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

Your Better Life Index: Some initial trends

With well over a million hits in its first month, the OECD’s Your Better Life Index has proven to be very popular since it was launched at the 50th anniversary OECD Forum on 24 May.

The interactive index lets users from the general public to weigh up the factors (initially from a list of 11) they feel matter most in assessing their quality of lives. They may assign greater importance to, say, life satisfaction than governance, for instance, and can then see how well or badly each OECD country performs against their preferred ratings. (more…)

OECD: From economic NATO to epistemic influence

Today’s post is from Professor Aynsley Kellow of the University of Tasmania School of Government, who with his colleague Professor Peter Carroll of the Business Faculty, has just published The OECD: A Study in Organisational Adaptation in which they present a critical examination of the trajectory of the OECD, from its origins in the Organisation for European Economic Cooperation (OEEC) to the present day.

Peter and I both had the experience of looking for a definitive book on the OECD to tell us about its structure and operations. We found no such work.

Shorter treatments told us little. A chapter on environmental policy in the European Union and the OECD devoted about twenty pages to the EU and around four to the OECD.

The OECD was a neglected topic. It is no longer quite as neglected, with a book by Richard Woodward published recently. Our book coincides with the OECD’s 50th Anniversary, though that was not our intention: we would have gladly finished it sooner!

Our book represents the fruits of more than five years of research. It reflects many days in the Archives of the OECD in Paris and the archives at the European University Institute in Florence, which holds the earliest documents, and in national archives in Canberra, London and Washington.

We traced not only the development of the OECD, but the development of information technology at the OECD: from grainy microfilms to electronic forms of documentation. We were as pleased when we reached the electronic system OLIS as the Members and the Secretariat must have been.

But we also supplemented the documentary ‘fossil record’ of the OECD with interviews, of around half the Ambassadors and many members of the Secretariat. We also conducted interviews with present Secretary-General Angel Gurría, past Secretary-General Donald Johnston, and numerous past senior officers with long experience with the OECD, such as Kumihara Shigehara, David Henderson and Ron Gass.

We have tried to explore all aspects of the OECD, and the theme that emerges is one of adaptation — of an organisation has been remarkably successful at adopting to new demands and challenges and continuing to provide value. The OECD — and its work programs — today would be barely recognisable to those present at its birth in 1961. It has spread beyond its origins as a kind of ‘economic NATO’ to encompass Eastern Europe and the Asia-Pacific among its membership and it now actively engages with India, China, and the other so-called ‘BRICS’ countries. And its work programs have changed as some have dropped off the table to be replaced by environment, information technology, e-commerce, and so on.

While it has encountered some bumps along the road, the OECD has continued to adapt and to demonstrate its continuing value to its member. It is not universally understood or appreciated. It is often dismissed as a ‘mere think tank’, often by international lawyers, concerned that it neither delivers programs nor produces and supports a significant number of international treaties.

It does, of course, produce Council Acts — both Recommendations and Decisions, but there are few sanctions and no real enforcement mechanisms beyond peer review.

This legalistic approach misunderstands the OECD and its influence. We found the OECD to be widely influential, but often in non-obvious ways. Its influence is largely ‘epistemic’. Its influence arises from the quality of its work — often better than that produced in legally-binding arenas, where states are less willing to engage in free-ranging debate because they tread more carefully. For example, the Trade Committee of the OECD remains important for the WTO, which is larger and more heterogeneous in membership (less ‘like-minded’) and highly legalistic.

Thus OECD products are less likely to take the ‘lowest common denominator’ character one finds in many multilateral arenas. Even recalcitrant Members can come on board later, so the ‘convoy’ does not have to limit its speed to that of the slowest boat.

And because the products are developed in committees and other subsidiary bodies where those from national offices are involved, there is often better ‘buy-in’ at the national level, because the very work methods help create whole-of-government coordination and both commitment and international networks of national experts.

These mechanisms by which the OECD adds value are subtle and require some appreciation. While the OECD is not without its limitations (which we discuss in the book), our work suggests that — as it turns 50 — the OECD merits at least two resounding cheers.

If it didn’t exist, an overly legalistic observer might not feel compelled to create it  — but that would miss the point, and the world would be a poorer place.

OECD at 50

Happy birthday to us!

Some of you may have noticed our new logo. It’s to celebrate the OECD’s anniversary. The OECD’s founding convention was signed 50 years ago this week, and today our Secretary-General Angel Gurria is at the Elysée, the French presidential palace, to mark the occasion at the launch of France’s presidency of the G20.

So, what does the Organisation for Economic Co-operation and Development do? One answer would be that it improves people’s lives by helping governments to design better policies. Another answer would be that it works alongside governments to understand the forces of economic, social and environmental change and to devise policies based on facts and comparative data.

It sets international standards on an astonishing range of things from the quality of cucumbers to the safety of nuclear power plants. It compares how well schools all over the world are doing their job. It measures global flows of investment and trade, but also how much leisure time women and men have. You could even say that it makes life harder too – for terrorists, tax dodgers, polluters, and crooked businessmen.

Although we’re celebrating our fiftieth, the OECD’s origins go back much farther. In 1920, Australian artist Will Dyson published a cartoon about the Versailles Peace Treaty. The treaty marked the formal end to the First World War, but in Dyson’s drawing, we see a baby behind a pillar, 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.

When that war ended, leaders 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 Organisation for European Economic Cooperation (OEEC) was established to run the Marshall Plan in 1947. While US financing was important, 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 also take part in OECD work.

The OECD has been at the forefront of efforts to address several global challenges. Many international agreements on the environment started out within the Organisation, from applying the polluter pays principle to international policy in the 1970s, to setting the frameworks for carbon trading as a weapon against climate change today. The OECD started examining the public policy implications of the Internet economy just a year after Amazon issued its initial public offering of stock and before most of today’s biggest sites went public.

The crisis and recession that marked the end of the first decade of the 21st century bring new challenges. Some of these, we hope, will be short term only, such as restoring public finances and bringing down unemployment, but the events of the recent past have prompted the OECD to ask questions about the very fundamentals of a market economy such as trust and sources of growth, and also what we actually mean by progress.

Useful links

Visit the new OECD website to find out more about the topics mentioned above.