Keynote Remarks by Angel Gurría, OECD Secretary-General, delivered at 2009 BIAC Business Roundtable (read also his introductory remarks)
21 May 2009, Lisbon, Portugal
Ladies and Gentlemen:
It is a great pleasure to come to Lisbon to participate in this year’s BIAC Business Roundtable on Responding to the Global Economic Crisis.
The last time we met, back in 2007, we were facing “windy economic times”, but in a context of high employment, high profits, strong balance sheets and buoyant global trade. Here we are today, a couple of years later, facing the greatest economic crisis of our lives.
We are facing a truly global systemic crisis. And any major systemic crisis should lead us to rethink. We need to create a better global economy. An economy based on a healthier balance between governments and markets, between reliable regulatory frameworks and responsible companies, between high productivity and sustainable development.
The only way to build this new reality is through a collective and inclusive response. The synchrony between public and private decision-makers will be crucial to getting it right. In this context, fora like BIAC and these Business Roundtables have become strategic.
Let me share with you the OECD’s perspective on the crisis and some of the key aspects of how we are responding to address it.
1. The gravest crisis of our lives: “green shoots”, but still raining
Let me start on a positive but realistic note. We are indeed seeing the first positive signs since the crisis started. Home sales and manufacturing orders in the US, Chinese export orders, and business confidence in Japan have improved. In recent weeks, there has also been favourable financial market news. Indicators of stress have been receding. Money markets are progressively normalizing in the US and Bank Credit Default Swap spreads have come down, especially in the euro area.
After many months of mostly bad news, these are indeed encouraging signs.
However, this does not necessarily mean that the global economy has bottomed out. The OECD Composite Leading Indicators suggest we are seeing an inflexion point, not yet a turning point. An inflexion point means that the recession seems to be slowing down, but it is not yet over.
Indeed, we continue to anticipate a very weak first half of 2009, due in part to the ongoing inventory correction. And for the whole year we forecast a substantial contraction in OECD area output, close to 4% of GDP on average. The panorama in emerging economies is also gloomy, with average growth slowing down to about 2% during 2009 (down from 5.8% in 2008).
Our Interim Economic Assessment, in which we do not project a recovery until 2010, is still pretty accurate. Part of the “green shoots” that we are seeing are the first results of the largest State intervention in world history. In other words, artificial respiration is working, and this is good news; but let’s not forget that part of this drive is still artificial. And let’s not lose sight of the list of synergies which continue to feed a more structural and long term recession.
The global banking system is still “intoxicated” by complex financial instruments in the balance sheets of banks in major financial markets. Global industrial production is in shock. Industrial output this year could be nearly 15% less than last year. International trade flows are expected to contract by 13% in 2009. Foreign Direct Investment (FDI) inflows are expected to fall further in 2009, after contracting by 20% in 2008.
The social consequences of these economic contractions are dramatic. Unemployment in the OECD area rose in the year to March 2009 by some 11 million people; and the unemployment rate is projected to approach 10 per cent by next year. Globally, the number of unemployed could rise by more than 50 million people by the end of 2009.
These are daunting figures; not only because of the big numbers and the rate of increase of unemployment, but also because of the tremendous difficulties of reinserting these people into the labour markets.
Reactivating growth and building a better and anti-crisis global economy is an economic, political and moral imperative.
So far, governments have implemented extraordinary macroeconomic measures and fiscal stimulus packages. It is now crucial that countries make the most out of these measures, that their impact on growth and employment is immediate and that they don’t have long term unwanted side-effects. For this to happen, the implementation of structural reforms will be essential.
2. The OECD’s Strategic Response: policies tools for a better future
With these objectives in mind, OECD has put together the “OECD’s Strategic Response to the Financial and Economic Crisis”. Through this strategy, we are taking stock of our existing OECD instruments, adjusting some of them to the new circumstances and designing new ones, in a large number of policy fields relevant to the crisis, to help countries take decisions and implement policies to build a stronger, fairer and cleaner global economy.
