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Economy

Challenges for the Global Economy and Possible Responses: Multilateralism that delivers

 

 Remarks by Angel Gurría 

OECD Secretary-General

14 May 2018 - Montreal, Canada

(As prepared for delivery)

 

 

Madame la Première Vice-Présidente, Distinguished Guests, Ladies and Gentlemen,


It is a pleasure to address the Montreal Council of Foreign Relations. The former OECD Secretary-General, Donald Johnston, was here almost twelve years ago (in 2006). His speech was about keeping up with competitiveness in an increasingly interconnected economy, at a time when the economic situation was profoundly different from today. The world, and particularly OECD economies, were about to enter one of most severe crises of our lifetimes, the social, political and economic consequences of which we are still dealing with today.

 

Challenges to the global economy: tensions in trade and inequality

Ten years after the outbreak of the crisis, growth is finally becoming more broad-based: GDP growth came in a little stronger than expected in 2017, at 3.7%, the fastest pace since 2010, and is now projected to rise further to almost 4% this year and next. Trade and investment have also rebounded, and OECD employment rates are finally back above their pre-crisis levels.  However, a number of clouds remain over the horizon, in particular the rise in trade tensions. An escalation of protectionist measures could derail the hard-won virtuous cycle of investment growth, job creation and rising consumption. The announced measures so far and threats of retaliation have already begun to affect business confidence and there are signs that growth is already being undermined by the associated uncertainty.

 

Another risk is that wage growth continues to be subdued, especially for the low and middle income classes as mega-trends like digitalisation and globalisation benefit mainly skilled workers. Soft wage growth will not suffice to turn the tide on rising inequality. The average income of the richest 10% is now around 10 times that of the poorest 10% across the OECD, up from seven times 25 years ago. Some regions have also been more susceptible to trade shocks, and contributing to emerging “geographies of discontent”.

 

This discontent has manifested itself in popular movements against globalisation and the return of protectionism in many countries. Tensions about trade and about inequality are deeply intertwined and should be addressed through reinforced international cooperation, along with inherently multilateral challenges such as climate change and delivering on the Sustainable Development Goals. This goes to the core of the agenda of the OECD’s Ministerial Council Meeting, which will take place in two weeks and will be chaired by President Macron. Its theme will be “La Refondation du Multilateralism”.

 

Leveraging interconnectedness for the benefit of all

People today are more economically interconnected than ever: global trade in goods and services has increased by more than 30% over the last decade. We are also seeing much deeper economic connections between countries: in 2014, 27% of the world exports had foreign content. According to recent OECD analysis more than a quarter of OECD business jobs are sustained by foreign demand. Flows of people across borders are also rising. In 2016 immigration to OECD countries hit 5 million entrants, and nearly a seventh of the population of OECD member countries is now foreign-born.

 

With increased interconnectedness, the range of global policy challenges that require multilateral cooperation has expanded considerably. However, today multilateralism is at a crossroads. It needs to adapt to new demands, new geopolitical geometries and rapidly-changing global contexts, including digitalisation, demographic changes, climate change and the risks and opportunities brought by new technologies.

 

Promoting an open, level and well-governed playing field

A major concern about the way globalisation has proceeded is that not all countries or companies are competing on a level playing field. This reflects both the use by governments of support measures to favour their own suppliers as well as differing labour and environmental standards.

 

Agricultural markets, for example, remain heavily distorted. In the years 2013-15, an annual average of USD 585 billion was provided directly to agricultural producers for the 50 countries covered in the OECD agricultural monitoring report. In 2015 the average support level in emerging economies (mainly China and Indonesia) rose above the average of the OECD.

