Washington Center › A New Economic Cycle, New Balance
Remarks by Angel Gurría, OECD Secretary-General, delivered at the 19th Conference of Montreal International Economic Forum of the Americas
Montréal, 10 June 2013
(As prepared for delivery)
Madame la Première-Ministre de Québec, Ladies and Gentlemen:
It is a pleasure to be here at the 19th Conference of Montreal. I want to thank the International Economic Forum of the Americas for this invitation. Launching a New Economic Cycle and a New Balance will demand a collective response and a quantum leap in economic thinking and I’m sure this is what we will be doing at this important event.
For the OECD, this is a crucial topic. Most of our efforts are now focused on helping countries take off on a new route, powered by a much more reliable, sustainable and inclusive type of growth. Let me briefly share with you our views on the current economic outlook and of possible ways to move forward on a new stage.
The Economic Outlook: Gaining Traction, but Slowly (and Unevenly)
Let me start with the good news. The global economy is gradually gaining traction. The courageous steps that have been taken to deal with the legacies of the crisis are starting to pay off. And this is contributing to the pick-up in growth that we are projecting in all major OECD economies over the next couple of years.
Japan has taken decisive steps to tackle chronic deflation. The authorities in the United States have taken action to avoid – at least partially – the fiscal cliff. In its last federal budget, Canada passed important structural reforms to reduce unemployment, foster innovation and support small business growth. And a number of countries, notably in the euro area periphery, are progressing with both structural reform and fiscal consolidation.
We are already seeing improvements in competitiveness and a much needed rebalancing in the economies hardest hit by the crisis in Southern Europe. Unit costs of labour are gradually falling, and budget and current account balances are improving in countries like Greece, Portugal and Spain. This is all good news. But it is certainly no cause for complacency.
We are still confronted with a weak outlook, and a hesitant and uneven recovery across countries and regions. The so-called tail risks, mostly related to the euro area crisis, have receded, but the situation remains fragile, particularly in Europe. The potential for negative feedback loops involving weak banks, strained public finances and ailing real economies has not been eliminated. Financial sector repair has been slow in the euro area, and a fully-fledged banking union has yet to be put in place.
This failure of the global economy to recover more strongly places a heavy burden on people. Unemployment remains far too high. In some countries, it is already at record levels, and it is still rising in the euro area. The jobless, particularly youth and the less skilled, risk losing contact with the labour market and dropping out of the labour force altogether. In the OECD area alone, 48 million people are unemployed, about 14 million people more than before the crisis. Around the world, of the more than 200 million officially registered as unemployed, almost 74 million are young people.
We cannot afford a lost generation! We urgently need to put our economies back on a growth path. But how can we achieve this when our fiscal and monetary fire-power is nearly exhausted?
Time for Structural Reforms
At the OECD we are convinced that the best way forward is through the implementation of a comprehensive package of structural reforms. These can boost long-term growth and welfare but also underpin confidence and reduce the pressure off monetary and fiscal policies to buttress the recovery.
Our organization has simulated the effects of structural reforms on potential output across the OECD area through 2060. Our analysis shows that moving to best practice across a number of policy areas like education, innovation, competition, deregulation, labour and product markets, taxes, health systems, R&D and infrastructure would raise per capita incomes by some 20% in the median OECD country.
This is huge! These gains would be even higher for those countries that are now furthest from best practice. So our call continues to be: Go Structural! It is good for growth and prosperity, and it is good for the public finances.
Structural reforms will also increase our government’s ability to address the social crisis. Indeed, that’s why our second advice is to Go Social. The impact of this crisis on families has been devastating, and there is still significant room to improve social policy in many countries (in taxes, education, youth, health, social security, migration, gender). Our 2013 Ministerial Council Meeting (MCM) was devoted to addressing the social challenge, with the theme, “It’s All About People: Jobs, Equality and Trust”.
We also see this moment as an opportunity to Go Green. We are on a collision course with nature and cannot continue to promote an economic growth based on highly polluting energies and overconsumption. Instead, we can move towards greater energy efficiency by implementing smart structural reforms.
And the transition to low-carbon economies can be in itself an important source of growth and jobs, while reducing resource bottlenecks and natural imbalances. This is a win-win situation!
We also believe that this is the time to apply reforms to strengthen the institutional capacity of our countries. It’s time to Go Institutional. It is crucial that we reinforce the capacity of our governments, and our institutions, to deliver better results, to be more effective, and to communicate better the positive effects of reforms and policies. The crisis has had a very strong impact on public trust on governments and we urgently need to reverse this trend.
This takes me to my last point. To restart growth and initiate a new economic cycle based on more solid foundations, we will also need to review and perhaps revise our economic theories, our economic thinking and economic behaviour.
New Approaches to Economic Challenges
The crisis has exposed some serious flaws in our economic thinking. It has highlighted the need to look at economic policy with more critical, fresh approaches. It has also revealed the limitations of existing tools for structural analysis to factor in key linkages, feedbacks and trade-offs – for example between growth, inequality and the environment.
This is a unique opportunity to develop a new understanding of the economy as a highly complex system that is naturally uncertain, unstable and fragile. This demands a change in our mind-sets, and in our textbooks. As John Kenneth Galbraith once said, “the conventional view serves to protect us from the painful job of thinking.”
Thus, at the OECD we have launched a new initiative called New Approaches to Economic Challenges (NAEC). Our aim is to consider and address the unintended consequences of policies, while developing new approaches that foster more sustainable and inclusive growth.
We hope NAEC will also provide us with a longer-term perspective on how global trends – shifting wealth, globalisation, population growth and ageing, environmental and natural resource constraints, and technological change – may evolve and the new kinds of policy challenges they will present. Last week, we presented a “roadmap’’ on NAEC during our Ministerial Council Meeting, and our Ministers mandated us to move forward on this front.
Ladies and Gentlemen:
We need to set off on a new economic cycle that is not only stronger and more balanced, but also one that works for all.
Our approaches so far have left too many people behind, detached from the “necessary tools” or the “right connections” to raise their incomes and develop their full capabilities. It is time to turn around this logic. It is time to see economics as a tool to improve people’s lives.
The OECD is ready to collaborate with the International Economic Forum of the Americas to make this transformation happen. We need your ideas. I have come here to listen to you.