Productivity and long term growth

Launch of Going for Growth 2008


Remarks by Angel Gurría, OECD Secretary-General
Paris, 4 March 2008


It is a great pleasure to present the fourth edition of Going for Growth together with Jørgen Elmeskov, the acting head of the Economics Department. In just a few years, Going for Growth has become the OECD's flagship annual report on structural reform. It is a new form of surveillance based on an in-depth analysis of structural policies and their outcomes across countries. It relies on a set of internationally comparable indicators which provides a unique type of benchmarking to draw lessons from mutual success and failure. It is a powerful avenue to help promote vigorous economic growth and improve the well-being of OECD citizens.

I will provide you with an overview of the progress achieved over the past year or so by OECD countries, and of what remains to be done. Then Jørgen will introduce the special chapters contained in this report, which deal with hours worked, education, trade in services and, last but not least, with how geography influences economic performance - or doesn't.

Going for Growth brings together in one slim but very rich volume the expertise of the OECD of how to improve material living standards in our Member countries, i.e. how best to boost labour productivity and labour utilisation. Looking in depth at countries' performance and policies, we identify five structural policy priorities for each OECD country and the European Union which mainly relate to labour and product markets, but also to other areas - notably education, health and innovation.

A year is not a long period in structural-policy making…

A caveat is perhaps in order before delving into the specifics: Going for Growth is an annual exercise; a year is a relatively short period when looking at the implementation of structural reform so one should not expect to see action everywhere and on all fronts within such a limited timeframe.

…and buoyant economic activity may have reduced the sense of urgency of reform…

Let me also note that today's review covers a period during which many OECD countries enjoyed a strong economic upswing - even if short-term growth prospects have lately been revised down. A priori, buoyant growth and falling unemployment should have provided an opportunity to intensify structural reforms as adjustment costs tend to be lower or easier to absorb under such circumstances. However, as I emphasised when presenting last year's Going for Growth report on Capitol Hill in Washington DC, experience shows that good economic conditions may in fact retard structural reforms insofar as they temporarily mask underlying weaknesses. That is one of the cruel paradoxes of the political economy of reform, on which the OECD is carrying out a lot more work these days.

…nevertheless, progress has been achieved in 60% of the 2007 policy priorities

Now, what does our structural surveillance exercise bring to light this year? Overall, action of some kind has been taken on 60% of the identified priorities (as is shown in the summary table on page 7 of the handout). Some would take that to suggest that the glass is half empty, others would argue that it is half full - and both have a case. What is less ambivalent is that, in line with the general pattern in previous years, more was done on the whole to boost productivity than to raise employment and hours worked per employed person, even if progress was achieved on both fronts.

What has been done to boost productivity?

With respect to productivity, moves have been taken or are under way to reduce barriers to entry and to lift controls, to strengthen human capital formation, to foster innovation, to improve infrastructure, to boost public sector efficiency, to open up more to foreign investment and to improve the tax structure. 
By way of example, let me cite the easing of entry controls in a broad range of services in Italy and in network industries in the Netherlands, the greater autonomy granted to French and Spanish universities, the recent measures allowing for better cooperation between universities, industries and public research institutes in Japan and Korea, the efforts to modernise the public sector in Portugal, the legislation passed in Japan to facilitate foreign ownership of domestic companies and the measures taken in my home country, Mexico, to broaden the tax base and to provide more educational support to disadvantaged children.

Education is the area where most action has taken place over the elapsed year across OECD countries as can be seen from the summary table of page 7. Indeed, in 80% of those where it had been identified as a priority in the 2007 edition of Going for Growth, measures were initiated to move ahead. As Jørgen will illustrate in a moment when presenting the two special chapters on primary, secondary and tertiary education contained in this year's Going for Growth, progress in this area is key, given the very high returns associated with better-performing education systems.

Less has been done to raise employment and hours worked

With respect to employment and hours worked, too little has been done over the past year to reduce the tax on continued work at older ages. And even less has been done as concerns employment protection legislation, minimum labour cost and wage bargaining systems. As regards labour policies, action was taken in only 40% of the cases where it was deemed a priority. In other words, on this measure, the intensity of reform efforts was only half as much as for education. This is not entirely surprising, since political consensus is easier to forge on the need for education reform than on the need for changes in labour legislation. 
But in most OECD economies, labour market performance has been a source of continued concern, with worries focused more and more on a perceived rise in earnings inequalities. This lack of action is most unfortunate. Labour market measures are clearly needed to reduce the transatlantic gap in working hours. The gap amounts to some 15% between the United States and Europe. Half of it signals more annual work-days in the United States and the other half is due to a higher number of hours per week. This issue is discussed in another one of this year's special chapters.

Fortunately, there are also welcome exceptions. I mentioned the lack of progress with increasing labour utilisation. But this is not the case across the board. In several countries, labour market institutions have contributed to reduce labour market duality. As a matter of fact, tangible progress is being made with disability and sickness benefits systems in the countries where this was identified as a priority, for example in the United Kingdom, Sweden and Hungary. Another exception has to do with the incentives faced by women who wish to re-enter the labour market after having taken time off to raise their children: there as well, significant advances can be reported, notably in Germany, Korea, the Netherlands, New Zealand and Switzerland.

Ladies and gentleman, as the Secretary-General of the OECD, I would like to share with you my pride for this work and I hope that both Member and non-Member countries will find this effort useful. As experience and knowledge accumulate, Going for Growth will contribute more and more to furthering the OECD mission to support sustainable growth, boost employment and raise living standards.

Going for Growth is the fruit of a joint effort across OECD Departments. I would like to take this opportunity to congratulate all the staff who worked on this project.