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Leaving no one behind means ensuring access to sustainable energy for ALL

2 September 2015
by Guest author

mrfToday’s post, by Mary Robinson, President, Mary Robinson Foundation – Climate Justice and member of the Sustainable Energy for All Advisory Board, is one in a series of ‘In my view’ pieces written by prominent authors on issues covered in the “Development Co-operation Report 2015: Making Partnerships Effective Coalitions for Action”

Work to provide access to sustainable energy for all lies at the intersection of development, human rights and climate change: the building blocks of a climate justice approach.

The focus on sustainable energy, in particular renewables, is fundamental for the transition to a carbon-neutral world – an essential path to avoid dangerous climate change. The focus on ALL, on universal access, recognises that access to sustainable energy is both a driver of development and an enabler of human rights, from the right to health to the right to food.

The report of the High-Level Panel on the Post-2015 Development Agenda and the discussions of the Open Working Group on Sustainable Development Goals highlight the need for the international community to commit to leaving no one behind. In this sense, there is no one-size-fits-all approach to ensuring universal access to sustainable energy; it will require a continuum of approaches, from market-based ones to those supported by the public sector.

This is no surprise to development practitioners, who know the importance of specialised approaches for reaching the poorest and most marginalised communities. Social protection, including social safety nets, prevent chronic food insecurity and enhance health and education outcomes by targeting public resources to those most in need (an important theme in the OECD Development Co-operation Report 2013: Ending Poverty).

Targeted approaches are also fundamental to ensuring that the transition to a sustainable, zero-carbon world is fair and inclusive (Mary Robinson Foundation – Climate Justice, 2013). Market-based solutions will deliver sustainable energy services to the majority, but the majority is not our goal; the goal is ALL. Targeted solutions, based on social protection for example, will help ensure that the extreme poor, women, marginalised communities, displaced people and refugees reap the benefits of the transition to clean, renewable energy.

The Sustainable Energy for All initiative encourages governments, businesses and civil society to work in partnership to make universal access to sustainable energy a reality by 2030. The United Nations General Assembly unanimously declared the decade 2014-24 as the United Nations Decade of Sustainable Energy for All, underscoring the importance of energy issues for sustainable development and for the elaboration of the post-2015 development agenda.

Women are a fundamental part of the ALL. When enabled to realise their rights, women will be the entrepreneurs, technicians and primary users of sustainable energy. But all too often women are not included in decision making on energy supply and access, despite the fact that their energy needs are different than those of men. Women prioritise energy for schools, health centres and productive uses over men’s preference for enterprise-based activities (Mary Robinson Foundation – Climate Justice, 2012). This is the reason behind the decision to focus the first two years of the decade of Sustainable Energy for All on women, energy, children and health. This focus presents a real opportunity to place women and gender equality at the heart of all activities – national and international – that contribute to fulfilling the goals of the initiative.

Sustainable Energy for All gives us the opportunity to deliver climate action, enable development, protect human rights, and galvanise the resources and political leadership needed to make universal access to sustainable energy a reality. To do so effectively, actors at all levels need to understand the needs of people on the ground, taking into account their circumstances and their ability to access technologies, knowledge and financing. This understanding must inform the design of all energy service delivery.

The goals of this initiative will only become a reality by ensuring the right to participation, so that people’s voices are heard and access to sustainable energy does, indeed, reach ALL.

Useful links

Development Co-operation Report 2015: Making Partnerships Effective Coalitions for Action

Are migrants settling in?

28 August 2015
by Guest author

Immigrant integrationThomas Liebig, OECD International Migration Division

Always a hot topic, integration of immigrants is high on the policy agenda in many countries and one of the main issues of concern for public opinion. Yet, the discussion is shaped by plenty of misunderstandings and misrepresentations – a regular feature of the migration debate. Against such a backdrop, there’s never been a greater need to get to the facts – to inform public debate and to guide sensible policymaking.

A step forward in helping that to happen comes in a new report from the OECD and the European Union, Indicators of Immigrant Integration 2015: Settling In. The report offers the first broad set of international comparisons of how well migrants and their children are “settling in” across all EU and OECD countries – a key issue, and not just for immigrants. When immigrants integrate successfully, it greatly increases their potential to contribute to the economy and society of their adopted homes. And their integration is a precondition for the acceptance of further immigration by the host country society.

So what do the numbers show? To start with, they underline how hard it is to generalise about how both countries and individuals experience immigration. These experiences range from the likes of Australia, Canada and New Zealand, which have traditionally seen migration as part of nation-building, to much more recent migration destinations in Europe, such as Spain and Ireland. But even here there are substantial variations. Immigrants to Spain in recent years have tended to have fairly low levels of education; by contrast, newcomers to Ireland have been pretty well educated.

Nevertheless, despite all these variations, not to mention the differences between immigrants themselves in terms language ability; education; reasons for migrating – be it for employment, family, or humanitarian; and so on; certain broad themes emerge in the report:

There is no “integration champion”: Whereas countries such as Australia and Canada – which have taken in large numbers of skilled labour migrants on top of family and humanitarian migrants – have better outcomes than most European destinations, they too face some challenges, for example with respect to making the most out of migrants’ skills.

