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Chili

Remarks at 2015 Enade Conference

 

Remarks by Angel Gurría

Secretary-General, OECD

Santiago, 26 November 2015

(As prepared for delivery)

 

 

Ladies and Gentlemen,

 

It is a pleasure to join you today at this annual conference of ENADE [Encuentro Nacional de la Empresa, “National Business Meeting”] and to follow President Bachelet in taking the floor. Once again, I want to thank the President and her Government for the warm welcome we have been offered. I am also grateful to Guillermo Tagle, President of ICARE [Instituto Chileno de Administración Racional de Empresas, “Chilean Institute for Sound Business Management”], for his kind invitation to participate in this splendid event.

 

The issue that concerns us is this: "How to achieve development and how to keep on growing?" These are questions that have kept us very busy at the OECD during our 54 years in existence. Our motto, "better policies for better lives", condenses that aspiration: sound policies as the driver of development, in which growth is not an end in itself but rather a means to ensure that everyone can enjoy greater opportunities and greater well-being.

 

For all these reasons, and with the crisis as our wake-up call, we in the OECD have been working on an agenda focused on the engines of growth – productivity, investment, trade, innovation, employment – but at the same time we have stressed the social dimension and the matter of sustainability. Thus, we speak of green growth and of inclusive growth. What is at issue is not growth itself, but rather what kind of growth and of what quality.

 

 

A difficult international economic context

 

After seven years of crisis, the world economy is faced with serious problems in its recovery. According to the latest forecasts, which we presented recently, the United States is proceeding andante ma non troppo, (with growth of around 2.5% to 2017), Europe has still not taken off (GDP growth in the euro zone will be 1.5% this year, 1.8% in 2016 and 1.9% in 2017), and Japan will mark time at below 1% for the next two years.

 

Of greater concern is the fact that the major emerging countries, which had been driving the world economy in recent years, are now slowing down as well. This is especially true of China, which we expect to grow by less than 7% this year (6.8%), falling to 6.5% in 2016 and 6.2% in 2017. In Brazil, one of Chile's main trading partners, the economy will shrink by 3.1% this year, and growth will remain negative in 2016 (-1.2%).

 

In Latin America as a whole, we are witnessing a pronounced slowdown. After a decade of great dynamism, the region is now entering a "new normality" of low growth, at around 1% in 2015 and 2016. This highlights the need to diversify our economies and to undertake structural reforms that will strengthen our capacity for growth from within.

 

But the fundamental problem is that this adverse context has as its backdrop the heavy legacy that the crisis bequeathed to us, and that we have not yet resolved:
 

  • First, some cylinders of the global economic engine are still running at half speed: investment, credit, and trade are all weak.
     
  • Second, we have a major labour and social crisis: 42 million people remain unemployed in the OECD, 9 million more than in 2008.
     
  • Third, inequalities are growing. They were already widening before the crisis, but they have really exploded in recent years. In the OECD, the wealthiest 10% of the population has an average income level 10 times greater than that of the poorest 10%. That ratio was 7:1 in the 1980s, 8:1 in the 90s, and 9:1 in the past decade. And, even worse, in Chile this gap amounts to 27:1. Inequalities are a Molotov cocktail tossed into our social cohesion. Indeed, at the OECD we have documented the adverse impact of inequality on growth itself.
      
  • And lastly, the crisis has dramatically eroded people’s confidence in institutions – not only political and governmental institutions, but also businesses, judicial systems, labour unions, international agencies, and a lot more. People have stopped believing in the system's capacity to resolve "my" problems.

 

 

Challenge and response: productivity centred on inclusion

 

We find ourselves, then, facing the challenge of how to respond to growing social aspirations without upsetting the sustainability of the welfare levels we have achieved, and to ensure that everyone participates. At the OECD, we believe that productivity is a key part of the response.

 

Productivity remains the Achilles’ heel of Latin American economies. Although the region achieved annual growth rates greater than 4% between 2003 and 2013, productivity played only a marginal role in that performance. This is one of the reasons why, with the collapse of commodity prices, average GDP growth in the region fell to 1.1% in 2014, dropping below the OECD median for the first time in 10 years.

