OECD Forum 2013: jobs, equality trust

Forum 2013

The OECD Forum starting today will bring together around 2000 people in over 20 sessions, but the main question will be how to make sure the economy is a firm foundation on which to build our societies’ goals.

As OECD data on rising inequality show, the benefits of growth do not automatically trickle down to generate more equal societies. The most immediate challenge is to ensure that growth benefits everyone – women, men, children, the elderly – providing not just income, but access to the goods and services such as housing, health care or education vital to personal well-being and development.

That means we need to adopt a new, inclusive approach that looks at the social as well as the economic aspects of growth. “Inclusive growth” is already happening at the level of national economies, with countries linked together by global value chains (GVCs). And not just in the OECD area. One of the most striking features of the 21st century economy is how the economic centre of gravity is shifting towards Asia, and surprisingly for many, Africa, home to six of the world’s ten fastest growing economies in Africa.

These trends make old ideas of development partnerships obsolete. Large emerging economies now have their own international aid programmes. The private sector is funding major global health, education and other projects. Civil society is increasingly shaping policy and not just working in the field.

However, government policy has not always kept up with the deepening and widening of globalisation and the pace it’s happening at. For example, some multinationals may pay as little as 5% in corporate taxes in a given country when smaller businesses are paying up to 30%. But this is perfectly legal, and exploits the fact that tax systems are still essentially nation-based and were designed for the “old” economy.

Even so, public opinion and the media are outraged, especially given the efforts demanded of ordinary citizens to help cut budget deficits, and the suffering caused by austerity programmes in certain countries. There is a feeling that tax is not the only area where businesses are not acting ethically. Banks manipulating interest rates or food manufacturers deceiving consumers about the ingredients in their products destroy confidence and reinforce mistrust. Government responses to these issues are often perceived as too lenient, and encourage the feeling that there is one law for the rich and powerful, another for the rest.

Many are saying that the social contract – the agreement between citizens and their government, defining the rights and duties of each – is now broken. In the face of unprecedented unemployment levels, governments have cut expenditure.  As a consequence, more and more people cannot afford health care, and many young people in particular are giving up trying to find jobs or investing in further education. This is a personal tragedy, and it also weakens social cohesion and the future prospects of the economy, given the growing need for workers with new skills.

The ability of advocacy groups like unions to protect core rights and promote social change is in question, especially if they neglect newer forms of informing, mobilising and campaigning around issues such as social media. At the same time, there are doubts as to whether “social media based” movements are anything more than a passive expression of opinion, and whether protest groups that reject the usual structures of leadership and policymaking can stay together long enough to bring about lasting change in the face of opponents organised in a more traditional way.

There is consensus though that access to information and the ability to exploit it will play an increasing role in the economy and society in the future, with both benefits and dangers. Business models and personal behaviour and attitudes are already changing. But once again, policy is not evolving as quickly as the trends and technologies it is supposed to respond to, or even guide. Massive amounts of personal data are being collected, often with little or no consultation or consent, or debate as to who has the right to know what.

The fact that so many of the phenomena being discussed are immaterial (data, intellectual property, the financial system) can blind us to the fact that we still depend on physical, material, resources to live full lives. Beyond the immediate and pressing concerns linked to the situation today, we have to look to the future. Growth will come to a halt if it destroys the very natural bases on which it ultimately depends.  And growth as such will not solve our problems if it is not sustainable as well as equitable and inclusive.

The links below are grouped around the main themes of the Forum. Click to read an article presenting the topic itself, and giving access to dozens of articles providing background data, analysis and opinion.

Useful links

Promoting inclusive growth
Rebuilding trust
Fostering sustainability

The spider in the cup

May contain salt and pepper, if she unscrews those caps
May contain salt and pepper, if she unscrews those caps

 Findus, whose horse lasagne is now world famous, has a section on their French website called “Agri Confiance®”, promising “confidence from the pitchfork to the fork!” They explain how Agri Confiance® ensures the total traceability of your food by perfectly identifying all the different stages of production, from the plot of land through to the final transformation. That final transformation of horse into cow must be a trade secret because they don’t mention it.

