Cybersecurity: Managing risks for greater opportunities

Be afraid. But be prepared too.

Today’s post is from Laurent Bernat Of the OECD Information, Communications and Consumer Policy Division

Cyber attacks are “as dangerous as conventional warfare”, according to German Chancellor Merkel. “One of the most serious economic and national security challenges we face”, says US President Barack Obama. And France considers that it will face a large scale cyber attack against national infrastructure in the next 15 years. The stakes are high.

While the nature of these attacks continues to include criminal activities motivated by financial gain (identity theft, credit card fraud, cyber ransom, etc.), the main emerging threats are large-scale denial of service attacks, information leaks, targeted cyber espionage, and the disruption of critical infrastructures. Examples include the massive attack on Estonian networks in 2007, large scale denial of service attacks against Korea and the United States in 2009, waves of espionage targeting governments, institutions and firms, and large scale personal data leaks such as the one that affected 77 million customers of Sony in 2011.

Surprisingly, states themselves seem to be emerging as new sources of threats, as rivalries and disputes spill over into cyberspace. News accounts of cyber espionage, sabotage and deception now read like something out of a James Bond film. The alleged physical disruption of the Iranian nuclear enrichment programme using the Stuxnet worm is but a recent example.

So what are governments doing to prevent the World Wide Web from devolving into the Wild Wild West? According to a new study of national cybersecurity strategies in OECD countries, they’re focusing on how to deal with a serious cyber incident – a possibility envisaged in nearly all the strategies – but in a way that does not undermine the openness of the Internet. As the Internet has become an essential infrastructure for the economy and society, the consequences of interruption can have disastrous impacts.

National strategies now aim at achieving two interrelated objectives: strengthening security for the Internet economy to further drive economic and social prosperity, and protecting cyberspace-reliant societies against online threats. Managing these two objectives in parallel, while preserving the openness of the Internet and fundamental values, is probably the main challenge of cybersecurity policy making today.

The ongoing challenge for governments is to ensure that cybersecurity policies support prosperity and development rather than undermine it. To this end, the OECD promotes a risk-based approach whereby a certain level of risk is accepted in order to preserve the economic and social benefits made possible by an open Internet.  Security should thus aim to reduce risk to an acceptable level through appropriate and balanced measures rather than to simply control threats by reducing openness and interconnectivity. The flexibility, scalability and management aspects of this approach reduce the cost of security, without restricting choice, stifling innovation or limiting the adoption of new technologies.

An OECD consultation of non-governmental perspectives found that multi-stakeholder collaboration is the best means to develop effective cybersecurity policies that respect the fundamentally global, open and interoperable nature of the Internet. NGOs however express concerns regarding the blurring of boundaries between the economic and social dimensions of cybersecurity and the emergence of sovereignty considerations.

The OECD has now launched a broad consultationof all stakeholders from member and non-member countries to review its Security Guidelines. The review will take into account newly emerging risks, technologies and policy trends around such areas as cloud computing, digital mobility, the Internet of things, social networking, etc. It will also build on successful policies in national cybersecurity strategies and consider ways to foster greater international co-operation among governments, consistent with the 2011 OECD Recommendation on Principles for Internet Policy making. More to come!

Useful Links

OECD work on information security and privacy

Review of the 2002 Security Guidelines

OECD Principles for Internet Policy Making

OECD Recommendation on the Protection of Critical Information Infrastructures

From Guns to Ploughshares: Reducing armed violence

Today’s post is from Sarah Cramer and Erwin van Veen of the International Network on Conflict and Fragility (INCAF)

Film fans may be aware that Pierce Brosnan’s James Bond has the highest body count of any Bond ever (an average of 33.9 kills per film). But in the real world, few of us have such an accurate picture of armed violence. For instance, many would be surprised to learn that El Salvador has been the deadliest country in recent history. In fact, between 2004 and 2009 more people per capita were killed in El Salvador than in Iraq. Jamaica follows closely in third place, according to the Global Burden of Armed Violence 2011.

While casualties of war often grab headlines, they only represent 10% of the 526,000 lives lost annually as the direct result of armed violence around the world. Crime is the biggest driver of violent killing, and armed violence in post-conflict settings, such as El Salvador, Nicaragua and Guatemala, can sometimes surpass levels seen during actual periods of conflict.

Surprising facts about armed violence and linkages to poverty were on dramatic display in a photo exhibit last week in the OECD Conference Centre. The photographs were drawn from the Visions of Hope collection compiled by the Geneva Declaration on Armed Violence and Development, a diplomatic initiative aimed at addressing the interrelations between armed violence and development.

