Following endorsement of the G20 Guiding Principles for Global Investment Policymaking by G20 Trade Ministers in Shanghai on 10 July 2016, Ana Novik, Head of the OECD Investment Division, highlights the importance of follow-through on this important stepping stone to greater policy coherence.
In an economy where global value chains (GVCs) are increasingly pervasive – with the production of goods and provision of services fragmented across borders – and where the growth in cross-border trade and investment flows remains relatively sluggish, structural reform and policy coherence in the “trade-investment nexus” is more important than ever. As the global economy still struggles to achieve “escape velocity” from its post-crisis torpor, these can be the keys to unlock stronger growth and raise living standards for all.
Investment is understood to be a critical component of the GVC equation. So, recognising the economic salience of more coherent investment policymaking, G20 Trade Ministers endorsed new G20 Guiding Principles for Global Investment Policymaking at their meeting in Shanghai on 9-10 July 2016. This came about as a result of careful negotiation, supported by the OECD and other international organisations, through the G20’s new Trade & Investment Working Group (TIWG).
China’s initiative in establishing the TIWG during its 2016 G20 Presidency, and in putting investment policy coherence centre stage, sets a high bar for the German and Argentine Presidencies to follow in 2017 and 2018. Not only is this new working group an ideal forum for high-level policy makers to advance the multilateral trade and investment agendas separately but, crucially, it represents an opportunity to bolster policy coherence between them by exploiting synergies and recognising interdependencies.
Under China’s dynamic leadership, the G20 TIWG has served up a taste of what is possible. If policy makers can maintain this momentum at a global level, and implement conforming investment policy reforms at domestic level, these Guiding Principles may yet come to be seen as the appetiser to a feast. Critically, while the Guiding Principles help chart a way forward, it will be the political will of G20 member countries to advance reforms and engage in further constructive global dialogue that will determine their ultimate impact.
Sound, coherent policy frameworks in home and host countries can both ensure that private and international investment contribute significantly towards economic and social development, and enhance the attractiveness of countries’ investment climates. Getting these policy frameworks right is the rationale underpinning both the new G20 Guiding Principles for Global Investment Policymaking and the existing OECD Policy Framework for Investment, with which they are closely aligned.
The Guiding Principles entail nine key elements of guidance for policy makers:
- Avoid protectionism.
- Ensure non-discrimination.
- Protect investors.
- Make policy transparently.
- Aim for policy coherence for sustainable growth and inclusive growth.
- Recognise government’s right to regulate.
- Pursue effective and efficient promotion and facilitation policies.
- Observe best practices for responsible business conduct and corporate governance.
- Continue international investment dialogue.
Together, the Guiding Principles aim to foster an open, transparent and conducive global policy environment for investment. Although they are non-binding in nature, the Guiding Principles can help promote coherence in national and international policymaking, providing greater predictability and certainty for businesses so long as policy makers ensure they are well reflected through policy reforms.
The Role of the OECD and its Policy Framework for Investment
Providing critical support to TIWG negotiations over the first half of 2016, the OECD – working closely with the Chinese Presidency and UNCTAD – helped facilitate the constructive discussions leading to agreement on the Guiding Principles. In particular, inspiration was drawn from the OECD Policy Framework for Investment to ensure the Guiding Principles were as strong and balanced as possible. For example, there is a good balance between strong protection for investors, on the one hand, and, on the other hand, the imperative for investors to observe applicable instruments for corporate governance, such as the G20/OECD Principles of Corporate Governance, and responsible business conduct, such as the OECD Guidelines for Multinational Enterprises. Building on its existing body of work, the OECD also contributed substantively to the TIWG’s broader discussions on policy coherence in the trade-investment nexus as well as on investment facilitation and related policy issues. Furthermore, the OECD played host to a meeting of the TIWG, on the margins of its annual Ministerial Council Meeting during the first week of June 2016.
First developed in 2006 as a response to the Monterrey Consensus, and updated in 2015 as a means to mobilise private investment for development in the context of the Sustainable Development Goals, the OECD Policy Framework for Investment (PFI) takes a comprehensive, whole-of-government approach to investment climate reform. The objective of the PFI is to mobilise private investment that supports steady economic growth and sustainable development, contributing to economic and social well-being around the world. Covering 12 policy areas (from investment policy to trade policy, and from responsible business conduct to green investment), the PFI is non-prescriptive and emphasises policy coherence across those areas. It eschews one-size-fits-all solutions and encourages policy makers to ask appropriate questions about their economy, their institutions and their policy settings.