The whole affair raises the question of whether the food industry can be trusted. Given the number of laws and regulations governing it and the number of scandals that keep on happening anyway, “no” seems the obvious answer. It’s only natural therefore that governments try to impose standards on what we eat and drink, and have traditionally done so. Roman legislation on consumer protection, for example, was just as elaborate as some of today’s laws, but the world’s first comprehensive modern food law was the UK’s 1860 Act “Preventing the Adulteration of Food and Drink.”

If you’ve read TC Boyle’s Water Music, set a few decades earlier, you probably remember “Chichikov’s Choice”, a caviar Ned Rise makes from frog spawn and shoe polish. It sounds far-fetched, but the report of the parliamentary Committee set up to examine the need for the 1860 Act shows that food (in towns at least) wasn’t better in the good old days. The list of additives includes plaster of Paris and copper sulphate in bread, sawdust in chicory, and sulphuric acid in gin. The Committee members were given the chance to try a popular “gunpowder tea” sold in the poor quarters of London. As the report says, “the Committee did not venture to taste it, but they were assured its flavour was very peculiar”. That would be the silkworm dung added to make the tea look stronger.

The parliamentary debates leading up to the Act sound almost identical to today’s discussions for and against government intervention. John Roebuck, member for Sheffield, claimed that if the “Bill were carried into effect it would create such confusion in London that no shopkeeper would pass a quiet life.” According to John Wise, Member for Stafford, the Committee had established that adulteration was practised wherever it was possible, adding that “Nor have the poor the same power to protect themselves … as their richer neighbours; they are necessarily limited to such means of purchase as are afforded by the immediate locality in which they reside…”. Speaking in a parliamentary debate on 12 February, London MP Diane Abbott said “… there are families in communities such as mine who eat an awful lot of cheap, processed food. They deserve absolute assurances about its quality.”

So what has changed? Multinational retailers and food manufacturers now dominate the industry. They put enormous pressure on suppliers to cut costs and nothing is wasted. At the start of the 20th century, Upton Sinclair summed up the meat industry’s approach by saying “They use everything about the hog except the squeal.” His 1906 novel The Jungle contains sickening descriptions of the Chicago meatpacking industry and actually helped to get the Meat Inspection Act and the Pure Food and Drug Act passed that same year.

The food industry opposed that legislation, as it opposes many attempts to impose any form of regulation other than self monitoring. Speaking at an OECD Food Chain Network meeting last October, Professor Tim Lang from the Centre for Food Policy, City University, London said that “In spite of the growing evidence since 2000, the mainstream agenda for the food system remains anchored in reducing government involvement; changing consumer behaviour through ‘nudges’ and information availability and continuing to deliver internal supply chain efficiencies.  Essentially this agenda says the food system is fine.”

Obviously it’s not. That said, legislation can sometimes have unintended negative consequences. Last year, the EU banned “desinewed” meat in low cost meals. This includes MRM (mechanically recovered meat) obtained by blasting bones with high-pressure hoses after cutting away what you and I would probably think of as meat. With pink slime (as it’s also known) unavailable, the industry looked for equally cheap alternatives, often from suppliers or even countries they hadn’t used before.

That brings us to the second major feature of the modern food industry: the global supply chain, or what a recent OECD study describes as “growing fragmentation of production across more economies”. Dozens of different companies and intermediaries may be involved in supplying “meat” to the final processor. The latest scandal shows that nobody is really sure that all their partners can be trusted, with everybody claiming they were duped by somebody else.

Walmart’s disclaimer is charmingly frank about this, warning the customer not even to trust them: “While we strive to obtain accurate product information, we cannot guarantee or ensure the accuracy, completeness or timeliness of any product information.” Their UK subsidiary ASDA tries to be more reassuring: “…because products are regularly improved, the product information, ingredients, nutritional guides and dietary or allergy advice may occasionally change.” (We’ve upgraded your beef burger from a boring old cow to something more classy).

