Presentation of the G7 Economic Resilience report, 23 March 2021

 

Remarks by Angel Gurría,

OECD Secretary-General

Paris, 23 March 2021

Ladies and Gentlemen,

In 2020, the world witnessed what happens when risks become reality; and when resilience is put to the test. Was this an unpreventable manifestation of the fragility of our interconnected world? Were the underlying costs of unpreparedness that the crises exposed, a fatal burden we could have not prevented? How do we “bounce forward” and shock-proof our economies and societies against the “next crisis”?

We don’t have definitive answers, of course, but hope our latest analysis, that I am delighted to launch today, on Fostering Economic Resilience in a World of Open and Integrated Markets: Risks, Vulnerabilities and Areas for Policy Action – will provide some insights to guide our vision and action forward to build an inclusive, sustainable and resilient recovery.

Our economies and societies face a multifarious array of risks. Some acute shocks may be challenging to predict such as extreme weather events, the tipping point of climate change, while others may be the result of the chronic build-up of vulnerabilities, such as imbalances and distortions in markets, both of which are ultimately shaped by policy and regulatory choices.

To tackle this challenge, decision-makers need to look at three categories of policy actions:

Preventing the build-up of vulnerabilities induced by economic distortions, imbalances and structural weaknesses;

  1. absorbing shocks when they occur, because shocks WILL occur, whether they are endogenous to the economic system or exogenous; and,
  2. recovering quickly, or “bounce forward” after a shock.

Across this ‘holy trinity’ of resilience, our analysis suggests where countries can tap into the international cooperation toolbox.

First, strengthening global supply chains. During the crisis, GVCs held up, but were subject to pressures on supply, demand, logistics and transport, exposing some stresses and vulnerabilities that resulted in temporary shortages, including of medical goods.

To strengthen the resilience of supply chains for the next crisis, there are two main lines of defence:

  • Firstly, Improve public-private and cross-border co-operation, through risk assessments and stress tests for supply chains, and developing agreements to share essential goods, conduct joint procurement, avoid export restrictions, for example through initiatives like an emergency Rapid Response Forum proposed to the G7 in this report. Governments can work ex ante with suppliers and put in place emergency procedures to allow for temporary production.
  • Secondly, develop buffering strategies for essential goods, such as optimised, selective stockpiling and greater diversification of supply. The report does not advocate re-shoring of production, which is unlikely to ensure supply, undermines diversification, and is not cost effective, but we are considering the advantages of so-called standby production capacities in certain critical sectors.

There are some sectors where diversification and security of supply are challenged by high production concentration and their potential instrumentalisation for political purpose. One example is critical minerals, which underpin the digital revolution and the green recovery. Concentration makes the supply of these minerals vulnerable to interruptions due to export restrictions, regulatory changes, closing of mines or even political instability.

To address this, we need international co-operation and agreements to discipline export restrictions, increase co-operation among like-minded countries based on common standards and agreements, and strengthen responsible sourcing through better governance in extractive sectors.

This leads me to my second point, open markets are a key pillar of economic resilience but for this to be true, we need to ensure the international rulebook is strong and applied equally by all players.

Four elements are key in addressing this challenge, beginning by increasing the transparency of governments’ structural support which can cause market fragmentation and excess capacity. Then, improving the predictability by establishing standstill commitments against an agreed baseline, followed by a reduction of support, starting with the most egregious forms. Last but not least, governments need to agree on preventing tomorrow’s support, in tomorrow’s sectors.

For this, we need stronger international rules, starting at WTO level. Not all forms of identified government support currently fall under WTO notification requirements, such as the disclosure of the ownership structures of the firms in which governments have invested, while those requirements are themselves not well enforced.

But there are also soft law and standards, including OECD guidelines on the Governance of State-Owned Enterprises, which can play an important role.

Finally, economic resilience will depend on how we address technological change, starting with the digital transformation.

Technology is both a source of resilience and as a risk in its own right, whether through growing digital divides; large scale systemic disruptions, disasters or attacks; or the privacy and security challenges raised by data access and sharing. Most of these have cross-border implications and require international co-operation.

We also need to reinvigorate the broader STI landscape to ensure innovation systems can respond to shocks and support public policy goals. During the COVID-19 crisis, our countries were able to develop and approve vaccines at record speed. But this should not leave room for complacency: the productivity of research is going down. We are not responding effectively to the “silent epidemic” of AntiMicrobial Resistance. Equally worrying – the share of public R&D devoted to addressing climate change and energy security has not increased over the past decades and the share of low-carbon inventions in all patenting has fallen in recent years.

So we need to look at how we fund innovation to target public goods, as well as how we guide its direction to respond to emerging threats and risks through mission-oriented innovation policies.

Finally and perhaps more broadly, the applications of technological progress will depend in large part on the technological and regulatory environment in which they develop, and when interventions occur.

We need open, agile and inclusive processes, that embed basic values of open societies such as freedom, open and trusted markets, pluralism and the protection of human rights, early on in the development of new technologies. This is what we did with the OECD AI Principles that we advanced also through the G20, and now we need to do the same with key emerging technologies like blockchain and neurotech.

Ladies and Gentlemen,

The OECD has prepared this report for the G7 Panel on Economic Resilience, which Sir Mark will now introduce. We see the G7 as an incubator for needed international cooperation and global solutions that can help all countries build the resilience of their systems. We hope this report will provide them but also a wider audience with evidence and policy guidance to help make progress in that direction.

 

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