Alastair Wood and Paolo Falco, OECD Directorate for Employment, Labour and Social Affairs
The Euro 2016 football tournament is over. Well done to everyone involved and especially to the champions Portugal. Now we can take a breather and look forward to the women’s tournament next year. Football is known for bringing people together all over the world, but although women’s football is garnering more media attention, and participation levels are rising, it is also an area where gender gaps in participation and pay are still very large: In 2012 for example, the famous Brazilian footballer, Neymar da Silva Santos Júnior had his monthly salary increased to around 1.5 million Reals at his then club Santos, a sum that would have covered the cost of the whole women’s team for an entire year. And ask Steph Houghton, the top female English player, what she thinks about earning almost 10 times less a year (£35,000) than what the top male earner, Wayne Rooney, takes home in a week (around £300,000).
Beyond the spendthrift and extravagant world of men’s football, gender inequality is also a sad reality for too many workers in the everyday labour market. Recent OECD data shows the average gender pay gap is currently around 16% in OECD countries, but the problem is not just confined to advanced economies. Looking at 16 emerging economies that cover over half the world’s population, our latest OECD Employment Outlook shows that the average gender pay gap rises to 19%. In other words, for every dollar a man makes, a woman in emerging economies only makes about 80 cents. Of course, one reason is that in the emerging world women are even more under-represented in better-paid jobs – men are more likely to be employed in the goods-producing sector and construction, while women are considerably more likely to be employed in the (less well-paid) social and personal service sector. Women are also considerably less likely than men to be in top executive positions.
But that’s not the entire story. Even when they do succeed in securing similar jobs with the same level of education, women are still paid significantly less than men. Another finding in our study indicates that often the majority of working women in emerging economies are self-employed, but they own smaller and less profitable businesses than men. This is the result of inequalities in access to credit and of gender gaps in financial literacy and business-related knowledge.
Perhaps unsurprisingly, the share of young people not in employment, education or training (NEET) is higher among women than men, partly reflecting motherhood at a young age in some emerging economies, and culturally-induced behaviour in general. This is also the case for the OECD as a whole, but the gender difference in this share is far more pronounced in emerging economies (17.9 percentage points, almost four times larger than the OECD average of 4.7 percentage points). Reducing gender gaps in labour market outcomes (participation, earnings, NEET rate, etc.) have rightly been the focus of global efforts in the last few years. G20 commitments such as reducing the gap in labour force participation rates between men and women by 25% by the year 2025 will hopefully bring millions more women into the labour market, and there are similar efforts to increase participation of women in STEM-related jobs (science, technology, engineering and mathematics) that aim to give us generations of well-paid female engineers, mathematicians and scientists.
Indeed, there are already signs of progress, but change is slow and uneven. In Chile and Costa Rica for example, the gender participation gap has narrowed by over 20 percentage points since the mid-1990s, while the largest gaps persist in both Egypt and India, where labour participation rates are over 50 percentage points higher for men compared to women. And if you are a girl and you want to become a top manager, then you may want to move to Latin America: in Chile, Colombia, Brazil, Mexico, and Costa Rica, women account for a higher share of top management and executive positions than the OECD average of 32%. Investment in education and increased efforts to encourage women to undertake careers in STEM fields may be partly responsible for this advancement.
Another piece of good news is that gender gaps in educational attainment have also been shrinking in recent decades: enrolment rates in primary and secondary education are today almost identical for boys and girls, and in many countries women are now attending tertiary education more frequently than men. Unfortunately this is not true for all socio-economic groups as girls from poorer families are still much less likely to be enrolled in school at all levels of education.
So what can we do to reduce gender gaps further? Are we condemned to passively accept that the (r)evolution towards global gender equality will be a slow-moving progression as the decades pass us by, especially in emerging countries? Definitely not. Our study helps policy makers identify actions that can have the biggest impact in helping to close the gender gap. Here are a few examples.
- Tell your girls they can be rocket scientists: Removing gender bias at a young age and encouraging more women to take up STEM-related jobs would help to end stereotypes about appropriate areas of work for boys and girls, and inspire women to enter into better paid jobs.
