Skip to content

What is key for the OECD in 2017? An open economy perspective

January 10, 2017

Noe van Hulst, Ambassador of the Netherlands to the OECD

As we start a year that Ian Bremmer (President Eurasia Group) has coined as entering ‘the geopolitical recession’, it is worth asking what the OECD focus could be in 2017. I see two key issues worth highlighting in this context. First: Escaping the Low-Growth Trap. Escape games are popular nowadays, but this one is of eminent importance to all of us. In the latest Economic Outlook (November 2016) the OECD has aptly demonstrated how we got stuck at 3% per year for the last five years. How can we get out of this low-growth trap? Now that extraordinary accommodative monetary policy has reached its limits, the OECD recommends a more balanced policy set with a much stronger role for collective fiscal action and for more inclusive structural and trade policies.

Although the Economic Outlook makes a passionate case for a more expansionary fiscal stance in many countries, the reality is that this is unlikely to happen. Partly because some countries are cautious in the light of a heavy public debt burden. Partly because they are already growing at or above potential growth, as we heard from Prof. Christoph Schmidt (Chairman of the German Council of Economic Experts) a week after the publication of the Economic Outlook. The reason that potential growth is so low has, of course, everything to do with the productivity slowdown that was – very appropriately – the main topic of the OECD Ministerial Council Meeting in June 2016. Against this background, I think we will find more common OECD ground in 2017 if we focus strongly on boosting smarter structural policies as the main avenue to get out of the low-growth trap.

Let me mention just two concrete examples. The first one is harvesting the great potential of the digital economy, both a priority of the German G20 presidency and a promising new horizontal project within the OECD. The second example is inclusive structural reforms, particularly in product markets potentially delivering short-term benefits in terms of output, investment and employment. Making reforms more inclusive is also about exploiting benefits of complementarities between product and labour market reforms, synergies (growth & equity objectives) and designing policy packages to help vulnerable groups or mitigate trade-offs.The launch of the 2017 OECD Going for Growth publication is an excellent opportunity to highlight this key point. Reinvigorating good-old competition policy will also reinforce stronger and faster diffusion of new (digital) technologies from frontier to laggard firms and hence boost average productivity. Let’s not forget that structural policies are a traditional OECD strength, an area where the OECD holds a strong comparative advantage and rightly enjoys high international credibility.

What about inclusive trade policies? Well, that is my second key issue to focus on in 2017. Global trade growth has been very weak relative to historic norms for five years. The general consensus is that the relationship between trade and GDP growth is undergoing a fundamental shift. In the ‘good old days’ we enjoyed trade growth at a rate of twice global GDP growth and now trade barely makes global output growth. According to OECD analysis this also contributes to the productivity slowdown. So what exactly is going on with trade? Is low trade growth somehow intertwined with the general global growth malaise? To what extent is this due to global value chains contracting, as reflected in OECD analysis? Is the current slowdown in global trade only natural and should not be a major concern? In any case, it is clear that the rise of trade restrictions in G20 countries, still continuing in stunning contradiction to countless G20 communiqués, surely are not helpful. Deeper OECD analysis is required to pin down more precisely how the different factors contribute to the trade slowdown. And how trade impacts labour markets and economic growth in different regions within countries.

Deeper analysis, however, is not enough. We definitely need to ask ourselves some tough questions about where the public backlash against trade and globalisation is coming from and what went wrong. And even more importantly, what we can and should do better. One area is the need to rebalance our trade and investment policies, towards a more fair, sustainable and inclusive system. Making the OECD Guidelines for Multinational Enterprises the centerpiece of trade and investment policies would be a concrete step. Another area is more effective complementary domestic policies to help people deal faster and more successfully with trade-related job losses if and when they occur. Ideally, this entails not only effective ‘safety net’ policies but also so-called “trampoline” policies offering a tangible springboard to new jobs.