By the way, one of the intermediaries selling meat to the French food processors is Draap, owned by a trust registered in our old friend the British Virgin Islands. According to The Guardian, Draap’s sole director is an anonymous Cyprus-based corporate services company called Guardstand, who also owned a share in a business called Ilex Ventures. US prosecutors allege that “merchant of death” Viktor Bout gave Ilex funds to purchase aircraft to fly arms and ammunition around Africa’s trouble spots in breach of embargos.

A couple of weeks ago, Rod Kramer and Todd Pittinsky wrote on the Insights  blog that “Political and business leaders often bemoan the “fragility” of trust – so hard to earn and so easy to lose, they whine. But that’s exactly the way it should be.” The horse meat scandal proves their point. The violent reaction of many consumers is due to the fact that they have suddenly discovered a disgusting truth. In A Winter’s Tale, Shakespeare compares this feeling of betrayal to discovering that you’ve drunk from a cup that had a spider in it. If you never find out about the “abhorr’d ingredient”, you won’t be bothered, but if you do…

There may be in the cup
A spider steep’d, and one may drink; depart,
And yet partake no venom (for his knowledge
Is not infected), but if one present
Th’ abhorr’d ingredient to his eye, make known
How he hath drunk, he cracks his gorge, his sides,
With violent hefts. I have drunk, and seen the spider.

Useful links

OECD work on restoring trust

Restoring Trust and Trustworthiness: The Leadership Challenge

Click to look inside
Click to look inside

Today’s post is from Roderick M. Kramer, William R. Kimball Professor of Organizational Behavior, Stanford Graduate School of Business and Visiting Professor, Center for Public Leadership, Harvard Kennedy School; and  Todd L. Pittinsky, Professor of Technology and Society at Stony Brook University and Senior Lecturer at the Harvard Graduate School of Education. Their new book, Restoring Trust in Organizations and Leaders, has just been published by Oxford University Press.

Apparently, the United States enjoys a surplus of deficits. President Obama’s first State of the Union address warned that we are weakened and endangered not only by our financial deficit, but also by a deficit in trust. He wasn’t making that up. Polls by Edelman and Associates, the PEW Research Center, the Harvard Kennedy School’s Center for Public Leadership, and many others find that Americans’ trust in business and political leaders is in the dumps—and not springing back to life anytime soon.  After all, the hit scandals just keep on coming, from banking and biking to Barclay’s and the BBC.  If we can’t trust our leaders not to manipulate interest rates, tap dead people’s phones, let top athletes cheat for years, or wreck the world economy—well, what can we trust them for?

We’ve heard it all before—the president, the polls, the pundits, the public—but can anyone do anything about it? As a matter of fact, yes. There are concrete steps leaders can take to begin restoring trust, which then-Secretary of State George Schulz once astutely referred to as “the coin of the realm.” (And this was during his testimony before the Congressional committee investigating the Iran-Contra scandal, so who are we to argue?)

Indeed, the current scientific understanding of the process of trust repair is summarized in our new book, Restoring Trust in Organizations and Leaders. This volume, based on a conference held at Harvard University, brought together many of the world’s leading scholars on how social trust is restored and the resulting benefits to society.

But in this image-obsessed age when politicians admit cheerfully that they want to create a “perception” of being honest or decisive, we need to remember that trust is the perception and trustworthiness is the reality.  So unless you are a leader who can actually fool all of the people all of the time, you need to earn people’s trust by being trustworthy. Trust should be thought of as a byproduct—and benefit—of having first provided trustworthy leadership and organizational performance.

But what can leaders do to create and sustain such trustworthiness? Research has identified several steps leaders can take:

Communicate.  A leader’s words and actions should show that he or she is working diligently to protect and advance the well-being and security of constituents or employees. Good intentions matter. People are more likely to trust leaders whom they see as altruistic and committed.