- Give mums a real choice to go back to work: Subsidising childcare and creating real incentives for fathers to take parental leave are two important measures of the available options to support mothers’ careers.
- Ensure women have an equal chance to access credit and be fairly treated at work: Gender discrimination by credit providers and by businesses when hiring and paying their staff, and specifically against pregnant women, should be addressed in formal legislation. Inheritance laws that favour men should be changed and governments should specifically target women when enhancing financial education.
Reverting to football, it is interesting to note that all four countries that reached the semi-finals in the last women’s European football tournament had smaller gender pay gaps than the OECD average, and 3 out of 4 had better-than-average female rates of participation in the labour market. Football is hardly representative of the real world, but the gender gap, just like football, is a truly global phenomenon and has been engrained in societies throughout the world. As emerging economies develop economically, let’s try to help them also develop effective policies for “locking in” more gender equality in their society. Beyond the moral and social imperative, it will help them emerge economically stronger – women are the biggest untapped potential for economic growth. Closing gender gaps would therefore help both emerging and developed economies score a goal for economic growth while also promoting more inclusive societies.
Laurent Bossard, Director, OECD Sahel and West Africa Club (SWAC) Secretariat
In launching the new “West African Papers” series produced by the OECD Sahel and West Africa Club Secretariat, T. Allen and P. Heinrigs have reflected on the region’s food economy opportunities, providing us with a useful and necessary occasion to look back and measure the extent of changes that have taken place.
I’m old enough to remember the West African agriculture – and especially that of the Sahel – that existed in the middle of the 1980s. One could (already) witness the power of demographic growth. Between 1960 and 1985, the population of the Sahel had doubled and the urban population had increased fivefold. But farming did not keep pace. Excluding weather variations (people were just emerging from the terrible drought of 1983), this 25-year period revealed an increase in imports to the tune of 8% per year. In his 1987 book, Le sahel face aux futurs (The Sahel: Facing the Future), Jacques Giri was already sounding the alarm: “Overall, the Sahelian food production system has remained very traditional, very vulnerable to drought and not all that productive. It has not adapted in terms of quality, quantity or needs […]. The region is increasingly dependent on outside sources and, in particular, on food aid. The return of more favourable weather conditions has not led to a decrease in this dependence.”
A significant portion of the region’s “imports” were, in reality, related to food aid, which had practically become institutionalised since the middle of the 1970s. While it’s true that Europe – whose grain production had doubled between 1970 and 1985 – was not averse to providing this type of aid, this state of affairs was not sustainable and the prospects were worrisome.
Farmers in the Sahel and in West Africa were clearly divided into two extremely unequal halves. On the one hand, the majority practised subsistence farming, and a large proportion of that majority did so with self-sufficiency in mind. Markets only played a marginal role in producers’ lives, especially as, in a number of countries, prices were set by ministries and commercialisation was – in theory, at least – a state monopoly.
On the other hand, export crops were enjoying a major boom, compelling a minority of small farmers to “modernise”. Stabilisation funds supported by the international community guaranteed purchase prices for producers, irrespective of global prices. This was the case for cotton, the production of which surged from the beginning of the 1970s onwards, or for cocoa and coffee in Côte d’Ivoire and Ghana. Groundnuts, meanwhile, offered great benefits for Senegal, Gambia and Niger, until the northern countries realised that they could produce oilseed crops at home at a lower cost.
But overall, the prospects were poor: demographics and towns would lead to a relentless increase in the food deficit. Revenue from export crops would not be sufficient to fund imports; structural food aid could not last.
More than three decades later, it appears that what we believed to be the cause of the problems (urbanisation) has in fact been the driving force behind spectacular agri-food development. By growing and multiplying, towns polarised a large part of the farming world, dragging it into the market. In doing so, they sparked the emergence and development of a large number of essential professions, all along the increasingly complex food chain, both upstream and downstream of production: tool manufacturers and repairers, fertiliser and grain sellers, traders (collectors, wholesalers and retailers), labourers, packers, transporters, processors and restaurant owners. And this is not taking into account all the activities that enable the aforementioned to perform their jobs – take for example, those that wait by the side of the road to replace the punctured tyres of passing lorries.
