clusters interacting with universities (account for) an enormous amount of productivity," she said.

For industry the pay-offs are clear. "Partnerships are an absolute necessity for our industry," said Alain Dutheil of ST Microelectronics. Micro-processor manufacturers are under increasing pressure to produce ever more sophisticated technology that have ever shorter life-spans. Working with universities helps companies like ST Microelectronics keep their R&D costs down and allows them to draw on a large pool of creativity.

In return, said Jean-Michel Ghidalglia. Scientific Director, La Recherche Magazine, France, academics have access to scientific equipment such as super-computers, that only industrial giants can afford to invest in.

But collaboration between an institution focused on the advancement of learning and a company focused on generating profits has to be carefully managed, argued panelists.

"You have two worlds with very different value systems. Understanding and respect are necessary conditions to make it work," said Arnoud De Meyer Deputy Dean, Insead, France. "Does the partnership with industry have a negative impact on a scientist's research agenda?" asked Mr De Meyer. Not if universities are careful, argues Ms Monroe-Blum, who believes that the very best universities are able to maintain academic integrity while working with industry.

Indeed Ms Monroe-Blum's experience has been that companies are often better able to respect a university's independence than are governments. "Over the last 15 years I have worked closely with both government and industry. Industry knows universities" and often researchers often seek out partnerships with industry. "Government has a proprietary view of universities," she explained. "Even though government should be a sustained funder of universities, I don't think it should own intellectual property in the public university system."

Even if governments and research institutes sometimes have strained relationships - as the moderator Gérard Kouchner, President, Education & Communications Department, Medimedia, France, highlighted there is currently a searing debate in France over how to fund research - there is governmental acceptance of the importance of research.

"Innovation and research and development are essential if you want to sustain long-term growth, said Joaquim Pina Moura, Deputy, Assembly of Portugal. At the same time, Portugal would like to see further investment in research by industry.

Whereas the average level of spending on research is 2% of GDP, in Portugal it is only 0.85%, he explained. "The brunt of resources in the EU comes from the private sector".

One participant from the floor expressed concern that greater investment in university research by industry would result in governments reducing the levels of funding they provide to academic institutions.

There is little data to illustrate whether governments reduce the public funding of research in line with increases in spending on it by industry, said Mr De Meyer, but he believes that the opposite may be true. "Money flocks to success," he argued.

Nor is industrial funding of university research as high as some imagine, said Mr De Meyer; even though US industry has increased its investment in university research, it still represents only 7.7% of universities' overall research budgets, up from 2.6% some 30 years ago.

Governments have to think carefully about how to allocate funds, said panelists. They should help build centres of excellence that will stimulate economic growth rather than pour money into mediocrity.

"If you decide to invest you have to be sure you are going to be number one," said Jean-Michel Ghidaglia.

Well structured and sustained public funding of tertiary education is a draw for industry, argued Ms Monroe-Blum, pointing to California, where long-term investment by government has given confidence to industry and created an eco-system that would be hard to re-create.

"California is not replicable because of the level of sustained public investment. Its (success is due to) industry knowing that government is not going to pull out (of funding universities) when industry invests," said Ms Munroe-Blum.

Another question from the floor focused on whether developing countries should invest in basic research. Much depends on the country. "Primary research is the most expensive and the pay-offs are long term," warns Mr Ghidaglia. Yet countries that combine centers of primary research with low wages certainly prove attractive to industry. ST Microelectronics employs 1,000 software engineers in India and is building design centers in Tunisia and Morocco, said Mr Dutheil. However, although India's investment in primary research has helped stimulate economic growth "it would be illusory to say (all) developing countries can invest in basic research," argued Mr Ghidaglia. "They are not all at the same level."

©OECD Observer

Are better-informed patients better treated?
E-Health
Afternoon, Thursday, 13 May 2004

Moderator : Daniel Vial, Director, Pharmeceutiques magazine, France

Panel: Sir William Castell, President and CEO, GE Healthcare, UK; Hong-jen Chang, CEO and President, Bureau of National Health Insurance, Chinese Taipei; Thomas D'Aunno, Director of the Healthcare Management Initiative, INSEAD, France; Anders Olauson, Director, The Angrenska Foundation, Sweden; Marie Smith, President, AARP, US; Per Wold-Olsen, President, Human Health - Europe, Middle East & Africa, Merck & Co., Inc.

A panel of six experts from various medical fields tackled the cutting edge of healthcare: e-health. From Taipei to Washington, from Sweden to Botswana, e-health is a buzz word with medical experts. But what is it?

E-health covers quite some terrain. It includes e-prescriptions, an electronic means of connecting doctors to pharmacies, and smart cards-those chip-imbedded credit cards that contain patient medical histories and so on. E-health also refers to the growing use by patients of the Internet to gather information on diseases, medications and treatments.

The growth of interest in e-health derives from the increase in patient knowledge and patient involvement. A study of 8,000 patients in eight EU countries found that almost three-quarters claim that they should lead or participate in providing information on their diseases. This active involvement of patients has led to a much greater need for information, and a greater reliance on information technology to satisfy this need.

