Gabriela Ramos, OECD Chief of Staff and G20 Sherpa
The economic crisis that struck in 2008 was a wake-up call for everyone, for our economic models, our ways of doing business and our international relations. It revealed just what a patchwork our world really is-our countries may share the same ambitions for progress but have different starting points and face different challenges along the way. The crisis drove home the message that the structure underlying global governance must change.
For a clear sign that world leaders have heeded this message, consider the involvement of leaders in the G20, which has helped move this grouping of developed, emerging and developing countries to the forefront in addressing global challenges. The OECD was quick to respond to its calls when the crisis started, notably by helping it forge breakthroughs in combating international tax evasion, and avoiding protectionism on trade and investment. The OECD has contributed substantially to the G20 process ever since.
But while the G20 has proven its worth by steering the world through the storm by bringing economies at different levels of development around the same table, it must now show it can set in motion a new governance for the post-crisis world. This will not be easy. To many countries, the “new normal” means higher deficits and public debt, higher unemployment and slow growth. It also means an international economy of multiple speeds, where policy requirements in one region may affect growth prospects in others. And it means the looming danger of unfinished reforms in the financial sector.
Addressing these challenges requires a consolidation of the G20's Framework for Strong, Sustainable and Balanced Growth. So much hinges on getting this crucial initiative right. Policy commitments need to be fulfilled, recognising that some options offer real opportunities from an international perspective. The Framework, and for that matter, the Mutual Assessment Process, promises to promote higher and more sustainable rates of growth. However, it faces important challenges, and this is where the experience of organisations such as the OECD must continue to show their value.
For a start, there is the job of securing a lasting recovery. This means advancing sound policies on the monetary and fiscal fronts that address sovereign debt problems and fiscal consolidation, while continuing to implement exit strategies from the extraordinary measures introduced to address the crisis. But it also means “going structural”, as many advanced economies have run out of room for using fiscal or monetary expansionary measures.
Structural policies are the only option that can make the difference in terms of forging stronger, more sustainable growth. Such policies include enhancing social safety nets and investing in human capital in several fast-growing countries such as Brazil, China, Mexico and South Africa, and taking action to restore dynamism in advanced economies by bolstering markets, strengthening competition and reforming public finances and tax systems, not to mention introducing innovation strategies for all.
With the right approach, structural reforms could improve fiscal positions by 0.5% of GDP, freeing up resources for, say, more social spending. OECD evidence on this is compelling: a rise in social spending of a percentage point in GDP would reduce private savings by some 1.5% in GDP-more in poorer countries. Such actions would bolster growth within countries and reduce imbalances between them. It is here, in the structural field, where the OECD has its main comparative advantage.
Another priority is to avoid investment and trade protectionism. In contrast to past crises, this time major economies have resisted protectionist pressures and reaffirmed their commitments to keeping their markets open, thereby heeding the advice of international institutions such as the OECD. However, maintaining these commitments will be a challenge at a time when economies are faced with very high unemployment, high deficits, slow growth and price volatility. The OECD will continue to support the G20 by tracking these commitments and warning against protectionism.
Then there is the issue of unemployment, which is not only a policy challenge, but the tragic human legacy of the crisis. According to the OECD, over 16 million people joined the ranks of the unemployed since the crisis started, and the slow pace of recovery is not creating enough jobs to fill the gap. For this reason, we welcome the proposal under the French presidency of the G20 to deal with employment as a matter of urgency, by leaning on contributions such as the G20 Training Strategy, prepared by the ILO and OECD, as our combined expertise in promoting employment and skills-particularly among youngsters-will be important.
The G20 global agenda would not be complete without addressing development. Here, the OECD and many other institutions worked hand in hand under the Korean Presidency, and the agreements reached in Seoul are steps in the right direction. The development agenda goes beyond aid and establishes an action plan that includes tax autonomy, food security, skills, infrastructure, knowledge sharing, investment and trade, among others. Its effective delivery could foster a development path that supports the Millennium Development Goals and promotes growth and resilience in developing countries, creating a more inclusive global economy.
Achievements so far, along with the ambitious agenda proposed by the French presidency-which addresses the international monetary system and volatile commodity prices along with anticorruption and financial inclusion-augur well for the future of the G20 as a “major forum for economic discussions”.
Beyond that, there are three areas where the G20 could enhance its contributions to the world economy.
First, it should adopt a “green” perspective in its deliberations and policy solutions. Following the encouraging results of COP 16 in Cancún, Mexico, this becomes a must. At the OECD, our Green Growth Strategy shows that there are clear options that not only boost the economy but also help the environment.
Second, the G20 should continue to rely on evidence and analysis from international organisations to frame the discussions and promote policy coherence among them. Working for the G20 has required participating institutions-the IMF, World Bank, World Trade Organization, ILO, Financial Stability Board and the OECD-to share information and perspectives, and collaborate more closely with each other. OECD Secretary-General Angel Gurría has called for more co-ordination, and cautioned against returning to the “silo” mentality that prevented organisations from looking at similar issues from different angles and contributed greatly to the financial crisis.
Better co-ordination does not mean more bureaucracy or permanent structures at the G20, but a continuous effort to work together and improve our co-operation. This sensible way of moving forward means we can harness knowledge, build new solutions and co-ordinate actions. After all, our organisations have the tools and expertise needed to light the path towards better policies for better lives.
Finally, the G20 needs a powerful follow-up mechanism to deliver on its promises and monitor actions. While driven by G20 members, this process can also benefit from the OECD's track record of peer review and learning from each other.
To be sure, the OECD has expanded its work with major emerging economies and, since 2007, has established a formal programme of enhanced co-operation. Working with these countries and supporting their policy agendas has been a priority for the organisation. This is now paying dividends as we expand our work with all G20 members.
The crisis has opened up a new era of co-operation, which the OECD is determined to foster. The G20 is a terrific forum for gathering people together, bringing in different angles and expertise, and cross-fertilising ideas. It has shown it can nimbly respond to urgent challenges. Now it must show it can patiently build solutions for the future. The OECD stands ready to help the G20 succeed.