Laurence Matthews of Feasta The Foundation for the Economics of Sustainability
The initials ‘CCS’ usually stand for Carbon Capture and Storage, which was discussed in a post here recently. However, I was with the team in Paris during COP21 promoting the Cap Global Carbon proposal (as described in John Jopling’s blog post here last year); the mechanism embodied in Cap Global Carbon is Cap & Share, and it occurred to us that the name ‘Carbon Cap & Share’ has the same initials, CCS. We wondered, are these two types of CCS complementary or antagonistic? Are they friends or enemies?
Let’s take a look.
The Paris Agreement was hugely symbolic. But if it remains only symbolic, then we’re in deep trouble. We need to implement it quickly, and then some. But it’s clear that cutting carbon emissions won’t happen fast enough. CCS (and for that matter geo-engineering) offer to help.
But there’s a defeatist sleight of hand in that previous paragraph. We may start by agreeing that we need to move fast, but then somehow we slide into accepting that we are unable to just decide to do this. So instead we turn to trying to fix things with technology. But are we really incapable of acting decisively? Are we really limited to moving at a slow, ‘politically feasible’ pace – or is this just a framing of the situation by vested interests?
On first encountering CCS, you might ask the following: prevention being better than cure, why dig up carbon only to re-bury it? If you’re confronted with a flooding bathroom, surely one of the first actions is to turn off the taps? Go for the root cause of the problem and shut it off. Otherwise, we’re into an ‘eating a spider to catch a fly’ series of escalating problems and side effects.
Although the recent post here on CCS stated that ‘a revolution in the global economy is needed’, CCS doesn’t offer one. With CCS, we’re still firmly in the ‘frame’ that takes digging up the fossil fuels for granted. Questioning the digging up falls outside the frame.
Cap & Share, on the other hand, does offer a revolution. Not the kind that overthrows capitalism perhaps, but one that does put capitalism at the service of humankind. We simply insist on the market operating within a set of rules we decide. It’s like our decision to abolish slavery: we said to the market, ‘these are the rules, slavery is out; now go and do your thing within those rules’.
With Cap & Share our ground rule is that the worldwide extraction of fossil fuels must be capped (limited to a certain amount, in accordance with the latest science, that reduces briskly each year towards zero). That’s the ‘Cap’, and we achieve it through an annual global auction of fossil fuel extraction permits. Then we share out the auction income to all adults (that’s the ‘Share’). This is essentially a global Cap & Dividend system (similar to the ‘Fee & Dividend’ idea, advocated by the Citizens’ Climate Lobby and others). Cap & Share replaces the need for emissions trading, national emissions limits, and indeed any scrutiny of emissions at all. Everything’s taken care of ‘upstream’, by turning off the taps.
So Cap & Share takes the root cause of most emissions – namely the extraction of fossil fuels – and tackles it head on; CCS simply tries to ‘cope with it’. CCS, like ge-oengineering, is a useful avenue to pursue (and surely, we’re going to need everything we’ve got), but all too often CCS will be used to give cover to those who want to maintain the ‘extraction is sacrosanct’ frame in place.
Where does all this leave us?
With the feeling, perhaps, that Cap & Share and CCS seem to be at odds. But no. Despite this, I would argue that we should see them as partners.
On the one hand, Cap & Share which tackles fossil fuel emissions, can be complemented by CCS, which can tackle the non-fossil CO2 emissions (steel and cement production, say). And conversely, Cap & Share delivers (among other things) a carbon price, which is needed for CCS.
So, do we need CCS? Probably; and CCS needs a carbon price. But are CCS and a carbon price sufficient? No. We need both partners. We need to get serious; to make the carbon price high enough to enforce an effective cap; we need a simple system to do this – and one that also addresses inequality would be good. In other words, we also need Carbon Cap & Share – the other CCS.
Verena Weber, OECD Science, Technology and Innovation Directorate
Do you remember the “not-so-good old days”? When you were delayed while travelling abroad and it was too expensive to use your smartphone to check for alternatives online and inform the people you had to meet?
While recently travelling in Germany, I found myself in exactly this situation – in a train that was delayed at a station, but this time with the difference of having a roam-like-at-home plan.