Click on the photo to see the exhibition

Violence and insecurity take a high toll on society. Apart from human suffering, violence leads to increased public and private security costs, and decreased productivity and investment. The global cost of homicidal violence is $95-160 billion each year, and the burden is much higher in developing countries, where 10-15% of GDP is spent on law enforcement, compared with 5% in developed countries.

The OECD Development Assistance Committee (DAC) recognises that reducing violence and insecurity is a pre-requisite to realising development outcomes such as the MDGs. No low-income fragile states are expected to achieve a single MDG by 2015. Understanding the dynamics of armed violence and what can be done about it is an important first step. Through the International Network on Conflict and Fragility (INCAF), the DAC is gathering evidence, filling analytical gaps and providing practical recommendations for strengthening support for core peacebuilding and statebuilding functions, notably security and justice, that can reduce armed violence.

Evidence suggests that armed violence can be successfully addressed, reducing human suffering, psychological trauma and negative spill-over effects at regional and global level. Good interventions share six common characteristics.

  1. A good evidence base, including a nuanced understanding of the context. For example, in Sudan, UNDP’s Threat and Risk Mapping and Analysis Project works with local communities to map security threats and socio-economic risks. Collected data is pooled with information about basic rainfall patterns, suspected oil and mineral extraction sites, service provision, livestock migration routes and other issues. This approach provides a robust understanding of the context to inform programming decisions.
  2. Engagement of municipalities and non-state groups, actors that are well-placed to influence armed violence. This can be done by working through NGOs and decentralised development agencies. Providers of development assistance – who tend to work most with the state’s central executive – need to consider what changes might be required in their approaches, staffing and networks to engage effectively at such critical sub-national levels.
  3. A flexible mix of perspectives and methods, bringing together a range of experience in areas that have proven to be effective at reducing armed violence, such as public health, law enforcement, urban planning, community services and job creation. For example, in Bangladesh, the Coalition to Stop the Use of Child Soldiers (an NGO) used a public health approach to map the risk factors that render children and youth vulnerable to recruitment by armed criminal gangs and as potential future soldiers.
  4. Combining local with global action, as drivers of violence originate from all levels. All too often, country-specific strategies guide interventions without paying adequate attention to necessary complementary regional and global factors.
  5. Sufficient time, balancing the need to show short-term results with the time and patience needed to yield real success. For example, it took Viva Rio, a local NGO operating in Rio de Janeiro, ten years to contribute toward a drop in the annual rate of gun deaths. Activities needed to be structured and funded on a long-term and flexible basis to achieve sustainable success.
  6. Integration of armed violence reduction within development strategies, as reducing violence is a pre-requisite for achieving other development outcomes.

Useful links

OECD work on armed violence reduction

Armed Violence Reduction: Enabling Development

Conflict – the enemy of development

“The global economy is weakening again”

If you’ve been following economic events over the past five years, the headline on this posting – which is also the opening line from the OECD’s latest Economic Outlook – won’t surprise you. In the wake of the financial crisis, a pattern has emerged: global recovery is weak, doesn’t last long, and soon gives way to a slowdown if not outright recession.

A major factor behind this latest slowdown is a loss of confidence, and that in turn is being fuelled in part by events on either side of the Atlantic. In Europe, despite progress in creating systems to shore up the euro, governments still have some way to go before finally fixing the single currency. In the United States, legislators have until only the end of next month to steer away from the “fiscal cliff”. Tipping over the edge would automatically raise taxes and cut government spending.

“If policymakers in the United States fail to reach agreement on tax hikes and spending cuts, they face a ‘fiscal cliff’ that could tip an already weak economy into recession,” warns Pier Carlo Padoan, the OECD’s Chief Economist in this video.

Assuming the US doesn’t go over the cliff, the OECD is forecasting that the American economy will grow by 2.0% in 2013, slightly down on this year’s estimated 2.2%. For Europe, it sees a contraction of 0.1%, a slight improvement on 2012’s estimated decline of 0.4%.

There’s brighter news in some of the emerging economies, where policy action such as investment in infrastructure and cuts in interest rates are helping to make up some of the slack caused by weakening global demand. After slowing to an estimated 7.5% this year – the lowest rate for a decade – China is forecast to see growth of 8.5% in 2013. India, which has been in an economic funk lately and saw growth slip to an estimated 4.4% in 2012, is tipped to rebound to 6.5% in 2013.

