The OECD and the World Economy



Address by Angel Gurría, OECD Secretary-General
(watch the video of the speech)
Meeting of the Enlarged Parliamentary Assembly of the Council of Europe
Strasbourg, 3 October 2007


Mr. President, ladies and gentlemen, it is an honour for me to address this Parliamentary Assembly.

I would first like to congratulate Mrs. Antigoni Papadopoulos for her report on the "OECD and the world economy 2007". It is indeed a far-reaching report, covering a wide range of topics. In my remarks today, I will concentrate on a few issues, namely the economic outlook, and the OECD's contribution to a better functioning of the world economy.

Economic outlook

As you know, perspectives for the world economy have become significantly more uncertain since I met with you one year ago. Problems in the sub-prime mortgage market in the United States have affected the US housing and credit markets. To some extent, this has been spilling over to European financial markets. The full consequences of this crisis remain to be seen, and responses will need to be found to address the underlying imperfections at the origins of the problem.

The peak of the euro area growth upswing may be behind us. Consumer confidence has been dented, though it remains relatively high. A further drop of confidence in the United States could cause an economic slowdown in that country. And even if growth rates have been sustained in Asia, and countries such as the United Kingdom and Canada, the general picture indicates that the world economy could be heading into a period of weaker growth.

You may be aware that the OECD has just published its first ever economic survey of the common policies of the European Union. It includes recommendations to help EU countries pursue sustainable growth in this evolving global economic environment, characterised today by sustained high oil prices and record highs of the euro currency. 

The EU is the world’s biggest economy and biggest exporter, and EU policies have a large influence on individual member states. By one estimate, around half of new national legislation is driven or shaped by Brussels -- something that as legislators, you would appreciate very well.

Our basic assessment is a positive one. The European Union has made a major contribution to prosperity in Europe. The single market programme, while far from finished, has increased competition, thereby boosting incomes and growth. Economic reforms are starting to pay off, especially in the countries that started early. Unemployment is falling and the slide in productivity growth has stopped – indeed it is hoped that productivity growth will begin to pick up again.

But this first survey of the EU has nevertheless identified areas where reforms are needed. There remains great potential to further raise living standards. There is a sizeable gap in GDP per capita compared with the OECD’s best performers, and the gap has widened over the past decade. More than a third of the working-age population remains inactive. And the challenges are getting tougher. Globalisation brings great opportunities for vibrant economies but punishes less flexible ones, and ageing populations will put welfare systems under pressure.

Overall, we have five main policy recommendations: first, the EU should strengthen the internal market, with the main weak spot being the services sector. Second, network industries, such as electricity and gas, should be opened to more competition. Third, continue the progress made in reforming the Common Agricultural Policy. Severing the link between farm production and subsidies, as well as better targeting farm support to benefit lower-income farm households and the poorer farming regions, would make the CAP even more effective. Fourth, barriers to the free movement of people should be lowered, since a mobile workforce can strengthen the Union by acting as a shock absorber for economies that are out of sync with their neighbours. Fifth, the EU could achieve better value for spending in the area of regional policies. All of these reforms would help improve economic performance and stimulate innovation, which is a key priority for your governments.
Mr. Barroso put out a press release yesterday praising us for our work and expressing his agreement with our assessment.

Making the world economy work better – the OECD's contribution

Let me now turn to ways the OECD can help, not just in Europe but on a global level. I am pleased to report that since I addressed this tribune last year, a number of landmark developments have occurred within the OECD.

First, our member governments made an unprecedented decision to begin accession discussions with five countries: Chile, Estonia, Israel, the Russian Federation and Slovenia.  Ministers also invited the OECD “to strengthen co-operation with Brazil, China, India, Indonesia and South Africa through enhanced engagement programmes with a view to possible membership.” 

These decisions come in recognition that the economic and political map of the planet has changed, and that progress on major challenges will only be achieved by intensifying co-operation between the world’s major players. These countries are now the locomotives of the world’s growth. Our members believe that while the policies and activities of these countries have an impact on the OECD, our experience of good policy practices could benefit them. We already collaborate closely with several of these countries, but would now like to forge a more structured relationship with them.

Opening up is a historic response to our changing world. The goal is improved national and international policies, fewer tensions and closer co-operation for a more vibrant and equitable global economy. These goals are within reach, and the OECD, by becoming the “hub of globalisation”, will play a critical role in achieving them.

2007 also saw a strengthening of the links between the OECD and the G8. At the G8 summit in Heiligendamm, the OECD was asked to provide a platform for a dialogue between the G8 and the Outreach 5 (O5) – Brazil, China, India, Mexico and South Africa. This enhanced dialogue will help increase international co-operation on some of the world’s most difficult global challenges, and we are proud to play our part.

In another exciting development, the OECD has now launched the preparations for an OECD Innovation Strategy in response to a mandate by OECD Ministers. Innovation has driven much of the rise in living standards since the Industrial Revolution.  But today, its impact on growth is reinforced by globalisation. Increased competition and access to new ideas and technologies are at the root of this new innovation process. And at the same time, the emergence of actors such as China and India adds pressures for OECD countries to move up the value chain and engage in a continuous process of adjustment and innovation.

Governments need to “harness the cross-cutting nature of innovation”, from education and the supply of researchers, to intellectual property rights and public and private investment.  Innovation can also help us to address key global challenges, for example the issue of climate change. A “great push” is needed to accelerate a transition to a low-carbon economy. I look forward to keeping you informed as the Innovation Strategy progresses.

Parliamentarians and the political economy of reform

I would like to close my remarks with a few words on the conditions needed to respond to the daunting agenda I have described. As you all know, it is not enough to identify the reforms needed to improve the functioning of the economy. There are many challenges to garnering public support for reforms and implementing them successfully – this is what we call the political economy of reform.  

The OECD is now moving beyond proposing best practices, to helping countries put them into operation.  We are seeking to explain the implications of inaction or delay, as well as to provide options for helping to create the political momentum necessary to reform successfully.  Support for reform also includes creating awareness of what has worked in other countries.

This is a new and bolder, but perhaps more useful way of serving our member countries and it involves broadening our range of interlocutors in each country; this includes you, parliamentarians. As I said last year, the OECD greatly values its co-operative relations with parliamentarians, not least for your key role as partners in reform.

Thank you very much.  I would naturally welcome any questions and comments that you may have.


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