While I was checking online maps to see how I could still make my appointment on time, I was chatting with friends, agreeing on a new meeting place and receiving real-time updates from another friend on the train delays. All of this was included in my normal French mobile plan, without any additional costs.
You might stop reading here and think that you still find yourself in the not-so-good old days because your mobile plan does not allow you to roam abroad. At the OECD, we have been following recent developments in international roaming services and have been comparing them across countries.
Our new report on Developments in International Mobile Roaming (IMR) provides an overview of progress made in the implementation of the OECD recommendation on international mobile roaming. We found that since the 2012 OECD Recommendation, IMR prices have been significantly reduced, either by ensuring effective competition or, in its absence, applying regulation.
Since 2012, different mobile operators across the world have developed ‘Roam Like at Home’ (RLAH) plans, which do not require purchasing ‘add-ons’ and use the subscriber’s domestic mobile package, such as the one described at the beginning of this post. Our report found that these offers are more prevalent in markets with four rather than three mobile network operators (MNOs), likely a result of the additional competition provided by more players.
Wholesale competition, provided by more MNOs, is also key to enabling Mobile Virtual Network Operators (MVNOs) develop additional offers. Since 2014, for example, some MVNOs in countries such as France, the Netherlands, the United Kingdom and the United States have all begun to offer RLAH offers covering continents – Europe, in the case of the Netherlands and France, and most of North and South America in the case of the United States, as well as one MVNO data RLAH offer announced in April 2015 for over 120 countries for users travelling from the United States. A UK operator reported that on average its customers used 500 MB per trip and, the two million that had travelled since the introduction of the RLAH offer, had saved in total the equivalent of USD 2 billion.
In the absence of sufficient competition, the report shows that authorities have applied regulation, for instance, in the European Union and European Economic Area (EEA). The European Union (EU) regulatory initiatives in the international mobile roaming market have provided a benchmark for many countries outside the EU and have highlighted the role that regional bodies can play in significantly reducing prices and creating competition in IMR services. By 15 June 2017, roaming charges in the EU will cease to exist. As an intermediary measure, from April 2016, roaming will become even less expensive: operators will only be able to charge a small additional amount on top of domestic prices- up to €0.05 per minute of calls made, €0.02 per SMS sent, and €0.05 per MB of data (excl. VAT).
The report also found that several new bilateral agreements which have been concluded or are in the process of finalisation should lead to price reductions and provide a paradigm for other countries to follow suit where there is insufficient competition. Some of these bilateral agreements have also been undertaken between countries with free trade arrangements and could provide a framework to follow for other regions.
Finally, we also took a look at new technological developments, which could play a significant role in reducing roaming charges. Take, for instance, the case of SIM cards that can be associated with multiple operators or, going even further, virtual SIM cards. The Apple SIM is a good example for the first case: It enables consumers to choose the mobile network they prefer for data when they want to connect a mobile device such as an iPad. Users can travel between the UK, the US and Japan, availing themselves of the same rates paid by local users without the need to purchase a local SIM card. Virtual SIM cards, like the Xiaomi Roaming Card, also let travellers roam abroad without swapping SIM cards on their mobile devices.
Overall, being connected to the Internet – be it for people or things – becomes more and more indispensable in an increasingly networked world and one in which your car or medical device could include one or more SIM cards. This report addresses the most recent developments and policies to further meet the growing demand for roaming services. We will continue this work at the OECD with our member countries and stakeholders to further ensure IMR better meets the needs of travel across the globe.
Meet Ei Yin Mon, a factory worker in Myanmar. She came to Yangon after cyclone Nargis hit the country in 2008. The base wage she earns is extremely low, so she has to work many hours of overtime to compensate. “We are always being told to work faster. They think that we are like animals. I know I have no rights to make a complaint, so I have to bear it”.
Many workers globally face similar challenges and are trapped in poverty. They often have many mouths to feed, with too little revenue coming from regular working hours and must either compensate by working overtime or fall into debt. Sometimes workers don’t get paid at all and do not have access to grievance mechanisms to address this.