Click on the chart to modify or share it

There’s clear concern in the Economic Outlook that governments won’t act quickly or decisively enough to tackle some major challenges. This is particularly true of the problems in the euro area, which, says the OECD, remain “the greatest threats to the world economy” despite the steps taken so far by euro zone leaders. The OECD’s economists looked at what could happen if there was a substantial increase in the zone’s financial stresses, even without the exit of a euro member. In such a situation, they warn, Europe’s economy could contract by at least 2.2% in 2013 and by 4.2% in 2014, unemployment could rise by at least 2 percentage points and equity prices could drop by 40%.

There’s concern, too, about the rising toll of unemployment in OECD countries. Around 50 million people are  jobless at the moment and that’s having a major social impact, including fuelling economic inequality. The push by many governments to get their finances back in order – through cuts in spending and increases in taxes – risks exacerbating the problem. But, as the OECD research shows, that needn’t be the case. For example, the OECD economists suggest, a government that chooses to raise income taxes rather than cutting down on income support for poorer families could actually narrow inequality. Critics, of course, would argue that such a move risks crimping long-term growth, and they may well be right. Nevertheless, the growing concern over inequality in many OECD countries means there may be more of an appetite for such actions than there was in the past.

Useful links

OECD economic analysis and forecasts

Climate: The Doha Round

Bob Dylan’s new album gets released. Another Star Trek film gets released. Lindsay Lohan gets released. All major events at one time, in certain media anyway, but now nobody really cares that much. I get the impression it’s the same with the COP climate conference. Who can remember what it did after the Kyoto Protocol? Where and when was the last one? Where and when is the next one? The answers to the last two questions are Durban last year and Doha today.  Any media coverage tends to be about the fact that it’s in Qatar which, as even the state-sponsored Al Jazeera admits, has the worst CO2 emissions rate per person in the world: 53.4 tonnes a year, three times more than the US.

So what is COP 18 hoping to achieve? At COP 16 in Cancun two years ago, governments agreed that emissions needed to be reduced so that global temperature increases could be limited to below 2 degrees Celsius. Fans of treaty talk will have noticed that they agreed that emissions “needed to be reduced”, not “agreed to reduce emissions”.  As we wrote here a couple of weeks ago when the International Energy Agency’s new World Energy Outlook was published, there’s no chance of hitting the 2 degrees target the way things are going.  Global energy demand is expected to grow by more than one-third by 2035 in the IEA’s central scenario, with emissions corresponding to a long-term average global temperature increase of 3.6 degrees C. Even the “Efficient World” scenario talks about a rise of “under 3 degrees” rather than 2.

The OECD Environmental Outlook to 2050 is even more pessimistic, projecting that without a significant change in policies, global greenhouse gas emissions will increase by 50%, primarily due to a 70% growth in energy-related CO2 emissions. Global average temperature would then be 3 to 6 degrees C above pre-industrial levels by the end of the century according to the Environmental Outlook.

Nobody expects the world to wake up and take action as a result of the Doha meeting, but the OECD will be presenting ideas and analyses on issues that have to be addressed. An event on November 30 will showcase new work by the OECD/IEA Climate Change Expert Group on the design and governance of carbon market mechanisms. The Environmental Outlook suggests that curbing GHG emissions by putting a price on carbon through carbon taxes or emission trading schemes can help raise significant revenues. For example, if industrialised countries implement the emission reduction actions they pledged at COP 2009 in Copenhagen through a carbon tax or a cap-and-trade scheme with fully auctioned permits, they could generate more than $250 billion extra revenue.

On December 4 the spotlight will be on other forms of “climate finance”. Transitioning to a low carbon and climate-resilient economy, and more broadly, “greening growth”, takes money, but public finance and traditional sources of private capital such as banks are unlikely to have the means, or the will, to finance the investment needed because of the impacts of the crisis on budgets and financial sector performance. The OECD has launched a project on long-term investment focusing on the role of institutional investors as a source of direct financing for green infrastructure projects. This builds on numerous networks of experts in financial markets, insurance, pensions and environment and ongoing work on institutional investors and long-term investment.

The COP event will emphasise the need to scale-up and shift infrastructure finance, to avoid lock-in of carbon-intensive and climate vulnerable development pathways in developed and developing countries alike. A major part of the infrastructure required to meet development goals is still to be built in areas where climate change mitigation and adaption action is needed, such as transportation, energy, water, or urban development.

Maybe COP 18 will surprise us all. After all, Lindsay Lohan has just made a film.

Useful links

OECD work on climate change

OECD work on green growth and sustainable development

UN Framework Convention on Climate Change

Over there, but helping out over here

OECD work on migration

Planned next year’s holiday yet? If not, how about Ireland? Along with all the usual attractions – greenery, Guinness, a friendly welcome, rain – Ireland in 2013 is promising to “open its arms to hundreds of thousands of friends and family from all over the world, calling them home to gatherings in villages, towns and cities”.

