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What do we know about how social protection systems can respond to needs during a crisis?

24 May 2016
by Guest author

WHSGabrielle Smith, Oxford Policy Management

In his report to the UN World Humanitarian Summit taking place this week in Istanbul, UN Secretary-general Ban Ki-moon writes that during crises: “social protection mechanisms and infrastructure may be unavailable or overwhelmed by the volume of demand. Those displaced in camps often survive on inadequate humanitarian assistance”. Unfortunately, the frequency, severity and length of humanitarian crises has increased over recent years. We have also seen increased levels of forced displacement. The rising cost of international assistance is widening the gap between humanitarian needs and international resources, bringing questions about aid effectiveness and critical appraisals of the humanitarian system to the fore. There is a growing realisation of the need for new approaches to humanitarian assistance.

Shock-responsive social protection systems are one such approach. Interest has been growing amongst practitioners and policymakers in the potential for a system that allows irregular humanitarian needs to be built into and addressed as part of longer-term development programming, through longer-term predictable funding sources and with greater engagement of governments.  The most effective ways of developing and implementing such a system for different contexts, and the implications for the humanitarian sector and national governments, remain unclear.

We have therefore conducted a thorough literature review, commissioned by DFID, the UK Department for International Development, to improve understanding of the interaction between social protection, humanitarian and disaster risk management systems, and to identify ways in which long-term social protection can be effectively scaled up to provide support in humanitarian emergencies.

This literature review of over 400 documents (scientific and grey literature) has consolidated current thinking and emerging evidence. Evidence comes from several countries such as Brazil, Vietnam and Indonesia, where social protection schemes were scaled up to support households affected by the food, fuel and financial crisis, as well as national social protection programmes that were scaled up to respond to needs caused by disasters such as droughts and typhoons – including in Kenya, Ethiopia, Malawi and the Philippines.

Social protection makes use of a number of different instruments: social transfers, subsidies, fee waivers, public works programmes, social insurance, active labour market policies and social care services. This review identifies the most natural overlap between social protection and humanitarian assistance as being social transfers provided as cash (and food). Cash assistance in emergencies is growing and cash transfers are a core building block of all emerging social protection systems. Emergency and social protection cash transfers have similar administration requirements, making transition from one to another relatively straightforward. The limited coverage of other policy instruments in low- and even middle-income countries limits their use as alternative responses to a shock. Key differences between emergency and social protection cash transfers, such as their objectives, underlying principles and assistance durations will, however, have a bearing on the ease and effectiveness with which social protection programmes can be scaled up to meet the needs of people affected by a crisis.

So far, government social transfer programmes have been scaled up during emergencies in three main ways. They have been expanded ‘vertically’ – increasing the benefit value or duration of assistance to existing beneficiaries – as well as ‘horizontally’, by adding new beneficiaries to an existing programme.  Vertical expansion has been easier to implement than horizontal expansion. In some cases, new social protection programmes have been introduced to meet needs that no existing programme could cater for. For an elaboration of these options and to learn more about a further two added by the research team, the concept note is available here.

The review finds clear evidence that scaling up national cash transfer programmes in emergencies can both improve the timeliness of assistance and provide cost efficiencies.

Some key challenges to scaling up social transfers identified by the literature include: Ensuring coverage of geographical areas that were not covered by the administrative system of the original long-term programme; how to avoid over-burdening the administrative capacity of existing staff and systems; ascertaining the best way to scale down again post-crisis; how to reach the worst affected groups using existing targeting mechanisms; and how to meet the needs of informal sector workers if they are excluded from social insurance and from most social assistance.

A number of important determinants of effectiveness emerge from the literature, including: links to an established early warning system, timely and accurate data on needs and vulnerability, well-developed systems for targeting, verification and disbursement of funds, institutional capacity to manage the increase, coordination through a single central agency, guaranteed financing to enable governments to invest and build systems and deliver a rapid response, and innovative partnership arrangements with public, private and non-state actors.

Useful links

lit reviewThe full literature review is available for download here from Oxford Policy Management’s website.

If you have any questions or would like to discuss this research with a member of the team, please contact Jenny Congrave at [email protected].

