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Water: How to Manage a Vital Resource
Ensuring adequate supplies of safe water and sanitation is a concern for developed and developing countries alike. All but a few OECD countries have connected 100% of their populations to safe water supplies, and the majority are connected to wastewater treatment. But OECD countries face a significant financial challenge to replace ageing water infrastructure and comply with ever more stringent water regulations if they are to maintain supplies. For developing countries, the problem is the basic issue of providing access to clean water and sanitation to their citizens – 1 billion people do not have access to clean water; and 2.6 billion have no sanitation services. About 80% of all diseases in developing countries are water-related, leading to an estimated 1.7 million deaths each year.
To tackle these challenges, countries agreed through the Millennium Development
Goals (2000) and commitments at the World Summit on Sustainable Development (2002) to halve by 2015 the number of people worldwide without access to safe water and sanitation services.
Reliable financing is needed to expand water supply and sanitation services to those without access. Financing can come from a range of sources, including public spending, international development assistance, private financing, and charging for the use of water services. Over the longer term, a sustainable financing system should rely primarily on water charges, with provisions for affordable access by the poor.
In the coming decades, supplies of fresh, safe water will be subject to significant pressures. Climate change in the form of sea level rise, storm damage and the accentuation of seasonal effects such as winter flooding and summer droughts, will reduce the certainty and increase the vulnerability of water resources.
By 2025, global water use looks set to rise by up to 30% in developing countries and over 10% in the developed world. The population living in water-stressed areas is set to double over the period 1995-2025, and by 2030 some two-thirds of the world’s inhabitants may experience moderate to high water stress. Competition for scarce resources, combined with diminishing water quantity and quality, may exert a destabilising influence on a region’s development.
Proper management of existing water supplies entails sufficient quantities of clean water to support both human needs and essential ecosystem functions. Good governance will require careful consideration of the institutions in place to manage water supply and sanitation systems, including the role that might be played by the private sector.
As the largest user of water, policies to encourage sustainable use by agriculture will be particularly important -- agriculture uses 70% of freshwater worldwide, and it takes a litre of water to produce a calorie of food.
But water is also a major concern for business, and not just those in the water industry. About 400 litres per person per day are used in industry (two-thirds for generating energy) to process food. This means that each of us "eats" around 3000 litres of "virtual" water every day. So it is in the vital interest of business to limit water consumption and waste. New technologies can help reduce use of water in manufacturing and food processing, but also in agriculture.
Water pricing is also a key element of efforts to manage water resources. Full cost recovery water charges can help to generate the necessary funds for infrastructure development, renewal and maintenance, and provide incentives for efficient water use. Most OECD countries have been moving towards water pricing schedules that reflect the full marginal costs of providing water services for households and industry, combined with measures that better target support to low-income users who most need it. Agricultural water use, however, remains heavily subsidised in OECD countries. Partly as a result of these pricing systems, per capita water use has fallen in OECD countries by about 11% since 1980, and almost half of OECD countries have reduced their total water use. Water charges applied to industrial water use and wastewater treatment in OECD countries have also been approaching full cost recovery levels.
Background reading
Open Markets and Regulation for Energy – Monday 14 May, 10.30-12.00 (Room 2)
Open markets, firmly buttressed by high-quality regulations, are critical for fostering innovation, efficiency, sustainable development and economic growth. Indeed, regulation is essential for the functioning of society and the economy. But poor quality regulations can impose unnecessary costs on the community, impede innovation and stifle competitive pressures.
At different speeds, and starting at different times in the past 25 years, OECD countries have been reforming product market regulations, improving regulatory techniques and adapting them to changing market and technological conditions. Despite broad trends towards the privatisation of public enterprises and the opening of markets to foreign investment, a significant number of countries still have shortcomings in productivity performance that appear to be related to strict regulation in specific sectors. To improve productivity and economic performance, including via stronger innovation activities and deployment of advanced technologies, it is a priority to boost competition and support market opening in those sectors that have so far remained largely sheltered or isolated.
In its "Going for Growth" project, the OECD recommends a variety of reform proposals, including more open markets and better quality regulations, to foster improved economic growth.
Energy is a key driver of our economies. Open markets and high-quality regulations in the energy area are essential for economic growth and development. Well-functioning energy markets are also critical for the specific objectives of efficiency of energy usage, security of energy supply and environmental sustainability.
This is all the more important given the rising import dependence of OECD countries and growing concerns about climate change. And open markets, foreign investment and high-quality regulations are important for stimulating investment, deployment of advanced technologies and innovation which can contribute to addressing environmental challenges.
Against this background, there are increasing calls, especially in Europe but also in other OECD countries, for more open national energy markets, better quality regulation, stronger regulatory co-operation, and unbundling network activities.
