To mark the centenary of The First World War, we will be publishing a series of articles looking at what has changed over the last century in a number of domains. Today’s post is by Monika Queisser, head of the Social Policy Division in the OECD’s Employment, Labour and Social Affairs Directorate.
Imagine a world where women are the ones repairing cars, driving buses, building roads and houses, mining coal, fighting fires and ploughing fields, with men nowhere to be seen. It sounds like Utopia, dystopia or highly unlikely, depending on your point of view. Even if girls often do better in school than boys there is still a clear-cut gender divide in the fields of study young people chose and in the areas of work they pursue. Boys are more likely to go for science, engineering and maths while girls probably pick health and the humanities.
A 100 years ago, however, this scenario of a female-dominated world of work, including in traditionally male professions, was the reality in much of Europe. With men having been called to war, women were filling their jobs to keep the countries running. In the UK, women’s employment rates just about doubled from 23% to 47% during the war, and munitions factories became the biggest employers of women (called “canaries” because the poisonous chemicals used to make TNT turned their skin yellow).
But even though women were doing what was considered men’s work, they were still only being paid women’s rates. Not that women weren’t bothered by the pay gap or political issues. As early as 1909, a mostly female led famous strike, called the Uprising of the 20,000, shook the garment industry in New York and spread further as more and more workers joined the picketers. In Russia, women played a major role in the strikes and revolts that led up to the 1917 revolution and already during the 1905 revolution, there were more women in the Assembly of Russian Factory and Plant Workers than there were men in all the socialist organisations in St. Petersburg combined.
In London, women working on buses and streetcars went on strike in 1918 demanding better pay. As a result, the question of the gender pay gap was studied by a special Committee of the British War Cabinet which published a Report on Women in Industry in 1919. The report was widely disseminated and even received an excellent review in the American Economic Review in its June 1920 edition. While the report endorsed equal pay for equal work it also found that for many occupations women’s output was lower than that of men. This justified paying female workers lower wages, which would also be better overall for women since paying women higher wages might actually reduce their employment. In addition, it found that women didn’t need to be paid as much as men since they had no family responsibilities, automatically assuming that any woman who was working must be single, although by 1918 nearly 40% of all women workers were married.
But the report was actually split in two: a majority report and a minority report by Beatrice Webb, a social rights campaigner who was also one of the founders of the London School of Economics. She forcefully argued against this and several other assumptions about women’s output and productivity.
The gender wage gap got governments worried about what would happen when the men returned from the battlefields and found their jobs taken by the women. These concerns turned out to be unfounded. When the men came back, many women were either fired or retreated back to home and hearth, leaving the work responsibilities to the men. And if they continued to work in the same factories they did so at lower wages while the men got better pay.
So what’s changed over the past century? About half of the economic growth in OECD countries in the past 50 years is due to increased educational attainment, particularly among women, but women still earn on average 15.3% in OECD countries. At the top of the pay scale, the gender gap is even higher, 21%, suggesting the continued presence of a glass ceiling. The average pay gap between men and women widens to 22% in families with one or more children. For couples without children, the gap is 7%. Overall the wage penalty for having children is on average 14%, with Japan and Korea showing the greatest gap.
The impact of pay inequality is dramatic over a woman’s lifetime. Having worked less in formal employment, but having carried out much more unpaid work at home, many women will retire on lower pensions and see out their final years in poverty. Living an average of nearly 6 years longer than men, women over 65 are today more than one and a half times more likely to live in poverty than men in the same age bracket. Mrs Webb would be appalled.
To mark the centenary of The First World War, we will be publishing a series of articles looking at what has changed over the last century in a number of domains. Today’s article is the third from Alan Whaites, team leader, Governance for Peace and Development at the OECD.
The Christmas truce of 1914 is one of the iconic moments of the First World War, soldiers on the Western Front took the initiative to suspend hostilities in order to meet, share rations and play football. Accounts of the events on Christmas Eve and Christmas Day 1914 often refer to the singing of carols as a point of connection between the two sides. It seems that the power and symbolism of a religious festival that for many is associated with hope acted as a point of unity across divisions of nation and politics.