OECD work on humanitarian assistance

The crisis and its aftermath: A stress test for societies and for social policies from Society at a Glance 2014: OECD Social Indicators

Transferring transfer prices

23 May 2016
by Guest author

transfer pricingMelinda Brown, OECD Centre for Tax Policy and Administration and Ian Cremer, World Customs Organization (WCO)

International trade is one of the pillars of globalisation and one of the jobs of customs officers is to help trade contribute to socio-economic development by making sure that goods flow efficiently across borders. Ensuring that customs duties are collected in a fair, effective, and efficient manner is a major part of this task. But it is one that is complicated by certain trends shaping the international economy, including the emergence of global value chains (GVC) and the fact that a significant amount of the movement along GVC is intra-firm trade between the different parts of multinational enterprises.

It’s hard to say precisely how much of world trade occurs within multinational enterprises, since apart from the United States, countries do not collect the data needed to measure it precisely. Figures for the United States put intra-firm trade at nearly half of goods imports and nearly a third of goods exports. Partial data for 9 countries analysed in an OECD paper suggest that intra-firm exports of foreign affiliates represent 16% of total exports. Adding the exports of parent companies to their affiliates abroad suggests a figure of one third, as measured in US trade statistics.

When a firm is in effect selling something to itself, the price is called a “transfer price”. The transfer price used will have the effect of allocating profits among the different parts of the company, which in turn will determine how much tax the multinational pays and in which country. Most countries require that the transfer price is calculated based on “the arm’s-length principle”.  Broadly, this means that operations should be priced by comparing them with similar operations carried out on a commercial basis at market prices, as if the parties were independent entities – at arm’s length from one another.

This can be a lot more complicated than it sounds, and the OECD has produced Transfer Pricing Guidelines for Multinational Enterprises and Tax Administrations on the application of the arm’s length principle. Customs officials are also interested in the price of goods sold across international borders within MNEs, and the World Trade Organization’s Valuation Agreement sets out the methodology for establishing the customs value used to calculate customs duties. The Agreement provides tests for ensuring that the price is set as if the parties were not related and had been negotiated under normal business conditions.  So, while there are differences between the rules for customs valuation and transfer pricing, both aim at essentially the same goal, and therefore the information found in the transfer pricing documentation supplied by companies to tax authorities could also be useful for the customs authorities. Similarly, customs valuation information could be useful for tax authorities.

At the end of April, the World Customs Organization (WCO) announced a new instrument adopted by the Technical Committee on Customs Valuation (TCCV) that will help customs officials take into account transfer pricing information in the course of verifying that the tests set out in the WTO Valuation Agreement are met. This also helps a firm where they have already calculated the transfer price for the tax authorities, and the information provided may be helpful in demonstrating that the declared import price of a related-party transaction is not influenced by that relationship.

The TCCV instrument, which is based on a case study, can be downloaded on line. In the study, XCO, a manufacturer in country X, sells relays to its wholly-owned subsidiary, ICO, a distributor in country I. ICO imports the relays and does not purchase any products from sellers unrelated to its parent company. Likewise, XCO does not sell relays or similar goods to unrelated buyers. So how do you work out whether ICO and XCO were buying and selling at a “real” price and not one influenced by the fact that XCO and ICO are related? In the case study, the answer is found by using the company’s transfer pricing study, based on the Transactional Net Margin Method. What that means here is comparing ICO’s operating margin with those of similar, but unrelated companies doing similar business in the country.

In the case study, ICO’s operating profit margin fell within the range of those earned by the eight comparable unrelated distributors used in the transfer pricing study. ICO’s operating expenses were judged to be acceptable too, since they were paid to unrelated companies. The case study concludes then that “the relationship between the parties did not influence the price”. The conclusion notes that the use of a transfer pricing study for examining the circumstances surrounding the sale must be considered on a case-by-case basis.  The case will be published in the WCO Valuation Compendium, subject to approval by the WCO Council in July 2016.

Mr. Kunio Mikuriya, WCO Secretary-General, has congratulated the Technical Committee on the work achieved: “This new instrument is an important step for the WCO and demonstrates its relevance by providing guidance on the management of Customs valuation in an increasingly complex trade landscape, whilst maintaining consistency and strengthening co-operation with tax authorities.”

