Focusing on inequality or poverty reduction is not enough

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Our second post from the Annual Bank Conference on Development Economics (ABCDE) is from Mario Pezzini, Director of the OECD Development Centre. 

Day two of the 2011 ABCDE conference has just finished and so far, the conference has given me a lot to think about. There seems a growing consensus that high levels of inequality are not conducive to sustained growth and development.

At the Development Centre we go beyond this, arguing that societies that are growing rapidly and undergoing significant structural changes could see their growth trajectories compromised unless they put in place policies to help manage the process.

What is less clear is what policies should be employed, and in what order. Given the extensive changes that many countries are experiencing, focusing on inequality or poverty reduction is not enough.  Rapid economic growth may be instrumental to reducing poverty, but if large parts of the population get absorbed into the informal sector for example, then these “non-poor” will remain very vulnerable over time. 

In this context we need a broader policy objective, one which caters to the multi-faceted challenges that many emerging and developing countries face.  I would call this policy objective social cohesion: a combination of social inclusion, social capital and social mobility. These three dimensions all interact and influence each other, which is why they need to be viewed as part of a whole. 

I don’t mean to belittle what is being said at the ABCDE. On the contrary, the breadth of topics covered in both the plenaries and side-sessions is impressive. Yet there is still a tendency to fragment policies, focusing on isolated outcomes rather than broader development objectives. An example is education, where often the focus can often be on improving enrollment or raising completion rates. But if there is no coherence between education and labour market policies, aren’t today’s school children tomorrow’s (albeit higher qualified) unemployed?  

These issues are explored in a forthcoming OECD Development Centre publication, the second in our Perspectives on Global Development series which focuses on social cohesion in a world of Shifting Wealth.   

Finally, I would add that a broader policy framework requires new measures. More data detailing citizens’ perceptions and aspirations, and more robust tools capable of capturing new socio-economic realities. Combining traditional and subjective measures will help us get a better picture of the current state of social cohesion, and design policies to nurture it.

Fortunately, new measures and data availability are two areas that will be discussed at length during day three of the ABCDE, specifically during the roundtable on Democratising Development Economics.

I hope to see you there, or if not, that you get a chance to follow the debate online.

Useful links  

Mario Pezzini talks about “Shifting Wealth” to CNBC Africa

ABCDE: Combine our knowledge and best practices

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This week, we’ll be reporting on the Annual Bank Conference on Development Economics (ABCDE) taking place here at the OECD, in co-operation with the World Bank and France. Our first post is from OECD Secretary-general Angel Gurría.

These are momentous days for the OECD and its work on development. Last week, US Secretary of State Hillary Clinton chaired our 50th Anniversary Ministerial Council Meeting, at which Ministers urged the OECD to adopt a comprehensive new approach to development. They gave us a strong mandate to launch a development strategy in line with our member countries’ aim of promoting development worldwide, and of achieving higher, more inclusive, sustainable growth for the widest number of countries. This effort will entail greater collaboration and knowledge sharing, mutual learning, and deeper partnerships with developing countries and other international organisations.

This week, we are co-hosting the ABCDE, joining forces with the World Bank and France in bringing together some of the best and brightest thinkers on development economics. We’re putting into practice our desire to deepen our understanding of the diverse realities and challenges that developing countries are facing in today´s rapidly changing economic landscape.

It is only natural that we sharpen our focus on development. The epicenter of economic activity is shifting from industrialised countries to the large developing countries and, more than ever, their future growth prospects are closely intertwined. Over the past decade, a group of emerging and developing countries has achieved remarkable advances in terms of growth and development. They have lifted millions of people out of extreme poverty, becoming a vital development source of trade, investment and aid. If current trends continue, we anticipate that developing countries will account for nearly 60% of global GDP by 2030.

These dynamic new poles of growth have useful experiences and knowledge to share. Working closely with them, we can combine our knowledge and best practices in the service of all countries, and particularly the poorest. We will develop new perspectives on how to achieve inclusive growth, identify new ways to address inequality and poverty, and find new pathways towards social and economic well-being.

