Green growth: We must propose an agenda for action

To ensure that green growth policy recommendations are relevant to countries’ needs, the OECD is organising a consultation to review the first draft of the Green Growth Strategy Synthesis Report on 10-11 February 2011. The workshop will bring together policymakers and experts across OECD and partner countries, as well as a range of stakeholders from international organisations, business, and civil society.

In today’s post, OECD Secretary-General Angel Gurría looks at the issues workshop participants will be discussing. 

Since the economic and financial crisis, efforts to promote green growth have been intensifying. The crisis provided the impetus, but green growth is not a short-term response. The dynamic will persist over the coming years with a number of initiatives being rolled out by governments and international organisations, including the OECD.

The Green Growth Strategy Workshop is unique in bringing together expertise from so many different areas inside and outside government. One of the key issues we will be discussing over the next two days is that green growth is a core economic concern. It has implications for finance, employment, consumption, innovation and training, in addition to the environment. It therefore needs to be tackled with a high degree of co-ordination across the whole of government.

We also need to determine how to re-frame growth beyond GDP in a way that can help governments hold themselves accountable for performance. Our traditional definitions of “performance” and “progress” will need to be called into question.

The green growth narrative will have to resonate with a truly global audience. That means clarifying environmental risks and their implication for future economic growth across different countries.

We cannot content ourselves with identifying and analysing issues and goals. We must propose an agenda for action, including a practical policy framework and a set of tools to measure progress. This will also need to recognise the key barriers and trade-offs that the transition to green growth will present.

We have set ourselves ambitious targets, but I am confident that this Workshop and future initiatives will help us reach them.

Useful links

OECD work on green growth

Solar competition unfair say candlemakers

Frédéric Bastiat (1801-1850)

In Economic Sophisms, the 19th century French economist Frédéric Bastiat wrote a petition from candlemakers asking parliament to ban sunlight, to protect the country from being flooded by cheap foreign imports.

Among other benefits, he pointed out that: “If you grant us a monopoly over the production of lighting during the day, we and our numerous suppliers having become rich, will consume a great deal and spread prosperity into all areas of domestic industry.”

This would be consistent with other policies that prevented consumers getting access to cheap coal, wheat or textiles, and all the more justified since sunlight was not only cheap, it was free.

He was making a serious point. Protecting your own jobs and industries seems like a good way to boost growth and employment, but who does such a policy actually benefit? In the short term, maybe a lot of people – the protected firms and workers for a start. That’s what makes this approach so attractive – the benefits are immediate and visible. As are the consequences of losing your job.

In the longer term, though, the protection against cheap foreign imports would soon prove costly. Most international trade in goods isn’t in finished products, it’s in intermediates – components like circuit boards used to make other things. So the protected company would find itself paying more than international competitors for the same essential parts, if imports were allowed.

Then consumers would have to pay more to maintain profit margins on goods that were increasingly expensive to produce. Soon, there would be more losers than winners.

What about the opposite case? Imagine what would happen if the world’s main economies, the G20, decided to reduce protectionism. A new OECD paper looks at the impact of trade liberalisation on jobs and growth. It finds that jobs, wages, and exports would all benefit, even in the least developed countries.

If G20 economies reduced trade barriers by 50%, they could gain:

More jobs: 0.3% to 3.3% rise in jobs for lower-skilled workers and 0.9 to 3.9% for higher-skilled workers, depending on the country.

Higher real wages: 1.8% to 8% increase in real wages for lower-skilled workers and 0.8% to 8.1% for higher-skilled workers, depending on the country.

Increased exports: All G20 countries would see a boost in exports if trade barriers were halved. In the long run, many G20 countries could see their exports rise by 20% and in the Eurozone by more than 10%.

Benefits for developing countries: If all countries cut tariffs by 50%, the least-developed countries of Asia and Africa could see an increase in exports and in employment for high-skilled and lower-skilled workers alike.

And, of course, cheaper candles.

Useful links

OECD work on trade liberalisation

OECD Insights International Trade: Free, Fair and Open?

Can we meet the innovation challenge?

Some interesting thoughts from the Financial Times’ John Gapper on the innovation challenge facing governments in the wake of the recession. Referring to the OECD’s Andy Wyckoff , he notes that “countries such as Finland and South Korea responded to past economic crises by investing in education and R&D”. Indeed, he says, “everyone has an innovation policy these days”. But does the reality match up to the rhetoric – are government policies really doing enough to promote “the industries of tomorrow” (as they called them back in the ’60s)?

Gapper has doubts. He identifies several challenges, but two in particular stand out. The first is financial – state-led investment in science and technology, the results of which eventually make their way into the private sector. An example: “The web browser was invented at Cern, the European physics laboratory,” writes Gapper, “yet its commercial possibilities were exploited by companies including Google.” In the 1960s and ’70s, the justification for much state investment in the West was the Cold War – the original “Sputnik moment”. Today, that no longer exists. However, says Gapper, the biggest innovation challenge “is not financial but human”: “China enrols 15% of the world’s university students and 40% of new degrees there are in science and engineering, compared with only 15% in the US,” he writes. “Meanwhile, 68% of US engineering doctorates are now awarded to non-US citizens.”