The truce is a rare positive reminder that identity is a powerful factor in many conflicts; too often identity is seen as the curse of conflict, the mechanism for division. Yet shared symbols, shared history and a sense of belonging to a group are simply the mediums through which ideas and ethics are transmitted. In his classic work Benedict Anderson described this sense of belonging as “imagined communities”, the bedrock of national identity and of the state itself.
Yes, of course the ties that bind can also divide and the phrase “conflict entrepreneurs” was coined to describe those adept at exploiting identity and sense of community for the purpose of individual or collective gain. In a report on a workshop on the issue Marina Ottaway noted that: “Conflict entrepreneurs often mobilize individuals through three general tactics: appeals to ethnic, religious, and/or ideological solidarity; patronage; and positive or negative promises regarding security.”
The vulnerability of identity to exploitation by conflict entrepreneurs creates a sense of pessimism about differentness and belief. In the Clash of Civilisations Samuel Huntington tells us that: “The philosophical assumptions, underlying values, social relations, customs, and overall outlooks on life differ significantly among civilizations. The revitalization of religion throughout much of the world is reinforcing these cultural differences.” Frances Stewart, however, warns against over-simplification: “Clearly, cultural differences alone are insufficient to cause violent conflict, given the large number of peaceful multicultural societies. Hence the many socio-economic and political explanations of conflict. Among these are horizontal inequalities (inequalities among culturally defined groups).”
Stewart’s work points to the need to also look at the power of political divisions. Particularly the role of social and economic problems that can either be harnessed to the mobilising potential of identity; or to those existing divisions that are visible through identity. After all consolidating the support of one constituency can often be discrimination against another, even to the extent of enshrining in law, constitutions and budgets the privileging of identity. These political divisions constructed through the medium of identity create the fuel for it to be instrumentalised by leaders in the context of conflict.
Ultimately this means that it is the choices that individuals make, as leaders, citizens and followers that matter. For this reason the work of those who explore “political settlements” has much to offer. Political settlement thinking recognises that If political leaders are willing to exploit identity for the purpose of conflict then that is likely to be for political gain – and this means political in its raw sense of access and use of power. Identity becomes a vehicle for controlling or destabilising the political settlement in question, but could equally be used to negotiate a more visibly inclusive process to manage power.
Sometimes caricatured as too elitist these studies have instead often pointed to ways in which relational dynamics and personal strategies for managing power make all the difference between peace and war. Political settlement thinking recognises that the strategies leaders use to relate to their constituencies matter, whether a society is deeply heterogeneous or not. Earlier this year Sarah Phillips outlined at the OECD the findings of her study on the Somaliland pointing to the way in which shared experience can play a positive role. Coupled with the work of others, such as Stefan Lindemann’s studies of several African countries, it suggests that the tactics adopted to include others in political settlements are crucial. Inclusive enough political settlements also need to be smart enough.
Choosing the smart rather than expedient path is the challenge. The positive and negative choices that leaders make have always been difficult to explain. Why are some leaders more willing than others to positively manage political settlements, rather than opting for the leverage of mobilisation and conflict entrepreneurialism? We all carry multiple identities around with us, and constantly weigh and prioritise these in the context of circumstances, opportunities and challenges. Yet while in the constant renegotiation and adaption of resilient political settlements these identities still surface and matter they are not usually instrumentalised as frameworks for discrimination and privilege. Research groups such as the Development Leadership Programme, ESID, and others are now chipping away at the issues of why some political settlements work in managing these processes, while others collapse.
The failure of leaders to manage these processes in 1914 provided a stark illustration of the cost when managing political settlements – including cross border ones – breaks down. It is therefore apt to remember that the ability of shared values and shared humanity to overcome those failures, shown momentarily at Christmas in the same year, is something that works on both identity and political settlements and it needs to be built on – not fear.
