Sustaining growth: Trust, equality, jobs


Sustaining growth: Trust, equality, jobs

The economy is not out of the woods yet, with limited growth at best expected in OECD countries for 2013, unemployment still rising in some areas and falling more slowly than had been hoped in others, before things start to pick up in 2014.

But this forecast, in the latest OECD Economic Outlook, is not written in stone – it assumes that governments continue with reforms to set their economies and societies back on the path to sustainable recovery – and that means sustainable socially, economically and environmentally.

One risk was averted in January, when the US Congress agreed to extend the country’s debt ceiling for a further three months until May, avoiding potential inability to pay its bills. But this decision also sent a message that Congress is taking seriously the need to find a more permanent solution than repeated debt rollovers – if lawmakers have not produced a budget bill by mid-April, they will not be paid until they do.

The key to recovery is to push ahead with reforms that will pay dividends in the medium-term, in areas such as education, innovation, taxation, jobs OECD Secretary General Angel Gurria said at Davos. This is not a case of ignoring the present, however -- "If you really want to go for a durable recovery, you really have to go for the fundamental measures," Mr. Gurria said in an interview with Bloomberg. "Some of these take a long time to get results but today, paradoxically, your best short-term policies may be your best long-term reforms.”

A key question after the crisis hit in 2008 was why it was not foreseen and prevented. At least part of the answer to that question lies in the fact that what you know depends on what, and how, you measure everything from economic growth to what makes people happy. Devising credible measures, and keeping them up to date, is a complex process. The idea that the overall well-being of a society and economy could not be captured by economic growth figures alone was already becoming clear in the early 2000s, but it took some years to develop a tool such as the OECD’s Better Life Index, for example.And existing measures were in need of updating. The way trade flows are measured, for example, dates from a time when essentially Country A produced and exported something, whether bananas, bicycles or boots, to Country B. But globalization and Internet technologies have changed all that – how do you determine the country of origin of a car or a mobile phone whose components can come from multiple other countries, and be partly assembled in several places? Work on this began as a result of the crisis, and the OECD with the WTO in January produced the first figures measuring this more complex reality which may call into question our assumptions about just who has the biggest trade surplus with whom, not to mention who is creating jobs where.

Revising such measurements is not easy, and it can take a crisis to focus attention on what needs to be done. Take the question of inequality within society – this was not the focus of attention in the growth years, but in work released in 2008 just as the crisis broke the OECD found that over the previous 20 years, the inequality gap had widened in most OECD countries.

It also brought attention to issues around taxation, particularly for multinational companies operating in many countries. Again the existing rules on how you were taxed for activities outside your home country were drawn up in the pre-globalisation era and designed to ensure that companies were not penalized by paying tax twice on the same earnings. It was clear in the run-up to 2008 that globalization was making the system inadequate, and that questions were arising about the converse issue of tax not being paid anywhere. The G20 has asked the OECD to help it address the issue at international level.

The public debate about corporate and personal taxation and demand for fair and transparent tax systems in many OECD countries” reflects an important aspect of trust in government. People want to know that there is a level playing field. This is all the more true at a time when governments are cutting spending and unemployment remains stubbornly high. The OECD jobless rate is due to grow further in 2013, to 8.2% before falling back in 2014 to 8.0%. The increase is focused in the euro area, where it is set to rise from 11.1% to 11.9%, with youth unemployment still more than double that rate.

And sometimes trust in government is so embedded that we do not even realize that we have it. Headlines in UK and Irish newspapers this month about horse and pig DNA found in supermarket beef burgers have focused on consumers’ outrage that they cannot trust their supermarkets. But it is perhaps also a sign that they can trust their governments – the burgers were discovered as part of an investigation to check the contents of the burgers by the Irish Food Safety Authority, doing its job to protect the consumer.

Of course, economic performance has to remain part of the equation – you have to pay for it all somehow – but this is a time of reflection about how the proceeds are distributed and how they are spent. We may seem to be living through an economic and social equivalent of the “no pain, no gain” reminiscent of the start of the exercise era of the 1980s, but it is still helpful to know how much pain for how much gain.

The next key moment for international debate on these issues will be the G20 finance ministers’ meeting in Moscow on 15-16 February, when growth and taxes will be high on the agenda. Watch this space.


The Secretary-General speaks from the World Economic Forum in Davos. 

Find out more

For more on the latest OECD economic figures and outlook:

For more on OECD work on employment:

For more on OECD work on tax issues:

For more on OECD work on well-being


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