Background reading
Making Reform Happen – Monday 14 May, 10.30-12.00 (Room 3)
Reforms to boost economic performance and living standards are often easier to identify than to translate into action.
Indeed, reforms often entail highly visible short-term costs for some groups whereas the benefits, while greater, tend to come later and be more diffuse. Furthermore, there is never a best time to reform. History shows that reform has often only been made possible by a crisis, when the unsustainability of the status quo becomes plain. In times of economic recovery, reforms are easier to implement but then the sense of urgency has waned, and opposition to change may be stronger.
There are other complications. The political cycle matters, as does political stability. Country size counts too: smaller countries, which are more open to trade, are under greater competitive pressures conducive to reform.
Background reading
Keynote Panel: Innovation, Intellectual Property and Investment – Monday 14 May, 12.00-13.00 (Room 1)
Innovation:
On their way towards a knowledge economy and global market, our societies are facing the strong development of ICT. In this respect, Innovation, Intellectual Property Rights and Investment are key topics and the most important drivers of economic growth, especially among developed countries.
Companies are the most important players in innovation. They are developing dynamic and comprehensive strategies to create high innovation capacity. Governments meanwhile are trying to improve their business environment to promote the industrial innovation process in their countries.
Foreign Direct Investment:
FDI is growing rapidly, including among OECD countries. The development of business alliances leads companies to look for the most attractive and efficient business environment. Governments are strongly competing to offer the best environment to welcome new FDI.
The importance of Intellectual Property protection policy is increasing with the development of the ICT network, but at the same time the damage caused by trademark counterfeiting and copyright piracy have considerably increased. New IPR protection models are required to fight efficiently against IPR infringements. Therefore, a new international collaboration framework may be necessary.
Emerging countries are more present in the global economy. They are facing considerable challenges in terms of environment and climate change. Innovation may be the appropriate answer to address these global issues for both developed and emerging economies.
Background reading
Book Launch: African Economic Outlook (2007) – Monday 14 May, 13.45-14.25 (Room 2)
This fact-filled reference book brings the reader the latest available economic information for most of the economies of Africa.
Drawing on the expertise of both the African Development Bank and the OECD, it opens with an overview that examines the international environment, macroeconomic performance, progress towards attaining the Millennium Development Goals, and governance and political issues.
This edition includes a special section on water and sanitation issues. The second part provides individual country reports for 31 countries. Each country report provides an assessment of recent economic performance, projections for 2007 and 2008, an examination of structural issues, and a discussion of the political and social context. The statistical annex presents 24 tables comparing economic and social variables across all the countries of Africa.
Energy Security – Monday 14 May, 14.30-16.00 (Room 1)
Recent years have provided several examples of energy security problems and their impact on the world economy. There is more than one definition of “energy security.” But one definition is ensuring a reliable and plentiful supply of energy provided in an efficient manner. A robust and competitive market is important and necessary in efficiently achieving this result.
Risks to energy supply systems are aggravated by under-investment and the limited spare capacity in the system. Geopolitical issues arising in Iran, Iraq, Nigeria and the Former Soviet Union (FSU), have important consequences for oil markets. For example, the Russia Belarus dispute at the beginning of 2007 highlighted, once again, the vulnerability of both oil and gas supplies to political and transit problems. Serious gas supply disruptions have also occurred as a result of hurricanes, supply shortfalls and technical and other accidents. US gas supplies were cut 10% by the devastating 2005 hurricanes, Italy and the United Kingdom were faced with shortages in the winter of 2005/06 and Japan had to cope with the sharp loss of a portion of Indonesian LNG supplies. These incidents have all deeply underscored gas security concerns.
The omnipresent risks of an oil supply disruption are likely to grow over the coming decades as demand from emerging economies such as China and India grows strongly, geopolitical risks remain high, spare capacity remains low and supplies become increasingly sourced from the Middle East and are transported along vulnerable maritime and pipeline routes. Similar risks are arising for gas, while the measures that might provide more resilience for both gas and electricity are slow to develop.
Longer-term security can be provided only by timely investment in production, transformation and transport infrastructure if energy supply is to be assured. The International Energy Agency's Medium Term Oil Market Report shows that planned upstream investment will slightly increase global spare crude oil production capacity through the current decade, but it resumes its decline beyond that point. In addition, capacity additions could be slower and smaller because of shortages of skilled personnel and equipment, regulatory delays, cost inflation, higher decline rates in existing fields and geopolitics. The ability of major oil and gas producers to step up investment in order to meet rising global demand beyond 2010 is particularly uncertain. Gas investment similarly worsens over 2006, with domestic regulation complicating and delaying investment even in IEA member countries. In electricity, delays are becoming more and more commonplace, except for gas-fired plants, which continue to dominate new construction and are almost the default option for new electricity plants, increasing pressure on an already tight gas market.