Here at the OECD, we have begun broadening our sources of knowledge, building on 50 years of gathering evidence, sharing experience and promoting good practice. Four new member countries are enriching our work: Chile, Estonia, Israel and Slovenia. Russia is moving closer to accession, and we are engaging closely with Brazil, China, India, Indonesia and South Africa on a wide range of policies. We are also working hard to support G20 discussions, which represent a major step towards more inclusive and innovative global decision-making.

Looking at the ABCDE conference theme of Broadening Opportunities for Development, I note that emerging economies are both highly familiar with the challenges and highly innovative in finding solutions.

Broadening opportunities is about tackling inequality, about not leaving people behind in our ever-changing world economy. Across OECD countries, the richest 10% of people earn 9 times more than the poorest 10 per cent. In Mexico and Chile, the rich have incomes more than 25 times higher than the poorest. Beyond the OECD, our figures for Brazil suggest a ratio of 50 to 1, and our figures for South Africa suggest a ratio of 147 to 1! This reminds us that despite formidable progress in emerging economies, the battle against poverty is not yet won.

The good news is that many emerging economy governments now have the resources to make smart social investments. Mexico and Brazil, with their successful cash transfer programmes and other innovations, have shown the way.

What can we learn from them? How can we understand better the diverse realities of developing countries and the particular challenges they face?

What is clear is that, in OECD countries and elsewhere, high levels of inequality are economically, politically and ethically untenable. Inequality prevents the most vulnerable from breaking through the vicious cycle of poverty. We need to identify policies that can boost access to education, skills, jobs and social services, promoting upward mobility for talented and hard-working women, men and youths. We need to ensure that growth is participative and inclusive, fostering social cohesion. We need to close gender gaps in education and employment, empowering women to gain entrepreneurial skills and use them to their fullest. And, finally, I think we need to understand that development is not all about income, but about a more general notion of societal progress.

I am looking forward to reading your views and following ABCDE discussions!

Useful links:

Live conference webcast from the World Bank

OECD video competition: And the winners are here

Two months ago twenty entries were shortlisted for the OECD’s 50th Anniversary Video Competition. Produced by young people from around the world aged between 18 and 25 years, each of the films represents personal visions of progress in today’s world. After an international public vote to decide the most popular videos, six winners were invited to attend the OECD’s 50th Anniversary Forum. Paul Clare from the OECD’s Centre for Co-operation with Non-Members, one of the competition organisers, asked them for their thoughts on the whole experience.

That’s us – six young people, flown to Paris from places as far away as Australia, Colombia, India, Peru and Ukraine. Honestly, there had been a little uncertainty about what to expect, but we could never have imagined that we would soon be sharing such a unique and overwhelming experience.

We met people from every walk of life. Every time we turned a corner we encountered a new face with a story or idea to share. What we all found to be the most exciting was that we felt we were at the epicenter of a world exposition of ideas.

And we even had the opportunity to contribute our own ideas, in very diverse ways, such as at the launch of the extraordinary Better Life Index.

We think that the reason we were able to participate is because we portrayed a vision of progress that others could believe in. So, it’s important to realise where the OECD has come in its fifty young years, and where it is going next year, in the next decade and well into the future.

A university professor had told us: ‘Only ten years ago, the core function of such forums was to improve the finances of a select club of nations’. These past three days we have seen people excited about improving gender equality, the environment, and even measuring and improving the happiness of people around the globe.

The one over-riding vibe, however, is that the OECD is keen to break from its member country mould and allow its work to benefit billions of people. If this is not progress, then we don’t know what is.

Until the next time!

Alina, Desiree, Hew, Javier, Stephanie and Vidhya

OECD Anti-Bribery Convention: Time to Take Real Steps

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This post is contributed by Gillian Dell of Transparency International

As world leaders arrive today at the OECD Ministerial meeting in Paris, they’ll be celebrating the 50th anniversary of the OECD. There’s much to be commended in the OECD’s wide programme of work over the last 50 years. For Transparency International, the NGO leading the fight against corruption,  one of the OECD’s greatest accomplishments is the  landmark 1997 OECD Convention on Bribery of Foreign Public Officials in International Business Transactions, the 2009 Recommendation and the laudable peer review follow-up of the OECD Working Group on Bribery. There has been some progress over the years, notably in the way Germany has joined the battle against foreign bribery. But for most parties to the Convention, there’s a long way to go. At the 50th anniversary Ministerial, a renewed commitment is needed and a concrete programme that increases the scrutiny and spotlight on lagging governments.

