Adam Ward
Right, well, good morning everybody. It’s a pleasure to welcome back to Chatham House Ángel Gurría, who, as you know, has been Secretary-General of the Organisation for Economic Co-operation and Development since 2006, and during his time, the OECD has worked to enhance its role in the provision of economic analysis and data, needed to sharpen economic policies and also, to improve their implementation. And it’s also worked to ensure that the organisation takes an important place in the institutional architecture supporting global economic governance. And the OECD has accordingly, also been addressing itself to a variety of broader global issues, from climate change to sustainable development and particularly, under the Secretary-General’s leadership, it’s been addressing itself to issues around international tax reform, anticorruption measures, which I think was a subject of a previous talk given here at Chatham House, and the attempt to foster not only a concept, but also to promote the reality of economic wellbeing. A form of economic wellbeing that recognises its various and multiple contributing dimensions.
Now, that sense of wellbeing has, in the past few years, been conspicuous by its absence in a number of developed economies and compounded with the reality of stubborn economic inequalities, is it’s often seen to underline many of the political grievances and forces that are critical of, or hostile to, globalisation and its structures. So, with that in mind, Mr Gurría will today set out the requirement for inclusive growth strategies, with a particular reference to the role of international trade and investment, and he’ll present some thoughts on how inclusive growth can be promoted in respect of both domestic policy and multilateral initiatives.
His remarks are on the record and are being live-screened so, do tweet about them, using the customary #CHevents. So, it just remains for me to ask Mr Gurría to address us and please join me in welcoming him to Chatham House. Thank you very much [applause].
Ángel Gurría
Thank you, Adam. I’m delighted to be back. It’s always good to be in Chatham House, whatever the rules of the day. It’s – let me say that all major regions of the world are enjoying a welcome expansion. I think this is a context in which what we’re going to be talking about and that’s – somebody even used the word ‘synchronised’, which is very, very, you know, probably too generous because it’s not that everybody agreed that they would do exactly all the right things in order to – we’ve been trying, for ten years now, with a crisis – the crisis is ten-years-old, remember. And we’re celebrating the fact that we are growing at 3.9% this year, maybe next year, and well, some of us forget the fact that we were growing at 4% before the crisis. So, effectively, ten years into the crisis we are only reaching the level of growth and the speed of growth that we had before the crisis. The same has to do with employment, the same has to do with unemployment, so let’s say that we have now recovered the pre-crisis levels and at the same time, that it looks like this, kind of, growth can hold for the next couple of years. That’s what our internal economic outlook, of a few days ago, was forecasting.
On the job side, millions of new jobs are being created, that’s good. Again, the legacies of the crisis were low growth, were high unemployment, were growing inequalities, and there’s this collapse of trust in the institutions. So, those four legs of the legacies of the crisis if you will, are somewhat improving. I would say the first three certainly, the growth, second, the jobs are improving – in the United States, which has been a factory of jobs really over the last – now it’s been 16/17 million jobs in the United States that have been created, in the last six/seven years. But even in Europe this is improving, in the Euro area, which had been sluggish, in terms of the recovery, this is improving, and then when you’re talking about the inequalities we’re going to be talking about that and the inclusive growth story. So, I’ll jump that, but I’ll go to the fourth one, which is the question of trust, which is still lagging behind, which is still a big problem, Monsieur le grand, bonjour.
Now, despite these glimmers of hope, the multilateral system is under strain. Governments around the world are facing a public backlash against globalisation. Actually, backlash against globalisation has almost become a, kind of, a cliché, you know, which is very unfortunate, but that’s the way it is. And the benefits of globalisation certainly are – not only are perceived not to have been distributed evenly, they actually have not been distributed evenly and perhaps, then, we understand why there’s so many angry people and why we get these very fragmented results. Because you’re getting fragmented results on the economic side, which produce fragmented results on the political side, which produce fragmented results all because of the social implications and then you get these, you know, seven months to form a Government in The Netherlands, five months to form a Government, of all places, in Germany.
The rather complex electoral – post-electoral situation in Italy, they say that elegantly enough, and yeah, so yeah, rather a complex post-election situation in Italy. And then, of course, we have Brexit and we have the situation in the United States with all these expressions of, you know, of different manifestations of expressions of dissatisfaction. So, you basically have – you know, all over the world we’re having three – well, we’re having six or already some of them – two have already happened, but we’re having five or six elections this year in Latin-America and again, they all are looking either very tight or complicated, etc., in Brazil and Mexico, just had one in Costa Rica, that I think had a good outcome, in the sense that it suggests continuity, going forward, but it’s – you know, it’s the same all over the place. There’s nowhere to hide, in a way, from this – well, dissatisfaction, sometimes anger, protest, against the globalisation that has not served everybody in the same way.