Treatment of living wage within international standards of responsible business conduct
According to the Universal Declaration of Human Rights, a living wage is a human right. The Declaration points out that everyone who works has the right to just and favorable remuneration ensuring for himself and his family an existence worthy of human dignity, and supplemented, if necessary, by other means of social protection.
The ILO recognizes living wage as a basic human right as laid out in the Universal Declaration of Human Rights, through the ILO Convention concerning the Protection of Wages of 1949 (95), and the ILO Convention on Minimum Wage Fixing of 1970 (131). It also refers to it in its Constitution and in the 2006 ILO Tripartite Declaration on MNE’s. These two pillars of international instruments (the Declaration of Human Rights and ILO standards) have formed the basis for the recommendations towards MNE’s concerning living wage as laid down in the OECD Guidelines for Multinational Enterprises since its revision in 2011.
The OECD Guidelines are the most comprehensive standard for Responsible Business Conduct (RBC) covering all areas of corporate responsibility, ranging from labor and human rights to environment and corruption. Currently, 46 countries adhere to the Guidelines. These governments made a legally binding commitment to set up National Contact Points to promote corporate responsibility and to handle complaints about corporate (mis)conduct. Although the Guidelines are not legally binding for enterprises, they represent a “firm government expectation of company behavior” and have been endorsed by business and civil society.
The 2011 revision of the Guidelines has been important for the integration of the concept of living wages in various ways: firstly, it has resulted in the inclusion of a recommendation on living wages in Chapter V on Employment and Industrial Relations. The OECD Guidelines state that: “when multinational enterprises operate in developing countries, where comparable employers may not exist, (they should) provide the best possible wages, benefits and conditions of work, within the framework of government policies. These should be related to the economic position of the enterprise, but should be at least adequate to satisfy the basic needs of the workers and their families.” Secondly, during the 2011 revision of the OECD Guidelines a chapter on human rights was added which, as noted, includes the concept of a right to a living wage.
Thirdly, the 2011 revision of the Guidelines introduced a concept of supply chain responsibility for companies. Among other things, this means that enterprises should avoid causing or contributing to the non-respect of living wages within their own operations as well as seek ways to prevent or mitigate adverse impacts with regard to insufficient wages linked to their operations, products or services by a business relationships, even if they do not contribute to those impacts. In other words, enterprises are expected to make an effort vis-à-vis their suppliers to have living wages respected.
Living wage and risk-based due diligence
While the 2011 revision of the Guidelines introduced new expectations of enterprises it also equipped them with tools to respond to these expectations and manage risks by carrying out due diligence on their business operations and suppliers. The process of due diligence consists of three parts, identification of (potential) adverse impacts, prevention and mitigation, and accounting for how adverse impacts are addressed. Due diligence processes are meant to be reasonable, the appropriate response to living wage issues will thus vary according to a company’s relationship to adverse impacts.
Good practices and remaining challenges
The challenges for individual companies are numerous, especially in situations where, in the supply chain, payment of below living wages is pervasive and perceived as necessary to maintain competitiveness. In such a context, how should enterprises apply leverage and take appropriate steps that are expected by internationally recognized standards?
First, a good understanding of responsibilities at the company level is needed. Companies should be aware of their individual responsibilities under internationally recognized standards of the ILO, the OECD and the UN concerning wages in their supply chains. With the help of OECD’s sector guidance on due diligence, for example, companies should carry out due diligence, use their leverage and take steps in their supply chain to promote living wages. These new responsibilities should also be reflected in sector codes of conduct, of which many currently ignore the tricky issue of living wage.
Better information about the business case for taking these actions with respect to risk management, reputation and productivity, would encourage enterprises to act more responsibly. Apart from ethical considerations, there are many reasons why it makes business sense to strive for payment of living wage throughout the value chain. Paying relatively low wages may lead to costs for businesses such as lower product quality, lower worker productivity and few investments in innovation due to high labor-turnover. Below-living wage payments also increase the risk of labor unrest and may lead to the disruption of operations and reputational damage to companies, particularly in the present age of mass communication.
