OECD Yearbook 2016

OECD Yearbook 2016 PRODUCTIVE ECONOMIES INCLUSIVE SOCIETIES The sixth edition of the OECD Yearbook focuses on some of the key social, economic and environmental challenges arising both from the continuing aftermath of the economic crisis, but also from ambitious global agreements struck over the past year on taxation, development and climate change. Part 1, Innovative and Productive Economies, explores the declines in productivity and the increases in inequality witnessed in recent years and asks whether there is a link between these two trends that might inform policy making. It also looks at the impact of the digital economy, both on our understanding of productivity and on the future of the economy. Part 2, Future Societies, examines a range of issues that are already starting to make an impact on the way we live today, including digitalisation, the integration of migrants in our societies and economies, how we educate children and support parents, and how we remove barriers to success for women. Part 3, From Agreement to Action, examines what is needed to honour signiďŹ cant global agreements struck in 2015 and looks at the implementation challenges facing the international community in combating international tax abuse, meeting sustainable development goals and tackling climate change.

In the 2016 OECD Yearbook, OECD experts are joined by leaders from government, business, labour, academia and civil society to examine these and other questions facing our societies today.

OECD Observer Volume 2016 Supplement 1 ISSN 0029-7054 Volume 2016 Supplement 1

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Editors: Rory Clarke, Brian Keeley Planning and development editor: Diana Klein Forum co-ordination: Denise Green, Jean de la Rochebrochard, Marina Bradbury Assistant editor: Neïla Bachene Interns: Lily Emamian, Anna Kouznetsova Proofreader: Catherine Rowles-Holm Data editors: Eileen Capponi, Margaret Simmons Illustrations: Charlotte Moreau, David Rooney Production: Marion Desmartin Design and layout: Design Factory Advertising management: Christine Clement, Aleksandra Sawicka, LD Media Development The cut-off date for information published in the Yearbook 2016 is 2 May 2016. Corrigenda to OECD publications may be found on line at: www.oecd.org/publishing/corrigenda. © OECD 2016

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Table of contents INTRODUCTION 6 Towards a more productive, inclusive, world Angel Gurría, Secretary-General of the OECD 9

The economic empowerment of women for more productive and inclusive societies Michelle Bachelet, President of Chile

INNOVATIVE AND PRODUCTIVE ECONOMIES 10 Introduction 12

The productivity and equality nexus Gabriela Ramos, OECD Chief of Staff and Sherpa to the G20/G7

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All on board to increase productivity for a more inclusive world Rodrigo Valdés, Minister of Finance, Chile

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Business brief: Randstad

16 The twin challenges of promoting productivity and inclusive growth Catherine Mann, Chief Economist, OECD 18 The digital disruption of productivity Diane Coyle, Professor of Economics, University of Manchester and Fellow, Office for National Statistics 20 For an optimistic revolution Alexander Stubb, Minister of Finance, Finland 22 Digital economy: Why a brighter future could be in our pocket Andy Wyckoff, Director, OECD Directorate for Science, Technology and Innovation 24 In with the in-crowd Anindya Ghose, NEC Faculty Fellow, NYU Stern School of Business 26 OECD Factbook indicators 28 Idea Factory: Productivity

40 Family-friendly governance in response to demographic challenges Katalin Veresne Novák, Minister of State, Ministry of Human Capacities, Hungary 41

On public education in Chile Camila Vallejo Dowling, Communist Party, Member of Parliament (Congress), Chile

42 Code is the poetry of a better world Linda Liukas, Author, Computer Programmer 43 A mystery in the machine Pedro Domingos, Department of Computer Science and Engineering, University of Washington 45 Business brief: McKinsey&Company 46 What dads can do for gender equality Monika Queisser, Willem Adema and Chris Clarke, OECD Directorate for Employment, Labour and Social Affairs 48 Women for peace Haifa Fahoum Al Kaylani, Founding Chair, International Women’s Forum and Ibrahim Gambari, Former Foreign Affairs Minister, Nigeria, and UN Under-Secretary-General for Political Affairs 50 Local growth and development: An era of new priorities Michel Landel, CEO, Sodexo 52 Local logic: How cities can make a difference Carolina Tohá, Mayor of Santiago, Chile 53 Inequality and urban growth Ricky Burdett, Professor of Urban Studies, London School of Economics 54 Business brief: AARP 56 OECD Factbook indicators

FUTURE SOCIETIES 32 Introduction

FROM AGREEMENT TO ACTION 58 Introduction

34 Europe will win from integration Stefano Scarpetta, Director, and Jean-Christophe Dumont, Head of International Migration Division, Directorate for Employment, Labour and Social Affairs, OECD

60 The Paris Agreement demands climate action Simon Upton, Director, OECD Environment Directorate

36 Refugees are not a burden but an opportunity Philippe Legrain, Founder, Open Political Economy Network (OPEN), Senior Visiting Fellow, European Institute at the London School of Economics 38 Understanding the battle against extremism Andreas Schleicher, Director, OECD Directorate for Education and Skills 39 Help refugees integrate and contribute

62 Renewable energy: Catalyst for a clean energy transition Miguel Arias Cañete, EU Commissioner for Climate Action and Energy 63 Databank: Mapping carbon emissions 64 China’s climate change combat Interview with Xuedu Lu, Advisor, Sustainable Development and Climate Change Department, Asian Development Bank 65 How to reach the Sustainable Development Goals? We need a GPS Martine Durand, Chief Statistician and Director, Statistics Directorate, OECD

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67 Implementing the Sustainable Development Goals is an imperative Dambisa Moyo, Economist and Author 68 Africa’s choice: Business-as-usual or a green agenda?

Belynda Petrie , CEO and Co-Founder , OneWorld Sustainable Investments 70 Act today for tomorrow’s children Helle Thorning-Schmidt, Chief Executive Officer, Save the Children International 71

Fighting poverty means fighting sexism Michael Elliott, President and CEO, The ONE Campaign

72 The MNE Guidelines at 40: Implementation still matters Adrian Blundell-Wignall, Director, OECD Directorate for Financial and Enterprise Affairs, Special Advisor to the OECD Secretary-General on Financial Markets 74 It’s up to us all to end child labour Kailash Satyarthi, 2014 Nobel Peace Prize Laureate, Founder, Kailash Satyarthi Children’s Foundation 76 Global tax and transparency: We have the tools, now we must make them work Pascal Saint-Amans, Director, OECD Centre for Tax Policy and Administration 78 Tax fraud: Time to get tough Gabriel Zucman, Assistant Professor, University of California, Berkeley 80 Finance, amorality and double-speak Joris Luyendijk, Author 82 To have and have more: Wealth management and the growth of global inequality Brooke Harrington, Author and Associate Professor, Copenhagen Business School 84 Inclusive business can help solve the sustainability equation Noah Beckwith, Development Finance Practitioner 86 World trade: Why ministers must act Todd McClay, Minister of Trade, New Zealand 88 OECD Factbook indicators 91 Focus: Latin America’s potential: Some snapshots 92 Focus: OECD Latin America and the Caribbean Regional Programme 94 Focus: Latin America’s potential: Some snapshots 96 Don’t Miss

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Towards a more productive, inclusive world Despite nearly a decade of policy efforts, the global economy remains in the repair shop. The legacies of the crisis are still very much present: weak growth, persistently high unemployment in several countries, faltering trade and investment and a profound loss of public confidence and trust. Any prospect of a strong upturn in advanced or emerging economies has dimmed in the past year. But we may be getting closer to finding solutions by focusing on the roots of the problems.

The lingering crisis has sharpened the focus on two longterm trends that are impeding our economies and tearing at our social fabric: first, a decline in productivity growth, with hourly labour productivity growth in the OECD area sliding from 2% in 1990-2000 to 0.9% in 2007-14; and second, a longerstanding rise of inequalities in wealth, incomes, well-being and opportunities. As the rich have become richer, the middle classes have seen little, if any, improvement in their incomes with their ranks dwindling in many countries, while many low earners have slipped into poverty. At no point in the past 30 years has productivity growth been lower, and at no point over the same period has income inequality been higher.

Policy makers must take action if we are to lay the foundations of sustainable economic growth and build fairer societies. A bold and comprehensive policy approach is needed.

OECD Week 2016, comprising the OECD Forum on 31 May1 June, and the OECD Ministerial Council Meeting (MCM) on 1-2 June, will probe these issues, with a view to improving policy making for more productive, inclusive societies. I agree wholeheartedly with President Michelle Bachelet of Chile, who I am delighted is chairing the MCM, when she writes in the OECD Yearbook that the purpose of enhancing productivity should be to make economies grow smarter and decrease inequalities.

How can policies for inclusiveness and productivity reinforce each other? First of all, we need to get the growth engine

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INTRODUCTION

Angel Gurría Secretary-General of the OECD

functioning again, in particular by boosting investment and bringing down the persistent high levels of unemployment in many countries. Another place to look is innovation. As OECD data show, productivity growth has slowed, but despite what many people might think, the issue is not so much a

The production revolution promises to transform everyone’s life shortage of innovations, as a failure of those innovations to spread throughout the economy. In particular, innovations are not making their way from advanced firms–knowledge-based “frontier” enterprises where productivity is actually growing– to other firms in industry and services. This gives us hope, because policies can help kick-start the innovation-diffusion engine, for example by enhancing competition in product markets–especially in services, to ensure incumbents are not favoured over entrants–by incentivising firms to adopt better technologies and improve managerial performance, and by creating the conditions for more productive private investment.

However, spreading innovation and improving market access are only part of the answer. As a growing body of analysis at the OECD indicates, both productivity and inequality can also be affected by regulatory issues affecting property and labour markets, debt versus equity questions, capital misallocation, productivity dispersion within firms, or excessive pay in the financial sector.

This requires constant upgrades of our economic frameworks.

It means reforming tax-and-transfer systems and making tax systems fairer. It means fixing our regulatory frameworks to foster market access and the spread of innovations. It means getting more women and young people into good jobs, and doing much more to close the unacceptable gender pay gap in our countries. Moreover, it means doing more to address

INTRODUCTION

Inclusiveness is about countries as well as people: no one and no place should be left behind

migration and integrating newcomers within our societies so that they can put their skills to full use, for everyone’s benefit.

The importance of skills cannot be stressed enough. If productivity means “working smarter,” then it holds that higher productivity requires a highly skilled workforce, with everyone on board. This not only requires expanding the supply of skills in the population but also reskilling and improving the way skills are used in the workplace.

As I warned at our Future of Work policy forum in January, skill mismatches in our economies risk growing exponentially unless we urgently put in place policies to improve skills, so strengthening the conditions for inclusive growth. The digital

If productivity means “working smarter,” then it holds that higher productivity requires a highly skilled workforce, with everyone on board. revolution is profoundly disrupting the nature of work, raising demand for high-skilled jobs as well as for some low-skilled ones, and automating and displacing jobs involving routine tasks.

However, skilled people are also vulnerable, as articles in this OECD Yearbook show. Whether we are talking about bus drivers or bus designers, bank tellers or bank managers, or even quintessential middle-class professionals like doctors or lawyers, the production revolution promises to transform everyone’s life.

Policies to help all people prepare for uncertainties, and to build confidence and competence, are becoming more important than ever.

Productivity, therefore, should no longer be viewed in isolation.

Indeed, productivity and inclusiveness have many common roots. The key challenge for policy makers is to identify winwin policies that can deliver both and create a virtuous circle

of improved inclusiveness and productivity growth. Social and environmental sustainability are also key in this new equation; any effort to raise productivity cannot ignore the imperative of safeguarding our planet, or our duty to strive towards better functioning, more equitable societies. In fact, sustainability is itself opening up a new frontier that can help boost productivity and inclusiveness.

Major international agreements were struck in 2015–on the Sustainable Development Goals at the UN in New York in September, the Paris Agreement on climate at COP21 in December (and formally signed in April this year), and on multilateral trade at Nairobi in December. The OECD/G20 Base Erosion and Profit Shifting (BEPS) package was also presented, designed to boost global financial transparency and reduce international tax evasion.

Our future welfare relies on honouring these commitments, and 2016 must be the year for beginning implementation and seizing these historic opportunities. We must double our efforts to restore trust and social cohesion, and heal the domestic and global divisions that threaten our future.

This makes international collaboration ever more vital. Inclusiveness is about countries as well as people: no one and no place should be left behind.

Implementing agreements and advancing together towards a stronger, cleaner and safer world: that is what the world’s citizens expect and what policy makers can and must deliver.

