Policy strategies for growth, competiveness and employment in Europe

 

Remarks by Angel Gurría, OECD Secretary-General, delivered at the Social and Economic Council in the Netherlands

29 June 2011, The Hague, Netherlands

(As prepared for delivery)

Mr. Riinooy-Kan, ladies and gentlemen,

It is a great pleasure for me to be here with you, distinguished members of the Social and Economic Council in the Netherlands. I have been asked to share with you my thoughts on the role of Europe and countries like the Netherlands in the global economy, on raising competiveness concerns and on what we at the OECD call “Shifting Wealth”.

Our OECD work on “Shifting Wealth” documents the substantial improvements in growth, poverty reduction and inequality in the developing world. The pace of change has been so rapid, that the world economy today is barely recognisable from that of twenty years ago.


“Shifting Wealth” – The end of Europe’s competiveness?

Indeed, global development perspectives have been changing rapidly in recent years. The centre of economic gravity is moving from the advanced to the large emerging economies, particularly Brazil, China and India. For many years, OECD countries accounted for around 70% of global GDP. Today, this share has shrunk to around 60% and it is set to fall further.

In many advanced economies this development goes hand in hand with concerns about the competiveness of national economies. Yet, in Europe and elsewhere, we must not back-track the advances we have made in liberalizing monetary, trade and investment policies. A return to protectionism would be very unfortunate at a time when co-operation and coordination are paramount.

What is required is to make the economy in the Euro area and its institutions work better!  Let me go through some the challenges.


Policy challenges and policy options to foster growth, competiveness and employment in Europe

The first is to tackle high unemployment. There are almost 50 million people unemployed today in OECD countries and 23 million in the EU. The priority is to make sure that the rise in joblessness brought about by the crisis does not become entrenched. Young workers and those with low skills – that is, people with the weakest attachment to the labour markets – are at high risk of falling into permanent inactivity. The Netherlands with unemployment rates of about 4% is a positive exception in this scenario. 

More effective activation measures can help in many countries; social welfare systems redesigned to be more job friendly; and training provided to increase labour market skills. These investments are also key to mirror competiveness concerns. When the Harvard Economist Michael Porter spoke about the “national diamonds” of national economies twenty years ago, he meant exactly the high-skilled, well-trained and innovative work force in advanced economies from which the Dutch economy has benefitted a lot. Today, countries like China are catching-up also in these fields of qualification and education. Just to give you an example our recent PISA champion is Shanghai. The more important is that European economies focus even more on education, qualification and skills as a top political priority.  

The second challenge is bringing government finances back on track. The euro area public debt-to-GDP ratio is around 95%, close to the OECD average, and rising. This is almost 25 percentage points above the pre-crisis level.  Deep and prolonged fiscal consolidation process will be needed in most countries in the coming years to stabilise and then to reduce debt levels to the pre-crisis level. In many countries, pension systems are unsustainable and also need to be reformed. And in some European economies the sovereign debt issue needs to be addressed.

The third challenge is to recover the potential output lost due to the crisis and to return to sustainable improvements in living standards. OECD projections suggest that, if nothing is done, the pace of growth in the euro area over the next fifteen years will be around half what it has been since 1995. Clearly a bad scenario.

There are five key reform priorities that include labour, social, education, skills and product market policies. Based on sound policy indicators, our analysis and recommendations coincide with the EU 2020 agenda.  In both, the emphasis is put on fostering innovation and green growth.

Fostering innovative economies means to look at ways of removing restrictive regulations and obstacles to investment and to the development of domestic services activities. The new economic agenda of the Dutch government for the business sector contains promising policy elements in this respect.

Greater competition would also enhance productivity and strengthen domestic markets. The EU 2020 agenda, the Euro Plus Pact and strict monitoring at the EU level will help to bring these reforms about.

The shift of the world economy and the current crisis in the Euro Zone can represent an opportunity. The growth dynamics in emerging and developing economies is good news for all. The demand for goods and services, particularly in major emerging economies such as China and India, has helped the global economic recovery, including in advanced countries where domestic demand has been weak. Small, open economies like the Netherlands benefit from this development.

The G20 and other fora of co-operation between advanced, emerging and developing economies can support such mutually beneficial trends. I would like to stress that the OECD involvement in the G20 process can provide countries like the Netherlands with an additional channel to influence the global agenda. This role will remain central to our efforts as we engage and support the G20 in several areas, including policy reforms, employment and labour market and skills policies, liberalization of trade, investment and capital flows, taxation, the abolishment of fossil fuel subsidies, food security and development.

Ladies and Gentlemen,

At 50 years of age, the OECD has seen several waves of “shifting wealth” through growth, competition, trade, investment and innovation. Today we observe another wave of this process, accelerated through the financial crisis. It is more obvious than ever that we need a combination of both, new sources of growth like innovation and green while at the same time focusing policies on our citizens, their skills, and their perspectives. Economic Development has always been a journey not a destination! And we are here to support policy makers and social partners to navigate this journey and adopt “better policies for better lives.”

I look forward to our discussion.

Thank you.

 

 

 

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