Editorial by Angel Gurría, Secretary-General of the OECD
© OECD Observer No. 270/271
Can 2009 bring a ray of light to lift the gloom and end the severest financial and economic crisis in decades?
The OECD Economic Outlook issued end-2008 sees some 21 of 30 member countries already in or heading into a recession that could last a year. Business investment will contract by over 5%, and unemployment could rise by at least 8 million by 2010. This social crisis is affecting families and communities across the planet, with emerging and developing economies suffering too.
Lower global inflation and more affordable energy and food prices offer some relief, but with the economy still in intensive care and public anxiety spreading, the situation could worsen. Restoring growth, stability and confidence must remain the policy priority for months to come.
Make no mistake: we need healthy financial markets for our prosperity and development, and to strengthen vital public services. But 2008 reminded us how damaging for our economies badly regulated markets can be.
The OECD is working with the world’s governments and other international organisations to stop such failures happening again.
Our strategic response tackles the crisis in a comprehensive way, by focusing on finance, competition and governance, including their interactions, as well as how to achieve sustainable growth in the real economy. These are exceptional times. They require exceptional responses. Business-as-usual is not an option.
The crisis has led to some major new thinking, about regulation and markets, about accountability and ethics, and about the kind of economy we need to build. Our strategy is about devising better policies, better regulations and better institutional frameworks that enable businesses to flourish and public interests to be safeguarded in a stronger, cleaner and fairer world economy.
Take financial markets. A range of factors are being addressed to help curtail excessive risk taking and more closely align firm incentives with the interests of shareholders and stakeholders. We are scrutinising such issues as balance-sheet coverage, taxation and restoring market signals. We are evaluating the volatile investment bank segment, its size, capital requirement rules, and other questions. And we are examining broader issues, such as boardroom governance of risk, remuneration and shareholder rights, and how to improve agreed standards, such as OECD Principles of Corporate Governance, regulatory management rules, performance guidelines, and more.
Pension funds have taken a battering in recent months, and the OECD strategy will facilitate the search for more appropriate diversification strategies between public and private systems to reduce reliance on risky financial markets.
We are also working to improve consumer protection and awareness in using complex financial markets, and boosting ethical standards and international codes of conduct for financial services professionals.
One sure protection for consumers is choice, and governments must uphold competition standards for this to happen.
Of course, competition is key for a sustainable recovery to take place generally, alongside such fundamentals as keeping markets open for trade and investment, and operating sound, counter-cyclical, fiscal policies. As we see unemployment levels increasing fast, the OECD experience on policies to promote job creation may be useful too.
While growth is vital, not any kind of recovery will do. There are systemic threats to the global economy, particularly climate change and poverty, which we must urgently tackle. Indeed, the crisis provides us with the chance to do so now, and it is encouraging to see major OECD governments placing “green” investment at the heart of their own crisis-response strategies for 2009.
Such approaches could help poorer countries too. If we are serious about sustainable growth, we must double our development efforts, despite the recession. A Doha trade agreement is in sight, and holds out the promise of more trade, investment and development. Governments must clinch it for everyone’s sake.
One thing is clear: the massive public interventions of recent months cannot be sustained indefinitely. They are costly to budgets, and like any strong medicine, may damage the patient in the long run. That is why the OECD is devising “exit strategies”, not to return to the pre-crisis vulnerable arrangements, but to help governments safely withdraw emergency measures without disruption once stability returns.
2009 marks the Chinese Year of the Ox, a symbol of patience and hard work, and inspiring confidence in others. The crisis has knocked governments off balance, but like the ox, we must not be knocked off course. The long-term job of building a better tomorrow starts now.