The OECD, Globalisation and Innovation: Responding to a Changing Global Economy

Public Lecture by Angel Gurría, OECD Secretary-General
Tallinn University of Technology
Estonia, 11 February 2008
 

Ladies and gentlemen,

It is a great pleasure to be here with you at the Tallinn University of Technology, one of the pillars of Estonia’s outstanding technological progress. Having looked at your study programmes I can say I feel almost at home, as there is a remarkable coincidence between your work and the work of the OECD. I am sure this is the beginning of a longstanding and mutually beneficial relationship.

Let me share with you a few insights on how we perceive globalisation at the OECD and how we are responding to its multiple challenges in our quest to become the “hub” of a dialogue on global issues. I will make particular reference to our work on innovation; a key to maximising the benefits for this process.

The “new global economic order”

The international economy is experiencing an unprecedented metamorphosis. In the last couple of decades, the governing dynamics of the global economy have changed significantly. We are facing a new world where most economic transactions are invisible, where borders are mere symbolic references and where economic power has started to shift, underlying the growing importance of emerging economies.

High-tech innovation in transports and communications has produced a high-speed, networked and increasingly interdependent global economy. Our reality depends on other people in different corners of the world. Events in one country will have a serious impact at home. Most of our policy challenges now have a global dimension. Multilateral co-operation is becoming more than ever instrumental; international organisations are more and more strategic. 

Globalisation: a double edge sword

Globalisation has not been a level playing field, but it has contributed to significant progress. Under the current wave of globalisation, the world economy has experienced one of its most dynamic expansions ever - growing 35% over the last seven years. International trade and investment flows have thrived, allowing developing countries to connect better to the global economy, lifting millions out of poverty.

Globalisation has also raised the importance of crucial instruments of development co-operation, like the Millennium Development Goals, the Kyoto Protocol or the One Laptop per Child project. Research and development (R&D) have bloomed and spread globally. This globalisation of innovation has been fostered by the quantum leap of our age: the Internet.

With nearly 1.3 billion users, the Internet has opened an ocean of opportunity for millions of people, generating a genuinely global exchange of information, knowledge and ideas. We are talking about one of the main vehicles to increase investment, productivity, growth and employment. Today, having access to the World Wide Web is almost like a passport to the middle class.

Estonia is a great example for all OECD countries in this respect: the idea of guaranteeing free Internet access as a basic right is visionary; your so called “tiger leap” offensive to wire the entire country will raise competitiveness significantly. Already Tallinn is a magnet of world ICT experts; it is not a coincidence that a firm like Skype has set up its research division in your city.

However, globalisation has also produced a growing number of global challenges of increasing complexity and urgency.

Global challenges, global responsibilities

The sub-prime crisis, for example, has revealed the remarkable vulnerability of the new financial order. The frantic innovation in finance, like the securitisation of almost any form of debt into a tradable asset, might have been a way to spread risk, but it left the system vulnerable to systemic failures. Financial regulators need to adapt faster to the new financial order. Central banks, bank regulators, G8, the IMF, the BIS and the OECD have to communicate better and faster to anticipate crises. When referees don’t run as fast as the players, fair-play fades away and wrong-doings multiply.

Climate change is another planetary challenge with huge social and economic implications. The nearly 70 million tons of global warming pollution that we dump every day into the atmosphere will stay there for at least 100 years, with serious environmental effects. We are running an unsustainable ecological debt that our future generations will have to pay with their quality of life. During the last Conference on Climate Change in Bali, I stated repeatedly that the solution is known, affordable and cheaper than the cost of inaction, but only if all actors are involved and the right policies and instruments are applied.

Poverty is another global challenge that confronts us with fierce urgency. One billion people don’t have access to clean water; 2.6 billion have no sanitation services. Every year, 14 million people are killed by neglected infectious diseases; while the ILO reports that in 2007 there were more slaves in the world than ever before - nearly 12.3 million people. These are not just figures: these are shattered families, broken dreams, global shame. 

The OECD is also addressing the two interlinked challenges of population ageing and international migration. By 2030, the number of people of working age in 25 of the EU countries is forecast to decline from 303 million now to 280 million, while the number of pensioners grows along with life expectancy. Migration could be one of the solutions to help slow the erosion of population and alleviate the fiscal pressures caused by demographic transition in OECD countries, while at the same time helping their home countries, where remittances sometimes constitute one of the main engines of growth and social progress.

The OECD is responding promptly

The OECD is closely following and responding to those transformations of the world economy. To achieve our mandate to become the “hub” globalisation, the OECD is aiming to be more global, more inclusive and more relevant. In a world where emerging economies already account for 30% of world GDP at market prices (and more than half of global GDP in purchasing-power parity terms), 43% of global exports and 70% of international reserves, we need to rethink our strategies and adapt our tools.