Second, business and governments would gain from more coherence and fine-tuning of the methodologies and definitions concerning living wage. Currently a common methodology for calculating living wages does not exist. Ideally MNEs could rely upon one broadly accepted methodology which takes into account local conditions to determine what living wages should be, as well as the notion that wages should be regularly adjusted on the basis of negotiations with social partners.
Third and most importantly, a sector-wide comprehensive approach is needed. Focusing on calculating the numbers and levels of wages alone will not do the trick. Even if a jump to provision of living wage levels could happen overnight, in many regions this might damage the competitiveness of factories or suppliers, potentially squeezing them out of the market and leaving many workers jobless. In order to achieve living wages in a sustainable manner a comprehensive approach is needed that brings together the largest number of possible of social partners and stakeholders so as to create a level-playing-field.
Most of the initiatives that have been successful in targeting living wage issues bring together several stakeholders. They are motivated by the need to act together and create a level playing field, not only among some enterprises and their suppliers, but in the whole sector. Some examples of these include ACT (Action, Collaboration, Transformation), a global framework on living wage that brings together all relevant stakeholders in the textile and apparel sector, as well as the Malawi Tea 2020 Revitalization Program under which tea producing companies, tea buying companies and retailers, standard and certification organizations, and tea trading companies have signed and MOU pledging to respect living wages.
These initiatives are to be praised for having paved the way forward in a new and challenging territory. However, to be really effective, these initiatives will need to be scaled up dramatically to reach other sectors and geographical areas to create a level playing field for sustainable living wages.
Ensuring the payment of living wages throughout global supply chains will be a significant challenge. However, doing so will be necessary to achieving the Sustainable Development Goals and responding to expectations of international standards of human rights and responsible business conduct. Even if individual companies play a considerable role in this, they cannot solve this issue on their own. For one thing, (local) governments, who have the duty to protect and fulfill human rights, and ensure access to effective remedy, should be there to support them and contribute to creating the right conditions. Ideally, however, the way forward is to engage in sector-wide collaboration with suppliers, trade unions, governments, NGOs and employers’ organizations. Some promising initiatives have already been launched, such as the ACT process and the Malawi Tea MOU, or the Action Plan on Living Wages. The companies involved in these efforts deserve praise for their participation. But in order to achieve a true level playing field, the world’s remaining multinationals, some 80, 000 companies, will also need to take action and efforts will need to be scaled up and sped up dramatically.
Resources: This blog is based on a Working Paper on Wages in Global Supply Chains, found here : https://friendsoftheoecdguidelines.wordpress.com/2016/04/27/scaling-up-living-wages-in-global-supply-chains/
Roel Nieuwenkamp maintains a blog where all of his articles are archived. Please visit https://friendsoftheoecdguidelines.wordpress.com/
 The worker’s name was changed to protect her anonymity.
 See Cascio W.F, The high cost of low wages, Harvard Business Review, December 2006; and Zeynep T., The Good Jobs Strategy: How the Smartest Companies Invest in Employees to Lower Costs and Boost Profits– Amazon Publishing, 2014.
 Vaughan-Whitehead, Daniel, Introduction to the Living Wage, presented at NCP OECD Guidelines Conference-Ministry of Foreign Affairs, The Hague, 27 October 2015
Brexit would be a major negative shock to the UK economy, with economic fallout in the rest of the OECD, particularly other European countries. In some respects, Brexit would be akin to a tax on GDP, imposing a persistent and rising cost on the economy that would not be incurred if the UK remained in the EU.
By 2020, GDP would be over 3% smaller than otherwise (with continued EU membership), equivalent to a cost per household of GBP 2200 (in today’s prices). In the longer term, structural impacts would take hold through the channels of capital, immigration and lower technical progress. In particular, labour productivity would be held back by a drop in foreign direct investment and a smaller pool of skills. The extent of foregone GDP would increase over time. By 2030, in a central scenario GDP would be over 5% lower than otherwise – with the cost of Brexit equivalent to GBP 3200 per household (in today’s prices). The effects would be even larger in a more pessimistic scenario and remain negative even in the optimistic scenario. Brexit would also hold back GDP in other European economies, particularly in the near term resulting from heightened uncertainty would create about the future of Europe. In contrast, continued UK membership in the European Union and further reforms of the Single Market would enhance living standards on both sides of the Channel.