Now, some countries are concerned that in this context of this unfair, if you will, globalisation that some countries are not playing by the same rules. Whether it’s because of state support, subsidies, protection and the fact that new multilateral rulemaking perhaps is not keeping pace with the realities of today’s global economy. I’ll give you an example. We’re now under a lot of pressure to produce a blueprint for taxing digital. So, everybody thinks it’s about GAFA or FANG, or whatever it is that you call it now. No, it’s about an increasingly globalised world economy. How we deal with, you know – there are some companies that specialise in digital issues or techniques or technologies, but basically, you’re talking about how do you tax an increasingly globalised world economy?
This is the, kind of, thing that is – why? Because the man on the street perceives it. He’s taxed and perhaps the richest man in the country is not because he found a tax haven, or the small and medium enterprise feel they’re taxed and perhaps the largest companies in the world are not taxed because they found a double something, you know, I used to say double Irish, double Dutch, they’re gone. They’re gone. Double Irish cannot happen again. Enda Kenny went to the OECD and offered he would dismantle it. He did, and after that we dismantled double Dutch and then we dismantled some of the facilities here in the UK, etc., so it’s a better world today, but again, the question is, how does small and medium enterprise – how does a person feel? Again, feeding into this element of dissatisfaction.
When you’re talking about inequalities, well, 10% - the income of the 10% poorest fits ten times into the income of the 10% richest. So, what? What do these tens, tens, tens, tell us? Would you be more worried if we told you that a generation ago the sign was 7% - was seven times instead of ten times? So, the same number instead of, you know, ten times the income of the poorest fits into the income of the richest, and it used to be seven times, only a generation ago. It has increased – inequality has increased by 40% in one generation. Very fast, obviously, in the wrong direction, so that just tells you, you know, it documents. And also, what happens when year-in and year-out income has these inequalities? Then the stock of wealth, resulting from these flows of income accumulates in the same way and also, because of a number of technical reasons, capital tends to be better remunerated than labour, we’ve had this accumulation at the very top. And then – well, London knows about this when you’re the very, very, very top, you know, 1%, etc., it exacerbates the trend. So, you have these – this is just evidence about the problem. I was always intrigued by the fact that in London or in Baltimore, it’s a good interesting pairing, there could be ten to 15 years difference, in terms of life expectancy, depending on the borough, and – well, it just shows you the kinds of problems we have. But then, the regional disparities are not just about income and revenue, they’re also about productivity. In London, it rose by about 31% since 2005 and that’s about a third more than in other regions in the UK itself, so that’s just a little vignette.
Then there’s the question of distribution of skills and the structures of their economies, because the question of skills – it used to be that, you know, we would say education, education, education. Today it’s skills, skills, skills, which is a combination of education and lifelong learning and vocational training, etc., and that has a direct bearing on productivity of course, together with other issues like, you know, regulation, etc. And again, that is very badly distributed and it’s very susceptible to trade talks. And as we have seen, and we recently published something in the last couple of days that basically said, those that are more at risk and those who are more – who are going to be more affected by the digitalisation movement, are going to be those that have the lower skills. So, the question of skills, upskilling, reskilling, etc., is a question of survival, it’s not just a question of being better paid.
There are also other – you know, there are other manifestations of these problems. The Panama Papers, the Paradise Papers, which suggest that some people were not paying taxes at all, the difficulties between the EU and Apple, for example, the 0.05% tax rate on Apple, not bad. It’s a nice comfortable tax rate, but what happens? You suddenly had the paradox that Ireland is suing, in order not to get the money, the 13 billion, and why? Because Ireland does not want to be seen as, you know, the country that is taxing the companies, etc., basically, you know, substantially, that money is of the US, etc., you know? And well, maybe if – now that they’ve changed the rules, it will make it a little easier to repatriate, etc., but what I mean is that you had all these distortions, which added to the problem, and what I call the geographies of discontent, yeah?
