Shayne MacLachlan, OECD Environment Directorate
Paris is a beautiful city but has an ugly problem with air pollution. Using 2 wheels to get to work, one becomes acutely aware of this insidious addiction to cars, and the “essence” of the problem, DIESEL. Queuing at the red lights (which unlike many Parisians I observe) sucking up the carcinogenic fumes, should I feel happy or sad knowing that those in the cars themselves are getting a worse dose of “the product” than those using greener ways to get about? Switching to electric vehicles could save some lives and certainly might help the French public purse as the health, economic and financial damages of air pollution are costing the country an estimated EUR 100 billion per year.
Commendable effort, limited results
It’s not like Paris hasn’t made a huge effort to reduce air pollutants like benzene, nitrogen dioxide (NO2), ozone and fine particles PM2.5 and PM10. Over the last 10 years it has put in place the Vélib bicycle system, the electric car equivalent Autolib, constructed bus lanes that can be shared by cyclists, closed roads and built car-annoying pedestrian crossings in an effort to encourage cleaner mobility. The speed limit on the périphérique (ring-road) has been reduced to 70kph and it is even letting cyclists run (certain) red lights. Paris is banning trucks and dirty diesel cars during certain hours in the city. Although there have been some improvements, the level of NO2 (although not all comes from dirty transport) in parts of Paris during 2015 regularly exceeded 100µg/m3 and averaged 66µg/m3 over the year which is way above the EU limit of 40µg/m3.
So why the foul air?
Paris is teeming with 4-wheeled vehicles but many city residents don’t actually own cars. If you look at the number plates of the vehicles clogging and gassing the streets, many of them come from “les banlieues”, or suburbs around the city. Even though the trains are very reliable and generally run on time (except from September-December which is strike season), it seems that for many, the comfort and practicality of the car is just too much to sacrifice. This choice often means you’ll be stuck in kilometres of traffic every morning and evening, but it seems drivers can’t give up their personal space with their tunes, make-up kits and phone conversations all to themselves.
Time for a pit-stop switch
So if we can’t forego this crooked comfort, we need a MASSIVE switch to electric vehicles (EVs). France wants to have two million EVs on the road by 2020 but currently just over 1% of new vehicles in France are electric. In Norway, it’s 13%. Cheap oil isn’t helping us switch to electric, but we must stop subsidising diesel to make dirtier vehicles much more expensive to run. Officials in France recently agreed that diesel taxes will increase, and those on gasoline will fall, “to neutralise the difference” in the next 5-7 years. It has taken a while for the light to turn green, but for the residents of Paris and other French cities, this is welcome news.
Purchase price and low fuel costs matter
In 2012, the ITF (International Transport Forum) reported that battery electric vehicles cost €4-5K more to their owners than an equivalent fossil-fuel car over the vehicle’s lifetime. A friend of mine was buying a car a little while back. I asked him why he didn’t go electric and I got a gruff response “it’s out of my budget range”. This is in spite of a healthy government rebate of up to EUR 10k for some EV switches. Studies have found that among the most important incentives to buying EVs are purchase price and low fuel costs. Even with purchase bonuses, the pricing of new EVs means they are still not a viable alternative for many. There could be other reasons too for the slow EV take-up such as the insufficient battery charging infrastructure, the time taken to charge a vehicle when compared to filling up at the gas station and annoying distance limitations. Some drivers are also concerned about whether the power used to charge their EV is coming from renewable or fossil-fuelled sources, and what the batteries are made from and how they are disposed of.
Driving the point home
While governments must hammer down the purchase price of cleaner vehicles with even healthier financial enticements, strong disincentives such as imposing a London- or Milan-style congestion charge for high-polluting vehicles may also push consumers to switch. Add toll-free roads, access to bus lanes and lower registration fees for EVs to the list, and they might look a whole lot more attractive. And with the recent VWgate emissions scandal leaving a sulphuric taste in diesel owners’ mouths, one asks whether it’s not the ideal time to make diesel the new public enemy number one, as we’ve done with our ex-friend coal.
Off and running
So as I finish up this morning’s “blog/moaning session” and run off for some lunchtime exercise, (wondering how long before I cough up a chunk of coal) it seems that the checkered flag is a long way off for successful policies that ditch dirty vehicles and encourage a massive switch to EVs. An even bigger “helping hand” for new EV purchases, along with a tailored package of carrots and sticks, may help reduce my flabber-gas and boost our life-expectancy by a few years. Failing all of that, more of us could work from home but that sounds like a good topic for another time.
In the last decade two-wheeler electric vehicles have been taking over the streets of Asian capitals, to the point that it is time to declare the gas moped commercially dead. Rest in peace.
While in the western world electromobility remains the domain of a technological elite, it has already arrived to the masses in Asia. China counts over 180 million e-bikers and produced nearly 37 million e-bikes in 2013 and 450 million bicycle users are waiting to buy an e-bike as their next mean of transport. In all South-East Asian countries where driving a two-wheeler vehicle is more popular than driving cars, electric vehicles are displacing gasoline vehicles as the dominant mode of urban transportation.
Two-wheel electric vehicles come in different kinds. If it has pedals, then it is called an electric bicycle, the equivalent of a moped. Otherwise it is called an electric scooter. It is dignified by an upgrade to the motorbike category if its top speed is above some legal limit – 50km/h here in Vietnam. All are powered by batteries which are recharged by plugging into a domestic wall socket, demonstrating that the need for a dedicated charging infrastructure was a myth.
The advantages of this means of transportation are that it generally does not require a driving licence, is faster than a bicycle, more convenient than bus and cheaper than a motorbike. Indeed the average e-bike in Asia costs only $167. The market is very different in the western world, where the average e-bike costs $800 in the USA and $1500 in the EU. The savings on fuel costs are also real, even in a dirt cheap oil year.
In some places electric two wheelers have an image issue, as the first segment to have taken the market is e-bikes designed for high schoolers. But producers upgrade technology and design every year. For example, for $720 in Vietnam one can have an electric scooter which goes up to 50km/h, carries two adults thanks to a 1200W power motor, has a 100km range and copies the design of the Vespa Primavera, an iconic Italian model. This cost is about the average monthly salary in Hanoi, or six times the monthly minimum wage in Vietnam.
