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Time for a New Approach to Growth - OECD Parliamentary Days

 

Remarks by Angel Gurría, Secretary-General of the OECD

Paris, France

25 February 2015

(As prepared for delivery)

 

Dear Parliamentarians, Ambassadors, Ladies and Gentlemen,

 

Welcome to the 3rd edition of the OECD Parliamentary Days. When we met in February last year, I announced a record turnout. Well, I’m pleased to say that we’ve beaten the record again this year, which is why we find ourselves in this new configuration. I hope this will add extra dynamism to our discussions – and perhaps remind you of your parliaments back home! The excellent turnout today is the result of our efforts to work more with the legislative branch, particularly through the OECD Global Parliamentary Network.

 

I am pleased that for the second year, we are partnering with the NATO Parliamentary Assembly. We are also happy to have our friends from the Council of Europe Parliamentary Assembly here. And for the first time, we are delighted to welcome a large delegation from the Women in Parliament Global Forum. Today we are here to talk about a new approach to growth. A type of growth that we aspire for future generations: more resilient, more inclusive and greener.

 

Improvements, but still facing significant challenges

In recent years, our countries have been making enormous efforts to stabilise and leave the crisis behind. Many OECD countries have promoted broad and deep reforms, some of which are already bearing fruit. In spite of these efforts, many countries are still dealing with the heaviest legacies of the crisis: low growth (forecasted at 2.3% in the OECD in 2015 and 1.1% in the euro area); stubbornly high unemployment levels (forecasted to remain around 7.0% in the OECD in 2015 and around 11% in the euro area); and inequality that was already rising, but has accelerated since the crisis in many countries. Today, the average income of the richest 10% of the population is almost 10 times that of the poorest 10% on average in the OECD area, as opposed to 7 times in the 1980s and 8 times in the 1990s.

 

These trends, which for some observers are the “new normal”, have compounded a crisis of trust in our governments and institutions. Parliaments have also been affected during the crisis. The latest Eurobarometer survey reports a slight increase of trust in national parliaments of 2 percentage points reaching 30% in 2014 - the first increase since the spring of 2007, but still very low.

 

In many of our countries, governments are working very hard to boost growth and employment opportunities. We are trying to help them do this, but this time based on a new type of growth, one which places people and the planet first. For that, we must change our mind-set, our economies and our policies. Let me tell you what we have been doing at the OECD in recent years to foster this new mind-set.

 

Time for a new approach to growth

Since we last met here a year ago, we have intensified our efforts to revise our economic thinking and economic acting, our analyses, models and recommendations. We are leading this transformation with the help of the horizontal initiative, New Approaches to Economic Challenges (NAEC), which we launched in 2012. When it started we used to say that NAEC should be a state of mind. Now some are saying it is a way of life. It is here to stay!

 

We are now beginning to see concrete results and streamlining them into our policy advice. One of the main outputs of NAEC has been the Inclusive Growth framework that we are starting to apply to many of our products, from the country surveys to Going for Growth.

 

We are placing well-being on centre stage, recognising that GDP doesn’t tell the whole story about the health of an economy. Through our OECD Better Life Initiative, we are measuring and comparing where countries stand on a range of well-being measures such as health, work-life balance, education, income – the things that matter to people. In short, we are asking the question: “How’s life?”

 

Levelling the playing field and promoting inclusion

Inspired by this new mind-set, we are working on all fronts of public policy to level the playing field and help countries turn economic growth into a fair distribution of costs and opportunities. Let me highlight a few key initiatives that will be useful for the legislative work in your countries.

 

We are focusing on fairer growth by reforming the international tax system. Since 2013, the OECD/G20 Project on Base Erosion and Profit Shifting (BEPS) has sought to ensure that everyone pays a fair amount of taxes and in the right place. The first 7 deliverables were adopted by the G20 Leaders’ Summit in Brisbane last year. And the following 8 deliverables will be finalised for the 2015 G20 Leaders’ Summit in Turkey in November. Two weeks ago in Istanbul, OECD and G20 countries agreed to launch negotiations on a multilateral instrument to streamline implementation of tax treaty-related BEPS measures, and to implement a package for country-to-country reporting by multinationals in 2016.