 

Take another example: steel. Over-capacity is depressing prices, undermining profitability, precipitating job losses, jeopardising many companies across the world and creating regional imbalances as well as frictions in international trade. This is echoed in growing concerns about market distortions in other sectors. OECD fora such as the Global Forum on Steel Excess Capacity, that brings together 33 economies accounting for more than 90% of global steel production, offers an example of a multilateral solution to level the playing field. In 2015, the OECD also updated its Guidelines on Corporate Governance of State-Owned Enterprises, to help make state-owned enterprises more competitive, efficient and transparent.

 

Companies of all kinds also need to demonstrate that global competition can raise environmental and social standards rather than lower them. A race to the bottom is the opposite of progress. Today’s business leaders have an opportunity to show that they can do well by doing good. The OECD has developed a range of useful tools, such as its Guidelines for Multinational Enterprises, the OECD/G20 Principles of Corporate Governance, OECD Due Diligence Guidance, and most recently a platform on Business for Inclusive Growth, where governments and business leaders coordinate views and solutions for creating inclusive economies and societies.

 

Adapting multilateralism to new economic and financial challenges

We need to rethink multilateralism in the wake of new policy challenges brought by growing global interconnectedness.

 

The inherent cross-border digital transformation, for example, is raising new questions around competition, traditionally the focus of national law systems, and around regulatory practices, in particular the use of data. In this respect, a global dialogue on interoperability of different regimes is important in finding an appropriate balance between ensuring adequate security and privacy and the benefits from data-enabled trade.

 

Digitalisation also raises fundamental questions about traditional tax concepts and international tax principles, challenging borders and posing policy questions that can only be solved through multilateralism. The OECD/G20 Inclusive Framework on BEPS, through which the international community has built a new institutional framework that reconciles the concept of tax sovereignty with multilateralism, is now looking at how tax rules can reflect the inherent intangibility of digital activity.

 

Finally, the intensification of international connections has brought benefits, but it has also made some cross-border criminal activity easier to engage in. The annual economic cost of cyber-crimes is estimated to be over USD 1 trillion. Since the early 1990s, the OECD has been leading a multilateral dialogue on cybersecurity policies that build trust in a globally open and interconnected digital environment. More recently, under the leadership of the G7, these efforts led to the creation of the OECD Global Forum on Digital Security for Prosperity.

 

In all these areas and more, we must continue to take the fruits of OECD research and data to global fora like the G20, and make the case for the kind of multilateralism our interconnected economy needs.

 

In reshaping multilateralism, we should not forget that its ultimate objective is to support a process of sustainable and more inclusive growth. In two weeks time, at our Annual Ministerial Council Meeting, focusing precisely on multilateralism, we will deliver to our Ministers a Framework for Action on Inclusive Growth, that will call governments and business leaders to join efforts to invest in people and places that have been left behind; support business dynamism and inclusive labour markets and rebuild trust in governance.

 

We know countries may not agree on everything. The OECD Ministerial may even become contentious. But we have to keep trying.

 

As we speak, differing views are competing to chart the way forward for an increasingly interconnected – or perhaps less connected – world. In the past, these differences were too often settled by war. The OECD is a place designed to have these difficult conversations and act as a bridge for these divides.

 

So if the conversation becomes difficult at the Ministerial – it’s simply the OECD playing its role.

 

Times of great change and/or discontent are precisely the moment for governments to come to the table: if not to agree on everything, at least to air their differences face to face. When countries stop talking – when countries stop arguing, even –is when our economic and national security are most threatened.

 

Ladies and Gentlemen,


It is time to rise to the challenge and take these threats to multilateralism seriously and respond to them. However, we have to make it clear that there is no rewind button on global integration. Backtracking on integration or disconnecting is not an option. Our world, our jobs, our cultures, our hopes and dreams are inherently interconnected. We must move forward with vision, with ambition, and a sense of mission. And we can only do so by rethinking, reshaping, fixing, improving, refounding, bolstering and strengthening multilateralism for more responsible, effective and inclusive outcomes. Thank you.

 

 

 

See also:

OECD work with Canada

OECD work on Economy

OECD work with G20

OECD work on Tax

 

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