One of the key causes of stalled enforcement is a lack of political will. Pressure must be exerted at the highest political level. The key recommendations of the report are:

  • Governments with lagging enforcement should promptly prepare plans for strengthening enforcement and a timetable for such action.
  • The Secretary-General and the Chairman of the Working Group on Bribery should meet with top leaders of governments with lagging enforcement to review plans and timetable for strengthening enforcement.
  • A full review of the status of foreign bribery enforcement should take place at the May 2012 Ministerial.
  • The Working Group on Bribery should publish a list of governments with lagging enforcement. This would make clear that a higher level of due diligence is needed to do business with companies based in these countries.

These recommendations can be found in Transparency International’s seventh annual “Progress Report on Enforcement of the OECD Anti-Bribery Convention,”. The report concludes that a majority of OECD Convention governments are still failing to translate their Convention commitments into action. After seven years of TI reporting on the Convention, this is the first year there is improvement in the numbers of states with active – or even moderate – enforcement. More action is needed, not just noble words.

Of the 38 governments party to the OECD Anti-Bribery Convention only seven states are actively enforcing the Convention, meaning that they are actively pursuing companies and individuals for bribing abroad. Another nine have moderate enforcement—meaning they have brought a couple of major prosecutions– and the vast majority – twenty-one – are doing little or nothing to enforce the Convention in their countries. This is not enough to motivate multinational companies implement serious internal measures to stop foreign bribery. The result: the foreign bribes continue to be paid worldwide, distorting governance and development in developing and developed countries alike.

In a panel today at the OECD Forum conference ahead of the Ministerial, Mark Pieth, the Chair of the OECD Working Group on Bribery said that “Law enforcement is quite a good business for governments” noting the billions in fines and disgorgement that have been recovered in the US by the SEC and Department of Justice in recent years in FCPA cases. But more importantly, as he put it “It’s also a matter of self-respect for countries to enforce their own laws.”

The Anti-Bribery Convention is a collective commitment for good reason—no country can single-handedly tackle the foreign bribery problem and all countries are harmed by it. All countries have an interest in putting an end to the distortions created by foreign bribery. But they all may be tempted to be free riders and fail to enforce the rules while others follow them, thereby benefiting their own companies.

The case for enforcement is strong. First and foremost, it stems the damage of foreign bribery to developing countries. By way of example, one noteworthy target country for multinational bribery is Nigeria.  The 2011 TI Progress Report provides information on numerous investigations and settlements relating to such bribery. It reports on investigations are under way in the US and Germany as well as in Nigeria itself. Nigeria has recently reached settlements with Halliburton, Royal Dutch Shell, Siemens and Snamprogetti Netherlands (a unit of the Italian ENI Spa) and in so doing is following a trail blazed by Lesotho and Costa Rica. These countries are demonstrating that developing countries can and should pursue and impose penalties in domestic cases of multinational bribery. This causes multinational companies to take notice. During an OECD Forum panel this morning on the Anti-Bribery Convention, Massimo Mantovani, General Counsel of Legal Affairs of ENI SpA called for more weight to be given to compliance programmes and complained about the problem of multiple proceedings in multiple jurisdictions. He said that as a result “a company might have double disgorgement of profit, once for the parent and once for the subsidiary”. This sounds like it might really act as a deterrent.

But enforcement against foreign bribery doesn’t only benefit developing countries. It also curbs damage caused by developed countries to one another. For example, the 2011 TI Progress Report informs about investigations into alleged bribery in connection with sales of German submarines to Greece and Portugal a few years ago, valued at about US$ 1.5 billion in each of the two countries. In Czech Republic the authorities are looking into possible improprieties in purchases of defence equipment from Austrian and UK companies. In Finland a defence company’s sale of armoured vehicles to Slovenia is under investigation. The cases show how time after time bribes are paid from large slush funds through large networks of middlemen, shell companies and banking centres that don’t have sufficient oversight.

