The challenges of economic growth and development, and the implementation of reforms

 

by Angel Gurría, OECD Secretary-General
An address to the meeting of the Enlarged Parliamentary Assembly of the Council of Europe
Strasbourg, France 4 October 2006

Introduction

Mr. President, ladies and gentlemen, it is an honour to address this Parliamentary Assembly for the first time. 

It is entirely appropriate that this debate should be entitled “OECD and the world economy” – because I see the core mission of the OECD as helping to make the world economy work better. 

Migration

 

Since I was elected Secretary-General of the OECD, I have met with many leaders from both OECD and non-OECD countries, including parliamentary leaders.  And I have been impressed by their very high regard for the OECD’s work:

This Organisation is really making a difference and should be better known by expert and non-expert communities.  To improve the impact and influence of our work, I firmly believe that one key element for the OECD is stronger partnerships with parliamentarians like yourselves. 

In this regard, I would firstly like to congratulate Mr Ignacio Cosidó for the excellent report that he has prepared for this debate .  And I am delighted that some of you are joining us tomorrow at OECD headquarters in Paris for our high level parliamentarian seminar on “Growth and Jobs”.

Challenges for economic growth and development

As Mr. Cosidó noted in his report, the economies of the major OECD countries, including in Europe, are all expected to continue to grow in the next 18 months, albeit at a somewhat slower pace. Emerging economies as a group continue to excel, with China and India in particular remaining major drivers of the global expansion.

But, while the near-term global outlook seems rather positive, I would like to mention four risks which could threaten such a scenario:   

  • Oil prices - both the OECD and its sister organisation, the International Energy Agency (IEA), are working to help countries address both the short-term and long-term challenges related to energy prices, security of supply and alternative sources.  The recent drop in prices is quite welcome.
  • External imbalances - current account imbalances have reached unprecedented levels in the US, China, Japan and other Asian countries, as well as in most oil-exporting countries.  Although these imbalances have not yet caused much disruption, they cannot continue indefinitely.  A disorderly unraveling could be disruptive and could deteriorate expectations. 
  • The risk of protectionism - we need to support a successful conclusion to the Doha Development Agenda.  As OECD research shows, there is room for large gains from further liberalisation in terms of poverty reduction and longer term economic growth world wide.  Failure to successfully conclude the Doha round risks unleashing a wave of protectionism from which all would lose.  In a similar vein, the resurgence of investment protectionism among OECD countries is a very worrying trend.  
  • In some countries where housing prices have increased considerably, the effect of higher interest rates and slower economic growth could have indirect consequences on consumption patterns, and on housing demand itself, which has been one of the drivers of growth. 

And while we are working on the problems of today, we should not forget that the problems of tomorrow are almost upon us. 

Population ageing is perhaps the biggest challenge for many OECD countries. This means putting more emphasis on the sustainability of pension systems and the performance of health care systems.  Today, the health economy represents some 10 per cent of GDP in the OECD as a whole, rising up to nearly 15 per cent in the US.  It is for this reason that I believe that health should be one of the priority issues at the OECD.

There are many elements to the population ageing puzzle, including migration, another one of the OECD’s priority issues.  I am convinced that "enlightened migration" can be a win-win for both sending and receiving countries - even if the movement of people is one of the most difficult aspects to manage globally. 

Emigrants from developing countries can contribute not just to their host societies, but the money they send to their families back home is also helping consumption and poverty reduction in such countries.

This leads me to saying a few words about the Millennium Development Goals.  Progress towards achieving these goals remains disappointing.  We are essentially talking about the need to tackle poverty. 

I have said this many times before, but let me say it again: Poverty is the ultimate systemic threat. We must address it not just on ethical and moral grounds but also for purely economic reasons.

Important promises have been made to increase aid.  But increasing aid flows is not enough. We have to ensure that aid is effective and helping to lift people out of poverty. The Paris Declaration on Aid Effectiveness, adopted in 2005, was inspired by OECD work in this area. The Declaration sets out commitments on improving aid practices, with targets to measure progress in 12 areas. The OECD’s Development Assistance Committee is the host of this major international effort which we expect will fundamentally change the way aid is channelled and accounted for.

This brings me here to the issue of water and sanitation.  Access to a reliable supply of clean water and sanitation services would help achieve progress on virtually every single one of the Millennium Development Goals. Without water, life cannot exist.  You cannot grow food. Without clean drinking water you are prey to many waterborne illnesses. I have seen the impact that access to clean water and sanitation can have on the poorest, on women and children – on their lives and their dignity. It is therefore imperative to guarantee clean water and sanitation to the billions who still do not have it.  The OECD and the DAC should join and co-ordinate with other official and non-official organisations in this endeavour.

While I am discussing issues of emerging and developing economies, it is perhaps a good moment to mention the issue of new members of the OECD, and the OECD's co-operation with non-member economies.  I understand that this is an issue which has been of great interest to the Parliamentary Assembly.  As you know, the 1990s saw a wave of six new OECD Member countries, starting with my own country Mexico in 1994.  This same period also saw a rapid development in the OECD's co-operation with non-member economies.

Following a recent OECD Council decision on a new governance structure for the Organisation, at their meeting in May this year, Ministers agreed that it is essential to expand the OECD's global reach and policy impact through an enlarged membership and enhanced engagement with important non-OECD economies.  The OECD Council is now hard at work in a process of identifying countries for potential accession and countries for enhanced engagement with the OECD.  The Ministers also asked me to develop new ideas and be proactive in approaching non-Member economies with a view to making the OECD a permanent hub for dialogue on global economic issues for member and non-Member economies.

Implementing reforms for economic growth and development

As I mentioned, at the beginning of my remarks, perhaps our greatest challenge is improving the effectiveness and influence of the OECD, and its relevance in the design of policies. 

In many countries, well-designed reform strategies have failed to be implemented or sustained due to their near-term political costs.  This applies to both OECD and non-OECD economies. 

Typically, the costs of reform materialise upfront, while their benefits may be gradual or long term.  Or their impact may be concentrated on strong well-organised groups, while benefits may go to a very broad population or groups with little lobbying power.  Or immediate social objectives may be seen to conflict with long-term economic priorities.

This is the challenge of the so-called political economy of reform - how can governments implement the necessary reforms without having to wait for crises to occur? And how do governments promote reform and still get re-elected?

One critical element is developing partnerships with key actors like parliamentarians to push ahead a positive reform agenda and to help inform and convince our societies of the benefits of such reforms -- or the costs of the absence of reform.  The OECD can offer a wealth of information and analysis, based on the experience members have shared over the decades under its auspices, drawing on the expertise of its committees and staff.  OECD Ministers recently asked the Organisation to study the success stories and the failures in reform efforts to extract lessons and propose best practices going forward. 

It is in this context that I particularly value this opportunity to meet with parliamentarians like yourselves.  As law-makers, you are an integral part of the policy process.  As democratically elected representatives of our citizens, you are intimately aware of public concerns about globalisation and technological progress.  In short, you are ideal partners for joining forces with the OECD in building “coalitions for reform”.

I look forward to working with you and to hearing your proposals as to how we could have even closer co-operation in the future.


 

 

 

Countries list

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