Background reading
Innovation for Growth and Competitiveness – Monday 14 May, 14.30-16.00 (Room 2)
Innovation has been a key driver of the rise in living standards since the Industrial Revolution. More recently, the role of innovation has been reinforced both by globalisation and by rapid advances in new technologies, notably ICT, which have spurred competition and opened new markets for the creation and delivery of innovative products and services.
Today, innovation performance is a crucial determinant of competitiveness and national progress. Investment in knowledge and intellectual assets is rapidly becoming key to value creation. Innovation is also important in helping to address global challenges, such as climate change and sustainable development.
Globalisation has also increased the pressure on OECD countries to move up the value chain and engage in a continuous process of adjustment and innovation. Countries such as China and India are no longer simply low value-added producers but are adding their weight to the creation and commercialisation of innovative products, processes and services.
Despite the importance of innovation for economic growth and sustainable development, many OECD countries face difficulties in strengthening innovation performance. For example, progress along these lines under the European Union’s Lisbon strategy has been slow. Moreover, many OECD countries have seen little improvement in productivity performance in recent years despite the new opportunities offered by globalisation and new technologies, especially ICT.
Background reading
Innovation and Equity in the Asia-Pacific Region – Monday 14 May, 16.30-18.00 (Room 1)
The initial phases of development in the emerging economies of the Asia-Pacific region were based more on utilising available labour resources and investment, than on innovation. But today, countries such as Korea, China, India and Chinese Taipei are no longer simply low value-added producers but are lending their weight to the creation and commercialisation of innovative products, processes and services. Enterprises from these countries are also becoming increasingly important overseas investors.
The importance of innovation has been reinforced both by globalisation and by rapid advances in new technologies, notably ICTs, which have enabled new forms of competition and opened new markets for the creation and delivery of innovative products and services. Globalisation has also increased the pressure on OECD countries to move up the value chain and engage in a continuous process of adjustment and innovation.
There has been a significant increase in research and development (R&D) effort in a number of economies outside the OECD area, and, albeit starting from a low base, the associated growth of R&D capabilities in a number of major emerging market economies is making them competitive destinations for cross-border R&D. Among them, at least China is now a key global player in R&D in terms of absolute size as well as growth rates, with Gross Expenditure in R&D reaching USD115 billion in 2005 (at PPPs), compared to USD227 billion in the EU (according to provisional figures) or USD118 billion in Japan in 2005.
Trade data on the four most significant economies (Brazil, Russia, India and China – "BRIC") show that these have become more active in higher technology industries over the past decade. Between 1996 and 2004 the share of high technology goods has doubled to reach about 30% of total trade (exports plus imports) in manufactured goods by the BRIC countries.
It should be noted that most of this rise is accounted for by China. However, most of China’s exports of high-tech products are due to foreign firms that use China as a location for some elements of their overall production network. When seen against the background of increasing focus and capabilities in innovation, expansion of R&D and rising human capital in BRIC countries, in particular China, this suggests that the challenge to OECD countries emanating from major emerging market economies is likely to intensify.
At the same time, the emergence of these economies offers major opportunities for OECD countries, as these countries offer new markets for innovative products and provide access to a new supply of highly skilled workers.
While these developments make it even more urgent for OECD countries to move up the value chain, many of them face difficulties in strengthening innovation performance. For example, progress along these lines under the aegis of the Lisbon strategy of the European Union has been slow. Many OECD countries have seen little improvement in productivity performance in recent years despite the new opportunities offered by globalisation and by new technologies, especially ICT. In particular, in Japan, Australia and New Zealand, the productivity level lags well behind the leaders in the OECD region, and there has been no noticeable catch-up over the past decade.
Background reading
Innovation and Access to Healthcare – Monday 14 May, 16.30-18.00 (Room 2)
Good health is necessary for individuals to flourish as citizens, family members, workers and consumers. Improving health is a key concern of OECD societies, as it can contribute to higher economic growth and improved welfare. On average, about 8%-10% of GDP is spent on healthcare in OECD countries.
Innovation plays a key role in healthcare service development – indeed, two-thirds of biotechnology research and development (R&D) is for health purposes.
Policies that encourage innovation in the health sector and promote more cost-effective healthcare services are crucial for well-run national health systems. Other factors, such as the impact of national pharmaceutical pricing policies on research, prices and access to medicines, can be equally important.
For pharmaceutical companies delivering healthcare products anywhere in the world, in order to be successful, it is essential that their relationship with the communities they serve be based on trust and good will. A strong corporate citizenship program thus reduces business risks, provides a competitive advantage when entering or operating in emerging markets, and increases access to products.