More immigrants doesn’t mean less integration: There’s no obvious link between the proportion of immigrants in a population and how well they do across a range of areas, such as in employment, income levels and education. In terms of employment, countries that are home to larger proportions of immigrants even tend to have better outcomes.

Things get better over time: In many areas immigrants tend to do a less well than native-born. In particular, recent arrivals face difficulties virtually everywhere. However, the longer immigrants stay, the narrower the gap with native-born becomes. That underlines the reality that integration is a process, not an overnight transformation, and reflects the success – or otherwise – of immigrants in making friends, learning local ways and acquiring a new language.

Immigrants’ kids still face problems: The acid test of integration is the fate of the so-called “second generation” – that is, the native-born children of immigrants. If integration efforts are working, the children of migrants born in adopted countries should be doing about as well in education and, later, the workforce as the children of natives. But the signs of success for them are mixed. While they’re narrowing the gap in educational performance and with respect to labour market outcomes – particularly for women – they still lag behind in other areas, particularly in Europe when it comes to employment. In Europe also, the proportion of locally born children of immigrants who say they feel discriminated against is worrying high – a feeling that could have grave implications for social cohesion.

Useful links

Indicators of Immigrant Integration 2015: Settling In

OECD International Migration Outlook 2014

OECD work on migration

OECD Insights: International Migration – The Human Face of Globalisation

New partnerships offer much needed support to education for all

26 August 2015
by Guest author

UNESCOToday’s post, by Qian Tang, UNESCO Assistant Director-General for Education, is one in a series of ‘In my view’ pieces written by prominent authors on issues covered in the “Development Co-operation Report 2015: Making Partnerships Effective Coalitions for Action”

External support continues to play an important role in funding education – particularly in the least developed countries. In the aftermath of the global financial crisis, with the development assistance provided by many countries stagnating and even declining, countries are seeking new sources of funding.

In this context, UNESCO has been experimenting with a novel type of partnership that is showing promise. The four-year UNESCO-China Funds-in-Trust project, which began in 2012, aims to support eight African countries* in their efforts to accelerate progress towards education for all by using new technologies to develop capacity in teacher education and training institutions.

What makes this project particularly innovative is the fact that it is being implemented through a platform, managed by UNESCO, that attracts funds not only from the government of the People’s Republic of China – with President Xi Jinping having publicly committed to the project – but also from Chinese enterprises based in China and/or in the beneficiary countries, such as the telecommunications giant Huawei. Each actor brings unique contributions – be they funds and/or technical know-how – to the table. Drawing on the competencies of each partner allows for effective use of human and financial resources.

What have we seen so far? For the beneficiary countries, learning from the development experience of another country has created a sense of joint purpose and helped overcome the mistrust between governments and the private sector that can sometimes impede action.

There have also been numerous benefits for China. This is the first time that the country has provided funds-in-trust via an international organisation for the development of education in Africa. The project has enabled China to demonstrate that it is a committed stakeholder in the global community. At the same time, it is allowing this new provider of development co-operation to become familiar with international practices and standards. The impact on Chinese enterprises is also important, helping them to gain awareness of their social responsibility towards the African communities in which they operate.

Of course, challenges remain. In order to ensure lasting impact, it will be important to integrate the project within national education development plans – an aspect that has not yet been sufficiently addressed.

For now, UNESCO is working to sustain the momentum of this new partnership and extend its reach. Building on the initial success, a number of additional Chinese donors from the public and private sectors have signed agreements with UNESCO: for example, Hainan Airlines and the Hainan Foundation are focusing their attention on girls’ and women’s education in Asia and Africa; the Shenzhen government is developing higher education in Asia and Africa; and Huawei is using new technologies to promote equity and quality in education in the least developed countries.

*The African countries supported by the UNESCO-China Funds-in-Trust project are: Côte d’Ivoire, Ethiopia and Namibia (first round); and the Republic of Congo, Democratic Republic of the Congo, Liberia, Tanzania and Uganda (added in the second round).

Useful links

Development Co-operation Report 2015: Making Partnerships Effective Coalitions for Action

 

Subsidies in Aviation: The elusive flight towards fair competition

24 August 2015
by Guest author

A380_on_ground_front_shotAlain Lumbroso, economist at the International Transport Forum

Subsidies in aviation are almost as old as air transport itself. Most if not all countries at one point or another have provided public funding to some parts of their aviation value chains, be it air carriers, airports or air navigation services such as air traffic control.

This year, much attention has been focused on three Gulf carriers. Their strong growth and increasing market share, especially between Europe and points east and south, has generated concern from competitors that they are being unjustly subsidised and thus distorting the marketplace. Is this a legitimate concern or simply old-fashioned protectionism?

