OECD Annual Conference of the Global Forum on Productivity, 8 December 2020

 

Remarks by Angel Gurría,

Secretary-General, OECD

Paris, France, 8 December 2020

State Secretary Winkelmaier-Becker, colleagues, dear friends,

I am pleased to welcome you to the 2020 Conference of the Global Forum on Productivity. Let me thank Germany for co-hosting this event, with particular thanks to the Ministry of Economy for its continued support of this Forum from the start.

As many of you know, we launched this Forum in 2016, inspired by an earlier productivity summit in Mexico, to respond to the challenges of globally slowing productivity growth. While output per hour across the OECD as a whole had grown 2% per year in the early 2000s, it had fallen to only 1% per year more recently, just before the pandemic hit.

Why do we care so much about productivity, now and looking ahead to a post-COVID-19 world? Why did we care 5 years ago, when we created this Global Forum?

The simple answer is that productivity gains are the key source of rising living standards. An expanding economy also provides the resources to increase public expenditures, from health care to pensions and education. But the “modern productivity paradox” is that despite the digital transformation of our economies and societies, productivity growth has slowed, even before COVID-19.

The pandemic has already affected global productivity in a number of ways, many of which are difficult to quantify at this stage.

In the near term, the overall impacts are likely to be negative:

Think, for example, of disruptions to domestic and international supply chains due to restrictions in international transport and mobility; think of the uncertainty generated by the crisis, which depresses investment; and think of the rapid shift to teleworking – this happened often without appropriate supporting factors in place such as childcare, adequate IT and home office equipment or sufficient digital skills.

In the longer term, the legacy of COVID-19 will intensify underlying trends that were already underway. On the one hand, the rapid upgrading of the digital infrastructure and the mastery of new digital tools will help us work and interact more efficiently – as we discuss in our Telework and Productivity Policy Note on COVID-19.

On the other hand, there are alarming trends, threats to productivity, which have become even more pronounced due to COVID-19. Let me briefly outline three:

First, market power has been tilting towards digital giants and large, established firms, which have reached new levels with the rise of online purchases and digital communications during lockdowns. Prior to the coronavirus crisis, studies by this Global Forum documented a 6 percentage point increase in the share of sales by the 10% largest companies in Europe and North America since the early 2000s. Such tendencies carry the risk of holding back radical innovations, if new firms with new business models find it harder to enter markets and survive in the shadow of giants.

Second, public support for companies might hold back adjustments that would lead to increases in productivity. It is extremely difficult to get the amount and the timing of such support right to ensure that the potential post-COVID reallocation across firms and sectors takes place in a smooth and efficient way. Too little support could mean that many viable companies are forced into insolvency, resulting in the loss of valuable firm-specific capital and job matches. Too much support, on the other hand, could aggravate the problem of “zombie” companies, unproductive firms who tie up productive resources that could be better used elsewhere.

And third, if protectionism becomes persistent and widespread across sectors, it can further undermine productivity growth by limiting access to a variety of suppliers and consumer markets.

To mitigate these adverse trends, governments have a crucial role to play. Two key policy areas will be discussed today: a modern version of industrial policy, and up-to-date toolkits for competition policy.

Why the strong interest in these areas? Winner-takes-most tendencies and the rise of “superstars” were visible even before the crisis, especially in digitally-intensive markets. Competition policy, antitrust and enforcement mechanisms might thus have to be updated.

Our work at the OECD highlights that these technologies pose new and difficult challenges to ensure markets remain open and contestable. We are already seeing signs of a more pro-active policy approach on both sides of the Atlantic, especially targeted at the largest players in key digital sectors.

Industrial policy is also back on the agenda in some countries as they face increasing challenges from strong international competition and the urgency to become more self-reliant and have adequate capacity in critical industries such as healthcare - but also in digital infrastructure, partly driven by security concerns. Let us recall, however, that making bets on specific technologies or sectors can be risky.

State Secretary, dear friends, 

As we forge ahead, productivity will be crucial to help us tackle the unprecedented challenges of COVID-19 and build back better. I am sure that the many excellent speakers at this conference from the public and private sectors and from academia will bring interesting and useful insights for us. Rest assured that the OECD will continue to play its part in unlocking the secrets of productivity growth, ensuring that it is not only strong, but also sustainable, inclusive and conducive to resilience.

Thank you.

 

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