In 2010, this food economy represented USD 178 billion, which equates to 36% of the combined GDP of all the countries in West Africa (likely around USD 240 billion in 2015). It is the top economic sector of the region and is experiencing strong growth. The move to extend the market has opened up new opportunities both upstream and downstream of agricultural production, which now represents just 60% of the food economy.
Today, the great challenge for farming lies less with crop exports and more with the economic opportunities offered by the regional market. Two-thirds of what West Africans consume is commercialised. A significant and fast-growing part of it is processed. The future of the agri-food sector is highly promising in terms of development and jobs. Taking more of an interest in the new activities developing along these value chains will also offer opportunities to women, who are especially prevalent in the processing and food distribution segments.
Public policies must be adapted to match these real-world changes.
West Africa: Security crisis and food crisis Laurent Bossard on OECD Insights
Moving beyond agriculture: It’s food that matters Thomas Allen on OECD Insights
Today’s post is from Matthias Schmelzer of the University of Zürich, who has just published The Hegemony of Growth. The OECD and the Making of the Economic Growth Paradigm.
One of the OECD’s major tasks is to “redefine the growth narrative”, as stated repeatedly by Secretary-General Angel Gurría when specifying his mandate at the helm of the Organisation and at many high-level events since. For example, at the Ministerial Meeting in June 2016, the industrialised countries’ think tank lamented that the world economy is stuck in a “low-growth trap”, but faced with growing inequality, decreasing levels of well-being and climate change, Gurría also claimed that the OECD was inventing a new “growth narrative” aimed at overcoming the focus on GDP by promoting qualitative, inclusive, and green growth.
However, is this search for a new growth narrative really new? Taking a close look at the Organisation’s long history since the 1940s reveals that this is an ongoing quest full of arguments, episodes and dynamics well-worth studying if one wants to understand the OECD’s current difficulties in coming to terms with the predicament of growth.
The OECD is the international organisation most closely associated with economic growth: growth is its defining policy goal, it is the first aim in the OECD Convention, which prompts countries “to achieve the highest sustainable economic growth,” and growth has until nowadays been discussed centre-stage at all important meetings. One is thus tempted to interpret the focus on economic growth as the organisational ideology of the OECD, which was described by one of its most influential directors in the 1960s as “a kind of temple of growth for industrialized countries.”
In my new book I analyse the history of the OECD and its predecessor, the Organisation for European Economic Co-operation (OEEC), in order to understand, how economic growth became the primary goal pursued through policymaking in modern societies. I researched the archives of this organisation and of some of its key member countries, read texts by key protagonists on growth theory, growth debates and the critique of economic growth, and discussed my arguments with colleagues around Europe, North America, and Japan.
The book that resulted is both profoundly historical – retelling in detail the making and remaking of the growth paradigm in the second half of the twentieth century – and topical for current discussions. It argues that the pursuit of economic growth is not a self-evident goal of industrialised countries’ policies, but rather the result of a very specific ensemble of discourses, economic theory, and statistical standards that came to dominate policymaking in industrialised countries under certain social and historical conditions in the second half of the twentieth century.
Already at the Organisation’s first Ministerial meeting in November 1961, the OECD set a growth target – to increase the combined GDP of its member countries by 50 percent within a decade. It is important to note, however, that “sustainable growth” in the OECD Convention – even if often otherwise stated – does not refer to “sustainability” in the modern sense. Since the Brundtland Commission’s famous 1987 report, sustainable development is understood as “development that meets the needs of the present without compromising the ability of future generations to meet their own needs” and aims at balancing economic, social and environmental issues. Within the context of the OECD, however, “sustainability” was understood in a strictly economic sense, meaning growth that is non-inflationary and does not destabilise the balance of payments.
Environmental concerns entered the OECD from the late 1960s onwards. In fact, it was a group of scientist and civil servants around the OECD’s science directorate that first launched a global debate about the “problems of modern society” and then founded the Club of Rome, whose 1972 report “Limits to Growth” became a hallmark of growth criticism. The OECD’s history since then can partly be interpreted as a continuous effort to redefine growth to account for the apparent failures of GDP statistics and growth-oriented policies.