Although each side makes an eloquent case in the ongoing debate, some arguments do not pass muster. For example, while operating in a labour union-free environment can certainly reduce costs, it is by no means a subsidy. Airports the world over receive generous public subsidies which are passed on to their customers, the airlines. Although airlines who hub at a subsidised airport benefit most from the subsidy, it’s tenuous to affirm that a specific airline gets a subsidy and not others. Likewise, benefits accorded under US bankruptcy laws to any company that places itself under its protection should not be considered a subsidy, nor should provisions in competition law that permit the issuance of anti-trust immunity to help companies perform better together. A key point to remember here is that sovereign jurisdictions have the right to set their own labour, fiscal, bankruptcy and competition policies and legislation and, of course, as they vary country by country, they will confer comparative advantages or disadvantages to companies operating in those countries.

As accusations fly back and forth, it’s worth considering what actually constitutes a legal subsidy in aviation. Or what constitutes a balanced and fair competitive landscape, often referred to as a “level playing field”. Or fair competition for that matter. Unfortunately, none of these terms are actually defined for aviation, and simply adopting a commonly-accepted definition from other sectors may be an effective intellectual shortcut but has no basis in law.

What constitutes an acceptable subsidy is clearly defined for other industries. For example, the General Agreement on Trade and Tariffs defines what a subsidy is for the international trade of goods, but it is mute on what constitutes a subsidy in air transport, or any other service for that matter. The General Agreement on Trade of Services has so far failed to define what constitutes a subsidy and, in any case, specifically excludes air transport services from the agreement. Thus, reasonable people can disagree on what constitutes fair competition, especially when no competition law is broken.

The Chicago Convention of 1944, the key legal foundation of international aviation, speaks of equality of opportunity but not equality of outcomes. In that respect, operating in a low cost, low-taxation, non-unionised environment is opened to all airlines operating in the Gulf, with the local carrier benefiting the most simply because it has a higher concentration of flights there. The Chicago Convention only makes a single mention of subsidies, in Article 54i, where it tasks the International Civil Aviation Organisation (ICAO) Council to collect and publish information about public subsidies in aviation but fails to put an obligation on countries to report them or to set any kind of boundaries as to which type of subsidies are permitted and which are not.

While much focus has been on monetary subsidies, one cannot discount the impact of public policies and how they can favour domestic carriers. A prime example of this is how nearly all countries in the world outlaw cabotage, meaning that the domestic market is reserved for domestic carriers only, or, in the EU, that the intra-EU market is reserved for EU carriers. This can be a significant advantage for US, EU, Chinese, Japanese and Canadian air carriers, while remaining meaningless for carriers from smaller countries. A second example is how a number of countries negotiate air services agreements in a way to try and favour their home carriers rather than simply improving connectivity for travellers and shippers. Defending the interest of national carriers can arguably be a reasonable policy goal, but such a policy does have a very positive value for home carriers which does not show up in any accounting balance sheet.

Finally, one should note that most countries inject some sort of public funding into international aviation and that there exists no law, convention or treaty that forbids it or sets boundaries for country interventions, with the exception of the EU which has a legal framework for State-Aid of the air transport sector but applies only unilaterally to EU member countries, airlines and airports. While much of the attention has been on two countries and three carriers, most if not all countries have a rich history of public financing of the air transport value chain which continues to this day. Applying the remedies suggested by the Partnership for an Open and Fair Skies to all countries who have financially supported in some way their air transport industry, including the US, would significantly dampen efforts to liberalise global aviation and curtail the benefits that come from operating in an open and free market. And even when all public funding has ceased, the stock of subsidies has enabled the creation of the same global carriers and global hubs who are today calling for an end to subsidies in order to restore fair competition to the air transport industry.

So what could be done? Three things:

  1. In the absence of a clear legal framework defining acceptable and unacceptable behaviour, the first step is somewhat obvious: defining rules of conduct of what actually constitutes fair competition. Most likely through the auspices of the ICAO, countries must first define what is an acceptable and an unacceptable subsidy, a concept that right now is left wide-open to the interpretation of parties with a vested interest.
  2. Countries should agree on a mandatory, transparent and uniform reporting system for public subsidies that would inject some much needed transparency to the issue and avoid the volleys of accusations and counter-accusations we have witness this year.
  3. A binding arbitration process, preferably through ICAO, will need to be put in place and permit one country to file a complaint against another. Arbitration could lead to a monetary penalty paid by the country who granted unfair subsidies to the country whose carriers suffered from unfair competition. This monetary penalty would avoid the present situation where perceived wrongdoing is punished through traffic rights restrictions, in effect imposing a quota on the international trade of service, the most harmful of outcomes.

Useful links

ITF work on air transport

ITF Discussion Paper: What do we mean by a level playing field in aviation?

ITF Research Report: Liberalisation of Air Transport. Summary: Policy Insights and Recommendations

ITF Country-Specific Policy Analysis: – Air Service Agreement Liberalisation and Airline Alliances

 

 

 

Reaching Maturity in Government Use of Social Media

21 August 2015
by Guest author

Today’s post is authored by Ryan Androsoff, along with contributions by Rodrigo Mejia Ricart, from the Digital Government team in the OECD Directorate for Public Governance and Territorial Development. With special thanks to Julien Dubuc of the OECD Berlin Centre for creating the graphs in this post.

