The OECD’s origins in the trenches

1914 2014To mark the centenary of The First World War, we will be publishing a series of articles looking at what has changed over the last century in a number of domains.

The OECD was created in 1961, but you can trace its origins back to the First World War, the centenary of which we’re celebrating this year, and in particular to today, Armistice Day. The Great War didn’t end formally with the signing of the Armistice on 11 November 1918, but on 28 June 1919, with the Treaty of Versailles. A year later, Australian artist Will Dyson published a prophetic cartoon about the Versailles Treaty. In Dyson’s drawing, we see a baby behind a pillar with “1940 class” written above its head, and Clemenceau, the French President, is saying “Curious! I seem to hear a child weeping”. By the time that baby was old enough to join the army, the Second World War had broken out.

The Versailles Treaty was harshly criticised right from the start, not least by Keynes, who had attended the conference as part of the delegation from the UK Treasury. In fact his bestselling The Economic Consequences of the Peace is one of the reasons the Treaty has such a bad reputation. Keynes’s critique is twofold. His first attack is to a large extent moral and political. He accuses the Versailles agreement of betraying US President Wilson’s “Fourteen Points” on which the peace was supposed to be built, notably concerning the reparations the defeated nations had to pay and territorial agreements concerning colonies and the European mainland. His second criticism is more economic. For peace to last, he argued, Europe’s economies had to become more integrated, and the Treaty worked against this.

Will Dyson was almost right about when the Second World War would start, but Keynes was spot on, predicting that it would happen 20 years after the 1919 signing due to the despair and economic catastrophe the Versailles Treaty would contribute to. As the Second World War drew to a close, Keynes led the British Delegation to the Bretton Woods Conference in July 1944 that would shape the post-war economy. The leaders of the Allied nations were determined to avoid the mistakes of the past and realised that the best way to ensure lasting peace was to encourage co-operation and reconstruction, and not to punish the defeated. The Bretton Woods Agreement and the institutions created to administer it such as the IMF and World Bank Group were similar in many ways to what Keynes had proposed in 1919.

The politics and economics of the immediate post-war years would give birth to the predecessor of the OECD. As the Office of the Historian of the US Department of State reminds us, “Fanned by the fear of Communist expansion and the rapid deterioration of European economies in the winter of 1946–1947, Congress passed the Economic Cooperation Act in March 1948 and approved funding that would eventually rise to over $12 billion for the rebuilding of Western Europe.” The Organisation for European Economic Cooperation (OEEC) was established to run this “European Recovery Program”, better known as the Marshall Plan, in 1947.

While US financing was important, that $12 billion would be only worth around $120 billion in today’s terms, compared, for example, to the $700 billion the Emergency Economic Stabilization Act of 2008 authorised the US Treasury to spend on the bailout following the subprime crisis. It was actually by making individual European governments recognise the interdependencies of their economies that the US made its greatest contribution to the economic rebirth of Europe.

The success of the OEEC and the prospect of carrying forward its work beyond Europe led Canada and the US to join OEEC members in signing the new OECD Convention on 14 December 1960. Others followed, starting with Japan in 1964, and now 34 member countries worldwide regard it as normal to turn to one another, within the OECD, to help identify problems, analyse them, share experiences, and devise solutions. Another 100 other countries take part in OECD work.

Most of the areas the OECD works on – employment, growth, agriculture, and so on would be familiar to economists of Keynes’s generation, although the actual mechanisms have changed radically since the OECD was created, and even more so since Keynes went to Versailles in 1919. But if you look at the “Topics” menu on www.oecd.org, you’ll see one area that a specialist from a century ago would feel familiar with. While our trade specialists for example are dealing in new concepts like trade in value added, or the industry analysts are trying to understand the information economy, my colleagues at the Centre for Tax Policy are trying to demolish an international tax system that was conceived a hundred years ago and allows big companies and rich individuals to get away with paying little or no tax. That’s a war worth fighting.

Useful links

The history of the OECD

Mapping the history of wellbeing

How was life“You don’t know how lucky you are; when I was young we were so much poorer/sicker/less educated than people today” – a fairly common comparison, but one that relies on individual memory and can only take us back a few decades . And even then, we may not have much detail. We might know where our grandparents lived and worked, how much education they had and whether they had a long and healthy life, but what of our great-grandparents? And was their wellbeing solely determined by how much money they had, or were other factors at play? Can we get a sense of how people’s lives have improved over the past two centuries beyond the monetary?

Our view of economic and social development since the Industrial Revolution is to a large extent based on estimates of gross domestic product (GDP) per head such as those published in Angus Maddison’s History of the World Economy. But trends in GDP per head do not capture what life was like for individuals, their life expectancy, education, personal safety or inequality across society. Increasingly, we are using wellbeing to measure human development, but can we do the same for the lives of our forebears?

Following in the footsteps of Angus Madison, a group of historians got together with the OECD and OECD Development Centre to map the history of wellbeing across the globe, mirroring the approach of the OECD’s present-day Better Life Initiative.

The result, How Was Life? Global Trends in Wellbeing since 1820, looks at 10 dimensions of wellbeing from 1820 to the present day: real wages, educational attainment, life expectancy, height, personal security, political institutions, environmental quality, income inequality and gender inequality, as well as economic growth in the form of gross domestic product (GDP) per head.

So how can we tell how healthy people were over the past 200 years? How Was Life uses two different approaches. Life expectancy, a common element with the OECD’s modern day BLI, is relatively easy to source from historical records, but provides information only on how long people lived – not how healthy they were while alive. Since we cannot go back and ask 19th century men and women about the state of their health, How Was Life uses height instead. Height is a good indicator of general health and nutrition, particularly in childhood, and can be measured from prison and army records, and even the bones of people long dead.

Using literacy and data on years in education, the authors found that while only 20% of people in the world were able to read in 1820, by 2000 the figure was 80%. The rising trend in education followed trends in GDP fairly closely.

But in other cases the relationship between wellbeing and GDP was perhaps more surprising. Life expectancy, for example, continued to improve around the world even when GDP per capita stagnated. The reason? Advances in medical technology and its spread across the globe. Overall, life expectancy around the world more than doubled between 1880 and 2000, from below 30 years to almost 70, and today in OECD countries it is up to 80 years on average.

What does it all mean? Overall, wellbeing has improved over the past two centuries, but not always in the ways or for the reasons we might have thought. The industrial revolution sometimes meant workers were worse off and worse fed than before, for example. Income inequality generally fell from the end of the 19th century until about 1970, but then it rose again. Taking the full range of indicators covered in the report into account reveals an interesting pattern. Before the 1970s global inequality in well-being was higher than global inequality in GDP per capita, but since the 1970s the reverse is true, with the other dimensions of well-being (such as health) more equally distributed across the world than incomes.

Useful links

How’s Life?

OECD Regional wellbeing tool

China: back to the future

Napoleon Bonaparte never visited China, but his reflections on its future role on the global stage have stood the test of time. “Let China sleep,” he wrote about 200 years ago, “for when she wakes, she will shake the world.” Ironically, back in Napoleon’s day China’s share of the global economy was far larger than it is today, according to the economic historian Angus Maddison. The chart is based on data from his monumental economic study of the second millennium, The World Economy: A Millennial Perspective, which was published by the OECD in 2001. In the early 19th century, China’s share of the economy stood at just under 33%, according to Maddison, but fell to 4-5% in the 1960s and 1970s before recovering to reach about 12% in 2000, the latest year this study provides. China’s global share has continued to rise since then, as more recent, albeit differently based, World Bank estimates indicate. But why the earlier long decline? Maddison splits the millennium into two parts – before 1820 and after… (more…)