Discussion of the New Approaches to Economic Challenges (NAEC) Synthesis Report
Remarks by Angel Gurria
Secretary General, OECD
Paris, 18 September 2015
(As prepared for delivery)
Ladies and Gentlemen,
The world economy is, again, going through a phase of heightened uncertainty with growth hardly picking up in the euro area, a substantial slowdown elsewhere, and a new bout of volatility on financial markets. The recovery is desperately slow and the global financial and economic crisis continues to cast a long shadow over the global economy.
Despite progress, unemployment remains at stubbornly high levels - many people who lost their jobs in 2008 still haven't found work nearly a decade later, or have found themselves in precarious employment with few prospects or opportunities to do better. Living standards have fallen as economies continue to splutter.
For several years the OECD countries, where the crisis spread from, were buoyed by strong emerging markets like China and Brazil. Now, these too face tougher economic times. With government coffers stretched, investment at insufficient levels and interest rates near zero, it’s hard to see how policy should respond to relaunch the economy.
Even before the crisis imbalances were tipping dangerously in the wrong direction: our economies were growing more unequal. Climate change continues to worsen, threatening our towns, coasts, ecosystems, and our future.
Even if we could get our economies back on track with old policies, it would not stop or reverse global warming, let alone resolve the many other social and economic challenges we face.
No wonder confidence is at such a low ebb. People do not want business as usual. They want a new start. They want new approaches to economic challenges.
To help transform the OECD’s economic thinking and acting, we launched the New Approaches to Economic Challenges - OLD (NAEC) initiative in 2012. During three years of reflection, we took a hard look at our analytical methods, our data and policy advice.
We feel we have learned a lot and have a lot to share and we are delighted to discuss with you the findings of the NAEC synthesis report, which was endorsed by our Ministers in June. But we also know that the job is not done.
The economic, social and environmental challenges that confront us are so complex and so interdependent that we must continue to strive for fresh thinking, rigorous policy analysis and actionable policy solutions. NAEC was launched to learn lessons from the past. It must now help us understand the problems of the present and the future.
On financial markets, efforts have made been to shore up the banking system, improve regulatory frameworks, and understand and reduce the risks associated with institutions that are too connected to fail.
But for all those positive improvements, there are new issues which confront us, unanswered questions and policy shortcomings – the NAEC agenda must move beyond the crisis.
Our economies are beset by a number of puzzles which conventional analyses struggle to explain. There are imbalances in the financial system with not enough investment flowing to productive activities in some countries and overinvestment in others, particularly emerging markets.
While banks have become more constrained, concerns about the shadow banking system have mounted. There is still much to do to eliminate capital misallocation, to transcend the current under-pricing of risk and to strengthen the ability of the system to absorb future shocks.
For years, Members have resorted to unconventional monetary policies but the consequences of this remain unclear. Despite putting our foot on the accelerator and spurred on by low oil prices, our economies have responded slowly. We need to understand why.
We also need to be responsive to emerging technologies, big data, robotics and 3D printing and to assess how digitalisation is transforming economies, rich and poor. We need to think about the policies which will promote technology, trade and investment, in a world economy increasingly characterised by Global Value Chains.
The OECD must strive to strengthen its work in these areas in a horizontal fashion. And as one of the Ambassadors said, we need NAEC to help "keep us new"; to ask hard questions, keep us relevant and up to date with our approaches.
In many of our countries, governments are working hard to boost growth. We are trying to help them do this, but based on a new type of growth, one which places people’s well-being first. For that, we must change our mind-set, our policies and ultimately our economies.
At the heart of NAEC is the realisation that the well-being of people and its distribution should be at the heart of policy-making efforts.
To promote a more inclusive growth, we need to take a fresh look at our policy instruments. Structural policies need to be designed totake into account equity and fairness as well as growth and efficiency. Taxation systems must be reformed to be more effective and progressive at the same time.
It is also critical to promote access to quality education at the earliest stage possible and to a broader range of skills, cognitive as well as social and emotional. In doing so, governments should focus their attention on disadvantaged and at-risk groups as well as gender equality.
Productivity is, together with inequality, probably the most pressing and important issue that governments need to address. Higher productivity is a necessary – but not sufficient – condition for higher living standards. Since equity concerns are real, we cannot conceptualise productivity in the traditional way. We must strive for productivity for an inclusive growth or inclusive productivity.
Using new tools and specifically micro-data, we are gaining new insights on productivity. It has highlighted the key role played by young and innovative firms for aggregate employment and productivity growth. These young and innovative firms should be enabled to emerge and grow through policies that reduce the costs of entry, experimentation and exit. It is also necessary to boost innovation without stifling reallocation.
Following the financial crisis, and with greater constraints on bank lending, we need to ensure that these young and innovative firms can access new sources of finance. We have been looking at the potential of alternative financing sources such as crowdfunding and peer-to-peer lending.
There is an important environmental dimension to productivity as well. Crucially, through NAEC, we have learned that environmental policy stringency does not undermine productivity. Using natural resources more efficiently will enhance productivity. We are also looking at the economic consequences if we fail to take action on climate change and of resource scarcity.
COP21 in Paris at the end of this year provides an opportunity to turn these analytical improvements and insights into powerful policy messages. We must keep the focus on green growth and how to shift to a low-carbon economy. Moreover, we must ensure that this transition does not further increase inequalities, but rather creates opportunities for all.
The international community will also convene at the United Nationals later this month to agree the Sustainable Development Goals (SDGs). The goals are universal. They are integrated and must also be transformative - an agenda that contributes to systemic change and helps anticipate future threats. OECD with its cross sector analytical capability is examining how the multiple goals can be achieved simultaneously while also considering the future evolution of the world economy.
So NAEC is ultimately about new approaches to the challenges that confront us all.
NAEC calls for collaboration and coherence in addressing integrated problems, removing the siloed approach that limited policy before. Gillian Tett from the Financial Times will address us in a NAEC seminar in October outlining her new book The Silo Effect. Tett examines how silos can prevent us from seeing risks because we are so consumed with our own area of expertise that we are unaware of information from allied silos and thus fail to see the big picture.
She also outlines how the effect of silos could be mitigated by keeping boundaries of teams fluid, rethinking how incentives can stifle collaboration beyond a team, and ensuring the broadest information flows. NAEC is our way of countering the silo effect. We should create more joint teams; promote and support horizontal projects and further cross-committee discussion.
This is a challenging agenda. Our Chief of Staff, Gabriela Ramos, has spearheaded this whole of the house work with the support of Mathilde, William, Kiril and Pauline. She will lead us in the discussion today. We are also delighted to welcome back to the OECD Lord Robert Skidelsky and Jean Pisani-Ferry to share their perspectives. Catherine Mann, our Chief Economist will provide crucial insights into where our economies stand and how mainstreaming new approaches into our economic policy work will help us better advise our Members and Key Partners.
Ladies and Gentleman, the legacy of the crisis continues to linger. We must reflect on how to foster continuous improvements and better equip the OECD to deal with the challenges of today and the threats and promise of tomorrow. With the new policy thinking, instruments and tools emerging from NAEC, we are helping to shape better policies for better lives.