As those of us in the Northern Hemisphere come out of the dog days of summer and our thoughts turn from vacations to our regularly scheduled lives, what better time to pause for a moment in the calm before the storm to think some “big thoughts” about the world around us? For those who work in or with governments, any list of “big thoughts” should continue to include the transformation of government by social media. In fact the impact of social media on government has been such that it no longer feels like a new hot trend, but an increasingly normal part of doing business. And while that is a positive sign in that it indicates that social media use is reaching a certain level of maturity, when we look just below the surface we still see there is much to understand about what is happening.

In February, we shared with you some thoughts on government use of social media based on our December 2014 Working Paper on “Social Media Use by Governments” and a look at data from the 2014 Twiplomacy study. At the end of April the 2015 Twiplomacy study was released, and with that an opportunity to see what the numbers can tell us about the continuing evolution of government use of social media (note: the Twiplomacy 2014 data was collected in June 2014, while the Twiplomacy 2015 data was collected in March 2015, thus all comparisons below are for the 9 month period in-between).

We once again used the Twiplomacy data to look at Twitter accounts for top executive institutions (head of state, head of government, or government as a whole) using the same methodology as we applied to the 2014 data by comparing the number of Twitter followers to the domestic population in order to control for country size. What we see in the 2015 data is a steady march forward by many of the top accounts with a few new entries leapfrogging their way into the Top 30.

Twitter Top 30 percent of pop - 2015

While the top 5 countries in our list stayed in the same position as in 2014, we saw significant jumps up in the rankings by both Greece and Israel. Colombia, Portugal, Spain, and Latvia all dropped out of the Top 30 to make room for four fast rising new entrants, namely Jordan, Croatia, Georgia, and Saudi Arabia.

When we look instead at the growth rate during the data collection period, we see some interesting patterns. The graph below shows the Top 20 fastest growing Twitter accounts amongst governmental executive institutions (note: any accounts that had less than 5000 followers at the time of the 2014 Twiplomacy Study are excluded so as not to skew the growth rate data with accounts with small numbers of followers).

Twitter 20 fastest growing - 2015

The countries from the Twiplomacy study that have a Twitter account for their top executive institution saw an average of 69.2% growth during the 9 months between the data collection for the two studies (this average excludes one outlier that had an abnormally high percentage growth rate due to having launched just before the data collection period). Perhaps most striking is that in many ways it is a very different group of countries that make up the list of the fastest growing Twitter accounts. Led by Afghanistan, Saudi Arabia, and India, the majority of the 20 fastest growing accounts come from the Middle East, Asia, and Africa. In contrast, among the list of the Top 30 accounts by percentage of domestic population, more than half are from Latin American or European Union countries.

In case you want to take your own look at these numbers, you can download the raw data we used for this analysis here

So what does this all mean? A few observations we can make from looking at the data:

  • If we look regionally, while the most robust central government Twitter accounts tend to be found amongst early adopters in European Union countries, North America, and Latin America, the most rapid growth in recent years is much more concentrated in countries in the Middle East, Asia, Central and Eastern Europe, and Africa. This trend is reinforced by the change in languages used on Twitter – for example a 2014 study by social media analytics firm GNIP found that while English, Japanese and Spanish have remained the most used languages on Twitter since its early days, languages such as Arabic have seen a rapid rise in popularity on the platform in recent years.
  • While almost every government across the globe has some type of social media presence, there are very different approaches to its use. In a number of countries the executive institutions of government do not themselves have an active presence on social media but instead have been content for the personal or political social media accounts of their Head of State and/or Head of Government to serve as their sole voice on social media.
  • As the first generation of political leaders who have actively used social media retire or are replaced, the distinction between institutional and personal/political accounts will need to be faced head-on. With many parallels to the issues faced with the creation of the first government websites in the 1990s, the first transfers of power in the social media age must now take into consideration the very real asset that is those accounts which may have hundreds of thousands if not millions of followers. This may explain the recent decision in the United States to create a @POTUS account for the President (separate from the institutional @WhiteHouse account or the political @BarackObama account) which, as the 44th President light-heartedly explained via Twitter to the 42nd President, will be transferred to whomever the next officeholder is:

In the 2015 edition of the OECD’s Government at a Glance, we noted that while governments are increasingly using social media, many are still using it primarily as a traditional communications mechanism rather than for opening up policy processes or transforming public service delivery. Indeed, despite the increasingly prevalent use of social media by governments only 50% of OECD member countries surveyed have a central government strategy or objectives for social media usage and only 19% use metrics or indicators to measure the impact of their social media usage. Clearly this is a rapidly evolving area, with countries from across the globe increasingly using social media to reach out to their citizens and the broader international community. However, while social media use by governments is becoming more mature, it is still far from being “all grown up”.

As always we would love to hear your thoughts! How do you think governments can be more innovative or effective in their use of social media? Please post your comments below or via Twitter using the #eleaders hashtag, or connect directly at @RyanAndrosoff.