Good corporate citizenship also reduces the cost side of the ledger. For example, efficient use of natural resources, such as energy, and waste reduction will lower manufacturing costs and mitigate environmental risks – along with the associated legal, insurance and financial expenses.
While close to 95% of the items on the World Health Organization’s (WHO) list of essential medicines are available at reduced, off-patent prices, more than a third of the world’s population still has no access to them. Barriers may be political, financial or even physical, such as inadequate roads or other infrastructure preventing people in rural areas from reaching healthcare facilities.
But from a medical perspective, the majority of current health problems in poor countries can be controlled; effective preventive and curative treatments are available, most of them at reasonable prices. A great deal can be done to improve access to healthcare.
Pharmaceutical companies can work with international organisations such as the WHO, other procurement agencies and NGOs to create innovative access programmes, for example.
Healthcare practitioners can only share knowledge if they have the technology to do so – international standards can make it easier to store and compare data, and to ensure that pharmaceutical products are delivered in safe packaging that can help limit the risks of fraud or contamination.
Background reading
Globalisation and Equity – Monday 14 May, 14.30-16.00 (Room 3)
As economic history amply demonstrates, freer trade and investment holds the promise of higher economic growth. More open economies tend to enjoy higher living standards than less open ones. The recent expansion enjoyed in the OECD area as a whole has benefited considerably from efforts by emerging countries to integrate into the world economy and to proceed with domestic liberalisation, in a context of rapidly falling trade, travel and communication costs.
Globalisation has helped these countries lift living standards and reduce poverty. In the OECD economies, it has supported growth, not least because openness and more competition encourage firms to adopt new technology and to innovate, thereby enhancing productivity. This allows more goods and services to reach consumers at lower prices, translating into higher real incomes. Open markets also improve living standards by expanding the variety of products available to consumers. Increased international migration is providing gains to both sending and receiving countries
Reaping the gains stemming from globalisation, however, requires reallocations in domestic capital and labour resources out of sectors where jobs are no longer viable into growing ones. Indeed, like other sources of economic change, globalisation involves substantial job shifts across sectors. Overall economic well-being is enhanced and empirical evidence suggests that aggregate employment performance is not undermined.
However, the economic situation of individual job losers and their communities may worsen in the short run, especially in economies where the regulatory environment inhibits their swift redeployment. While so far most dislocations have occurred in manufacturing, they are spreading to services, where most of the jobs are, as advances in information and communications technology have broadened the range of tasks which can be outsourced – the so-called “great economic unbundling”. Even so, it must be borne in mind that only a fraction of job losses in OECD countries are likely to be directly attributable to trade and investment liberalisation.
There is also concern about the impact of globalisation on wage and income distribution, as it is proceeding in a context of wider inequalities. In 16 of the 19 OECD countries for which data are available, the earnings of workers at the top of the wage distribution have risen relative to those of workers at the bottom since the mid-1990s. However, the distribution across households of market income has generally not widened much over that period, even if it did become more unequal during the preceding decade, i.e. before China and India’s accelerated inroads into world markets. Another stylised fact is that wage shares in national income have tended to edge down – and profit shares to rise – fuelling worries that globalisation might erode the ability of employees to fully share the gains it generates.
Global aging and intergenerational equity is also an important question. One of the most striking paradoxes of today's OECD societies is that, although people live longer, they also tend to retire earlier - a situation which is clearly unsustainable from both the economic and social points of view. But at the same time we need to improve the employment situation of young people. Ageing is also a source of economic concern because it can undermine long-term growth and the sustainability of public finances – we need to ensure socially adequate and financially sustainable income arrangements that are also equitable for the younger generations.
It is not easy to isolate the specific effect of freer trade and investment on labour income, but most empirical evidence suggests that they have only modestly contributed to increased earnings inequality, while new technology and institutional factors have played a much larger role. Nevertheless, persistence of high and/or growing inequalities – alongside the risk of job loss – is an economic and social problem which may also weaken support for globalisation. Indeed, public opinion polls tend to convey rather sobering perceptions of the impact of globalisation on living standards and job security.
Ultimately, it is the quality of policies and institutions that affects the actual impact of globalisation. By assisting the losers from globalisation rapidly to regain their footing, effective compensation cum adjustment measures, if necessary, enable further progress towards equity and efficiency goals. Putting such measures into place can also help sustain political support for globalisation.
Background reading
Open Markets for Investment – Monday 14 May, 16.30-18.00 (Room 3)
An open international investment environment has been very beneficial to the world economy in terms of job creation, more efficient resource allocation, and social and environmental progress. Whether in the form of mergers and acquisitions or greenfield projects, new foreign investment brings in fresh capital and knowledge, jobs, better governance and securer prospects for entire communities. As the custodian of international investment instruments, the OECD has overseen progress in liberalisation for more than 40 years.
