Remarks by Angel Gurría
Astana, October 23, 2017
(As prepared for delivery)
Minister, President of Nazarbayev University Mr Katsu, distinguished guests, ladies and gentlemen,
What a pleasure it is to be here today. This is my first visit to Astana, and I have enjoyed seeing a bit of this remarkable city. And I now find myself addressing some of the outstanding young people who will build its future.
Let me give you a broad overview of where we - at the OECD - see challenges and opportunities for working together with countries and people, particularly the youth, to make the world economy stronger, more inclusive and more sustainable.
In both advanced and emerging countries, we observe growing dissatisfaction among citizens over what they perceive as the adverse effects of international trade, technological change and immigration on their daily lives. Protectionist pressures are rising; nationalist and populist movements have resurfaced in many countries, rich and poor; multilateral co-operation is viewed with ever more scepticism. The open, rules-based international economy, as well as governments and international organisations alike, are suffering from an erosion of trust.
There are many reasons behind the backlash against economic openness, but we can certainly find at its core the long term growth in inequalities, in both OECD countries as well as in many emerging economies. In the 1980s, the average disposable income of the top 10% in the OECD area was around seven times that of the poorest 10%; today, it is almost ten times higher. In many countries as much as 40% of the population at the lower end of the income distribution have gained little or no benefit from economic growth over recent decades.
The recent economic crisis and the slow recovery have exacerbated this long term trend. Global growth has now fallen below the long-run average for the last five years and it is set to do so for a sixth year running in 2017. This is the longest stretch of such lacklustre growth we have experienced for more than half a century. And it is now also affecting some of the major emerging economies – the very countries whose momentum in 2008-09 helped prevent a global recession when the crisis hit.
In parallel to these economic and social difficulties, we have been observing sluggish global trade, and many attribute growing inequalities to increased global trade flows. We have witnessed an increase of trade from 17% of world GDP in 1990 to 28% in 2016, as well as a long-term shift in the centre of gravity of the global economy from West to East and from North to South, away from the North Atlantic region. As recently as the turn of the century, the OECD economies generated 60% of global GDP, measured in PPP terms. That share is now around 45% and falling.
Rapid growth in China, India and elsewhere has led to dramatic reductions in poverty. The share of the world’s population living with less than PPP USD 1.90 per day declined from around 35% in 1990 to less than 11% in 2013, and we have seen the strong emergence of a middle class in most emerging economies. Growth in the emerging economies has also been good for the advanced countries, in-as-much as global growth has been supported to a great extent by growth in the emerging world. The dynamism of the large emerging economies was crucial to ensuring that the crisis did not become a global depression.
In many respects, globalisation is thus undoubtedly a success story: it has lifted more than a billion people out of poverty, while at the same time spurring and disseminating innovation, spreading technologies and – even more important – ideas. It has brought important non-economic benefits as well, including greater linkages among societies and cultures, increased people’s exposure to cultural diversity and improved access to more varied media sources, enlarging the potential for citizens’ democratic engagement.
However, we must also recognise that this shift, intertwined with technological change is to a certain extent disproportionately benefitting those who are already better off both in terms of income and of wealth. This is because the right policies are not in place. The costs of disruption tend to be concentrated in particular regions and sectors, and among particular segments of the population. This is especially the case of middle and less skilled workers in advanced countries, who now face greater competition for jobs and opportunity and have the least resources to adjust to change. And we know that with technological change, set to bring so many improvements to people’s well-being, this trend will intensify. Our most recent estimate is that 14% of jobs in OECD countries are now at high risk of automation, against an estimate of 9% not long ago.
In short, globalisation, while improving global well-being, is leaving too many behind. It should be no surprise, then, that political discourses and movements directed against international integration and openness are gaining traction in many countries.
At the OECD, we are keenly aware of the benefits of globalisation, but also conscious of its impact and its costs affecting some parts of the population. And these costs seem to be greater and more durable than most economists and policy makers once thought.
But rejecting a more integrated international economy is not the answer.
In a world of global value chains, where almost two-thirds of trade is in intermediate goods that are used for production rather than final consumption, closed borders increase the cost of essential inputs and raise the risk that countries become wedded to low-skill, low added-value jobs. It is all too easy – and often ultimately pointless – to protect yesterday’s industrial structure at the price of tomorrow’s innovations. Raising barriers between countries will not make our societies richer, greener or more equal. Nor will it foster the innovation, industrialisation and entrepreneurship we need.
There are also many global problems besides trade that individual countries simply cannot tackle on their own, such as climate change, pandemics or international tax evasion. The global crisis demonstrated starkly how our neighbours’ problems and policies can affect us. In 2009, many countries that had been pursuing fairly responsible macroeconomic and structural policies found themselves overwhelmed by a crisis not of their own making.
