OECD Forum 2006 Themes, 22 - 23 May, Paris

Information technology – the next phase (Monday 22 May at 10:15)

The Internet is rapidly becoming a key ingredient in our economic infrastructure – akin to electricity and roads – as well as our social structures.

The opportunities offered by faster, more capable, and increasingly pervasive IP-based applications, both wired and wireless, are accompanied by issues that need addressing, including ensuring reliability and manageability, security and privacy, interoperability of the network of networks, and enabling the global exchange of information and views.  Security-related issues regarding infrastructural integrity are particularly important – an interruption of the Internet, even if temporary, is no longer a mere nuisance, it is a vast economic threat and can even cost lives.

THE INTERNET AND GLOBAL NETWORKS: VISIONS OF THE FUTURE

• What are the technical, social and economic drivers for Internet use and content development by an expanding user base of individuals, businesses, academic researchers and governments?
• How can wider policy implications be taken into account in developing Internet technology standards and protocols, such as the need for increased security?
• What is the role of the private sector and of government in fostering infrastructure facilities and services when networks are largely privately owned and operated, and returns are long term and shared?
• What are the drivers that trigger investments in new technologies?
• How do governments balance the need and interests of consumers, service providers, industry, online content creators, and encourage an environment that enables innovation, investment and growth?

Cities and Globalisation (Monday 22 May at 10:15)

• To what extent do cities lead national economic growth? What does this mean for governance at the national level?
• How do cities compete in the globalising world economy? Are there winners and losers?
• Does the shift towards more knowledge-based urban economies exacerbate social exclusion?
• How to promote social cohesion, which is also a key foundation of economic competitiveness?

Fulfilling the promise of South East Europe (Monday 22 May at 14:00)

South-East Europe (SEE) is undergoing a major transformation. After decades of turmoil the region is now positioning itself to compete in the global economy. Significant policy reforms have been implemented to improve competition, corporate governance, tax, investment, trade and human capital development.  Romania and Bulgaria are now on the verge of EU accession.  With an average 5% GDP growth, stable inflation rates and steadily increasing inflows of FDI –  reaching €10 billion in 2005 – this region of 60 million people could be the next European tiger.  

One of the main engines behind the resurgence of SEE in the last five years has been enhanced regional cooperation and dialogue. A myriad of SEE policy networks encourage cross regional fertilization in investment promotion, tax, competition, corporate governance and SMEs.  Regional programmes such as the OECD Investment Compact bring SEE countries together to encourage policy reform through regional round tables and peer reviews.  With the support of the Stability Pact for South East Europe, all countries of SEE have now signed bilateral free trade agreements and should sign a regional free trade agreement by end of this year. As a result of these different regional efforts, political, social and economic ties between SEE countries are much stronger, which contributes to peace and stability of the region, and provides the basis for prosperity of SEE and its neighbours.      

What has the SEE region achieved in the last five years? How will the SEE region evolve in the future?  What will be the main drivers of growth and employment in SEE? Can inequalities between countries in SEE be reduced to increase stability and growth? How will Romania and Bulgaria’s accession to the EU impact the region?  What are the main challenges and priorities for SEE going forward?   

These are some of the questions that will be addressed at the OECD Forum in 2006.

Energy and the economy (Monday 22 May at 14:00)

Energy prices have risen dramatically in recent years, driven in large part by demand from China, India and other emerging economies.  While high energy prices might be here to stay, the effects on economic growth appear to be minor.  What are the risks of even higher energy prices?  What would be their effect on the economy?  What policies are needed to improve energy efficiency and improve the attractiveness of alternative energies?  How important an issue is security of energy supply for leading energy consumers?

Investment for development (Monday 22 May at 14:00)

Despite positive trends in the past decade, private investment in many countries, especially developing and transition economies, continues to fall short of development needs. This has led to renewed interest in the importance of private investment -- both from domestic savings and foreign investment -- for promoting the broad‑based growth that will help drive poverty reduction.

Even in fast-growing countries like China there is much scope for improvement.  High levels of savings are often invested inefficiently because of uncompetitive financial markets.  And while China has become one of the world's leading destinations for foreign direct investment, FDI per capita is China is not very high.  And the economy should be more effectively opened to cross-border mergers and acquisitions which could play an important part in the restructuring of state-owned industries.

Against this background, the OECD has developed a Policy Framework for Investment which aims to help countries mobilise private investment that supports steady economic growth and sustainable development.  It covers ten critical policy fields for the quality of a country’s investment environment: investment policy; investment promotion and facilitation; trade; competition; tax; corporate governance; policies for promoting responsible business conduct; human resource development; infrastructure and financial sector development; and public governance.  Drawing on good practices from OECD and non-OECD experiences, the Framework supports the United Nations Monterrey Consensus adopted in 2002, which emphasised the critical importance of private investment, both domestic and foreign, for achieving important development objectives, including the Millennium Development Goals.