The OECD provided input to the TCCV discussions and like the WCO, is encouraging closer co-operation between customs and tax authorities. “ This will be increasingly important in a global environment” said Pascal Saint-Amans, Director of the OECD Centre for Tax Policy and Administration. “As a result of the OECD’s Base Erosion and Profit Shifting (BEPS) project, more and more countries are applying transfer pricing rules, and those rules are becoming stronger and more sophisticated, in particular with regards to the treatment of risks and intangibles, rather than just tangible goods”.

Companies, customs, and tax authorities all stand to gain from this in making a system that is fairer, more predictable, and more efficient.

Useful links

WCO Guide to Customs Valuation and Transfer Pricing

OECD work on transfer pricing

Customs Environment Scan Tadashi Yasui, WCO Research Paper 31, 2014

 

What does mainstreaming biodiversity mean?

22 May 2016
by Patrick Love

IDB-2016-logo-En Before there was the Insights blog, there were the Insights books. One of the first, on sustainable development, mentioned “a magical place, seemingly untouched for thousands of years”, on the Poland-Belarus border. Well, this “last remaining fragment of a primeval forest”, Białowieża National Park, is about to be touched, by loggers. The decision has sparked an impassioned debate, in Poland and far beyond. Forests seem to be anchored deep in the psyches of many peoples. There is even a theory that the story of the Garden of Eden refers to deforestation in the Middle East 10,000 years ago, and three millennia later, The Epic of Gilgamesh would describe how the gods curse Sumeria because the hero cut down the sacred forests.

The OECD is as Jungian as the next intergovernmental organisation, but on International Day for Biological Diversity we’re angsty about the loss of forests and other forms of life for material as well as subjective reasons. Biodiversity worldwide is in decline as the pursuit of economic growth and development leads to the conversion, and in many cases over-exploitation, of natural resources for inputs to production and consumption.

The theme of Biodiversity Day this year is “Mainstreaming biodiversity; sustaining people and their livelihoods”. According to World Bank figures, “natural capital accounts for an estimated 30% of total wealth in low income countries compared to only 2% in OECD countries”. They could learn a few (negative) lessons from what happened to the developed countries on their way to OECD status. The European Potato Famine of the 19th century killed in more or less direct proportion to the lack of diversity in the poor’s diet, with a million victims in Ireland where a third of the population relied almost exclusively on potatoes for food. The Dust Bowl that devastated the North American prairies in the 1930s was in large part due to farmers destroying the grass that held the topsoil in place.

If biodiversity is so important, and neglecting or damaging it so harmful, why don’t countries “mainstream” it?  For a start, although preserving as many species as possible goes back as far as Noah’s Ark (based on Gilgamesh), biodiversity as a scientific concept is recent, dating from a 1985 US National Research Council/National Academy of Sciences forum on biological diversity, while the term “biological diversity” itself first appeared in Raymond F. Dasmann’s 1968 book A Different Kind of Country.

Even so, most of us probably have a pretty good idea of what biodiversity means, but what about “mainstreaming”? Outside the OECD and like-minded institutions, it now has a faintly negative connotation – mainstream media, mainstream tastes for instance. There are various definitions, but they all give the idea that it involves integrating biodiversity into growth and development processes and in sector policies in a systematic way (notably in agriculture, forestry and fisheries, amongst others).

This is going to be extremely difficult in practice, whatever the rhetoric. One of the main reasons biodiversity isn’t adequately mainstreamed is that it has to compete with other (often more visible) national priorities for growth and development, so there is insufficient political recognition of biodiversity and the underlying ecosystem services it provides. Hopefully, the new Sustainable Development Goals (SDGs) will help to change this and raise the profile of biodiversity to a higher political level. Two of the 17 SDGs focus on biodiversity (terrestrial and marine).

The way in which the political will for change comes about reminds me of one of the grim conclusions of another Insights book, on fisheries. Fishing is a good illustration of how the unsustainable exploitation of natural resources poses a problem of political economy. The impetus for change is often a major catastrophe, such as the collapse of the industry when the fish stocks suddenly disappear. However, doing what is sustainable may mean a sudden, visible, loss for a small group of people who can organise to block change, while the benefit is much more long-term, less visible and less important on an individual basis, so there is less political pressure to implement what would be the best, long-term solution overall. An OECD contribution raised a similar point at a Convention on Biological Diversity (CBD) event in Montreal earlier this month, citing “Long timeframes for mainstreaming results to occur” as one of the challenges that also arises in the context of mainstreaming biodiversity in development co-operation.