As the technological frontier moves, the market shifts from basic e-bikes, that already pushed the good old gasoline moped into obsolescence, to bigger electric scooters. This is mostly happening without government subsidies or targeted policy. The market shifts because there is demand and technological progress. The demand pull is allowed by light regulatory constraints, in contrast with motorcycles which are more heavily regulated, not to say banned from some downtown streets in many Chinese cities.
The number of road accidents with e-bikes and e-scooters can only increase a lot, along with the popularity of these vehicles. The accumulation of risk factors to the drivers is worrying: teenagers, people with no driving licence, riding a vehicle with high acceleration, high speed, wearing no protection, riding in urban traffic; weakly enforced vehicles standards and traffic regulations. Risk factors to others also include no registration makes it easier to flee after hitting someone, and the use of the bike lanes endangers slower traffic. There is a controversy about the low noise of electric vehicles: pedestrians can’t hear them coming. Most available studies look at electric or hybrid cars, not at two wheelers, and the other risk factors listed above make it difficult to determine causality, and conclude with robust confidence that silence is a risk factor. I would prefer to make the rest of the traffic quieter than to make the electric vehicles louder.
Is this technological shift a good thing for the environment? Electricity is not yet so green everywhere. More advanced chargers and systems are required to make the electric vehicles a part of the smart grid. Another problem which remains to be managed is that the most popular models have a lead-acid battery. Lead pollutes, especially in countries where the recycling system is inefficient, and each battery contains 10kg of it.
But at the city scale, the environmental benefits are clear: the e-vehicles are silent and release no exhaust fumes. The advantages regarding the local air quality are especially important in Asian capitals, which are the most polluted cities in the world. According to our estimates, a typical gas scooter emits 0.1g of fine particulates per kilometer, or 400g per year. A typical electric scooter causes ten times less emissions in a country like Vietnam where half of the electricity comes from coal.
The market cannot be trusted to produce lighter and cleaner gas vehicles. The switch to electric two wheelers and cleaner power appears a more powerful way to solve the Asian cities air quality crisis.
Shifting Towards Low Carbon Mobility Systems OECD International Transport Forum Discussion Paper
German version available here.
Economic growth (GDP) always gets a lot of attention, but when it comes to determining how people are doing economically it’s interesting to look at other indicators that focus more on the actual material conditions of households. Let’s see how households in Germany are doing by looking at a few of these other indicators.
GDP and household income
Chart 1 shows the development of real GDP per capita and real household disposable income per capita since the first quarter of 2007, with this quarter being set to the baseline level of 100. For the most recent quarter for which we have data, Q3 2015, real GDP per capita, which adjusts economic growth for the size of the population, increased 0.1% from the previous quarter (the index increased from 107.3 in Q2 2015 to 107.4 in Q3 2015). Real household disposable income per capita showed stronger growth, increasing 0.4% from the previous quarter (the index increased from 105.9 in Q2 2015 to 106.3 in Q3 2015). However, despite the stronger growth in household income in the most recent quarter, and the sharp drop in economic growth during the financial crisis, GDP has grown more than household income since 2007: 7.4 % versus 6.3%.
The increase in household disposable income in Q3 2015 was caused by an increase in primary income, mainly due to increases in compensation of employees and dividend income. On the other hand, taxes and social contributions paid by households increased more than social benefits received by households, meaning that net cash transfers to households declined slightly (chart 2).
Chart 2 shows that the net cash transfers to households increased sharply during the depth of the financial crisis (at the beginning of 2009), corresponding to when real household disposable income began to diverge from the pattern exhibited by economic growth, as shown in chart 1. This clearly shows that government intervention was successful in cushioning households from the negative effects of the contraction in economic growth.
Confidence, consumption and saving
Household disposable income is a meaningful way to assess material living standards, but to get a fuller picture of household economic well-being it is interesting to look also at households’ consumption behaviour. Consumer confidence (chart 3) fell in Q3 2015 (the index decreased from 101.5 in Q2 2015 to 101.0 in Q3 2015) reversing the upward trend seen during the first two quarters of 2015. Notwithstanding this slight drop in consumer confidence, real household consumption expenditure per capita increased 0.3% in Q3 2015 (chart 4), with the relevant index increasing from 107.1 in Q2 2015 to 107.4 in Q3 2015.
The household savings rate (chart 5) shows the proportion that households are saving out of current income. In Q3 2015, the savings rate was 16.9%, the same rate as in the previous quarter. Overall, German households have a relatively high savings rate (on average 16.7%, one of the highest among OECD countries). It is also relatively stable (the rate varies the least among OECD countries).
Debt and net worth
The household indebtedness ratio, i.e. the total outstanding debt of households as a percentage of their disposable income, can be looked at as a measure of (changes in) financial vulnerabilities of the household sector and can be helpful in assessing debt sustainability. In Q3 2015, household indebtedness was 85.5% of gross disposable income (chart 6), 0.2 percentage points higher than the previous quarter (mainly related to a rise in long-term loans). Over a longer period of time, since the beginning of 2007, one can observe a steady decline in household indebtedness in Germany.
When assessing vulnerabilities on the basis of indebtedness, one should also take into account the availability of assets, preferably both financial assets (saving deposits, shares, etc.) and non-financial assets (for households, predominantly dwellings). Because information on households’ non-financial assets is generally not available on a quarterly basis, financial net worth (i.e. the excess of financial assets over liabilities) is used as an indicator of the financial vulnerability of households.
In Q3 2015, financial net worth of households was 196.5% of disposable income (chart 7), 3.2 percentage points less than in the previous quarter. The decrease was mainly due to holding losses on equity and investment fund shares on the asset side and the slight increase in household debt mentioned above.
The unemployment rate and the labour underutilisation rate (chart 8) also provide indications of potential economic vulnerabilities of the household sector. More generally, unemployment has a major impact on people’s overall well-being. In Q3 2015, the unemployment rate in Germany continued its fall since 2007 and at 4.6% it is the lowest rate of unemployment since 1991. The labour underutilisation rate shows a similar pattern: in Q3 2015, it reached a new low of 9.2%.
