What a lasting recovery needs
One of the difficult challenges for governments facing a crisis is to keep an eye on the wider picture. This is particularly true in OECD countries today, as they fight down unusually wide fiscal deficits and heavy debt. These problems are a sequel to the financial crisis that started in 2008. Now, most countries, from the largest to the smallest, have to make new sacrifices. People are understandably angry, feeling they are not responsible for the current situation.
Still, most people probably accept that tough measures are needed. Just like some banks, several countries had lived beyond their means. For years, OECD experts had urged reforms to improve efficiency. Now there is no choice but to act.
Dealing with massive fiscal deficits, unemployment and new sources of growth will absorb policymakers’ attention in the near term and will be high on the agenda when ministers and stakeholders from around the world gather for this year’s OECD Ministerial Council Meeting and Forum on 26-28 May. But lifting our collective sights to focus on wider issues, such as the environment and development, is a challenge we must also meet.
Start with fiscal consolidation. Spending cuts are inevitable, and consequently every effort must be made to reduce their impact on the drivers of long-term growth. As I outlined in the previous edition, governments should target their actions, for example, on cutting subsidies that distort competition or harm the environment, and shifting taxes towards consumption and away from income. They must step up their active labour market policies too, particularly for young people, the long-term unemployed and other vulnerable groups.
One fundamental driver demanding a big push is innovation. The facts before the crisis are even more important now: innovation underpins sustainable growth and is essential for new businesses, jobs and better, healthier, lives. Governments must try to strengthen innovation, and avoid actions that might weaken it. How?
The OECD Innovation Strategy, which we will present at the Ministerial Council Meeting, offers clear guidance. To be sure, spending on science and technology, R&D and training are important, but if innovation is to lift productivity and growth, we must venture further by transforming universities and research institutions into independent, entrepreneurial hubs that can interact on a global scale.
Entrepreneurship is particularly important. New data from the US shows that firms less than five years old accounted for nearly all the increase in employment in the private business sector over the last 25 years. By focusing on their needs, for example,by simplifying administrative procedures, easing access to finance and providing broadband, these “gazelles” will leap forward, generating productivity and employment along the way.
Innovation is also the dynamo behind green growth; without it, the economic potential of renewable energy, cleaner supply chains and green-collar jobs would be seriously compromised. What can policymakers do?
The OECD is midway through preparing a Green Growth Strategy to be issued at the Ministerial Council Meeting in 2011. The aim is to provide a strategic vision to guide national and international policies so that the potential of green growth is realised for all countries. So far, our analysis shows a need for governments to take a stronger lead in fostering greener production, procurement and consumption patterns by devising clearer frameworks and ensuring that markets work properly. They should drop some costly habits too, notably subsidising fossil fuels, which would help fight climate change and save money as well.
The OECD’s Innovation and Green Growth Strategies underline the principle that no recovery or exit strategy will last if it overlooks sustainable growth. In my yearly report to OECD members, I highlight other priorities that will demand our increased attention for similar reasons. First among these is development.
As part of our historic responsibility, it is appropriate that we should mark the OECD’s 50th anniversary starting in December this year by revitalising this mission. As President John F. Kennedy said in his State of the Union address in January 1961, the OECD must support “the hopes for growth of the less developed lands”. After half a century of increasingly close trade and investment links, and stronger co-operation, developing countries are now integral to the world economy. Their future is our future and the OECD must work harder in these tight times, through aid, capacity building and the mobilisation of internal resources, based on a “whole-of-government” approach that includes innovation and green growth, to help poorer countries make faster progress.
But the OECD can only contribute to a stronger, cleaner, fairer world by working alongside other international organisations, the G20 and other fora. Openness is key. This year we welcome Chile as our newest member and have extended invitations to Estonia, Israel and Slovenia to join us. Accession talks with Russia are advancing, and our engagement with the largest emerging economies of Brazil, China, India, Indonesia, and South Africa are being gradually but steadily enhanced.
This new, inclusive global outreach will help countries respond to wider common challenges as they battle along the road to recovery. The OECD is there to support them.
©OECD Observer No 279 May 2010
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