Remarks by Angel Gurría
30 March 2015
(As prepared for delivery)
Ministers Andersson, Damberg, Bolund, State Secretaries, Ambassador, Ladies and Gentlemen,
Thank you Minister Andersson for your kind words.
It is a great pleasure to be back in Stockholm to present the OECD’s 2015 Economic Survey of Sweden. I am delighted to be welcomed by such a high level team of Government officials, the Ministers of Finance, of Enterprise and Innovation and of Financial Markets and Consumer Affairs. Your presence here reflects the strength of our partnership and the increasing relevance of OECD’s advice to Sweden. Please pass on my respects to Prime Minister Löfven, whom I met in Davos last January, and with whom we had a very fruitful exchange about his vision for a “Global Deal”.
30 March 2015 - (From left) Magdalena Andersson, Minister of Finance of Sweden; Angel Gurria, Secretary-General of the OECD and Mikael Damberg, Minister for Enterprise and Innovation of Sweden. Stockholm, Sweden.
I am also very pleased to be able to open this seminar with good news. In the current difficult international context, marked by slow growth and persisting uncertainties, where many countries are still struggling with the legacies of the global financial crisis, Sweden is proving to be one of the more resilient economies in Europe and the OECD. This is very encouraging.
Let me share with you our perspective of the Swedish economy, of its resilience, but also of the key challenges ahead and possible ways to address them.
Strong resilience for well-being
Sweden has navigated through the big waves of the global financial and economic crisis with limited damage. This has been possible thanks to a combination of strong macroeconomic, fiscal and financial fundamentals, a competitive and diversified business sector and inclusive social policies. This resilience has paid off: with an annual growth of 2.3% in 2014, Sweden is now among the few countries where output is above its pre-crisis level. Strong domestic demand has underpinned growth, in a context of weak export markets. Growth for 2015 and 2016 is expected to be of 2.9 and 3.0%, respectively.
How have you achieved this? A simple answer: the right policies at the right time. Fiscal policy has supported economic activity through the operation of automatic stabilisers and tax cuts. Monetary policy is set to remain accommodative and macro-prudential policy is being reinforced to prevent the build-up of financial imbalances or bubbles, as interest rates stay low.
Sweden has also benefited from a strong comparative advantage in knowledge-intensive activities, aided by strong partnerships between big firms and public research. This has promoted greener growth. Using economic instruments, like carbon taxes, you have achieved complete decoupling of greenhouse gas (GHG) emissions from economic growth. This is an important example for the rest of the world. As scientist Johan Rockström told us, when I invited him to the OECD: “global sustainability has become a prerequisite for human development”.
All these achievements have helped to promote and preserve social well-being and high living standards. GDP per capita is well above the OECD average, and, according to the OECD’s Better Life Index, Sweden performs particularly well in health, work-life balance, civic engagement and environmental quality.
These are impressive achievements. Sweden, however, still faces important challenges. Let me highlight two policy challenges that we consider crucial and that constitute the two thematic chapters of our study.
Sweden’s key challenges: Still room for improvement
The first challenge that we want to highlight is the deceleration of Sweden’s productivity growth. In recent years, productivity growth, which is key to sustaining Sweden’s competitiveness and high employment, has slowed. Measured by real GDP per hour worked, productivity grew at a rate of around 2.8% per year between 1993 and 2006, but since then it has stagnated.
Even though this change is partly due to weak external demand, structural factors also seem to be at play. Sweden is now close to the world efficiency frontier, which makes progress more difficult. International competition is becoming tougher and the role of services and SMEs in the economy is increasing. This calls for broadening support for innovation and enhancing coordination of innovation and research policies. Further strengthening innovation will allow sustained productivity growth. The very recent creation of an Innovation Council is welcome in that respect, but other complementary measures will need to be considered.
One of our recommendations is that innovation policies should broaden their scope, avoiding an overly narrow focus on high-tech and encouraging investment in all forms of knowledge-based capital. OECD analysis suggests expanding current direct innovation funding for SMEs and broadening the scope of intervention to non R&D-based innovation, including services and creative industries. In many fields, innovation is dependent on demand, calling for a greater focus on user needs and societal dimensions, as well as using public procurement in new ways.
