How to connect trade, investment and development
The Netherlands last chaired the OECD Ministerial Council Meeting in 1991, a year when advanced economies accounted for nearly two thirds of global GDP and almost two billion people were living in extreme poverty. The world looks very different today. Emerging markets now account for more than half of global GDP and the number of people living in extreme poverty is down to one billion. This Millennium Development Goal has been reached, and that is good news. There is still a formidable challenge ahead, however, in the areas of poverty reduction, sustainability and inclusivity. The new Sustainable Development Goals will help to meet these challenges, but achieving them requires a rethink of development policy. Connecting trade, investment and development is a crucial element of this rethink.
If you look at recent decades, two things stand out. First, the extraordinary growth in emerging markets. The story of China and India is well known, but it is sometimes overlooked that a large number of the fastest-growing countries are in Africa. Second, there is the emergence of global value chains. Goods are not produced in one country anymore, but in different stages in many different countries. The OECD’s work has greatly contributed to our understanding of this phenomenon.
The growth of developing countries and the emergence of global value chains mean that the traditional relationship between donors and recipient countries no longer exists. Developing countries increasingly develop full-fledged trade and investment linkages with other countries, on an equal footing. They may still want to draw on the expertise of companies from developed countries to meet challenges in infrastructure or health care, but not necessarily in the form of aid.
This is an exciting new way to look at development. Not only government aid, but increasingly private sector trade and investment contribute to the process. Global value chains offer one way to grasp the new opportunities. A fragmented production process allows countries to specialise in one specific task, instead of having to develop an entire industry, which has higher entry barriers. A focus on one part of the value chain can be a catalyst for further economic development.
But this does not happen automatically. Private sector gains do not automatically trickle down to the rest of the economy. So the challenge is to maximise the private sector’s contribution to public development goals.
In the framework of the Sustainable Development Goals, this means that the private sector’s contribution is crucial, and that we need to make sure that everyone can benefit. The best, most responsible way to attract desperately needed trade and investment is by combining them with development. This requires creating an enabling environment, which ensures developing countries get decent jobs, better living conditions and shared prosperity, while offering companies access to large and promising new markets.
In terms of policy, an enabling environment requires work in a number of areas, like good governance, access to education and availability of finance. Official development assistance (ODA) can play a valuable role in creating this enabling environment, especially in the poorest countries. These policy areas are also precisely the areas where the OECD has expertise and can help to develop the right policies.
Responsible business conduct has a special role to play in this approach. I like to emphasise that corporate responsibility is not an optional extra; it is at the heart of modern business models, and the only realistic way to do business. Dutch companies are pioneers of this model, and they demonstrate its success. Luckily, ever more companies are embracing this view. We have been working hard to take further steps in the textile, coal and palm oil industries.
We should also take a critical look at the multilateral trade and investment system. The multilateral system should promote cross-border trade and investment and engage developing countries in the world economy. It should do that by offering an international framework to help countries reap the benefits of globalisation, while maintaining policy space for governments to mitigate the drawbacks. The Trade Facilitation Agreement is a welcome step in this direction, but we should do more. We should move promising areas from the Doha Round forward, while making sure that regional trade agreements also contribute to increased connectivity and inclusion in the world economy.
Finally, 2015 is an important year for development. We will have the Conference on Financing for Development in Addis Ababa and the UN Summit to adopt the Post-2015 Development Agenda and the Sustainable Development Goals. My ambition for this OECD Week is to put the trade, investment and development nexus prominently on the agenda, so it can contribute to achieving our goals.