Economic and political headwinds may make the going tough, but together we can overcome any challenge. Together, we must be more productive and inclusive in helping to build better policies for better lives. www.oecd.org/about/secretary-general @A_Gurria

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BETTER POLICIES FOR BETTER LIVES

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INTRODUCTION

The economic empowerment of women for more productive and inclusive societies

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Michelle Bachelet President of Chile

This year’s OECD Ministerial Council Meeting (MCM), chaired by Chile, is devoted to productivity. Ministers will discuss what governments, firms and individuals can do to improve productivity with the aim of fostering inclusive growth. Their views will no doubt be nourished by public discussions at the annual OECD Forum, which precedes the MCM. The purpose of enhancing productivity should be to make economies grow faster and in a smarter way, while simultaneously decreasing inequalities and allowing everyone to be part of the productive system. The final goal is to improve the well-being of our citizens, providing people with better tools to meet their job requirements and to reach their full potential. This is a main challenge of our time, when the key drivers of growth and well-being will come from capitalbased knowledge.

The OECD has confirmed that we began to experience a slowdown in productivity years before the 2008 crisis. The crisis deepened this deceleration. It is a paradoxical downturn considering the enormous recent advances in technology and the expectation that these innovations would provide new vitality to our economies. As we are all struggling with the same challenges, we could all benefit from a co-ordinated and collective response.

While productivity has slowed down, income inequality has risen. The OECD reports that in the 1980s the bottom 10% of the income distribution earned around seven times less than the top 10%; that figure had increased to almost ten times by 2013.

These disparities are also applicable to wealth and well-being.

The challenge is to set up policies to give the same opportunities to those at the bottom of the income scale.

We need a comprehensive approach to foster productivity and tackle inequalities at the same time. Policies should aim at increasing access and improving quality of education as well as improving access to new technologies. They also have to provide the appropriate tools to reap the benefits of the digital economy and future innovations.

Governments should stimulate innovation by providing incentives for R&D investment through enabling the diffusion of technologies. In order to reduce the gap between frontier firms and those lagging behind, we need stronger policy co-ordination at all levels. It is essential to better align local and national policies, but also to promote more co-operation between universities, firms and governments. Collaboration between these partners is key to increasing productivity. It is in this spirit that Chile is dedicating 2016 as the “Year of Productivity”. We

are working on an ambitious agenda, launched two years ago, with the objective of increasing investment, providing sound regulation, adequate infrastructure and a level playing field for new entrants and incumbents. We are committed to revitalising the economy and diversifying the productive structure to turn Chile into a more innovative and inclusive country.

Gender equality and women´s empowerment are at the core of these efforts. Attaining gender equality will make a crucial contribution to progress across all goals of the new Agenda for Sustainable Development and is closely related to our MCM theme: productivity and inclusive growth.

The lives of girls and women have changed dramatically over the past 50 years. Today, more girls and women are literate than ever before. In OECD countries more women (40%) than men (30%) obtain a tertiary degree and women now make up over 40% of

Chile is dedicating 2016 as the “Year of Productivity” the global labour force. The pace of change has been astonishing, but progress has not come easily. Progress in closing gender gaps has been achieved in the areas of educational enrolment, life expectancy and labour force participation. In contrast, change has come slowly, or not at all, in many other dimensions: gender gaps in salaries, male-female differences in the level of responsibility in house and care work, gaps in asset ownership, and constraints on women’s agency in both the private and public spheres all fall into this category.

Greater gender equality can boost economic growth, enhance productivity, improve development outcomes for the next generation, and make institutions more representative. Misallocating women’s skills and talent comes at a high economic cost. The current level of gender-based discrimination is estimated to induce a loss of up to US$12 trillion or 16% of the global income, and OECD research shows that achieving parity in labour force participation rates between men and women in OECD countries could boost global GDP by 12% over the next 20 years.

Countries have much to gain from increased female labour force participation in terms of economic growth and welfare. But we have to do it right: women should be fully integrated in the labour force, not subjected to discriminatory gender wage gaps, nor involuntarily confined to part-time employment and to lowpaying, low productivity and precarious jobs.

Empowering women in economic activities is a shared responsibility. We need all countries, international organisations and stakeholders on board. We need tailored policies for addressing our own national challenges, but we also need the support of the international community to complement our efforts and, more generally, to provide evidence-based advice on public action through better data, impact evaluation and good practices. The OECD has a special role to play in this regard as a leading source of expertise on sound public policies and high standards, and by encouraging a “race to the top” for better policies. www.gob.cl/en/

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GOVERNANCE FOR A BETTER WORLD INTRODUCTION

Innovative and productive economies

Productivity growth has been slowing in the OECD area for many years, though the trend has become more pronounced since the start of the global financial crisis nearly a decade ago. This trend may seem surprising, given the surge of information and communications technology at home and at work since the 1990s. At the same time, inequalities have widened, affecting growth performance. In fact, in three decades productivity growth has never been slower nor income inequality wider than it is today.

Could the slowdown in productivity growth and wider inequality be related? Gabriela Ramos considers this a possibility, particularly as OECD research has found that high levels of inequality may impact growth negatively. She explores policies and new approaches that may address both.

Rodrigo Valdés argues for a policy focus on productivity to foster a more inclusive world. Catherine Mann outlines several reasons for the slowdown in productivity and the rise in inequality, including a growing gap between dynamic “frontier” firms and the rest, and believes that if monetary policy, fiscal policy and structural policies were better co-ordinated, they would provide effective solutions. Diane Coyle looks for clues in the digitisation of the economy, which affects how we measure performance, while it may also have contributed to some reductions in GDP. Alexander Stubb agrees that digital technology has spurred new forms of capitalism in fundamentally disruptive ways, but he sees a future of promise and calls on policy makers to face the new industrial revolution as optimists. Andy Wyckoff, who also takes a positive view of the future, says that the digital economy does benefit productivity, particularly among individual firms. For him, the conundrum is how to transmit those gains to the wider economy. Anindya Ghose ends the section by providing a hitchhiker’s guide to one novel area of today’s interconnected digital economy, that of crowdfunding, and outlines the pros and cons. In our “Business Brief,” Jacques van de Broek believes that not only will jobs evolve, but people will work differently in the digital economy, and this should shape the kinds of skills people learn, as well as public policies.

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INNOVATIVE AND PRODUCTIVE ECONOMIES

The productivity and equality nexus

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Gabriela Ramos OECD Chief of Staff and Sherpa to the G20/G7

Productivity growth has slowed since the crisis and inequality of income and opportunity has been getting worse. Could they be impacting each other?

The linkages between the productivity and inequality challenges we face are still to be fully explored. Ultimately, each challenge may have its own solution, but the nexus of relationships that exists between productivity and inequality policies and outcomes means that there is also increasingly good reason to think that our efforts would benefit from a common approach.

For a start, OECD research has found that high levels of inequality may impact growth negatively by causing a lack of investment in human capital among low income families. This could also affect productivity growth in our economies. At the same time, weak competition frameworks in the digital and knowledge-based economies may unleash “winner takes all” dynamics, or worse still, persistent rent-seeking behaviour on the part of incumbents.

Our analysis also suggests that wage dispersion between firms, which reflects diverging rates of productivity growth, has in many cases contributed to rising inequality of incomes between workers. On top of this, the “financialisation” of our economies may have created incentives for short-term profit maximisation, at the expense of adequately channelling resources to the more productive activities.

In the spirit of our New Approaches to Economic Challenges (NAEC) and Inclusive Growth initiatives, the OECD believes that efforts to address our productivity and inequality challenges would have a better chance of succeeding if we looked at the synergies and trade-offs emerging from the distinct policy sets targeted at each issue. This means designing policies for each of these two core challenges, bearing in mind how they might impact one another, and avoiding the “silo” perspective. It also requires an ex-ante approach that seeks to broaden the assets that our economies can rely on (high-quality skills, infrastructure or access to finance by SMEs), stopping individuals, firms and regions from accumulating disadvantages that prevent them from fulfilling their full potential.

Ex-post policies, including effective re-distribution, are also a key part of this equation to correct for those outcomes that do

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not deliver for people, firms and regions. Such interventions are particularly vital to stop the income inequality of one generation transmuting into the inequality of opportunities for the next.

We must also learn from previous policies. Traditional measures to boost productivity in competition, labour market, or regulatory frameworks should allow for the reallocation of resources to more productive activities, or for increasing productivity in specific sectors. But these may have an adverse impact on inequalities of income and opportunities, if workers are not equipped to cope with change due to their low skills, or initial conditions. In the past, the drive towards flexible labour markets has benefited many employers, and particularly the most productive firms that have gained from an improved allocation of labour resources. But increased flexibility has also brought a greater prevalence of non-standard work. Recent OECD work on job quality highlights how low-skilled individuals can be trapped in precarious low-wage jobs, and receive less training.

Our approach to designing policies to ensure that those individuals, firms and regions that are left behind can fulfil their full potential and contribute to a more dynamic economy draws on

Policies to reduce inequalities and support productivity can create a virtuous circle for inclusive and sustainable growth OECD work from diverse policy areas. It starts with the Inclusive Growth agenda (www.oecd.org/inclusive-growth), by focusing on well-being as an ultimate objective of policy. It builds on OECD productivity work, via The Future of Productivity report and efforts towards an OECD productivity network. It also synchronises with the OECD’s efforts to measure productivity more accurately at a time when traditional measures are ill-adapted to account for the full effects of rapid technological change and innovation centred on knowledge-based capital, the increasing prominence of the services sector, and productivity in the public sector.

The ultimate goal is for governments to focus on an extensive range of win-win policies that can reduce inequalities while supporting productivity growth, thereby creating a virtuous circle for inclusive and sustainable growth. This calls for distinct but complementary policy interventions at the individual, firm, regional and country levels. What this entails in practice will vary for each country depending on its circumstances. But broadly speaking, a number of policy areas are worth considering: First, a new approach is needed to boost productivity at the individual level so that everyone has the opportunity to realise their full productive potential. Expanding the supply of skills in the population through more equal access to basic quality education–particularly of low income groups–is crucial, but not sufficient. With rapid technological change, skills need to keep up with the demands of the market to avoid the skills mismatches which have contributed to the productivity slowdown. A broad

INNOVATIVE AND PRODUCTIVE ECONOMIES strategy is also needed to ensure a better functioning of the labour market, promote job quality, reduce informality, allow for the mobility of workers and inclusion of underrepresented groups such as women and youth, and to promote better health outcomes for everyone.

Second, for people to realise their full productive potential, businesses have to realise theirs. While heterogeneity among firms is normal, the widening dispersion in productivity levels and its implications for aggregate productivity and workers is a cause for concern. According to our productivity report, the early 2000s saw labour productivity at the global technological frontier increase at an average annual rate of 3.5% in the manufacturing sector, compared to just 0.5% for non-frontier firms. The gap was even more pronounced in the services sector. The larger the share of businesses that can thrive, the more productive and inclusive our economies will be. Achieving this requires a reassessment of competition, regulatory and financial policies to ensure a level playing field for new firms relative to incumbents.

It also requires policies to facilitate the diffusion of frontier innovations from leading to lagging firms.

Third, policy prescriptions will be ineffective unless they take regional and local circumstances into account. Inequalities that play out in regions, like housing segregation by income or social

background, poor public transport, and poor infrastructure, can lock individuals and firms in low-productivity traps.

Finally, adopting a more holistic approach to policy requires fundamental changes to public governance and institutional structures, to strengthen the ability of national governments to design policy that promotes synergies and deals with trade-offs.

In highly unequal societies, governments also need to address political economy issues, including the capture of the regulatory and political processes by elites that benefit from the status quo, and policies that favour incumbents.

None of this will be easy, but it is nevertheless essential. At the OECD we believe it is time to develop a better understanding of the dynamics between two of the key issues of our time– productivity and inequality–in order to build a more resilient, inclusive and sustainable future.

Adapted from a blog published on www.OECDInsights.org on 29 January 2016, see http://oe.cd/1lg References Ramos, Gabriela (2014), “Inclusive growth: Making it happen” in OECD Yearbook 2014, visit www.oecd.org/yearbook OECD (2015), The Future of Productivity, OECD Publishing For more on OECD work on inclusive growth, visit www.oecd.org/inclusive-growth/ For more on the OECD productivity network, visit www.oecd.org/eco/global-dialogueon-the-future-of-productivity.htm

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A hesitant recovery, widening income gaps and high unemployment have raised awareness about the need to foster sustainable growth in which everyone contributes and shares the benefits.

All on Board: Making Inclusive Growth Happen puts forth new holistic approaches to economic policy making and goes beyond traditional growth indicators to reflect people’s well-being.

Part of the New Approaches to Economic Challenges series. For more reports and information, visit www.oecd.org/naec

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INNOVATIVE AND PRODUCTIVE ECONOMIES

All on board to increase productivity for a more inclusive world Rodrigo Valdés Minister of Finance Chile

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Our economies face an enormous challenge to strengthen productivity and to create the conditions for a fairer and more inclusive society

For Chile, it is a great honour and opportunity to chair the 2016 OECD Ministerial Council Meeting. It is an opportunity to celebrate Chile’s first five years as a member of the OECD and is yet another demonstration of the increasing relevance of emerging and developing economies, which today account for more than half of world GDP. It is also a way to influence the OECD agenda from the perspective of a group of prosperous, but still unequal, countries.