One should keep in mind that households’ income, consumption and savings may differ considerably across various groupings of households; the same is true for households’ indebtedness and (financial) wealth. The OECD is working on these distributional aspects and preliminary results have been published in “Measuring inequality in income and consumption in a national accounts framework” and in “Household wealth inequality across OECD countries: new OECD evidence”.
While the financial crisis did affect the German economy, its consequences have been relatively modest when compared with other OECD countries. GDP per capita and household income per capita returned to their pre-crisis levels quickly. The positive developments in household income and consumption reflect continuous improvements in the German labour market since 2010. To fully grasp people’s overall well-being, one should go beyond household material conditions, and look at a range of other aspects of people’s lives and how they feel. Indicators on these other aspects (e.g. health, education, environmental quality, and personal security) are regularly published in the OECD How’s Life publications.
For many years, OECD has been focusing on people’s well-being and societal progress. To learn more on OECD’s work on measuring well-being, visit the Better Life Initiative.
Interested in how households are doing in other OECD countries? Visit our households’ economic well-being dashboard.
Ken Ash, Director of the OECD Trade and Agriculture Directorate
Both the UN Sustainable Development Goals (SDGs) and the OECD New Approaches to Economic Challenges (NAEC) explicitly recognize that trade and investment are not goals in themselves, but are a means to an end. That desired end is stronger and more inclusive growth, better jobs for more people, and improved societal well-being. Trade and investment policies cannot deliver these outcomes alone, but they can contribute as part of a wider package of comprehensive structural policy reforms, designed in light of the specific situation in countries at various stages of development.
Global value chains (GVCs) account for an increasing share of world income, reflecting the high degree of economic interdependence among nations today. All countries have increased incomes associated with GVCs, in particular major emerging economies, but these benefits do not accrue automatically. The fragmentation of production across borders highlights the importance not just of open, predictable and transparent trade and investment policies, but also of effective complementary policies that enable less developed countries (LDCs) and small and medium enterprises (SMEs), in particular, to participate in and to benefit from GVCs. In brief, making trade and investment work for people requires a coherent and well integrated public policy agenda.
GVCs magnify the costs of protection. As goods, services, capital, data and people cross borders multiple times, the cumulative effect of a number of individually small costs imposes a significant burden on traders and on investors. These costs can result from explicit restrictions, such as tariffs, from inefficient or unnecessary border procedures, and from constraints on the flow of capital. Where foreign investment is a driver of export capacity, the cumulative effect may even discourage firms from investing, or maintaining investment, in the country. As a result, production facilities, technologies and knowhow, and jobs might move elsewhere.
In a world dominated by GVCs, there is a tendency for more, and more demanding, regulatory standards, driven by the imperative to ensure reliability, quality, and safety. The right to regulate and to protect consumers is not in question, but regulations should be science-based, proportionate and non-discriminatory. Any unnecessary costs imposed by excessive regulatory burden falls most heavily on SMEs and firms in LDCs, where the capacity to adapt is often limited. In too many cases, this can preclude effective participation in GVCs.
There would be no GVCs without well-functioning transport, logistics, finance, communications, and other business services to move goods and coordinate production along the value chain. Today, services represent over 60% of GDP in G20 economies, including 30% of the total value added in manufacturing goods. The supply of these services is often provided through investment, yet services markets remain relatively restricted in many countries, imposing high costs on domestic as well as foreign firms, limiting productivity growth, and constraining participation in GVCs unnecessarily.
GVCs also strengthen the case for unilateral policy reform. Domestic firms benefit from the expanded export opportunities that are often the aim of trade negotiations, but they also benefit from access to world class imports of intermediate goods and services. Opening your own markets, in particular for intermediate inputs, can benefit your own firms and workers. But the gains are even greater when more countries participate and markets for goods, services, capital, technology, data, ideas, and people are opened on a multilateral basis.
GVCs make evident the necessity of more coherent rules for trade and investment; this twin engine of development can only reach its full potential if other policy areas are also better aligned and in coordination with those on trade and investment. These areas include macroeconomic, innovation, skills, social and labour market policies among others. The nature of the enabling environment and complementary policies to accompany trade and investment opening depends on country specificities; while there is no ‘one size fits all’ policy recipe, there are a number of common ingredients.
Trade and investment opening are necessary but insufficient conditions for stimulating much needed and more inclusive growth, development and jobs. Accompanying policies that promote responsible business conduct and enable the needed public and private investments, in particular in people, in innovation, and in strategic physical infrastructure, help ensure not just that growth is realized, but that the benefits are shared widely.
Shaun Donnelly, retired U.S. diplomat and trade negotiator, now Vice President for Investment Policy at the US Council for International Business (USCIB). He is a regular participant in the Business and Industry Advisory Committee to the OECD (BIAC) and OECD Investment work.
I found some very interesting questions and even a few answers in the recent “OECD Insights” blog post on international investment agreements by Professor Jan Wouters from the University of Leuven. But it seems to me that Professor Wouters’ prescriptions may fit better in a university classroom or a theoretical computer model than in real world of government-to-government diplomatic investment negotiations or in a corporate headquarters making real-world cross-border investment decisions. As a former U.S. Government trade and investment negotiator and now in the private sector advising/assisting member companies of the U.S. Council for International Business (USCIB), as well as an active participant over the past three years in the investment policy work the OECD and its Business and Industry Advisory Committee (BIAC), I’d like to offer an alternative perspective on some of the international investment issues the professor addresses.
I’m tempted to challenge several of the assumptions that seem to underlie Dr. Wouters’ analysis and prescriptions. His assertion that multilateralism is an inherently superior venue for all investment issues seems a little naïve to me as a practitioner. Everyone accepts the theoretical point that in a textbook or the laboratory, multilateral can be the optimal approach – one set of comprehensive, high-standard rules applying to all countries and, by extension, to all investors – a WTO for investment if you will.