 

As you know, businesses play a fundamental role in a country's productivity. And our business sector, despite having some highly productive firms, has much room for improvement. This is especially true for micro and small enterprises. In Latin America, productivity levels in large firms are 33 times as high as those of micro-enterprises, and six times as high as those of small enterprises, compared to OECD averages of 2.4 and 1.6 times, respectively.

 

As we highlighted in the OECD study on The Future of Productivity, the key to improving our productivity lies not so much in having leading-edge firms but in guaranteeing the dissemination of technology and know-how from firms in the vanguard to the rest of the business fabric. It is dissemination systems that are lacking. In Latin America, the problem is even more serious because of the high degree of informality.

 

Correcting these problems will require concrete actions in three areas:
 

  • First, we need to improve the climate for business and investment with regulatory reforms that will foster competition and lighten the administrative burden. Specifically, restrictions on the entry of new competitors must be reduced, and those sectors that are excessively protected must be liberalised.
      
  • Second, we must improve the quality of logistics and transportation networks, the costs of which in Latin America represent between 18% and 35% of product value, compared to 8% across the OECD.
      
  • Third, we have to continue improving the accessibility and the quality of education and fostering vocational training programmes to develop the skills needed by firms and sectors with the greatest potential.

 

All these measures are essential not only for boosting productivity and making it more inclusive, but also for moving toward the productive diversification of which we speak so much, reducing dependency on commodities, and allowing better integration into global value chains.

 

 

Chile: on the right road, with OECD support

 

Chile has undertaken a series of reforms aimed at resolving these challenges. Those are the objectives that have inspired major initiatives including taxation, education, labour, political, and constitutional reforms. I am aware that people sometimes speak of a certain "reform fatigue" in the face of all this legislative effort, but reform must be a permanent state of mind, a way of life that will allow us to adapt our policies, mechanisms and institutions to a reality that is in constant mutation.

 

At the OECD we welcome especially the Productivity Agenda launched by the President, and the creation of the National Productivity Commission, which is tasked precisely with responding to the challenges I listed earlier. We are pleased that the government has placed the relationship between productivity and inclusion at the centre of our next OECD Ministerial Meeting, which Chile will chair next June in Paris.

 

The OECD's work with Chile responds directly to these concerns, as can be appreciated in the economic survey I presented yesterday. For example, we have provided advice in the matter of mergers oversight and market studies in the Competition Act now being processed, and we are putting the finishing touches on a report on how to guarantee a high-quality regulatory framework.

 

Tomorrow, in fact, our distinguished Chilean colleague Ana Novik will be presenting at SOFOFA [Sociedad de Fomento Fabril, the national industrial federation] a study on Chile's participation in global value chains, with recommendations to facilitate the involvement of small- and medium-sized firms in global productive chains. The study calls for improving competitiveness in key sectors such as road and marine transport. It also offers some ideas on how to reduce administrative procedures and barriers, taking advantage of the new investment promotion strategy.

 

We are also planning to work with the government on a national skills strategy that will equip Chileans with the abilities demanded by the labour market. Together, we have to expand productivity, understood as a triad involving innovation, entrepreneurship, and the promotion of talent.

 

Lastly, I cannot conclude without mentioning the important aspect of trust, a problem that affects the private sector as much as the public one. The OECD has spent a good deal of time addressing this problem of integrity and transparency, and we hope that Chile will draw upon our work as input to its national debate. An example is the report on "Trust and Business", which links considerations of business integrity with good corporate governance frameworks. Our experience in combating bribery and collusion are good examples of other efforts that also seek to promote a more transparent and responsible business sector.

 

Ladies and Gentlemen,

 

You can count on us. The OECD is a reformist institution par excellence, but our counsel and advice will be of no use if the reforms are not put into practice. We need to give concrete expression to the reforms. To that end, we must work together – government, business, unions, civil society, international agencies – reconciling our points of view, seeking consensus, setting good examples, and reaching agreements that will in the end benefit the population as a whole.

 

We are at your service!

 

Thank you.

 

 

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