The Economic Consequences of Brexit: A Taxing Decision, OECD Policy Paper
To Brexit or not to Brexit, a taxing decision, remarks by Angel Gurrìa, OECD Secretary-General
Claire Jolly, Head, Ocean Economy Group / OECD Space Forum, and Barrie Stevens, Senior Advisor, OECD Science and Technology Policy Division
For some, the ocean is the new economic frontier. It holds the promise of immense resource wealth and great potential for boosting economic growth, employment and innovation. And it is increasingly recognised as indispensable for addressing many of the global challenges facing the planet in the decades to come, from world food security and climate change to the provision of energy, natural resources and improved medical care. While the potential of the ocean to help meet these challenges is huge, it is already under stress from over-exploitation, pollution, declining biodiversity and climate change.
Calculations based on the OECD’s Ocean Economy Database value the ocean economy’s output (measured in terms of the ocean-based industries’ contribution to economic output and employment) in 2010 at USD 1.5 trillion, or approximately 2.5% of world gross value added (GVA). Offshore oil and gas accounted for one-third of total value added of the ocean based industries, followed by maritime and coastal tourism, maritime equipment and ports. Direct full-time employment in the ocean economy amounted to around 31 million jobs in 2010. The largest employers were industrial capture fisheries with over one-third of the total, and maritime and coastal tourism with almost one-quarter.
Economic activity in the ocean is expanding rapidly. However, an important constraint on the development of the ocean economy is the deterioration of its health. The ocean has absorbed much of the anthropogenic carbon emissions, leading to ocean acidification. Also, sea temperatures and sea levels are rising and ocean currents shifting, resulting in biodiversity and habitat loss, changes in fish stock composition and migration patterns, and higher frequency of severe ocean weather events. The prospects for future ocean development are further aggravated by land-based pollution, in particular agricultural run-off, chemicals, and plastics, as well as by overfishing and depleted fish stocks in many parts of the world.
Looking to 2030, many ocean-based industries have the potential to outperform the growth of the global economy as a whole, both in terms of value added and employment. Between 2010 and 2030 on a “business-as-usual” basis, the ocean economy could more than double its contribution to global value added, reaching over USD 3 trillion. Particularly strong growth is expected in marine aquaculture, offshore wind energy, fish processing, and shipbuilding and repair. Ocean industries also have the potential to make an important contribution to employment growth. In 2030, they are anticipated to employ approximately 40 million full-time equivalent jobs in the business as-usual scenario. The fastest growth in jobs is expected to occur in offshore wind energy, marine aquaculture, fish processing and port activities.
In the coming decades, scientific and technological advances are expected to play a crucial role both in addressing many ocean-related environmental challenges and in the development of ocean-based economic activities. Innovation in advanced materials, subsea engineering and technology, sensors and imaging, satellite technologies, computerisation and big data analytics, autonomous systems, biotechnology and nanotechnology – every sector of the ocean economy – stands to be affected by these technological advances.
Expected growth of ocean-based industries highlights the prospect of growing pressures on ocean resources and ocean space already under considerable stress, not least in economic exclusion zones (EEZs), where most of the activity takes place. The inability so far to deal with these pressures in an effective, timely way is in large part due to what is historically a sector-by-sector management of marine activities. At least for the foreseeable future, regulation of ocean activities is expected to continue to be largely sector-driven, with efforts focusing on the integration of emerging ocean industries into existing and fragmented regulatory frameworks. The number of countries and regions putting in place strategic policy frameworks for better ocean management within their EEZs has increased in recent years in response to growing pressures.
In order to boost the long-term development prospects of emerging ocean industries and their contribution to growth and employment, while managing the ocean in responsible, sustainable ways, a number of steps could be taken to enhance the sustainable development of the ocean economy.
Reinforce international co-operation in maritime science and technology as a means to stimulate innovation and strengthen the sustainable development of the ocean economy. This entails undertaking comparative analyses and reviews of the role of government policy regarding maritime clusters around the world, notably in respect of their effectiveness in stimulating and supporting cross-industry technological innovations in the maritime domain; and establishing international networks for the exchange of views and experience in establishing centres of excellence, innovation incubators and other innovation facilities in the field of cross-industry maritime technologies, and improving the sharing of technology and innovation among countries at different levels of development.
