Asia-Pacific Economic Cooperation Economic Leaders' Meeting
Session 5 - Summit Dialogue on Economic Reforms
Remarks by Angel Gurría, OECD Secretary-General
Beijing, Sunday 9 November 2014
As prepared for delivery
President Aquino, Ladies and Gentlemen,
The global economy is not in great health. It continues to expand at only a moderate and uneven pace. Global investment, credit and international trade, are still sluggish and the threat of so-called ‘secular stagnation’ remains high, especially in Europe.
While we take collective action to fix the engine of global growth, we also need to promote resilience in each individual economy. Productivity lies at the heart of competitiveness and it has fallen in many economies, including in the APEC region. We are facing the risk of a “scarring” effect of the crisis, through lower potential growth and higher structural unemployment.
Meanwhile, new global risks gather on the horizon. Potential growth has slowed in most APEC economies, calling for action to remove obstacles to stronger productivity and labour growth. Productivity is also a central issue in the APEC considering the very huge gaps – a ratio of 1 to 5 - between its advanced and emerging members.
There is no one-size-fits-all recipe for national reform agendas to reinvigorate productivity growth, but let me highlight five elements of actions for governments and for businesses:
First, reforms that foster quality education of our citizens are key to enhancing long-term living standards, through both higher productivity and increased labour force participation. APEC Governments could improve both quantity and quality of education. An extra year of schooling on average could raise GDP per capita by between 6 and 8%.
China is one country that has been reaping growth gains from a rapid increase in secondary and tertiary graduation rates. But even more than quantity, the quality of education is also critical. We estimate that an increase in our international students’ assessment, called PISA, by 25 points could typically increase the level of GDP by between 1.5 and 4.5% after 30 years and much more in the longer term. Education reforms should be undertaken now, because it takes an entire generation to reap their full benefits.
Second, capacity building through investing in training and skills is essential. In economies with high levels of informality, such as in the emerging and developing members of the APEC, a large share of the work force does not have access to on-the-job training. Skills involve education, labour markets and vocational training. They are key to increased productivity and competitiveness. It also involves matching such skills with market demands, a critical element of coherence.
Tackling informality is therefore essential and requires a combination of reforms to reduce the costs of formality and of the associated social safety net reforms to increase its attractiveness.
Third, APEC could work at making the most of the potential contribution of women to labour markets and growth and of what gender equality can offer for competitive economies. Again, congratulations to President Aquino and the Philippines, which takes an impressive 9th rank in the Global Gender Gap Index of the WEF - which measures the relative gaps between women and men across health, education, economy and politics.
In the G20 we proposed a reduction in the gender gap in employment by 25% by 2025. It could bring 100 million more women into the labour market and yield an additional 1.2% to 1.6% output growth over the period. For this reason also, we decided with our South East Asian Partners to include a gender initiative into our Southeast Asia Regional Programme.
Fourth, creating the conditions for investment and innovation are key, especially for investment in innovation. Our recent estimates suggest that reforms of product market regulation in network industries and trade-enabling professional services could raise productivity levels after 5 years by around 3% on average across advanced economies and by closer to 6% for EMEs. They could also boost investment in innovation.
Investment in infrastructure – which was rightly identified by China's APEC host year as a priority - is equally key to bolstering competitiveness: the needs in the APEC region are massive - US$8 trillion in infrastructure investment by 2020. OECD Investment Policy Reviews in several APEC countries suggest that policy and regulatory impediments to private infrastructure investment, notably by institutional investors, are salient in the region – there is, therefore, ample room for progress.
Finally, stronger competition can also boost productivity by raising investment in innovation, what we, at the OECD, call knowledge-based capital. The importance of knowledge-based capital as a source of growth has been increasingly recognised. For instance, it is estimated that investments in knowledge-based capital explained 27% of labour productivity growth in the United States between 1995 and 2007. OECD research suggests that even a modest easing of product market regulation in 3 network industries would be expected to result in a 5% increase in the stock of business enterprise R&D and a 3% rise in patents per capita in the long run.
The incoming Presidency of the APEC, the Philippines, is a good case-in-point of the quick wins that can be achieved in the regulatory area. Their progression in the “Doing Business” ranking was one of the most dramatic in 2014. I wish to congratulate President Aquino for such an impressive result.
The OECD could further support the efforts of APEC members on regulatory reforms, notably through the APEC/OECD Integrated Checklist on Regulatory Reform that we have jointly developed.
Ladies and Gentleman:
APEC leaders will adopt a forward-looking reform agenda (the APEC Accord on Innovative Development, Economic Reform and Growth). Considering APEC’s dynamism and diversity, economic reforms for sustaining competitiveness should also promote inclusive growth. It is very positive therefore that the Philippines, as the next Presidency of the APEC, chose to emphasize this issue. Growth itself may be threatened if it is not inclusive!
In many cases, policies to boost productivity and competitiveness can also have a positive impact on other objectives, such as reducing inequality. For example, poorly-performing education systems not only hinder productivity growth but also hold back social mobility, allowing inequality to be transmitted across generations. Informality is also a source of inequality, in terms of not only income but also access to health, social security, and training.
The OECD can thereby be an active partner of the Region. Because the OECD is not only a “Global Standard Setter and a house for best practices”. It is also a pathfinder for effective implementation and we will be very proud to share our experience and expertise with APEC member economies and their business circles to develop innovative ideas and practical tools for competitive economies and inclusive societies! Count on the OECD to help you design, develop and deliver “better policies for better lives.”