The OECD: Securing the future

The OECD is an organisation with a bright future and a key role to play, as long as it carries out some serious reforms. A difficult, but necessary challenge, says Jorma Julin, Ambassador of Finland to the OECD.

"Wanted: International organisation to help governments manage the following global challenges: sluggish growth; unemployment; health care; ageing; trade protection; development; poverty; corporate malpractice; tax evasion; global warming; assessing future risks, and more. Commitment to fostering sustainable development and higher living standards in all countries is required. Experience and expertise essential. Must have a strong membership and excellent references."

Any resemblance between this job description and the OECD is entirely coincidental, though the OECD would seem well placed to do the job. After all, here is an organisation whose members have some considerable weight in the world. They are home to most of the world’s business corporations. They have some 60% of world GDP and account for three quarters of world trade. They invest heavily in research, technology development, education and health care to boost their competitiveness and foster social cohesion. Its members produce most of the world’s CO2 and consume most of its energy. They share common problems, and so are open to agreement and joint action. Globalisation and sustainable development would appear to be tailor-made challenges for this like-minded club. Little wonder that many of the organisation’s leaders have wanted the OECD to take on that role.

But do they still, particularly as several of the world economy’s most significant players are not members of the OECD and co-operate with the organisation in ways that might not be the most effective? Can the present OECD deliver what member countries expect?

My answer is yes, but only if it reforms itself first. Quite simply, the OECD’s once strong position in the international policymaking landscape has been gradually eroded over the years, and though it performs extremely well in a number of areas, the perception in many countries of its role and overall performance has changed. The OECD faces new challenges, not only in terms of issues to be tackled, but also competition from other institutions and businesses. It has been responding to them, though neither astutely nor speedily enough. It is useful to compare the OECD to businesses in the marketplace. To survive, let alone thrive, they must find their niche, exploit their strengths and overcome their weaknesses. Prudence has its place, but reactivity is vital. There is no reward for shyness in today’s market for intelligence and advice.

To understand our position, take the case of financial markets. There, the Financial Stability Forum and G20 are now prominent as far as monitoring and governance are concerned, though the OECD is still seen as an influential partner. As for development co-operation, the World Bank has strengthened its position and, thanks to its sizeable resources, does not shun addressing issues which used to be OECD turf. Such shifts are no accident, but often reflect deliberate decisions by OECD members operating in these fora. Also, private institutions like the World Economic Forum (WEF) are emerging in some areas as competitors to the OECD, with its economic benchmarking and gatherings of leading political and civil society personalities in Davos.

Yet, I have absolutely no doubt the OECD has the potential to take on the competition and perform a much bigger role. The challenge has to be addressed on two main fronts. On the one hand are practical questions about working methods and products. On the other are broader strategic questions concerning the OECD’s membership and role in the global architecture. Improving quality and delivery of its services and equipping the OECD with the machinery and capacity it needs to do a good job should be some of the main targets of reform.

This demands that member countries adopt a courageous and forward-looking agenda-setting approach, investing in a rapid and effective organisation to address both burning and emerging issues.

The OECD operates by consensus between its 30 governments, which though valuable on substantive issues, slows progress as it makes it more difficult to push these burning issues towards the top of the OECD’s agenda, as well as allocating the resources needed to tackle them properly. Migration is a perfect example of such an issue where a more urgent OECD contribution is badly needed. Only a shift to a qualified majority voting would give the organisation new momentum, particularly in view of future enlargement. As for the secretariat, management must aim at faster delivery of sharper studies, policy advice, data, and so on, to help governments improve their own decisions.

In fact, quite apart from new challenges, the OECD needs reform simply to fulfil old ones. The original main OECD mission – to achieve the highest sustainable economic growth and employment through international co-operation – is still a work in progress. Today, growth and environmental degradation are not yet effectively decoupled in the OECD area, high unemployment rates exist in parallel to great numbers of job seekers, trade protectionism continues strong, multilateral co-operation is on trial, inappropriate regulation still hampers competition, and so on. Financial markets are open and calm today, but still demand vigilance, particularly to ensure good governance takes hold everywhere.