Now – so, what to do, this is the diagnosis. Well, rebuilding trust in a multilateral system and the policymaking process itself. Recognise that traditional growth models have failed to deliver, for many people. That there is heightened financial volatility. This may be good for the traders, but not for the man on the street, if you will, or the woman on the street, to be politically correct. And then, there’s the question of, are we doing all this while protecting the environment, and while taking care of the environment?
Now, we’re talking about trying to give everybody the same opportunities. Well, how do we come up with the question of inequality? We documented inequality in the book that we produced in 2008 already called Growing Unequal? In 2011, we eliminated the question mark, unfortunately, because we confirmed, and we called it Divided We Stand, and then, in 2015, we wrote another opus called In It Together, suggested that it was very important that we actually do this, you know, with a collective.
So, once we had diagnosed all the causes of this inequality, they say, what do we do? Well, the policy response to that is inclusive growth. You had to have some response, so after diagnosing and squaring the thing and measuring the thing and comparing a thing and, you know, benchmarking the thing, it said, so what do you do? You say, well, inclusive growth. Now, inclusive growth is now again, being picked up in so many quarters and so many expressions and so many – but the fact that it maybe sometimes abused as a concept, should not take away from our fully appreciating its value and its importance. So, we should throw everything we’ve got at it in order to get an inclusive growth.
First of all, we’ve got the instruments: the policy framework for investment, our principles on responsible business conduct, our Guidelines for Multinational Enterprises, our Anti-Bribery Convention, etc., and many of these have been adopted now by the G20, for example, so now they’re now G20/OECD Principles or Multinational Guidelines, whatever. And the good thing, when the G20 adopts it is, you get three billion more clients, you know, you get all the Chinese and all the Indians and all the Brazilians and all the Argentinians and, you know, who are not a part of the OECD and basically, you know, it means these countries commit to deliver on these agreements or these conventions or these guidelines, etc. And at least you have a better shot at having more countries practising them.
Then, the question is, how can you make it work for everybody? And here, you’re having problems of regional development, but you’re also having problems of individuals and people. How do you actually get the people? How do you empower the people? Again, there’s the question of the education system, yes, but there’s also the question of the skills and then, there’s a question of whether the opportunities and the skills and the health and the basic education and the access and the quality of both education and health, etc., trans – really transform or become opportunities for good quality work, decently paid work, and to what extent this is not happening, and what can we do about it?
Then there’s the question about the role of the state. The role of the state as a great leveller, as a great equaliser, and then, the role of the private sector, in terms of under the context, which the state has drawn, to be able to work in the direction of strengthening this inclusive growth approach. Now, I have to say, when you talk about – to a group and the group is, on average, younger, they will tend to be more cynical, in terms of whether the private sector will actually move in the direction of something like inclusive growth. And my answer to them is always well, look what is happening with the question of green.
The companies are now competing, you know, remember equal opportunity employer, that’s men/women, okay? Then, in multinational companies, the national diversity, okay? Ethnic diversity, all sorts of diversities and then, of course, the question now is, when you’re talking about the Paris Agreement and you’re talking about emissions, now companies are – number one, they are working on disclosure to see how green they are, and now they’re, kind of, competing on disclosure because consumers are doing their thing. Consumers are rewarding companies that do it well and not rewarding companies that not do it so well. Some big investment funds, like the Norwegian investment fund, no longer work with coal, for example, you know, things like that.
So, it is becoming part of the culture, it’s becoming part of – and it doesn’t have to be necessarily, legislated and then it becomes legislated, in many places. So, this moves more and more to be perceived as, you know, moving in the direction of inclusive growth and having proper conditions of pay, proper conditions of training, proper conditions of, you know, supporting the creche, the day care centres where the women that work in the company, all are good for the employees, but they also improve the productivity and they prove to be a very positive thing for the people themselves. So, I think – and they – it’s a win/win, if you will. The employees win, the company wins and there’s a loyalty that is established. The problem with informality, and it abounds in developing countries, is that you do not create this bond. The worker does not think that they can go the extra mile to benefit the company and the company will not invest in the employee because, well, maybe they will not have any contract after three months, after this short-term contract expires, practically, with no benefits.
There’s also – so, this is, you know, at the national level and there’s also, you know, at regional level, the city level, inclusive growth has so many dimensions, but just co-ordinating the national and the regional and the municipal level is just itself an art, a very complex and difficult art. But then, how do you bring that to the actual international level? Well, we’re always talking about the benefits of, you know, finance – direct foreign investment, and for many years, low environmental and social standards were viewed actually, favourably by investors looking to minimise costs. And of course, not only did these irresponsible investment practices erode the quality of the investment and the quality of the business environment, they resulted in economic losses and environmental degradation and poor labour conditions.