However, concerns about security and other essential national interests are on the rise. Recent cross-border takeovers have fanned concerns about jobs and welfare, triggering talk about national champions, economic patriotism and so on. Many countries have taken steps to safeguard essential interests that, while not necessarily “protectionist” in nature, have nevertheless generated considerable public interest.
Some European countries have shown uneasiness about international mergers in sectors as diverse as steel, banking, energy and toll-roads, and some have taken regulatory action. In the U.S., takeovers of a small oil company and of the management of some of its port facilities have been discouraged; Congress is considering ways of strengthening security screening of investment projects. China has recently tightened procedures for cross-border mergers and acquisitions. Russian and Indian authorities are reassessing their positions on foreign control of sensitive enterprises. And we have seen a resurgence of expropriation in some South American countries.
One reason for concern is the emergence of dynamic investors from emerging economies (like China, India and Russia) with different regulatory frameworks and standards of corporate behaviour than in most OECD countries.
The cost of getting it wrong is substantial. While governments have a responsibility to safeguard national security, yielding to nationalist and protectionist impulses carries a heavy cost. Other countries, seeing such defensive measures, may interpret them as protectionist and begin to tighten their own investment regimes.
Increasing barriers to cross-border ownership will impede the financing of new investment, hold back corporate efficiency gains and discourage innovation. The price of investment protectionism is a slower pace of sustainable development.
To help address these policy challenges, the OECD has launched an initiative called “Freedom of Investment, National Security and ‘Strategic’ Industries”. This makes sense, since the OECD is the only international body that has adopted multilateral investment instruments: the OECD Code of Liberalisation of Capital Movements, which provides for market access to non-resident investors; and the OECD Declaration on International Investment and Multinational Enterprises, which includes a commitment to non-discriminatory national treatment of foreign investors. The spirit of the commitments is to extend the benefits of the instruments to all countries, not just those who participate. In addition, nine non-OECD countries have adhered to the Declaration and a number of others are joining.
The aim of the new initiative, launched in 2006, is to encourage adherents to provide greater clarity about their security concerns, and to engage in an inclusive dialogue with major non-OECD players. Non-OECD economies such as Brazil, China, India, Russia and South Africa have already agreed to participate.
Background reading
Financial Market Innovation – Tuesday 15 May, 10.30-12.00 (Room 1)
The operation of financial markets can have an important effect on economic growth and equity. Well-functioning financial markets channel funds efficiently between savers and investors, diversify risks of households, and generate information on prospective as well as ongoing investment projects. The result is that scarce saving is allocated to investment projects with high returns for individual investors and society at large, not least because they facilitate innovation.
Financial development owes a lot to financial market innovation, competition and adequate investor protection. And barriers to competition in banking tend to inhibit financial sector development and thus economic growth. Indicators of competition display considerable differences across countries, and suggest that sizeable efficiency gains could be reaped through heightened competition. It is particularly striking how little foreign institutions have penetrated the loan market in euro area retail banking, despite EU efforts to bolster financial integration.
The industrial sectors that are most dependent on external finance tend to grow faster in countries that have better-developed financial systems. Furthermore, the sectors that tend to be the most dependent on external financial sources are generally the ones that invest the most in research and development (R&D), e.g. pharmaceuticals, electronic equipment and refined petroleum products.
The market for high-risk capital, in particular venture capital and less formal sources of finance such as “business angel” funds play a key role in financing innovation. Venture capital investment is relatively small in most European countries and Japan compared with North America, the United Kingdom and the Netherlands.
Investment in innovation would be encouraged by deeper and more efficient venture capital markets and easier access to external finance. Differences in the availability and/or use of venture capital across countries may to some extent be rooted in different cultural attitudes towards entrepreneurship and risk-taking, but they also reflect policies that discourage risk-taking and the supply of risk capital.
Improving disclosure of intellectual assets could also help improve the allocation of capital. Competition in financial markets already encourages companies to improve their reporting and managerial practices on intellectual assets. However, best practices have not been widely disseminated across companies and jurisdictions, and governments could encourage the diffusion of best practices, already pioneered by advanced firms, in a principles-based manner.
Reform of financial markets can also boost innovation and growth, including by helping to reduce the financing gaps faced by some innovative small firms.
One issue that has stirred controversy in recent times among market participants and policy makers is the emergence of private equity and certain hedge funds as proactive owners. The strategy of these investors is typically to increase the value of their investment through active engagement with individual companies. Engagement may include demands for changes in management, the composition of the board, the company’s capital structure and long-term strategy. This can have important effects on growth and equity, including through the impact on workers and investors. Considering the increased importance of private equity firms and activist hedge funds, the OECD has initiated a discussion about their role in facilitating good corporate governance based on the OECD Principles of Corporate Governance.