To mark the centenary of The First World War, we will be publishing a series of articles looking at what has changed over the last century in a number of domains. Today’s post is by Eric Charbonnier of the OECD Education Directorate
If there’s one thing that’s changed rapidly over the past 100 years, it’s education. University for example used to be reserved for a small elite, whereas now around 40% of 25-34 year olds in OECD countries graduate from the education system with a higher diploma. Qualifications still play a major role in career development. The higher the diploma, the more its holder is likely to contribute to economic growth and, especially in the recent economic downturn, be protected from the worst impacts of the crisis. This is particularly true in France and other European countries where those with no qualifications find themselves in an extremely precarious position in the job market.
Mass expansion of higher education has other consequences too. A high school diploma used to open the door to many professions, but now that it has become the norm in most OECD countries, it no longer sets the graduate apart as it used to. It could even be argued that the main impact of such a diploma is now negative in a sense, since not having one has a bigger impact on a young person’s prospects than having one. Diplomas awarded for a general course are affected most. They are now seen as a stepping stone on the way to further education, rather than a milestone marking the transition to adult life and entry into the workforce.
Even France’s famous baccalaureate is coming under increasing criticism as being too expensive, too easy to obtain, and offering few prospects as such, despite its status as an irreproachable “national treasure”. Despite strong historical links dating from its support by Napoleon in 1808, there’s no doubt that the “bac” will evolve in the coming years to become more like what is found in other OECD countries – a diploma based on continuous assessment and a final exam that is limited to the fundamentals.
Access to education has become more democratic, even if social disparities still remain too important. But the gap is nothing like it was before. To return to the baccalaureate for a minute, the first woman wasn’t allowed to sit the exam until 1861, and even then, it was another half a century (1924) before men and women answered the same questions.
As well as becoming more democratic, education has become more globalised, with countries competing to attract the best students. The number of students studying in a foreign country was multiplied by 5 over 1975-2012, rising from 800,000 to 4.5 million. This trend looks set to strengthen in the coming years, and countries will develop multiple strategies not just to attract students, but to keep them in their workforce after graduation, as Australia and New Zealand do already.
The sudden transformations brought about by mass education and globalised education were not foreseen, but access to education and knowledge now condition success and personal fulfilment in modern society. Despite all the changes since 1914 though, one thing remains the same: the role of teachers is as central is transmitting knowledge nowadays as it has been since the dawn of time, despite the constant changes to their profession. When you read about schools a hundred years ago, or look at the early class photos, it’s striking how similar all the pupils are. Today, many teachers are used to having children from a wide range of backgrounds in their class. Teaching methods have changed significantly too, as has the level of knowledge and professionalism demanded of staff. But in 2014 as in 1914, teachers are still the key to students’ success, which is why a growing number of OECD countries are placing teachers’ initial training and professional development at the heart of education reforms.
Even if there has been a revolution in schooling over the past century, the quality of an education system will never be greater than the quality of its teachers. It was true in 1914, remains true in 2014, and will no doubt still be true in 2114.
Education GPS, the OECD source for internationally comparable data and analysis on education
Today’s post is from Darcy Allen, Research Fellow at Melbourne-based free market think tank The Institute of Public Affairs, and recent author of a new report – “The sharing economy: how over-regulation could destroy an economic revolution”.
The ‘sharing economy’ has emerged because new technologies such as the internet have drastically reduced transaction costs.
Embracing these developments, budding young entrepreneurs have launched businesses that help individuals exchange resources.
Examples such as the ride-sharing Uber and the accommodation-sharing Airbnb are making exchange more efficient by helping to coordinate information about mutually beneficial transactions. These businesses make money by taking a fee for facilitating the trade.
Why has the sharing economy emerged? The underlying reason is transaction costs – the costs of coordinating an exchange. This includes the discovery, bargaining, and policing costs of exchange.
