The issues | The Principles | Next steps
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The issues at stake
The governance of public investment is complex because it is a shared responsibility across an increasing number of actors and levels of government. More than two-thirds of public investment is conducted at the sub-national government level in OECD countries, i.e. by states, regions, provinces, and municipalities.
Share of public investment at the sub-national level
The impact of public investment depends to a large extent on HOW governments manage it, and notably how different levels of government involved co-ordinate and develop capacities to design and implement relevant investment projects. Poor investment choices not only waste limited public resources and erode public trust; they also hamper future growth opportunities.
To help countries address governance challenges linked to public investment across levels of government, the OECD is working to identify good practices, learn from good examples and identify framework conditions that are critical to make the most of public investment.
Did you know that…
- Public investment represents 15% of total investment (public and private) in the OECD
- Public investment represents 2.7% of OECD GDP
- On average 50% of public investment in OECD countries is directed to education and economic affairs. (Economic affairs include most of public support to economic sectors and firms, in particular industry, manufacturing and construction, transport, communication, and R&D).
- At the sub-national level, more than one-third of sub-national investment in the OECD area is allocated to economic affairs (transport, communications, economic development, energy, construction, etc.); more than 20% to education and 11% to housing and community amenities
- Public investment funds dropped by almost 8% annually since 2010 on average in the OECD
Annual changes in public and private investment (1996-2011)
To promote good practices in the area of multi-level governance of public investment, the OECD is currently developing a set of Principles on Effective public investment: a shared responsibility across levels of government, to be adopted by the OECD Council in early 2014 as an official OECD instrument.
Background and rationale
The purpose of the OECD Principles for Effective public investment: a shared responsibility across levels of government is to help governments set priorities in these areas, overcome difficulties, and orient their efforts to improve multi-level governance of public investment.
Effective public investment is important in both good times and bad. Given that public budgets across the OECD are likely to remain tight for some time, all levels of government will have to contribute to doing better with less? This means developing both their individual and collective capacities to deliver more efficient public investment. Improving multi-level governance of public investment has the potential to improve the quality of investment choices, produce efficiency gains, improve private sector participation, and bolster accountability and results.
Member states should take steps to ensure that national and sub-national levels of government utilise effectively resources dedicated to public investment for territorial development in accordance with the following Principles:
Pillar I: Co-ordinate public investment across levels of government and policies
1. Invest using an integrated strategy tailored to different places
2. Adopt effective co-ordination instruments across national and sub-national governments
3. Co-ordinate among sub-national governments to invest at the relevant scale
Pillar II: Strengthen capacities for public investment and promote policy learning at all levels of government
4. Assess upfront the long-term impact and risks of public investment
5. Engage stakeholders throughout the investment cycle
6. Mobilise private actors and financing institutions to diversify sources of funding and strengthen capacities
7. Reinforce the expertise of public officials and institutions involved in public investment
8. Focus on results and promote learning
Pillar III: Ensure proper framework conditions for public investment at all levels of government
9. Develop a fiscal framework adapted to the investment objectives pursued
10. Require sound, transparent financial management at all levels of government
11. Promote transparency and strategic use of public procurement at all levels of government
12. Strive for quality and consistency in regulatory systems across levels of government
Consult the full version of the draft Principles in English / French. Please note this is a draft version of the final document and should not be quoted without authorisation.
- 2014 and beyond: The Principles will ultimately be approved by the OECD Council in early 2014 in the form of a “Recommendation”, i.e. an OECD instrument that results in international norms and standards, best practices and policy guidelines. Recommendations are not legally binding, but practice accords them great moral force as representing the political will of Member states.
- A toolkit of implementation will be further developed, with indicators and good practices for the different Principles, illustrated with concrete examples from countries, regions, and municipalities.
- The Principles will then be monitored every three years by respective OECD Committees.
Background work linked to the Principles
The draft Principles have been developed on the basis of the extensive work conducted by the Territorial Development Policy Committee (TDPC) of the OECD, which has developed since 1999 an extensive evidence base concerning public investment for regional development across levels of government.
This work is supported by the Working Party on Territorial Policy in Urban Areas, the Working Party on Territorial Policy in Rural Areas, the Working Party on Territorial Indicators, and bodies such as the Network on Fiscal Relations across Levels of Government.
Publications supporting the Principles
Why investing together? Public investment is not only a major strategic responsibility for governments but also a shared one: almost two-thirds of public investment is undertaken by sub-national governments and major projects tend to involve more than one government level. In a tight fiscal landscape, improving the efficiency and effectiveness of investment, while maximising its impact on growth outcomes, is paramount. Identifying and addressing the governance bottlenecks that impede smooth co-ordination across levels of government can make a significant contribution towards reaching that end.
This report dissects the relationships different government actors form vertically, across levels of government, and also horizontally, across both sectors and jurisdictions. It helps policy makers to understand more systematically how co-ordination works and why it so often doesn’t, as well as shedding light on the mechanisms countries have developed to govern these interactions. In doing so, it addresses another key requisite to organising co-ordination, namely government capacity. Sub-national actors, especially, need to be equipped with the right skills and resources to carry out their responsibilities and to engage with stakeholders, across the public, private and civil society sectors. This report offers a toolkit to policy makers to assess their needs for capacity development.
Key publications and working papers
Other OECD policy guidance and tools links to public investment
The OECD has developed a number of instruments linked to public investment. The Principles are intended to be used in conjunction with other OECD policy guidance and tools which are available on OLIS, in particular:
- The Recommendation of the Council for Improving the Quality of Government Regulation, the subsequent Guiding Principles for Regulatory Quality and Performance and the Recommendation of the Council on Regulatory Policy and Governance
- The Recommendation of the Council on Improving Ethical Conduct in the Public Service including Principles for Managing Ethics in the Public Service
- The Recommendation of the Council on OECD Guidelines for Managing Conflict of Interest in the Public Sector
- The Recommendation of the Council on Enhancing Integrity in Public Procurement
- The Recommendation of the Council on Principles for Public Governance of Public-Private Partnerships
- The OECD Best Practices for Budget Transparency
- The Recommendation of the Council on Principles for Private Sector Participation in Infrastructure
- The Policy Framework for Investment
Each existing instrument contains guidance relevant for public investment. The Principles on Effective Public Investment – A shared responsibility across levels of government offer a whole-of-government approach that addresses the roles of different levels of government in the design and implementation of a critical and shared responsibility. Moreover, it emphasises the crucial contributions that all levels of government can make to national development and long-term growth.
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