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The Challenges of Globalisation and the OECD: Working for a More Balanced and Inclusive World

 

Introductory remarks by OECD Secretary-General Angel Gurría at the Bertelsmann Foundation

Berlin, 9 April 2008

It is a great pleasure to be at the Bertelsmann Foundation, a mainstay of innovative thinking and socio-economic progress in Germany and well beyond its borders.

I am delighted to share with you my views about the challenges of globalisation and the way the OECD is responding to these challenges.

Globalisation is testing our collective talent. It is demanding better policies and better multilateral co-operation; especially in these times of financial turbulence and economic uncertainty. Like never before, we need to make our development more inclusive and to work together to address the growing urgency of global challenges.

Under the current wave of globalisation, the world economy has experienced one of its most dynamic expansions ever. In the past 15 years, world trade has tripled and the global stock of foreign direct investment (FDI) has grown five-fold. During that period, the number of multinational corporations more than doubled, while their subsidiaries around the world skyrocketed to 700,000 and the number of patents reached a record 5.6 million. These are not just cold numbers; these figures translate into higher family incomes, millions of job opportunities and unprecedented scientific and human progress.

Thanks to globalisation, Europe remains the largest trading entity in the world and the main supplier and recipient of FDI flows. In 2006, the European Union added nearly 3 million new jobs, more than the 2.3 million created in the United States in the same year. Earnings from European affiliates in the US have soared, from 14 billion dollars in 2001 to nearly 89 billion in 2006. Inflation and interest rates stayed very low for a long time but this period is over now. And the European Commission estimates that at least one fifth of Europe’s income gains since World War II can be attributed to globalisation.

Globalisation has also contributed to growing inequalities. By the turn of the century, 1% of adults in this world were estimated to own 40% of global assets. Inequality is the trade-mark of whole regions like Latin America and Africa. In China and India, income inequality has been growing in parallel to the liberalisation of their economies.

Disparities have also grown in developed countries. According to our forthcoming study “Growing Unequal”, most OECD countries have experienced a widening of income distribution during the past 20 years. Between 1995 and 2005, child poverty increased in 17 of the 24 OECD countries for which data are available. We are well aware of these growing gaps and we are creating new tools to measure them and to identify their main sources.

The question is: how do we deal with these challenges? How do we produce a more inclusive and sustainable globalisation?

There are several key tracks where we must make progress fast.

Combating world poverty is at the top of the list. To address this challenge we must fulfil our international development commitments. So far, the global response to the Millennium Development Goals has been timid. In 2007, with the end of exceptionally high debt relief, total official development assistance (ODA) from members of the Development Assistance Committee fell by 8.4% in real terms to 104 billion dollars. In the Gleneagles communiqué, G8 leaders stated that “On the basis of donor commitments and other relevant factors, the OECD estimates that official development assistance from the G8 and other donors to all developing countries will now increase by around 50 billion a year by 2010, compared to 2004. They also said that the commitments “will lead to an increase in official development assistance to Africa of 25 billion a year by 2010, more than doubling aid to Africa compared to 2004”. These targets of lifting aid from 80 billion dollars in 2004 to 130 billion in 2010 look harder and harder to be achieved. The UN target of 0.7% of GNI is miles away (we are at 0.28%). We must live up to our international aid commitments.

We cannot go on living in a world where nearly half the population lives on less than 2 dollars a day, where 2.6 billion people have no sanitation services and hundreds of thousands of children die from diseases related to lack of clean water. These are not only figures; these are broken families, shattered dreams, global shame. Poverty is the ultimate systemic risk. If we want to have good investment opportunities in developing countries, we need to invest in their development. We have to restore the ethical dimension of economics.

At the OECD we are helping to improve poverty reduction policies in various ways. Our recently launched Partnership for Democratic Governance is assisting developing countries in building their governance capacity and improving service delivery to their citizens. Our Guidelines for Poverty Reduction are helping to tackle poverty from a multidisciplinary perspective; while the Paris Declaration of Aid Effectiveness is helping to improve the impact and pertinence of development assistance.

But all these efforts won’t bear their best fruits if we don’t break the deadlock of the Doha Development Agenda. Our work on Aid-for-Trade with the WTO shows that donors provide an average 21 billion dollars per year of Aid-for-Trade assistance to developing countries. But those 21 billion dollars cannot do much against the nearly 270 billion dollars we pour every year into agricultural subsidies, which have the effect of keeping products from developing countries out of our markets.

International migration is another huge global challenge. And it can be an important vehicle to make globalisation more inclusive. But we need to apply better policies. Multilateral organisations should work more closely with governments and NGOs to address the multiple challenges of international migration.