As these costs fall it becomes more feasible for consumers and producers to transact. Transaction costs have now fallen so low that buyers and sellers can exchange the excess capacity of their existing resources with ease and convenience. Hence the emergence of the ‘sharing economy’.
These companies do not sell the ‘resources’ mentioned above. Rather, they sell the software, the matching algorithms, and the reputation of their business. This package provides a service where private parties can discover, bargain and police their own transactions.
Private parties are fast flocking towards these new platforms because of their advantages over traditional exchange: more sustainable use of scare resources by utilising idle capacity; often lower costs for consumers because of decentralised transactions; the ability to customise the details of the exchange; and flexible employment opportunities particularly for the unemployed.
But the future of these benefits is all but smooth sailing. The debate involves regulators, governments and incumbent industries. This is expected with any disruptive innovation. Incumbent industries scramble to protect their valuable position using the political process.
The underlying question of these debates is not really over whether the sharing economy has economic benefits. The question is over who is more effective at regulating emerging markets – governments or civil society?
A recent report by the Melbourne-based free market think tank the Institute of Public Affairs, The sharing economy: how over-regulation could destroy an economic revolution, explores how misguided and heavy top-down regulations could crowd out the benefits of the sharing economy.
Much of the problem stems from a misunderstanding of the costs of government intervention on one hand, and the increasing ability for markets, businesses and consumers to self-regulate on the other.
To be sure, these debates over government imposed control and evolving self-regulation will continue. But it is not sufficient to approach each issue on a case-by-case basis; decisions must sit within a broader regulatory design framework that provides the flexibility and adaptability to future challenges.
This post provides three such design principles.
Regulation should not be by default; it should be the second alternative if bottom-up governance fails.
Regulators must avoid hasty regulation. Imposing rules on an emerging industry naively assumes that regulators understand the future of that industry. Rather, the reaction of regulators should be to encourage and enable the development of bottom-up, organic, self-regulating institutions.
Some may recognise this as Adam Thierer’s idea of Permissionless Innovation. Governments too often follow a ‘precautionary principle’ – that is, regulating against the possibility of hypothetical harm. This locks entrepreneurs into rigid rules that stifle innovative activity.
The sharing economy has a large potential for self-governance. This is an alternative to government control. It is common for sharing economy platforms to have reputation mechanisms and insurance systems that fill some of the void where government regulation is assumed to sit.
These solutions are often cheaper, quicker and more flexible than their government alternative, and over-regulation can destroy these complex structures. It is the nature of politics that regulation is rarely able to evolve as technologies and industries evolve.
Moving away from occupational licensing as a signal of quality.
Occupational licensing is government deciding who can supply what services in the market. Licensing is often justified on the basis that it signals quality and safety for consumers.
This is all well and good, but occupational licensing also has costs. It is widely recognised that government-imposed licenses create supernormal profits for insiders, and are highly inflexible to changes in industry structure.
The sharing economy has created significant tension around occupational licensing. This is because private parties can now easily provide services – like transport and accommodation – through unconventional and decentralised markets.
The solution is to encourage alternative approaches such as professional certification to signify quality. Certification does not legally prevent individuals from providing certain services; it allows the market to decide. The benefit is that private parties determine whether the benefits of the certification outweigh the additional costs of providing the good.
We must encourage the sharing economy to create, test and refine their own certification bodies. For example, AirtaskerPRO is an additional screening process including an ID check and an in-person interview to obtain a badge on the user profile. These need to be embraced.
Make regulation technology-neutral to avoid entrenching industry structure.
Technology-specific regulation only survives the test of time when there is little innovation. Yet traditional industry structures are continually being displaced. Creative destruction is a good thing.
However, when governments regulate an industry, these regulations by their nature define and determine the structure of the industry.
Many sharing economy regulatory contests come down to questions such as ‘what is a taxi?’ or ‘what is a bank?’ As industries shift and innovate, these definitions blur. But regulatory frameworks tend to be fixed, based on the assumptions built into the industry structure that they were original designed to govern.