The reality is that diplomatic negotiations, investment projects, and job creation take place in the real world, driven by real people representing concrete, real-world interests. In that real world, governments have a wide range of views on what should or shouldn’t be in an investment agreement. How strong are the protections accorded to investors? Does the agreement include (as U.S. government investment agreements typically do) market opening or “pre-establishment” provisions? Do investors have access to a credible, neutral arbitration process to resolve disputes with host governments? These are key issues for any government or investor.
Unfortunately, not all players in the investment policy world would share all my views, or those of Dr. Wouters. Governments vary widely on their policy and political approaches to international investment and, more specifically, to international investment agreements. Many have views generally in line with those of the U.S. government, sharing a commitment to high-standard international investment agreements. But some other governments only seem willing to accept much lower standards of investment protection; still other governments are hostile to any international investment agreements.
Some OECD veterans like me recall that some 20 years ago, the then-25 OECD members made a serious attempt to negotiate a Multilateral Agreement on Investment or “MAI.” Unfortunately, after some early promise, the negotiations broke down over some of the key pillar issues I noted above. Neither the OECD nor any of its member governments have attempted to revive the search for the elusive multilateral investment agreement framework. Most OECD member nations seem, explicitly or implicitly, to have accepted the reality that, while multilateralism may be the optimal path, in the investment policy area, it is not, at least for now, a practical way forward.
The lesson I personally draw is clear, and it’s quite different from the approach advocated by Dr. Wouters. Those Governments around the world that think foreign direct investment is a positive force for economic growth, are trying to make practical progress, not simply engage in endless and frustrating political debates. They want to negotiate investment agreements that can attract real investment and, thereby, create real economic growth and jobs. While some of them may see intellectual debates about a theoretical multilateral investment regime at some point in the future as an interesting exercise, their priority is on finding ways to grow their economies today and tomorrow.
So my questions to Dr. Wouters and other advocates of a focus on multilateralism in international investment regimes would include:
- What kind of investment regime do you really envision? How strong an agreement would it be? Would it include the sorts of high-standard protections for investors currently found in recent investment agreements of OECD member countries?
- What causes you to think there is realistic chance for success in a multilateral investment negotiation? “Multilateral” now requires nearly 200 sovereign nations reaching a consensus. Countries ranging from Cuba and Argentina to Japan and Canada; from India and China to the U.S. and the EU; from Russia and Venezuela to Saudi Arabia and Singapore would have to be major players in any multilateral investment effort. What sort of consensus could emerge from that wide-ranging group?
- When the then 25 “like-minded” OECD member nations couldn’t negotiate an MAI, what causes you to think 200 diverse and widely diverging nations could come together now to negotiate a multilateral investment agreement or framework?
I’d love to be proven wrong, by Dr. Wouters or anyone else, if they can show me a credible path to that elusive high-standard multilateral agreement. But until someone can show me how to get that done, I believe strongly the better path in the real world is to keep doing what individual governments and groups of countries have been doing for some time, to find willing partners and negotiate strong bilateral or regional investment agreements that work in the real world. Here in the U.S., we in the business community are excited about the possibility of two “mega-regional” agreements, the recently-concluded Transpacific Partnership (TPP) and the on-going Transatlantic Trade and Investment Partnership (TTIP) as vehicles to update and strengthen investment protections with key partners.
When it comes to investment protection/promotion agreements, let’s focus all of our efforts on paths that we know can work – negotiating high-standard investment agreements. If/when someone can find that elusive path to a high-standard multilateral agreement, great! I’ll be at the front of the line applauding. But until that path really emerges, let’s stay focused on what works – the bilateral and regional path that has proven it can deliver real results, real investment, growth, and jobs and leave the multilateral investment framework to the theoreticians.
The OECD, specifically its Investment Committee, has long been a place for serious investment policy research, analysis and debate. I’ve been privileged recently to participate in some of those sessions as a business stakeholder as a BIAC representative. I encourage OECD to continue, indeed redouble, that policy work. There are important and challenging issues to address. We in the international business community, along with other stakeholders, can add much to that OECD work. I simply urge that the OECD investment work focus on concrete investment “deliverables” which can be implemented, rather than idealistic pursuits of some theoretical multilateral panacea.
OECD Conference on investment treaties: The quest for balance between investor protection and governments’ right to regulate OECD, Paris, 14 March, 2016. This second OECD Investment Treaty conference will explore: How governments are balancing investor protection and the right to regulate; the search for improved balance through new institutions or improved rules for dispute settlement including the new Investment Court System developed by the European Union; a case study on addressing the balance through substantive law in particular through approaches to the fair and equitable treatment (FET) provision; and how the OECD, working with other international organisations, can support constructive improvement of governments’ investment treaty policies in this regard.
Reconciling Regionalism and Multilateralism in a Post-Bali World, OECD Global Forum on TradeParis, 11 February 2014, Rapporteur’s report
Gaétan Lafortune, Senior Economist and Principal Administrator, OECD Health Division
In his State of the Union address in 1971, President Richard Nixon declared a “war on cancer”. World Cancer Day provides a timely opportunity to reflect on how much progress has been achieved over the past 45 years in the United States and other OECD countries in winning this war.
The good news is that after a poor initial start in the 1970s and 1980s, the mortality rates from cancer (age-standardised to remove the effect of population ageing) have come down in most OECD countries since the mid-1990s, thanks to a reduction in important risk factors such as smoking and improvements in survival related to earlier diagnoses and better treatments. But still, all countries could do better in their fight against cancer to reduce the number of new cases through public health and prevention efforts, and by detecting cancer earlier and treating it adequately.
Large reduction in cancer mortality rates on average across OECD countries since early 1990s
Source: OECD Health Statistics 2015, http://dx.doi.org/10.1787/health-data-en (extracted from WHO).
There were nearly 5.8 million new cancer cases in OECD countries in 2012 (up from 4.6 million a decade earlier) and 2.6 million deaths (up from 2.3 million a decade earlier), according to GLOBOCAN. Cancer incidence is higher in men than in women in all OECD countries, with average age-standardised incidence rates of 310 and 242 per 100,000, respectively.