Another of the OECD’s founding missions — that of promoting the development of the world economy — remains unaccomplished, despite many success stories. Korea is one, and is now a valuable member of the OECD. The fact that development should be a key task of this small organisation surprises many who dismiss the OECD as a rich man’s club. Yet, as President John F Kennedy said at the outset in 1961, it would be through the OECD and others that the US and its partners would endeavour to provide for “the hopes for growth of the less developed lands”. In fact, the OECD countries are by definition key players in development, not just for their markets, but because they manage the lion’s share of the world’s development aid and generate most of its global foreign direct investment as well.

The OECD mission is timeless, and so the convention remains valid. If the organisation were founded today, the convention would look only slightly different, mention investments expressly and take into account globalisation and sustainable development, as all the three issues are in demand and figure on the OECD’s agenda today.

One problem the OECD faces is the broad nature of its work, which blurs the organisation's image. Its constituencies in OECD capitals are spread throughout government administrations, and co-ordination is far from satisfactory. This is quite unlike other organisations, whose interests are looked after by just one or two ministries. As to the global architecture, the WTO is about trade, the World Bank about development, and the IMF about maintaining financial stability. What is the OECD's role?

Its brief is to help its member governments better manage their economies and societies and to promote development. It is a think-tank, a databank, a problem-solver, a pathfinder, a policy adviser, a forum and meeting place, and sometimes a deal broker, all rolled into one.

Its staff evaluate complex, often cross-border, situations, think forward and come up with policy advice on everything from agriculture to promoting the information society. Its wide coverage helps explain why the OECD has become “owned” by so many ministries. The OECD brings diverse government officials and experts together, and engages business, trade unions and civil society in policy-shaping discussions. And they assess progress, relying mainly on developing best practices and soft law, such as guidelines, using “peer pressure” to coax governments into action, like reforming creaking institutions and reshaping bad policies, or bringing in better regulation. Pioneer work and breakthroughs such as in e-commerce, the jobs strategy or corporate governance, bear witness to the effectiveness of this approach.

But the breadth of OECD work – though a potential advantage in cross-sectoral analysis – has fuelled an identity crisis. The OECD image needs to have a clearer definition. This would help to ensure better funding and support from shareholder governments.

Instead, several budget cuts at the OECD have made the staff feel that governments and the wider public are not listening to them. This situation is not good for any organisation, least of all for one that depends so much on knowledge, skills, coherence and morale.

True, the OECD is frequently cited in the press, particularly in Europe and Asia-Pacific, but many people probably see the OECD as little more than a nebulous group of wealthy industrial countries, and not as an intergovernmental organisation with a professional secretariat and high value-added products and services not just for government, but business, trade unions, research, the media and civil society organisations as well.

Though having a high public profile is not necessary to being effective in influencing policy, it does help, particularly for a public body seeking legitimacy among shareholders and stakeholders as a partner in globalisation. And it helps to clear up misperceptions too.

In the US there is a serious image deficit, but even a country like Germany, where the public has woken up to the OECD’s work, thanks to the PISA study on education, the OECD’s work on corporate governance or global taxation might not be known. Decision-makers might know the organisation for its economics and data, but should be made more aware of its contribution to other important issues like social welfare and health care policy, as well as identifying best practices for improving business environment and territorial policies.

Quality for customers first

Such an identity crisis should not get in the way of clear thinking and action. What really counts is quality of work and effectiveness in influencing and reaching the people that matter. Thankfully, the organisation can also learn from some of its own best performers, for it leads the way in several specific areas. It has a world voice on matters of global taxation, education, insurance, agriculture and competition policies, for instance, and it is stamping its name on newer areas like health systems and risk management.

Its structural economic analysis of OECD countries is quite unmatched by other international public organisations, and the OECD’s economic forecasting is a beacon of success in a crowded area of activity. And in education, the OECD has been so effective with its cutting edge work on PISA that UNESCO has become partners in furthering the exercise.