In the more serious cases, like Rana Plaza in 2013, in loss of life. Now, we’ve seen, recently, the most shocking case of, you know, people being bought and sold and of course, perhaps an extreme case, but an exploitation by companies, which said, “I’m already responsible for, you know, the wall and the street where my company is, the rest is somebody else’s responsibility that – the global chain that actually connects me to produce, you know, things in Bangladesh or produce things in China, produce things in Vietnam, things in Mexico, wherever they are, you know, it’s not my responsibility. That’s nothing to do with me.” And, of course, that also is changing more and more. The companies are being, you know, made accountable for that.
So, there’s also what I would call what is happening to the international instruments. You probably have read that there’s some tension on the trade front, but today it came to a head because I was doing some interview at Bloomberg and suddenly, breaking news, you know, the two Chinese Deputy Ministers, one of Finance and one of Trade, were announcing their retaliation, you know, the tit-for-tat in tariffs for – not for the three billion package, but now for the 15 billion package, you know, for the larger – I – one of – the first thing I reflected was, it’s interesting because China exports to the United States, 500 billion and United States exports to China 150 billion, however, their tit-for-tat 50/50.
Now, 50 is one-third of the exports of the United States to China and 50 is only one-tenth of the exports of China to the United States, so it’s interesting that, you know, the Chinese should have taken 15, actually, to be exactly proportionate. You know, normally, in diplomacy and in politics, the proportionality is something which is – but anyway, it just shows you that there are no particular – clearly, they’re not winners here, but the question is, when we’re talking about inclusive growth, here we have a fiscal approach to inclusive approach, you know. Making sure everybody pays their taxes, inclusive growth happen – making inclusive growth happen. The productivity inclusiveness nexus, not just productivity, not just the growth, not just the inclusiveness, not just redistribution, but the nexus between the two, this is what we – and then, towards better trade policies, how to make trade work for all.
Now, these are the kinds of things we promote, you know, these are the kinds of things to leave nobody behind, but at the same time, to have nowhere to hide when it comes to paying your taxes or when it comes to multinationals, etc. The problem is that we felt that we were mainstream and now we’re feeling a little lonely because of all the things that are happening and our conviction of course, continues to be that we have to continue to promote the same values and continue to promote the same principles that we have defended over all these years.
One of them critically being this inclusive growth approach to economics, to social issues, to the environment and also, to governance because it is a very, you know, wide all-embracing concept that we should adopt, in order to change the way we have been approaching globalisation. Because, as I said before, it’s not working too well so far, and it is creating all these results, all these unexpected economic, social, political situations where you get very thin and very vulnerable coalitions and then you need one more, two more, three more parties in order to build a coalition. So, then, the same leader, who’s enlightened and who’s courageous, he sneezes to the left, the guys on the right get angry and they drop off from the coalition, and you have to call another election and then vice versa, you know? This is the situation where we are today, so when we’re talking about inclusive growth, it’s not just about an ethical or a moral concept, which it is. It’s not just a – you know, something which is, you know, divided between the good and the bad. It’s also very practical. It’s also very political and it’s also a very clearly, economic issue.
So, we’ll stop here, and we’ll take the comments, questions or violent objections.
Adam Ward
Thank you very much [applause]. Do you want to take the questions from the lectern or sit down? You’re welcome to do either.
Ángel Gurría
I’ll probably – probably here, okay, yeah.
Adam Ward
Okay, great, let me just kick off, then.
Ángel Gurría
Please.
Adam Ward
You began your presentation by referring to synchronicity, in terms of the growth performance. Do you see synchronicity, at least within the OECD membership on pursuing these strategies, towards inclusive growth? You mentioned some of the challenges around co-ordinating them at a national, sub-national, regional level, but do you see people, within the membership of the OECD, pulling at least in the same direction? And are there any exemplary cases of inclusive growth strategies that you would want to point to as a model for others to follow?
