Remarks by Angel Gurría
London, United Kingdom, 04 April 2018
(As prepared for delivery)
Ladies and gentlemen, it is a great pleasure to be here today.
All major regions of the world are enjoying a welcome expansion. Global growth is expected to accelerate to about 4% this year and the same again next year according to the OECD’s latest Interim Economic Outlook. Millions of new jobs are being created, and trade and business investment are finally bouncing back after years of sluggish growth.
Despite these glimmerings of hope, the multilateral system is under strain and governments around the world are facing a public backlash against globalisation, open markets and trade. This is partly due to a lack of trust in the international system and partly because the benefits of globalisation have not been evenly distributed across all peoples and regions.
On the first point, some countries are concerned that not everyone is playing by the same rules, that high levels of state support and protection remain in key sectors, and that new multilateral rule-making is not keeping pace with the realities of today’s global economy.
On the second, the fruits of global economic growth have been very unevenly distributed and many people and regions have been left behind. Inequalities have been rising or have remained stubbornly high over the past three decades. The incomes of the top 1% and top 10% have rapidly outpaced those of lower income workers, such that the average disposable income of the richest 10% is now around 10 times that of the poorest 10% across the OECD, up from seven times 25 years ago.
Wealth inequalities are even greater: the richest 1% in OECD countries control a staggering 19% of total wealth.
Moreover, significant regional disparities have widened in terms of productivity, life expectancy, housing affordability and access to key services, such as healthcare and education. For example, the shares of the working-age population with a tertiary education can vary by more than 15 percentage points across cities in Canada, France and the US, whilst life expectancy can vary by a staggering 20 years across neighbourhoods in London or Baltimore. Such regional disparities have become a major policy and political issue in the UK, whereby productivity growth in London has outpaced that of the other regions, rising by 31% compared to 25% on average across the other regions since 2005. This is holding back aggregate productivity and growth and contributes to the growing divergence in regional living standards.
Based on the distribution of skills and the structure of their economies, some regions have also been more susceptible to trade shocks than others, resulting in more volatile employment levels and further compounding regional divides.
There is also a growing perception that many people and corporations – frequently large multinationals – are not contributing their fair share to society, as evidenced by the public outrage over the Panama and Paradise Papers.
All these factors have combined to give rise to the “geographies of discontent” that have emerged in many countries. This discontent has manifested itself in popular movements against globalisation – free trade and the free movement of people – and the return of protectionism in many countries.
What can be done?
We need to rebuild trust in the multilateral system and in the policymaking process itself. To do so we must first recognise that traditional growth models have failed to deliver for most people, while also contributing to heightened financial volatility and significant environmental degradation.
We need to move away from the mantra of growing the pie first and redistributing it later; we need to develop inclusive growth models that put people, their wellbeing, and that of the planet, at the heart of policymaking, and ensure that all people and regions have the opportunity to contribute to, and benefit, from, building economic prosperity.
What does this mean concretely?
Firstly, we need to ensure that we give opportunities to everyone who looks for them.
This means upholding the global governance structure of the multilateral system to maintain a level playing field for trade and investment. We must continue to promote and develop our work on BEPS and AEOI, the Policy Framework for Investment (PFI) and the G20 Guiding Principles for Global Investment Policymaking; and promote Responsible Business Conduct (RBC) and the OECD’s Guidelines for Multinational Enterprises, in addition to the Anti-Bribery Convention (ABC). The OECD is also working on others areas of trade and investment where multilateral cooperation can prove beneficial, including the control of illicit financial flows and cybersecurity.
Second, we need to put in place robust groundwork conditions and adjustment policies so that trade can work for all people and regions.
Part of this is promoting regional development policies that build economic potential in lagging regions. Structural reforms, including labour market and product market reforms, can support regional catching up but must be complemented with other place-specific policies to realise the full benefits. This includes providing affordable housing, investing in high quality services, improving transport options and enhancing digital connectivity – unlocking the diverse potential of territories and of the citizens living there.
Integral to such regional development programmes are policies that foster innovation and knowledge diffusion – these include public-private partnerships between academia, firms and governments that link research universities to firms’ R&D departments and spur the commercialisation of innovation. Such technology and innovation clusters can foster regional productivity and employment growth.
Beyond these framework policies, we need to put in place adjustment policies for the workers that suffer from the sudden, sharp, dislocations that trade can cause.
Such measures include lifelong training and education programmes designed to reduce the impact on workers and mobility programmes that help workers relocate to regions where unemployment rates are lower. Since trade can also lead to a decline in the number of firms in a region, it is important to not only target workers but also consider local labour demand – policies should therefore also consider incentives for firms creation and FDI into a region.
We must recognise that domestic policy choices can have positive and negative spillover effects that go beyond national borders. Understanding and managing these spillover effects can help to ensure that inclusive growth national strategies are mutually reinforcing and ultimately lead to inclusive growth at the international level.
Investment, for example, can contribute to more inclusive growth through income generated through FDI, which can “stick” in the host economy not only through wages and taxes, but also through re-investment of profits.
Since 2006, half of the aid-for-trade flows from bilateral and multilateral donors were invested in building trade-related transport infrastructure and energy supply – sectors that are essential for turning trade opportunities into trading flows. Findings show that aid for trade enhances market access, contributes to financial inclusion, strengthens women’s economic empowerment and reduces poverty. These impacts get amplified when the public and private sector work together, for example through blended finance initiatives, to build the institutional and physical capacity to help the poor connect and compete.
In addition, foreign investment can enable the growth and development of SMEs. For example, ASEAN member economies have set as a strategic objective fostering linkages between MNEs and SMEs in global value chains. OECD analysis shows that these efforts are bearing fruit: foreign manufacturers establish substantial upstream linkages with local producers, driving local demand for goods and services in ASEAN. Up to 40% of the demand by foreign firms for intermediate inputs is supplied by local SMEs.
But inclusive and sustainable benefits of FDI are not a given. For many years, low environmental and social standards have been viewed favorably by investors looking to minimise costs in the short term, as well as by some countries looking to attract investment. Irresponsible investment practices not only erode the quality of the investment and business environment; they result in economic loss, environmental degradation, poor labour conditions, and in the most serious cases – such as the April 2013 collapse of the Rana Plaza factory in Bangladesh – loss of human life.
As with investment, making trade more inclusive will take work, and requires a more integrated policy approach. This means reducing the unnecessary costs that policies can impose on traders, especially MSMEs and young firms, and investing more in education and training that can equip women and men with the skills to adapt to changing economies. Bringing everyone along must go beyond trade adjustment assistance to investments for inclusive growth, from health and education to labour market inclusion.
Most of all we need to remember that inclusive trade and quality investment can contribute to inclusive growth in a multilateral world. But this requires listening to the winners and losers of trade and globalisation and actually responding with the appropriate framework conditions and adjustment policies. Lasting solutions will require concerted action at the domestic and international level – only together can we make it happen.
OECD work on Trade
OECD work on Inclusive Growth