 

Finally, we have also agreed upon criteria to assess whether preferential treatment regimes for intellectual property (patent boxes) are harmful or not. I can’t overstate the degree to which this work is having a transformational effect on the international tax system!

 

In addition, to-date 93 jurisdictions have committed to implement the Common Reporting Standard for Automatic Exchange of Tax Information, which, even before it starts formally, has already contributed to the return of more than 37 billion Euros to governments’ coffers (100 times our budget!). This has been a major contribution at a time when governments need all available resources to strengthen their social safety networks and promote smart investments.

 

We are also continuing our drive to improve ethical standards and fight corruption. Last December, we launched the OECD Foreign Bribery Report which analyses more than 400 cases worldwide, involving companies or individuals from the 41 signatory countries to the OECD Anti-Bribery Convention. In the cases analysed, bribes of foreign officials equalled 10.9% of the total transaction value on average, and 34.5% of the profits, with an overwhelming use of intermediaries.

 

We are also looking more closely at the issue of inequality. Work on inequality is not new to the OECD. In recent years we have delivered flagship publications such as “Growing Unequal?” and “Divided We Stand: Why Inequality Keeps Rising”. Our latest working paper, Trends in income inequality and its impact on economic growth  provides new evidence about the link between inequality and growth. It shows that income inequality has a negative and statistically significant impact on growth. This happens mainly because parents who are poorly-educated tend not to invest in the education of their children, thus depressing skills’ development in the country.

 

To provide some examples, rising inequality is estimated to have knocked more than 10 percentage points off growth in Mexico and New Zealand in the two decades leading up to the economic crisis. On the other hand, greater equality helped increase GDP per capita in Spain, France and Ireland prior to the crisis.

 

On a similar tone, our most recent Going for Growth publication assesses the effects of pro-growth structural reforms on inequality. It finds that some reforms can be good for both equity and growth. In particular, growth can be made more inclusive by removing obstacles to employment of women, youth, low-skilled and older workers.

 

We are mindful of the fact that education and skills remain the paramount fundamental building blocks for inclusive societies. Our evidence-based PISA and PIAAC initiatives, together with our Skills Strategy, are contributing to improving education and training systems worldwide. Countries that invest more in knowledge and relevant skills will be more internationally competitive, more innovative, and create more quality employment. Such initiatives are most needed for vulnerable groups such as migrants. Our recent Migration Outlook shows that migrants have a higher unemployment rate, and when employed, they are 50% more likely to be overqualified. 

 

Last but not least, we must keep the focus on green growth and how to shift to a low-carbon economy. We must ensure that this transition does not further increase inequalities, but rather creates opportunities for all. To this end, the OECD is teaming up with the IEA, NEA and ITF on a joint project to identify policies for the transition to a low-carbon economy. We will present the report at the MCM in June, and it will feed into the COP21 discussions in Paris at the end of this year.

 

We are promoting policy reform in these areas in our 34 member countries, and through our enhanced dialogue with other transition and developing economies. We have developed a new regional programme with Southeast Asia, complementing our existing programmes in South East Europe, Eurasia, and the MENA Region.

 

We are also deepening our work with key partners – Brazil, China, India, Indonesia and South Africa. And we now have specific country programmes with Kazakhstan and Peru. We are also going further global with the G20 for which, among others, the OECD has been given the mandate to monitor countries’ commitments to boost economic growth, create jobs, and increase women’s participation in the labour force.

 

We are undoubtedly living in a new era marked by complex and multifaceted challenges that we have to address within a context of widespread public distrust in government. As the title of Naomi Klein’s new book reads: ‘This changes everything’! It is evident that we cannot continue business as usual, we cannot use the same tools to get the job done. We need new economic thinking, new economic acting and new policy advice which place people and the planet first. Only in this way can we recover public trust and recover from the crisis. 

 

You have an exciting two-day programme ahead of you and you will have the opportunity to go into more detail on all of these important issues. I invite you to use the OECD, use our data and analysis. Use our experts. Let’s work together to make Better Policies for Better Lives a reality. 

 

I look forward to your questions. Thank you.

 

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