With only seven parties adequately enforcing the Convention, its progress its future is in serious jeopardy. The classification of states parties is as follows:

Active Enforcement: Seven countries: Denmark, Germany, Italy, Norway, Switzerland, United Kingdom and United States

Moderate Enforcement: Nine countries: Argentina, Belgium, Finland, France, Japan, Korea (South), Netherlands, Spain and Sweden

Little or No Enforcement: 21 countries: Australia, Austria, Brazil, Bulgaria, Canada, Chile, Czech Republic, Estonia, Greece, Hungary, Ireland, Israel, Luxembourg, Mexico, New Zealand, Poland, Portugal, Slovak Republic, Slovenia, South Africa and Turkey

With Russia joining the OECD Working Group on Bribery, that body has to step up its efforts to demonstrate that Convention countries mean business. In an OECD Forum session today on the Convention, Elena Panfilova of TI-Russia made an appeal to the OECD: “In accepting Russia in this club of the chosen, the OECD should be ready to ask uncomfortable questions”. She added “The only thing to restore trust is action not words.” That applies to all the laggard countries not enforcing the Convention.

Useful links

OECD work on anti-bribery

OECD Forum 2011: MO-mentum for battling graft

In the fight against corruption, no one can accuse Mo Ibrahim of not putting his money where his mouth is. After creating one of Africa’s biggest businesses, telecoms firm Cellnet, he sold it in the mid-2000s and set up a foundation  to support good governance in Africa. The foundation is probably best known for its innovative Ibrahim Prize, which awards $5 million over 10 years to a democratically elected African leader who leaves office at the end of his or her constitutional term. 

In a lively speech at the OECD 50th Anniversary Forum, Dr. Ibrahim talked about the fight against graft. “We have wasted 50 years of independence in Africa through misrule and misgovernment,” he said; “enough is enough.” He spoke of his low expectations when setting up the foundation: “We thought the word ‘governance’ was untranslatable in Africa. We were wrong, people understood it immediately and instinctively.”

Dr. Ibrahim praised the OECD’s efforts to fight corruption, but he called on OECD and G20 countries to do more. He criticised Europe and some emerging economies, including China, which he said were not doing enough. “Europe talks but we don’t see any action.” By contrast, he said, the United States was much more active, and he pointed to recent cases against a number of European firms in the US: “Why does it take the Americans to prosecute Europeans?” he asked. 

In response, Mark Pieth, chair of the OECD Working Group on Bribery, who spoke on a panel after Dr. Ibrahim’s address, said some European countries had a decent track record: Germany had 60 anti-corruption cases last year, he pointed out, “but you’re right, some other countries are blatantly absent.”

Dr. Ibrahim also attacked the track record of business: “You want to look for corruption, follow the money,” he said. “The private sector is the source of all corruption.” Based on his own business experience, he said firms were only punishing themselves if they started to pay bribes: “We took a position we will not pay bribes. The result, we made much more money. If you start to pay, you’ll never stop. You pay a minister, then the president, then the president’s wife, then the president’s mistress, and so on.” 

From Russia, Elena Panfilova of the Centre for Anti-Corruption Research and Initiative said it could be difficult to avoid paying bribes, especially in countries where there was a lot of crossover between business and government: “How do you address corruption if people in government are also running biz. What do you do when a son is a running a company, and his mother is a judge?” Speaking on the same day that the OECD is inviting the Russian Federation to join the OECD’s Working Group on Bribery and to accede to the OECD’s Anti-Bribery Convention, she said agreements and legal institutions had to be backed by action: “The only thing that can restore trust is action, not words.” 

On related issues, today sees the release of new OECD guidelines to promote more responsible business conduct. They form part of an update to the OECD’s Guidelines for Multinational Enterprises. Also being released are recommendations designed to combat the illicit trade in minerals – such as “blood diamonds” – that finance armed conflict. 

Useful links

OECD work on bribery and corruption and on corporate governance

OECD Economic Outlook: Global recovery firmly underway but surrounded by risks

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The global recovery is firmly under way, but taking place at different speeds across countries and regions, according to the OECD’s latest Economic Outlook.

Historically high unemployment remains among the most pressing legacies of the crisis. It should prompt countries to improve labour market policies that boost job creation and prevent today’s high joblessness from becoming permanent.

World gross domestic product (GDP) is projected to increase by 4.2% this year and by 4.6% in 2012. Across OECD countries GDP is projected to rise by 2.3% this year and by 2.8% in 2012, in line with the previous forecasts of November 2010.