Still, the OECD has not had the same quality and impact on all important issues, and governments and civil society have not fully embraced the OECD as a lead player in addressing globalisation or sustainable development. This is partly just a perception and reflects insufficient information, but it has considerable effects. There is no time to lose; the OECD must be more aggressive and take its rightful place in advising how to harness globalisation while minimising any adverse effects.

In fairness, the competition with other inter-governmental organisations is fierce in just a few areas, like in finance and development, and complementary work is the prevailing feature. Also, some duplication is not always wasteful. After all, democratic governments will always seek a second opinion.

The OECD can learn more from private sector consultants and agencies by adopting a clearer business-like approach to its work. This means more upstream quality control, flexibility, more customer-orientation and so on. It means building on strengths, developing flagships and taking full advantage of what is a strong, but underused, brand name.

In the information world, speed and timeliness are vital. Yet, despite the OECD’s small size, too many OECD projects take too long to complete. The argument that the OECD takes a more considered view does not necessarily convince anxious policymakers. The outside competition is stiff, and governments are turning often to leaner, fitter private agencies for their advice (even if many of these use OECD data in their work).

New methods

OECD governments demand a lot from the secretariat’s experts, but one can only do so much. So there is a need to define the issues that matter the most for governments and their voters. Today, headline examples include: ageing, migration, health, education, technology, taxation and governance. In broad terms, policies for promoting smooth, feasible, structural reforms in our societies must form the core. Once the OECD defines its priorities, it must then ensure financing. A “fast track” system can be introduced for a very select number of projects

The OECD must overcome bureaucratic and political constraints to become stronger. Its rather rigid and compartmentalised structures hamper the OECD from presenting truly cross-cutting analysis. Encouraging efforts have been made to improve co-operation across OECD directorates, but so far, the outcome remains rather disjointed. The OECD should lead by example, showing its fragmented government owners in member capitals how to operate across ministry lines and produce coherent and consistent policy advice. This would strengthen not only the usefulness of the work, but the organisation’s “corporate image”.

Apart from speed, winning audiences demands having sharp and original things to say, as well as presenting them in ways that grasp busy people’s attention. This does not just apply to public communication; even sensitive information intended for restricted audiences should always be well-written and engaging if it is to compete for busy government time.

The OECD has several bright spots, but frankly, too much OECD output remains dry and shy. Political prudence is not always an acceptable excuse for this. Moreover, some reports are too long on theory and conjecture, but thin on advice policymakers can really use. Governments want practical road maps, not sermons.

One does not have to be overly sensationalist, for after all, the OECD’s aim is to make progress by keeping everyone onside, not by isolating them. At the same time, honesty and rigour in putting tough realities on the table is often welcomed. The approach may raise some eyebrows, but with the proper judgement, will achieve respect, as witnessed with the PISA study, which not only cast education in some member countries under the spotlight, but in the end won warm praise from the authorities themselves. More of this is needed.

Comparable data and analysis are one of the OECD’s strengths. Governments will continue to expect more of it. Though rankings and benchmarking entail some political sensitivities by drawing headlines, governments welcome them as they help keep the focus on improving performance.

To my mind, we have seen far too much prudence at the OECD. Take the World Economic Forum’s competitiveness report; surely, the OECD could play a stronger and more useful role in offering high quality benchmarking, not just in competitiveness, but FDI attractiveness, potential for growth, institutional readiness for globalisation, governance, and more.

The OECD should not only be ready to create new products, but redefine old ones, in response to customer demand. Even the erstwhile Economic Surveys could be renamed Structural Policy Surveys, to better reflect what they are today. In general, I am convinced that all the OECD country examinations in several fields continue to be some of its best products on the market. But they need constant care and development, to respond to the needs of the time.

Of course, products, no matter how good, must be delivered into the right hands. Today too much good OECD work does not reach the relevant people in capitals. Nor are parliaments aware of it. Feeding through the media is good, but not enough. Direct distribution to the capitals (government and parliaments) and a greater effort to reach beyond the immediate OECD circle are the only way. After all, if customers are not coming to the market, then the market has to go to them.