Ángel Gurría
I think, when we launched this idea, which was about six years ago, Romania, yeah? Romania is the one that is leading the charge, with this particular part of our work, I think there was not only widespread support, and then we produced a number of, you know, iterations, and the idea was not to make a book called Inclusive Growth and then say that everything should be inclusive and everything is fine and put it to the side and make a bunch of copies or put them out. But basically, what I would call to mainstream the idea of inclusive growth in everything that we do, because we – our motto is, ‘better policies for better lives’ and that means with the exception of military geo-strategic type of, you know, defence questions, we deal with practically every other policy, public policy, and including with many instruments that are applicable to the private sector or strictly applicable to the private sector, and which the private sector uses every day. They don’t all know that it is an OECD instrument, or that it was put out 50 years ago, it’s been upgraded many times during the years, but – so, I think there was this idea that this was the right way because it was an answer to the inclusive issue, to the exclusive issue, it was an answer to the inequalities. Remember what President Obama said, “Inequality is a defining issue of, you know, our generation,” or something like that. So, there was a lot of consensus, there was a lot of support and we were actually asked to come up with it.
I would say that today, you have a more fragmented situation, a more fragmented view. Just like you have a more fragmented view about whether we should continue to deepen and strengthen multilateralism as an approach to problem solving. We, of course, continue to be convinced and more than ever and every day as we measure, and we compare, and we analyse, and we become even more convinced that multilateralism is not only the way to go, but in many cases, the only way to go when you’re talking trade or you’re talking investment, when you’re talking climate change, when you’re talking migration. How are you going to address these things, other than through multilateralism? However, there’s – it’s – I would say it’s not such a – today, there’s such a strong unity of view about that and I would say, many countries are trying to go it alone or perhaps by favouring the bilateral way, perhaps. Also, to some extent, frustrated by it because the multilateral way sometimes is very, you know, process-oriented and sometimes does not produce results.
I’ll tell you a little example. The question of the overcapacity of steel, steel production in the world. Effectively, what you have is 2.4 million tonnes, or something like that, of steel production today, of which about a third is surplus. Now, how did we ever get into a situation where – well, it takes some time to build capacity and some countries thought that we were going to continue to grow at – or China was going to continue to grow at double digits and the West was going to continue at five or 6% or whatever, you know, and that that would just keep on going and going and going, and also, perhaps, did not take into consideration the fact that per unit of GDP, perhaps the content of steel, as is the content of energy, is that technology is driving that lower and lower. The fact of the matter is, we have today, one-third of the world’s capacity is surplus.
Now, this started to create a lot of pressures and a lot of tensions in every single G20, G7, G, all the Gs, you know, and the WTO and everything else, so we decided, in Hangzhou, in the context of the G20, the leaders, of course it had been built up by the Ministers, to create a global forum on excess steel capacity, and they asked the OECD to be the facilitator. And we established it and we started working and the first thing was information, you know, so everybody was, kind of, not always so dynamic, in terms of providing the information, and you had to go plant-by-plant information, capacity, how much capacity had been taken off, how much capacity was going to be taken off, what does everybody – what did everybody have to offer, etc. So, complex, many parties, many countries, but making progress, but perhaps maybe didn’t happen just like that, that because you’d created a forum, you had the solution.
Now, this is the only way in which you’re going to solve the problem in-depth. Why? Because if you don’t deal with the problem of surplus capacity, you’re only going to be shooting at the manifestations. So, every ten years somebody’s going to flare-up and they’re going to get another, you know, another tariff, or whatever, you know, and the other guy’s going to answer with another tariff. And so, if you don’t deal with the problem of actually dealing with the – and also, it’s what type of steel, what markets, whether it’s round or corner or, you know, wire or whatever it is, you know, it’s specialised steel or whatever, it’s not so simple. It needs a talk, sit down and talk about it and really address the question. So, we created this forum.
Now, we were just starting to, kind of, warm up and in Hamburg, we confirmed that the forum was fine. This was already with the new US Administration and, you know, it was confirmed, then we started working. We delivered a report in Berlin, at the end of last year, which was approved, after some negotiation, on the way forward. And then, of course, more recently, we had the setting of the tariffs and then we had this limited setting of the tariffs to – as a response by the Chinese and then there was – in the beginning, there was a tariff for everybody and then there was all these exceptions, etc., so you know the story better than I. But there is, you know, there is a way. There is a place and we created – when I say ‘we,’ it’s the same protagonists that today are, you know, putting tariffs on each other that created. So, my question is, why do we give those institutions that we created, those bodies that we created – and we created them out of a little bit of, well – or a lot of frustration that maybe, the more usual channels were not fast enough, were not good enough, were not, you know, dynamic enough. But even something like that doesn’t produce results immediately, so – and then you had the tariffs.
