Monetary and financial issues

Pier Carlo Padoan's remarks at the release of the 2010 edition of Going For Growth

 

Pier Carlo Padoan's remarks at the release of the 2010 edition of Going For Growth held in Paris on 10 March 2010.

 

Since Going For Growth was launched in 2005, the OECD has carried out an annual stocktaking exercise of structural policy developments throughout the OECD area. We use empirical evidence to derive a set of five policy recommendations for each OECD country and the European Union. Our ultimate goal is to assess how structural policies can promote long-term growth by raising labour productivity and increasing labour utilisation.


Responding to the crisis while protecting long-term growth


In this year’s edition we focus on the policy lessons learned from the economic crisis for ensuring a solid recovery and sustaining growth in the longer term.


The worst of the crisis is now over, and economic growth is coming back. But we are still going through difficult times. The recession has been profound and has left scars that will be visible for many years to come, particularly for those who have lost their jobs. We estimate that, taken together, OECD countries have lost about 3% of their potential output as a result of the crisis (Chapter 1). One third of this output loss is because unemployment rose sharply during the recession and is likely to remain high for quite some time. It is therefore crucial to ensure that a solid recovery takes hold in order to draw laid-off workers back into work.


Governments should now phase out some of the short-term crisis-management emergency measures. Many of the initiatives that have been taken to sustain activity during the crisis will soon no longer be needed. For instance, “short-time work” schemes avoided unnecessary layoffs during the recession. But, if these schemes are not phased out, they will end up protecting unviable jobs and preventing new, more productive ones from being created. Equally, OECD governments are correctly withdrawing short-term targeted support for industry, such as car manufacturers. Now it is time to ensure that the policies that remain are those that promote jobs and growth going forward.


OECD countries have so far steered clear of the serious structural policy mistakes of previous crises. An escalation of trade protectionism during the Great Depression and misguided labour market policies in the 1970s (especially in Europe) made the recovery from those crises much more difficult than needed.

 

The crisis has wreaked havoc in the public finances. Budget deficits have ballooned in most OECD countries and the public debt has risen to all-time highs in several countries. Large consolidation efforts will therefore be needed in several countries once recovery is on a firm footing. This means that some taxes that were cut during the recession may need to be re-instated or even raised. To minimize the impact of tax hikes – if the need arises – on growth, policymakers could focus on taxes on consumption (and property), which are less harmful to growth than those on income. Green revenue, from green taxes and carbon trading, could also be used. They would yield a double dividend of contributing to fiscal consolidation and encouraging green growth. Efficiency gains may also be possible in public spending, especially in the areas of education and health care, so that the same social outcomes can be achieved with fewer resources.


Some of the measures taken in response to the crisis could prove beneficial for long-term growth. These measures should be left in place, even as governments contemplate consolidating public budgets. This is the case, for example, of tax credits and direct grants for research and development. If well focused, these measures can also help to promote green innovation. Targeted cuts in labour taxes should also be maintained, as they enhance the job prospects and motivation of low-wage earners at a time when they are facing tough competition for jobs from higher-skilled job seekers.


Progress in responding to Going for Growth policy priorities since 2005


Reforms have been more incremental than radical in nature. In a special assessment of structural reform progress over the past five years (Chapter 2), we find that, while structural reform sometimes accelerates during crises, so far policymakers have focused primarily on the most pressing macro¬economic issues. This is not to say that action has not been taken on the priority areas identified for each country in previous years. But the policy debate should now move away from crisis management and on towards speeding up the recovery and laying the groundwork for a more sustainable and fairer economic future. In this spirit, we make recommendations (Chapter 3) for each country on the policy priorities which we think would be most urgent at the current junction. They include, most obviously, product and labour market regulation.


Crisis management may have distracted policymakers from core structural reforms. But there are several structural reforms that should not wait for a stronger recovery. Pro-competition reform is a case in point. Initiatives that remove obstacles for firms to enter new markets help to stimulate the creation of new products, businesses and therefore jobs. Pro-competition reform is also good for productivity. It encourages businesses to allocate capital and jobs to their most productive uses. And that will sustain growth in the long run.


Intergenerational social mobility across OECD countries


Another message is related to policies that enhance well-being. Going For Growth has focused on growth in GDP per capita, but there are other measures of well-being that go beyond material living standards. The recent report of the Stiglitz commission in France – as well as the OECD’s own Global Project – highlights this point, and we are working on these issues, including by looking at equity and income distribution.

 

In the current Going For Growth edition, we examine social mobility across generations (Chapter 5). Intergenerational mobility is important, because it promotes equal opportunity for individuals and enhances growth by putting all of society’s human resources to their best use. Our work shows that education reform that increases enrolment in early childhood education, avoids early tracking of students and improves the social mix within schools can do much to increase social mobility in many countries.


Prudential regulations and competition in banking


We also argue in this edition of Going For Growth that pro-competition reform is desirable in financial markets too. A special chapter (Chapter 6) shows that there is no trade-off between competition and financial stability. Prudential banking regulation can be toughened without undermining competition. Strong supervision even appears to reduce the cost of credit for firms and households, as it helps to level the playing field.


Going for Growth in Brazil, China, India, Indonesia and South Africa


This year’s edition of  Going For Growth involves a first step in expanding its coverage to most of the G 20 countries (Chapter 7). For the first time, we have looked at the long-term prospects and challenges that Brazil, China, India, Indonesia and South Africa will face to catch up to OECD living standards. These countries – with which the OECD has launched a process of “enhanced engagement” in 2007 – are becoming important actors in the global economy. They account for a growing share of global output, and have been important engines for world growth throughout the crisis. And they also have made considerable social progress over the years.