Several emerging economies, including my own, have grown at a relatively rapid pace over the past couple of decades. Income has increased considerably, enabling a significant improvement of citizens’ quality of life. Poverty has also declined substantially and people have gained access to more and better goods and services.

Despite this success, we face two looming challenges. First, in many countries inequality is unacceptably high. Among OECD countries, emerging economies, such as Chile and Mexico, rank among the top in terms of income inequality and have made limited progress in narrowing the income gap. Inequality has also increased in some advanced economies, and has become a source of concern, particularly since the crisis. Inclusiveness thus remains a key goal.

Second, productivity growth has softened almost everywhere, affecting medium-run growth forecasts both in rich and emerging countries. Structural reforms are essential, as only higher productivity can sustain growth in the long run.

The good news is that equity and growth have the potential to boost each other. Without growth it is not possible to create quality jobs and expand social rights. On the other hand, more inclusive societies have more cohesion, are less prone to conflict, and generate more confidence and stability, all of which favour growth.

And this is where productivity plays its part: it has the potential to foster economic growth and equity simultaneously.

Investment in human capital, for example, not only makes workers more productive but can also reduce income gaps.

Similarly, market competition not only encourages firms to become more innovative and efficient but also makes goods more accessible.

The question is, then, how do we foster productivity? When

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economies are less developed, the reforms needed are relatively well known. However, in more mature economies, policies to reinvigorate productivity are less straightforward. Greater

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innovation and better human capital are needed as well as an adequate regulatory framework and well-functioning markets.

Competitive markets provide the incentives for the creation of new and efficient firms.

Taking action, Chile launched the Productivity Agenda in 2014, which included several measures that sought to encourage firms to invest in new technologies and knowledge-based capital, boost strategic areas to create quality jobs, and increase diversification of the economy–all steps that are necessary to cope with the end of the commodities super-cycle. An important step was the creation of the National Productivity Commission, a permanent, independent and participatory body that will help to ensure that productivity is the focus of policymaking, and will recommend policies from a long-term perspective.

Continuing with these efforts, the government declared 2016 the Year of Productivity. We presented a set of new structural reforms to improve productivity by decreasing financing costs for entrepreneurs and small businesses, simplifying administrative procedures to cut red tape, and implementing changes aimed at increasing services exports. The private sector has also done its part: the Business Association (CPC) proposed more than 100 measures to eliminate obstacles to productivity improvements for Chilean firms. Soon, the Workers’ Union (CUT) is expected to launch a proposal to enhance workers’ productivity.

Our economies face an enormous challenge to strengthen productivity and to create the conditions for a fairer and more inclusive society. To succeed, it is imperative that both governments and the private sector keep working together with a shared vision of the future of our countries. It is also critical that countries work together, as productivity enhancements usually have positive spill-overs across borders. We can all gain with a more productive world.

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Business brief

Jobs in the digital era work differently Jacques van den Broek CEO Randstad Holding NV

companies tend to concentrate in high-tech hubs where highpaid workers employed in STEM occupations are likely to spend their income on local non-routine services. The research shows that the creation of a single high-tech job generates between 2.5

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The creation of a single high-tech job generates between 2.5 and 4.4 additional jobs outside high tech “We are the children of a technological age. We have found streamlined ways of doing much of our routine work. Printing is no longer the only way of reproducing books. Reading them, however, has not changed.” Lawrence Clark Powell Ongoing innovation in technology is changing labour markets worldwide. To understand the future of work in the digital era, we need to move away from the traditional economic classification of manufacturing and non-manufacturing sectors. The main differentiator in the digital era is routine tasks versus nonroutine tasks. Medium-skilled workers performing routinetasks in particular run the risk of being replaced by computers doing their job more efficiently, while the share of employment in non-routine tasks is growing. Research on the “Future of Work in the Digital Age” by KU Leuven and Utrecht University, and commissioned by Randstad for the flexibility@work 2016 publication, outlines the transition currently taking place in the labour market. For this the researchers assessed two related phenomena: deindustrialisation and job polarisation in OECD countries. These phenomena capture the shifting composition of a labour market, which is clearly in transition. Next to the decrease in manufacturing in the developed countries, the growth in services can be decomposed into low-tech, low-paying and high-tech, high-paying employment, which reveals the current trend of the job polarisation.

Job polarisation captures the increasing importance of the least and most paid occupations in the economy at the expense of mid-level jobs. In response to the digital economy many new markets and jobs are being created, but many existing jobs are and will be eliminated, or will have to be significantly re-tooled in the process. Mediumpaid jobs, such as machine operators and assemblers; office clerks and customer service clerks are disappearing as a result of automatisation, robotics and outsourcing. The research shows this phenomenon is taking place in all developed countries and across all sectors, with an emphasis on manufacturing.

There is a second kind of job polarisation occurring: both the least and most innovative or tech-intense sectors are increasing their employment share. In developed economies, investment in science, technology, engineering and mathematics–the socalled STEM disciplines–is increasingly seen as a means of boosting innovation and economic growth. The tech-intensive sectors create high-tech STEM jobs which are typically more productive and therefore generate additional demand. These

and 4.4 additional jobs outside tech-intensive sectors in these high-tech regions. This is an important fact because, contrary to what is sometimes claimed, boosting high-tech employment helps, rather than hurts, employment growth at the lower end of the labour market.

In many areas and regions employment is picking up, so much so that employers say they cannot fill their vacancies because even highly-qualified candidates have the wrong skills for the jobs available. The current education systems, employers argue, teach yesterday’s skills to tomorrow’s graduates. Many are concerned that applicants lack “soft skills”, such as interpersonal, communication and analytical problem-solving abilities. This clearly indicates that jobs in growing sectors, such as health, education and other in-person services, require a different skill-set than those acquired by people who previously worked in sectors with declining employment, such as agriculture and manufacturing.

The changes in the digital era raise profound issues on how to adapt labour market policy and institutions, as well as decent flexible work arrangements and social security, in order to provide adequate security for workers while harnessing the potential of new ways of working to enhance opportunities. As the authors state: “the technology change is clearly skill–or better said–routine biased”. The paradox lies in the fact that we still have little understanding about how we perform many tasks, particularly those that require a human touch and soft skills.

These tasks often require little effort for humans to accomplish, but still pose great difficulty for computer programmers to put into computer language.

We need to become as innovative in creating good jobs as we are in developing innovative products and services. What skills are needed for these non-routine tasks? What would it take for business, policy, and educational leaders to work together to make it happen? If our approach does not change, people will be denied the opportunities they need to develop the skills they require in the digital era.

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The twin challenges of promoting productivity and inclusive growth Catherine Mann Chief Economist, OECD

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Advanced economies remain in the doldrums. People’s incomes are rising at a very low pace, especially in the lower half of the distribution. Two global trends–the slowdown in productivity and the rise in inequality–reect the state of policy, and point to the challenges policymakers face to change prospects for their citizens and the global economy.

Economies become more prosperous when output per worker rises. Since the early 2000s, however, productivity growth has declined in many advanced countries. The slowdown in productivity–the OECD average slid from 2.0% in the 1990s

The very weak recovery and already strong reliance on monetary accommodation demands a renewed focus on ďŹ scal policy and public investment to 1.4% in the 2000s–has been particularly pronounced since the global ďŹ nancial crisis struck in 2007. In fact, productivity growth has been lower in the last decade than at any time during the past 60 years. This deceleration pulls down the scope for stronger income gains.

Rising inequality reects dampened income growth of many workers. Since 1990, the income of the top 10% has grown 1.2% per year. Contrast this with an annual income growth of 0.6% for the bottom 40% and an even more dismal 0.3% for the bottom 10%. The fruits of economic activity have been concentrated among higher earners, and owed far less to median and lower earners. Redistribution through taxes and transfers offset some of the rise in labour income inequality in the 1990s, but not in the 2000s. Little wonder ordinary people have protested so loudly and in so many countries!

What explains these two global trends? Start with the productivity slowdown. The deceleration of productivity has been sharpest since the global ďŹ nancial crisis, when demand and investment have been very weak. For several economies, however, the productivity slowdown goes back to the early 2000s, and corresponds with other long-term trends of fewer start-ups, declining business dynamism, sluggish investment in knowledgebased capital, and a widening dispersion in productivity growth between the most innovative ďŹ rms and the rest. What underpins

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rising inequality? On the high-income end, policies that inhibit competition and delay exit may have beneďŹ ted employees in some lucrative ďŹ rms, in ďŹ nance and technology for instance.

Technological progress has probably pushed up the earnings of very skilled workers in particular. At the other end of the income spectrum, sluggish employment growth, along with reduced bargaining power, have curbed income growth of low-skilled workers.

A closer look reveals that the slowdown in productivity and the rise in inequality have a third relation: a growing gap between the robust productivity growth of dynamic, frontier ďŹ rms, who can pay more to their workers, and a much more lacklustre productivity performance among regular, traditional ďŹ rms, who can afford to pay relatively less. We are still testing the precise nature of the three outcomes, including the extent to which there are common policy foundations.

How might public policy respond? The policy choices–on monetary policy, ďŹ scal policy and structural policies–affect both productivity and inequality. If coordinated and enacted coherently, they could act as levers to tackle the productivity slowdown and the rise in inequality together.

Aggressive demand management, through monetary and ďŹ scal actions, can lift output, investment, and through those channels, productivity too. In many countries, the sluggish recovery in

INNOVATIVE AND PRODUCTIVE ECONOMIES

investment since the crisis has depressed productivity as well as undermined employment growth. Since low-income, lowskilled workers often are the first to lose their job, slow growth exacerbates poverty and income disparities. Slow growth also sends the signal to firms to reduce investments in finding new markets and developing new products, tempering productivity diffusion.

Public investment–in infrastructure, research, education–is a powerful policy lever and a pillar of economic progress. Not only do these expenditures expand demand and create jobs today, but they can, by catalysing private activity, supporting innovation and improving skills, raise the long-term ability of the economy to grow and provide for the long-term needs of the citizens. Since the crisis, many governments have reduced public investment, in part because their focus was on immediate fiscal consolidation. The very weak recovery and already strong reliance on monetary accommodation demands a renewed focus on fiscal policy and public investment.

Interest rates for sovereign debt obligations are now very low, so governments can borrow for public investments at unprecedentedly low rates. Further, infrastructure is in a poor state in many countries, while the need for new infrastructure, in low-carbon energy supply for instance, is crucial to meet the climate-change crisis.

large banks add to inequality. Financial sector employees enjoy a wage premium compared with workers in other sectors. In Europe, this financial wage premium is 25% of average earnings and reaches nearly 40% for top-paid workers.

Solving the productivity-inequality twin challenge requires coherent and comprehensive policy packages of demand and structural policies that take account of the existing institutional framework and policy settings that are unique to each country.

Even as each package deploys monetary and fiscal policy, and levers from each of the suite of structural policies (innovation and market competition, labour skills and adaptation, financial system structure and performance), there is no one-size fits all.

References Andrews, D., C. Criscuolo and P. Gal (2015), “Frontier Firms, Technology Diffusion and Public Policy: Micro Evidence from OECD Countries”, OECD Productivity Working Papers, No 2, OECD Publishing, Paris Denk, O. (2015), “Financial Sector Pay and Labour Income Inequality: Evidence from Europe”, OECD Economics Department Working Papers, No. 1225, OECD Publishing, Paris OECD (2015), The Future of Productivity, OECD Publishing, Paris OECD (2015), In It Together: Why Less Inequality Benefits All, OECD Publishing, Paris OECD (2016), OECD Economic Outlook, Volume 2016 Issue 1, OECD Publishing, Paris

Structural policies need to go hand-in-hand with demand side policies to tackle productivity and inequality. Many countries have, for instance, room to reallocate money to education, and indeed, our analysis indicates that increases in education spending, offset by savings elsewhere, are good for productivity and equality of income and opportunity. Another example is stronger R&D collaboration between firms and universities, which can improve the diffusion of productivity gains from leading to lagging firms.

Reforms of product market regulation and bankruptcy legislation that ease barriers to firm entry and exit raise innovation and productivity. Pro-competition reforms also tend to raise employment over time; although they can increase the chance of a job loss for lower-income workers they also increase the chance of getting a new job. Lifelong learning, training and active labour market programmes have proven value in enabling people to skill up and find new jobs. Packaging product market reforms with greater efforts to provide training and jobsearch support bears the promise of promoting productivity and reducing inequality, too.