"E-prescriptions have proven tremendously effective in reducing medication errors, which account for 5% of medical prescriptions. These errors often result from sloppy handwriting", explained Thomas d'Aunno, Director of the Healthcare Management Initiative at INSEAD in France.

The importance of the Internet cannot be underestimated. For Per Wold-Olsen, president of Merck's Human Health - Europe, Middle East & Africa division, the Internet has been critical in providing up-to-date information to AIDS or osteoporosis patients: "thanks to the Internet, a doctor in the Botswana bush has complete access to the latest medical literature on HIV," he marveled after a recent visit to Africa. One of the current shortcomings though is the lack of information in local languages. E-labelling of medications is part of the solution. For Anders Olauson, director of the Agrenska foundation in Sweden, another issue with the Internet is its trustworthiness: "I believe that we should see certification of web sites by medical authorities," he argued.

"E-health is a jungle on the Internet, that is to say, we can be confronted with the worst and the best," said Daniel Vial, Director of France's Pharmeceutiques magazine and the moderator of the panel. For starters, there's the question of navigating through all of the information available online to determine just what's accurate and what's not.

One participant from the floor raised the risk of patients poorly diagnosing themselves, to which Mr Olauson replied that "people have to have the freedom to make bad choices … the patient is responsible for his own health." He agreed, however, that quality control is one way of mitigating the incidence of this danger, possibly through website certification by patient organisations.

Mr D'Aunno reiterated that "patients want greater decision-making input". The concern, however, is that physicians are not prepared to deal with more informed patients.

Infrastructure was also on the mind of Marie Smith, President of the AARP in the US, who paraphrased US health secretary, Tommy Thompson, saying "grocery stores (in the US) are more automated than our healthcare", with an estimated US$125 billion spent each year on unnecessary paperwork.

While cost of implementation is a factor, e-health programmes can also lower consumption of public resources, so lowering medical care costs, by better informing patients, for example, when to go to the hospital and when to stay home.

Privacy issues also raised concerns among the floor. How, for example, might a "smart card" system of centralised data undermine patient-doctor confidentiality? And, as to the question of insurance companies being influenced by such information, Sir William Castell, President and CEO of GE Healthcare in the UK asserted that this is already the case, with insurance companies currently looking at family history to determine one's risk factor to disease.

Technology can improve diagnosis and disease-detection capabilities. But do people really want to know if they are going to drop dead of a heart attack tomorrow, one audience member asked? Moreover, early detection carries with it enormous economic implications - not least, that of making people well for work.

A final issue provoking significant response concerned rules which in Europe prevented pharmaceutical companies from communicating directly with the public in the matter of drug research and development. Citing an example of an AIDS patient in Europe who, unable to find cutting edge research at home went onto a US website to learn about a new drug treatment developed by a European company, Mr Wold-Olsen highlighted that improved access can save lives, enabling them to request treatment which they would otherwise not know existed. "As a pharmaceutical company" he said "I am not allowed to provide information to you directly; yet any producer of herbal remedies, of doubtful efficacy, can disseminate throughout Europe as they like."

Mr Vial agreed that freedom of communication in Europe is a problem for drugs companies and that regulation should be changed, but he also noted that pharmaceutical companies are not well-trusted by the public, and this image issue also needs addressing. Perhaps an e-campaign could do the trick.

©OECD Observer

Facing up
Combatting Cancer
Morning, Thursday 13 May 2004

Moderator: Chris Brooks, Director of Public Affairs and Communications, OECD
Special guest: David Khayat, President, National Cancer Institute, France

We must change the image to change reality, was a strong message in this session which laid out some bare facts about cancer. "Each cancer patient dies twice," said David Khayat, President of the National Cancer Institute in France. First, there is the shock of the prognosis itself, and then the loss of the life they knew before, their jobs, even their families. In France, he said, there was still a stigma attached to the word cancer, which only adds to the treatment, which is difficult enough. Quoting President Chirac, he said, "We have to change the image of this disease because how can you fight an enemy it you can't even speak its name."

(President Chirac, when elected to his second term, decided to make cancer the main project of his presidency. The National Cancer Institute's role is to mobilise this effort.)

In 2000, there were 10 million new cases of cancer in the world, 6 million of which led to death. In 2020, that number is expected to double to 20 million cases per year, of which 10 million will prove fatal. Of those, 75% will be in countries making up only 4-5% of the world's GDP. It's not a rich man's problem. The developed and less developed world must work together to solve it.

"Behind the figures you have people, patients, families, husbands losing their wives, pain, suffering…" Mr Khayat said. "Behind the figures are patients."

Mr Khayat was blunt about his own country: "France has the worst cancer figures in Europe," he said, and the highest mortality rate.

