Remarks by Angel Gurría
8 July 2019 - Brussels, Belgium
(As prepared for delivery)
Dear Minister Beke, Ladies and Gentlemen,
It is a pleasure to be in Brussels to launch the In-Depth Productivity Review of Belgium. This is the first OECD review of its kind, produced by a multidisciplinary team composed of experts from across the house at the OECD.
Belgium is one of the most productive economies in Europe and in the world. Workers in Belgium produce 6% more for each hour worked than workers in Germany; 7% more than workers in the Netherlands; and 9% more than workers in France.
In addition, Belgians have strong skills and many are highly educated. Firms have a leading edge in digitalisation. All this has contributed to high wages, high incomes, a relatively low inequality, a good work-life balance and good overall well-being.
However, despite this progress, productivity growth is low and declining, with significant performance gaps across sectors and companies. Productivity growth per year has declined from 2.1% in the 1980s and 1990s to 0.3% today . Productivity slowdown is a worldwide phenomenon, but Belgium has been particularly hard hit: we estimate that its productivity shortfall is twice as large as in other high-income OECD countries.
Belgian citizens are already feeling the effects of the productivity slowdown. Real wages have been rising by only ½ a percent per year in the past decade. If this trend continues, Belgium will soon lose its enviable position as one of the OECD countries that are the most productive and pay the highest wages.
Why has productivity growth been so low? A first response one often hears is that past governments put a strong focus on creating jobs, helping more less-skilled people into jobs, which in turn may have lowered productivity.
However, in our study we do not find that the increase in employment accounts for the productivity slowdown. Yes, more low-skilled workers have come into the labour market, but many other workers have become more skilled. In fact, workers today are much more educated and skilled than before productivity began to slow down.
Instead, the real problem lies with a lack of dynamism both in the business landscape and in people’s work careers. Manufacturing has done well, but it is mainly services that drive the dismal productivity growth. Belgium has the second lowest entry rate for new firms in the OECD. Young and small firms also catch up more slowly with domestic frontier firms than elsewhere in Europe. This can hamper innovation diffusion and ultimately broad-based productivity growth with negative impacts on wage inequality across firms. And people stay in the same job for longer than in other countries. Dynamism matters because new firms create ideas and offer better career opportunities to workers.
The government has already taken a number of steps in the right direction. Two good examples are the National Pact for Strategic Investments and the new National Productivity Board. But, to really make a real difference, more needs to be done. Our Review puts forward an ambitious 7-Point Action Plan to reignite productivity growth.
Action 1: Promote competition among businesses, especially in services. Belgium scores poorly in the 2018 OECD product market regulation indicators. It is the fourth most tightly regulated country in the OECD. More competition means more innovation. It must be a priority of future reforms, especially in services, where productivity performance has been particularly weak.
Action 2: More effective R&D support. Belgium provides more public R&D support as a share of GDP to firms, through tax relief and grants, than any other country in the OECD. But one can’t see it in the productivity numbers. It is therefore important to better target public support to young innovative firms to promote technology and knowledge diffusion.
Action 3 focuses on risk. Risk capital is essential to young firms – yet despite a high level of savings, Belgium is below the OECD average in terms of venture capital investments as a share of GDP. In addition, winding down a business if things go bad should be quick. The government has taken important steps in both areas: the venture capital initiative together with the European Investment Fund (EIF) and the adoption of the insolvency reform in 2018.
Action 4: Protect workers, not jobs. Belgium has the second strictest protection against collective dismissals in the OECD, which may hamper job mobility. Of course, we also need preventive measures, unemployment benefits, active labour market policies and training to ensure a smooth transition for workers from ailing to growing firms.
Action 5: Put in place a culture of lifelong learning. Belgium must improve access to high-quality lifelong learning, especially for the low-educated, to keep up with fast-changing skills needs. Today, only 20% of the low-educated participate in training, compared to 65% of the high-educated. It is an area where companies and social partners have an important role to play.
Action 6 is on the collective wage bargaining system. The system has done well at the macroeconomic level to preserve competitiveness in trade and keep inequality to low levels. The concern is on the productivity side, that wages are not adaptable enough at the level of the individual firm to support career opportunities and productivity growth. Our Review recommends that sectoral agreements should leave more room to firms and workers to set their own wages. It would make it easier for successful firms to grow and attract workers, for new firms to enter, and for struggling firms to recover from periods of economic difficulty.
Action 7: More public investment, especially in transport and digital infrastructure. Currently public investment in Belgium is only around 2% of GDP, placing it in the bottom 20% of OECD countries. And more firms than elsewhere say that transport infrastructure is an obstacle to investment.
Ladies and Gentlemen,
Belgium’s productivity success continues to point the way for many other countries. Going forward, greater focus on boosting productivity growth will be paramount to ensure that the progress achieved so far is not reversed.
Following through with the 7-Point Action Plan can lead to higher wages, better living standards, increased well-being and increased productivity growth. The OECD remains committed to working with and for Belgium to design, develop and deliver better policies for better lives. Thank you.