This year of arm opening, which goes by the slightly spooky name of The Gathering, is targeted mainly at Irish emigrants and their descendants. In Ireland’s case, that’s a lot of people. The country has a population of just 4.5 million, but at least another 630,000 Irish-born people live abroad. The number jumps when you include second-generation Irish, and hits the stratosphere when you count emigrants’ descendants: In the United States alone, more than 34 million people claimed Irish descent in the 2000 census.

The Gathering has its critics – actor Gabriel Byrne has dismissed it as just a way to “shake down” emigrants – but it does represent a popular notion these days. Many countries, both developed and developing, have been making a concerted effort to reach out to overseas communities – their diasporas – in recent years. Among many others, Scotland has its Homecoming; Israel has Taglit-Birthright Israel, which has sponsored homecoming visits for 300,000 young Jews from all over the world; and India has TiE, a group created 20 years ago by Indians working in Silicon Valley and which now boasts chapters in 17 countries.

Emigrants, often ignored or forgotten in the past, are now seen as a valuable resource – and not just as a source of remittances. The point was neatly made by US Secretary of State Hillary Clinton in a speech earlier this year: “By tapping into the experiences, the energy, the expertise of diaspora communities, we can reverse the so-called ‘brain drain’ that slows progress in so many countries around the world, and  instead offer the benefits of the ‘brain gain’.”

It’s not hard to find examples of this in developing countries: China’s largest search engine, Baidu, was founded by two Chinese, Eric Xu and Robin Li, who studied and worked in the United States for many years. One of Africa’s largest phone networks, Celtel, was founded by Mo Ibrahim, who was born in Sudan but spent much of his adult life in the United Kingdom. And when The Economist asked N. Chandrasekaran, the head of Tata Consulting Services, to say how many of the Indian IT firm’s top people had worked or studied abroad, he replied simply: “All of them.”

As The Economist notes, diaspora networks have three great potential strengths. They can allow information – anything from news of new products to investment opportunities – to cross borders. They can encourage trust – people from shared backgrounds are often more likely to believe each other. And they can create connections between people around the world.

The potential of migrants and diasporas to contribute to development is increasingly recognised, including in recent research done here at the OECD. This research, which focuses in part on developing a better picture of migrant communities, offers some fascinating insights. One of the most striking is the level of education among migrants. Among immigrants living in OECD countries, around a million hold doctorates. Africa alone has about 2.5 million high-skilled emigrants living in OECD countries.

Some of these people will eventually decide to return home, although many others won’t. But regardless of their long-term plans, most migrants like to maintain links with home and, where possible, to contribute to their progress. Finding ways to make that happen can be challenging. Diasporas are, by their nature, widely dispersed and often invisible. That’s one reason why the Internet, and especially social media, has such potential to bring them together. One French study has already identified 8000 websites linked to just 30 of the world’s diaspora groups. As interest in harnessing the power of migrants and diasporas grows, that number will surely rise.

Useful links

Harnessing the Skills of Migrants and Diasporas to Foster Development

Connecting with Emigrants: A Global Profile of Diasporas

OECD Insights: From Aid to Development

OECD Insights: International Migration

IEA World Energy Outlook: good news if we choose

Click to download a summary of the report

For at least the next half century, the United States and its allies will continue to rely on a substantial and growing amount of oil imports, according to this report from MIT in 2004. No they won’t, according to this report from the IEA this morning. The latest World Energy Outlook’s central scenario (“New Policies”) expects that by 2020 the US will become the world’s biggest oil producer and a net exporter of natural gas, thanks to a combination of technologies to exploit shale oil and “tight” gas (hard to access natural gas) and more fuel-efficient transport. By 2035, the US will almost be self-sufficient in energy and North America will be a net oil exporter, accelerating the switch in direction of international oil trade, with almost 90% of Middle Eastern oil exports going to Asia.

An even more startling change is suggested in the “Efficient World” scenario, where the growth in primary energy demand to 2035 is halved. Oil demand would peak just before 2020 and would be almost 13 mb/d lower by 2035 – the current production of Russia and Norway combined. This wouldn’t need any major or unexpected technological breakthroughs. It would be enough to remove the barriers obstructing the implementation of energy efficiency measures that are economically viable. Apart from anything else, greater energy efficiency could also be worth trillions of dollars. Additional investment of $11.8 trillion (in year-2011 dollars) in more energy-efficient technologies would be more than offset by reduced fuel expenditures. The accrued resources would facilitate a gradual reorientation of the global economy, boosting cumulative economic output to 2035 by $18 trillion, with the biggest GDP gains in India, China, the US and Europe. Energy-related CO2 emissions would peak before 2020, then decline.