Of the 280,000 new cases of cancer per year, 150,000 result in death. Between 1980 and 2000, the cancer rate doubled. "Every two minutes a new diagnosis is made. Every 3.5 seconds, someone dies," Mr Khayat said. Breast cancer kills one woman every hour every day of the year. Malignant melanoma (skin cancer) doubles every 10 years in France, with 1 case for every 75 inhabitants.

And yet, he said, France is the best place to be for treatment. Basically, if you're not sick, don't move here, but if you are, it's where you want to be.

The main problem is that of prevention. "Contrary to Anglo-Saxon culture … a good doctor is one who cares, not one who prevents disease (in France)," said Mr Khayat. "We're not very good at prevention," especially where smoking is concerned.

Lung cancer mostly strikes active, productive men, most of whom are smokers, while France also has the highest rate of children smoking in Europe, at 45% of girls 18-24 and 44% of boys. "If we don't act for humane reasons, let's act for economic ones," he challenged.

Early diagnosis could be better in France, which lacks adequate breast cancer screening capabilities, with insufficient access to imagery, PET scanning, though this is now being addressed.

For such reasons, the National Cancer Institute has devoted 13% of its budget to prevention, with focused campaigns, to stop the likes of malignant melanoma.

Another important facet of France's cancer fight will be increased participation by the patient in his or her treatment. "We need to enrich and strengthen the patients' resolve," Mr Khayat said. A recent study revealed an important discrepancy between feedback from doctors and patients. When asked what their biggest concerns were, 70% of doctors reported pain whereas 70% of patients reported fatigue.

Doctors need to know what patients want. Before, the priority was to cure them, remove the larynx or breast without even asking, he said. We now try to be more functional, using chemotherapy to try to save the woman's breast, radioactive therapy to save the larynx. "We now realise there is a patient, not just a disease."

"We (also) need to internationalise research," and create a reference bank of good practice, however enormous and costly. By coordinating efforts internationally, discoveries relating to new medicines can be more easily found.

"Medicine as a weapon can only be effectively used if it is frequently used," said Mr Khayat. Yet, in France, over 50% of radical prostectimies, for example, are carried out by urologists who operate only maybe six per year, far too few.

"Medicine is not a science, it's an art," and you need to practice it. As the old saying goes, practice makes perfect.

Thus, a new focus on specialization is also a major part of the National Cancer Institute's plan, aiming to better equip doctors to handle the disease efficiently.

Can the environment be a source of cancer? Responding to this question by Chris Brooks, Director of Public Affairs and Communications at the OECD and the moderator of the discussion, Mr Khayat noted the need for objectivity. He cited a study conducted in the US which measured precise pesticide usage by farmers and whether there was a correlation between increased use and the incidence of breast cancer in those areas. None was found. He also noted that increased incidence in cancer found in children is not necessarily the result of more cancer, say, from pollution, but better diagnosis. The tools of detection today are better than 20 or 30 years ago. The environment dimension "is a political question (and) as a scientist I would not get involved in this policy debate", he said.

Anyway, there was a flip side: even if we need surveillance of chemicals like fertilisers, farming has improved its output yield, so combating malnutrition, he observed.

Is there a cure for cancer? "We can plan research but we cannot plan discoveries," Mr Khayat replied. Who knew that a derivative of platinum would be found to treat testicular cancer? We stumbled upon it. Research remains a keystone to discovery. And while it is likely small biotech companies will make the discoveries, they will probably not be able to take them to the clinical level, which is why we need the big pharmaceutical companies, he suggested.

Mr Khayat finished on a positive note. In previous years, it was believed that cancer would be cured by 2000. "I think that cancer will be cured one day; but not in one day," he said. There will always be cancer, he said, but one day, people will not die of it.

NOTE: See also the contribution by Mr Von Eschenbach of the US National Cancer Institute in the health panel, Thursday.

©OECD Observer

Global village or house of cards?
The World Economy in 2004
Morning, 13 May 2004

Moderator: Serge Marti, Chief Editor, Le Monde, France

Panel: Jean-Philippe Cotis, Chief Economist, OECD; Padma Desai, Director, Center for Transitional Economies, Columbia University, US; Hamish McRae, Associate Editor, The Independent, UK; Ivan Miklos, Deputy Prime Minister and Minister of Finance, Slovak Republic; Clyde V. Prestowitz, President, Economic Strategy Institute, US; Li Shantong, Director of Department of Development Strategy & Regional Economy, Development Research Center, The State Council of P.R.C., China

The much-awaited session on the world economy in 2004 offered varying views, ranging from a bleak perception of the global economic outlook to firm optimism for 2004. There was a mixed picture for 2005.

With the latest OECD Economic Outlook just released, moderator Serge Marti first gave the floor to OECD Chief Economist Jean-Philippe Cotis, who rated world prospects as bright, though particularly strong in the United States, Asia, several Anglophone countries and Scandinavia. The performances of China especially and Japan were leading the upswing, with the US economy now creating jobs and "the global tide about to lift the European boat." But he regretted that mainland Europe would not contribute much to the upswing.

Indeed, this raised a key risk of polarised growth in the world, with the divergence between the US and Europe aggravating balance of payment problems. More reform effort to unlock activity in France, Germany and Italy was needed.