Data recently reported in Health at a Glance 2015 show that cancer accounted for 25% of all deaths in 2013, up from 15% in 1960, mainly because there has been a much sharper reduction in deaths from cardiovascular diseases over the past 50 years. In several OECD countries, mortality rates from cancer among men are at least two times greater than among women, because of greater prevalence of risk factors (e.g., smoking and harmful alcohol consumption) and later detection.
Cancer Mortality, 2013 (or latest year)
Source: OECD Health Statistics 2015, http://dx.doi.org/10.1787/health-data-en (extracted from WHO).
Information on data for Israel: http://oe.cd/israel-disclaimer
Lung cancer continues to be by far the main cause of cancer mortality among men, accounting for 26% of all male cancer-related deaths on average in OECD countries in 2013, but it is also the main cause of cancer mortality among women, accounting for 17% of all deaths. Breast cancer is the second most common cause of cancer mortality among women in OECD countries (15% on average).
Main causes of cancer deaths among men and women in OECD countries, 2013
Source: OECD Health Statistics 2015, http://dx.doi.org/10.1787/health-data-en (extracted from WHO).
The cost of cancer goes far beyond health care
Beyond the costs in terms of human lives, the economic costs of cancer are also considerable. Cancer consumes around 5% of all health care costs, and growth in spending on cancer is outstripping growth in total health expenditure. But the cost of cancer is not only borne by health systems. There are also opportunity costs related to the loss of productivity and working days.
In a population-based cost analysis in the Lancet, the economic burden of cancer across the European Union was estimated at €126 billion in 2009. Health care costs accounted for €51 billion, equivalent to €102 per citizen. Productivity losses because of early death cost €43 billion and lost working days €9 billion. Informal care costs – the cost of work and leisure time carers forgo to provide unpaid care for relatives or friends with cancer – amounted to €23 billion. Lung cancer had the highest economic cost of €18.8 billion.
Much more can be done to improve cancer care, but at what cost?
OECD research indicates that countries can do more to reduce the social and economic costs of cancer, and save lives. Survival after diagnosis of various types of cancer, such as breast cancer, cervical cancer and colorectal cancer, have generally increased over the past decade, thanks to earlier diagnosis and better treatments.
Further progress is possible. It has been estimated that about one-third of cases could be cured if they are detected on time and adequately treated. Systematic screening of at-risk populations should be implemented where it is proven to reduce mortality, where cost-effectiveness is acceptable, where high quality is assured and the public is educated about the benefits and potential harms of screening.
Making cancer care rapidly accessible and of high quality, continuously improving services with strong governance such as a national cancer control plan, and monitoring and benchmarking performance through better data are also important in improving patients’ outcomes.
But the progress in cancer survival has come with a cost. New types of surgery, radiation therapy and chemotherapy (including the introduction of new high-cost drugs which in some cases prolong the lives of patients by only a few weeks) have contributed to increased survival, but at increasing cost. And it is likely that these costs will continue to grow, with population ageing and improved sensitivity of diagnostic tools leading to the detection of more cases. This will all add up to higher costs.
An important challenge in cancer care that many OECD countries have already started to face is balancing what may be doable given the growing range of possible treatment options and what may be sensible to pay for publicly. Economists can provide some guidance in making difficult decisions about resource allocation through cost-effectiveness analysis. But at the end of the day, it will require hard policy decisions to manage these fiscal challenges responsibly and sensitively.
OECD Health Statistics 2015 The OECD Health Database offers the most comprehensive source of comparable statistics on health and health systems across OECD countries. It is an essential tool to carry out comparative analyses and draw lessons from international comparisons of diverse health systems.
Ganeshan Wignaraja, Advisor, Economic Research and Regional Cooperation Department, Asian Development Bank
Slowing growth in the Peoples Republic of China (PRC) – the world’s second largest economy – is grabbing the headlines with some suggesting a third wave of the 2008 global financial crisis. While this topic deserves attention because of its global economic implications, there is insufficient analysis of firms in global production networks (GPNs), which were at the forefront of the economic transformation in PRC and the rest of East Asia, and lessons for latecomers to GPNs.
GPNs entail a type of sophisticated industrial organization which is different from a textbook idea of a single large vertically integrated factory situated in a country. It involves the location of different production stages (e.g. design, assembly and marketing) across different countries, linked by a complex web of trade in intermediate inputs and final goods. For example, the Toyota Prius – a hybrid electric mid-size hatchback car – for the US market was designed in Japan and is presently assembled there. But some parts and components for the Prius are made in Thailand, other ASEAN economies, and the PRC.
The extent of East Asia’s participation in GPNs is significantly greater than elsewhere and has spurred the region’s global rise to the coveted “Factory Asia” league with rapid growth and rising per capita incomes over several decades. East Asia’s share of world production networks exports rose from 38% to 48% between 2001-2004 and 2009-2013. The PRC is the leading player within East Asia with its share rising from 13% to 25%. Korea’s share rose from 4% to 5% and the share of the 10 ASEAN economies remained at about 9%. Japan’s share fell from 11% to 8% but this figure seems understated as Japanese firms are present in GPNs in other East Asian economies. The 2009-2013 figure for East Asia compares with 28% for the European Union, 7% for the US, 6% for Latin America, less than 1% for India and less than 1% for Africa.
GPNs in East Asia originated in the 1980s in the clothing and electronics industries and have since penetrated many industries including consumer goods, food processing, automotives, aircraft, and machinery. The role of services in GPNs in East Asia is increasingly important but has been underestimated due to serious data problems.
The role of firms in GPNs in East Asia is a new frontier in economics. While there are insightful case studies of the organizational aspects of individual firms in GPNs in East Asia, little research attempts to generalize the findings of case studies to multiple firms though econometric analysis. The recent availability of microdata from enterprise surveys has enabled identification of the benefits of joining GPNs in East Asia and the characteristics of firms in GPNs.