The banking and finance sector was a key conduit for the financial crisis. But it has also contributed to subsequent shortfalls in demand. In some markets, high financing costs have exacerbated the weakness in investment. Faster writedowns of non-performing loans, rationalising the banking markets and, in some situations, bank recapitalisations would help improve the transmission of monetary policy stimulus into credit demand and investment. Too-big-to-fail guarantees to

Power of prognosis The OECD Economic Outlook

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The digital disruption of productivity

The UK’s tallest mountain is Ben Nevis in Scotland. Recently, it became one metre taller, standing now at 1 345m rather than 1 344m above sea level. Of course, the mountain did not actually grow. Rather, the team of Ordnance Survey experts who re-measured it for the ďŹ rst time since 1949 were able to do so more accurately because of improvements in technology, and speciďŹ cally through the use of GPS. Many people think measuring the size of the economy–the Gross Domestic Product (GDP)–is a task like measuring the height of a mountain. There are errors and revisions, but in principle the experts could ďŹ nd ways to make the measurement more accurate. But in fact, lots of judgements are involved in deďŹ ning and measuring GDP, and over the decades there have been criticisms of some of these. For example, we measure the economy without taking account of the environmental costs of some activities, or overlooking the value of unpaid work in the home.

One response to such criticism is to argue that as these do not have market values, leaving them out is not a problem as long as we remember that GDP is nothing more than a measure of market activity. It is a weak response; after all, government services are counted and there is no market value for them either. Now there is an even more powerful challenge to the way GDP is currently deďŹ ned and measured because of the way digital activities are changing the economy.

One obvious point is that lots of online activities are free, so also do not have a market price. Those that are funded by advertising are not genuinely “free�, as everybody is becoming aware, but even so are hard to value and incorporate into GDP. However, others are the product of voluntary work, including open source software, personal blogs, entertaining videos and so on. At present the statistics treat them just like volunteering at the local school or charity shop, or to cook meals at home.

This is starting to seem like quite a large omission.

So too is the rapidly growing phenomenon of the “sharing economyâ€?, a loose term describing digital platforms ranging from local time banks or swap schemes, through peer-topeer ďŹ nancing and freelance employment websites, to giant

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OECD Yearbook 2016 Š OECD 2016

companies such as Airbnb. These platforms bring together suppliers of a service and consumers, sometimes in a monetary transaction, sometimes in a social relationship. They create value for their users on both sides (because there is always the option of not participating), but it does not always involve a price.

Even when users pay the platform and the supplier a fee, they will be getting an extra non-monetary beneďŹ t–for example, ďŹ nding a more distinctive or cheaper or more convenient place to stay than through a conventional hotel. Economists term this improved matching of supply to consumer tastes the “consumer surplusâ€?. This is how much more the consumer values the service than they have had to pay. It is never captured in GDP, which measures transactions at the price paid. But if innovations mean that this consumer surplus is increasing, then it seems that GDP is missing an important phenomenon.

Besides, given the controversy about the conditions of work in the sharing economy, it would be useful to have more statistical insight into it. How many people are actually working in this more contingent way in OECD countries? How do their earnings and conditions actually compare to conventional jobs? Are

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INNOVATIVE AND PRODUCTIVE ECONOMIES

Getting the measure of Ben Nevis

they content with this way of making a living or only doing it because there is nothing better available? We don’t know. These are important questions if we hope the digital transformation will enable an inclusive economy.

Digital business models in general pose a challenge to the statisticians. For example, there are several sectors of the economy where business has been moving off the high street and online– think of book retailing, travel agency, or banking. As a result, there has been declining investment in commercial real estate,

Digitisation will have contributed directly to some reduction in GDP

of that item has improved enormously, with more memory, better cameras, faster speeds and so on. Statisticians in OECD countries do make what are called hedonic adjustments for some items in their price indices. However, many in the tech businesses do not think the price adjustments match the pace of technological progress they observe. In the chart below, the scale is logarithmic, so it shows the speed of decline in the price of computer processing is still exponential, in line with Moore’s Law–based on an observation by Intel co-founder Gordon Moore in 1965, that the density of transistors in integrated circuits (and hence computing power) would roughly double every two years.

a component of business investment and therefore GDP. So digitisation will in this way have contributed directly to some reduction in GDP, while consumers have enjoyed at least the same service.

If the price index is overstated, real GDP will be understated.

This issue is at the heart of the debate among economists about what part of the current slowdown in productivity in OECD economies can be attributed to measurement issues, and remains an open question.

In addition, the fact that this is a business model choice means GDP could change if a publisher decides to switch to a subscription based model. Digital goods are often bundled together in packages that change frequently. Determining the price of specific goods is challenging, to say the least. Yet without accurate price indices, it is not possible to calculate the real growth rate of GDP, the single most important gauge of how well the economy is doing. More generally, the information available on all services including the digital sectors is lamentable, given the framework for classifying statistics that was set in the late 1940s, when manufacturing was far more important. We simply have too little information of any kind about the dynamic sectors of the OECD economies.

The question of whether the digital transformation is making existing methods of defining and measuring the economy less useful is not just an academic one. Statistics guide policy and allow citizens to hold politicians to account. Independent and reliable official statistics are a public good in democratic, information-based economies. The pace of change in the OECD countries is making the existing statistical framework decreasingly appropriate for measuring the economy and it is therefore hindering the development of policies for higher productivity and growth. Different statistics will not change the current reality, any more than more accurate instruments actually increased the height of Ben Nevis; but they will help shape the future. Statistics are not facts; they are tools.

One of the most contentious issues is whether price indices adequately capture the pace of technical progress in many goods.

The problem is that the price of an item to consumers, such as a laptop or mobile phone, might not decline but the quality

References Coyle, Diane (2015), “Modernising Economic Statistics: why it matters”, National Institute Economic Review, November Coyle, Diane (2014), “The ups and downs of GDP”, OECD Yearbook

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INNOVATIVE AND PRODUCTIVE ECONOMIES

For an optimistic revolution Alexander Stubb Minister of Finance, Finland

as productivity growth in agriculture released labour to work in factories instead.

But by the late 1800s cities had become polluted and unhealthy, making them miserable places to live and work. Logistics in those times relied on horses. Growing cities were running out of

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Digital technology spurs new forms of capitalism: Facebook does not produce content, Airbnb does not own real estate space for fodder and streets were drowning in manure. What was needed was a revolution that would change basically everything.

The world has seen more than one industrial revolution and another one is already upon us. We should face it as optimists.

According to the classical legend, a Greek messenger named Pheidippides ran from Marathon to Athens to deliver a message.

It took him 36 hours. A horse-drawn carriage or a modern car would have saved Pheidippides considerable time. This is called evolution. But today his message would have been tweeted in a second. One second versus 36 hours: that is a revolution!

And such revolutions have the potential to change the entire landscape.

©Charlotte Moreau

Take the Industrial Revolution, which spanned a century from the mid-1700s, marking the transition from muscle to mechanical power. It was a major turning point in history and affected every aspect of daily life. It led to the expansion of our cities,

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A second industrial revolution swept in, bringing with it the internal combustion engine, electricity, the factory assembly line and more. The crisis was relieved, horses were displaced from our urban streets, and again almost every aspect of human life felt the impact.

But it did not stop there: in the 1960s and 1970s a third industrial revolution took hold–a digital revolution–brought about by the development of semiconductors, mainframes, personal computing and, in the 1990s, the Internet.

This potted history should be food for thought as we contemplate our current environmental challenges–climate change, biodiversity, pollution and waste. True, carbon pricing may help, and cleaner processes are good for the environment. But the solution to, say, climate change, will eventually require a revolution. Perhaps someone will come up with a technology

INNOVATIVE AND PRODUCTIVE ECONOMIES that vacuums excess CO2 from the atmosphere and plants it back in the soil. Or perhaps we will learn how to harness all the energy we need from the sun or from the jet streams in the upper atmosphere, opening the way to a smooth energy transition. Or perhaps more radical changes to lifestyles and ways of doing business will be forced upon us.

We can face the future as optimists or pessimists. A pessimist sees climate policies, for instance, as a threat to old ways of doing business and conducting life, and demands protection from changes, just like the former industrial champions in the past.

An optimist sees opportunities for enhancing the quality of life and safeguarding our future. And a wise policy maker sees the need for frameworks that smooth the transition.

But whether one is optimistic or pessimistic, or feels prepared or not, a revolution is inevitable. And indeed, the fourth industrial revolution appears to be upon us. With the advent of 5G mobile Internet, smaller and more powerful sensors, artificial intelligence and machine learning, this revolution will be as transformational, if not more so, as anything mankind has experienced before. It will change the way we live, work and relate to each other. Artificial intelligence, robotics, the Internet of Things, 3D printing, nanotechnology, biotechnology, renewable energy, and quantum computing: such advances are transforming the world faster than we realise. Occupations which only a few short years ago appeared safe bets, such as those of bus drivers and lorry drivers, may soon go the way of the horse, thanks to artificial intelligence now being applied to self-driving vehicles.

Just like previous revolutions, this revolution is starting to disrupt business. It is changing the way we design, manufacture, transport, promote and consume goods and services. Instead of reading this article in a glossy magazine, you may well be browsing it on your smartphone or tablet. This opens up opportunities, but has costs: in my country, Finland, paper mills have had to close down. Meanwhile, digital technology has redefined ownership and spurred new forms of capitalism: Facebook does not produce content, Uber does not own taxis and Airbnb does not own real estate. What they do own is intellectual capital and creativity, which are harbingers of new wealth. Similarly, Amazon, eBay and PayPal have changed the retail landscape forever. And this is just the beginning.

soldiers. The pessimists will try to hit the brakes and revert back to the old ways. The optimists will embrace change by looking for solutions. Policy makers must look for frameworks that can help smooth transitions. Not even the best regulators can predict what will eventually work and what will not. But they will know from previous transitions that it is better to facilitate flexible product, capital and labour markets than to protect former, but alas outmoded, champions. Revolutions are about renewal, and for that, market experimentation is key.

As this revolution alters the landscape faster than ever, we need to dig deeper into what it means for our societies. The OECD, which is a global hub of knowledge and analysis, brings together

Do you remember life before the smartphone?

My kids don’t people and research from different fields: it is the perfect forum for this kind of reflection. The main themes of the 2016 OECD Forum and Ministerial Council Meeting–productive economies, future societies, inclusiveness, sustainability–pinpoint the major challenges we face today. New economic phenomena require new concepts and common approaches to enable analytical work and policy formation, while co-operation and peer pressure among like-minded countries is key to making progress together.

The OECD has much to offer in helping policy makers plot the most effective ways forward.

This is important, for the more technology advances, the more emotional intelligence and empathy come to the fore. As we address the new and rapidly evolving challenges of the fourth industrial revolution, it is wise to remember that every challenge is an opportunity. We cannot allow ourselves to become too realistic or to close our minds to future possibilities. Why? Because the only limiting factor behind this revolution is our imagination.

Welcome to the future.

Visit http://vm.fi/en/minister-of-finance @alexstubb

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Do you remember life before the smartphone? My kids don’t.

Their kids will probably not remember what it was like before 3D printers produced their new sneakers, or before self-driving electric cars took them to school, or before all money was electronic. The fourth industrial revolution will also change the way we work. Some studies estimate that by 2030, half of today’s jobs in advanced economies will be taken over by machines. This will have far-reaching economic, political, and social implications.

The fruits of the fourth industrial revolution might be reaped by those who can work with smart machines and draw added value from artificial intelligence. We will have to work smarter, not harder. The smartest digital natives might feel at home, but those with only basic skills could suffer.

As ever with such revolutions, there will be creative destruction.

Much will depend on how we manage this huge change. There will be moral and ethical issues to address, concerning the likes of nanotechnology, gene manipulation in medicine and even robot

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Digital economy: Why a brighter future could be in our pocket Andy Wyckoff Director, OECD Directorate for Science, Technology and Innovation

©OECD

Clearly, the goal at Ottawa to “realise the potential” has been achieved–the digital platform is well deployed across most of the OECD and quite a bit beyond too, while applications extend into every facet of the economy and society, disrupting and enhancing many sectors along the way and unleashing innovation, productivity growth and (as yet unmeasured) social benefits. Newspapers, music, finance and travel agents have

The digital economy is here, and growing every day, sometimes in surprising ways. As ministers gather for major meetings in Paris and Cancun, government leaders should be in no doubt about the key role they must play in securing the digital economy’s future as a driver of productive and inclusive progress.

“Analysing the impact of electronic commerce in 1997 is about as easy as estimating the impact of the automobile in 1900.

Intuitively you know that the impact will be large, but few people know how to drive, roads are of varying quality and gas stations and mechanics are nearly non-existent. With some confidence you can say that there will be a positive impact on supplying industries such as oil, steel, glass and rubber, and direct competitors like horses, oat producers and carriages are likely to suffer, but beyond that it is largely speculation.

Who would have predicted that the car would lead to suburbs, air pollution and the geo-political importance of the Middle East? So it is with electronic commerce.” (Issue No 5 1997, see references).