Further major uncertainty surrounded oil price prospects, which at the time of the Forum had already risen towards record levels. But Mr Cotis was not convinced that oil prices were set on relentless upward course. Still, while growth should continue in 2005, there was room for caution.

The chief economist's overall optimism was not shared by former US top official, and now president of the Economic Strategy Institute, Clyde Prestowitz. "I see the future as very black," he began. "All this happy talk reminds me of the band playing on the Titanic as the ship headed towards the iceberg." Mr Prestowitz, who in 2003 published a book called "Rogue Nation", said he was appalled at the unstoppable rise of the US deficit which recently hit $46 billion in one month. The US was "having a party" financed by the rest of the world, he said. He was sceptical about sustainability, warning about the dangers of a sharp adjustment. "The whole world economy is built like a house of cards", he claimed.

Another surging country is China, but while Mrs. Li Shantong ran off some impressive figures relating to her country, she warned that investment was now too high, having grown by 26% overall in 2003. This is an overall figure: in some sectors growth has been up by more: 96% in iron and steel, and 120% in cement. In answer to a question from the floor, Mrs. Li Shantong acknowledged "there is a bubble in China, especially in real estate".

So, what about Europe? Slovak deputy prime minister Ivan Miklos, who is also his country's finance minister, said the enlargement of the EU would have a positive effect on competitiveness and growth. He also argued that policies such as the tax reforms adopted in the Slovak Republic will encourage tax competition in existing EU countries. His country's recently-adopted flat corporate and individual tax rate of 19%, with VAT set at the same level, has had the immediate effect of pushing down the tax rate in neighbouring Austria.

Hamish McRae, associate editor of the Independent, characterised this as the "Slovak tail wagging the Austrian dog". He also believed that economic power is shifting away from the OECD countries to new nations. Mrs Padma Desai, an Indian academic now settled in the US, noted that China and Japan have departed from the policy model found in the US and Europe. Central command of policy levers was strong, and these countries had "kept the exchange rate low with a view to promoting exports, thus grabbing a window of opportunity."

Several questioners from the floor took a medium to long term view about world economic prospects, wondering if lessons from the past 20 years had been properly absorbed. Drawing on his extensive journalistic experience, moderator Serge Marti commented: "Today's positive OECD Economic Outlook reminds me of a similarly favourable report produced in 1994, the year Mexico joined the OECD. At the time there were serious moves to reform the Bretton Woods institutions, but nothing was done since things looked better. What happened? Well, in December 1994 came the Mexican crisis, followed in 1997 by the Asian financial crisis and the Russian crisis." In a comment that elicited unanimous assent, Clyde Prestowitz noted: "The only sure thing in life is the unexpected."

©OECD Observer

Innovation with costs
Health Ministers Roundtable
Morning, 13 May 2004

Contribution of Research and Innovation Systems to Improving the Performance of Health Systems

Moderator: Julio Frenk, Minister of Health, Mexico
Lead Speaker: Andrew von Eschenbach, Director, National Cancer Institute, US

Panel: Meena Ballantyne, Director General, Health Care Strategies and Policy Directorate, Health Canada; Llija Batljan, Director, Ministry for Health and Social Affairs, Sweden; Jane Halton, Secretary, Department of Health and Ageing, Australia; John Hutton, Minister of State for Health, United Kingdom; Hwa-Joong Kim, Minister of Health and Welfare, Korea; Annette King, Minister for Health, Ministry of Health, New Zealand; Mihály Kökény, Minister of Health, Social and Family Affairs, Hungary; Jón Halldór Kristjánsson, Minister of Health and Social Security, Iceland; Likurgus Liaropoulos, Representative to the OECD, Ministry of Health, Greece; Micheál Martin, Minister for Health & Children, Ireland; Peter Pazitny, Adviser to the Minister, Ministry of Health, Slovak Republic; Luís Filipe da Conceição Pereira, Minister of Health, Portugal; Filippo Palumbo, Director General, Directorate for Health Planning, Ministry of Health, Italy; Herta Rack, Senior Advisor, Federal Ministry of Health and Women, Austria; Elena Salgado Méndez, Minister of Health, Spain; Klaus Theo Schröder, Secretary of state, Ministry of Health and Social Security, Germany; Tommy Thompson, Secretary, Department of Health and Human Services, United States; Necdet Unuvar, Undersecretary, Ministry of Health, Turkey; Michael Vít, Deputy Minister of Health and Chief Public Health Officer, Ministry of Health, Czech Republic; Cezary Wlodarczyk, Professor, University of Jagiellonia, Poland; Thomas Zeltner, State Secretary and Director, Federal Office of Public Health, Switzerland

Harsh truths about cancer today were expounded in some detail at an earlier session of this Forum by David Khayat, President, National Cancer Institute, France (LINK). In this special and well-attended panel, Andrew von Eschenbach of the US National Institutes for Health inspired the high level audience by outlining the enormous advances made in the fight against cancer and made a strong case for the manifold benefits of research and technological innovation in healthcare. Mr von Eschenbach said we had reached a "magic moment" and, thanks to technology and our improved understanding of the "pathways" of cancer, he foresaw "an era when we will be practising personalised oncology", in which cancer treatments will be adapted to the genetic profiles of patients. This era of customised medicine has enormous implications, he added, for improving the quality and efficiency of care. Costs could come down, for example, as the cycle time between intervention and successful treatment is reduced. But this era will not come about without continued investment in advanced technologies, like biotechnology, molecular diagnostics and imaging, to finance the tools for this new kind of healthcare.

