Social and welfare issues

INET 2015 Annual Conference: “Liberté, égalité, fragilité”

 

Institute for New Economic Thinking (INET) 6th Annual Conference

Opening remarks by Angel Gurría

Secretary-General, OECD

Paris, 8 April 2015

(As prepared for delivery)

 

Thank you Clive for your kind introduction; Dear Rob Johnson, President of INET; Dear panellists (Thomas, Joe); Dear friends:

 

It is a great pleasure to open this sixth Annual Conference of the Institute for New Economic Thinking (INET), under the very provocative title of “Liberté, égalité, fragilité”. As you know, every year INET organises this conference in partnership with a relevant institution or international organisation, and this year the OECD is delighted to be the active partner and host of this event at our Headquarters.

 

In recent years, the OECD has been making a great effort to revise, with a critical eye, its economic thinking, its analysis and policy advice. Through this effort, which we call New Approaches to Economic Challenges (NAEC), our Organisation has become more open to new theories and methods, more plural and more useful. This metamorphosis has blown the sails of our ship close to INET, another key partner in our effort to improve economics as an imperfect but very important social science for human progress.

 

The topic that we are going to discuss in this first, inaugurating panel is one of the biggest policy challenges of our times. What president Obama described as “the defining issue of our era”: the multidimensional challenge of inequality; an issue of increasing relevance for most countries and policy-makers, for great minds like Piketty and Stiglitz, and certainly for the OECD. 

 

In fact it was in 2008, just prior to the crisis, when we issued our first warning signals about the long‑term trend increase of inequality in most OECD countries with a study named “Growing Unequal?”. We pointed out that the benefits of economic growth do not trickle down automatically. We proved our case and didn’t make many friends. 

 

Three years later, we issued a second warning with a new report under the title of “Divided We Stand: Why Inequality Keeps Rising”. This study showed how mega trends, such as technological change, were combining with policies that ignored their distributional effects to create a perfect storm of rising inequalities. Advances in technology have been a key driver of growth, but those with low skills have been left behind.

 

Later this year, we will release our next major review of inequality. I would love to tell you that this time our message is more positive, that countries have managed to get their social and economic goals aligned, that inequality is finally starting to fall.  Alas, this is not the case.

 

The gap between rich and poor, which widened in many countries throughout the crisis, has continued to grow after the crisis. Today, in the OECD area, the average income of the richest 10% of the population is almost about 10 times that of the poorest 10% on average, as opposed to 7 times in the 1980s and 8 times in the 1990s. The rise in inequality is taking place even in traditionally more egalitarian countries, like Germany and the Northern European countries.

 

Income inequalities are just one way in which we can measure how unfair our societies have become. There are many others.

 

Is it normal that people from high socio-economic groups can expect to live as much as ten years longer than people from low groups?  Is it normal that we have so little social mobility in some countries that studying and working hard has less influence on your income than the income of your father 40 years before? Is it normal that the top 1% of the population gets a fifth, or a third, or nearly a half (like in the United States) of all the observed income growth that has taken place over the past decades?

 

The answer is NO. This does not need to be and should not be the new normal!

 

Reducing inequalities is a moral, social and political imperative. But now we know that it is also economically intelligent. New OECD analysis shows that growth which is so unequally distributed is not sustainable, because high levels of inequality also harm long-term economic growth.

 

Income disparities, in particular at the bottom 40% of the income ladder, can hold back economic growth because they limit the ability of young people from poor socio-economic backgrounds to invest in their human capital and skills, to find productive and rewarding jobs and fully engage with society. Inequality has become a drag on economic growth. If it continues to increase at its recent rate for another 25 years, the OECD average GDP will be 7.5% lower than it would be were inequality to stay constant.

 

So it’s clear that business as usual is not an option. Conventional economic thinking will not solve today’s problems. We must break the policy mould, and develop a new model of ‘Inclusive Growth’. We need a new policy mix to boost the participation of women, migrants and people with disabilities in economic activity; to guarantee access to quality education regardless of the economic background of the parents; to ensure the rich pay their fair share of taxes and that fiscal policy functions as an effective social equaliser.

 

Our countries must commit to policies that combine strong economic growth and improvements in opportunities for all. The OECD is working with governments to advance this policy agenda through the NAEC and Inclusive Growth Initiatives. We are trying to design a new framework for governments to assess how policies impact different social groups in different ways, to level the playing field, and to create better opportunities for the bottom 70, 80 or 90% of our societies.

 

Ladies and Gentlemen:

 

Inequalities are undermining our societies and damaging our economies. They are also eroding trust in governments at a rapid pace, corroding our social pacts and weakening the foundations of democracy. There is now a significant and compelling body of evidence to prove this.

 

It is time to turn this evidence into new policies. It is time to turn economics into an effective tool for inclusion. It is time to redesign the rules of the game to redistribute opportunities and broadly share the benefits of a more resilient, more inclusive and more sustainable growth. The OECD stands ready to keep working hard, confronting conventional thinking, searching for new paths, identifying best practices, in partnership with exemplary institutions like INET, to promote better policies for better lives.

 

 

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