When ministers from the world’s most powerful countries met informally at the Hotel Majestic (our photo) in Paris on 12 January 1960, two faults of etiquette alerted participants to a profound shift in political and economic leanings. Ministers from the six founding members of the European Community, along with the seven members of the European Free Trade Association and the United States, had agreed to meet prior to the annual ministerial meeting of the Organisation for European Economic Co-operation. As they cast their eyes round the table to find their seats, which were arranged alphabetically, it was noticed that the US and French delegations had taken seats beside one another.

This apparent disregard for protocol was interpreted by the other delegates as a sign of special understanding between the French and Americans, who had decided to form a united front against an extension of the OEEC Code of Liberalisation as it stood. The second slight on the meeting was felt by OEEC Secretary-General René Sergent, who had not even been invited.

Sergent no doubt knew what was afoot. The OEEC was losing steam as the economic steward of Europe. This prodigy of the Marshall Plan had been successful in rebuilding Europe after the war. But that job was long done. Europe was not only restored, but thriving, enjoying an economic renaissance without parallel in its history.

By the end of the 1950s, some countries had become disenchanted with the organisation, and felt that it had outlived its usefulness.

Management of the balance-of-payment systems in post-war Europe had been the core purpose of the OEEC. Woven into the fabric of its mandate was the Code of Liberalisation, by which European countries agreed to lower quotas on inter-European trade.

When France decided in 1958 to abolish quotas on 90% of its private trade, European countries had reached a point where they had effectively abolished all quotas among themselves. On New Year’s Eve of that same year, J.F. (Flint) Cahan, the deputy secretary-general of the OEEC, wrote to his superior: “1959 will present even greater opportunities for achievement. After such a resounding demonstration of the importance of the OEEC, as that which we have just had. . . I can no longer doubt that our troubles over the Free Trade Area will shortly be resolved”. Indeed these troubles would be resolved, but like the pronouncement of the ancient oracles, not as one expected.

The OEEC had become a battleground of various internal interests, and was losing its shape.

Discussions over a Free Trade Area (FTA) was a sore point with the Benelux countries, which had tabled the idea four years earlier, and were annoyed over the failure of the OEEC to address it. Their aim was to progress from the removal of quotas to the lowering and eventual elimination of tariffs. For this reason, the Low Countries became known as “the Low Tariff Club”.

Frustration finally boiled over, and the club made their acceptance of the 90% liberalisation target contingent upon serious discussion of the tariff issue. They furthermore called upon the six foreign ministers of the European Coal and Steel Community to look into the problem. The first breach had been opened.

In spite of Cahan’s optimism, 1959 was not a good year for everyone. The US was beset by a low trade surplus and a vertiginous balance-of-payments deficit. In 1957, the trade surplus reached an historic high of $8.6 billion, and the current account deficit was just $0.4 billion. Two years later, trade surplus fell to $2.6 billion, pushing the current account deficit up to $4.5 billion. What the US needed above all was to boost exports, but all the signs indicated a withering enthusiasm in Europe for a pure FTA. The Eisenhower administration detected in the hum of diplomatic machinery the elevation of new barriers to US imports. A second breach had opened.

Other geopolitical factors were also at play. The Americans’ abstention from a UN vote on the Algerian question embittered the French, who threatened to withdraw their Mediterranean fleet from NATO command. But an even greater threat came from communism, which was making deep inroads into southeast Asia and Latin America; the Soviet’s military front would fast become an economic one.

The US ambassador to NATO, Randolph Burgess, warned of Soviet economic expansion in the Third World. He strongly advised against the “destruction or substantial impairment of the OEEC” as that would amount “to handing the Soviets a tremendous victory on a silver platter.” A new, expanded, instrument was necessary to act as a breakwater against this danger.

The US also diagnosed an increasing myopia in European vision. To Washington it appeared that the OEEC had been reduced to sorting out European trade squabbles. On the subject of the December 1957 summit between Eisenhower, McMillan, de Gaulle and Adenauer, the US deputy undersecretary of state for economic affairs, Douglas Dillon sent a private memo to Christian Herter, the undersecretary of state, in which Dillon expressed his concern that “to limit the summit declaration to trade would be beneath the dignity of world leaders.”

Afraid that a tremendous opportunity was about to be missed, Dillon went to Eisenhower directly, telling the president that “the western summit meeting offers a great opportunity to demonstrate convincingly the determination of the leaders of the free world to patch up the European trade quarrel and to move ahead with measures to mobilise and co-ordinate assistance from the industrialised countries to the less developed areas.”