In essence, Mr. von Eschenbach is talking about the enabling environment needed to further medical knowledge, explained moderator and Mexican health minister, Julio Frenk. The minister pointed out per capita GDP in Mexico is now the same as in the US in 1900, but life expectancy was 40 then in the US, and is 70 in Mexico now. This gain in human life expectancy is due to better knowledge, he deduced, not just greater wealth. In light of the challenge of making sure medical knowledge continues to expand to the benefit of humankind, the moderator asked panellists to consider three crucial questions: are governments providing enough support for innovation? Are innovations addressing urgent health problems? If not, can governments work differently to ensure that they do?

The short answer all round was that governments have much work to do. Tommy Thompson of the US challenged other OECD countries to lift price controls to free up funds to pay for innovation. He also called on his colleagues to create more national institutes of health of the kind the US had, as this would expand the global knowledge base. The US is ready to advise and even help fund the creation of such research centres, Mr Thompson said. The challenge could not be underestimated, and he urged governments to be prepared not just for global infectious diseases, but for acts of bioterrorism, like the use of the smallpox virus as a weapon. The private-sector, he said, is not likely to develop vaccines for such diseases, so it is a job government must do. "Who is going to bear the financial burden of such a global task?" he asked, in what appeared to be a call for other countries to share the burden with the US.

Some Ministers, such as Mihály Kökény of Hungary, had a different view on paying for health-care innovation. "Innovation generally induces cost increases," he said. To deliver good healthcare, he said that countries must consider "technological discipline" with a view toward cost-effectiveness. Against a background of budget limitation, this means incentives for new and effective products rather than for ineffective, yet costly, ones.

All ministers agreed that financing health innovation is not easy but some took a different view of the challenge. "Health leads to wealth" was the mantra repeated by several panellists, like Irish Minister for Health and Children Micheál Martin, who pleaded for governments to view health as an investment, just like education, noting that his country had taken steps to set up a national health institute in the US vein. Healthcare has a price, said John Hutton, UK Minister of State for Health, so health spending must be targeted to real improvements in the quality of life. Better tools, he said, are needed to make these kinds of judgments.

But blind cost-saving can be deceptive, since ghastly mistakes have been made in the past, said a business executive from Per Wold-Olsen, president of human health, Europe, Middle East & Africa, Merck & Co. In a contribution as a special guest from the audience, Mr Wold-Olsen argued that by limiting access to statin, a cardiovascular drug, EU countries had lost tens of thousands of lives and incurred greater healthcare costs over the past decade. Such mistakes, added Henry McKinnell, chairman and CEO of Pfizer, reflect the fact that new medications are often seen as a burden rather than a benefit. On the contrary, the return on investment of these disease-preventing drugs is great compared to treating the disease after it occurs. Inhibiting drug innovation, said Christoph Thalheim, Secretary-General of the European Multiple Sclerosis Platform, is also "the tendency of governments in the EU to over-regulate rather than develop broad policy frameworks."

Ministers from smaller OECD countries, like Jón Halldór Kristjánsson of Iceland and Annette King of New Zealand, felt it would be unrealistic to expect them to afford to initiate complex innovations - collaboration and cooperation with other governments, private industry and NGOs is of the utmost importance. Nevertheless, these ministers applauded the US idea to establish national health institutes, but admitted they lack the resources or "critical mass" of scientists needed to create them.

Indeed, small and large countries alike felt the need to contribute to research and innovation. More effective use would have to be made of the opportunities for synergies in addressing different disease targets, through molecular medicine for instance. Better use of information technology and networks and integration across whole health systems would help deliver better results. Businesses agreed, but technology was only dimension. Costs were always going to be an issue for healthcare into the future: "we need a new, open deal about a sustainable financing mechanism," said Chris Strutt of GlaxoSmithKline

Several ministers urged the group to consider innovation broadly, not just the creation of new drugs but also of new methods to change unhealthy habits. "We need research and innovation in behavioural change," said Mr. Martin, echoing a broadly held view that personal responsibility was important. This change would help industrialised countries deal with illnesses with a lifestyle dimension, such as lung cancer and heart disease.

Reforming the healthcare system can free up resources for medical innovation, if her country's experience is an illustration, said Kim Hwa-Dong from Korea, referring to the importance of resource management.

Paul Herrling, Head of Corporate Research at Novartis, appealed for greater excellence in science education, especially in Europe, to train the scientists of tomorrow.