Useful links

OECD work on digital government

 

The Global Partnership can help achieve the Sustainable Development Goals

19 August 2015

Global PartnershipToday’s post from Lilianne Ploumen, Netherlands Minister for Foreign Trade and Development Co-operation and Co-Chair, Global Partnership for Effective Development Co-operation, is one in a series of ‘In my view’ pieces written by prominent authors on issues covered in the “Development Co-operation Report 2015: Making Partnerships Effective Coalitions for Action”

As co-chairs of the Global Partnership for Effective Development Co-operation, my Mexican and Malawian colleagues and I have a huge task – and a huge opportunity – ahead. A new, truly universal development agenda is taking shape and it holds out to all people on this planet the promise of a more equal and sustainable world, with less conflict and less poverty.

The international community must come to agreement on the challenges we will meet and set the goals, targets and indicators to guide this joint effort. I hope to contribute to solidifying the Global Partnership as a unique platform that will make a decisive contribution to realising the promise of these Sustainable Development Goals.

It is clear that we have to act collectively and without hesitation. For the first time in history, ending poverty within one generation is within our grasp. We have a historic opportunity to change the lives of billions for the better, and for the sake of the hundreds of millions of people still facing malnutrition, unemployment and inequality, we must grasp it.

How can the Global Partnership help to achieve this objective? In my view, it is only through combined efforts that the change needed can happen and better results can be achieved. The Global Partnership can pave the way for enhanced co-operation among governments, companies, non-governmental organisations (NGOs) and other stakeholders, which is fundamental for improving the effectiveness of development co-operation.

With its long legacy of joint work on development effectiveness, the Global Partnership also is well placed to support transparent and accountable action among the partners working to achieve common goals.

The Global Partnership can also facilitate the sharing of knowledge and expertise, providing models of good practice from its in-country monitoring of progress against key indicators.

During my tenure as co-chair over the coming two years, I aim to provide political guidance and strategic direction to the Global Partnership to ensure that it continues to foster open interaction among equals and explore new, innovative forms of collaboration. This is an unprecedented opportunity and there is no time to lose. Let’s get to work!

Useful links

Development Co-operation Report 2015: Making Partnerships Effective Coalitions for Action

 

Going down? Probably not

13 August 2015
by Brian Keeley
Tim

Tim

One of the more memorable characters from British television in the 1990s was Tim Nice-But-Dim – a “thoroughly nice bloke” with good manners, money in his pocket and a job in the City. Tim was also as thick as a plank, but he sailed through life thanks to one thing – his family were rich.

Tim bounced back into the headlines last month following the release of a report on how family wealth affects children’s prospects. Here’s how the Daily Express summed it up: “Nice but dim: Posh but stupid children do better than poor yet gifted.” True, the language won’t win any prizes for subtlety, but it does get to the heart of the matter, which is this: Children from wealthier families, even if have only modest skills, tend to be protected from sliding down the social scale by a “glass floor”.

None of this is all that surprising – most of us have probably met or worked with a Tim Nice-But-Dim. But the report, by Abigail McKnight of the London School of Economics, does offer some hard evidence on how and why the Tims of this world do so well. Her research looks at the economic performance of a group of people in the UK whose cognitive abilities were tested in the 1970s at the age of 5. By the age of 42, people from poorer families who had scored well were less successful at “converting this early high potential into career success”. By contrast, children from wealthier families who had scored poorly at 5 did better in their careers than might have been expected.

What’s happening? Parental education (which is closely tied to family income) is a key factor. Parents with higher levels of education are better equipped to help children overcome early learning problems; better able to provide career and education advice and guidance; likely to encourage children to go to university; and able to invest in private education and coaching, and so on. They also typically have access to useful social networks, and so can pass on job tips and arrange internships. And they’re more likely to encourage a range of “soft skills” in their children, such as self-confidence, presentation and appropriate behaviour.

The glass floor is not restricted to the UK. In the United States, a 2013 report by Richard Reeves and Kimberly Howard for the Brookings Institution also provided evidence that it’s harder to rise up than it is to fall down. The authors estimated that around 250,000 college degrees were awarded in the US in 2011 to modestly skilled children from comfortable backgrounds – the “nice but dim”. By contrast, 400,000 high-skill youngsters from poorer families were unable to complete college. “From a mobility perspective,” they argued, “it would be better if college slots currently taken up by modestly skilled kids who remain at the top were filled instead with the smart, motivated kids who remain stuck at the bottom.”

All this research feeds into the bigger question of how widening income inequality is affecting the life chances of people from poorer families. One impact can be seen in parents’ investment in their children’s education and human capital development. Recent research from the OECD showed that as the gap between rich and poor grows, poorer families are able to invest less in education and skills development (which has serious consequences for economic growth). The gap is also visible in the area of “enrichment,” or broader spending on activities and out-of-school learning. While all families are spending more on enrichment now than in the past, the gap between how much rich and poor parents spend looks to be growing ever wider.

So what’s to be done? Sadly, discussion of these issues can get a little heated. Mention the glass floor and some people assume you’re attacking parents themselves. “Parents should be commended for trying to give their less talented children every chance to succeed,” writes one contributor to The Daily Telegraph. Indeed they should. On the other hand, as Dr McKnight points out in her paper, “A society in which the success or failure of children with equal ability rests on the social and economic status of their parents is not a fair one.”