Another lesson from fisheries is that biological systems do not behave in a linear fashion. You may think a slow decline in fish numbers gives you time to find a solution, or that stocks may recover as they did sometimes in the past, but when an ecosystem reaches a tipping point, change can then become sudden and catastrophic. And usually, that tipping point is only identifiable afterwards, it can’t be forecasted.

That’s why the CBD, the organisers of today’s campaign, are so worried about the interactions of a number of complex systems. Take what they say about fishing, to stick to that example. Overfishing, pollution and unsustainable coastal development are contributing to irreversible damage to habitats, ecological functions and biodiversity, going on to say that “Climate change and ocean acidification are compounding such impacts at a time when the rising global population requires more fish as food, and as coastal areas are becoming home to a growing percentage of the world’s population”.

With respected bodies like the Paleontological Research Institute at Cornell University estimating that because of human actions, current extinction rates are up to 100 times greater than they would have been otherwise, it’s getting urgent not just to act efficiently. Clunky administrative procedures in international and national programmes are a problem, as is the fact that typical projects have a 4 or 5-year cycle rather than the 10-15 years needed to make a difference. As well as that, monitoring and evaluation of mainstreaming efforts have to be more robust than at present to allow you to know what works and what doesn’t.

The SDGs’ targets for life below water and life on land are ambitious but achievable, and they’re certainly far more attractive than the alternative presented in Gilgamesh, where the Annunaki, the seven judges of hell, raise their torches, lighting the land with their livid flame. Don’t say you weren’t warned.

Useful links

The CBD, like the UN climate change convention, has a Conference of the Parties, COP. CBD’s COP 13 in Cancun, Mexico in December this year, will also be focusing on mainstreaming biodiversity as its overarching theme.

OECD work on mainstreaming biodiversity and development

Summary Record of the OECD workshop on Biodiversity and Development: Mainstreaming and Managing for Results, 18 February, 2015

Excerpts from the mainstreaming sections in ‘biodiversity’ chapters of the OECD Environmental Performance Reviews.

Biodiversity and development co-operation OECD Development Co-operation Working Papers

Economics and policies for biodiversity: OECD’s response

What is blocking business investment and productivity growth? A fresh focus on the problems of fragmentation in the world economy

21 May 2016
by Guest author

2016-BFO-cover-350Adrian Blundell-Wignall Director of the OECD Directorate for Financial and Enterprise Affairs, gives a preview of what’s in the OECD Business and Finance Outlook scheduled for release on 9 June 2016

More than seven years after the global financial crisis reached its trough the world economy is still sputtering. Banking systems in advanced economies have been strengthened and recapitalised, regulatory reforms of financial systems are well into their implementation stage and monetary policy remains highly supportive. But the global environment has not been supportive as emerging market economies, notably China, have struggled with the reversal of the commodity “supercycle” that sustained the earlier boom and related excess capacity.  One important result has been a failure of the business sector in advanced economies to respond with new investment and restructuring needed to generate jobs and the productivity growth that can support rising incomes and employment. These are essential components of the inclusive growth we need to address challenges like climate change and rising wealth inequality.

So what is blocking business investment and productivity growth? There are many contributors which we can summarise here as “fragmentation”: the heterogeneous policies, rules, laws and industry practices that create perverse incentives and block business efficiency and productivity growth. This is the theme of the OECD Business and Finance Outlook to be released on 9 June 2016.

Fragmentation manifests itself at all levels of the global economy, from the global macro-economy and economic systems to sectoral and micro-economic issues to legal ones. This Outlook surveys a range of cases where fragmentation creates problems and suggests priorities and directions for changes that will encourage inclusive growth.

The Outlook surveys important aspects of the broad global picture: the outlook for financial markets and influences on productivity, based on a detailed examination of the performance of 11 000 of the world’s largest listed companies. The observations point to the need to rely less on monetary easing and more on structural policy initiatives to stimulate investment and productivity growth and to encourage faster diffusion of productivity advances when they occur. Issues relating to the design of one such initiative, fiscal support for business research and development, are also covered in detail.