Now, it doesn’t mean that the thing is going to disappear because tariffs were installed. So, maybe – hopefully, maybe this will be an incentive for the ones who are working on the global forum to accelerate and we who are facilitating the work will certainly take that message. But that’s an interesting example where you didn’t go to the WTO, you created a special – and also, because the WTO was not necessarily the place where you deal with excess capacity issues, you know, it’s about commercial practices or it’s about protectionism or it’s about tariff things or – so, while you created a special body, but then you went through with the tariffs. So, there seems to be some contradiction, in terms of – but it shows frustration.
Adam Ward
Does it also demonstrate that there are instances in which political motives can override technical solutions to trade issues that arise? That there’s a certain point at which those, on both sides of a dispute, the political momentum acquires a pace of its own. And how concerned are you that these two countries are going to get deeper into this process of tit-for-tat and leading to something that’s larger and more significant? The issues of multilateralism, of co-ordination that you’ve been talking about, effectively, in today’s world, can’t happen if China and the United States choose, and it may be a choice, not to agree to talk and to collaborate on them. Are you worried about this?
Ángel Gurría
Well, of course we are worried. We worry about something every day. At 3 o’clock in the morning, you know, you open your eyes and say, “Oh my, what am I going to worry about today?” No, it’s a – no, this is very worse. I mean, it’s a – it’s not – why? Because, you’re talking about the number one and the number two traders of the world. Well, actually, to be fair, the number one is the European Union together. That’s the largest single trading block and one should not lose track of that because it’s important, when you’re looking at the – including the UK, so far. But the fact is, that the – of course. these are huge trading partners to the world and the idea that it’s just going to remain bilateral and remain sectorial, doesn’t really work like that. There are spill-overs and also, there are general consequences, you know, price – general price results and then sectorial, which may become non-competitive.
Now, in this interview this morning, somebody wanted – insisted to say, “But is this good for Europe?” They say, “What’s good for Europe, you know?” “That the United States and China are having this trade tension,” and they say, “No, it’s not good for anybody. It’s bad.” He’s like, “Oh, but this would certainly be good for Mexico because, you know, they’re having it after, and then they will have” – they said, “No, no. This is bad, you know? It’s a lose/lose proposition, it is not good.” Because it shows that first of all, this level of frustration that we were talking about, because here, you had a combined effect. You had both the setting of tariffs, but also, recourse to the WTO, in terms of the licensing process.
Now, I was in China last week and of course, in China, you know, everybody was alarmed about, you know, that this whole thing was happening, but they were all preparing to respond. So, then, the focus – when these things happen, the focus changes from being more productive, for having more skills, for having more exports, for having stronger trading regimes and more technology and more R&D, etc., to basically, to becoming defensive. And that wastes a lot of resources and it wastes a lot of energy and time and opportunities and opportunities, you know, opportunities are never obvious in the balance sheet, but they – you know, lost opportunities clearly, belong on the liabilities side of the balance sheet.
Adam Ward
Great, we’ll open up the conversation to our members now. If anybody would like to ask a question and make a quick comment, raise your hand, wait for the microphone to reach you, and introduce yourself. Who would like to get us started? Yes, please, here in the front row?
Member
Thank you. I am [inaudible – 44:56] representing Turkey MP and Head of Grand Assembly, Chairperson of Energy, Trade and Industry. And I think of all – I think explanatory and analysing to things that are at the moment, the world is going somewhere, and nobody knows where we are going. And during the good times, international organisations look doing well, but if things going the other way around, then unfortunately, as we are having such a problem today, international organisation looks ineffective and doing something good to maybe put the right thing for everyone not to follow, but at least to deem to be follow the case and the world is benefitting.
As you rightly said, if there is something bad and there is a fighting in international arena, in terms of international trade, some countries can look at the fighting, trade fighting, if I can benefit from this fighting. As you right said, nobody is gaining from international trade fighting and if when, we analysing liberal economy and international trade expansion, have produced good things for disadvantaged region and the countries and the developed countries as well. But today, things are now going the opposite. What I mean is, so many issues are going well, and international organisations are not setting anything that those, sort of, problems can be or help easing those problems and people think not in the centric approach, but it’s a global approach and the international organisation is being unfortunately, getting ineffective.
Adam Ward
So, you would like international organisations to do more?