If governments want to encourage the sharing economy, they need provide a reliable, predictable, technologically-neutral legal system that both keeps industry-specific regulation to a minimum and favours private solutions to regulatory problems over public ones.
In preparation for the 2015 Global Forum on Development, which will focus on how access to financing can contribute to inclusive social and economic development, the OECD Development Centre, United Nations Capital Development Fund (UNCDF) and the Better than Cash Alliance have developed a series of articles exploring the key issues and dimensions of financial inclusion. Today’s post is by Emilie Romon of the OECD Global Network of Foundations Working for Development (netFWD) and Sabrina Sidhu, from the Better Than Cash Alliance.
What do a family foundation based in Canada, a semi-public foundation established in the United Arab Emirates (UAE) and a corporate foundation from one of the world’s leading banks have in common? At first sight, not much beyond the fact that they are all charitable organisations. But a closer look tells us that they all dedicate time and resources to the same cause: financial inclusion.
There is growing evidence that financial sector development offers the opportunity to address inequality through interventions to ensure that economic growth translates into poverty reduction and employment. These efforts help to alleviate worries that economic integration and liberalisation of financial markets will lead to narrow, impervious corridors of spectacular growth surrounded by a hinterland of poverty. According to a report by the World Bank Development Research Group, governments can save up to 75% with electronic payment programmes – because the costs of handling, securing and distributing cash and administering these cash programmes is so expensive.
By empowering poor households to take a long-term view of education and health, financial inclusion complements government policy. It also helps reap the demographic dividend by ensuring healthier and educated young people raise productivity and attract further investments in the real economy.
Many foundations work to support those living in developing countries who do not have access to formal financial services such as loans, insurance, savings accounts, etc. They may also lack the skills needed to manage their financial assets in a sustainable way. Through financial inclusion, foundations empower individuals to lift themselves out of poverty, enhance their livelihoods and avoid excessive indebtedness.
Why do foundations get involved? Firstly, foundations are generally more willing to take risks and have more flexible means of operation than traditional aid agencies. They have also taken the lead in innovation, for example by inventing and making new digital payment systems accessible to the poor. An OECD Development Centre study on venture philanthropy paints a generally positive picture of the approaches used by foundations.
The Lundin Foundation works with farmers and small enterprises in Sub-Saharan Africa to enhance employment opportunities and bring their products to market. Because farmers often do not have access to formal financial services — which constrains their ability to scale up — the foundation makes financial services accessible to these farmers. Lundin recently invested in Agriculture and Climate Risk Enterprise, Ltd. (ACRE), which provides affordable insurance to farmers against climate risk, and sponsored the development of West Africa’s first dedicated Agribusiness SME Venture Capital Fund.
In the UAE, where 70% of Emiratis under the age of 30 are indebted, rising depression amongst youth is often attributed to financial stress. Increasing divorce rates in the country have also been linked to excessive debt. Faced with a problem of such magnitude and because no nationwide initiative was addressing the issue, the Emirates Foundation for Youth Development decided to make financial inclusion and literacy one of their six core programmes. Through the Esref Sah (“Spend true”) programme, the foundation raises awareness among the Emirati youth on the importance of managing their assets and provides adequate capacity building training. In 2014, the Emirates Foundation has engaged 2 434 youth and parents through a series of workshops across the country.
Similarly, the Citi Foundation follows a ‘more than philanthropy’ approach, by giving not only money to their grantees, but also coaching and training in order to reinforce their capabilities. In addition to financial literacy programmes delivered around the globe, the foundation seeks to strengthen microfinance institutions (MFIs) that offer small loans to low-income individuals, by helping them build their institutional and management capacity.
While these programmes gain considerable momentum, a larger range of development actors are also coming together to leverage their comparative advantages in support of financial inclusion. The Better Than Cash Alliance for example is a unique UN-based Alliance that is funded by three major foundations (Bill and Melinda Gates Foundation, Ford Foundation and the Omidyar Network), three financial services providers (Citi Foundation, MasterCard and Visa) and one bilateral donor (USAID).