This idea would quickly take hold. The suggestion, however, that these two tasks–aid and defence–could be conferred upon NATO sat uncomfortably with the US State Department. For two reasons: linking foreign aid to defence issues might embarrass friendly governments, and it also gave Europe leverage to increase aid and lower defence. It was not a job for NATO; an entirely new institution should be created.

The fractious meeting at the Hotel Majestic had split into opposing camps: the founders of the European Community–“the Group of Six”, the seven members of the European Free Trade Association (EFTA), and French and Americans. The outcome of the meeting at the Majestic was a resolution to mould these interests into a “Group of Four on Economic Organisation”. The task of the G4 was to see what could be salvaged from the OEEC and used to create a body that would deal not only with European and Atlantic economic issues, but devise policies to aid less developed countries. This reconstituted organisation would bring the US and Canada, who were already OEEC observers, on board as full members. It would also set to work straight away on bringing in Japan.

A G4 report, presented on 7 April 1960, recommended the reconstitution of the OEEC into a wholly new entity, to be named the Organisation for Economic Co-operation and Development. The word “development” was chosen deliberately to underline that the main purpose of the OECD would be to co-ordinate the provision of aid to underdeveloped countries, and offer consultation on economic policy and trade beyond Europe. This vision of global leadership was subsequently given powerful political support by the newly elected and youthful President John F. Kennedy in his first state of the union address in January 1961 and in a statement following his country’s ratification of the OECD Convention two months later (see next article).

But still, the OECD project was not welcome by everyone. The most hostile reactions came from EFTA members, especially the Swiss, and supported by Sweden and Norway, who viewed the new organisation as a “diktat” by the larger powers in an attempt to make the EEC the sole European authority. France, though in the G4 vanguard, was not particularly convinced that the new project had a solid future.

But they knew something had to be done, particularly given the erosion of Sergent’s authority because of his seeming inability to put the OEEC house in order. Internal squabbles were rife as departments operated like fiefdoms, with little concern for the broader goals of the organisation. Top posts remained vacant because appointment committees refused to give ground over their choice of candidates. The organisation lost skills too, as senior staff started to take up attractive jobs elsewhere. When the head of trade, Marc Ouin, accepted a position with Renault, OEEC officials were stunned.

Ministers moved quickly to prevent a complete collapse of morale. On 22-23 July 1960, they convened in Paris to initial a draft convention for the OECD. Danish Finance Minister Thorkil Kristensen was appointed secretary-general, a choice considered by many as likely to reassure nervous smaller members. The final draft was signed on 14 December 1960, barely a few weeks after the election of John F. Kennedy as president of the United States. His rise to power was key, for in the words of Kristensen after his assassination in 1963, few people did quite as much as Kennedy did to get the OECD off to a confident start.

And to be sure, within the first few years of the OECD, the mood had swung to optimism. As Anker Randsholt, who was brought in by Kristensen to launch and edit the OECD Observer, recalls, the organisation had “the highest reputation you could imagine. The OECD was something new, Europe was beginning to breathe again, seeing what co-operation did...There were standing ovations!”

Yet, far from being a smooth transition as many would have it, the birth of the OECD was neither easy nor initially welcomed by all parties. Still, what emerged from the process was a strong and healthy body.

Today, after years of relatively inward-looking analysis which earned the organisation the rather unflattering tag as a rich-man’s club, and a reputation for being remote from the interests of the wider world, the OECD is spreading its wings and reasserting itself as a player on the wider global stage.

It is again changing with new realities, by taking on more members, stepping up its relations with emerging markets, and heightening its role and responsibilities in the G20, which brings together major developed and emerging markets. Is it more than a majestic coincidence that the host of the G20 during the OECD’s 50th anniversary should be France?

Nor, as the OECD turns 50, should this new-found momentum be underestimated in consolidating the future of the organisation as a global body capable of influencing the world economy for the better, or as Kennedy and other founders intended, to carry the hopes for development of people everywhere.

In a New Year’s letter dated 1959, just half a year before the OECD Convention was drafted and a year before it was signed, Flint Cahan wrote: “we all know that countries and organisations who cannot escape from their pasts are doomed, one day, to die. This [. . .] need not be the fate of organisations, provided they are sufficiently adept at adapting themselves to changed circumstances.”

As recent history shows, the OECD has learned its own lessons well.

Rory Clarke is Editor-in-Chief of the OECD Observer/Yearbook; Lyndon Thompson is a teacher and journalist.

Links and references

Griffiths, Richard (1997), Explorations in OEEC History, OECD, Paris.

“Anchor man”, interview with Anker Randsholt, in OECD Observer No 235 December 2002 (40th anniversary edition) 

Speech by John F. Kennedy, on the creation of the OECD Development Centre, YouTube, see www.youtube.com/watch?v=mnJr0TuUTVc

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