Opening Remarks by Angel Gurría, OECD Secretary-General, delivered at the Kapuscinski Development Lectures

18 September 2013, Sciences Politiques, Paris, France

(As prepared for delivery)


President Mion, Madame Houtman, Madame Lantz, Ladies and Gentlemen:

 

It is a great honour to be at Sciences Po to address the Kapuscinski Development Lecture series. My admiration for Ryszard Kapuscinski, the world chronicler, the voice of the poor, has been a guiding light in my efforts to promote a more global and inclusive OECD. I want to thank Sciences Po, the UNDP, and the European Commission for inviting me to deliver this important lecture. At the OECD we are working hard to bring development back to center stage. Our main concern in this quest is the urgent need to fight poverty and rising levels of inequalities. Development aid policies have helped developing countries reduce extreme poverty, strengthen institutional frameworks and develop a middle class. But there are still 2.4 billion people living in poverty and inequalities in many countries are still at record levels, and in some cases rising.

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Why is this happening? What do we have to do to correct it? Do we really think that our nations can go on for long perpetuating these disparities? These are some of the questions that we have to address here today.

Growing inequalities: a pressing policy challenge.

Let me start with the good news. Over the last couple of decades, many developing countries have been growing with remarkable strength. The OECD Development Center estimates that between 2000 and 2010, 83 developing countries achieved growth rates equivalent to double the OECD average. With the help of unprecedented development aid flows and remittances, many of these countries made important progress in reducing extreme poverty: in fact, the UN target of reducing extreme poverty rates by half was met five years ahead of the 2015 deadline.

 

However, in spite of this progress, the majority of people living in developing and emerging economies still live in great disadvantage, with low levels of income, in contrast with the top 5 or 10% of the rich families in their countries. How do we explain this? Well, there is increasing evidence that many of the people that were lifted up from poverty did not move up to a middle class but rather into an intermediate state of “vulnerability”.

Strong growth is not necessarily inclusive. We can see the evidence in many emerging economies. China has experienced remarkable economic growth rates during the past decades, but its income distribution has been worsening since the mid-1980s. Brazil has made important progress in tackling poverty, but the average income of the richest 10% in this country is still 50 times bigger than the average of the poorest 10%. Chile and Mexico have managed to reduce their disparities in the last years, but the ratio in these countries is of 27 to 1.

Inequalities have also been rising in developed economies. According to our latest study on inequality, “Divided We Stand: Why Inequality Keeps Rising”, the average income of the richest 10% of the population in OECD countries have more than nine times the income of the poorest 10%. This ratio is up from seven times 25 years ago. In some countries, such as Israel and the United States, inequality has grown further from already high levels. But the gap has also widened in countries that are traditionally more egalitarian, such as Denmark, Germany and Sweden.

Now the crisis is widening these disparities. According to new OECD analysis, the distribution of market income widened considerably during the first phase of the crisis in most OECD countries. While common citizens in many countries are struggling to keep their job or find a job to escape from poverty, the top earners at investment banks are back to business as usual. In 17 OECD countries, market income inequality increased more over the last three years than what was observed in the previous 12 years.

These high levels of inequalities can become entrenched in our societies and in our cultures, preventing intergenerational social mobility. This is dangerous. It is like social Molotov cocktail: you add high unemployment + increasing poverty + growing inequalities, you shake it and what do you get? Social unrest! In the “Occupy” Movements, the Arab Spring, the anti-World Cup riots in Brazil, we can identify different grievances united around a common concern: social inequity.

Why are we creating such inequalities?

So where did we go wrong? Labour markets have undergone profound transformations due to globalisation, technological change, and policy reforms. People with skills in high demand – in the IT or financial sectors, for instance – have seen their earnings rise significantly, while low-skilled workers have been left behind.

It is true that regulatory reforms, both in the markets for goods and services and in labour markets, have promoted productivity and economic growth and have brought more people into work, in particular many women and low-paid workers. But more part-time and low-paid work also means a widening distribution of wages. In many countries, reforms of tax and benefit systems have reduced redistribution as benefit levels were cut, access to benefits tightened, while transfers failed to keep pace with earnings growth.

Our institutional frameworks have also been reproducing and widening inequalities. There is increasing evidence, both in OECD and other studies, of how small economic elites with great economic power that influence politics and legislation through lobbying and other methods play a central role in keeping an institutional status quo that benefits a “happy few”. Daron Acemoglu and James Robinson explain this very well in their book “Why Nations Fail”.

Let me add one more element: mistaken ideas! Over the past decades, many economists and politicians believed that inequalities would end up yielding growth, which would eventually lead to decreasing inequality: the so called trickle-down theory. Now we know that this theory was wrong. The benefits of economic growth do not trickle down automatically. We need to build smart institutional frameworks and to design effective, targeted and well-coordinated policies to make this happen.

A Strategy to Reduce Inequality

Our countries need to design whole-of-government strategies to reduce inequalities. Any of these strategies should rest on three main pillars: The first challenge is to create more productive and rewarding jobs. Second, we need investment in education and skills development to promote employment and employability. Finally, reforming tax and benefit policies can also improve the distribution of income.

Provision and equal access to high-quality public services and strengthening social protection programmes will help provide equal opportunities for all citizens. For many developing countries and emerging economies, reducing inequalities will require tackling informality, expanding the social security system, and reducing underemployment.

At the OECD we are helping countries to approach the inequality challenge in a comprehensive manner. With the Better Life Initiative, we are looking at the distribution of well-being, going beyond the monitoring of income measures of welfare and accounting for inequality in other basic needs. A specific attempt to capture, quantify, and measure discriminatory social institutions that contribute to persistent gender inequalities is at the core of the OECD Social Institutions and Gender Index (SIGI), a tool that supports an ambitious Gender Strategy.

We are also embracing a more inclusive approach to growth, through an important new initiative on Inclusive Growth, which is synchronised to our New Approaches to Economic Challenges (NAEC) initiative and to a horizontal Development Strategy.

These are signs of a major transformation of our Organisation, in line with the new concerns of our member countries, and surely in line with your concerns here at Sciences Po, with those of the UNDP, but most importantly, in line with the concerns of “the people”. As our 2013 Ministerial Meeting and OECD Forum argued: it is ALL ABOUT PEOPLE; it’s time to put people first; our strategic priorities must focus on jobs, equality and trust!

Ladies and gentlemen:

“There's enough on this planet for everyone's needs, but not for everyone's greed.” Let’s keep in mind these words by Mahatma Gandhi as we work to create new theories, new frameworks, new institutions and policies. Inequalities are not inevitable. They are not the result of the laws of nature or the laws of economics. We created them ourselves, through bad policies, indifference and greed. It is time to put an end to this peril. Effective public policies, inclusive multilateral cooperation, and new economic thinking, can do the trick. Let’s join our forces on this quest. The OECD stands ready to help!

Thank you very much.

• Read also: A wholesale approach to policymaking is the key to tackling inequality (Article by Angel Gurría, posted on The Guardian, 18/09/2013)