So I wrote, in a contribution to the OECD Observer magazine in 1997 during the run-up to the first ever OECD ministerial meeting devoted to the digital economy, held in Ottawa, Canada in 1998. How prescient that meeting proved to be: not only was it the year the Internet was colonised (indeed, privatised), albeit by just 2 million domain names (including www.oecd.org), but it was also the year that a firm called Google was incorporated, while barely a year after that, a company calling itself Amazon had an initial public offering.

Nearly two decades later, the OECD is organising another ministerial meeting, this time in Cancun, Mexico, under the title: “Digital Economy: Innovation, Growth and Social Prosperity.”

Extending the automobile metaphor, we now drive at speeds more than a thousand times faster than we did on the 1998 “information highway”; we’ve gone from a mere 180 million “drivers” (about 3% of the world population) to over 3 billion (40%). Seatbelts, let alone airbags, don’t exist yet, but GPS is here following us wherever we go and our “cars” now fit in our pocket.

Like the suburbs, digital technologies have sprawled into nearly every part of the economy and society: 80% of OECD citizens

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have broadband subscriptions with the majority accessing the more than 300 million web sites via a smartphone. Some 95% of 16-24 year olds in the OECD use the Internet and on average a 15-year-old spends three hours a day online, while about half of OECD citizens now engage in e-commerce.

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We are entering a significant period of ICT-induced structural change that will simply transform the economy and society for the better. We have seen nothing yet. been transformed, in some ways as predicted, though Facebook, Twitter, smartphones and the “sharing economy” have perhaps surpassed people’s expectations, even disrupting established structures and economic arrangements. Many innovations were simply beyond our imagination: who could have guessed that we’d be experimenting with automated vehicles in 2016?

Some pundits say the big economic impact of information and communication technologies (ICT) may have already passed as we harvested the low-hanging fruit of computerisation in the second-half of the 1990s. Others think that we are just at the beginning of another wave, characterised by ubiquitous computing as epitomised by the smartphone, which is both a platform and a linked device par excellence. It is the harbinger of the Internet of Things, expected to encompass between 20 and 50 billion devices connected to the Internet by 2020, throwing off torrents of data and supporting our daily routines. Already, more data are now being generated every week than in the last millennia, as our chart shows.

Crucially, the ability to analyse this data and extract strategic insights has made huge advances, with new data analysis techniques making it possible to automate decision making (e.g. high-speed trading) and edge towards artificial intelligence (AI). All of the major Internet platforms as of 2016, including Google, Amazon, Microsoft, Facebook, Apple, etc, now see AI as the next big service that users will demand and already have applications, such as face and voice recognition. Many, including this author, think that we are just entering a significant period of ICT-induced structural change that will simply transform the economy and society for the better. We have seen nothing yet.

But this techno-optimism needs to be tempered with a reality check, that not all these advancements are universally welcomed. Some people worry about technology taking our jobs,

INNOVATIVE AND PRODUCTIVE ECONOMIES

picture. Where is the digital economy going, and how can policy help it deliver on even greater promise in the years ahead?

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0

Source: OECD

The Cancun conference occurs at a time when no one is in doubt about the transformative role of ICT. It is neither an infant in need of protection, nor a teenager that needs oversight, but a young adult who needs to shoulder responsibilities and take its rightful place in the world. The agendaâ&#x20AC;&#x2122;s four main themes therefore reďŹ&#x201A;ect what is needed to plot the way ahead: Internet Openness and Innovation; Building Global Connectivity; Trust in the Digital Economy; and Jobs and Skills in the Digital Economy.

The digital economy is a powerful catalyst, and a driver of inclusiveness, by linking communities to each other in a sort of â&#x20AC;&#x153;global villageâ&#x20AC;?, sharing information, ideas and products, and allowing countries to rise up the value chain. It must be allowed to grow, by allowing our â&#x20AC;&#x153;young adultsâ&#x20AC;? to sow economic and social opportunities for more and more citizens. For a few days in June, Cancun will become the centre of that global village, where a new chapter in the collective future for the digital economy and society can begin.

others about privacy and data issues, while there is a more widespread erosion of trust fuelled by security breaches, including the Snowden revelations and abuse of the Internet by the â&#x20AC;&#x153;dark sideâ&#x20AC;? (terrorists and criminals). Policy makers must take these concerns seriously and develop policies to mitigate the risks and unleash the beneďŹ ts.

Wyckoff, Andy (1997), â&#x20AC;&#x153;Imagining the impact of electronic commerceâ&#x20AC;? in OECD Observer No 5, May, available at www.oecd-ilibrary.org, at http://oe.cd/1ln

Productivityâ&#x20AC;&#x2122;s macro-puzzle

BUSINESS PRODUCTIVITY IS BOOSTED THROUGH EFFICIENT USE OF DATA BY

Another challenge is productivity growth. True, this has slowed in recent years and many people still refer to Robert Solowâ&#x20AC;&#x2122;s 1987 remark that computers are everywhere except in the productivity statistics. But three decades on, and the data we have been gathering on quite a number of ďŹ rms and industries clearly show that the digital economy does indeed beneďŹ t productivity via several channels: by generating new innovative enterprises and clearing out old, badly performing, ones in a process of creative destruction; by allowing smarter, more efďŹ cient use of labour and capital to generate so-called multi-factor productivity growth, whereby even older ďŹ rms can raise their game; by introducing new opportunities and services among people previously removed from the global economy, such as farmers, and local manufacturers and public services; by enhancing information efďŹ ciencies to improve stock management and shipping, for instance; the list goes on.

Why all these â&#x20AC;&#x153;microâ&#x20AC;? increases in productivity do not add up to faster productivity growth at the â&#x20AC;&#x153;macroâ&#x20AC;? level is a puzzle that the OECD is working to solve.

Visit www.oecd.org/sti/innovation-imperative.htm Find out more about â&#x20AC;&#x153;The Digital Economy: Innovation, Growth and Social Prosperityâ&#x20AC;?, OECD Ministerial Meeting, Cancun, Mexico 21-23 June, http://www.oecd.org/internet/ ministerial/meeting/. See also www.oecdobserver.org/ and page 96.

65% OF KIDS TODAY WILL DO JOBS THAT HAVEN'T BEEN INVENTED YET

5-10%

INTERNET OPENNESS GLOBAL CONNECTIVITY

14 BILLION

JOBS & SKILLS TRUST IN LEADING COUNTRIES

90% OF INTERNET USERS BANK ONLINE 90%

CONNECTED DEVICES IN OECD HOMES BY 2022

80%

AND 80% SHOP ONLINE

Clearly the online world is at another inďŹ&#x201A;ection point, and it could go in more than one direction. That is why stakeholders at the international meeting in Cancunâ&#x20AC;&#x201C;from government, business, labour, civil society and the technical communityâ&#x20AC;&#x201C; must not only take stock, but take a step back and assess the big

OECD Yearbook 2016 Š OECD 2016

23

INNOVATIVE AND PRODUCTIVE ECONOMIES

In with the in-crowd

©Anindya Ghose

Anindya Ghose NEC Faculty Fellow, NYU Stern School of Business

Over the last few years there has been increased interest among start-ups in using Internet-based platforms to crowdsource a wide variety of resources, including funding, labour, design and ideas. Does this approach work?

Coined by Jeff Howe of Wired magazine in 2006, crowdsourcing means taking, “a function once performed by employees and outsourcing it to an undefined (and generally large) network of people.” Ostensibly, the primary motivation for companies to go down this road is to reduce costs as well as to harness the skills, collective knowledge and wisdom of the crowds to complement the skills of their employees. The typical approach is to allocate this activity to a specific online crowdsourcing platform, such as Quirky, 99designs, and Innocentive, among many others.

In 2000, the CEO of Goldcorp, Stan McEwen, shocked the gold industry with the Goldcorp Challenge. Mr McEwen wanted new ideas of where to dig for gold, and he figured that if his employees couldn’t find the gold, then someone else would be able to. It was a blockbuster success. In all, more than 110 sites were identified of which 50% were previously unknown to the company. Furthermore, more than 80% yielded significant gold reserves. What the Internet does is enable crowdsourcing on a scale and at a level of granularity that was previously unimaginable.

Today, small start-ups and massive enterprises alike have embraced crowdsourcing and co-creation to conduct smart business. New online platforms help businesses connect with individuals seeking software development opportunities and thus will pave the way for the virtual offices of tomorrow.

But while entrepreneurs and companies can use crowdsourcing to harvest knowledge and ideas from users, there are challenges, too. Take product design, for example. Hundreds of individuals will have different expectations that can be a challenge to manage, if not ineffective. Start-ups and entrepreneurs also need to be careful about product development. In some situations idea refinement and feedback is very useful in the early stages of a product’s lifecycle, when reworking ideas is cheaper. But in many situations when there is a credible threat of plagiarism or some intellectual property contamination by releasing an idea too early, it is better to crowdsource after you have a product, not before.

24

OECD Yearbook 2016 © OECD 2016

Another downside of crowdsourcing is the potential influx of a very high volume of half-baked ideas and the resulting overhead cost of evaluation. This breadth of creative input, while attractive in its own right, can often require considerable review to find the best insight. When ideas are not completely thought through they simply create a lot more work, which would be needed to vet and validate the merits of the ideas.

This can waste critical resources, especially for start-ups, which are often starved for time and money. To avoid this, some of the more mature crowdsourcing services now have filters and controls to more readily tune the “relative influence” of various types of participants.

For any start-up to successfully crowdsource, one best practice is to build a relationship with the people who actually care about your product or service. This approach starts by adopting a longer-term perspective on returns from crowdsourcing, as opposed to maximising a one-off experience. In fact, academic research has also shown that crowdsourcing is best utilised when it becomes a continuous practice rather than a single

The Internet enables crowdsourcing on a scale and at a level of granularity that was previously unimaginable event (such as an innovation contest). These studies suggest that users should be engaged in the innovation process throughout the lifecycle without disruptive gaps in their involvement.

Crowdfunding is another form of crowdsourcing where the selection mechanism is such that the crowd votes with its money. Essentially the crowd evaluates and selects projects for funding and, additionally, will often provide suggestions to the fundraiser on how they should implement their product or service. The crowd may well engage in promoting the product or service to help it succeed. However, if the start-up does not respond to their suggestions or deliver the rewards on time, the crowd may turn against it, which will be detrimental in the long run.

In short, the benefits of crowdsourcing can be substantial.

According to the MBO Partners’ State of Independence in America (see www.mbopartners.com) report, the number of independent workers is expected to rise to 23 million by 2017.

The future of crowdsourcing is unequivocally bright and we expect start-ups to increasingly embrace it in the coming years, especially for many mission-critical tasks.

This excerpt is adapted from an opinion piece by Anindya Ghose published in The Wall Street Journal, 27 October 2014. The original piece is available here: http://blogs.wsj.com/accelerators/2014/10/27/anindya-ghose-the-rise-of-the-ondemand-workforce/ Reference MBO Partners (2015), State of Independence in America

Samsung Display Solutions for Corporate Building a collaborative work environment and delivering an impactful corporate image with high-quality, easy-to-operate displays

OECD FACTBOOK INDICATORS Trends in poverty rates

Relative poverty rates in mid-1980s, mid-1990s and 2012 or latest available year

http://dx.doi.org/10.1787/888933335124

GDP per hour worked

US$, current prices and PPPs, 2014

100 90 80 70 60 50 40 30 20 10 0 http://dx.doi.org/10.1787/888933335394

GDP per capita gap between metropolitan areas and the rest of the economy %, 2013 70 All metropolitan areas

Population between 500 000 and 1.5 mln

Population above 1.5 mln

60 50 40 30 20 10 0 -10

Europe (22)

Americas (4)

Asia and Oceania (3)

OECD29 http://dx.doi.org/10.1787/888933335930

Selected charts from OECD Factbook 2016-2017; available at www.oecdbookshop.org and www.oecd-iLibrary.org

26

Innovation.

Imagine the possibilities.

At Janssen, we have big dreams.

We imagine a time when diseases can be treated before people feel sick.

When those in need can access life saving medicines, no matter where they are.

And when treatment options are so convenient people can spend more time doing what they love.

Itâ&#x20AC;&#x2122;s about radically challenging the way diseases are thought of, dealt with, prevented and intercepted. Now, and in the future.

By collaborating with the brightest minds in every ďŹ eld, weâ&#x20AC;&#x2122;re turning big visions into game-changing solutions. Because patients are waiting.

We are Janssen. We collaborate with the world for the health of everyone in it.

Learn more at www.janssen.com

Janssen Pharmaceutica NV The image depicted contains models and is being used for illustrative purposes only.

OECD_IdeaFactory

Productivity conundrum The promise of a Fourth Industrial Revolution consists in advances in robotics, the Internet of Things, big data, mobile telephony, and 3D printing […] the successful adoption of these new technologies could boost global productivity by as much as the personal computer and the Internet did during the late 1990s.