In any case, it is obvious that trade and trade policies are politically more under fire now than I can remember – and I am not young.  As Martin Wolf wrote in the Financial Times “The era of globalisation under a US-led order is drawing to a close…the question is whether protectionism and conflict will define the next phase”. For very open economies like the Netherlands it is of critical importance how this ‘next phase’ will shape up in 2017 and beyond. At this juncture, the Dutch economy is growing at a solid 2% per year (in 2016 and 2017) with unemployment coming down rapidly to 5%, but the downside risks are all related to where the global economy is heading. Many other OECD member countries have a similarly high exposure to shifts in the global economy. According to Open Market Index data from the International Chamber of Commerce (ICC), more than two-thirds of OECD countries have an above average openness, as measured by observed openness to trade, trade policy, Foreign Direct Investment openness and infrastructure for trade.

The OECD has a crucial role to play, in cooperation with other international organisations, in clearly demonstrating the adverse impact of rising protectionism, in monitoring what’s happening in trade and stimulating policy dialogue on better alternatives that help global growth.  In this light it is very fitting that the OECD Ministerial Meeting in June 2017 will focus on the theme of making globalization work for all. Let’s try to come up with concrete policy improvements that can help us preserve a well-functioning open global economy.

Useful links

OECD Global Economic Outlook, November 2016

 

 

2 Comments leave one →
  1. January 10, 2017 11:19

    Dear Mr N. Van Hulst, Ambassador of the Netherlands to the OECD

    I´d like to express my pleasure in reading your opinion paper, I could see a round foundation to your thoughts, taking the perspective of a traditionally opened economy as Netherlands, and I would say an opened and progressive society.

    However, I could not see in your paragraphs mentions to international illicit flows, either financial or trading goods. As we, as Brazilians, are now able to get the proofs and numbers, while watching the process of opening the curtains of the corruption structure in the formal economy and politics of Brazilian parliament members and even among those occupy seats in the Executive authorities, due to a task force of the Judiciary in Brazil and abroad, I wonder if you could mention the drainage of wealth from the formal authorized trade of goods and finance towards the illicit flows.

    I am aware that indicators are in the size of trillions in the world financial flow due to illicit financial flow.

    Also, I would point the figures on the purpose of world trade depending on what sort of future we expect for the world trade: a world of peace and justice, based on the sustainable development goals and OECD responsible business conduct, and other similar ‘values’? Or a world of anger, prejudice, war, unfairness, based on the astonishing amount of the big business of military industry in the world.

    Thus, as society is becoming more and more networks of networks, Gross National Product Index are obsolete to measure quality of living. Better if OECD country members consider the need for several other index to measure happiness, wellbeing, quality of life.

    For a new future, a transformative future, we need new, transformative measures to evaluate success of countries. For sure, the Netherlands is a benchmark for the world, as well as other leaders promoting policy coherence for sustainable development, at least nationally, both horizontal and vertical policy coherence. However, what about the Netherlands promoting a clear voice in the world towards sustainable development policies for investment and trade internationally, not only expecting the voice of multinationals, but clearly embracing in all international agreements.

    G20 has opened the path towards coherence with the Agenda 2030, as well as the OECD. Now it is time for policy coherence among UN, G20 and OECD country members.

    I am sure that the Netherlands can make this move, for its own leadership in the international arena and in its praxis for multi-level governance and policy coherence towards sustainable development, participatory governance and accountability in its own country.

    With my compliments,

    Patricia Almeida Ashley
    Associate Professor
    Núcleo Girassol de Estudos em EcoPolíticas e EConsCiencias
    Instituto de Geociencias – Universidade Federal Fluminense

    Former Prince Claus Chair in Development and Equity (ISS/EUR – 2009-2011)

  2. January 10, 2017 16:13

    1. Get rid of risk weighted capital requirements for banks which, for no particular good safety reason, stop banks from financing the riskier future and have these only refinancing the “safer” past and present.

    http://subprimeregulations.blogspot.com/2016/12/must-one-go-on-hunger-strike-to-have.html

    2. Impose minimum wages and payroll taxes on robots so humans can compete on a level playing field

    http://teawithft.blogspot.com/2016/10/let-robots-make-us-offer-we-cant-refuse.html

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out / Change )

Twitter picture

You are commenting using your Twitter account. Log Out / Change )

Facebook photo

You are commenting using your Facebook account. Log Out / Change )

Google+ photo

You are commenting using your Google+ account. Log Out / Change )

Connecting to %s