Finances

Dealing with the crisis: reforms that will put us back on a path of growth, innovation and sustainability

 

Remarks by Angel Gurría, OECD Secretary-General, at the TransAtlantic Business Dialogue executive board


Davos, Wednesday 28 January 2009


It is a pleasure to be addressing the TransAtlantic Business Dialogue on the occasion of the World Economic Forum. I am particularly pleased because you have invited me to discuss important and challenging topics: the global financial and economic crisis, intellectual property rights and innovation, energy and climate change.  


One pervasive feature about the current environment is uncertainty: uncertainty about the fallout of the financial crisis on the real economy, about the appropriate response to the financial crisis, even about the economic governance of the world of tomorrow. To a large extent, these uncertainties stem from the fragilities that the financial crisis has revealed throughout the world. Contrary to past financial and economic crisis, this one is truly global.  Its origin was in the United States, however, this was really only the canary in the coalmine. We failed to listen to its song. It was a song of regulatory market and policy failures. That song, we now know, swiftly resonated into other financial markets and to other countries, creating the worst financial crisis since the Great Depression. 


This episode will likely reshape not only OECD economies, but the world. The OECD is working with the world’s governments and other international organizations to prevent these failures from happening again.  The only way out of the crisis is to tackle it in a comprehensive fashion. This is reflected in the OECD’s strategic response, which you are welcome to see on our website. It focuses on finance, competition and governance, including their interactions, as well as how to achieve sustainable growth in the real economy. 


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 scrutinizing such issues as balance-sheet coverage, taxation and restoring market signals. We are evaluating the volatile investment bank segment, its size, capital requirements rules and other questions. And we are examining broader issues, such as board room governance of risk, remuneration and shareholder rights, and how to improve agreed standards, such as the OECD Principles of Corporate Governance, regulatory management rules, performance guidelines and more. 


Of course, competition is key for a sustainable recovery to take place generally, alongside such fundamentals as keeping markets open for trade and investment. The crisis should not be a pretext for raising protectionist barriers. The OECD Freedom of Investment project, launched in 2006, promotes long-standing binding commitments to openness, non-discrimination and transparency. It forms a strong basis for governments’ efforts to ensure an open international investment environment while safeguarding essential security interests. As you may know, in October last year, we issued guidance on security-related investment policies, including guidance on recipient country policies towards sovereign wealth funds. I would very much like to welcome the business community’s ongoing support for OECD work on Sovereign Wealth Funds and Recipient Country Policies.   


While recovery is vital, not any kind of recovery will do. We need sustainable recovery. Innovation is key to restarting sustainable growth. In the dawning era of big government, innovation is the smart approach to fiscal stimulus. It will encourage the creation of knowledge-based jobs and new companies, and pay the biggest dividends over time. And this requires investment: investment in R&D and innovation in new, small firms, which, judging by past experience,  will be particularly hit by the crisis. It also requires investment in human capital. Times of crisis are also times when the demand for education rises. Support for education and training that enables the transition to new jobs and emerging opportunities is important.


Knowledge is power, and in today’s world it holds the key to economic success. Intellectual property protection is vital to the kind of innovation that ensures new business creation and long-term growth. But globalization and technology are changing the way people innovate – and that’s having an impact on the way Intellectual Property Rights are used. Policy development needs to keep pace with that evolution. 


The OECD Innovation Strategy – which we will be reporting to Ministers on this year – takes up this challenge. Work underway seeks answers to two key questions: how can we track knowledge transfers in open innovation networks and identify where value is created; and how can we develop and manage mechanisms that facilitate access to IP but reward rights holders. So-called “collaborative mechanisms”.


The OECD has been co-operating for years with patent offices for setting up an international statistical infrastructure on patents and on trademarks. That has made these data and indicators now available and broadly accessible from the OECD web site. Hand in hand with these more open systems needs to go a robust system of enforcement of intellectual property protection. Recent pushes by the G8 to strengthen the practice if not the scope of IP protection (essentially in return for globalising innovation) have been very much in tune with the OECD perspectives. Furthermore, a proposed OECD Council Recommendation focuses on combating counterfeiting and piracy. We are now working with member countries to scope out what such an instrument might look like.


In addition to the current economic crisis, there are systemic threats to the global economy, particularly climate change. Most countries are currently developing short-term relief packages to boost growth and job creation. Some of these packages include investment to increase long-term potential productivity growth while addressing environmental challenges. These dual goals are an important part of economic stimulus plans of the new US administration, which is calling for a “Green New Deal”. This new vision will enable the creation of wealth and business opportunities while improving environmental performance.


The OECD is contributing to this debate thorough its work on Sustainable Manufacturing and Eco-innovation. This promotes the concept of eco-innovation to stimulate technological and non-technological solutions to global challenges. The outcomes are an integral part of the OECD Innovation Strategy. During 2009, a Manual will be developed to provide guidance to enterprises and governments on how to create and use indicators and other tools to monitor sustainable manufacturing.


The OECD is also studying the role and impacts of Information and Communication Technologies in meeting environmental challenges including greenhouse gas reduction and improving energy efficiency.  We are also developing guidelines and an OECD Council recommendation for governments, business and households. ICT applications under study include monitoring and controlling of energy use, reducing traffic flows, developing smart buildings and optimizing energy use. 


To conclude, let me stress that we are only at the start of the reform process that will put our economies back on a strong economic growth path. The reform agenda, as we see it at the OECD, should be comprehensive. Success is dependent on effort and given the complexity of the issues, success will also require time. Not least, it will come from the personal investment, enthusiasm and commitment of individuals like you. I am confident that together we can rise to the challenges of today, to build a better world of tomorrow. 

Thank you for your attention.

 

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