Larry Hatheway, “Mastering the Fourth Industrial Revolution”, Project Syndicate, January 2016

Our research shows that improving the allocation of labour and capital across sectors can significantly increase total factor productivity.

Christine Lagarde, Managing Director, International Monetary Fund in speech, “Lift Growth Today, Tomorrow”, Together 9 April 2015

You can see the computer age everywhere but in the productivity statistics.

Robert Solow, “We’d better watch out”, New York Times Book Review, 12 July 1987

The decline in productivity growth in the EU is surprising, given the rapid onset of digitalisation–often described as the industrial revolution of the 21st century. In fact, part of the perceived slowdown can be attributed to measurement issues: many services are being provided free of charge, which means they are not being counted as consumption at all.

Michael Heise, “Overcoming Europe’s twin growth challenges”, Project Syndicate, December 2015

The tech economy just isn’t big enough to account for the productivity gap.

Tyler Cowen, “Silicon Valley has not saved us from a productivity slowdown”, The New York Times, March 2016

The rich world is still trying to shake off the effects of the 2008 financial crisis. And now the digital economy, far from pushing up wages across the board in response to higher productivity, is keeping them flat for the mass of workers while extravagantly rewarding the most talented ones.

“Technology isn’t working”, The Economist, October, 2014

28

OECD Yearbook 2016 © OECD 2016

Productivity conundrum

As soon as the world technological frontier is reached, no country has ever known a sustainable rate of growth over 1-1.5% per year.

Thomas Piketty, « La croissance peut-elle nous sauver ? » (Can growth save us ?), Libération, 2013 (our translation from French) If all children, regardless of their background and circumstances, had equal access to education, productivity gains would boost economic growth. Over 40 years, per capita income would be 23% higher in a country with equality in education.

This outward shift of the production frontier corresponds to a new best practice. But firms can also get closer to the best practice by investing in new machines or by adopting new management techniques.[…] Process innovation is a priori expected to have a clearer positive effect on productivity as new processes are often introduced in order to reduce production costs by saving some of the more costly inputs (often labour).

Bronwyn Hall et al, Innovation and Productivity: An Update, Eurasian Business Review, 3(1), 2013, 47-65

UNESCO, 2013

The heady progress of robotics, digital technology and biology opens the way for our first Renaissance in half a millennium. But the knowledge-based 4th Industrial Revolution will produce many have-nots.

Jean-Pierre Robin, Le Figaro newspaper, 2 February 2016 (our translation from French)

Overall, we find that, on average across the 21 OECD countries, 9% of jobs are automatable.

Melanie Amtz et al, “The Risk of Automation for Jobs in OECD Countries: A Comparative Analysis”, Working Paper, OECD Publishing, May 2016

OECD Yearbook 2016 © OECD 2016

29

How do you measure

a Better Life?

For nearly a decade, the OECD has been working to identify societal progress – ways that move us beyond GDP to examine the issues that impact people’s lives. The OECD’s Better Life Index is an interactive tool that invites the public to share their thoughts on what factors contribute to a better life and to compare well-being across different countries on a range of topics such as clean air, education, income and health.

Over 6.5 million visitors from around the world have used the Better Life Index and well over 100 000 people have created and shared their personal Better Life Index with the OECD. This feedback has allowed us to identify life satisfaction, education and health as top well-being priorities. What is most important to you?

Create and share your Better Life Index with us at: www.oecdbetterlifeindex.org

The OECD Better Life Index enables you to rate countries according to the importance you give 11 topics. Each petal of the flower represents one topic and the size of the petal the country’s rating for that topic.

Find out more about how life compares in OECD countries by ordering the book How’s Life? Measuring Well-Being. Available now on the OECD Online Bookshop: http://www.oecd.org/bookshop

GOVERNANCE FOR A BETTER WORLD INTRODUCTION

Future societies

Today’s economies are not doing as well as they should to distribute the fruits of economic growth, as witness continuing high rates of unemployment in the years since the financial crisis and the persistent rise in income inequality. Incomes and jobs are just one part of the picture: our societies are not doing enough to deliver opportunity for all either, particularly in areas like education, quality jobs, health and social engagement. People who lack such opportunities pay a high price, accumulating only low levels of skills and suffering higher rates of unemployment and illness. As technology and knowledge-based tasks become more important, more and more people, including many with skills, could become vulnerable. Evidence from a range of sources, including the OECD, indicates that greater social and economic inclusion is linked to more sustainable economic growth and well-being.

In this chapter, OECD and guest writers explore why policy making needs to do more to build inclusiveness and opportunity in our societies.

Reflecting on the crisis in the Mediterranean, Stefano Scarpetta and Jean-Christophe Dumont argue that investment in integrating refugees will yield long-term benefits. Philippe Legrain agrees, and highlights the dividends that can accrue when refugees settle in successfully. On a related theme, Andreas Schleicher highlights the role of education and integration in combating extremism. From Hungary, Katalin Veresne Novák looks at ageing populations, which is a challenge facing many societies. From Chile, Camila Vallejo Dowling argues that publicly-funded free education is a right to be promoted. Linda Liukas wonders why more girls aren’t hooked on computer coding and programming, which she likens to poetry. The possible downsides of the digital future are highlighted by Pedro Domingos, who says we need to know more about the algorithms that govern our lives.

Monika Queisser, Willem Adema and Chris Clarke look at parental leave, and urge dads to take more initiative in striking a better work-life balance for both men and women. Also on gender, Haifa Fahoum Al Kaylani and Ibrahim Gambari argue that we must lower the many obstacles to women playing a full role in peace efforts. Finally, Carolina Tohá looks at how cities can provide local solutions to national problems. In our “Business Briefs,” Jacques Bughin argues that harnessing the power of digital technology should be a top priority for policy makers and business. Michel Landel urges businesses to build sustainable trust-based relations with locally based clients and communities. And Jo Ann Jenkins calls on us all to disrupt ageing.

OECD Yearbook 2016 © OECD 2016

33

FUTURE SOCIETIES

Europe will win from integration for asylum systems and welcoming communities in Europe.

This has affected much-needed co-ordination at EU and international level.

©Michael Dean/OECD

©Julien DANIEL/OECD

The limited prospect for significant improvement in the near future in Syria and Libya also fuels anxiety. Amid the destruction of several cities and continuing political uncer-tainty, millions of Syrians could still be displaced. The situation in Libya also

Stefano Scarpetta, Director and Jean-Christophe Dumont, Head of International Migration Division, Directorate for Employment, Labour and Social Affairs, OECD

To the question of whether or not we can integrate refugees, the answer is clear: We can.

Even more importantly, we should! remains unsettled, with a strong presence of well-organised smuggling networks, connected to armed Islamic groups, ensuring smuggling routes remain open in the central Mediterranean.

Can Europe cope?

The unfolding refugee crisis requires a bold, comprehensive and global response. At the same time, OECD countries should adapt their policies to foster the integration of those who are going to stay. While this implies significant up-front costs, it is also essential to reaping sizeable medium- to long-term social and economic benefits.

Europe and the Middle East are in the depths of an unprecedented humanitarian crisis, with an appalling and unacceptable human cost. Countries neighbouring Syria host almost 5 million Syrians, while the European Union faces persistent pressure on both its external borders and its asylum system. With twice as many asylum applications in 2015 as in the previous year, the number of refugees in Europe is unparalleled in recent times.

Much of the public focus is on the large inflows of Syrian refugees to Europe. In reality, however, Syrians accounted for less than a quarter of all asylum applications in the OECD in 2015; since January 2016, they have made up less than a half of all those on boats between Turkey and Greece. So where are the asylum seekers coming from? In France, the main country of origin in 2015 was Sudan; in the United Kingdom and Switzerland, it was Eritrea; in Finland, it was Iraq; in Italy, it was Nigeria followed

by Pakistan. In Sweden, Germany and Denmark, Syria was on top, but in Sweden, Afghanistan took second place, while in Germany, it was Albania, and in Denmark, it was Iran.

It is also important to note that only a few countries in Europe have been deeply affected by the crisis, most notably the main entry points–Italy and Greece but also Slovenia and Hungary–and some key destination countries, in particular Germany, Sweden and Austria. Other countries have been much less exposed or have only recently experienced a significant increase in asylum seekers.

The diversity of nationalities, motives for migration and individual profiles of asylum seekers, as well as the concentration of inflows in just a few countries, has created a major challenge

34

OECD Yearbook 2016 © OECD 2016

Today, Europe is becoming a major destination for legal labour migrants. But, over the decades, it has also experienced several unexpected mass influxes of asylum seekers and refugees. In the 1970s, it was the Vietnamese boat people; in the 1990s, people forced out by wars in the former Yugoslavia; and in the early 2000s, people fleeing wars in Iraq and Afghanistan.

The closest historical parallels with today’s crisis–albeit only in terms of scale–are the inflows of French and Portuguese repatriates in the 1960s and 1970s or the arrival of more than 3 million ethnic Germans in the late 1980s and early 1990s in Germany.

European countries were typically caught off guard by these large and unexpected flows. But they also generally coped successfully, managing to integrate those migrants who remained. In many cases, countries also benefited economically, at least in the longer run. Today, the challenges are daunting, but Europe has both the capacity and the experience to respond to the current crisis.

To do so, however, it needs to get its policy response right.

So far, the main policy focus has been on saving lives at sea; providing emergency support to refugees and asylum seekers; reinforcing border controls; improving international coordination and burden-sharing mechanisms and improving co-ordination mechanisms with origin and transit countries.

These actions are key and need to be further pursued and in some cases reinforced. But it is essential that they are also complemented by measures aimed at fostering the integration of those refugees and their children who are likely to stay in the host country. Action is also needed to start rebuilding trust on migration issues and to combat smuggling networks and corruption associated with irregular migration.

Integration–we can do it To the question of whether or not we can integrate refugees, the answer is clear: We can. Even more importantly, we should!

Successful integration not only brings economic and fiscal bene-

©Rodi Said/Reuters

FUTURE SOCIETIES

fits, it is also an important factor in fostering social cohesion.

Nevertheless, it is clear that the challenges of integration are significant. Among the most pressing is the need to scale up assistance to cope with the rapidly increasing inflows of refugees.

But successful integration also requires comprehensive, welltailored measures that take account of a refugee’s country of origin, educational background, and family situation. As refugee flows increase and grow more diverse, integration policy instruments must be increasingly customised.

Integration is complicated by the trauma that many migrants have suffered, as well as by the fact that most had little time to prepare their departure. Complicating things still further are poor language skills and a lack of documents certifying their level of competences. A substantial investment is needed at first to allow refugees to settle and develop their skills. Many European countries already have introduction programmes for

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No single European country can handle such a large humanitarian crisis alone; nor can Europe act alone. There must be a global response. The European Union should work closely with countries of origin and transit to address the issue.

International co-operation is needed to curb irregular movements through intelligence sharing, co-ordinated actions against smuggling networks, organised returns and the development of information campaigns. At the same time, more must be done to further develop orderly migration channels and the management of international mobility.

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In the absence of a crystal ball, no one can say for sure how this crisis will unfold in 2016. However, it is unlikely that the inflows will stop. What can be said for certain is that this crisis has revealed weaknesses in migration-management systems that need to be addressed.

Dealing with the current refugee crisis, and addressing future challenges associated with migration as a result of ongoing demographic and geopolitical changes, will require a new approach to migration. This approach needs to be more proactive, comprehensive and regional, and to focus more on crisis prevention than on crisis resolution. Now comes the time for this strategic reflection to take place at the international level.

1 000

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refugees, but, in many cases, these need to be scaled up. They also need to be available through the country, to be tailored to refugees’ needs and to be accessible as soon as possible, even before the end of the recognition procedure. The recent report Making Integration Work: Refugees and others in need of protection (OECD, 2016) provides many examples of good practices and policy lessons to help countries take up the challenge.

Reference OECD (2016), Making Integration Work: Refugees and others in need of protection, OECD Publishing

OECD Yearbook 2016 © OECD 2016

35

FUTURE SOCIETIES

Refugees are not a burden but an opportunity

©Rights reserved

Philippe Legrain Founder Open Political Economy Network (OPEN) Senior Visiting Fellow European Institute at the London School of Economics

When nearly a million Vietnamese “boat people” fled their country in the late 1970s and early 1980s and sought refuge elsewhere, they were typically seen as a burden and often turned away. Eventually, many were allowed to settle in the US. Most arrived speaking little or no English and with few assets or relevant job skills. Yet Vietnamese refugees are now more likely to be employed and have higher incomes than people born in the US. The world is facing its biggest refugee crisis since the Second World War. More than 22 million people have been forcibly displaced from their country by war and persecution. Advanced OECD economies are often loath to admit them, partly for cultural reasons but also for economic ones. Yet welcoming refugees is not only a humanitarian and legal obligation, it is an investment that can yield substantial economic dividends.