But healthcare is a global public good now. Industrialised countries must ensure that innovation in health flows to the poorest countries, said Mary Robinson, the former President of Ireland, so that all people may have the right to the highest attainable level of health.

©OECD Observer

Vive la différence !
Lunchtime, 13 May 2004

Special Event: Conversation with Christine Clerc, Special Correspondent, Le Figaro, France, based on her book, Le Bonheur d'être Français.

Moderator: Barry James, International Herald Tribune

France has sometimes been described as an "unreformable country in need of reform". Labour market inefficiencies and bottlenecks remain unsolved and have dampened French growth potential in recent years. But for acclaimed French journalist, Christine Clerc, while her country certainly has sticky problems, we must also focus on the positives. This is the theme of her new book, Le bonheur d'être français*, which Ms Clerc wrote "as a response to those who have been banging on about France's decline over the last few years."

French people have much to feel encouraged about, as Ms Clerc outlined both in an article for the OECD Observer ("French resistance"), and in this special lunchtime session at the OECD Forum. Ms Clerc pointed out that France was not the only country in Europe where there was great potential: "Someone could well write about 'the joy of being Spanish' for instance." But she wanted to send a message to her own compatriots who had felt that globalisation had begun to spin out of control, that ordinary people were becoming victims of its excesses and no longer able to benefit from it.

France has serious problems, like a burgeoning public debt and deficit, as well as the scourge of high unemployment, she acknowledged. But in the global scheme of things, France is but a small country, and yet it has remarkable assets and is quite capable of overcoming difficult crises. She questioned so-called experts, which she saw as being trapped in an ideology. Did they take everything into account? In France, the high quality of life, overall skills and abilities, the excellent infrastructure, of transport, and health care: all these others envied but experts overlooked.

She rejected popular claims that somehow France was opposed to globalisation. As a "crossroads" on mainland Europe through which trade and people have to pass, her country has felt the force of internationalisation for centuries. France had benefited from these forces and had shaped them too. Still, the French had a perfect right to defend their culture, and to become involved in articulating what they felt globalisation should become. Were they doing enough?

Greater confidence was needed and submerging everyone in superstructures was perhaps not the way forward. Countries could draw lessons from Europe's regionalism as a way of strengthening identities within the whole, rather as Brittany, the Calais region, and northern Italy have done. Integration was great, but freedom and cultural expression were burning bright again in the once-subsumed regions, which were a "good scale" to work with, Ms Clerc believed.

Ms Clerc went further than one member of the audience who had asked the rather oft-heard question of whether the French had grown too dependent on the State to defend their identity, despite their strong individualism. "The French have always had a strong tradition of Monarchy and never really left it behind (after the revolution)" she said. Downing Street was a modest affair compared with the pomp of the Elysée Palace, for instance, but at the same time, she believed that the French were "egalitarian and left-leaning" in their ideals. This was a hard contradiction to manage. Having said that, the State was increasingly at odds with itself in France, and major shifts were imminent. "Institutions always need to change" she said, and she had a feeling that France's central institutions had a air of "the end" about them, just as the regions were renewing themselves and asserting French culture differently.

Asked about France's "love-hate" relationship with the United States, Ms Clerc described theirs as "a family affair". Like France, the US stood for liberty and freedom. But as between parents and children, France (the old country) was not so much jealous as anxious while watching the US (the new country) out there alone on world stage, even getting into trouble. Both countries had so much in common, but their differences were frustrating. "Family arguments are the cruelest of all", she sighed.

On Iraq though, she believed that if the French were in the same situation, they would manage it differently: "we have had such a long experience of dealing with the Arab world" she said. Indeed, Islam was now even admired as a religion by most French people, "at least intellectually, even more than Catholicism", which was a major change from the past, Ms Clerc argued.

In short, Ms Clerc believed that the French may be suffering from a crisis of confidence, but there was enough evidence to suggest that this would change.

*The Joy of Being French (our translation). The first volume of Christine Clerc's Le bonheur d'être français published in 1982 won the Prix Albert Londres. Christine Clerc is an acclaimed French journalist and currently a columnist for the daily newspaper, Le Figaro. She wrote this especially for the OECD Observer. She is author of over a dozen other books, notably Le Journal intime de Jacques Chirac. The second volume of Le bonheur d'être français was published by Plon in March 2004.

Outsource this?
Trade, Jobs, and Adjustment
Afternoon, 13 May 2004

Moderator: Guy de Jonquières, World Trade Editor, Financial Times

Panel: Lionel Fontagné, Director, Centre for Future Studies and International Information (CEPII), France
Bruno Lamborghini, Chairman, Olivetti Tecnost, Italy
John J. Sweeney, President, American Federation of Labour and Congress of Industrial Organizations, United States
Hassan Abouyoub, Ambassador of Morocco, France
Clyde Prestowitz, President, Economic Strategy Institute, US

The shift of low-skill jobs to developing countries is nothing new, despite the recent media buzz over outsourcing. But until recently, jobs leaving rich countries for overseas destinations were mostly limited to unskilled labour and manufacturing. The cultural shockwaves taking place in the United States over the now-famous India-based call centres has made for a charged discourse, but one that often panders to political ambitions. As Guy de Jonquières pointed out at the opening of this lively forum discussion, the short-term adjustment costs of outsourcing have become a central issue in this year's US presidential election. "But we can't forget that what today is called outsourcing has been going on for years with manufacturing jobs; at the same time, the United States has for years been on the receiving end of outsourcing in academia, as students who headed there for advanced studies often stayed afterwards."