Strengthen integrated ocean management. In particular, this should involve greater use of economic analysis and economic tools, for example by establishing international platforms for the exchange of knowledge, experience and best practice, and by stepping up efforts to evaluate the economic effectiveness of public investment in marine research and observation. It should promote innovation in governance structures, processes and stakeholder engagement to render integrated ocean management more effective, more efficient and more inclusive.
Improve the statistical and methodological base at national and international level for measuring the scale and performance of ocean-based industries and their contribution to the overall economy. This could include further development of the OECD’s Ocean Economy Database.
Build more capacity for ocean industry foresight, including the assessment of future changes in ocean-based industries, and further development of the OECD’s current capacity for modelling future trends in the ocean economy at a global scale.
Valerie Frey and Angelica Salvi Del Pero, OECD Employment, Labour and Social Affairs Directorate
The mother had lost everything: her minimum wage job, the father of her children, and, finally, her apartment. Homeless, she stood by the street with her two young boys, their yellowed mattresses, second-hand books, and dinnerware piled around them on the sidewalk. The kids had been through this before. Her older son dreamt of becoming a carpenter so that he could build her a home.
This scene could come from a Depression-era Steinbeck novel, but instead it is one of the many tales in Matthew Desmond’s harrowing new ethnography, Evicted: Poverty and Profit in the American City. Desmond narrates a handful of stories drawn from the millions of poor Americans who are evicted from rented apartments or houses each year, despite their Herculean efforts to keep their homes.
Sadly, although OECD countries are among the wealthiest in the world, they fail to ensure that all of their residents have a safe, stable, and affordable place to live. Millions of households throughout the OECD struggle to afford good-quality housing.
Across countries, housing is usually the largest expense a household faces. Recent OECD research finds that nearly 15% of tenants and 10% of mortgaged homeowners are overburdened by their rent or mortgage, on average, across the OECD – that is, they spend over 40% of their disposable income on housing.
An even greater share of households report feeling pinched by housing costs, even if they are not counted as overspending in income and spending statistics: more than one in three respondents in a 2012 European survey reported feeling ‘highly burdened’ by their housing costs.
Poor households suffer the most when paying for housing. Households in the bottom 40% of the income scale face much higher housing costs, relative to income, than their wealthier counterparts, reflecting a lack of affordable options. Even middle-class households are not immune: across the OECD, nearly nine percent of middle-class mortgaged homeowners pay over 40% of disposable income on their mortgage.
Of course, affordability of housing does not guarantee that a home is of decent quality. Many homes are overcrowded and unsanitary. On average, 15% of OECD households lack sufficient living space in their home, and overcrowding is worse in poor households and among renters. Over 14% percent of low-income households live without access to an indoor flushing toilet, and rates are highest in Eastern Europe, Chile, and Mexico.
What can be done to help the millions of households who cannot afford good homes? OECD countries have developed housing support policies as a key part of their social protection systems. Improving access to affordable housing is an important goal in OECD countries: the majority of countries we surveyed identify affordability as one of their five most important housing objectives. Despite using a wide set of housing policy instruments, however, governments have not always been effective in achieving their objective.
Homeowner benefits, social rental housing, and housing allowances are three common social policies to support housing. Owner-occupied housing receives much social support in many countries, but this often fails to reach those who need the most help. Grants and financial assistance are provided to home-buyers, often with a focus on low-income households, and owner-occupants also benefit from tax relief for home purchases. However, poor households typically do not benefit from favourable taxation of residential property. Besides being unequitable, these subsidies can distort incentives to invest in other assets and drive prices up in housing markets.
Countries also provide support via social rental housing. Historically, in many OECD countries, the central government has funded (and local authorities directly provided) social housing. In recent years, however, public funding has decreased and has been directed to other providers, including non-profit and for-profit organizations and landlords. As a result there is an increasing concentration of low-income and vulnerable households among social housing tenants, and social housing providers will have to adapt to new incentives, objectives, and client characteristics.