Migrants are becoming an important development engine. In 2007, registered remittances from migrants to their home countries reached a record 240 billion dollars.  The contribution of immigrants to the economic growth of OECD countries is also growing. The Latino population adds some 700 billion dollars each year in consumption and investment to the US economy. In the UK immigrants contributed about 15–20% to output growth between 2001 and 2006. Europe now hosts nearly 56 million immigrants who are making crucial contributions to sustained growth.

Migrants are helping many OECD countries to address the ageing problem and to alleviate the fiscal pressures caused by demographic transition. In our Member countries, the proportion of older, economically inactive persons to each active worker could double between now and the middle of the century. This could lead to 30% lower economic growth in the next three decades.

Better integration policies can turn migration into a source of shared progress. At the OECD we are working to provide more accurate information to better understand the patterns and economic implications of immigration.

Here in Germany, the decline in the working-age population from 1995 to 2005 was projected to be over 1.1 million, but as a result of international immigration, it was only about 700,000. Germany is the secolargest host of immigrants in the OECD, but it still has much to do to improve their integration. Educating and training your immigrants is a big challenge, but the quality of their education will define whether they become a source of comparative advantage.

This takes me to the next topic: education.

Education is crucial to turn globalisation into a more inclusive process. In the age of the information society and the knowledge economy, education is the key to social progress. Access to schooling has improved over the years, but at current rates many countries will not be able to reach the Millennium Development Goals of Universal Primary Education by 2015.

But the challenge goes beyond universal education. Not all of those who go to school and university can secure a good education, and this is also perpetuating and even increasing inequalities. The OECD Programme for International Student Assessment (PISA) which we now run for 57 countries has revealed wide differences in the extent to which countries succeed in equipping young adults with knowledge and skills in key subject areas.

German student achievement is above the OECD average in science but at the OECD average in reading and mathematics; socio-economic and immigrant backgrounds continue to be strong determinants of performance results and the proportion of students that completes tertiary education is relatively low in comparison to other countries. I am glad the German authorities are reacting quickly to tackle these problems. To help you in dealing with this challenge, the Economic Survey of Germany, which we released today, devotes a special chapter on the topic.

Our Programme for International Assessment of Adult Competencies (PIIAC) is helping us to assess the level and distribution of adult skills. This comparative assessment will allow governments to develop the full potential of their adults.

As you know very well at the Bertelsmann Foundation, the most important source of wealth and social progress in our times is knowledge. Intellectual capital is the ultimate comparative advantage. But, it is also the best way to ensure a more balanced and sustainable globalisation.

This takes me to the last major challenge I want to talk about today: climate change. This is an issue which has reached the top of the agenda of most governments and international organisations. It is a multidimensional challenge with environmental, economic and social implications.

At the OECD we are working to build a sound economic footing for the post-Kyoto era. The 2008 OECD Environmental Outlook shows that stabilising greenhouse gases in the atmosphere, at a level which will not cause an excessive rise in world temperatures, would imply an accumulated loss of around one percent of the world’s GDP growth by 2030 and around 2.5% of GDP by 2050. This is an important but affordable cost given our projected accumulated wealth and compared to the much greater cost of inaction.

The key issue is how to distribute this cost. Given that developed economies today are responsible for the largest carbon footprint, but at the same time most of the marginal increases in greenhouse gas emissions will happen in developing countries, we need to find a viable cost-sharing formula together. Thus, the solution to this urgent global challenge will only come if all the major players are seated at the same table. Countries like Germany with a global economic influence and the source of technologies to develop new and cleaner energies will play a central role.

To respond to these and other global challenges more effectively, the OECD is expanding its reach and relevance.  We have already started accession talks with Chile, Estonia, Israel, the Russian Federation and Slovenia. In parallel, we are strengthening our co-operation with Brazil, China, India, Indonesia and South Africa with a view to possible membership.

At the same time, the OECD’s relations with nearly 100 other developing countries have become a two-way avenue of communication and learning. During the past G8 Summit of Heiligendamm, the OECD was asked to act as a platform for a dialogue between G8 countries and the major emerging economies that form the so-called G5. We are gradually becoming a forum for policy convergence between developed and developing economies. This represents a historic change for our Organisation.

But the change is not limited to the OECD. When Chancellor Merkel hosted the Heads of the five major international economic organisations last December we had a very promising exchange on the issue of global governance. Defining how to work together between the established and emerging players is of crucial importance for the functioning of the global economy.

Ladies and gentlemen,

We are witnessing amazing transformations that are producing a new global economy; where traditional economic theories falter, geo-economic power is shifting and national challenges are becoming increasingly international. This demands a collective response; a new role for multilateral organisations; a stronger global engagement by influential think-tanks like this prestigious Foundation. It requires new, original approaches.

The OECD’s work has been enriched by the constant contribution of our social partners; by the reflections of institutions and people like you. I look forward to working with you in finding innovative solutions, in generating common understandings and effective policies to produce a better, fairer, more balanced and inclusive globalisation.

Thank you very much.

 

 

 

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