That concern picks up on one of the hottest debate topics of the moment: The education performance of developed countries vs. East Asia. Much of the recent debate centres around the results from the OECD’s most recent round of PISA student assessments, which placed the Chinese city of Shanghai in first place. Not only that, 7 of the top 11 places for student performance were in East Asia. Also stirring debate is the now-notorious Battle Hymn of the Tiger Mother  by Amy Chua, a Yale law professor from a family of Chinese immigrants and signed-up member of the tough-love school of parenting. Many people in U.S. find Chua and her approach alarming, notes Elizabeth Kolbert  in The New Yorker. But, at the same time, when they look at the results from PISA and the achievements of Chua’s own daughters, they can’t help but wonder about their education system – concerns that are probably shared in many other developed countries. In Kolbert words, “How is it that the richest country in the world can’t teach kids to read or to multiply fractions?”

 

Useful links

OECD Innovation Strategy

Programme for International Student Assessment – OECD PISA

OECD: Boosting Jobs and Skills

OECD Insights: Human Capital

Egyptian plan to evacuate cities

The primary concern for Egyptian firms is ...

As regular readers know, that headline was a cheap trick to get you to read this. It actually refers to the 2010 laureate of the International Transport Forum’s Young Researcher of the Year Award.

Hossam Abdelgawad, a 27-year-old Egyptian PhD-candidate from the University of Toronto, won the prize for a novel approach to the mass evacuation of major cities in case of a catastrophe.  

Whether you think what’s happening in Egypt just now is a catastrophe, a festival of the oppressed, or something else, depends on your personal point of view. What’s clear is that what started as protest movement inspired by people from similar backgrounds to Hossam Abdelgawad now has major economic and geopolitical repercussions.

It’s striking how many of those first protesters were fluent in English or French, in stark contrast to the situation in the 1970s and 80s I described in this post. Even back then, though, everybody in Egypt knew at least two English expressions: import-export and fat cats. Sadat’s “open door” policy had opened the country up to foreign trade and investment, but very few people benefited.

The OECD’s Business Climate Development Strategy for Egypt shows that although the overall economic situation has improved, many of the frustrations summed up in those two bits of English persist. The report assesses 12 key policy areas, ranging from investment and trade policy to tax, anti-corruption, infrastructure and human capital development.  

Presented in Cairo in November 2010, it concludes that: “the promised ‘trickle-down’ effect of positive growth into the poorer strata of the population has failed to materialise. At present, 20% of Egypt’s population remains below the World Bank’s poverty level.”

The unrest goes far beyond the poorest and a disaffected elite though. The Egyptian people’s legendary patience has finally snapped, even if they’ve kept their equally famous sense of humour. One sign seen in Tahrir Square said “Please go soon, my arms are getting sore holding this thing”. Another said “My name is Ahmad. I’d like to get married”.

In fact, Egyptians would read a lot into Ahmad’s sign. He may well be looking for a sweetheart, but even if he found one, it’s not sure they could get married. For that he’d need a job and a flat. Both are hard to come by. Officially, just over 9% of the workforce is unemployed, but as the OECD  report says, “the official rate of unemployment is likely to conceal considerable hidden unemployment and under-employment”.

In April 2009, Property Wire enthused that “The real estate sector in Egypt continues to perform well as there is a large gap between supply and demand”. Not everybody would agree with their definition of the prospect of continuing homelessness as a “positive outlook”, but some people at Moody’s might.

The ratings agency has just downgraded Egypt’s debt (and others will surely follow), because of the political instability of course, but also because of “concern that the policy response could undermine Egypt’s already weak public finances.” What that means is they’re afraid that as part of a deal, whatever government is in place maintains subsidies on energy and basic foodstuffs (5% and 2% of GDP, respectively), thereby making the budget deficit worse.

The OECD recommends moving away from subsidies too, and replacing them with direct income support. The main reason is clear – subsidies help even those who don’t need them, at the expense of the poor and other social programmes. But, “this requires a better performing population registry, a way to means test households and a more sophisticated payments system” and these are costly to create.

I’ll finish with some self-congratulation, followed by some self-criticism (self here being the OECD).

Don’t say we didn’t warn you. Page 50 of the report couldn’t be clearer: “Despite rising macroeconomic stability, the primary concern for Egyptian firms is – by far – political instability”.

Stop now if you don’t want to hear me whingeing.

I wish we wouldn’t use “trickle down”. It gives the impression that it’s OK for those at the top to stuff their faces as long as the poor can lick whatever dribbles down their chins. And another thing while I’m at it: nobody has ever been “lifted out of poverty” . They work damn hard to earn a bit more money.

Useful links

OECD work on Egypt