Member
Let me just put it this way. How do you see – as you’ve rightly mentioned, how do you see the problem is – I mean, which way the problem is going…
Adam Ward
Yeah, yeah.
Member
…in the coming days? And how developing countries can be affected from the situation and what would be the real solution and getting out of this such crisis? Thank you.
Ángel Gurría
Let me say, first of all, in the last ten years – I’ve been Head of the OECD for 12 now and in the last ten years, we’ve never been so much in demand and it’s growing and growing and growing and growing, sometimes even exponentially. Because precisely when the going gets difficult, it gets tough and multilateral is a way in which countries rather than acting individually, would rather put the problem and then say, “Okay, let’s talk about it and let’s discuss it. Let’s have a multilateral solution.” There are very few countries that can start individual actions, other than what I’d call defensive actions, and they have to be very big. They have to be very important and they have to be also – have very large numbers, you know, you have countries that are very large, in terms of population, but are not so important, in terms of trade or in terms of financial flows. Or you have both, you know, you have large territory, large population and especially large trade and financial connections, then those countries could choose to use bilateral tools.
But what is – what’s going on? Well, basically, we’ve run out of room, this is the problem. Monetary policy is reverting now. The United States is increasing the rates. The UK is, kind of, sitting on the fence, but not too far from, you know, the Europeans, hopefully, will take a little longer. The Japanese also, hopefully, will take a little longer, but all I’m saying is, there is a process towards normalisation when it comes to monetary policy having run a very large, you know, space already. They did a lot.
We owe, to the central bankers, homage. We should build a statue to them because they really helped us a lot. But again, they’re running out of their tools, that they’ve used their tools, to a degree, so what about fiscal? Well, don’t we want less deficits and less accumulated debt? The new problem today is not that you have a lot of public debt, in some cases, you know, 240% of debt to GDP in Japan, 180% in Greece and maybe 130%, whatever, in Italy, no – 100% average at the OECD, yeah? 100% average at the OECD. The problem is that you can’t really use that anymore because there’s also, a household build up of debt and there’s a corporate build up of debt and that is starting to worry some people. So, you try to cut the deficit and cut the accumulated debt and the markets are making sure, breathing down your neck, so that you do it, otherwise they bring down your rating.
So, what is the third leg, the one other leg that is left? Education, innovation, regulation, competition, gender issues, your tax regime, your health system, your trading system, your investment system, your digital, your innovation, that means what we collectively call the structural change. And the problem with structural change is that one is one, two is like five, you know, and three is like 25. It’s – it accumulates, it’s mutually reinforcing. The more you do, the more you benefit, but the other thing is, the more the others do around you, there will be also a multiplication of the benefits. This is again, why I would say, stay on the multilateral side. Smaller countries, developing countries will benefit from multilateral, simply because they can level the playing field and the larger countries will not have to do themselves this bilateral prodding, but use the organisations, the institutions that were created for this particular purpose.
Now, we always have development countries in our mind. We always have developing countries – actually, when Mexico joined, when Chile joined, and other countries are now joining, Colombia will join this year, Lithuania will join this year, Costa Rica will join next year, and now we had Brazil, Argentina and Peru asking to join the OECD. Why? It’s not because they’re developed countries, it’s mostly because what they’re saying, they would like to be in the group that produces the standards for the rest of the world and, you know, this is a way. So, I would say that again, in the face of uncertainty I would say more multilateral, more multilateral, and more multilateral.
Adam Ward
Thank you. We have about five more minutes, that’s time for one more question, I think, possibly. Yes, you sir, with your hand up.
Vincent Neate
Good afternoon and thank you very much for a wonderful talk. My name’s Vincent Neate. I’m a Member of Chatham House. I think your answer to the question that I want to pose you might be more multilaterals, but I – going back to the issue of the steel, if we’re producing one-third of more steel than we need in the world, then my, sort of, natural capitalist tendency is just to say, “Well, that’s a lot of steel companies that need to go bust,” and I understand that therefore, countries don’t want it to be their steel companies, so they start whacking on tariffs and saying, “You’re not – you have to buy my steel or I’m not going to buy your steel,” etc. But it seems to me that, over the years, we’ve never actually tried a global system on the basis of saying, “Well, actually, you know, when we all get together we can talk about this as much as we like, but the reality is, is that if we make one-third more steel than we need, then jobs have got to be lost somewhere, it’s going to have to happen, why not let the market decide.” Which leads me to thinking that your answer would be something about multilateral institutions and a second part to the question, which is, are there not too many of them? Because there do seem – I get very confused even thinking about economics, but when I start thinking about it in the context of all the multilateral institutions, and my poor little brain is totally lost.