Background reading
Innovation, Equity and Investment in the MENA Region – Tuesday 15 May, 10.30-12.00 (Room 2)
The MENA region stands at a critical stage in its development. Over the past decades, economic growth in most Arab countries has been below potential. High demographic pressures and growing unemployment rates urge governments to create employment opportunities and establish a favourable environment for private initiative, entrepreneurial freedom and investment.
Improving the investment climate and modernising governance structures and operations are at the core of this challenge. For the countries of the MENA region, private investment, both domestic and foreign, is needed to provide new engines of growth and dynamism, and experts from both Arab and OECD countries have repeatedly confirmed linkages between weak public governance and low economic growth.
Responding to requests from MENA countries, the OECD and UNDP have worked with the countries of the region to develop an Initiative aimed at improving public governance and mobilising investment, built around two main pillars: Investment for Development and Good Governance for Development.
This includes identifying elements crucial to fostering an investment climate suitable to innovation and adopting new tools for implementation of investment policy reform. Areas covered include corporate governance, taxation environment, financial sector development, and particular innovation processes at the corporate level, among others.
Innovation and investment are the keys to economic diversification. Access to the global ICT network is increasingly perceived as an important cornerstone for the development of economies and societies. Countries’ weaknesses and strengths with regard to ICT development and their capacity to leverage the latter for increased competitiveness are thus key to growth.
In the MENA region, the UAE for example has been placing a growing emphasis on the role of ICT for development in recent years, with the launch of a number of ICT initiatives to create ICT-related clusters. Women entrepreneurs can also be a powerful force for prosperity and economic diversification in the Middle East and North Africa Region, but governments need to actively support them in setting up and running businesses if this potential is to be realised.
Background Reading
Infrastructure to 2030: Growth, Innovation and Finance – Tuesday 15 May, 10.30-12.00 (Room 3)
The longer-term future performance of OECD economies, and indeed of the global economy, will depend to an important extent on the availability of adequate infrastructures to sustain growth and social development. This is a huge challenge for governments and businesses around the globe. Through to 2030, annual infrastructure investment requirements for energy, road and rail transport, telecommunications and water are likely to average around 3.5% of world gross domestic product (GDP).
A large share of the investments will be undertaken in the developing world, where countries such as China, India and Brazil will be spending billions of dollars on infrastructures to underpin their booming economies and satisfy the growing aspirations of their populations. However, despite their significantly lower economic growth rates over the next few decades, OECD countries too will be required to invest heavily to maintain, upgrade or replace existing (and often ageing) infrastructures, and to preserve their international competitiveness. In particular for OECD countries, infrastructure investment will be challenged by a range of fundamental long-term trends. These include growing pressures on public finances as a result of population ageing, the demands of expanding international trade, the consequences of climate change, and rising expectations with respect to the quality of the environment. Concerns around reliability and security are also likely to loom larger in future. While there is growing convergence and interdependence among the different infrastructure domains – with telecommunications playing a particularly important role in the management of infrastructures and related services in electricity, transport and water – increasing interdependence also brings greater vulnerability to technical failures, congestion, and security breaches .
The implications of these trends for the ways that infrastructures are built and operated today are likely to be far-reaching. For example, more innovative approaches to private sector finance will be needed, including diverse forms of public/private partnerships and greater recourse to pension funds and other large institutional investors. Moreover, the role of pricing is set to become increasingly critical in all these infrastructure sectors, be it to combat congestion, better manage demand, or raise the required funding for investments. Public sector infrastructures that today depend heavily on taxes and appropriations (for example in road transport) will need to place more reliance on other, perhaps new sources of funding (e.g. user charges).
There is also likely to be greater demand for workable frameworks for strategic decision-making on infrastructure, which connect effective long-term planning with reliable, long-term sources of investment. And more widespread, intelligent deployment of new technologies will be called for, which make more effective and efficient use of existing infrastructure systems.
Finally, governments will have to step up international co-operation to improve the efficiency, reliability and security of flows of goods, services and information across trans-border infrastructures. If infrastructures are to continue to provide the underpinnings of sound and sustainable economic performance, then their planning, development and financing need to be seen and addressed in a long-term policy perspective.
Background reading
Public Concerns about Globalisation: – Tuesday 15 May, 12.00-13.00 (Room 1)
Globalization is driving world economic growth. It could spur faster growth in average incomes in the next 25 years than during 1980-2005, with developing countries playing a central role, according to a recent World Bank report. But globalisation needs to be managed carefully to ensure that its benefits are shared, and that it does not go hand in hand with growing income inequality and increased pressure on the environment.