Bridging the legitimacy gap

So much for methods and tools, the OECD should also take a more strategic approach and respond effectively to developments taking place in the world economy. Perhaps the most oft-heard criticism of the OECD concerns the narrowness of its membership. A small club may have many virtues for like-minded countries, but globalisation has moved on. The OECD must engage more closely with countries that are not necessarily as like-minded, particularly with major global players like China and Russia, as well as Brazil and India. Perhaps all these countries do not have OECD membership foremost in their minds, but their interests and policies concern all OECD members, in areas like investment policies, competition, public and corporate governance, migration and environment, etc. These make their closer involvement with the OECD more essential than ever.

Moreover, today, some non-OECD countries and civil society organisations see the OECD as a servant of developed country interests, sometimes even as an adversary, rather than a partner, in globalisation and sustainable development. So, even if the OECD co-operates with some 70 countries, having just 30 wealthy members undermines its legitimacy as a global instrument in the eyes of non-members and NGOs. Even many politicians in OECD countries have started to take this view.

Legitimacy and relevance would be improved by engaging the major players of the world economy into a strengthened and structured co-operation with the OECD. This could eventually lead to membership. The OECD could begin to compete more powerfully and fend for itself with confidence.

As in business, the need for efficiency would remain. This surely puts a cap on how large the OECD can or should grow. Making progress among 30 countries is already difficult, even in areas like opening trade, and a club of more than, say, 45 members, would become very hard to manage. High standards must be guarded and for the OECD move countries forward and foster learning among peers, everyone must be able to attend meetings and in a co-operative spirit, and not break out into alliances, as happens in some other, larger, more politicised organisations.

Enlargement and co-operation have implications for the OECD’s tradition of consensus. The approach of developing “soft law” and guidelines, and relying on principled agreement among peers still should prevail. However, on management and technical issues, including setting the work programme, this approach has severe limitations. In an enlarged OECD, a recourse to majority voting by the council as the last resort would become unavoidable.

One way the OECD has derived new strength and influence has been through co-operation with other international organisations. The World Bank has been the foremost partner in this process, but there is a lot of untapped potential left. International work in the areas of taxation, development, corporate governance, and the fight against corruption have all benefited from this. Strength in numbers and through sharing expertise reflects positively on the OECD and helps reduce possible duplication.

However, there is a clear borderline to be drawn: the OECD's strength is in analysis, assessment and policy advice. While this should always be practical enough and take good account of country circumstances on the ground, the OECD should be very cautious about taking on technical assistance work. This could be too much to handle, and anyway, it is not the OECD’s proven comparative advantage.

The OECD has quite a lot on its reform plate to deal with. But it would be unfair to conclude without frankly pointing out that we OECD members have simply not been good shareholders of late. There has been complacency in the air, with budget cuts pursued by one tiny group of countries, and a constant flow of criticism from a much larger group. Yet, no real reform programme or strategy exists to improve matters. We have to lead by example and stop foot-dragging. I hope that the present reform process, which should come to an end by the next Ministerial Council meeting in May 2004, makes the future clearer, once and for all.

It is critical that the EU and the G7 – two major and partly overlapping groupings – clarify what they expect from the OECD (of which their members form a key part) and what role they wish it to play in the global architecture of international organisations in the years ahead. A casual “wait-and-see” attitude would add to the confusion and probably be disastrous for the longer term future of the OECD. And yet, there is no doubt that the OECD’s work benefits the EU and G7 in several ways and could not be easily compensated for by any other existing or new arrangement or institution. Let us draw conclusions from this fact and act now, so that the OECD reforms benefit us all. Then, the OECD could make a truly effective contribution to addressing the major challenges of globalisation.

*At the request of the OECD in December 2002, Ambassador Julin prepared a report on the future direction of the organisation.

© OECD Observer No. 240/241, December 2003




Economic data

GDP : +0.5%, Q4 2014
Employment rate: 65.9%, Q4 2014
Annual inflation : 0.57% Feb 2015
Trade : -3.0% exp, -3.7 imp, Q4 2014
Unemployment : 7.022% Feb 2015
More moderate expansion ahead? Composite leading indicators
Updated: 14 Apr 2015

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