Remarks by Angel Gurría Secretary-General OECD, Council on Foreign Relations, New York, 26 February 2014
(As prepared for delivery)
Ladies and Gentlemen:
It is a great honour to be here at the Council on Foreign Relations (CFR) to address one of the most pressing challenges of our times: rising inequalities.
The need to tackle inequalities has been at the top of the OECD’s agenda for years. In 2008 we launched a first wake-up call with a study named “Growing Unequal?”. Please note the question mark! At the time we were still uncertain about the trends… Three years later we produced a new shocking study named “Divided We Stand: Why Inequality Keeps Rising”. Unfortunately, no need for a question mark here.
The evidence in these studies speaks for itself: inequality had been rising in nearly all OECD countries during the last decades. The financial and economic crisis has accelerated this trend.
I have been sounding this alarm in different fora, referring to inequality as the ultimate social time bomb. All these concerns were confirmed by President Obama in December 2013, and then again in January 2014 in the State of the Union. Many institutions are now producing a plethora of studies and warnings.
Tackling high inequalities: Creating opportunities for all
It is therefore a great opportunity for me to share with you today the OECD’s views on the threat that inequality is posing to this great nation.
The US Inequality Challenge
Americans have always thought of their country as “the Land of Opportunity”. The Land where you could make it to the top, no matter who you were, no matter where you came from; The Land where you could realise your dream, as long as you studied and/or worked hard; The Land where each generation could grow up being sure to have a better life than their parents, and that their children would have a better life than them.
Over the past decades, lower-wage workers in America have been working harder and harder, and this has not resulted in upward social mobility. While average working hours increased by 20 percent, incomes actually fell. At the same time, the richest 1% of Americans now earn 20% of pre-tax national income. To put it differently, the US average income grew at 1% per year from the mid-1970s to the late 2000s. But if you strip out the income growth that went to the top 1% of the income ladder, the rate drops to only 0.6%.
Inequality is a many-headed problem. When hard-working people cannot make ends meet, when the fruits of economic growth reach the pockets and tables of only a lucky few, when children start their lives in poverty and never grow out of it, inequality becomes a structural problem. It locks in privilege, trapping people in a vicious circle of exclusion and lack of opportunity from which it is very difficult to escape. And inequality of opportunity undermines growth, preventing societies from making the best use of their resources and talent base.
This is why inclusive growth is a better alternative. Precisely tomorrow, I am going to be addressing this issue at a workshop that the OECD is jointly organising with the Ford Foundation on “Changing the Conversation on Growth: Going Inclusive”. In this Workshop, we will discuss the multi-faceted nature of inequality, which goes far beyond the distribution of income, and the policies that need to be put in place to improve the distribution of opportunity and outcomes.
Let’s be clear: equality of outcomes depends on equality of opportunity. And this requires policy action! America needs to become the Land of Equal Opportunity again. You need it for the sake and success of America – the rest of the world needs it for the sake and success of the global economy, for which the economic health of the United States is essential.
The US Government is already taking decisive action, with a series of inclusive initiatives like the Affordable Care Act, a higher minimum wage, a multi-stakeholder campaign to bring down child obesity, a College Opportunity Summit to improve equal access to higher education, and other key actions.
Today, we want to join this effort. In fact, I’m here to share with you the outlines of an action plan to Tackle Inequalities in America. A policy package that builds on the strengths of the American economy, the hard work of the American people, and the many successful American policy experiences, plus the best international practices.
An Action Plan to Tackle Inequalities
This package provides some of “the ladders of opportunity” that President Obama talked about in his 2014 State of the Union speech. We intend to propose this package to the US government to work together to promote more inclusive growth and reduce inequalities in America.
This Plan includes OECD support to:
- Improve job opportunities through better education and skills. The first imperative to reduce inequalities is to empower the people through better education and better skills. The performance of American students in the latest PISA evaluation reflected “a picture of educational stagnation”, in the words of Secretary Duncan. This needs to change. The skills of our workforce is another key element, and they need to be upgraded throughout their working life. Our 2013 Survey of Adult Skills (PIAAC) found huge disparities in the literacy, numeracy and problem-solving competences of American workers.
- Design effective policies to boost job creation. Returning to strong and sustainable growth means mobilising all available talent. Efforts to bring everyone back to work, and especially the most vulnerable, need to be stepped up. Labour market participation is edging down towards 60%, compared to levels above 63% before the crisis. OECD countries spend four times as much on average as the US to bring people back to work. Countries like Australia and Denmark have very interesting experiences to share.
- Improve the tax and benefits system. These are the key tools to reduce inequality in advanced economies. Unfortunately, their effectiveness has eroded over time. When comparing market and disposable income, we see that, on average, taxes and transfers reduce income inequality among the working age population by 26% in the OECD and by 30% in France and Germany. In the United States, it is only 20%. We are not advocating for higher taxes, we propose to rationalise the tax system. The US has increased efforts to improve tax compliance, and other measures should be taken to review tax deductions which benefit primarily those that are better off.
- Provide more efficient and accessible public services. US spending on public social services is at the OECD average: 13% of GDP. But since spending on cash benefits is much lower in the US than across the OECD, it is particularly important for Americans to have equal access to good health, family care and other social services. Public policies should focus on equipping people with the tools they need to fight exclusion.
The experiences of different OECD countries reveal that combined action on these four tracks can boost our efforts to promote inclusiveness and reduce inequalities of outcomes. Of course these are just a few brush-strokes of a much broader and more complex programme. The OECD stands ready to work with the US Government to make it work.
America has been engaged in a constant and exemplary struggle for equality. This is the foundation of the great things this nation has achieved: the belief, the certainty, that in this country the dreams of any citizen can be realised and that everyone, for the simple reason of living in this land, will have a fair chance to flourish and thrive.
The numbers now say that this system is in jeopardy. The evidence now tells us that the levels of inequality are becoming an impediment for progress, and that action is needed in many fronts to make America once again a Land of Equal Opportunity.
Inequality is a multi-dimensional challenge, it goes beyond income and it affects the wellbeing of our people. We need a multidisciplinary policy response and that’s what the Inclusive Growth initiative that we are launching in the OECD will provide.
OECD Secretary-General in New York, 26-27 February 2014