Housed at the United Nations Capital Development Fund, the Better Than Cash Alliance provides expertise in the transition to digital payments to achieve the goals of empowering people and growing emerging economies. In addition to raising awareness of the benefits of replacing physical cash with electronic payments, the Alliance facilitates the transition for governments, the development community and the private sector. While physical cash payments are more effective than distributing in-kind goods, there is a growing body of evidence that digitizing payments can create lasting benefits for people, communities and economies. Why? Because they are a more cost-effective, efficient, transparent and safer means of disbursing and collecting payment.
The support from the three foundations to the Better Than Cash Alliance and their commitment to work with governments, private sector and development partners is deeply rooted in their own vision for increased financial inclusion in developing countries. Bill Gates, the co-chair of the Bill and Melinda Gates Foundation, predicts that in the future all “transactions will be digital, universal and almost free”.
Increasing financial inclusion at a national level is a complex task and requires a number of actors, in order to ensure that the vast range of products, services, policies and regulations as well as infrastructure upgrades are met. This will require both technical skill, significant human capital to ensure the change happens and deep financial resources. Thus, a multitude of players will be required for multi-dimensional sectoral change at country level and there is no doubt that foundations have a key role to play in increasing financial inclusion globally.
Can you have your green cake and eat it too? Environmental policies as an ingredient for economic growth
Today’s post is by Maroussia Klep of the OECD Environment Directorate
In today’s hard times, policy-makers can find it difficult to sell their environmental policies. To many, these policies represent a burden on the economy. They might secure the well-being of our grandchildren, sceptics argue, but risk preventing the growth we badly need today.
In this context, recent OECD findings provide renewed optimism. As revealed by thorough economic assessments, well-designed green policies not only secure long-term wellbeing, but can uphold current productivity levels too. In other words, it is possible to increase the economic pie and make it greener at the same time.
As ecological concerns gained momentum in the last decades, many studies have attempted to identify the impacts of environmental policies on the economy, with varying conclusions. In the United States for instance, scholars tried to relate the economic slowdown in the 1970s to the introduction of such policies; but their results were largely inconclusive. On the opposite side, economist Michael Porter suggested in a 1991 article that stringent policies could actually increase competitiveness: “strict environmental regulations do not inevitably hinder competitive advantage against rivals”, says Porter, “indeed, they often enhance it.”
In a report published this month, OECD splits the difference. The in-depth empirical analysis across OECD countries in the last twenty years revealed that well-designed green policies can sustain current levels of productivity growth.
When new policies are put in place, the more productive and technologically advanced firms are usually those able to reap the most benefits. They have indeed the firepower to seize market opportunities and rapidly adopt new technologies. Besides, once technological improvements are realized in an industry, the positive economic effects will often spread out across industries and countries via integrated production chains. According to OECD, these positive outcomes can be further encouraged if environmental policies offer flexibility for compliance, a reason to favour market-based instruments (such as taxes) over rigid regulations and standards.
In parallel, the less productive and technologically advanced firms may require more investment in order to comply with regulations, and may even have to drop out of the market if they are unable to adapt to changing conditions. In a competitive market, such entry and exit should lead to a swift reallocation of capital and sustain overall industry productivity.
It is therefore essential for policy-makers to support market competition. In particular, the design of environmental policies should as far as possible guarantee a level-playing field among competitors.
This brings us back to our recipe: which are the key ingredients for a “growing green cake”?
First and foremost, OECD argues, legislators shall ensure that the burdens imposed on competition by new policies are minimised and do not inhibit the entry of new and potentially cleaner firms and technologies. As highlighted in the report, countries such as Canada, New Zealand and Israel could further reduce the high administrative costs imposed on new entrants and facilitate access to environmental licences. In the same vein, instruments that favour incumbents, such as subsidies based on past performance, may put young firms at a disadvantage and impede market entry.