One problem is that while the overall longer-term economic effects of globalisation are positive, the immediate local perception of globalisation for many people is negative. Many citizens are worried about the impact of globalization on living standards and job security, in particular, although according to the OECD's reading of the evidence, the actual impact depends on the quality of national policies.
For example, reducing the barriers to business start-ups improves the economy's capacity to seize the new opportunities arising from a more integrated world economy. Good national policies have an important role to play in terms of enhancing workers' mobility, upgrading their skills and providing adequate income support, in a context of increasing pressures to deal with technological change and adapt to this new context.
One challenge for policymakers in this situation is one of perception – making the benefits of an innovative, global economy as obvious to citizens as the short-term costs.
Education, Growth and Equity – Tuesday 15 May, 14.30-16.00 (Room 2)
Education is a key driver of growth in a knowledge economy. Innovation relies heavily on the creation of basic knowledge, through both education and science. A well-performing and broadly accessible education system facilitates the adoption and diffusion of innovation. Creating and developing innovation requires strong science and technology skills, as well as soft and entrepreneurial skills.
Public investment in science and basic research can also play an important role in developing ICT and other general-purpose technologies and, hence, in enabling further innovation. Reform of the steering and funding of higher education and science institutions, by providing incentives that focus on excellence and relevance, can help strengthen the contribution of public investment to scientific progress and innovation. In addition, more can be done to link science to business, including by enhancing the climate for innovative entrepreneurship.
But we need to be sure that the links between research institutions and business make it easy for new discoveries to be transformed into new products that reach the marketplace.
The globalisation of higher education contributes to broadening knowledge, but also raises a number of concerns. More than 1.6 million students worldwide are studying abroad, according to OECD figures, and half a million teachers and educators are also working outside their own countries, creating a multi-million dollar market. This helps spread and share knowledge, but the rapid growth in online and other distance forms of education also raises questions about how to ensure the quality of such cross-border education. There is also the question of equity between developed and developing countries, particularly concerns that students from developing countries who go abroad for higher education stay abroad to build careers and use their knowledge.
Equity of access to education remains a concern in both developed and developing countries, whether from a socio-economic, ethnic, regional or gender standpoint. In many developing countries, a key issue is ensuring that girls receive a basic education, while in the developed countries gender equality is an issue alongside equity of access for socio-economic or ethnic reasons.
Background reading
Climate Change: from Words to Action – Tuesday 15 May, 14.30-16.00 (Room 1)
The potentially large human and economic costs associated with climate change justify urgent policy action to reduce it. Such action, however, can be costly, especially if policies are not well designed.
Climate change is already being observed through rising temperatures, shifting precipitation patterns, increased storm intensity and rising sea-levels. Predicted impacts of climate change will be widespread, affecting human welfare through changes in socio-economic and natural systems. The distribution of climate change impacts is also expected to be uneven, with the poorest countries at the greatest risk of the worst effects. Quantitative analysis by OECD and others has shown that the costs of mitigating climate change are not that large -- for example, estimates of the order of less than 1% of world gross domestic product (GDP) loss in 2030 to achieve emission reductions consistent with even some of the most aggressive long-term climate stabilisation goals.
But these "low" cost estimates for mitigating climate change assume strong use of efficient policy instruments, such as market-based instruments (taxes, emissions trading). They also assume that all greenhouse gases are included in mitigation policies, that all sectors are covered, and that there is trade between countries in order to enable emission reductions to occur where they are cheapest. The costs of reaching a specific emissions reduction target go up significantly as countries move instead towards less economically-efficient policies -- for example, exempting large energy-intensive industries from carbon taxes and emissions trading schemes (a practice common in OECD countries, as seen from the OECD-EEA Database on environmental policy instruments) or greater use of regulations rather than market instruments to achieve emission reductions.
A global "price on carbon" is needed to reduce GHG emissions in a cost-effective manner. Such a price will help to shift economic activity away from carbon- and other greenhouse gas-intensive consumption and production activities. A consistent and increasing carbon price also provides incentives for innovation to develop and disseminate new carbon-free or low-carbon technologies and production methods, and new consumer products that reduce GHG emissions.
A global carbon price could be generated through applying a carbon tax worldwide (preferably across all countries, sectors, and gases) or by linking up and extending existing emission trading schemes across the world (e.g. the EU ETS). A number of countries, regions, and sub-national regions (e.g. selected states in the US) already have, or are planning, emissions trading schemes. Many of these regions or nations are actively considering technical requirements for linking these schemes together. OECD work has analysed the potential to link such systems and advises its governments on how to work toward broadening and deepening the carbon market to stimulate global-scale innovation and technology change.