That is the key message of a new study I have written for the Open Political Economy Network (OPEN), a new international think-tank, and Tent, a new foundation that aims to help forcibly displaced people.

Refugees can contribute economically to the societies that welcome them in many ways: as workers, innovators, entrepreneurs, taxpayers, consumers and investors. Their efforts can help create jobs, raise the productivity and wages of local workers, lift capital returns, stimulate international trade and investment, and boost innovation, enterprise and growth.

Refugee dividends Welcoming refugees generally implies an initial investment, typically of public funds. In economies where demand is depressed, this increased investment acts like a small fiscal stimulus, yielding an immediate demand dividend.

Once refugees start working, this investment may yield seven further dividends: Some refugees do dirty, difficult, dangerous and dull (4D) jobs that locals spurn, such as cleaning offices and caring for the elderly. This 4D dividend enables locals to do higher-skilled and better-paid jobs that they prefer.

Higher-skilled refugees (and refugees’ highly skilled children) can provide a deftness dividend. Their different and complementary

36

OECD Yearbook 2016 © OECD 2016

skills can fill gaps in the labour market and enhance locals’ productivity. A third of recent refugees in Sweden are graduates; more than two-thirds of those have skills which match graduate job vacancies.

Enterprising refugees start businesses that create wealth, employ locals, make the economy more dynamic and adaptable, and boost international trade and investment. This dynamism dividend can be huge. Sergey Brin, who arrived in the US as a child refugee from the Soviet Union, co-founded Google, now America’s second most valuable company. Li Ka-shing, who was among the mainland Chinese who sought refuge in then British-run Hong Kong after the Communist Revolution in 1949, is now Asia’s richest man.

Thanks to their diverse perspectives and experiences, refugees and their children can help spark new ideas and technologies.

People who have been uprooted from one culture and exposed to another tend to be more creative, while studies show that diverse

Welcoming refugees is not only a humanitarian and legal obligation, it is an investment that can yield substantial economic dividends groups outperform like-minded experts at problem solving. This diversity dividend is substantial too: more than three out of four patents generated at the top 10 patent-producing US universities in 2011 had at least one foreign-born inventor.

Ageing societies with a shrinking native working-age population, such as Germany’s, benefit from the arrival of younger refugees, who provide a demographic dividend. As well as complementing the skills of older, more experienced workers, refugees can help pay for the growing numbers of pensioners. They can also support population numbers, and thus investment and growth.

Refugees can also provide a debt dividend. OECD studies show that migrants in general tend to be net contributors to public finances; in Australia refugees become so after 12 years. Better still, the taxes that refugees pay can help service and repay the huge public debts incurred in many countries to provide benefits for the existing populations.

Finally, refugees provide a development dividend – to themselves, their children and their country of origin. Remittances to Liberia, a big refugee-sending country, are 18.5% of GDP. Refugees’ ability to contribute to the economy depends partly on their characteristics, but also on policies and institutions in the welcoming country. At one extreme, the US model provides refugees with a burst of initial help, after which they are expected to fend for themselves. At the other extreme, the Swedish model has traditionally involved treating refugees like charity cases.

While Sweden now focuses much more on getting refugees into work, barriers to employment remain high.

By contrast, refugees in the US are more likely to be employed

©Charlotte Moreau/OECD Observer

FUTURE SOCIETIES

Mutual enrichment. The postcard reads: “Greetings from Paris where I’ve been working for the past seven years.”

than locals, and their earnings tend to rise rapidly over time.

While the US has scope to improve, it provides a benchmark for EU countries in many respects. Arguably an ideal refugee welcome programme would combine the active assistance of the Swedish model with the job and enterprise opportunities of the American one. Other EU countries have a lot to learn. Many provide the worst of both worlds: little help for refugees and high barriers to employment and enterprise. These breed hardship and failure, and misplaced resentment towards refugees. Greater investment in refugees together with reforms to open up opportunities for progress are both economically and politically desirable.

Support and opportunity The first priority should be to get refugees into work quickly. They need the right to work, appropriate skills and job opportunities.

Making it easier for people to claim asylum from outside the EU and be resettled once their claim has been accepted would give them the right to work as soon as they arrive. All governments should endeavour to process asylum claims quicker and give asylum seekers the right to work while their claims are being assessed, as in Sweden (but not the US).

Employability is also crucial. On arrival–or even beforehand– refugees’ education level and skills should be assessed to identify and provide for their training needs and better match them to employment opportunities. Literacy training should be provided to those that need it. Language training should be tailored to refugees’ workplace needs. Job training and skills development can enable refugees to find higher-skilled and better-paid work longer term. The recognition and conversion of foreign qualifications should be streamlined. It costs £25,000 to train a refugee doctor to practise in the UK, a tenth of the cost of a new British one.

Skills aren’t much use without job opportunities. Refugees should be resettled in areas where there are jobs, not in areas where cheap housing is available (and jobs aren’t). Governments should vigorously enforce anti-discrimination laws.

Making it easier for refugees to find work is yet another reason why countries with rigid, insider-outsider labour markets should open them up to outsiders. Enabling refugees to start businesses is a further reason why governments should cut through red tape that stifles enterprise.

While government assistance for refugees ought to be generous, prompt and wide-ranging initially, open-ended welfare provision can have a negative impact. Looking to the future, ensuring refugee children don’t get left behind at school is vital.

Businesses–above all, by employing refugees–and non-profits also have a vital role. For example, through the Tent Alliance, business leaders can commit to make a difference to the lives of refugees and their host communities.

Policymakers and practitioners should stop talking about refugees as a “burden” to be shared, but rather as an opportunity to be welcomed. With a suitable upfront investment and wise policies, welcoming refugees can yield substantial economic dividends.

Visit www.opennetwork.net and www.tent.org References Philippe Legrain (2016), “Refugees Work: A humanitarian investment that yields economic dividends”, OPEN and Tent OECD (2013), “The fiscal impact of immigration in OECD countries”, in International Migration Outlook 2013, OECD Publishing

OECD Yearbook 2016 © OECD 2016

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FUTURE SOCIETIES

Understanding the battle against extremism

©OECD

Andreas Schleicher Director, OECD Directorate for Education and Skills

Whoever has a hammer sees every problem as a nail. Those in the security business tend to see the answer to radicalism and terrorism in military might, and those in the financial business in cutting flows of money.

So it is only natural for educators to view the struggle against radicalism and terrorism as a battle for hearts and minds. But the recent terrorist attacks in Europe have brought home that it is far too simplistic to depict extremists and terrorists as victims of poverty or poor qualifications. More research on the background and biographies of extremists and terrorists is badly needed, but it is clear that these people often do not come from the most impoverished parts of societies. Radicals are also found among young people from middle-class families who have ticked all the boxes when it comes to formal education. And ironically, those terrorists seem to be well equipped with the entrepreneurial, creative, global and collaborative social skills that we often promote as the goal of modern education.

how schools and communities help immigrant students deal with the daily problems of living, learning and communicating.

But is that enough to fight radicalism and terrorism? Again, having good academic and social skills doesn’t seem to prevent people from using those skills to destroy, rather than advance, their societies. It comes down to the heart of education: teaching the values that can give students a reliable compass and the tools to navigate with confidence through an increasingly complex, volatile and uncertain world.

Of course, that is difficult territory. To make one’s way through it, one has to strike a balance between strengthening common values in societies, such as respect and tolerance, that cannot be compromised, and appreciating the diversity of our societies and the plurality of values that diversity engenders. Leaning too far in either direction is risky: enforcing an artificial uniformity

Young people become receptive to extremist ideas when their self-image, self-confidence and interpersonal trust are threatened of values is detrimental to people’s capacity to acknowledge different perspectives; and overemphasising diversity can lead to cultural relativism that questions the legitimacy of any core values.

Several ministers and commentators I have spoken with commend PISA for its efforts to build metrics to measure “global competency”, a set of skills that enables people to see the world through different eyes and appreciate different ideas, perspectives and values. Indeed, one of the most powerful responses to extremism and radicalisation seems the ability to read and understand diversity, while recognising that the

But that’s no reason to give up on education as the most powerful tool for building a fairer and more humane and inclusive world.

We know that individual trajectories towards extremism flourish in environments that lack social inclusion, well-being and social cohesion. Young people become receptive to extremist ideas when their self-image, self-confidence and interpersonal trust are threatened by fragmented identities and conflicting world views. There is also a clear linkage between countries’ relative success in integrating and educating migrant children and the prevalence of extremism.

Our recent publication, Immigrant Students at School, suggests that, certainly in that area, public policy can make a major difference.

It highlights how some countries do so much better than others not just in equipping disadvantaged and migrant children with strong academic skills, but also at fostering social integration among these groups. Look at Norwegian students, for instance, where nine out of ten 15-year-old students with an immigrant background say they feel they belong at school, but fewer than four out of ten French migrant students say so. The well-being of immigrant students is affected not just by cultural differences between the country of origin and the host country, but also by

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A student on a demonstration in Paris holds up a sign saying “We’re all children of immigrants”

FUTURE SOCIETIES core liberal values of our societies, such as tolerance, are the foundations on which this capacity rests.

But there is more to this. Since the end of the Second World War, liberal democracies have engaged confidently in the global battlefield of ideas. But in the 21st century, it seems that ideological hegemony will result from genuine and open dialogue for the common good. Liberal and democratic ideas and values will have to prove their worth against competing world views.

This is where education comes in as well. Universities and international schools–and the online learning programmes many of them now offer–are perfect venues in which these ideas and values can be shared and debated. It is therefore important to support and strengthen international education in its role as a

©Andrew Wheeler/OECD

Help refugees integrate and contribute

global exchange of ideas. The 5 million international students who cross borders–and oceans–to get the best possible education are also champions of intercultural dialogue and global understanding. There could even be many more of them if we invest in education sufficiently to be able to offer attractive opportunities for bright people in countries where the ideological battles for young people’s minds are increasingly fierce and the stakes alarmingly high.

Adapted from a post, which originally appeared on http://oecdeducationtoday. blogspot.fr on 22 January 2016 and was published in OECD Observer No 305, February 2016.

OECD (2015), Immigrant Students at School: Easing the Journey towards Integration, OECD Reviews of Migrant Education, OECD Publishing Visit www.theewf.org/ and www.oecd.org/pisa/

which provides the main lessons from the experience of OECD countries in fostering the integration of refugees. The report highlights many good practices to tackle key barriers and support lasting integration of refugees and their children. It stresses the importance of early intervention, including providing access to language courses, employment programmes and integration services as soon as possible, including for asylum seekers with high prospects to remain. It also stresses the need to help migrants settle where jobs are and not necessarily where housing is cheaper. The report also underlines the need to adapt integration programmes to reflect the diversity of migrants in terms of skills and the specific needs of refugees.

Filippo Grandi, UN High Commissioner for Refugees

At a joint high-level conference in Paris in January, the heads of the OECD and UN High Commission for Refugees (UNHCR) called on governments to scale up their efforts to help refugees integrate and contribute to the societies and economies of Europe.

In 2015 more than 1 million people crossed the Mediterranean Sea to look for international protection in Europe. In total, about 1.5 million claimed asylum in OECD countries in 2015. This is almost twice the number recorded in 2014 and was the highest number ever recorded. Yet, asylum seekers represent only about 0.1% of the total OECD population and represent less than 0.3% of the total EU population.

The OECD and UNHCR stressed not only the moral imperative but also the clear economic incentive of helping the millions of refugees living in OECD countries to develop the skills they need to work productively and safely in the jobs of tomorrow.

“Integration is a dynamic two-way process which requires both the individual and society to make considerable efforts,” UN High Commissioner for Refugees Filippo Grandi said at the joint conference. “In order to play a full role in the social, economic and cultural life of their host country, refugees need to achieve equality of rights and opportunities. States have an important role in this process, ensuring that refugees play a positive and active part in the integration process, particularly in terms of the services provided to them and in ensuring that they are received by welcoming communities.”

The OECD also released a report at the conference on Making Integration Work: Refugees and others in need of protection,

“Far from a problem, refugees can and should be part of the solution to many of the challenges our societies confront,” said OECD Secretary-General Angel Gurría at the Paris conference.

“They bring the hope of a better life and a better future for their children and ours. But to realise this potential, a substantial investment is needed to provide immediate support and help the refugees settle and adapt and develop their skills. It is a difficult and costly task in the short term, with a high pay-off for all in the medium to longer term”.

This article was first published in OECD Observer 305 in January 2016.