But there are several policy areas where structural reform will be needed to sustain strong growth in these countries going forward. In general they have much to gain from making business regulations more competition-friendly, strengthening property rights and contract enforcement, deepening financial markets and reducing the size of informal sectors.


Of course, there are differences among these five countries in their institutional settings and policy priorities. And, while it is based on a systematic empirical exercise to map policy actions to economic performance, Going For Growth recommendations do not follow a one-size-fits-all approach. Rather, Going For Growth is an evolving process, and this chapter is a step towards mainstreaming the “enhanced engagement” countries in future editions, along with the incorporation of OECD accession countries.

 

Related Documents

 

Economic Policy Reforms: Going for Growth 2010

 

Countries list

  • Afghanistan
  • Albania
  • Algeria
  • Andorra
  • Angola
  • Anguilla
  • Antigua and Barbuda
  • Argentina
  • Armenia
  • Aruba
  • Australia
  • Austria
  • Azerbaijan
  • Bahamas
  • Bahrain
  • Bangladesh
  • Barbados
  • Belarus
  • Belgium
  • Belize
  • Benin
  • Bermuda
  • Bhutan
  • Bolivia
  • Bosnia and Herzegovina
  • Botswana
  • Brazil
  • Brunei Darussalam
  • Bulgaria
  • Burkina Faso
  • Burundi
  • Cambodia
  • Cameroon
  • Canada
  • Cape Verde
  • Cayman Islands
  • Central African Republic
  • Chad
  • Chile
  • China (People’s Republic of)
  • Chinese Taipei
  • Colombia
  • Comoros
  • Congo
  • Cook Islands
  • Costa Rica
  • Croatia
  • Cuba
  • Cyprus
  • Czech Republic
  • Côte d'Ivoire
  • Democratic People's Republic of Korea
  • Democratic Republic of the Congo
  • Denmark
  • Djibouti
  • Dominica
  • Dominican Republic
  • Ecuador
  • Egypt
  • El Salvador
  • Equatorial Guinea
  • Eritrea
  • Estonia
  • Ethiopia
  • European Union
  • Faeroe Islands
  • Fiji
  • Finland
  • Former Yugoslav Republic of Macedonia (FYROM)
  • France
  • French Guiana
  • Gabon
  • Gambia
  • Georgia
  • Germany
  • Ghana
  • Gibraltar
  • Greece
  • Greenland
  • Grenada
  • Guatemala
  • Guernsey
  • Guinea
  • Guinea-Bissau
  • Guyana
  • Haiti
  • Honduras
  • Hong Kong, China
  • Hungary
  • Iceland
  • India
  • Indonesia
  • Iraq
  • Ireland
  • Islamic Republic of Iran
  • Isle of Man
  • Israel
  • Italy
  • Jamaica
  • Japan
  • Jersey
  • Jordan
  • Kazakhstan
  • Kenya
  • Kiribati
  • Korea
  • Kuwait
  • Kyrgyzstan
  • Lao People's Democratic Republic
  • Latvia
  • Lebanon
  • Lesotho
  • Liberia
  • Libya
  • Liechtenstein
  • Lithuania
  • Luxembourg
  • Macao (China)
  • Madagascar
  • Malawi
  • Malaysia
  • Maldives
  • Mali
  • Malta
  • Marshall Islands
  • Mauritania
  • Mauritius
  • Mayotte
  • Mexico
  • Micronesia (Federated States of)
  • Moldova
  • Monaco
  • Mongolia
  • Montenegro
  • Montserrat
  • Morocco
  • Mozambique
  • Myanmar
  • Namibia
  • Nauru
  • Nepal
  • Netherlands
  • Netherlands Antilles
  • New Zealand
  • Nicaragua
  • Niger
  • Nigeria
  • Niue
  • Norway
  • Oman
  • Pakistan
  • Palau
  • Palestinian Administered Areas
  • Panama
  • Papua New Guinea
  • Paraguay
  • Peru
  • Philippines
  • Poland
  • Portugal
  • Puerto Rico
  • Qatar
  • Romania
  • Russian Federation
  • Rwanda
  • Saint Helena
  • Saint Kitts and Nevis
  • Saint Lucia
  • Saint Vincent and the Grenadines
  • Samoa
  • San Marino
  • Sao Tome and Principe
  • Saudi Arabia
  • Senegal
  • Serbia
  • Serbia and Montenegro (pre-June 2006)
  • Seychelles
  • Sierra Leone
  • Singapore
  • Slovak Republic
  • Slovenia
  • Solomon Islands
  • Somalia
  • South Africa
  • South Sudan
  • Spain
  • Sri Lanka
  • Sudan
  • Suriname
  • Swaziland
  • Sweden
  • Switzerland
  • Syrian Arab Republic
  • Tajikistan
  • Tanzania
  • Thailand
  • Timor-Leste
  • Togo
  • Tokelau
  • Tonga
  • Trinidad and Tobago
  • Tunisia
  • Turkey
  • Turkmenistan
  • Turks and Caicos Islands
  • Tuvalu
  • Uganda
  • Ukraine
  • United Arab Emirates
  • United Kingdom
  • United States
  • United States Virgin Islands
  • Uruguay
  • Uzbekistan
  • Vanuatu
  • Venezuela
  • Vietnam
  • Virgin Islands (UK)
  • Wallis and Futuna Islands
  • Western Sahara
  • Yemen
  • Zambia
  • Zimbabwe