If you think that sounds too good to be true, you’re probably right. The central scenario isn’t very hopeful: “the world is still failing to put the global energy system onto a more sustainable path”. Global energy demand is expected to grow by more than one-third by2035, with China, India and the Middle East accounting for 60% of the increase. The IEA agrees with that MIT report in saying that fossil fuels will continue to dominate the global energy mix, in part thanks to you and me subsidizing them more than ever: fossil fuel subsidies that amounted to $523 billion in 2011, up almost 30% on 2010 and six times more than subsidies to renewables. Emissions in this scenario correspond to a long-term average global temperature increase of 3.6C, compared with less than 3C in “Efficient World”.

Each edition of the World Energy Outlook shows that the climate goal of limiting warming to 2C is becoming more difficult and more costly with each year that passes. The latest edition shows that almost four-fifths of the CO2 emissions allowable by 2035 are already locked-in by existing power plants, factories, buildings, etc. If action to reduce CO2 emissions is not taken before 2017, all the allowable CO2 emissions would be locked-in by energy infrastructure existing at that time. Rapid deployment of energy-efficient technologies, as in “Efficient World” would postpone this complete lock-in to 2022, buying time to secure a global agreement to cut greenhouse-gas emissions.

World energy in 2035

Useful links

IEA Chief Economist Fathi Birol speaks to the OECD Observer about energy efficiency

Where will we be in 2060?

After enduring months, even years, of political campaigning, many Americans probably identified with little Abigael Evans this week: “I am tired of Bronco Bama and Mitt Romney,” the four-year-old wailed in a video that quickly went viral.

Don’t worry, the election’s all over … for now. But 2016 is not too far down the road and by then Abigael may have something new to complain about: Namely, all that talk about China finally overtaking the United States to become the world’s biggest economy. That change will come soon, possibly not before America chooses Barack Obama’s successor but certainly under the decade-long watch of the new Chinese leadership installed this week.

Of course, China has been here before. As the late Angus Maddison noted, China was the world’s biggest economy for almost 2000 years “but in the 1890s this position was taken by the United States”. But when the two giants swap places again, it will undoubtedly attract a lot of attention, not all of it favourable. In reality, the change will represent just a moment in a much longer shift in the balance of power in the global economy.

Today, the wealthy countries of the OECD area account for almost two-thirds (65%) of world GDP. But by the time little Abigael is in her mid-50s, their share will fall to not much more than two-fifths (43%). That will be below the forecast combined share for China and India of 46%, which today account for just around a quarter of global economic activity. Average living standards in China and India, as measured by GDP per capita, will more than quadruple, although by 2060 they will still be well behind those of the leading economies.

All these forecasts come in a fascinating new paper from an OECD team led by Åsa Johansson, which attempts to set out the shape of economic things to come between now and 2060. The paper forecasts that, as soon as the debris from the great recession is tidied up, the world economy could start growing by about 3% a year.

The bulk of that growth – at least in the early years – will be in emerging economies like China and India, and it will be driven by a number of factors.

One is demographics. India and South Africa, for example, may enjoy a “demographic dividend” – a period when they have a lot of workers and not too many dependant retirees and children. China faces a different fate: Partly as a result of the one-child policy, it’s poised to go through what a World Bank report calls “wrenching demographic change” that could start shrinking the size of the labour force by 2015. That’s one reason why China’s share of the global economy is forecast to level off at 28% in 2030. India’s, by contrast, should keep growing, from 11% in 2030 to 18% in 2060.

But there’s an even more important factor behind the world’s shifting economic balance – rising productivity. Technology and a more highly skilled workforce are already allowing many emerging economies to shift from relying on agriculture and mass manufacturing towards more high-end production. Their businesses, too, are becoming more efficient and effective in how they operate. In the coming decades, these trends will only deepen.

Of course, the future is, by its nature, unknowable. So what might happen to blow all these forecasts off course? To quote the former British prime minister Harold Macmillan, “events, dear boy, events”. More importantly, and this is a point the OECD paper stresses, there is much that governments themselves could do to outpace current growth forecasts, especially in the areas of product-market regulation and in reforms to labour markets. Substantial change in these two areas alone, it argues, could add 16% to global GDP by 2060.

Useful links

OECD work on economics

OECD work on China and India

The OECD’s Chinese-language site – 网站 (中文)

Maddison’s history of the world economy