Means-tested housing allowances are another instrument commonly used to help lower-income groups access housing. These allowances offer some advantages for delivering housing support to poor households (e.g. fair access to benefits and housing mobility), but have drawbacks compared to social rental housing; for example, allowances cannot guarantee good housing quality, and may perversely affect rent prices.
As public spending has shifted away from social housing, the private rental market has played an increasingly important role in offering affordable housing. OECD governments need to ensure that their housing policies do not discourage the supply or affordability of private rentals. We need to develop a better understanding of how housing allowances, rent regulation, tenancy protection, and other tenancy laws facilitate or deter the private sector from offering good-quality affordable housing to poor households. Indeed, many of the saddest tales of eviction in Desmond’s book come from poor families who were barely ineligible (or waitlisted) for social housing, and were instead forced to navigate a predatory private rental market. The American mother profiled by Desmond was lucky to find a two-bedroom apartment in a poor city for $550 per month. But with an income of $628 per month, she had almost no cash left over and no way to cushion unexpected costs.
An affordable and safe home is on the wish list of many families this year. More research and data are needed to develop effective housing support policies, and OECD governments must find ways to implement good policies efficiently and equitably. In the wealthiest countries in the world, no one should go homeless or live in unsafe conditions. With coordinated and well-informed social policies, OECD countries can go a long way towards ensuring that all individuals and families can live in affordable, good-quality homes.
Salvi del Pero, A., W. Adema, V. Ferraro and V. Frey (2016), “Policies to promote access to good-quality affordable housing in OECD countries”, OECD Social, Employment and Migration Working Papers, No. 176, OECD Publishing, Paris.
OECD ((2015) Integrating Social Services for Vulnerable Groups: Bridging Sectors for Better Service Delivery, OECD Publishing, Paris , Chapter 4 – Homelessness, the homeless and integrated social services.
Statistical Insights: Who’s Who in International Trade: A Spotlight on OECD Trade by Enterprise Characteristics data
Analysing the role of different firms in international trade
Conventional international trade statistics offer a picture of trade flows between countries, broken down by types of goods and services. While this is an important input for trade analyses, these data do not offer insights into the actors, or the types of firms, that are actually engaged in cross-border trade. The OECD Trade by Enterprise Characteristics (TEC) data do provide such information, giving important insights on the role of firms in Global Value Chains. They highlight that large firms continue to dominate international trade, and that, often, those firms that are among the most important exporters, are also responsible for the majority of imports. The TEC data also provide information on the role of SMEs in international trade, across industries and across countries, showing, for example, that although SMEs generally export to neighbouring markets, they import from a much wider geographical base.
Trade is concentrated among a few, large firms
TEC data essentially provide a ‘Who’s Who’ of international trade. For example, they show that only a small percentage of firms is actually engaged directly in international trade, typically below 10% in OECD countries, with only a few exceptions – notably in small economies such as Slovenia and Estonia.
Moreover, as shown in Figure 1, the bulk of international transactions (in value) is concentrated among firms with more than 250 employees. In the United States for example, firms with more than 250 employees account for 72% of exports, and in a further ten countries – ranging from smaller economies such as Finland and Sweden to other large economies such as Canada, France, Germany and the United Kingdom – more than two-thirds of exports are accounted for by large firms.
The importance of large firms is further highlighted when examining the concentration of trade among the very largest firms (based on employee numbers) in each country. On average, the top 100 enterprises in OECD countries account for 40% of exports and imports. And in smaller economies, such as Finland, Hungary and Luxembourg, these shares can be significantly higher (up to 90%).
Firms engaged in exports also account for the majority of imports
Across OECD member countries, 75% of manufacturing exporters also represent over half of importers. These two-way traders account for virtually all (98%) of manufacturing trade value. In Canada, which provides estimates for the total economy, (i.e. manufacturing and services) two-way traders account for around two-thirds of exporting firms, and one-quarter of importing firms; in terms of trade value, they account for three-quarters of exports and imports. The significant contribution of the two-way traders amongst manufacturers provides an indication of the importance of imports for exports (i.e. imports used in producing exports), and so the potential counter-productive nature of import tariffs.
