Remarks by Angel Gurría,
8 July 2016
(As prepared for delivery)
Dear Minister, Distinguished Guests, Ladies and Gentlemen,
Eight years after the onset of the global crisis, the state of health of the world economy leaves much to be desired. The slowdown in productivity growth is just one sign of this ill-health. More generally, the global economy is stuck in a low-growth trap, with weak investment, persistent labour market slack, sluggish trade growth and high levels of income inequality. The continued impairment of labour markets was flagged in the latest OECD Employment Outlook, which we released just yesterday in Paris. Despite a decline in unemployment in most OECD countries, including Portugal, we project that in 2017 there will still be around 6½ million more people without a job compared to pre-crisis levels. And wage growth has been feeble: average real wages in the OECD countries for which there are data grew by 1.2% between 2007 and 2015. Not 1.2% a year, but 1.2% over 8 years.
But although there are weaknesses in several areas, productivity growth is a central part of the story. Labour productivity growth in the OECD region since 2007 has averaged barely ½ per cent a year, little over one quarter of the rate seen in each of the two previous 8-year periods. The revival of productivity growth is key to our prosperity, and the Global Forum on Productivity can play its part in administering the medicine needed!
As I mentioned one year ago in Mexico, raising productivity is about “working smarter”, rather than “working harder”. It is about producing more and better goods and services that we value through new ideas, technologies and business models. It requires creating and harnessing new skills in the workforce. In the past, innovations like the steam engine, the printing press and electricity led to radical changes, resulting in higher living standards and improved well-being. Today, we are witnessing a new wave of innovation, as digitalisation can affect every aspect of our economies and societies. Yet, as highlighted by OECD research for the Global Forum, innovation can sometimes spread too slowly.
I have just come back from an OECD Ministerial Meeting on the Digital Economy in Cancún where the potential benefits to be reaped from digitalisation were discussed extensively. There is no question that the promise is great, but if I take away one lesson from that meeting it is that policies matter. Productivity growth is not “manna from heaven”. To a large extent it is the consequence of identifying and implementing the right policies. And often it is about removing the wrong policies.
If the patient is sick – or recovering only slowly and fitfully – it is the job of the doctor to diagnose the sickness, prescribe the right medicine (or more usually medicines), and apply the right dose. But this is not an easy task. Like the human body, the world economy is highly complex, and it can be difficult to robustly identify the links between different policy settings and economic consequences. And it is even more difficult without proper measurement, which is why the recently released OECD Compendium on Productivity Indicators is so valuable.
Last year I had the great privilege to launch the OECD report on The Future of Productivity. This report, and subsequent work undertaken for this year’s Ministerial Council Meeting, including the “Productivity-Inclusiveness Nexus” report, provided some answers. For example, reforms that empower individuals to fulfil their productive potential, through better access to quality education, healthcare or infrastructure, are clearly helpful for raising productivity in an inclusive way. But the work so far has raised even more questions. These questions launched a lively debate in all our capitals. For example:
As you know, such questions were at the heart of our discussions at the recent Ministerial Council Meeting, but for the most part, the task of finding the answers remains before us.
This is precisely why we have launched the Global Forum on Productivity, with the generous support of many of you. Through this forum, we are joining forces with all of you to share practices and undertake coordinated research to identify policies that work. The forum is both in person, at events like this one, and virtual: a new website has been launched at oe.cd/gfp. The challenges that we face cannot be solved in two days. However, looking through the list of participants and reviewing the agenda, I feel that we are already making progress. And so a special thanks to Portugal, and particularly to you, Minister Centeno, for making this event possible.
Indeed, before closing I would say a few words about Portugal and how it may offer lessons for others for working with the OECD to deliver a more dynamic and productive economy.
Portugal was of course badly hit by the crisis, with unemployment reaching a shocking 17.3%, at its peak. But a comprehensive set of labour market reforms was introduced, and an OECD report that will be launched later this year shows that these reforms have made growth more job-rich than it would have been otherwise.
We are also currently working together with the Portuguese authorities on a competition assessment review of the professions and of transport regulation. This will use the OECD’s Competition Assessment Toolkit to review all relevant laws and regulations line by line and make recommendations for improvements. In addition, we have begun a diagnosis of skills gaps in Portugal. Both initiatives will contribute to improving Portugal’s productivity, which remains nearly 40% below the average in the euro area.
Clearly, Portugal still bears scars from the crisis and still faces many policy challenges. But as the Portuguese case shows, the OECD is always there for its members to help assess their policy performance and assist in designing and implementing better policies for better lives.
I urge you, dear Minister, Ladies and Gentlemen, to keep that in mind as you continue your important discussions today.