However, while in the following almost five decades growth has been reframed as “sustainable”, “qualitative”, “inclusive” and “green”, the OECD’s major advice stayed in the quantitative framework. The OECD still advocates to “make growth the number one priority.” Symptomatic for modern states, this can at least partly be attributed to the Organisation’s silo structure, in which social and environmental concerns are not integrated into the key debates in the economics department. In this vein, a recent study by the London-based Institute for Human Rights and Business (IHRB) and the Heinrich-Böll-Foundation argued that the OECD’s advice on infrastructure investment – all geared towards increasing growth – thwarts the climate goals agreed to in Paris last November.
In fact, recent years, in particular in the context of reflections on the underlying causes of the world economic crisis, have seen an ongoing controversy within the OECD about the status and understanding of economic growth that culminated in the “New Approaches to Economic Challenges” (NAEC) initiative. In March 2016, I was invited to present the book in the context of the OECD’s NAEC seminar, resulting after a comment by former OECD director Ron Gass in an interesting discussion that revolved around what is currently labelled the “triangle” within the OECD – the relationship between the economy, society and nature.
This controversy, a critical analysis of the OECD’s history suggests, is complicated by the fact growth is the organisational ideology that defines not only the OECD’s core tasks but also its identity. Based on its longstanding history of promoting – but also questioning and further developing the growth paradigm – and also due to its functions – a think tank, ideational artist, forum – the OECD is in a particularly privileged position in taking a lead role to really advance towards a post-growth narrative for the early industrialised world. In this vein, the OECD could contribute to developing a societal narrative that leaves the policy focus on growth behind, because growth is a means to other ends – a means that, while arguably advantageous for a certain historical period, might become an obstacle for another.
In The Hegemony of Growth. The OECD and the Making of the Economic Growth Paradigm, (Cambridge University Press, 2016) Matthias Schmelzer presents a critical examination of the historical trajectory of the OECD since the 1940s, setting it in the context post-war reconstruction, the Cold War, decolonization, and industrial crisis. The book has received three renowned prizes, including one from the International Economic History Association (IEHA)
NAEC Seminar with Matthias Schmelzer
The OECD offers a wealth of data and analysis illustrating that investment and trade can strongly support the competitiveness of our economies, the efficiency of markets for consumers, the potential for innovation, and—yes—the quality of employment. Of course, open markets raise the stakes for companies and their workers in a competitive environment. But policies that enforce rules for multilateral trade and that encourage governments and social partners to invest in education, training, and skills will ultimately enable our economies to trade up, and not down. In fact, OECD research shows that companies that are involved in international trade offer better working conditions, better salaries, and can reduce informality.
We also know that trade and investment are questioned by some, and unfortunately the arguments are increasingly emotional, if not irrational. And in spite of some modest improvements, barriers to market for trade and “foreign” direct investment exist in abundance, with significant adverse effects on growth and productivity. We often forget that trade and investment have pulled hundreds of millions of people out of poverty and are responsible for much of the convergence we see between living standards globally across countries.
Protectionism remains a real threat, and not many understand the severe consequences for productivity if global value chains are or compromised or even interrupted. In fact, the OECD can exactly show this for individual countries and even sectors.
We are all challenged to communicate responsibly on the opportunities that come with open markets. Clearly, it is counterproductive to vilify trade and to use it for campaigns of all sorts. We need both, a strong and reliable multilateral trade regime, and a drive to reap the benefits of regional integration—including TPP and TTIP. If done right, these goals should be compatible and enforce themselves mutually. And the great potential of trade in services is still to be developed, with important tools such as the OECD Trade in Services Restrictiveness Index pointing to the cost of the many barriers in this sector.
One more word on investment: there is a rambling debate on investor protection, and some question if International Investment Agreements—along with Investor State Dispute Settlement schemes—compromise “the right to regulate”. This is another example how an important debate can be hijacked for populism. Of course, states should have the right to regulate, but not expropriate. It should surprise nobody that high-standards for the protection of investors against measures that contradict earlier agreements are essential for a pro-growth policy environment—and in particular for long term investment in infrastructure. It is important that that these discussions are put back on a factual basis and that misinterpretations are effectively addressed. The OECD is in a unique place to explain why international investment agreements matter, and how they contribute to economic prosperity worldwide. Governments and business, with support and evidence from the OECD, must step up in their efforts to explain the virtues of trade and investment more convincingly to the public.
International trade: Free, fair and open? OECD Insights