Structural adjustment and social cohesion (Monday 22 May at 15:45)

With the emergence of new sources of competition, accelerating technological change and shifting societal concerns, adjusting to globalisation is an issue of concern to both developed and developing countries.  The challenge for successful trade-related structural adjustment is the reallocation of labour and capital to more efficient uses, while limiting adjustment costs for individuals, communities and society as a whole.

The challenge of structural adjustment will benefit by adopting at the national level an appropriate policy framework: macroeconomic policies which promote stability and growth; labour market policies which help develop workers’ skills and facilitate a smooth transfer of resources from declining to expanding activities; an efficient regulatory framework; a sound institutional and governance framework; and liberal trade and investment policies which support structural adjustment by contributing to growth, innovation and competitiveness. 

Governments are also strongly encouraged to pursue reform across different policy areas in a complementary way – to reduce resistance to change, by helping ensure that those disadvantaged by one reform benefit from another, and to foster synergies between policies. Governments are also encouraged to rely, as much as possible, on generally applicable measures to address adjustment costs, including through the tax and social security system, for reasons of both equity and efficiency.

Creating jobs in the 21st century (Monday 22 May at 15:45)

Over the past decade, employment rates have risen in many OECD countries, and the long-term trend rise in unemployment has been halted or reversed. Still, wide cross-country disparities in labour market performance remain. While women and older workers have benefited disproportionately, youth and the less educated have lost ground. Furthermore, recent reforms have often failed to prepare economies adequately for new challenges, including how to maximise the net benefits from technological progress and globalisation, and to cope with ageing populations. But the reassessment of the OECD Jobs Strategy has yielded valuable lessons about what works for whom and in what circumstances.

One key lesson is the need to get work incentives right. This involves the nexus between unemployment benefits, active labour market policies and “making work pay” policies. Too high or open-ended unemployment benefits combined with lax monitoring of the unemployed and little or no financial gain from taking a low-paid job tend to lock people into “unemployment” or “inactivity” traps. However, well-designed “activation” policies can encourage the unemployed to look for work while maintaining fairly high benefit levels. One increasingly popular approach is that of “mutual obligations”, whereby governments provide effective re-employment services, training and financial incentives to unemployment benefit claimants who, in return, have to look actively for a job, improve their employability, or face the risk of benefit sanctions. This strategy, possibly combined with well-targeted in-work benefit schemes, has proved successful in promoting re-employment.

But “activation/mutual obligations” policies face a new challenge. The proportion of the working-age population relying on sickness, disability, sole-parent, early retirement or social assistance benefits exceeds that on unemployment benefits. Many of them would like to work but need assistance to do so. Countries are beginning to experiment with variants of “activation/mutual obligations” to help this heterogeneous group find work. These experiences need to be monitored closely to see what works and why.

Demand-side policies can help too. To improve the job prospects of certain groups, overly strict employment protection legislation needs to be avoided. Partial reforms, making it easier to hire people on temporary contracts without changing the protection offered to core workers, can be counterproductive. However, some countries have found innovative reform avenues which combine greater labour market flexibility with adequate worker protection. One of these is to make the costs of firing permanent workers more predictable. Another is the “flexicurity” approach, which facilitates hiring and firing decisions while providing efficient re-employment services and income support to laid-off workers.

Wage flexibility also enhances labour demand, with decentralised and centralised bargaining yielding more favourable outcomes than bargaining at the sectoral level. A further benefit of decentralised bargaining is that local wages better match local productivity, mitigating regional imbalances. Where legal minimum wages are high, targeted cuts in payroll taxes can improve the employment opportunities of vulnerable groups, though this can be expensive for the public purse. Finally, competitive product markets boost labour demand and, ultimately, both employment and real wages. While anti-competitive regulations have been reduced in most OECD countries, many have further scope for lowering domestic barriers to entry, expanding employment opportunities and reducing restrictions on foreign trade and investment.

Remaining distortions in the design of pension systems and de facto early retirement schemes discourage labour force participation by older workers. Widespread use of seniority pay and a dearth of training opportunities further undermine their employment prospects. Women face obstacles in the form of tax disadvantages for second earners and lack of part-time jobs. Poorly designed family-support policies also discourage female participation, including lack of suitable parental leave provisions and high childcare costs. The latter can be reduced by increasing competition in the childcare market and by turning child benefits into childcare subsidies – although this may result in lower targeting of public spending. Regarding youth, inadequate basic education makes school-to-work transitions difficult. An effective approach has been sustained intervention to avoid early school failure and the provision of targeted employment programmes and remedial training.

There is strong evidence that training is associated with better-paid jobs and that it facilitates transitions from temporary work into stable employment. Lifelong learning policies should ensure that training markets function well, including through improved skills recognition systems, enhanced information on the contents and outcomes of courses, better quality training provision and greater certainty about the returns to training. While financial constraints faced by workers may call for public support to adult learning, complementary contributions from the recipient or the firm are also warranted, given that they capture much of the returns from training.