Demonstrate competence. When we place our trust in someone, we put ourselves at risk. We need to believe our leaders are competent. We need to be reassured that not only are their intentions in line with our interests, but also that they can deliver.

Practice transparency. We regard leaders as more trustworthy when we feel we know who they are and what values they hold dear. We’re more comfortable, moreover, when we feel we can understand and predict their actions. Thus, we expect leaders to be transparent about the procedures they use when reaching major decisions and about the consequences of those decisions.

Be vigilant. We expect our leaders to do the necessary due diligence on our behalf. Former Intel CEO Andrew Grove liked to remind his managers and employees, “Only the paranoid survive.” He wanted everyone in his organization to maintain a healthy sustained scrutiny of their fast-moving hyper-competitive environment.

Political and business leaders often bemoan the “fragility” of trust—so hard to earn and so easy to lose, they whine. But that’s exactly the way it should be. We should be stingy when it comes to trust.  We should dole it out sparingly and only to those who have passed the tests. If trust is the coin of the realm, it’s worth spending frugally and wisely.

Useful links

OECD work on restoring public trust

Don’t trust everything you read

OECD server says: "Warning: You are attempting to access an Uncategorised or Blocked site of category "Tasteless". So here's NoW's tasteful sister paper instead.

Journalism has attracted an impressive array of rascals and scallywags down the years, but nothing prepared public opinion for the utter immorality revealed in News of the World phone hacking scandal. Usually when the media use the word “shocked”, the rest of us would have said “mildly interested/amused”.

This time though, it’s appropriate. There was genuine shock and anger on learning that the News of the World’s employees had deleted messages from the phone of a murdered child, giving her parents false hope that she was still alive and interfering with the police investigation.

A common reaction is that the press, politicians and even the police have betrayed people’s trust.

At first sight this seems bizarre.  Opinion surveys regularly show less faith in reporters than just about any other profession.

In the IPSOS MORI Veracity Index linked to above, only 19% of those surveyed in the UK on 10-16 June this year trusted journalists to tell the truth. That’s a dismal score but it’s still much better than the 14% for politicians, the least-trusted group in the poll.

So why should the British public feel betrayed by people they don’t trust in the first place? 

I think that part of the answer is that readers buy the supermarket tabloids and redtops mainly to be entertained, so gossip about celebrities is  fine. After all, these are people who sell their private lives to the newspapers and magazines anyway, and accept money from advertisers to persuade the gullible to dress like them, eat and drink like them and even smell like them. And if they don’t like what’s said, they have the means to defend themselves.

The result is that most readers probably didn’t care about phone hacking when only the rich and famous were victims.

The feeling of betrayal comes from the fact that the tabloids always present themselves as defending morality, upholding what’s best in national traditions, and supporting their readers.  Following the backlash when this was shown not to be the case, many commentators have suggested that things will never be the same again.

We’ve heard this discourse about the power of popular anger before. Remember how the financial crisis was going to change the way banks behaved?

The OECD website has a special section on restoring public trust. Society can’t function without trust, but my personal opinion is that while we do need to restore trust, often the problem is that we placed too much trust in people and institutions who aren’t trustworthy.

Useful links

OECD looks at the future of news and the Internet

Is there a way to really help manage online privacy?

Click to see the conference website

Today’s post is contributed by John Sabo, Chair, OASIS IDtrust Member Section Steering Committee and Director of Global Government Relations at CA Technologies. John will be addressing the OECD High Level Meeting on the Internet Economy: Generating Innovation and Growth, taking place on 28-29 June. Ministers, internet experts and internet economy business leaders will discuss and adopt shared principles for a continued open and trusted Internet. 

How can business and policy makers address data protection and privacy issues as innovation spurs the creation every week of new Internet technologies and business models? 