The Outlook also goes into greater depth to examine narrower issues where the devil is often in the details.  Stock exchanges are important elements of the infrastructure for funding business investment since they not only facilitate raising new capital but add to the attractiveness of such funding by providing it with liquidity. The Outlook examines the fragmentation that has arisen from the proliferation of trading venues and issues related to ensuring fairness. It points to regulatory initiatives needed to maintain a level playing field among investors.

The emerging renewable power sector is reviewed, focusing on challenges to mobilising finance for the large expansion of the sector that will be needed as the world phases out fossil fuel-generated electricity. Many of the issues that must be addressed relate more to the framework conditions surrounding the power sector than to financial engineering. If these issues are resolved, ample capital is likely to be forthcoming to finance the needed investments. One chapter focuses on differences in life expectancy around retirement age across different socioeconomic groups and the issues they raise for the insurance industry and pension funds as well as for public policy. Rules governing access to pensions and retirement saving must be designed carefully to avoid discriminating against lower socioeconomic groups.

The Outlook also examines areas in which variations in laws and legal regimes across countries unnecessarily fragment the economic environment by treating similar activities differently. One of these is foreign bribery, where enforcement across jurisdictions covers a very wide range which creates very different economic incentives to resort to bribery. The other is investment treaties, which must be interpreted by arbitration tribunals. These tribunals effectively establish rules that modify corporate law and governance arrangements and create different classes of shareholders with different sets of rights. The current interpretation of many treaties allows covered shareholders to recover losses resulting from company damages incurred by host government actions. This in turn creates incentives that may affect companies, shareholders, creditors and capital markets, and suggests a need for consideration of how claims for such losses should be treated as a more general policy matter.

The chapters are supported by company and market data not seen before, shedding light on some of the current great policy puzzles in the world economy.

Useful links

Business-Finance-Outlook-20126-callout-350The launch of the 2016 OECD Business and Finance Outlook takes place at 9.30am CET on 9 June 2016. Register to participate or watch the live webcast www.oecd.org/daf/oecd-business-finance-outlook.htm

 

 

The 2016 OECD Forum on 31 May – 1 June, is entitled “Productive economies, Inclusive societies”. The Forum is organised around the three cross-cutting themes of OECD Week: inclusive growth and productivity, innovation and the digital economy, and international collaboration for implementing international agreements and standards. Register now, it’s free!

There’s an algorithm for that. Or there soon will be

18 May 2016
by Guest author

OECD Forum 2016Marina Bradbury, OECD Public Affairs and Communications Directorate and one of the organisers of this year’s OECD Forum

Would you like a machine to decide on your medical treatment, whether you could insure your house, if you should be hired, or what news stories you read? It may be happening to you already. Every time you go online to make a purchase, search for a restaurant, access your bank account or simply interact with your mobile device, you are creating a digital trail of data that is being tracked and stored. This “big data” is fodder for machine learning algorithms that will for example suggest what to buy.

Traditionally in computer science, algorithms are a set of rules written by programmers. Machine learning algorithms are different: they can improve the software in which they are embedded without human intervention. The more data they receive, the higher their ability to “understand” and predict patterns, including patterns in human behaviour. They are another step along the road to creating artificial intelligence (AI), even if we don’t know where this road is leading. As Stephen Hawking and his colleagues writing in The Independent, claimed “Success in creating AI would be the biggest event in human history” before going on to say, “Unfortunately, it might also be the last, unless we learn how to avoid the risks.”

We are living in an algorithmic society, and many argue that this is a positive thing. On an economic level, machine learning algorithms could help stimulate innovation and productivity growth. According to OECD research, big data used to feed machine learning algorithms can boost industries including advertising, health care, utilities, logistics, transport and public administration. When it comes to our day-to-day lives, algorithms can save us time and effort, for example online search tools, Internet shopping and smartphone apps leveraging “beacon” technology to provide timely recommendations based upon our whereabouts. Computer scientist Pedro Domingos even predicts that in five years’ time, digital personal assistants will be more important than smart phones, with their capacity to aggregate information from various apps to predict our needs before we even know them.

