Making Reform Happen
Changing for the Better: Making Reform Happen in the Aftermath of the Crisis
Remarks by Angel Gurría, OECD Secretary-General
Paris, 26 November 2010
President Barroso, Mr. Oh-Seok Huyn, Ministers, distinguished guests,
Ladies and Gentlemen:
Welcome to the High-Level Roundtable on Making Reform Happen. Before I start my presentation, let me thank all of you for being here to discuss this important issue.
Making reform happen is about change. And focusing on this in the aftermath of the crisis is particularly timely. The crisis has already led to changes that will shape our policies in the years to come. Among the most remarkable ones is that it has fostered an unprecedented degree of international co-operation.
The emergence of the G20 as a premier global economic forum provides us with an important opportunity to promote change and make reform happen in a co-ordinated fashion. At the last G20 meeting in Seoul I reiterated the OECD call to go structural. Indeed, structural reforms were an important part of the discussions in Korea and in concluding, leaders reaffirmed their will to implement a comprehensive reform agenda. The OECD is supporting this agenda by contributing its expertise on a broad range of issues, such as taxes, balanced growth, investment, trade protectionism, anti-corruption and job creation.
It is no coincidence that the G20 was chaired by Korea this year, a country committed to international and regional co-operation on policies and reforms. You all remember that looking beyond the crisis, Korea provided impetus to the OECD work on a Green Growth Strategy, which we will deliver next year. It has also a proven track record with successful national reforms, from which we can benefit through the strong Korean support and participation in the work on Making Reform Happen.
We are also privileged to have the President of the European Commission, Mr. Barroso, with us to share his views on Europe’s wide ranging efforts to address current and long-term challenges. Under his energetic leadership, the Commission is building an agenda for a “smart, sustainable and inclusive Europe”.
The case for Making Reform Happen
Policymakers in Seoul, Brussels, Paris and around the world look for answers to the fundamental questions which will shape reforms in the aftermath of the crisis: What kind of world economy do we want to build going forward? What are the new sources of growth that we need to promote? What is the new economic model that will prevent future crises and help address global challenges? And more importantly, what policy measures do we need to take today to confront those challenges and build highly productive green economies?
To answer these questions, we need a clear and ambitious agenda for structural reforms. Our success tomorrow depends on our ability to make reform happen today.
Indeed, well-designed and well-implemented reforms yield a triple dividend. They lift output and employment; they strengthen public budgets and they rebalance global demand. The vast, half-a-century experience in reform efforts of the OECD, condensed in our “Going for Growth” exercise, provides many examples. Let me give you a few powerful ones:
- Reducing the taxes on labour to the lowest level among G20 countries would ultimately increase the average employment rate by 3.5 percentage points;
- It is also worth highlighting that a 1 percentage point reduction in unemployment would improve G20 fiscal positions by up to 0.5% of GDP;
- By the same token, further opening markets for trade and investment would boost business confidence, income and employment, at no fiscal cost; and
- Over a longer term horizon, reforms to improve education systems offer even larger payoffs. Korea, our partner in the Making Reform Happen project, is an excellent example.
- An increase in social spending of 1 percentage point of GDP could reduce private savings by about 1.5 per cent of GDP and thereby contribute to lowering global imbalances. For countries with low levels of social spending, the multiple is even higher.
As I said, the OECD has been documenting the impact of reforms in growth prospects, analysed the critical factors behind the success and failure of reforms, identified best practices and given recommendations. So, is there a recipe for successful reforms? We provide concrete examples and analysis of more and less successful reforms in three major policy domains – pensions, product markets and labour markets – in our publication The Political Economy of Reform. We have a series of OECD reports, such as the Getting it Right we produced for Mexico, the study Le Pari de la Croissance we prepared to support the Attali Commission in France, the Public Policies report on Hungary, or the Maintaining Momentum publication on Chilean reforms. They were complemented by concise, but rich summaries of recommendations on key policy areas for nearly 10 OECD countries.