Evidence from Malaysia and Thailand suggests that joining GPNs brings tangible benefits such as raised profits and value added at firm-level. Furthermore, these benefits arise when firms actively invest in building technological capabilities focusing on assimilating and using imported technologies rather than formal Research and Development (R&D) by specialized engineers. Strikingly, firms in the PRC generally have higher levels of technological capabilities than those in ASEAN economies, which partly explains the PRC’s impressive record in GPNs. The gap in technological capabilities between PRC and ASEAN firms is associated with higher levels of foreign ownership, skills, managers’ education and capital.
It is observed that more developed East Asian economies like Japan and Korea have a deep base of industrial suppliers to large firms in GPNs including small and medium enterprises (SMEs). SMEs account for most of the jobs in ASEAN economies but have a limited presence as suppliers in GPNs. Evidence from Malaysia suggests that even among SMEs, larger SMEs benefit from economies of scale and set lower prices than smaller SMEs when joining GPNs. However, size is not the whole story. Licensing foreign technology, building technological capabilities and actively using preferences in free trade agreements (FTAs) also facilitates SMEs joining GPNs. Access to credit from commercial banks is another crucial factor for SMEs to participate in GPNs as indicated by the PRC and ASEAN economies. Financial access for SMEs in these East Asian economies is in turn influenced by managerial experience, availability of collateral and financial audits.
GPNs in East Asia are interwoven with forces associated increasing globalization and regionalization. They are underpinned by strategies of multinational firms, technological advances (e.g., information, communications, and transport technologies), improvements in logistics and trade facilitation, and tumbling barriers to trade and investment. At the national-level, outward-oriented market-friendly strategies supported the participation of East Asian firms in GPNs. While there are subtle differences in the strategies pursued, East Asian economies commonly emphasized attracting export-oriented foreign direct investment (FDI) into export processing zones (EPZs); investing in ports, roads from EPZ to ports and airports; streamlining business regulations; notable spending on education and training; and developing banking systems.
An important implication of the PRC’s growth slowdown and rising wage costs is the increased opportunities to attract FDI and participate in GPNs especially in labor-intensive activities. East Asia’s rich GPN experience offers valuable lessons for industrial latecomers in the developing world. First, participating in GPNs offers a fast track means to achieve higher levels of economic development. Second, it is crucial to focus on the role of firms in GPNs, particularly the process of building technological capabilities and accessing finance. Third, continuity with deep policy reforms provides a supportive business environment for joining GPNs. Fourth, mainstreaming GPNs into policy dialogues with aid donors and multilateral development banks will help to generate development finance for policy reforms and infrastructure development.
Donor Support for Connecting Firms in Asia to Value Chains, William Hynes and Frans Lammersen, OECD, in Ganeshan Wignaraja (Ed.), Production Networks and Enterprises in East Asia: Industry and Firm-level Analysis: Springer, 2016
Getting globalization right: the East Asian Tigers Dani Rodrik on the Insights blog
Christian Kastrop, Director of the Policy Studies Branch, Economics Department, OECD
In a majority of OECD countries, growth over the past three decades has been associated with growing disparities in household income. This suggests that some of the forces driving GDP have also fuelled inequalities. As a result, gains in household disposable incomes generally have not matched those in GDP per capita and the gap has been particularly large among poorer households and the lower-middle class. An important policy question is whether some of the policy changes driving GDP may in addition play a “hidden” role on inequality. New empirical evidence produced by the OECD on the effects of structural policies on households’ incomes across the distribution scale has identified potential policy tradeoffs and complementarities between efficiency and equity.
Labour market policy reforms
Labour market policy reforms are often designed to boost aggregate employment through behavioural effects such as labour supply incentives, and via this channel, GDP per capita. At the same time, these policies also affect income inequality through their impact on the earnings distribution. For some reforms, these two impacts on measures of inequality may be offsetting each other. For example, reducing unemployment benefits and lowering statutory minimum relative to median wages are associated with both higher wage dispersion and higher employment rates among low-skilled workers, which may result in a very small net change on inequality among the working-age population, while the impact on overall inequality is uncertain. For other reforms, however, wage and employment effects may reinforce each other, resulting in both stronger growth and less inequality. This could be the case of policy reforms aimed at easing the strictness of job protection on regular contracts as a way to tackle labour market duality, i.e. the existence of separate segments where comparable workers enjoy differential wage conditions and job protection in contrast to others.
Many tax policies raise well-known trade-offs with respect to growth and equity objectives. Economic theory and empirical evidence suggests that the tax structure influences macroeconomic efficiency. In particular, that direct taxes have relatively more distortionary effects by reducing incentives to work and invest. One of the highest ranked growth-friendly tax reforms, shifting the tax burden away from income taxes to consumption and property taxes, may in principle have adverse effects on inequality through various channels. For instance, reform-driven positive employment effects can be counterbalanced by increased income dispersion resulting from lower tax progressivity. Also, empirical evidence suggests that consumption taxes can be regressive, at least in the short run. There is ambiguity with respect to the distributional effects of property taxes. On the one hand, depending on how they are designed, recurrent taxes on immovable property can be regressive with respect to disposable incomes; on the other hand, inheritance and capital gains tax clearly reduce wealth inequality.
Product market regulation
Relaxing anti-competitive product market regulation can bring productivity and employment gains in the long run, therefore spurring economic growth. However, the impact on income inequality is uncertain and empirical evidence generally inconclusive. This is because employment gains may be at least partly offset by changes in the wage dispersion, as more intense product market competition tends to reduce the bargaining power of workers. Recent evidence has shown however that reducing barriers to competition is found to lift incomes of the lower-middle class by more than GDP per capita. Research also shows that linking well-tailored employment and product market reforms could bring additional gains on growth and equality.
Globalisation and technological progress
There is some consensus, in both developed and, to a lesser extent, developing countries, that globalisation is a growth-enhancing force. But there is no consensus, and mixed empirical evidence, about the distributional implications. Economic globalisation involves increased exposure to international trade and financial and capital movements, increased mobility of production factors (i.e. workers and capital) and increased fragmentation of the production process in Global Value Chains (GVC). The effects of globalisation on overall income inequality have mainly focused on the earnings dispersion channel as opposed to the employment channel. Available evidence would seem to suggest that globalisation-induced inequality effects are mainly driven by greater wage dispersion, in particular arising from changes in the skill and industry composition of labour demand.