Several factors point to an outsourcing phenomenon less threatening than commonly perceived. As Lionel Fontagné noted, IT outsourcing has minimal effects on the more innovative areas of the sector - such as software development. And lower-skill service jobs that leave rich countries in search of lower-wage workers are in turn replaced by higher-skill jobs. "In a three-year period, the US may have lost 70,000 programming jobs, but 115 software engineering jobs sprung up in the meantime", he said. "Even when talking about industrial production in France for example, jobs lost to other countries has amounted to less than 1%." The question of service sector outsourcing, for him, is one of "a sharing of the international value-added chain".

Bruno Lamborghini said that an ex-US administration official had recently predicted that because of outsourcing the US could become a third world country in 20 years' time. This is the "hype" Mr Lamborghini warns against. "We must all step back a bit and look at what's new in this debate - not much. Just as China didn't take up all of the world's manufacturing jobs, India will not take all of its service jobs." As a solution to the matter, Mr Lamborghini suggested that governments must "avoid protectionism, and instead encourage innovation and set up provisions for readjustment."

In the 1970s there was a general consensus that the outsourcing of manufacturing jobs was a plus, because rich countries could keep the value-added jobs, Clyde Prestowitz said. According to Mr Prestowitz, "outsourcing is a natural phenomenon, and one to be encouraged if the conditions are right and there is no market interference. Subsidies and market distortions reduce the legitimacy of outsourcing". Asked by a participant about what constitutes fair trade, he said that the problem with trade was that "on a macro level, you can say it's a win-win game. But the truth is that on the micro-level, there are always some losers. The problem is trying to get the winners to compensate for them, and this never really works out".

Hassan Abouyoub agreed. He noted that in the trade game, there are always relative winners and relative losers in a given situation. While he said that outsourcing of service sector jobs to Morocco has been minimal due to certain language and cultural barriers, the migration of manufacturing to his country has been an issue. For developing countries, he said, keeping or attracting jobs means "enforcing labour standards, rule of law, and environmental standards, as well as providing political and economic stability".

A trade union perspective on outsourcing was less optimistic. John J. Sweeney, who heads the US labour movement, said that over the past 20 years, economically liberal governments "have been using globalisation like a baton to club American workers". He said that 2.7 million manufacturing jobs had been lost in that period to plant relocations abroad. However, Mr. de Jonquières reminded the audience of the enormous cycling effect of job loss and creation in the US - where there are almost always more jobs created than lost.

Everyone agreed though that the problem with large outsourcing plans is that they hit in concentrated blasts - often affecting a single small town or region with force. Retraining and resources for adult education must be made available to help deal with this, the panel suggested. Mr Sweeney added that we need to find alternative motors for economic growth besides "over-consumption". To create sustainable growth, "we have to stop relying on Americans as the consumers of last resort to boost the world economy", he said.

©OECD Observer

Competition and survival
Combating Infectious Diseases
Evening, Thursday 13 May 2004

Moderator: Hélène Cardin, Health Journalist, France Inter, France

Panel
Anarfi Asamoa-Baah, Assistant Director-General, Communicable Diseases, World Health Organisation
Clementine Dehwe, Global Unions HIV/AIDS Campaign Coordinator, International Congress of Free Trade Unions (ICFTU)
Paul Herrling, Head of Corporate Research, Novartis, Switzerland
Jacques-François Martin, President, The Vaccine Fund, France

We live in a global village which has many advantages, but it raises with it a heightened risk of spreading dangerous infectious diseases. This was the main warning from this session. On a brighter note, research is ongoing and not necessarily at great cost, while global cooperation is advancing to ensure diseases are contained, if not eliminated.

For Anarfi Asamoa-Baah, there were three major trends that had to be borne in mind when considering the issue of infectious diseases. One is movement, with flight travel in particular making the spread of disease much more likely than before. A second was bioterrorism, as the anthrax scares of 2001 underlined, with the danger of attacks allowing the likes of small pox and other "old" and hitherto controlled infections to emerge anew. The third trend is that of new diseases, with 14 serious new ones identified over the last 30 years, including viruses from animals that have mutated and now affect humans. Animal welfare, people-animal contact: these are new issues. "Go to airports now, and see the different channels of people passing through" Mr Asamoa-Baah challenged the audience. "Micro-organisms love mingling."

