Remarks by Angel Gurría, OECD Secretary-General, delivered at a seminar organised by the permanent representatives of the Czech Republic, Hungary, Poland and the Slovak Republic to the OECD
Paris, 20 November 2009
Ladies and Gentlemen:
I am very pleased to be with you today. People all over the world have been reviving memories of 20 years ago when the Berlin Wall was finally brought down. Anyone who was there that day in November 1989, or who watched the images in television was deeply moved by the occasion. There were unforgettable scenes of joy, of relief, even of surprise as families and friends embraced, laughed and cried. They were the scenes of people coming together again, after years of division and hopeless separation.
The peoples of Central and Eastern Europe and their governments walked towards history, driven by the hope for freedom.
Political freedom is priceless. But did it bring about economic and social wellbeing as it should? Did free markets meet expectations? What lessons can we draw from the experience and what values can we share to lead us into a post-crisis world? I welcome the initiative of our dear Ambassadors to address these important questions in the context of this celebration.
OECD Transition Economies Programmes
Free prices, free trade, free labour markets, privatization and competition transformed the economies of the Czech Republic, Hungary, Poland and the Slovak Republic. The multiyear efforts of economic stabilisation and structural transformation brought about large benefits. The four countries became magnets for foreign direct investment and a new growth pole in Europe. Inward FDI went from zero in 1990 to an average of about 61% of GDP in 2007. Real GDP per capita expanded more than twice as fast than in most OECD countries. Furthermore, accession to membership to the OECD and the European Union helped to lock in the progress achieved so far.
How did the OECD contribute to this progress? In the pivotal year of 1990, OECD members made a strategic choice to assist the historic transition process underway in what was then Czechoslovakia, Hungary and Poland. Within a year, the OECD established the Partners in Transition Programme (PIT), which served as an anchor in the uncertain early stages of transition. The OECD further engaged in Programmes for Russia, South East Europe, the Baltics and the former Soviet republics. OECD advice hopefully contributed to improve policy design and implementation in those countries.
Working together in several programs instilled a sense of ownership by the transition countries. It also revealed that OECD Members have often distinctive blends of institutional and policy frameworks, reflecting their history and culture. The ‘peer learning process’, the international comparability and the horizontal nature of OECD work provided an opportunity to craft coherent policy responses to the unique challenges of transition. The OECD working instruments, such as the Codes of Liberalisation, were also particularly relevant to the transition, as standards for successful reform.
Throughout our work, we learned that macroeconomic stabilisation can only be achieved if there is steady progress in the area of structural reform and institution building. Our advice in this field contributed to establish strong and effective competition policies and institutions in those countries. Not only that, nowadays, competition agencies in those countries are full partners with the OECD in the promotion of competition laws. With the opening of an OECD Regional Centre for Competition, a joint venture with the Hungarian Competition Authority, our work has expanded to the Central, East and South-East European regions.
In the context of institutional building, the joint SIGMA programme of the OECD and the European Commission, focused on assistance in the area of efficient public governance for the last twenty years. The transformation from central planning demanded a complete overhaul of regulatory frameworks. A rapid EU accession process for some economies added further pressure. The Istanbul Centre for Private Sector Development, the Ankara Multilateral Tax Centre and the Joint Vienna Institute have all contributed to the sharing of experiences and knowledge.
However, let me underline that real credit has to go to the Central and Eastern European governments themselves, who have faced the far more demanding tasks of translating policy advice into politically sustainable programmes and to the people in those countries for their courage and resilience.
Looking back, we have learned from the transition and post-transition periods, but also from the so called “communist” period. Decades of central planning distorted societies and economies dramatically. The effects are still apparent in differentiated social and economic performance. This is particularly visible in the experience of East Germany, which was more advanced industrially than the West before the war, but today it is still catching up, in spite of over a trillion Euros’ worth of support for its transition. The asymmetry of evolution cannot be understated. Social capital built over decades was destroyed in a few years and it would take decades to rebuild it.
We have learned that the expectations for a speedy completion of transition were unrealistic. In none of the Central and Eastern Europe countries and the former Soviet Union has transformation been smooth and linear. We found out that initial conditions made the difference. This explains in part why policy outcomes differ widely across countries. With such different initial conditions in transition economies, policy prescriptions should also have differed. Yet they were essentially the same.
Perhaps one of the most important lessons learned so far is that, even though we paid attention to it, we needed stronger institutional transformations. Creating democratic institutions and governance, new social norms and values, stronger civil societies, openness to private organisations and to entrepreneurship, and a network of regulators is related to this partial reform. State capture could enable a minority to unduly influence government policies in its own interests, thus slowing down reform efforts.
Last but not least, the accession of the Partners in Transition to the OECD as members from 1995 to 2000, marked the beginning of its own transformation into a more open and plural Organisation. Accession proved to be a milestone for the new members, but also for the OECD itself.
Current challenges and Opportunities
Today’s financial and economic crisis exposed a number of weaknesses that we are just starting to address. Twenty years on, massive failures in the governance, risk management and corporate governance systems have had a negative impact on the evaluation of free markets. Re-engineering a new way of growing, and building a sound and sustainable economy is not an easy task, but is something we need to focus on. The lessons learnt during the last 20 years for the economies in transition may shed some light when reconstructing a better world economy.
As for the region, even in this difficult context, the competitive advantage of Central and Eastern Europe could be expected to play a role, as investors will look for cost-effective opportunities for outsourcing. It is therefore, vital to continue reforms to improve the business climate in those countries and to create more favourable conditions for a second wave of investment, more tilted towards services, as well as for upgrading infrastructure.
Over the longer term, building knowledge societies and greening the economy would become increasingly important to sustain the prospects for growth. This points to the need of increasing investment in knowledge capital, and in creating adequate conditions for R&D activities. In all these areas the OECD is ready to help, as we deliver our innovation and green growth strategies.
Ladies and Gentlemen:
This twentieth anniversary invites us not only to commemorate but also to exercise our freedom to think and reform. These are again challenging times that require to re-double our efforts to achieve a stronger, cleaner and fairer world economy. The experience of former communist countries and their achievements should be a source of knowledge and hope for our own future.
To close, let me borrow President John F. Kennedy’s words, when announcing the ratification of the OECD Convention in 1961: “United, there is little we cannot do in a host of cooperative ventures. Divided, there is little we can do – for we dare not meet a powerful challenge at odds and split asunder.”
The OECD is living testimony of the value of these timeless words, of cooperating and working together for a better world. The road ahead is full of challenges. But it is also a road to progress that promises far better times for our countries if we get it right. It is a journey we look forward to travelling together.
Thank you very much.