Stronger export intensity based on sound and dynamic competitiveness is found to boost long-run GDP per capita and average household disposable income. Such effects hold across the distribution of household income, with stronger estimated gains for the poor – implying reduced inequality. Overall, these findings signal synergies across policy objectives, i.e. that reforms enhancing competitiveness aimed at encouraging exports among domestic firms could boost efficiency and equity.
Globalisation may also affect income distribution insofar as increased trade and international capital flows facilitate the diffusion of technology, increasing thereby wage dispersion via mechanisms such as skill-biased technological change. To the extent that skill-biased technological change shifts demand of labour towards higher skills and especially when this increase in demand is not matched by a sufficient increase in the supply of skilled workers, technical progress may increase wage inequality. The implications of this hypothesis for inequality have found empirical support for many OECD countries. Going further, recent evidence strongly suggests that skill-biased trade specialisation is associated with higher wage inequality, even accounting for technological change.
Technological progress, as measured by the share of investment in communication technology (ICT) in overall investment, is found to boost long-run GDP per capita and average household disposable incomes. Average household income gains hold across the distribution and as a result, there is no evidence of inequality effects.
Taken these findings into account, the OECD is following up designing general but also country-tailored policy frameworks which avoid and minimise trade-offs in the short and long run. This encompasses the right mix and sequence of employment and product market reforms, etc., together with science, innovation, education and redistribution systems with taxes and benefits in cash or kind.
Economic Policy Reforms 2015: Going for Growth The OECD’s annual report highlighting developments in structural policies in OECD countries and the key emerging economies.
Gabriela Ramos, Special Counsellor to the OECD Secretary-General, Chief of Staff and G20 Sherpa
Productivity growth has slowed since the crisis and inequality has been getting worse. Could they be influencing each other?
The linkages between the productivity and inequality challenges are still to be fully explored. Each may have its own solution, but there is also good reason to think that there is a nexus between them. For instance, OECD evidence suggests that wage dispersion between firms, which reflects diverging rates of productivity growth, has contributed to rising inequality of incomes between workers. At the same time, the increased prevalence of knowledge-based capital and digitalisation may have unleashed winner-take-all dynamics in key network markets, which in turn may have led, in some instances, to an increase in rent-seeking behaviour.
OECD research has highlighted how the rise in inequality over the last three decades has slowed long-term growth through its negative impact on human capital accumulation by low income families.
Since the crisis, stalled business dynamics have seen resources, including workers, being trapped in firms where they are not using their full potential. In particular, individuals with fewer skills and poorer access to opportunities are often confined to precarious and low productivity jobs or – in many emerging countries – informal ones.
In the spirit of our integrated framework on inclusive growth and our New Approaches to Economic Challenges (NAEC) initiative, at the OECD we believe that our efforts to address productivity and inequality challenges could have a better chance of succeeding if we looked at the synergies and trade-offs emerging from policies to address them. This means designing policies for each of these two core issues bearing in mind how they might impact one another and avoiding the “silo” approach through more effective and comprehensive policy packages.
We must also learn from previous policies. Traditional measures to boost productivity in competition, labour market, or regulatory frameworks would allow for the reallocation of resources to more productive activities, or for increasing productivity in specific sectors. But this may have an adverse impact on inequalities of income and opportunities, as workers better equipped to cope with change are usually those with higher skill sets. For instance, in the past, the drive towards flexible labour markets has benefited many employers, and particularly the most productive firms that have gained from an improved allocation of labour resources. But increased flexibility has also brought a greater prevalence of non-standard work. Recent OECD work on job quality highlights how low skilled individuals can be trapped in precarious low wage jobs, and receive less training.
Our approach to designing policies to ensure that individuals, firms and regions that are left behind can fulfil their full potential and contribute to a more dynamic economy, draws on OECD work from diverse policy areas. It starts from the Inclusive Growth agenda, by focusing on well-being as an ultimate objective of policy. It builds on OECD productivity work via The Future of Productivity report and efforts Towards an OECD Productivity Network. It also synchronises with the Organisation’s efforts to measure productivity more accurately at a time when traditional measures are ill-adapted to account for the full effects of rapid technological change and innovation centred on knowledge based capital, the increasing prominence of the services sector, and productivity in the public sector.
The ultimate outcome is for governments to focus on the extensive range of win-win policies that can reduce inequalities while supporting productivity growth, thereby creating a virtuous cycle for inclusive and sustainable growth. This calls for distinct but complementary policy interventions at the individual, firm, regional and country levels. What this entails in practice will vary for each country depending on its circumstances. But broadly speaking, a number of policy areas are worth considering:
First, a new approach is needed to boost productivity at the individual level so that everyone has the opportunity to realise their full productive potential. Expanding the supply of skills in the population through more equal access to basic quality education is crucial, but not enough. With rapid technological change, skills need to keep up with the demands of the market to avoid the skills mismatches which have contributed to the productivity slowdown. A broad strategy is also needed to ensure a better functioning of the labour market, promote job quality, reduce informality, allow for the mobility of workers and inclusion of underrepresented groups such as women and youth, and promote better health outcomes for everyone.
Second, for people to realise their full productivity potential, businesses have to realise theirs. While heterogeneity among firms is normal, the widening dispersion in productivity levels and its implications for aggregate productivity and workers is a cause for concern. According to our productivity report, the early 2000s saw labour productivity at the global technological frontier increase at an average annual rate of 3.5% in the manufacturing sector, compared to just 0.5% for non-frontier firms. The gap was even more pronounced in the services sector. The larger the share of business that can thrive, the more productive and inclusive our economies will be. Achieving this requires a reassessment of competition, regulatory and financial policies to ensure a level playing field for new firms relative to incumbents. It also requires policies to facilitate the diffusion of frontier innovations from leading to lagging firms.
Third, policy prescriptions will be ineffective unless they take regional and local circumstances into account. Inequalities that play out in regions, like housing segregation by income or social background, poor public transport, and poor infrastructure, can lock individuals and firms in low-productivity traps. This means that some policies to promote both productivity and inclusiveness are best undertaken at the regional level.
