Welcome Remarks by Angel Gurría
26 June 2017
(As prepared for delivery)
Dear Minister of State , distinguished guests,
I’m pleased to be with you at this 2nd Annual Conference of the Global Forum on Productivity. We have a great line-up of speakers and the agenda is rich, touching on institutions, regional challenges and the crucial issue of inclusiveness, all within the overarching theme of openness and global value chains.
This is clearly a topical theme, and one that fits well into the broader context of OECD work over the past year, culminating in our Ministerial Council Meeting three weeks ago. We have been thinking hard about how to preserve the benefits of economic globalisation and while ensuring that they are widely shared. The title of the Ministerial was “Making globalisation work: better lives for all.” So the theme of this conference echoes the themes that are being addressed across the OECD.
The aspect of globalisation that concerns us here is productivity. We know a lot about the link between openness and productivity growth, including as a result of work done for this Forum. For example, an OECD paper for this conference uses firm-level data to trace productivity spillovers from global value chains. That paper highlights the importance of linkages with suppliers and buyers, and finds that structural policy settings can affect the size of the productivity spillovers from global value chain linkages.
Also, OECD data initiatives like the ground-breaking Trade - OLD (TiVA) statistics have been instrumental in improving understanding of global value chains and their effects, while OECD indicators like the Trade - OLD help to benchmark policy settings and analyse the impact of policy changes.
There is, however, a lot that is still unknown. For example, there remains much to learn about the relationship of global value chains to firm-level and aggregate productivity and the quantitative impact on productivity of policies that restrict trade and/or investment. More work is needed in these areas, and we will certainly do our bit. I would also mention our efforts to improve the measurement of productivity in the public sector, which should help get a fuller picture of economy-wide productivity developments. Government is a major provider of services, but a forthcoming OECD report shows that only 7 countries are measuring the productivity of the whole public sector.
But beyond the need to better understand productivity and its drivers, another lesson that we draw from the work done across the OECD in recent years is that it is not sensible to compartmentalise productivity and other objectives like inclusiveness, given that they are interlinked. We should look at inclusiveness in an ex ante way, not think first about maximising output and then consider whether and how to redistribute that output ex post to mitigate inequality. That is, we should be constantly on the lookout for policies that boost both productivity and inclusiveness simultaneously.
Not only may policies designed narrowly to increase economic growth have negative consequences for inequality, which can all too easily become entrenched across generations, but such policies may even fail on their own terms. Evidence from the OECD and elsewhere suggests that greater inequality may actually harm growth.
Moreover, when a perception takes hold that living standards for the many are stagnating while those at the top are continuing to prosper, the political backlash can result in mistaken and harmful policies, including protectionism. All the more reason to understand and give due attention to the distributional aspects of policies.
The nexus between productivity and inclusiveness was the theme of our Ministerial Council Meeting in 2016, and one that we are continuing to explore, notably in our Inclusive Growth Initiative.
When we think about applying these lessons to the impact of globalisation, some conclusions are familiar. Clearly, we want everyone to be able to benefit from the opportunities offered by the cross-border movements of goods, services, capital, people and ideas. Thus, policy-makers should ensure broad access to quality education, training and healthcare. Also, when people are negatively affected by foreign competition, outsourcing or immigration, adequate social safety nets are needed and activation policies must quickly reintegrate displaced workers into good jobs.
These messages are not new. We are increasingly realising, however, that the standard prescriptions won’t do. For one thing, it seems clear that governments have to go beyond the traditional functions of the welfare state to create what Dennis Snower calls the empowering state, in which all citizens are provided with the skills to lead productive and meaningful lives.
In addition, the ability of governments to provide the necessary support to citizens to deal with some aspects of globalisation itself has come under pressure. The growing international mobility of capital and of wealthy people has meant that countries applying more progressive tax regimes risk seeing their tax base eroded as corporations and rich individuals relocate to low-tax jurisdictions. I’m pleased to say that the OECD has been at the forefront of international efforts to curb base erosion and profit shifting, and to increase transparency and the international exchange of tax information to avoid this "race to the bottom". Ministers representing more than 70 countries came to Paris just a few days ago to sign the BEPS multilateral convention, a key step forward. But implementation is just beginning, and further work will be needed.
Nor is tax the only area where more cooperation is needed to ensure a globalisation that delivers inclusive productivity growth. For example, we see a trend towards greater market concentration in many sectors. Together with the observed divergence between firms at the productivity frontier and the rest, this suggests the operation of “winner-take-most” dynamics in some global markets. There is also evidence that markets are being distorted by cross-border cartels. 240 such cartels were detected between 1990 and 2015, with overcharges of 20% on average. All this suggests the need for stronger international cooperation to tackle cross-border anticompetitive conduct.
There are other areas where more effective rules would help ensure a more level playing field, and the OECD is active in several, such as corporate governance, responsible business conduct and combatting corruption.
Another aspect of ensuring vigorous competition is addressing factors that hinder the growth of small and medium-sized enterprises. Although there are exceptions, SMEs are generally far from the productivity frontier and pay lower wages than the leading firms. As OECD work has shown, the poor productivity growth of laggard firms has been a factor in the slowdown in aggregate productivity growth in recent years, and the divergence between frontier firms and others has been an important source of income inequality. Helping SMEs to close the productivity gap is thus likely to be important to improve overall productivity growth and make that growth more inclusive.
In that context, I am pleased to say that we are today signing an agreement with the Hungarian government to jointly develop an SME Strategy for Hungary. This is our first country-specific SME strategy project; I hope there will be many others.
I would stress the fact that my plea to keep inclusiveness in mind while we think about how to improve productivity applies also to the objective of environmental sustainability. Our recent report Investing in Climate, Investing in Growth shows that integrating measures to tackle climate change into regular economic policy will have a positive impact on long-term growth.
Ladies and gentlemen,
This annual conference has already shown its ability to inform policy. The findings of last year’s inaugural event, which focussed on the productivity growth slowdown, are summarised in this special issue of the International Productivity Monitor co-edited by the OECD. The slowdown in productivity growth remains a core weakness of the post-crisis era: between 2000 and 2007 labour productivity across the OECD was growing at a rate that would yield a doubling of productivity levels every 40 years. Since then, the pace has dropped sharply, consistent with a doubling only every 90 years. The papers gathered here contain many important insights about this troubling slowdown and many policy-relevant conclusions. I expect the findings of this year’s conference to be just as impactful, so that the benefits of globalisation are more widely shared by our citizens.
Finally, I would like to thank the Hungarian government for hosting this conference and for their warm hospitality.