New Approaches to Environmental, Social and Economic Challenges
Remarks by Angel Gurría
18 September 2019 - OECD, Paris
Ambassadors, Committee Chairs, Ladies and Gentlemen:
We are living in an age of pessimism, and there is plenty to be pessimistic about. But yesterday’s discussions showed that you can be optimistic and a realistic too. Although, as I always say, it is even better to be activistic. And that’s why we have gathered here these two days!
The challenges are daunting, but we are starting to develop the tools, techniques and concepts to meet them. One of the most promising approaches NAEC is promoting is to combine the rigour of systems thinking with the inspiration that an evidence-based narrative can provide to mobilise people to use their energies constructively.
This is crucial, because the only way to promote new and more effective approaches to our environmental, social and economic challenges is by recognising the systemic interrelation of these issues and by engaging the people to achieve real change.
The mother of all systems: the environment
Let me start where everything starts, in nature. We can no longer talk about economics without talking about the environment.
Here we have a major failure. Our economic systems are unviable, because they are destroying our environment, threatening life on earth.
The data is alarming. After a three-year plateau from 2014 to 2016, energy-related carbon dioxide emissions are rising again, reaching unprecedented levels in 2018. The jump from 2017 emissions was equivalent to the amount of total emissions from international aviation last year. Coal, oil and gas continue to meet the lion’s share of global primary energy demand growth.
On current population and consumption trends, global food production will have to double over the next 30 years, but more than 75 per cent of the Earth’s land is substantially degraded.
Ocean acidification and warming is driving rapid and dramatic changes in marine ecosystems, the number of fish in major fisheries is declining, while some studies estimate that by 2050 there will be more plastic than fish in the sea by weight.
Extinction rates have increased to between 100 - 1,000 times the ‘background rate’ and we are now facing a sixth mass extinction.
Addressing these issues requires bold policy action. It also requires a new way of thinking in international economic organisations. At the OECD we have repeatedly called upon governments to honour their climate commitments. In 2013, I called for net-zero emissions by the second half of the century. This is exactly what the Paris Agreement delivered and is now considered uncontroversial.
In 2015, we highlighted the considerable costs to society from coal use, in terms of air pollution and adverse health impacts. Just two years ago, we argued that at present, fragmented, nation-centric responses are fundamentally inadequate to address global climate change. Over this time, we have repeatedly urged governments to put a meaningful price on carbon, to phase out state support for fossil fuels, and to stop burning coal.
Safeguarding our common future requires a coherent, systemic approach based on putting people at the centre of climate policy; pursuing environmental justice within and between countries; and ensuring long-term prospects for future generations. Most importantly, we need to adjust our growth model. NAEC’s Beyond Growth: Towards a New Economic Approach report, discussed yesterday, laid out new sets of goals and measures of economic and social progress; new frameworks of economic analysis; and new kinds of policies.
The other systemic challenge is social
Our economic systems are also creating huge social challenges. The OECD has produced some stark figures on the trends underlying the feelings of resentment, pessimism and distrust.
The average disposable income of the richest 10% of the population is now around ten times that of the poorest 10% across the OECD, up from seven times 25 years ago. Wealth inequality is even more pronounced, with the top 10% holding half of total wealth, while the bottom 40% holds only 3%.
It would take children of poor families in OECD countries 5 generations to reach the average income in their country; while a 25 year-old university-educated man can expect to live almost 8 years longer than his lower-educated peer on average across OECD countries.
Inequalities are fracturing societies, hurting economies, and undermining democracies. They also undermine growth.
At the OECD, we believe the answer to inequalities has to be inclusive growth, with both concepts having equal weight. At the national level, policy actions to fight inequalities must include:
- Improving childcare provision (which also helps mothers join the labour market), parental leave for both parents and tackling child poverty;
- Ensuring equal access to quality education and health for all;
- Building tax and transfer systems that make work pay, especially for low wage earners and couples;
- And improving access to training and skills development. We need to significantly scale-up investment in people and places left behind.
Companies have a big part to play too, by investing in people and communities at risk; promoting diversity and inclusion in the workplace; and advancing human rights both in their own operations and throughout their supply chains. We are proud to host the G7 Business for Inclusive Growth platform.
Overhauling our economic thinking
Of course all this means we have to overhaul our economic thinking and the policy advice that flows from it.
Our goal should be an economy that puts the well-being of people and the planet at the centre.
One major lesson from NAEC for policymakers and for those who want to influence them, is that we need to update our basic tools, our models.
The traditional school of economic thought essentially sees the economy as a totally understandable machine, almost always operating at optimal speed, churning out outputs in a predictable linear way, guided by policy levers. Occasionally, the machine is knocked off balance, or out of equilibrium, and needs some resetting.
But the economy isn’t a machine. It is a complex, adaptive system, with massive interdependencies among its parts and the potential for highly nonlinear outcomes. In such systems, there is no equilibrium to return to.
If the system is adaptive, policymaking has to be adaptive too, ready to adjust as circumstances change and new opportunities or problems arise.
Policymakers have to be ready to make compromises, since there may be trade-offs between equally desirable goals that are not achievable simultaneously. There may be unintended consequences of one policy on another, so policy thinking has to be agile enough to exploit these when they are positive and mitigate them when they are not. Policymakers also have to be educators, ready and able to explain what they want to achieve and why they are trying to achieve it in a given way.
Implementing such a change in mind-set will not be easy. There is comfort in silos and a sense of mastery when looking at the small picture. But there is too much at stake, and we cannot expect to find the right answers by relying on the thinking and practices that produced the toxic brew that is poisoning our environmental, social and economic systems.
Gathered here at the OECD for the second day of the Averting Systemic Collapse conference, we will discuss the different natural and human systems with which we are interacting and how they are inter-related.
Bold novel ideas from this NEAC conference should allow us to craft better policies for better lives. Thank you.