We are reviewing the framework for financial regulation, competition and corporate governance; to build a stronger and more coherent post-crisis financial system where incentives are not led by greed. We are helping countries foster a green and innovation-led recovery, given our work of two decades on climate change and renewable energies, and our analysis on the implications of the crisis for innovation.
We are also providing new instruments to help to keep markets open for trade and investment. Keeping markets open and avoiding new protectionism is crucial to strengthen prosperity throughout the world. It is imperative to avoid the risk that the economic crisis leads to a tit-for-tat escalation of barriers to trade and investment. We have just produced a book on this crucial issue ─ “International Trade: Free, Fair and Open?” ─ to explain the importance of open trade to a broader audience. We have some copies for you in the room.
We are also using our existing tools to fight cross-border bribery and corruption.
On the issue of fighting against tax evasion, the OECD has recently achieved historic progress, at a time when governments need all the fiscal resources available. Our work on tax havens ─ in close collaboration with the G20 ─ is a clear example of how the OECD “technology” of peer learning, benchmarking and monitoring, based on sound measurement and objective analysis, can deliver concrete results when combined with high-level political will.
And we are helping governments design exit strategies to withdraw their intervention in the private sector, once we reach the post-crisis phase. We strongly recommend that interventions have to be timely, targeted and temporary, with a plan for restoring the propulsion capacity of markets and firms.
Emergency measures will eventually have to be scaled back once markets and institutions have begun to function normally. As we argue in our Going for Growth 2009 study, structural reforms will be required to reduce the likelihood of further crisis and to raise economic growth and living standards in the long term. Reforms in regulatory and supervisory structures, as well as in areas like education, competition, innovation and market product regulation will be of particular importance.
With this Strategic Response we want to help governments reactivate growth and employment as soon as possible, but also to address these kind of structural challenges with a view to a longer term, greener and more inclusive growth.
3. BIAC-OECD: building together a stronger, fairer and cleaner global economy
How can we benefit from the BIAC-OECD partnership to help to achieve this growth and build a new and more reliable global economy?
Each of you surely has one interesting answer to this question. And I am looking forward to hear them all. For my part, I would say by enhancing our already rich interaction, so that we can: design policy recommendations that reflect “a new healthy balance” between governments and markets; prove that open markets are not a privilege for “a happy few”; open further our work and sensitivity to issues in emerging and developing countries; learn together from “what went wrong”; and, most importantly, to help restore trust and confidence.
The global financial and economic crisis has done a lot of harm to the public trust in the institutions, the principles and the concept itself of the market economy. It is also eroding public trust in corporations. The Edelman Trust-Barometer 2009 revealed that 62% of respondents in 20 countries on five continents say they trust corporations less in 2009 than last year. This feeling of deception is dangerous.
We must work together, BIAC and OECD, to restore public trust. Trust in governments and regulations, in banks and corporations, in open markets and globalisation as a whole. As I said a couple of weeks ago in our OECD Integrity Forum, trust is the spinal cord of economics. It is a crucial ingredient for finance, successful business, growth, development.
Ladies and Gentlemen:
OECD is working hard to help countries design better and more reliable policies to underpin the credibility of a stronger and more accountable global economy. But a new economic system that can win back public trust can only work if it’s based on a more responsible business culture; a new business culture that can reconcile profit-making with reducing inequalities, fostering greener growth, improving renewable energies, and building more accountable frameworks and institutions.
BIAC is a natural partner to advance in all these objectives. Its opinions and recommendations have been crucial to produce many of the policy instruments and standards included in the OECD Strategic Response to the crisis. I am sure that this Business Roundtable will be another source of useful ideas and recommendations.
This is not only the gravest crisis of our lives, and the greatest opportunity of our lives; it is also the greatest responsibility of our lives. Let’s assume it with courage and resolution, for the future of our children is at stake.
Thank you very much.
Responding to the global economic crisis – OECD’s role in promoting open markets and job creation (introductory remarks)