Recent experience has shown that there are several roads to success. Still, reforms need to be implemented as a coherent policy package, taking into account not only country objectives and starting points but also policy interactions. For example, the potential disincentive effects of high and long-lasting unemployment benefits need to be counteracted by well-designed activation policies. Likewise, the adverse effects of high labour taxes on labour demand can be mitigated by setting the minimum cost of labour at a reasonable level. Also, reforms that enhance wage flexibility will have larger employment effects when they are carried out in an environment of strong product market competition.

There is a growing consensus that structural policy settings, such as poorly designed benefit systems, may amplify employment losses due to adverse macroeconomic shocks, or make them more persistent. The fact that shocks to the economy can interact with other policies to damage jobs heightens the importance of avoiding excessive macroeconomic fluctuations and cushioning adverse shocks. Stability-oriented monetary and fiscal policies help in this regard. However, overall sound public finances are necessary to allow fiscal policy to play a stabilising role. Furthermore, some reforms expand potential output but may not be accompanied by an immediate expansion of demand. In such cases, stability-oriented macroeconomic policy can help bring forward the employment gains from reforms.

Innovation and economic growth (Tuesday 23 May at 10:30)

Innovation has long been a key source of progress in material living standards but the outcomes of innovation efforts are generally highly uncertain and the benefits for society as a whole may exceed those for private firms. To encourage innovation, governments have therefore put in place various measures such as financial support for private R&D projects and funding for research in universities.  What lessons can be drawn from cross-country comparison of innovation efforts and outcomes as well as of the main policy areas having an influence on those outcomes.

Financial markets and economic growth (Tuesday 23 May at 10:30)

Financial systems differ substantially across countries in terms of overall size, structure as well as in the degree of competitive pressures prevailing in the banking and securities markets. To some extent, variations reflect differences in regulatory underpinnings. In particular, regulatory settings that maintain excessively high barriers to competition in banking, provide too little protection for investors in securities markets, hamper development of financial systems, resulting in weaker economic growth.

China: governing for development (Tuesday 23 May at 10:30)

China's economic growth has averaged 9 ½ per cent over the past two decades.  This has been propelled by progressive openness to international trade and investment (including membership of the WTO), and reforms which have allowed market prices and private investors to play a significant role in production and trade.  Governance is the next issue to tackle on China's development path.  Further adapting institutions and the functioning of the state to an increasingly market-oriented economy is crucial to maintain economic dynamism. Governance reform is also fundamental to address emerging strains related to rising inequalities and environmental deterioration.

Governance impacts on public action in different policy sectors, such as agriculture, higher education, labour market and social protection, foreign investment, environment protection, collection of statistics, protection of intellectual property rights, banking and tax collection. Further redefining the role of the state, modernising public management, adjusting the relations between levels of government and consolidating the institutional framework for market forces are four directions in which reform efforts should be pursued.

Doha Development Agenda (Tuesday 23 May at 14:00)

The opportunities of growth through trade must be seized, in order to maximise the contribution which open markets for trade and investment can make to economic development and increased human welfare, i.e. to “delivering prosperity”. The 6th World Trade Organization (WTO) Ministerial Conference in Hong Kong, China in December 2005 created opportunities through which to realise the promise of the Doha Development Agenda (DDA) and propel the negotiations to their conclusion by the end of 2006.

The stakes are high to complete the DDA in a timely manner and ensure that it is a strong “development round”. Failure to do so will mean a missed opportunity for all WTO members that will not present itself again for some time, and a stalling of the motor of multilateral trade reforms that could bring significant systemic risks to the multilateral system, particularly if preferential regional arrangements come to be seen, mistakenly, as an alternative to that system.

Regional integration and development in  the Middle East  (Tuesday 23 May at 14:00)

The international community is working closely with countries in the Middle East and North Africa (MENA) to promote peace, prosperity, stability and security -- including through regional integration.  The MENA-OECD Initiative on Governance and Investment for Development, led by MENA governments and supported by the OECD, has succeeded in creating regional networks of policy officials, in bringing those officials into contact with their OECD counterparts, and promoting the development of national reform agendas. It is an inclusive Initiative, bringing together international organisations such as UNDP, the World Bank, and UNIDO; the EU; and regional bodies such as the Arab League, Islamic Development Bank, and Arab Monetary Fund. The private sector and NGOs have also been active participants.

The MENA-OECD Initiative consists of two programmes: Governance for Development, aimed at modernising public governance structures and processes; and an Investment Programme, aimed at improving investment climate and policies.

For its part, TOBB -- the Union of Chambers and Commodity Exchanges of Turkey -- is collaborating with business associations in the Middle East to promote economic co-operation and civil society development as a foundation for peace, prosperity, security and stability.

This session will provide a platform to discuss the achievements and challenges of various initiatives in the MENA region.