In response there are a number of obvious policy areas, such as greater investment in early childhood care and improving equity and fairness in education. But there are other issues that matter too, such as the growth of unpaid or low-paid internships. The challenges facing young interns were highlighted recently by the story of David Hyde, a 22-year-old New Zealand graduate who’s currently doing an unpaid internship in Geneva. Every morning, David walks to his office in a suit; every evening, he goes back to his “home” – a leaky tent on the banks of Lake Geneva. In the pricey Swiss city, and without a salary, that’s all he can afford. Speaking to the French-language Tribune de Genève, David summed up his frustration at how such unpaid internships can limit the opportunities of young people whose parents aren’t rich: “In the end, only those with parents who can pay have a chance.”

Useful links

OECD work on inequality, education and early childhood care and education

In It Together: Why Less Inequality Benefits All (OECD, 2015)

PISA 2012 Results: Excellence Through Equity: Giving Every Student the Chance to Succeed (OECD, 2013)

Equity and Quality in Education: Supporting Disadvantaged Students and Schools (OECD, 2012)

Interns are people, too” by Ben Lyons of Intern Aware (OECD Yearbook 2013)

Creating cultures of integrity

10 August 2015
by Guest author

320px-Caution_bribe_coming_through_washington_dc_1Rolf Alter @raltergov Director, Public Governance and Territorial Development Directorate

It’s hard to imagine government doing its job well without a commitment to basic levels of integrity. Imagine if every administrative process required a bribe to this official or that to accomplish it. Or imagine seeing your tax money wasted on lavish buildings or useless infrastructure because of collusion between public officials and private investors.

And what about the effects you can’t see but end up paying for: the very useful bridge that cost 50% more than it should have due to bribes, skimming and inefficiencies (not to mention potential quality issues); or a screwdriver with a 300% mark-up and other overpriced items buried in a defence contractor’s invoice? These are all examples of waste and abuse of hard-earned citizens’ wages made possible by breaches of integrity. Beyond monetary costs, there is also a steep price to be paid in lost trust and cohesion, both essential to reducing transaction costs and making our societies function.

Without a culture of integrity, democratic processes themselves become endangered. In every society there are individuals, families, organisations and even institutions that try to distort political processes and circumvent commercial rules and regulations. The role of a culture of integrity is, in part, to ensure the integrity of our democratic processes. It means having the controls in place to prevent narrow interests from “gaming” the essential fairness of political and business processes.

A weak culture of integrity creates a vacuum filled by policy capture and corruption.

The OECD takes a holistic approach that considers all of the risk areas in which corruption takes place, as well as all of the actors, activities and transactions that need to be protected­. Through our evidence-based approach, we are able to provide policy support that gives countries tools to help in the fight against corruption. In this role, the OECD partners with the G20, studying the relationship between corruption and economic growth, elaborating whistle blower protection frameworks, public sector integrity frameworks and more.

The risk of corruption is strongest in the case of government-led projects on infrastructure. In 2013, OECD countries spent close to $1.35 trillion in public investment, representing 3.1% of OECD GDP and 15.6% of total investment (public and private). The cost of corruption and mismanagement has been estimated to contribute to 10-30% of large infrastructure budgets. Indeed, the majority of cases brought under the OECD Anti-bribery Convention concern public procurement. The OECD Integrity Framework for Public Investment is a new tool (forthcoming) that can help governments to identify vulnerabilities and the potential points of entry of corruption in infrastructure projects.

There are concrete steps that can be taken in achieving a culture of integrity—and the OECD’s Directorate for Public Governance & Territorial Development (GOV) is accompanying many countries in this process. It requires coherent efforts to update standards and to provide guidance to public and private stakeholders. It also requires countries to anticipate risks and apply tailored countermeasures. These are all areas where governance and good policy make the difference by helping to bring about systemic change, rather than after-the-fact measures that risk overreaction and the undermining of credibility.

But good policies need to have teeth, in other words, monitoring and enforcement. A country may have campaign spending rules and even an oversight committee in place, but little or no enforcement. Underfunding enforcement is one of the ways that policies can be undermined by special interests. Policies must impose clear rules and meaningful penalties to ensure fair and democratic processes.

To achieve this, GOV works with countries to adopt a whole-of-society approach. That means all stakeholders, public, private and civil society, must work together to make it happen. If that sounds ambitious, it is. Fortunately, the OECD has processes that are helping countries take important strides in ensuring basic fairness in their political processes and public investment practices.

Useful links

Financing Democracy

Fighting corruption in the public sector

Conflict of interest

Bribery and corruption

Public investment

OECD Anti-bribery Convention

Public procurement

OECD Integrity Forum: Curbing Corruption – Investing in Growth

 

When businesses are bad, who you gonna call?

