Remarks by Angel Gurría, OECD Secretary-General
Riga, Latvia, 12 September 2014
(As prepared for delivery)
Prime Minister Straujuma, Commissioner Pielbags, Mr Kubilius, Dr Paqué, Mr King, Ladies and Gentlemen,
It is a great pleasure to be here to discuss how governments and international organisations can make the global economy stronger, more resilient and inclusive. This is a hugely important and timely topic, as both developed and developing countries are only now slowly emerging from the greatest economic and financial crisis of our lifetimes.
After a relatively weak first half of 2014, we expect a pick-up in growth in the United States and the BRICs in the second half of 2014 and in 2015. Yet, the expansion in Japan will be moderate, and there is a growing risk of a prolonged stagnation in the Euro area.
- How will emerging and developing economies adjust to the phasing out of quantitative easing in the US?
- As we are striving for additional points of economic growth, how can we simultaneously tackle climate change and cope with ageing populations?
- Will we be able to solve the considerable social difficulties we are left with after the crisis?
As our economies and societies struggle to return to growth they are faced with what we often refer to as the legacies of the crisis: high unemployment; increasing inequalities; and the loss of public trust.
The crisis has left us with grave legacies
High unemployment: In Latvia, unemployment currently stands at slightly less than 11%; while in the OECD, around 45 million persons are now unemployed – 12 million more than before the crisis. Even worse, over 16 million persons have been out of work for more than 12 months, almost doubling since the start of the crisis. There is evidence that some of the long-term unemployment is becoming structural, leading to heavy personal, social and economic costs.
Increasing inequalities: The crisis over the past six years has exacerbated the rise in inequalities. As a result, market income inequalities in OECD countries grew more between 2007 and 2010 – the worst years of the crisis – than in the preceding twelve years. This is a particular challenge for Latvia which has one of the most unequal distributions of income and wealth in the European Union.
Loss of public trust: The crisis has also eroded public trust in governments and institutions. According to Gallup World Poll, trust in governments in OECD countries reached a record low of 40% in 2012 (down from 45% in 2007). Governments and political institutions must find ways to improve their reliability and responsiveness to rebuild public trust.
These developments demonstrate the underlying weaknesses of our social systems and economies; and indicate clearly that bad policies can fuel instability in financial markets, make our societies more unequal, and damage our environment.
As we regain our footing, we are presented with a unique opportunity to gear our policies towards the creation of more resilient, more inclusive and greener economies. We must seize the opportunity.
The OECD is building a new growth model to reboot our economies
At the OECD we are developing new advice to countries on structural policies. This is the purpose of our multidisciplinary initiative “New Approaches to Economic Challenges” (NAEC) which has already revealed a number of promising policy areas of crucial importance that have to be addressed.
First, to build more resilient economies, we need to ensure a strong financial system, stable public and private financing, and an efficient allocation of resources. Policies need to favour investment in Knowledge-Based Capital (KBC), such as: research and development (R&D); software and big data; organisational know-how; and intellectual property – which are a key driver of productivity.
Free trade becomes increasingly important in an era of fragmented international production of goods and services. We need to continue to tackle barriers to trade, particularly in the services sector which today represents almost half of value added exports. Such efforts will be essential for the success of regional trade agreements such as the TTIP that could boost growth and job creation. We also need to strengthen our efforts to make international trade fairer and more transparent by promoting the adaptation of international tax rules and prevent multinational enterprises from eluding taxation.
Second, our economic policies need to be more inclusive, they must consider employment and health outcomes; focusing on citizens’ overall well-being, in addition to income. For example, we developed a tool to measure the quality of employment – based on remuneration, employment security and the overall environment. The evidence suggests that there is no trade-off between job quantity and quality!
Last but not least, let’s green our structural policies. Among the numerous environmental challenges which we face, climate change poses the most comprehensive set of global risks. New OECD projections suggest that climate change impacts may lower world GDP by 2060 by between 0.7% and 2.5% cumulatively in the case of a 1.5°C to 4.5°C warming.
Ladies and Gentlemen:
I would like to take this opportunity to acknowledge the great strides Latvia has made since joining the European Union, and its rebound after a deep economic crisis. Latvia is now in a better position to contribute to the economic recovery we all strive to achieve.
We will continue our long-standing friendship with this “singing nation”, its heritage, its forests, its nature, and its unique “dainas.” We look forward to pursuing our work with Latvia on its path to accession to OECD, and welcome its continued contributions to our organisation.