Finally, adopting a more holistic approach to policy requires fundamental changes to public governance and institutional structure to strengthen the ability of national governments to design policy that promotes synergies and deals with trade-offs. In highly unequal societies, governments also need to address political economy issues including the capture of the regulatory and political processes by elites that benefit from the status quo, and policies that favour the incumbents.
None of this will be easy, but it is nevertheless essential. At the OECD we believe it is time to develop a better understanding of the dynamics between two of the key issues of our time – productivity and inequality – in order to build a more resilient, inclusive and sustainable future.
Anne-Lise Prigent, editor in charge of development publications at OECD Publishing.
Can a Chinese herbalist emperor ever meet a Persian thinker of the Islamic Golden age? Well, you’d be surprised… “If my strength is needed, then I must go forth.” “I hope I can be of aid.” These are the words of Shennong, the father of traditional Chinese medicine. It is also the calling of Shennong & Avicenne, a French medical NGO. Shennong & Avicenne combines traditional and modern medicine, Western and Eastern approaches. A scientist and a philosopher, Persian Avicenna was the father of modern medicine, the 11th century’s famous Muslim “prince of physicians”. More than a thousand years after his time, new warfare seems to be emerging – it is agile and powerful, mobile and violently radical. Shennong & Avicenne helps war victims in Iraqi Kurdistan.
The UNHCR estimates that there are 2.5 million refugees and internally displaced persons in Iraqi Kurdistan. Many of them are Yazidis and Christians who have lost everything fleeing Daesh; others are Muslim. Some were made prisoners by Daesh and managed to escape. Despite efforts by the Kurdish authorities and the international community to build camps to shelter them, the influx has been so massive and so sudden that 90% of the refugees are scattered around the territory, in isolated regions far from the help and services they need. They are living in waste dumps, empty buildings, improvised camps… where sanitary conditions are catastrophic.
Faced with this situation, Shennong & Avicenne felt they had to be next to the scattered populations who need their help. They raised funds to buy a truck in France to use as a mobile dispensary and a bus for women and children’s health care, thanks to the support of the French Ministry of Foreign Affairs and the Alliance des Femmes pour la Démocratie. Every day, Shennong and Avicenne visits more than 30 sites in the provinces of Erbil and Duhok and takes care of thousands of ailing victims.
We asked Elise Boghossian, the organisation’s founder and president, to tell us about Shennong & Avicenne and the work they are doing in Iraqi Kurdistan. Below, she talks about the philosophy behind their approach; the people they treat; the situation on the ground; and what we can do to help.
From Paris to Viet Nam through China, Elise Boghossian has become an expert “war” acupuncturist. Her recently-published book (Au royaume de l’espoir, il n’y a pas d’hiver : Soigner en zone de guerre) recounts her journey and calling. In Armenia, Jordan and Iraqi Kurdistan, Boghossian demonstrates that acupuncture is an efficient and cost-effective way of relieving pain and healing patients. Acupuncture, she argues, can become part of health care services in conflict-affected zones, where medical products are often missing or fake.
In her book, Boghossian discusses the pitfalls of aid – and how to avoid them: “I think there are two main pitfalls in aid. First, our presence can lead to dependency and create additional needs. We must accept the limits of our action, and let those we’ve come to help be autonomous, free, and most importantly, we must ensure they keep their dignity. We should support them in this. Putting things right when they’ve gone wrong is essential. The other pitfall is the inverse relationship between our need for recognition, (…) and the risk of not respecting the Other, his difference, his culture, his living conditions.”
Boghossian’s infinite respect can be sensed throughout the book. One thinks of Levinas. The Other’s face is exposed, vulnerable. It makes one demand more of oneself. “The face opens the primordial discourse whose first word is obligation.” (Levinas, Totality and Infinity) Face to face with Daesh’s victims, Boghossian heals them and sometimes even seems to breathe new life into victims who have lost everything. Boghossian’s Armenian roots have not been forgotten and she will not let the history of genocide repeat itself without standing by today’s victims. As stated by Levinas, the face is what forbids us to kill. Yet, some of the scenes described in the book are horrific. “Wait” some of the refugees said to Boghossian, “you have not seen anything yet, this is only the beginning.” This was back in January 2015.
“They [Daesh] hate difference, whether it is Muslims who think differently, Yazidis or Christians (…)” (The Archbishop of Canterbury). Shennong & Avicenne takes care of victims, whatever their religion – Christian, Yazidi, Muslim. The organisation’s medical staff (doctors, paediatricians, nurses, gynaecologists etc.) are refugees themselves and they are employed irrespective of their race, ethnic origin or beliefs.
Boghossian won’t let herself be intimidated or silenced. One closes her book in awe. This woman has the determination and stamina of a Florence Nightingale. Both women have grit, “good” grit as Howard Gardner defines it – perseverance and the accumulation of valued traits, a “can-do” attitude, a positive, constructive mindset that benefits others – and brings deep meaning to their lives. Nightingale famously nursed wounded soldiers in the hellish world of Crimean warfare and revolutionised nursing practices in Britain. She was remembered as the lady with the lamp:
Lo! in that house of misery
A lady with a lamp I see
Pass through the glimmering gloom
What is less well known is that Florence Nightingale saved so many lives also because of the data she gathered and her expert use of statistics. She was passionate about data. Boghossian is not the lady with the lamp, but she has needles and data too. Data about the impact of acupuncture on the health of patients is now available (and its effect on the brain can be demonstrated). The book begs a question: why is acupuncture not more commonly used in conflict-torn areas, in conjunction with other medical practices (as is done by Shennong & Avicenne)? As Levinas pointed out, “the very relationship with the other is the relationship with the future.”
On their modest scale, Shennong & Avicenne bring a scarce commodity to those who have lost everything: a glimmer of hope. In 2015, Shennong & Avicenne was in touch with 50,000 war victims and 30,000 procedures were carried out. Grit will make a difference – it always has and always will.
Entretien avec Elise Boghossian pour OECD Insights Anne-Lise Prigent