Lessons from OECD countries: a rich palette for successful reforms
In this work, the OECD does not offer a recipe, but rather a “palette” of policy options, as we all know that successful reform is more an art than a science. We offer a collection of “colours” to policy makers who face the challenge of crafting and implementing structural reforms.
The lessons of this work are summarized in our report Making Reform Happen that we are launching today. It analyses OECD reforms in ten different areas, including product markets, tax, environment, health, education, public administration, fiscal consolidation, regulatory policy, labour markets and pensions. It attempts to provide answers to governments concerned not only with the question “where to go”, but also “how to get there”.
The OECD reform experiences consistently point to the importance of strong leadership. This does not mean a top-down approach or a preference for high-level unilateral action. While unilateral reforms are sometimes the only way forward, our experience shows that successful leadership is about winning consent.
In advancing on the path of reforms and looking at the long-term, policymakers need to confront the short-run adjustment costs: often the benefits of better structural policies may take time to materialise. This should not be a deterrent to implementation. On the contrary, reformers need to act decisively as the cost of the status-quo could be even greater.
This is one of the reasons why effective communication of long-term objectives is of great importance in making reform happen. Making the case for reform needs also to be based on evidence and on a clear description of the desired outcomes. This is particularly important in education and health reforms, where professionals – if not engaged – tend to block reforms. But beyond this, their input may well improve the quality of the original reforms.
Of course, follow-through of reform priorities is complex. It depends on the right sequencing and on the existence of appropriate institutions capable of supporting reforms from decision to implementation. The implementation capacity often varies across countries and sectors. Capacity bottlenecks tend to constrain the ability of policymakers to implement reform effectively and to reap the full benefits of specific policy initiatives. The need to address such constraints when implementing reforms should be a priority.
The OECD assists policymakers in identifying implementation bottlenecks and strengthening policy accountability. National efforts to commission research by authoritative, impartial institutions can also help. But as our publication shows, structural reforms are complex and often require several attempts before they get through. Indeed, most success stories are built on the lessons of previous failure.
Increasingly, policymakers ask “how to reform and be re-elected”, or “how to reform and perform”? Our analysis shows that failures have more electoral impact than successes. Even good and well-managed reforms might not yield the desired result in time for election day – as the Hartz labour market reforms in Germany showed so clearly.
Still, here are a few tips. Governments and political parties should design reforms in the pre-campaign period, communicate them clearly and start implementing them from day one of settling into office. The rest is down to skill, judgment, leadership and support. Using best practices and insights of the kind the OECD can provide is also important in preparing the political “palette” for making reform happen.
Reform is about changing for the better: addressing global challenges
As our attention remains fixed on the scars from the global crisis, we should not lose sight of longer-term questions like fiscal and environmental sustainability, population ageing, structural unemployment, growing poverty and inequalities.
The most ambitious reform agenda ahead of us is to support a job-rich recovery through new sources of growth, such as innovation and green growth. OECD countries have lost about 3% of their potential output as a result of the crisis. New sources of growth are the only way to achieve a green, balanced and sustainable tomorrow.
These reforms present us with many challenges and therefore, we are reaching it. Openness is key to OECD efforts to make reforms happen on the global agenda. OECD membership is expanding. We are increasingly and actively engaged with Brazil, China, India, Indonesia, South Africa. We have been working with many other emerging economies in the spirit of co-operation and knowledge sharing. This is the only way to remain relevant, take a broader perspective to global challenges and design reforms most suited to the needs of citizens and the world economy.
Ladies and Gentlemen:
This High-Level Roundtable on Making Reform Happen is one of the first events marking the 50th Anniversary of the Organisation. An anniversary is an opportunity to look back, to question, and to look to the future – but above all it is a chance to reaffirm what the OECD is for – to design better policies for better lives.
Today we face a historic opportunity and a historic responsibility to build a better world economy founded on new values and greater trust. Going forward, we need better policies and better reforms based on a more solid connection between public policy and the public. But most of all we need to make reforms happen and make them work for all.
I wish you all a fruitful and stimulating discussion. Thank you.