Investment in knowledge-based capital can help drive SME export performance
Large firms tend to account for virtually all exports in (tangible) capital intensive industries such as motor vehicles and other transport equipment, as shown in Figure 4. In contrast, smaller firms make a larger contribution to exports of industries such as furniture, textiles and clothing, where specialized manufacturing, niche products, and investment in knowledge based assets, such as brand, design, and organisational capital (e.g. flexible production processes) provide opportunities to create comparative advantages.
The importance of large firms in manufacturing exports does however vary across countries. In the US and Mexico, for example, large firms dominate across nearly all sectors. This is likely to reflect a combination of the large size of the domestic US market as well as maquiladora (processing firms) relationships between Mexico and the US. On the other hand in France and Germany, SMEs are the key exporters in a number of sectors, such as apparel and textiles.
Small firms typically export to neighbouring markets – but source imports more widely
Compared to large firms, small firms are more likely to export to markets relatively close to their home country – evidence of the fixed costs related to breaking into new markets that tend to be relatively higher for smaller firms. Figure 3 shows this by illustrating the aggregated trade destinations for the ten European countries that report such data (Austria, Belgium, Czech Republic, Germany, Hungary, the Netherlands, Poland, Portugal, Slovak Republic and Spain). It shows for example that small firms (less than 50 employees) account for nearly 20% of trade with nearby destinations such as Germany, Italy and the Netherlands, but only for slightly more than 5% of exports to China, Japan or the United States. In many instances, this reflects the role of SMEs as upstream suppliers within, typically regional, value chains.
On the other hand, barriers to importing appear less onerous than those for exporting. For example SMEs accounted for over half of all imports from China and India into European countries, and over 40% of imports from the United States and Japan, possibly also reflecting affiliate relationships with parent MNEs from these countries.
The measure explained
TEC Statistics break down international merchandise trade statistics by the characteristics of the trading enterprise. The data are generally produced by national statistical authorities through the linking of microdata from the census of customs transactions (used for compiling national merchandise trade statistics) to a centralised business register containing both characteristics and reporting structure of all firms operating within that national boundary. This microdata linkage for TEC is facilitated by the possibility of using (or developing) common identifiers between the trade register and the business register, which also means that TEC statistics can be compiled without imposing additional burden on respondents.
There is growing appreciation within the international statistics community that microdata linking provides significant scope to better understand production in an increasingly globalised economy. New characteristics, notably whether the firm is foreign or domestically owned, have recently been added to TEC dataset, and efforts are ongoing to develop similar data for services trade. Increasingly, efforts are now also being made to integrate aspects of TEC within the heart of the statistical information system, such as structural business statistics, the national accounts and supply-use tables, not least to provide a holistic perspective on the nature of trade, production and investment. The OECD for example, as a response to the G20, recently developed estimates of the upstream contribution to exports made by SMEs.
One caveat in the interpretation of the role of SMEs in international trade is that throughout the international statistical system, firm size is currently defined at the enterprise level, and that these enterprises may still be part of a larger enterprise group. Pilot studies are being developed to identify such dependent SMEs from independent SMEs.
Where to find underlying data
The Trade by enterprise characteristics database is organised in ten different datasets, all available on OECD.Stat. The ones used in this blog post are:
Trade by firm size: (OECD 2016), “TEC by sector and size class”, OECD Trade by enterprise characteristics (database)
Shares of top enterprises: (OECD 2016), “TEC by Top enterprises”, OECD Trade by enterprise characteristics (database)
Two-way traders: (OECD 2016),”TEC by type of trader”, OECD Trade by enterprise characteristics (database)
Partner country and size: (OECD 2016), “TEC by partner countries and size-class”, OECD Trade by enterprise characteristics (database)
Inclusive Global Value Chains: report by OECD and World Bank
United Nations Friends of the Chair Group on International Trade and Economic Globalization: Report to the 2016 UN Statistical Commission
Entrepreneurship at a Glance 2015, OECD (2015), OECD Publishing, Paris
For further information please contact the OECD Statistics Directorate at [email protected].