3 August 2015

Carly Avery, Investment Division, OECD Directorate for Financial and Enterprise Affairs

Most businesses are good. They pay their taxes, they create employment, they abide by the laws, and they generally contribute to the societies in which they operate. But unfortunately, this isn’t always the case. And when businesses behave badly, the human consequences can be devastating: factories collapse killing thousands; workers, often children, are treated like slaves; rivers, lakes, and even seas are rendered lifeless, and entire species are threatened.

In order to deal with cases of bad business behaviour such as these, we would need a multilateral system where victims of this type of treatment could complain, and the person receiving the complaint would analyse it, see if it’s valid, alert all the parties involved, and sit down with them to help fix the situation. No, this isn’t some Disney film scenario with a dashing knight in shining armour swooping in to save the day. In fact, this is something that already exists: the National Contact Points (NCPs) for the OECD Guidelines for Multinational Enterprises.

The OECD Guidelines are the leading international standard for responsible business conduct for multinational enterprises wherever they operate in the world. They cover all areas of business ethics, including human rights, labour issues, environmental protection, anti-bribery, taxation, and science and technology. They operate on the expectation that businesses should not only do good, but that they should also do no harm. The Guidelines were first adopted in 1976 and today 46 governments have signed up.

With the Guidelines you can raise your hand and say “Hey, stop doing that to my fish!” and someone, an NCP, can do something about it. NCPs are the mechanism that reinforces how the Guidelines are applied. They are units that have been set up by every government adhering to the Guidelines and are there to help parties find a solution for issues arising from any alleged non-observance of the recommendations found in the Guidelines. This isn’t a legal process so NCPs focus on problem solving – they offer good offices and facilitate access to consensual and non-adversarial procedures (ex. conciliation or mediation).

So, everything is fine then, right? Well, not quite. Here’s a statistic for you: multinationals from countries that adhere to the Guidelines have $22.6 trillion invested around the world. The NCPs received 35 new cases in 2014. That means that there was one case for every $645 billion of foreign direct investment in 2014. That’s either a lot of very responsible multinationals or we’re missing something.

The natural conclusion is that not all instances of bad business conduct are being alerted to NCPs. Why? Simply put, NCPs aren’t visible enough. If President Obama can cite the Guidelines in terms of the US anticorruption agenda and yet “NCP” in the UK is better known as an acronym for UK National Car Parks, there’s a mismatch.

Governments need to up the stakes. If they gave more funding to this vital mechanism, NCPs could be more visible and live up to their potential.

G7 governments agree. In their 2015 statement they committed to strengthening “mechanisms for providing access to remedies, including the National Contact Points…” and encouraged the OECD “to promote peer reviews and peer learning on the functioning and performance of NCPs” while ensuring that their own NCPs “are effective and lead by example”.

Here are some of the problems increased funding could help fix:

  • Staffing issues: In 2014 only 15 of the 46 NCPs had an allocated budget and this impacts staffing. Few NCPs have staff solely devoted to the responsibilities of the NCP.
  • Communications deficit: currently only 57% of NCPs have or are working on developing a structured promotional plan.
  • Lack of transparency: NCPs are encouraged to report publicly on their activities but only 40% have put at least 1 annual report online over the past three years. [1]

With more staff, NCPs would be better equipped to handle the complaints they receive. With better communications they can promote Guidelines more widely, and with greater transparency they can build the vital element of trust.

If NCPs had more clout, companies would work even harder to protect and develop their reputations by pre-empting any complaints about the ways they operate. This in turn would contribute to growth that benefits individuals, and communities, as well as global aspirations such as the Sustainable Development Goals.

Countries-adhering-to-OECD-MNE-Guidelines

What’s the OECD doing in all of this? Since the most recent update of the Guidelines in 2011, the OECD has increased its work with NCPs to strengthen the grievance mechanism process to ensure that it delivers results. This includes peer-reviews and targeted communications support. The Chair of the OECD Working Party on Responsible Business Conduct has even launched a competition to find a better name for “NCPs”. If you have an idea, send me your suggestions by 30 September 2015.

As I said at the outset, bad business conduct exists, but we also have NCPs working hard to manage the complaints they receive, despite imperfections. And sometimes the NCPs get their Disney moment, like when the UK NCP provided mediation to help the WWF and Soco talk to each other and avoid drilling in Virunga National Park, a UNESCO world heritage site. Concrete change has to start somewhere, and the NCPs are part of the change for enforcing responsible business conduct happening around us right now.


Useful links

Read the brochure explaining the Guidelines

Find out more about the NCP specific instance process

Access the OECD Database of Specific Instances

[1] These three statistics are taken from the 2014 Annual Report on the Guidelines (OECD publishing, http://dx.doi.org/10.1787/mne-2014-en): Table 1.2, and pages 23 and 26.
Regarding NCP reporting: NCPs are required to report annually to the OECD Investment Committee and are encouraged to make their annual report public.