It’s not as if the policy and technology communities are sitting on their hands.  Major organizations such as the World Economic Forum have published studies bringing attention to the issue, for example examining privacy and cloud computing. The work underway to revamp the European Data Protection Directive is a significant effort.  Likewise, government initiatives, such as the U.S. National Strategy for Trusted Identities in Cyberspace, prominently include data privacy as a core component.  And in the technical community, we see initiatives designed to enhance privacy and trust in federated identity systems such as those sponsored by the Kantara Initiative and the Open Identity Exchange.  Unfortunately, while valuable, ad hoc initiatives represent an incomplete path for actually delivering Internet-scale online privacy and trust.  

A huge complicating factor is that the expectations of individuals about how their personal information should be collected, communicated, used, protected and deleted are anything but uniform and are heavily context-and time-dependent.  Such dependency is replete with twists and turns that make data protection and privacy management difficult.  My smartphone helps me navigate, but in the process is collecting, storing and transmitting personal information to…to whom?  Who is aggregating it, what privacy and security controls are in place, and is it even possible to trace the data flows?  My favorite social network site has made me happy for a while, but now I’m worried about my professional image, and I want my social graph expunged.  Unfortunately, while I may now choose an offline social world, my personal information may live forever in cyberspace to be used in other contexts.  Individuals have few capabilities to manage their context-dependent privacy choices, and yet the online systems and devices they rely on likewise have virtually no technical mechanisms available to support privacy policy management across systems, applications and jurisdictional boundaries.    

It would be naïve to argue that there is a simple, elegant solution to these problems.  But there is a path forward, which is the greater use of the expertise and resources of standards development organizations that are addressing privacy risk management issues from a framework-level perspective.  ISO/IEC is developing a privacy framework (ISO/IEC 29100), a privacy capability assessment framework (ISO/IEC 29190), and a privacy reference architecture (ISO/IEC 29101). In the OASIS standards organization, the Privacy Management Reference Model Technical Committee, which I co-chair, is developing a standard that will address systemic, lifecycle privacy management and provide a tool to help manage contextual privacy policies and requirements. 

A very important characteristic of these framework-level initiatives is ongoing and close collaboration among policymakers and technical standards experts, through which interdependent data privacy policy and technical management requirements will become better understood and defined.  This is the kind of collaboration that we need to move from never-ending privacy discussions toward harmonized policies, internationally-recognized standards, new technical solutions and increased privacy trust.

Useful links

OECD work on the Internet economy

You can follow the discussions via live webcast at:  http://oecd.streamakaci.com/IE/

OECD Forum 2011.The fight to restore trust

It’s receding into the past, but the Great Recession – and the factors that led up to it – are still very much on attendees’ minds at the OECD 50th Anniversary Forum this week. At a session entitled “Restoring Trust in the System,” a wide range of opinions were heard on lessons for financial regulation and corporate governance in the wake of the crisis.

Seated side-by-side on the first panel were ministers from two countries that had very different experienceces in the crisis: Canada, which sailed through the recession and has come to be seen as a paragon for financial regulation, and Iceland, whose Finance Minister, Steingrímur J. Sigfússon, admitted that “we were not quite as lucky as Canada”.

Steingrímur managed to get to Paris despite the clouds of ash from the latest troublesome Icelandic volcano – “we picked an easier name this time,” he joked. That led him to draw comparisons between the forces of nature and the forces of the economic system: “When faced with forces of nature, we feel humbled,” he commented. With financial markets, we need a similar attitude, he said. We must realise the limits of what we know and don’t know, he said, and admit that things went wrong: “There were fundamental flaws in the system, otherwise this would not have happened,” he said. 

The Icelandic minister raised an issue that was echoed by a number of speakers – pay and compensation for bankers and executives: “Why do we accept that bankers need tremendous bonuses to do their jobs, but not surgeons saving people’s lives?” Steingrímur asked. The point was also raised by Peter Mandelson, a former EU Trade Commissioner and British government minister. “Executive pay has become disconnected from reality,” he said, citing a big increase in payments to British business leaders. In 1998, said Lord Mandelson, payments to executives at FTSE 100 firms were 47 times average earnings at their firms; since then, they’ve risen to a multiple of more than 100, far outrunning any improvement in the firms’ share price. While stressing that he didn’t believe in the politics of envy, he said the “scale of what has happened cannot be justified.”