But the report also provides encouraging examples. In many countries, green policies and economic wellbeing go already hand in hand. The Netherlands, Switzerland and Austria, for instance, have implemented relatively stringent environmental policies that remain competition-friendly. For this, they have set measures to facilitate market access for new entrants, minimize red-tape and provide fair and equal conditions to all market players. These successful case studies can inspire policy-makers in OECD countries and beyond when designing green policies or revising existing ones.
Of course, the priority of environmental policies is to secure long-term sustainability. However, if the right conditions are put in place, greening the economy while upholding today’s growth trends could become a piece of cake.
The Porter Hypothesis at 20: Can Environmental Regulation Enhance Innovation and Competitiveness? by Ambec et al. in the Review of Environmental Economics and Policy
Today’s post is from Erik Solheim, Chair of the OECD Development Assistance Committee (DAC)
The donor countries representing well above 90% of all global development aid agreed in the Development Assistance Committee of the OECD on December 16 on a set of measures to modernize official development assistance, ODA. We will build on the historic success of aid and make it fit for the future. The goal is to provide more and better aid and support the global process of financing the post-2015 sustainable development goals.
The huge development progress over the past decades has made the world a better place to live than at any other point in human history. Extreme poverty, child mortality and malaria have been halved. The majority of people on the planet are better educated and live longer and healthier lives than ever before. But progress has been uneven. Development in states at war and in the poorest nations has been much slower. Conflict has even reversed development in some nations by 20-30 years. Extreme poverty will increasingly be found in weak states and in vulnerable groups such as indigenous communities, small scale farmers, ethnic and religious minorities, and the disabled. The majority of the very poor are women and they are living in rural areas. Global economic growth alone will not get all these people out of poverty. Specific policies targeting the most vulnerable groups and directing more resources to the least developed countries will be required to end poverty.
This is why the Development Assistance Committee has agreed to provide more development assistance to the least developed countries and other nations most in need, including small island states, land-locked countries and fragile states and nations in conflict. Those who have committed have reconfirmed the UN targets of 0.7% of national income for development assistance and at least 0.15% for the least developed countries. New agreed rules for concessional loans will give the poorest nations better access to this important source of development finance. The Development Assistance Committee agreed to modernise the reporting of concessional loans to encourage more resources on softer terms to the poorest nations while putting in place safeguards to ensure debt sustainability. The result of all this will be more and better development assistance to the poorest nations. More grants for schools and hospitals. More loans for railways, manufacturing plants and clean energy.
Development assistance is an important source of external funds for the least developed countries. But the big drivers of global development are private finances and domestic resources. Development assistance reached a record high of $135 billion last year, but foreign direct investments are almost 5 times greater. By far the biggest share of the money spent on education in the developing world comes from domestic resources. A three letter word for development is “tax”. A 1% increase in developing country tax revenues would mobilise twice as much for health, education and roads as total development assistance.
But development assistance can have a big impact on global sustainable development if used smarter to mobilize more private investments and domestic resources. $20 trillion will be invested annually across the world in the coming decades. More of this should be directed to green growth and development.
As our contributions to the global process of financing sustainable development, the OECD Development Assistance Committee will continue to develop new statistical measures to account for and mobilise more private finances. A new statistical tool measuring total official support for sustainable development will complement, not replace, official development assistance data. The purpose is to use public funds to mobilise more of those $20 trillion for green growth and development by making better use of the available financial instruments such as guarantees and equity investments. This work will be refined leading up to the third international conference on financing for development in Addis Ababa. We encourage all nations, private sector and civil society organization to work with us.
Better rules for development assistance are only relevant if it reduces poverty and has a real impact on the life of real people. More and better development assistance will help us towards eradication of extreme poverty by 2030. Our new broader measure is an additional contribution to the UN led process of shaping the sustainable development agenda and ending poverty while protecting the planet.