The OECD also recommends that the Swedish innovation system address co-ordination and governance issues that are involved in its highly decentralized system. Funding for innovation-related activities is scattered between 20 mostly mid-sized agencies. Therefore, streamlining the research and innovation system to create stronger players would facilitate their integration into international research and innovation networks.
The second and related challenge is the decline of educational attainment and the erosion of skills. These are crucial drivers for inclusive growth, so immediate attention is required.
Over the past decade, Sweden has experienced the most rapid decline of all OECD countries in the relative performance of 15-year olds in the OECD Programme for International Student Assessment (PISA). From a position well above average in 2000, Sweden fell below average in 2012. This has had an impact on the acquisition of skills for the 21st century. Recent surveys of adult skills and educational performance in Sweden suggest that younger cohorts are doing less well than their predecessors.
There are at least two compelling reasons why the erosion of skills needs to be reversed. First, in the long term, the population’s skills are the main driver of living standards. Sweden has a competitive edge in knowledge-intensive activities and high value-added “links” or “segments” of global value chains. Maintaining this advantage requires a highly skilled workforce. Second, inequalities in skills are the key drivers of income inequalities. And these have been rising in Sweden in the two decades following the banking crisis of the 1990s. In the mid-1990s the top 10% earned on average just over 4 times more than the bottom 10%, our most recent data shows this ratio has increased to almost 6½ times. Inequality rose by more than half in a generation.
To address these challenges, we make a number of recommendations to improve educational outcomes. According to the OECD Teaching and Learning International Survey (TALIS), only 5% of teachers report that their profession is valued in society. You need motivated teachers to have a good education system. Sweden could raise the attractiveness of teaching by increasing monetary incentives, offering clearer career paths, and improving teacher education.
Sweden’s education system would also benefit from the establishment of an education policy council that could help coordinate actions and build consensus between stakeholders around an education reform programme. We will be following up on these recommendations with further studies on education and skills to support policymakers. In about a month, the OECD will release a full review of the Swedish education system.
We will also launch a report on “Local Job Creation in Sweden” which will review the skills and employment policies in place at the local level and provide recommendations on how to improve their effectiveness. Yet another related review, this one about ”Assessing and responding to changing skills needs in Sweden”, will address the quality of the skills anticipation system and the effectiveness of the mechanisms to translate information produced by such system into effective education, labour market and migration policies. This report will be discussed with the Government at the end of this year. At about the same time, we will finalise two other reviews, “Investing in Youth in Sweden” and “Labour Market Integration of Immigrants and their Families in Sweden”. These five reports represent a whole “cluster” of policy analysis to cover this critical subject in a comprehensive fashion.
The quantity, complexity and ambition of the focus we are putting on Sweden reveal the strong political will of the Swedish government to address the erosion of skills and falling educational attainment. I am confident that this commitment will translate into effective reforms and improvement.
Our economic study addresses other key challenges to strengthen the foundations of growth, like the need to lower regulatory barriers even further, improve the quality of some infrastructure, and strengthen the support to entrepreneurship. And we also highlight other skills challenges, like the need to improve the language training for migrants, which represent 16% of Sweden’s population, in order to increase their possibilities of integration and inclusion; the Survey also addresses the need to reduce labour market barriers and allow more flexibility in entry wages, to increase employment prospects for low skilled workers. You will find very interesting and useful policy recommendations in all these areas.
Dear Ministers, Ladies and Gentlemen: Sweden is one of the best performing OECD economies and a model for many of our members. You have shown the capacity to implement bold reforms and evidence-based policies to improve competitiveness and support inclusive and green growth.
Let’s keep strengthening our collaboration. Let’s keep working together to help Sweden in its constant effort for improvement. Reforming a country is a never-ending challenge, an attitude, a state of mind, a way of life.
Count on the OECD to help you design, develop, and deliver Better Policies for Better Lives.