 But Federico Ghizzoni, CEO of the Italian-based banking group UniCredit, defended his remuneration. He said there was a perception that everyone got huge bonuses, but this was not the case. On average, he said, after-tax salaries in Italian banks were only about 30,000 euros a year. He added that half his bonus was based on customer satisfaction and his company’s reputation, as measured by an independent survey. Still, he wasn’t complacent about the challenges facing banking: “The crisis of 2007 was a crisis of values,” he said, “if you don’t measure and test the values of your management, it will come back.”

Values were also on the mind of John Hope Bryant, founder of Operation Hope, which works to expand economic education and empowerment in the US. He said the crisis had shown the need to improve financial education: “This is a civil rights issue – if you don’t understand the language of finance today, you’re an economic slave.”  

Lord Mandelson warned about the risks to social stability from the after-effects of the crisis. Despite the enormous progress in OECD countries over the past 50 years, “the mood of our citizenry is not celebratory,” he warned. There was a lot of apprehension and scepticism about politicians and business, he said, and these attitudes were very corrosive. If left unchecked, he said, they would sap our capacity to make the decisions we need to make.

Echoing Lord Mandelson’s comments, Christine Varney, US Assistant Attorney General, Department of Justice, said there was an argument for a fundamental change in the attitudes of business. At present, boards were legally required to concern themselves only with increasing shareholder value. That approach may be too narrow, she said; she called instead for a focus on stakeholder value – in other words, the interests not just of a business’s shareholders but of its customers, suppliers, and the society in which it operates. David Begg, an Irish labour leader, went further, and said that the economy must be embedded in society, and not the other way round. “Until we achieve that,” he said, “there can be no possibility of restoring trust.”

Useful links

OECD: Strengthening governance, restoring trust  

OECD work on corporate governance

Governance in spotlight at Davos

Davos gets under way this week. If you’re disappointed not to be going, you can at least console yourself by reflecting on all the money you’re saving – at least $71,000, says The New York Times!

What will you be missing? Failures in global governance look set to be a key agenda item for movers and shakers at the Swiss mountain resort this year. What the World Economic Forum defines as “weak or inadequate global institutions, agreements or networks” is identified as one of two “cross-cutting global risks” in the latest edition of the forum’s Global Risks report . (The other is “economic disparity”, which we’ll come back to next week.)

The report’s findings, which were informed by a survey of “580 leaders and decision-makers around the world”, make for gloomy reading, as the BBC says. The problem, says the report, is that while the world has become increasingly interconnected, our capacity for global governance is now “highly fragmented”.

In a sense, this is another of the many fruits of globalisation. On the one hand, the increasing integration of the world economy has brought forward important new economic players like India and China. On the other hand, there’s now a far wider range of economic models on offer and what the report calls a “a growing divergence of opinion between countries on how to promote sustainable, inclusive growth”.

That creates a paradox, says the report, where “the conditions that make improved global governance so crucial – divergent interests, conflicting incentives and differing norms and values – are also the ones that make its realization so difficult, complex and messy”.

Separately, a report released in the run up to Davos shows that levels of trust in business are rising in much of the world, with the exception of the United States. The annual Trust Barometer suggests global trust in business rose two percentage points to 56%, reports the Financial Times ; in the US, however, it fell to 46%, an eight-point drop since 2009.

Overall, NGOs were at the top of the trust scale, on 61%; at the other end were insurers and banks. “Just 25% of Americans and 16% of Britons said they trusted banks to do the right thing,” reports Reuters. In Ireland, the figure was just 6%.

Useful links

OECD: Restoring public trust