Ángel Gurría
Well, first of all, you’re right, I’d say go multilateral and number two, I would strongly disagree that there are too many multilateral organisations. I think there are organisations that are more effective than others because what the members want is what happens in multilateral organisations. It’s not that they have a life of their own, you know? Sometimes leadership counts, sometimes you can have a Director or a Head or a Managing Director, who is more effective than others, but basically, it’s what the members want to do with it. But then the third is that no, I don’t agree – you did not guess very well what I was going to say, and the reason is the following. You are right that all you would have to do is just let the least effective producers go bankrupt, if you had a market and market signals and market prices and market rules. What happens when, in a particular country, those signals do not matter or do not necessarily lead to say closing or firing tens of thousands of people, as they would in the United States or as they would in the UK or as they would in Mexico and they have, actually, had in Mexico? Why? Because some countries have either state support or sometimes it’s regional support, sometimes it’s even city support, and there’s so many jobs connected to the particular – maybe the only big industry in the town or whatever it is, that it becomes a very political issue.
And the shareholders are not responding in the same way in which normal shareholders would respond in London, in an assembly of shareholders. They’re basically saying, “Don’t shut it down, otherwise we will vote you out the next time.” They’re not saying, “We’re losing money and therefore, the taxpayer has to” –and they’re basically saying, “We, the taxpayers, will sustain.” So, it’s the opposite logic and therefore, what you have is not everybody is playing by the same rules and not everybody is actually applying the same logic. Then you have the distortions. This is why, when you’re thinking of a multilateral solution, it is because those who have the different views of how to do this, have to get together and also listen to the other guys and say, “Hey, you’re killing me,” you know? And say – but then, you know, I am or who are receiving the, you know, the subsidies or the support or whatever, is saying, “Yes, but please understand, you know, there’s nothing else in that small town to – what am I going to do with it and how much time do you give me and how much” – these things have to be discussed and talked about and understood by the others because if not, what you get then, is frustration that turns into unilateral actions and then retaliation and then, tit-for-tats and then, you get into this, kind of, a downside of – so, this is the difference, in this particular case, and that is that it’s not necessarily or, I would say, clearly, in this case, in the case of steel particularly, not market driven and to the extent that it’s not market driven, then you don’t have the same signalling systems, as you go down the road. Maybe a last one?
Adam Ward
I think I’m under strictures from your colleagues…
Ángel Gurría
Yeah?
Adam Ward
…to bring this to a timely conclusion.
Ángel Gurría
Got to go out? Okay, so, I’m under a controlled…
Adam Ward
You’ve covered a lot of ground – an hour for the global economy is just not enough. We didn’t even get into the question of what your verdict is on the economic effects of Brexit, which is usually a question that pops up, but…
Ángel Gurría
We published a book on that and unfortunately, we were right and when I was campaigning against Brexit – I have a son, who lives in Cambridge and who is a husband of a, you know, Neuroscientist, and he works for Cambridge University. She is a Neuroscientist at Sanger Institute, have two lovely British children, so they’re all four British subjects, two of them pay taxes, and I was not only fighting because the OECD was fighting for, you know, multilateral solutions, but basically, because I wanted them to be, you know, European, [mother tongue], etc., etc. And I went out and I said, “What is the worst thing that I can find? What’s the worst word that I can say?” But, you know, in public, so I said, “The Brexit tax,” so I said, “The Brexit tax is going to be so much, so many thousands of pounds per household, etc., and we’ve made this learned calculation, etc.,” and unfortunately well, we’ve been proven right. But the question is also, that that particular discussion was not conducted necessarily, on the basis of the more rational options, and neither was the question of migration or neither was the question of regulation. So, we lost it perhaps because our strong suit was showing the numbers and the evidence and that was not what the discussion was about.
Adam Ward
Well, it’s…
Ángel Gurría
As Steve McQueen would say, “It seemed like a good idea at the time,” you know.
Adam Ward
Well, it seems like the UK is going to give you intellectual, as well as family reasons, to return. Come back to Chatham House again, we hope.
Ángel Gurría
Hopefully.
Adam Ward
Okay, thank you very much indeed.
Ángel Gurría
Thank you so much [applause].