Putting people at the centre of the investment decision: Implications for Private Pensions

24 July 2015
by Guest author

Pensions Outlook 2014Gökhan Kula (MYRA Capital) and Markus Schuller (Panthera Solutions)

Ladies and gentlemen, let us be clear: as a society we are increasingly attracted to simplistic solutions, be it in the form of religious denominations or through the populist promises of salvation of parties on the right and left margins. Now, we could also utilise this escape route in the financial industry we work in, on the grounds that simplification has been accepted in other areas of society. But not so fast. Our position and status as well-educated, well-paid and (often) with high self-esteem brings responsibilities with it. We must not surrender to the call of simplistic answers. How then does our industry transcend the simplistic?

On what is feasible

The passionate debate on efficient markets and rational investors is no longer needed. It has been decided. Markets are not efficient, nor are investors rational (see On Market Efficiency). On the other hand, markets are not completely inefficient, but adaptive. People are not completely irrational, but oscillate between emotion and reason (see Unethical Asset Allocation Methods).

What remains the biggest obstacle in regards to change management is changing the behavioural patterns of employees along the investment process.

Does the employee have to be at the centre of the process in order to get closer to the knowledge boundary in asset allocation? Are high frequency trading and RoboAdvisors not evidence enough that humans may not have to play a role in the investment process? Slow down. All quantitative methods and algorithms are based on assumptions of market patterns and how these can be made utilisable as best as possible. Who decides on the assumptions? That’s right, the human developers. In order to lead investment methods closer to the knowledge boundary of asset allocation, this only leaves the focus on the investment team and the investment process it experiences.

What is feasible now? In one sentence: “More conscious and therefore rational investment decisions by means of proactive management of cognitive dissonances and an analysis focus on causality instead of correlation in regards to understanding market correlations create a higher probability of anti-cycles in the investment process.” (Schuller).

If you were searching for the Holy Grail, you have now found it.

Innovation & Asset Allocation

The asset management industry is currently being attacked on two fronts. Regulators increasingly see a systemic risk in asset managers and are trying to implement regulatory measures in order ensure a better handling; and Fintechs are questioning inherent business models and are increasing the margin pressure.

Other industries are already demonstrating the two solutions for this increasing limitation of room for manoeuvre. The temporary solution is economies of scale. This is already the case in our industry. There are regulatory and organisational constraints in regards to the oligopolisation of industries. It is only a temporary solution.

The sustainable solution is specialisation. Competitive advantages by means of specialisation can be won through innovation. This is the only sustainable solution.

In our industry, innovations are rare. Innovation means a shifting of the knowledge boundary on asset allocation, a measurable improvement of the service provisions of corporate finance compared to the real economy. The innovative ability and motivation of the investment teams (investment committee, foundation chairpersons, family office managers etc.) therefore comes into focus. The sustainable competitive ability of an investment process stands and falls with the investment team. Let us refer to them as high performance investment teams (HPIT) to uqse Panthera’s terminology.

Reducing behaviour gaps

Creating a concept is one thing, establishing and managing HPIT is another. There are a number of well-tested starting points, including skin in the game–based incentive systems, transparent governance structures, and quantifiable, transparent performance measurements. But here we’d like to concentrate on reducing the behaviour gap.

The “behaviour gap” has been sufficiently researched and quantified from an academic point of view. A result of the pro-cyclic behaviour of market participants, explained by emotional and wrong decisions. It is self-explanatory that this structural underperformance leads to significantly reduced returns for investors over time compared to buy-and-hold.

Bogle

(Source: Vanguard, Bogle Financial Markets Research, Dalbar)

Although Bogle is mainly highlighting the cost penalty, his research shows the even larger potential for improvement when it comes to minimizing the timing and selection penalty. For reductions of selection penalties, we refer to our initial point, namely the necessity of high performance investment teams.

Implications for private pensions (Third pillar of pensions)

Within ongoing demographic change, a significant shift in pension policies can be observed. Private pensions (the “third pillar”) become increasingly important to close the pension gap, opened by the pillars 1 and 2 (state and employer plans). This puts European trustees in the difficult position of becoming long-term investors for their own private pension plan, with all the difficulties like selecting the right asset allocation and investment vehicles – and the right insurance company. Our trustee should keep three concrete facts in mind:

  1. Costs matter. In a secular low yield environment, each basis point in fees is spent unnecessarily. A focus on passive replication is recommended. If active management fees are justified, the investment products used within the private pension plan should be institutional share classes without distribution costs.
  2. By incorporating strategies based on the body of knowledge led by behavioural asset management, a higher emphasis of rule-based investment processes and dynamic asset allocation strategies could be a way to structurally increase equity allocations in private pension plans. Structurally higher equity allocation will transform mid- to long-term to higher expected returns for private pension trustees, which can alleviate the expected drag of the other main pension pillars due to demographic change.
  3. Insurance companies offer to pre-select and perform due diligence on investment products. Trustees then select from this shortlist, trying to assemble a feasible asset allocation for their pension plan. How can our thoughts on HPIT be of relevance for insurance companies? During an insurance company’s due diligence process of selecting investment products for private pension plans, it should only consider those with a stringent rule-based investment process committed to high performance investment teams. Like that, the whole investment industry would be forced to focus more on the most important risk and performance driver, namely the man at the centre of the investment decision.

Useful links

OECD work on insurance and pensions

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