Yet if further integration is both necessary and, to some extent, unavoidable, we must still do much more to address the concerns that underlie the backlash against globalisation and rising inequalities.
We see two very broad sets of measures to improve the outcomes of globalisation for all.
First, we need policies at the domestic level that can make economic openness work for all, by enhancing countries’ capacity to make the most of trade and investment policies to support lifelong learning and skills, and to improve infrastructure and connectivity. And we must do more to support those hit by the sometimes disruptive effects of technology and/or globalisation. The exact recipe will vary from country to country, but policies need to target not only social safety nets and labour-market activation policies, but also equality of opportunity. It is not enough to protect people; we need policies that empower them.
In Eurasia in particular, policies are needed to encourage diversification and greater private sector participation in the economy. For several countries in the region, including Kazakhstan, natural resources were a major driver of economic growth during the first decade of the century. However, this also exposes them to external shocks. Given its high reliance on oil and gas, Kazakhstan faces levels of trade volatility twice as large as Chile or Norway that are also rich in natural resources.
Countries in Eurasia will also need to invest in skills and in policies to broaden people’s access to economic opportunity, so that inclusion is supported by factor accumulation and productivity growth. Indeed, while the incomes of the bottom 40% of the population rose faster than the average in almost all Eurasia countries in the 2000s, this was driven largely by social assistance and other transfers, and this has proven hard to sustain as growth has slowed. Now is the time for solid investments in skills and competences.
Better governance, promoting integrity, transparency and fighting pervasive corruption will also be critical to inclusive growth in Eurasia countries. Corruption favours the better-off and the better connected. According to Transparency International, on average, close to a third of all households in countries of the region pay a bribe to access basic services in any given year. Addressing corruption is thus a top priority, along with improving regulatory quality and government effectiveness, all so important to economic growth and to equal opportunity.
Second, in addition to more inclusive global policies, we need a better governance of globalisation. We need to sustain international co-operation for an open, transparent and fair international economic order. This includes a well functioning international trade system which needs to be strengthened, but also progress on a wider set of issues related to how countries interact with each other in the global economy.
In the field of competition, we need to strengthen our policies to address cross-border anticompetitive conduct, the internationalisation of SOEs, and the specific competition issues that are arising from the digital economy. The OECD has developed many standards in these areas, and we need to review some of them in the context of digitalisation, broaden their adherence by non-member economies, and strengthen their implementation.
On tax, OECD-G20 work on Base Erosion and Profit Shifting (BEPS) and Automatic Exchange of Financial Account Information for Tax Purposes (AEOI) are helping to ensure that companies and individuals operating in the global economy pay their fair share of tax to national authorities. Estimates suggest that up to 10% of global corporate income tax revenues - i.e. USD 240 billion annually - are lost as a result of base erosion and profit-shifting measures by companies. Continued and deeper international cooperation is essential for efforts to crack down on tax avoidance and evasion at the international level. Efforts pay off, already strengthening transparency standards has yielded more than EUR 85 billion over the last seven years, thanks to the introduction of voluntary disclosure programs and similar initiatives.
Fighting international corruption is central to making the global economy fairer. One part of this is the OECD Convention on Combating Bribery of Foreign Public Officials in International Business Transactions, ratified by 41 countries so far, which requires countries to criminalise bribery of foreign public officials in international business transactions and to subject themselves to rigorous implementation monitoring. Here again, we need to bring more countries on board. But action is also needed on integrity risks specific to trade, such as preventing corruption in customs administrations.
Labour standards and working conditions go to the heart of whether people believe the system is fair. Notwithstanding their fundamental importance, there remain differences among countries on how these issues should be taken forward.
Lastly, concerns about the absence of a level playing field also relate to how companies behave, including whether they are respecting environmental and social standards, as well as integrity standards. The OECD’s Guidelines for Responsible Business Conduct, for example, level the playing field and encourage investors to maintain high labour, tax, anti-corruption and environmental standards as they invest abroad. These Guidelines, which have been the focus of reviews in two Eurasia countries, make international investors lead by example and show the way for investors to follow suit.
Minister, President Katsu, dear participants,
The agenda I have just outlined is ambitious. But the world continues to grow closer and more integrated. Policy and global governance need to catch up. Only a more modern, comprehensive and inclusive approach to international economic governance, drawing on the experiences and resources of both developed and emerging economies, will help ensure that globalisation delivers better policies for better lives.
Publication: Fixing Globalisation: Time to make it work for all