In June 2007, after a long period of preparation, the OECD initiated a two-tier process of enlargement and enhanced engagement with 10 new countries. These economies account for nearly half the world’s population, 15% of global exports and a combined GDP of 5.8 trillion dollars. We have already started accession talks with your country, Chile, Israel, the Russian Federation and Slovenia. In parallel, we are strengthening our co-operation with Brazil, China, India, Indonesia and South Africa with a view to possible membership. 

At the same time, the OECD’s relations with nearly 100 other non-member countries are broadening and deepening. The increasingly active participation of developing countries in the work of our Committees and Working Groups has become a two-way avenue of communication and learning. In fact, the OECD is turning into a genuine space of convergence between different economies. During the past G8 Summit of Heiligendamm, the OECD was asked to become a “platform” for a dialogue between G8 countries and the 5 major emerging economies.

In parallel, we are moving forward to help member and non member countries make progress in key strategic areas.

Our work on the political economy of reform, for example, is helping governments to design, promote and implement structural reforms to improve their economic performance. Through our Partnership for Democratic Governance we are assisting developing countries in building their governance capacity and improving service delivery to their citizens. Our work on Aid for Trade, in close collaboration with the WTO, is helping to assess and improve the effectiveness of trade related aid for development. On the economics of climate change our Environment and Economics teams are focusing on the policy instruments and incentives for co-operative action in the post-2012 climate architecture. This year’s OECD’s Ministerial Council Meeting next June will focus precisely on “the economics of climate change”.

Another increasingly important area where we are actively working and which surely appeals to many of you is innovation. Let me conclude by sharing with you our perspective and work on this strategic topic.

Innovation: the seed of prosperity

Innovation is the main driver of human progress. Improving innovation performance must therefore be a top priority for decision-makers. Countries can only achieve vigorous long term growth, and increased productivity, if they become dynamic innovation platforms. By promoting and strengthening innovation performance, countries become more competitive, more attractive for investment and better prepared to face the emerging economic, social and environmental challenges of globalisation.

The link between innovation and economic performance is becoming more widely appreciated in public policy. Modern economies are built with ideas and knowledge, as much as with capital and labour.

Investment in science and technology is critical. One of the most eloquent indicators of the health and potential of a national economy is the level of R&D it generates. So far, OECD countries have provided for over 80% of global R&D expenditure. Now, emerging economies are catching up at a remarkable speed. China is the second largest investor in R&D and is aiming for an R&D intensity of 2.5% of GDP in 2025. India has recently launched the first 2,500 dollars car; it is working on a 10 dollars Laptop for its children and has become a magnet for R&D investments by multinationals.

At the OECD, innovation is becoming a common feature of our work. Most of our committees and publications, from education to environmental issues, from energy to employment and regional competitiveness, are impregnated with this “magic powder” of innovation. Bearing in mind the growing importance of innovation as a tool to generate growth and meet the great challenges of globalisation, the Ministers of the OECD countries have given us a new mandate to develop an Innovation Strategy.

This new Innovation Strategy will provide a cross-disciplinary package of policy elements and recommendations to understand, compare and boost innovation, including better metrics to identify and benchmark innovation capacity and performance. It will also provide analysis clarifying the links between innovation and entrepreneurship, economic growth, social progress and “global challenges” in domains such as health or climate change.

This last one, Climate Change, is an area where innovation is badly needed. Let me make an important point here. Our current patterns of production and consumption, based on fossil fuels, are destroying the life support system of our planet at a remarkable pace. So far, the richest countries have left the larger carbon foot-print, but if developing countries generate greenhouse gases at the same rate as OECD countries we would need 9 planets.

We urgently need to speed up innovation to create cleaner and efficient energy. The IEA estimates that the world’s primary energy needs will increase by 55% between 2005 and 2030, and that 84% of this demand will come from fossil fuels. Open innovation will be critical to curve this threatening trend. Only collective action will bring out the adequate solutions. The OECD is an ideal platform to turn words into action. But we need your input, your ideas. I am sure that in the years to come the contribution of the Tallinn University of Technology - with its ambitious research and development Strategy 2005-2015 - will become increasingly important for the OECD’s effort to curb climate change and many other global challenges.

Ladies and gentlemen,

Globalisation has turned out to be a remarkable source of human progress. But at the same time it is testing our capacity as a global community to respond to enormous challenges. Gone are the days when a country could solve its problems in isolation. There is no reason why an invention in a far away country shouldn’t help Estonia and vice-versa. OECD countries can also benefit from your experience in Information and Communication Technologies (ICT); in connecting all schools to Internet or augmenting entrepreneurial efficiency through the expansion of e-government.

The enlargement process of the OECD is an innovation in itself. It is opening an unprecedented flow of policy know-how within a diverse group of countries. The world will benefit from this growing exchange. I am sure that a country like Estonia, which has understood well that the capacity of countries to address their socio-economic challenges depends increasingly on its global connectivity, will make a valuable contribution to the work of our Organisation and the progress of the global economy.

Thank you very much.