Given the “public good” nature of climate change, greater policy attention to incentives to encourage technology research and development (R&D) is also called for to accelerate the availability of clean technologies in the coming decades. OECD research shows that market instruments, for example, stimulate innovation and investment in renewable energy. Other policies are required to "push" energy efficiency improvements into existing markets and to increase the pace of innovation and uptake of climate-friendly technologies already available. The IEA estimates that many energy efficiency improvements – for example phasing out fluorescent lights or applying a "1 Watt" standard worldwide for all standby power -- are low to no cost and bring potentially large, near-term emission reduction benefits. But these technologies are not always taken up because of information or market failures, and in these instances regulations and information instruments (e.g. eco-labels) may be appropriate.
The main political driver for countries to adopt ambitious climate policies is agreement at the international level to work together, through the UNFCCC, to tackle climate change, and to stabilise atmospheric concentrations of greenhouse gases at levels that avoid dangerous change. The Kyoto Protocol was an important first step to bring industrialised countries together to collectively curb emissions. Further agreement on next steps post-2012 is now required to broaden participation in emission reduction efforts, so that climate change can be slowed and limited in overall magnitude. Efforts are also needed to bring policy makers’ attention to the need to adapt to the climate change that is already locked-in for the coming decades due to past emissions, and to limit the risks of this to society and natural systems.
Background reading
Future Challenges for the Multilateral Trading System – Tuesday 15 May, 16.30-18.00 (Room 1)
As economic history amply demonstrates, freer trade and investment holds the promise of higher economic growth. More open economies tend to enjoy higher living standards than less open ones.
We now know a lot about the potential for the WTO’s Doha Development Agenda (DDA) to deliver tangible economic benefits to both developing and developed countries through a process of trade liberalisation. It is clearly possible to deliver win-win scenarios that both increase global wealth and assist those who need help to adjust to a more liberal economic environment. Moreover, the DDA negotiations can deliver multilateral trade liberalisation, offering the prospect of globally inclusive and generalised benefits that go beyond the scope of any individual regional trade accord.
Agriculture has been at the centre of the deadlock in the DDA negotiations, with extensive discussion of the trade-offs in reductions across the three key elements: market access, export competition and domestic support. However, two things must be kept in mind. First, many existing farm policies do not perform well; clear alternatives exist that would enable governments to achieve their domestic objectives more effectively, without negative impacts on world markets. Second, the negotiations are about a package that covers the far larger economic sectors of services and non-agricultural goods, as well as a variety of other trade-related issues.
The broad scope of the potential package means more trade-offs are possible, as well as larger potential gains overall and gains for a greater number of countries, regions and households.
Analytical work and discussions in the OECD have made a major contribution in helping to clarify the economic stakes involved as well as available options. In some cases this work has served as direct contributions to the work of Negotiating Groups in the DDA (trade in services, trade facilitation, trade and environment). In other cases it has served to inform the negotiations by providing a deeper understanding of the benefits and costs of trade liberalisation in the range of areas under negotiation. Particularly significant have been the analyses covering the role of developing countries, including issues such as special and differential treatment, preference erosion, government revenue and aid for trade.
In agriculture, the OECD provides key benchmarking indicators that inform the negotiations. OECD work on issues such as the multifunctional role of agriculture and decoupling farm support from production has improved understanding of the policy issues involved, and work on a positive agenda for agricultural policy reform has drawn attention to policy options that improve the domestic performance of policies while simultaneously reducing distortions of international trade. The work and discussions in the OECD have covered most important aspects of the DDA and have been conducted in close consultation with governments and other international institutions.
Charting the path at this stage to a breakthrough in the Doha negotiations is not primarily a matter of finding solutions to complex technical issues. It is above all a matter of clearing the political obstacles and acting on the information we already have. Often, these obstacles come in the form of entrenched ideas about the supposed advantages of certain trade-inhibiting policies and the domestic interests that may benefit. Yet, many of these ideas are plainly erroneous. Greater efforts are needed to explain the potential of the DDA to their constituencies, address legitimate concerns related to adjustment challenges and provide the needed political leadership to ensure a positive outcome from the Doha Round.
The reasons to strive for a successful conclusion to the DDA go well beyond the simple economics of trade liberalisation. A positive conclusion to the Doha round will represent an endorsement of the multilateral trading system, continued international engagement and dialogue on trade and development issues, and an approach to global economic governance centred on mutually-agreed rules and concerted action instead of conflict. A positive conclusion to the Doha round will be a major step towards improving the conditions for international exchanges in the broad range of economic activities that today are traded in the globalised economy, and it will thus enable the international community to address evolving challenges, ensuring that trade can continue to serve as a strong engine of growth around the world.
Background reading
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