One old disease that is far from being defeated is HIV/AIDS, Clementine Dehwe pointed out. "For 20 years we have been fighting it, so it is high time the global arena took it seriously," she complained. WHO was once famous for its slogan: health for all by 2000, she recalled, but now "it is death for all, as many countries are perishing." The WHO's new "3 by 5" (to treat 3 million sufferers by 2005) was a welcome initiative, but what will we do to build on it, since after 2005 the disease will still be there. Asked by the Chair whether it would work, Ms Dehwe said it could, but only with solid global co-operation behind it. In the meantime, HIV/Aids would remain a burden: "Health workers are wasting time burying the dead. And people are dying at work." She suggested that labour unions could play a firmer role, to pressurise employers to come up with solutions, adding to NGO pressure.

One underestimated problem with treating HIV/Aids is the cultural dimension: people in certain communities will not be checked, as the disease is highly stigmatised. Sufferers are often marginalised. Education helps, but the weight of culture is immense. People are hesitant about taking precautions "lest others think they have Aids" she said.

For Paul Herring of Novartis, access was key, and several issues impeded the global distribution of treatments. Cultural differences were one, corruption another, but a basic problem was the lack of research into certain non-headline conditions that promised little by way of commercial returns. Yet there were serious tropical diseases around, like dengue fever, which is caused by a mosquito-induced virus. Compared with malaria, which is a parasite, dengue fever receives scant attention internationally, yet was endemic in 100 countries; the WHO estimates 50 million cases of dengue infection occur each year. There was no known vaccine, nor was the disease subject to much research.

It was precisely to fill gaps like this that Novartis set up a new tropical disease research institute in Singapore in 2003. Singapore was chosen, he said, because of its climate and its ability to attract top researchers, while assuring access to up to date technologies. The Novartis Institute for Tropical Diseases focuses on a limited number of projects with a long-term (10-year) discovery cycle. The aim was to find cures, to educate scientists, and to distribute cures to developing countries on a non-profit basis.

Jacques-François Martin, the president of the Vaccine Fund, worked in a similar vein. Some 30 millions children a year were not vaccinated against routine childhood illnesses, leading to millions of unnecessary deaths. Many children escaped death, but were often weakened or debilitated for life. The Vaccine Fund was launched in 1999 to address the needs for vaccines and immunizations of the world's 75 poorest countries, those with a per capita GNI of less than $1000. It worked alongside the Global Alliance for Vaccine Immunisation (GAVI), whose partners included WHO, UNICEF, the World Bank, pharmaceutical companies, governments and major philanthropists.

This global approach based on solidarity was essential, though measures would have to be focused: "A global approach, with local action" is how Mr Martin characterised it.

Mr Martin warned that even if treatments are available, the healthcare systems in poor countries were not up to the challenges they faced. These would have to be strengthened. Had SARS struck in Africa rather than Asia, the consequences might have been much worse, he suggested. He called on OECD governments to invest more resources in strengthening healthcare systems, such as by leveraging the International Finance Facility set up in 2003.

Mr Martin also called for more effort to resolve problems arising from patenting. Price differentiation for certain poorer populations and conditions had to be introduced as standard, he said. Measles, which killed 800,000 children every year in less-developed countries because of a lack of treatment, was a case in point: "We have no right to allow people to die over a patent", he argued.

The will and determination to treat illnesses was all that was missing. "We have the means" he complained, but "the gap between the potential for action and what we are actually doing was wider than ever."

One voice from Save the Children agreed, arguing that we need less innovation and more commitment to action, particularly to help mothers and children.

A representative of medical students asked how doctors in Africa running clinics could manage to expand treatment while incurring debts that forced them to keep staff numbers down. This was a potential problem, panelists agreed, and some kind of restructuring of debt for healthcare would be a worth pursuing, albeit in return for meeting certain agreed health goal objectives.

OECD countries could cooperate in simple ways. Mr Martin suggested that the norms followed for removing certain drugs from circulation which could be of use in developing countries deserved attention, although "it was a very sensitive legal issue." For instance, a cheap treatment against diarrhea may be banned by rich countries because of very minor side-effect risks for their healthy populations, yet the same drug may potentially save millions of lives in poor countries where survival is a priority.

A participant expressed astonishment that infections like scarlet fever were on the rebound in developed countries, in spite of "our high standards of sanitation". But the panel reminded the floor that while scarlet fever had staged a comeback, it was not a serious virus. Nor was sanitation the only issue, since some very serious viruses thrived even in hospitals. Though infections could be repelled for a time, they could mutate and return, as Mr Herrling pointed out, often along with new forms of illness. Mankind was effectively engaged in an "anti-microbial arms race", he said.

A labour union representative from the floor wondered whether workplace initiatives could help to promote better behaviour locally. The panel agreed that employers could do much to help to overcome cultural fears and remove the stigmas attached to having a disease, for instance, and by helping to promote treatment. But while the workplace was important, civil society was even more so for keeping up momentum and spreading the message. "That is why this OECD Forum is important" said Mr Asamoa-Baah.

©OECD Observer May 2004