However, the large-scale use of algorithms can also be threatening to us as citizens. For example, if algorithms allow companies to predict our purchases before we even make them, what implications does this have for our personal choices and privacy? Critics point towards the dangers of allowing companies to exploit vast amounts of personal data and restrict individual liberties.

Take the realm of insurance, loans and legal advice. Nowadays, our credit rating or health insurance record is often assessed by a machine, not a person, whilst virtual legal assistants are becoming increasingly common. On the one hand, this can be advantageous to companies, enabling higher levels of efficiency, and in turn more accessible prices. The legal industry is undergoing a veritable transformation thanks to algorithmic technology, with quantitative legal prediction (QLP) being a prime example. Making information-based predictions is at the heart of the legal profession. In addition, legal cases often require the analysis of large-scale data or document sets, which can pose a challenge to the cognitive limitations of humans. Since algorithms are able to make predictions based on “big data” with increasing accuracy, QLP is arguably set to play an increasing role.

On the other hand, when it comes to ordinary customers looking for legal support or a loan, automated systems may not be helpful. Critics warn that even if an algorithm is designed to be neutral, bias can creep in. This can be due to unconscious bias of computer programmers. With machine learning algorithms, this is also due to the fact that they are fed by data. Even if they absorb this data in a completely rational way, they will still reproduce forms of discrimination that already exist in society. For example, if you are looking for a bank loan, you might be offered a higher or lower rate depending on your postal address, name, age or gender.

In the same way, whilst “talent analytics” is being used in HR to help build fairer recruitment practices, these new technologies do not offer a quick fix. For example, studies have found that women or people with “foreign” sounding names receive different kinds of job advertisements than white males. Nevertheless, global companies such as Google and McKinsey are already developing “talent algorithms” to recruit the best staff and assess performance. Moreover, some argue that companies that fail to move in this new direction may lose out later on.  Overall, it seems that algorithms could have a positive impact on the future of recruitment, but only when used judiciously as part of a wider process towards inclusiveness.

The healthcare industry is another key area in which the paradigm of the algorithmic society is played out. For example, a recent study in the US revealed how machine learning can offer a faster and less resource intensive method of detecting cancer, with machines automatically extracting crucial meaning from plaintext reports. Arguably, if machines can be used to review and analyse data, this frees up humans’ time to provide better clinical care. However, the ethical sensitivities of using algorithms to make critical health decisions must be addressed when developing innovative new models.

Trading algorithms are transforming the financial world as we know it. Algorithmic trading has given rise to companies such as Quantopian, which invites “talented people everywhere” to create their own algorithms for free, and pays those for the ones that perform best, and Rizm, which lets those new to trading test and even trade using their own algorithms. However, the field is not without dangers: just one typo could lead to significant financial losses in a short amount of time. The ethics of algorithmic trading are also questioned by critics. With computer-driven or “quantitative” hedge funds enjoying success despite volatile markets, their business models will not escape scrutiny as algorithms continue to permeate our economic systems.

Finally, algorithms that drive search engines can influence the information we receive, impacting upon our outlook on the world and even our well-being. Take the phenomenon of “filter bubbles”. This relates to the way algorithm-based search tools are likely to show us information based upon our past behaviour, meaning it is unlikely to challenge our existing views of spark serendipitous connections. More worrying still, Facebook conducted an experiment in 2014 to test the reaction of users to negative or positive content. The results revealed that those shown more negative comments posted more negative comments, and vice versa. However, the way the experiment was conducted was criticised for its lack of transparency.

The paradigm of the algorithmic society is very much bound up in the unknown. In many ways, this is exciting, capturing how data is becoming the raw material of our era, a source of many possibilities for innovation and even the means to address social problems. Yet it can also be a threat. As Pedro Domingos puts it, “You can’t control what you don’t understand, and that’s why you need to understand machine learning”. The challenge will be to ensure that we live in a society which reaps the benefits that algorithms can bring, whilst ensuring that their implications are understood by all.

Useful links

OECD Policy Brief on the future of work: Automation and independent work in a digital economy

The 2016 OECD Forum on 31 May – 1 June, is entitled “Productive economies, Inclusive societies”. The Forum is organised around the three cross-cutting themes of OECD Week: inclusive growth and productivity, innovation and the digital economy, and international collaboration for implementing international agreements and standards. Register now, it’s free!

 

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