Mathilde Mesnard, Coordinator of the OECD Initiative on New Approaches to Economic Challenges (NAEC)
New economic and policy thinking is required today more than ever. On September 18th, the OECD Secretary-General launched a discussion on the New Approaches to Economic Challenges (NAEC) Synthesis report with OECD Chief Economist Catherine Mann, Lord Robert Skidelsky and Jean Pisani-Ferry. The launch event was in the best tradition of NAEC seminars with hard questions being asked about the report and the OECD’s policy approaches.
OECD Chief of Staff and G20 Sherpa Gabriela Ramos put several questions to the panellists about the current state of economic policy and the progress made since the economic crisis. We very much welcomed the perspectives of all the speakers. Jean Pisani-Ferry talked about the difficulties of incorporating risk into policy-making. He also suggested that policymakers base what they do on particular theories shorn of nuances and assumptions which are accepted by the research community. This often means that policy is based on over-simplification.
Catherine Mann questioned how far the agenda on complexity could be taken forward at the OECD. To help answer this, a NAEC workshop is being held at the OECD on Complexity of the Economy: Research and Policy Implications on 26-27 October. It will explore complexity research in finance, sustainability and macroeconomics as well as complex systems methods and data analysis.
We were encouraged by Lord Robert Skidelsky’s remark that the latest NAEC report gives much food for thought. We also welcome his positive remarks on our inequality work and attempts to inform our policy advice by looking to insights from other disciplines, in particular history. Indeed we have made a special effort to learn lessons from the OECD’s own history to inform NAEC. Lord Skidelsky observed several omissions in the NAEC report. Yet the NAEC Synthesis report was a continuation of two reports submitted to the Ministerial Conference Meeting in 2014 – the first Synthesis and NAEC: The Financial Stream.
Skidelsky mentions that NAEC does not examine monetary policy. This issue was addressed at length in the 2014 Synthesis. The report argued that monetary policy contributed to excessive policy accommodation in the lead-up to the crisis. It called for further investigation into the effects of unconventional monetary policy noting that while successful, the long–run effects as well as the short-term effects of an eventual tapering of these measures needed to be closely monitored. A major lesson of the crisis is that both fiscal and monetary policies alone are not sufficient instruments, even more so when interest rates are close to the zero lower bound.
He stated that NAEC did not challenge the wisdom of financial innovation. Yet numerous OECD Secretariat papers in the NAEC process identified poor micro-prudential regulation, excessive leverage and too-big-to-fail business models as prime reasons for the financial crisis. The crisis emphasised the limits to regulatory capacities in the financial sector, and how fragmented regulatory frameworks generated information and implementation gaps. We have questioned not only the merits of financial deregulation but also financial innovation arguing that the rents were extracted to a very large extent for the financial sector itself.
More recently with NAEC work on finance and inclusive growth, we have argued that if the financial sector grows too large, it can undermine growth and increase inequality. We have pointed to the need to ensure that the financial sector contributes to strong and equitable growth by avoiding credit overexpansion and by improving the structure of finance. Yet the launch event clearly indicated that the financial crisis exposed weak understanding of the inner workings of banks and financial institutions in the OECD. Analysis of financial markets and capital flows could also be strengthened.
Skidelsky asks another fundamental question, where are the jobs in the future going to come from? Dirk Pilat, Deputy Director of the OECD Science, Technology and Innovation Directorate responded during the debate that this issue is very much an issue on the table at the OECD, and at the heart of current discussions on productivity and inclusive growth. In fact a Labour Ministerial Meeting will take place early next year on this very subject. New production technologies and automation have always been disruptive with new jobs being created while others are lost all the time. The question remains if there is something new in terms of the amount of disruption caused by the next production revolution.
All speakers debated the merits and demerits of siloed approaches to research and policy-making. Gillian Tett from the Financial Times will address the OECD community in a NAEC seminar on October 12th outlining her new book The Silo Effect. Tett examines how silos can prevent us from seeing risks because we are so consumed with our own area of expertise that we are unaware of information from allied silos and thus fail to see the big picture. She also outlines how the effect of silos could be mitigated by keeping boundaries of teams fluid, rethinking how incentives can stifle collaboration beyond a team, and ensuring the broadest information flows. NAEC can help counter the Silo Effect – we should strive to create more joint teams; promote and support horizontal projects and further cross-committee discussion among the various OECD Committees.
The discussion of the report underlined the importance of creating a space for debate and fresh-thinking at the OECD on the fundamental issues facing economists and policy-makers. It also spurred continued efforts in searching for for new approaches to economic challenges.