In the US, activity is projected to rise by 2.6% this year and by a further 3.1% in 2012. Euro area growth is forecast at 2% this year and next, while in Japan, GDP is expected to contract by 0.9% in 2011 and expand by 2.2% in 2012.

The recovery is becoming self-sustained, with trade and investment gradually replacing fiscal and monetary stimulus as the principal drivers of economic growth. Confidence is increasing, which could add further buoyancy to private sector activity.

But there are downside risks, including the possibility of further increases in oil and commodity prices, which could feed into core inflation; a stronger-than-projected slowdown in China; the unsettled fiscal situation in the United States and Japan; and renewed weakness in housing markets in many OECD countries. Financial vulnerabilities remain in the euro area, in spite of strong adjustment efforts underway in some countries.

 “This is a delicate moment for the global economy, and the crisis is not over until our economies are creating enough jobs again,” said OECD Secretary-General Angel Gurría. “There is also some concern that if downside risks reinforce each other, their cumulative impact could weaken the recovery significantly, possibly triggering stagflation in some advanced economies.”

The top challenge facing countries continues to be dealing with widespread unemployment, which affects more than 50 million people in the OECD area. Governments must ensure that employment services and training programmes actually match the unemployed to jobs. They should also rebalance employment protection towards temporary workers; consider reducing taxes on labour via targeted subsidies for low paid jobs; and promote work-sharing arrangements that can minimise employment losses during downturns.

Stronger competition in retail trade and professional service sectors could also lead to greater job creation, and should be considered as part of wider structural reform programmes in advanced and emerging economies alike.

In advanced economies structural reforms can play a greater in role in boosting growth as governments are forced to withdraw fiscal and monetary stimulus launched in reaction to the crisis.

In emerging-market economies, structural reforms have the potential for making growth more sustainable and inclusive, while contributing to global rebalancing and enhancing long-term capital flows.

Emerging economies must also pay particular attention to the danger of overheating, which is increasing inflationary pressures, and in some cases, widening current account imbalances.

Countries must also make progress toward their fiscal consolidation goals, which are  increasingly urgent. Government debt is set to rise to close to 96% of GDP average in the euro area this year and to just above 100% of GDP in the OECD as a whole. This is about 30 percentage points above the pre-crisis level. “High public debt levels, which have been shown to have a negative impact on growth, must be stabilised and then reduced as soon as possible, especially if one considers the likely impact of ageing in the next few decades,” Mr Gurría said.

OECD Chief economist Pier Carlo Padoan talks about the Economic Outlook

OECD Forum 2011. Shifting wealth

Two panels in this session – emerging economies, and trade and investment. With an 8:30 start, most of us are looking more like early worms than early birds.

The first panel is far more dynamic, given the consensus in favour of more trade and investment. The emerging economy discussion takes an interesting turn when moderator Liam Halligan asks participants where the next IMF director should come from.

Indian finance minister Anand Sharma gives a diplomatic reply, saying global institutions should reflect global realities.

Anatoly Moskalenko from Russia’s Lukoil avoids answering a question concerning Russia’s acceptance by these institutions, saying simply that Russia would like to join the OECD and other bodies.

And then it’s back to the politicians. Brazilian Under-Secretary for Economic Affairs Valdemar Carneiro Leao describes the quantitative easing decided by the EU and US as “how can I put it: unorthodox”. He is less diplomatic later, reminding us how Brazil was preached at by the IMF and other institutions to be more liberal, but the regulations they kept in place saved their financial markets from the tsunami that hit the deregulators.

US Under-Secretary for Economic, Energy and Agricultural Affairs defends US economic policy, saying it was needed to restore the health of the US economy.

WTO chief Pascal Lamy anticipates the next panel by talking about the Doha round. He says there’s agreement or near-agreement on most points, but tariffs on industrial products are a sticking point, and he’s worried by the increase in the share of world trade affected by protectionist measures.

Norway’s Finance Minister Sigbjorn Johnsen speaks with the compassion and peace of mind of a chancellery managing a budget surplus. He explains that human capital is a more important asset than oil. He’d rather discuss DSK’s succession at the IMF at the IMF, not the OECD.

Brazil puts the cat among the pigeons again by asking why the OECD is represented at the G20 given that it’s not a global institution. No reply, but there’s no OECD panellist.