Read Mr Gurría’s full speech at: http://oe.cd/1fg More information on migration and refugees, visit www.oecd.org/migration-insights See also “We are entering a new era of migration” by Jean-Christophe Dumont, in OECD Observer No 303, September 2015, see http://oe.cd/17y OECD (2016), Making Integration Work: Refugees and others in need of protection, OECD Publishing, http://10.1787/9789264251236-en

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FUTURE SOCIETIES

Family-friendly governance in response to demographic challenges ©Rights reserved

Katalin Veresne Novák Minister of State, Ministry of Human Capacities, Hungary

In Hungary, young people want to have bigger families, but concerns over issues like housing and striking a work-life balance appear to be obstacles. In response, the government has introduced a range of family-friendly policies–a vital step in helping families fulfil their dreams and in meeting the challenge of a rapidly ageing population.

Hungary is a country with a current population of 10 million– an easy number to remember. Our grandchildren, however, may have to learn a different number. That’s because of a demographic winter in Hungary, which, over the past 35 years, has resulted in a loss of 850,000 inhabitants. Even though the population is expected to increase worldwide in the coming 35 years, it will not in Hungary. The same is true of the vast majority of European countries, where low birth rates are the norm. Not only are developed countries facing low fertility rates but also, as a longterm result, the challenge of ageing populations. In Hungary, the number of elderly matched the number of children in 2006, and the ratio will deteriorate still further in the coming decades.

Based on our projections, the consequences will be worse for Hungary than either the EU or the OECD average. Ageing has a negative impact on pension systems, health care, social care expenditures, labour markets and economic growth.

Our double challenge since 2010 has been to find a long-term answer to the demographic decline and, at the same time, recover from economic, social and political crisis. Since 2010, domestic macroeconomic conditions have improved substantially as a result of the government’s economic policy. Strict fiscal policy, consolidation of household balance sheets, structural reforms and a supportive monetary policy have all contributed to an above EU-average growth rate, decreasing debt levels and falling unemployment.

Quality is as important as quantity. The cornerstones of development are a strong and competitive education system, excellent health care and social care systems, and increasing labour market productivity and participation. In line with the OECD’s inclusive development policy we have introduced a wide range of active and passive labour market measures–a widespread public work programme, tax reductions and benefits for employers and focused training, to name just a few. As a result, Hungary has its highest employment rate in 20 years, with stronger trends for participation and non-participation than either the EU or OECD averages.

Despite the negative trend, Hungary has a strong internal resource to meet our demographic challenge. While the average

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fertility rate is only 1.44, young Hungarians say they actually want bigger families–on average they plan to have at least two children. The main reasons they cannot see these plans through are a lack of stable partnerships, housing problems, financial burdens and women’s career plans. The government has introduced in the past five years a policy mix that supports families in a number of areas, including through taxation, better provision of housing, financial support and services, improving labour market conditions, and helping families to strike a better work-life balance.

Parents can benefit from three years of paid parental leave, while, thanks to new financial incentives, mothers are motivated to return to the labour market at an earlier stage. The family tax allowance system–which most families are eligible for–means working parents with an average income and at least three children do not have to pay any income tax. Day-care facilities are constantly being developed, offering free or inexpensive childcare, including four free meals a day for children.

The government has also recently introduced a housing programme, which offers a non-refundable cash benefit of up to about €33,000 for families. The largest sum is accessible for couples that are either prepared to raise or are already raising three children and decide to buy or build a new property.

The demographic crisis can only be solved over the long run.

Despite this, we are already seeing some positive signs, which further strengthen our commitment to family-oriented policy making. Fertility rates and women’s employment are both at their highest levels in 20 years. We are still below the OECD average, but are convinced that the long-term, sustainable answer to demographic challenges can only be solved with pronatalist, family-friendly policies.

As Minister of State for Family and Youth Affairs, but also as a proud mother of three, I am especially passionate about creating a family-friendly environment in Hungary.

7VW\SH[PVU WYVQLJ[PVUZ Hungary (thousand persons)

OECD and EU (thousand persons) 1 600 000

12 000

1 400 000

10 000

1 200 000 8 000

1 000 000 800 000

6 000

600 000

4 000

400 000 2 000

200 000

OECD total

EU 28

Hungary 0

0 2010

Source: OECD

2015

2020

2025

2030

2035

2040

2045 2050

FUTURE SOCIETIES

On public education in Chile enrolments increase, public institutions’ enrolments decrease proportionally. Thus, policy on financing education is largely rooted in the neoliberal orientation of Chilean public policy.

Indeed, we may consider it to be the reason why public education is in such a critical condition.

An instructive case is the state-sponsored Crédito con Aval del Estado (CAE), which enables students who would normally not gain access to higher education to take out special loans for studying. A report on the CAE by the International Bank for Reconstruction and Development (IBRD) points out that “the way

We must overcome a market-centred view of educational services in which the system is constructed nowadays allows banks to accumulate a profitable free portfolio of risk, loading the state with the burden of the high-cost segment and charging excessive premiums”.

©Rights reserved

For 30 years, (almost) all institutional changes stimulated the private sector offering but not that of public establishments.

Today, we see the results of these policies: just a third of enrolment is in public sector schools, while just 15% of students enrolled in tertiary education are in state institutions. Chile has the lowest level of public enrolment in university of all OECD member countries and, before the reform of the education system, public education in Chile looked doomed.

Camila Vallejo Dowling Communist Party, Member of Parliament (Congress), Chile* In 2011 the Social Movement for Public Education led the biggest demonstrations since Pinochet’s dictatorship in Chile.

Since then, one of the main campaigns in Chilean society has been for the recognition of education as a social right, under the slogan of “free, quality, public education” (educación pública, gratuita y de calidad).

For more than 30 years, education in Chile has been treated as a commodity. As a consequence, the Chilean educational system has been considered as a regulated market, one ruled by the principle of financial profitability. Throughout the years billions of dollars have been transferred from the public purse to private corporations and turned into private profit.

Meanwhile, public education in Chile has been completely left behind. The neoliberal hegemony overestimated the idea of the invisible hand of the market, and public institutions were treated in the same way as private institutions.

The equal treatment principle in the Chilean education system can easily be explained: public resources injected into education are distributed to public and private institutions alike, with no legal criteria for the state to make a distinction between the two, thus making it impossible to discriminate either in favour or against either one. In this context, while private institutions’

This inspires a most genuine interpretation of President Bachelet’s government programme, because it identifies the need for direct provision of education by the state as a core aspect of the paradigm shift that the people require. Of course, to overcome our neoliberal education system, and consequently make education a social right, the strengthening of public education is fundamental as “the engine of the institutional reform process,” leading to higher levels of trust and social cohesiveness.

For us, those aims cannot be waived by making a public policy that is meant to oppose neoliberalism (still hegemonic in Chile) and a new system of public education possible that has democratic engagement at its base. The Education Reform Bill was designed to improve children’s opportunities to obtain quality education, without social and economic discrimination.

Obviously, transforming education in Chile is never a simple task. We must overcome a market-centred view of educational services and work towards an institutional system able to guarantee respect for dignity and to promote integration into society. Keeping this goal in mind, the new system must be conditioned by equity and must develop collaboration among citizens: the rights of every child and young person, male and female, must be taken seriously, without any discrimination.

*Camila Vallejo was a student leader during the Social Movement for Public Education in 2011.

For more on the IBRD study, visit: http://www-wds.worldbank.org/

OECD Yearbook 2016 © OECD 2016

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FUTURE SOCIETIES

Code is the poetry of a better world commands with loops inside them and that Russell’s quest for an exact language linking English and mathematics found its home inside the computer. I thought like a programmer; I just didn’t know it.

Linda Liukas Author, Computer Programmer

©Maija Tammi 2014

The kids of today pinch, tap and swipe their way through the world, but unless they are taught to build with computers they’ll be consumers instead of creators. If JavaScript is the new lingua franca of the next generation, instead of grammar classes we should be teaching them poetry. If we change kids perception of what’s possible, we can change the entire world.

The more approachable we feel technology is, the more we play with it, take it apart, tweak and tinker with it, the more we get a better sense of what’s possible. Remember, “disruption” doesn’t start with technology. It starts with people with a vision.

Code is the next universal language. In the 1970s punk rock drove a whole generation. In the 1980s it was probably money. For my generation, the interface to our imagination and to our world is software. This is why we need to get a more diverse set of people to see computers not as boring, mechanical and lonely things, but as something they can poke, tinker with and turn around.

Imagine a world where the stories we tell about the way things are built don’t include only Silicon Valley 20-somethings, but Kenyan schoolgirls and Norwegian librarians.

Here’s what I think: little girls don’t know yet that they’re not supposed to like computers. Little girls are precise, they can concentrate, they are really awesome at telling stories, at expressing themselves and asking the right questions. And they don’t know that they’re not supposed to like computers.

Imagine lots of little Ada Lovelaces who grow up in a world of permanent ones and zeroes, but feel confident about the powers, the limitations and the possibilities of technology.

Imagine a world of technology that is whimsical, wonderful and a tiny bit weird. A world that allows me to live my childhood dream: to wake up in the morning in Moomin Valley, to roam with the Tattooines in the afternoon and to fall asleep in Narnia.

But their parents know. They think programming is an esoteric, scientific discipline, full of mystery, almost like nuclear physics

Computer scientists built these amazing, beautiful machines for us, but also made them foreign

You see, for someone who loved make-believe worlds and storytelling, computer programming is the perfect career. Instead of stories, I create worlds with code. With code I have the ability to create my own little world with its own rules, paradigms and practices, woven from nothing but the pure power of logic. I am still a poet, after all.

as far as relevance to day-to-day life goes. And they are right: there’s an awful lot to know about syntax, control flow, data structures, algorithms, protocols, paradigms and practices.

Adapted for the OECD by the author from “Poetry of programming”, a TEDxCERN talk, October 2015. To watch it, see www.helloruby.com/press

So when I was studying in school, instead of learning to use computers, I got excited about creating make-believe worlds, conjugating French irregular verbs, knitting socks and the philosophy of Bertrand Russell. And I started to feel that maybe the world of technology was indeed lonely, boring and mechanical.

We’ve made computers smaller and smaller, built layer upon layer of abstraction between the human being and the machine.

We teach kids about human biology, how combustion engines work or how to be an astronaut, but when they ask me, “Linda, is Internet a place?” or “What is a bubble sort algorithm?” or “How does the computer know what to do when I press ‘play’ on YouTube?”, I fall silent.

But it’s not magic and it’s not complicated. It all just happened really fast. Computer scientists built these amazing, beautiful machines for us, but also made them foreign.

And that’s why the language we use is foreign. No one told me that French irregular verbs teach you pattern recognition skills, that knitting socks is all about following a sequence of symbolic

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©Image courtesy of Hello Ruby

“It must be magic!” say some. “It’s too complicated!” say others.

FUTURE SOCIETIES

©Dennis Wise/University of Washington

A mystery in the machine Pedro Domingos Professor in the Department of Computer Science and Engineering University of Washington

you use a computer, chances are machine learning is involved somewhere.

Traditionally, the only way to get a computer to do something– from adding two numbers together to flying an aeroplane–was to write down an algorithm explaining how, in painstaking detail. But machine-learning algorithms are different: they

Machine learning is something new under the sun– a technology that builds itself figure it out on their own, by making inferences from data. And the more data they have, the better they get. Now we don’t have to programme computers; they programme themselves.

Algorithms lie at the heart of machine learning, which, in turn lies at the heart of much of modern life–from online shopping to intelligence gathering. But most of us know little about these powerful tools and how they work. Is this wise?

©Charlotte Moreau

You may not know it, but machine learning is all around you.

When you type a query into a search engine, it’s how the engine figures out which results to show you–and which ads.

When you read your email, you don’t see most of the spam because machine learning has filtered it out. Go to Amazon to buy a book or Netflix to watch a video, and a machine-learning system helpfully recommends some others you might like.

Facebook uses machine learning to decide which updates to show you, and Twitter does the same for tweets. Whenever

It’s not just in cyberspace, either. Machine learning plays a part in every stage of our lives: grading college applicants’ exams, screening job candidates, picking stocks, diagnosing illnesses, finding partners. Society is changing, one learning algorithm at a time. Machine learning is remaking science, technology, business, politics, and war. Satellites, DNA sequencers, and particle accelerators probe nature in ever finer detail, and learning algorithms turn the torrents of data into new scientific knowledge. Companies know their customers like never before, and political candidates know their supporters. Unmanned vehicles pilot themselves across land, sea and air. No one programmed your tastes into Amazon’s recommendation system–it used your purchasing history to figure them out on

OECD Yearbook 2016 © OECD 2016

43

its own. Google’s self-driving car taught itself how to stay on the road; no engineer wrote an algorithm instructing it how to get from A to B. Machine learning is something new under the sun–a technology that builds itself. Ever since our remote ancestors started sharpening stones into tools, it is only humans who have designed artefacts. But learning algorithms are artefacts that design other artefacts. A learning algorithm is like a master craftsman: every one of its productions is different, and exquisitely matched to the customer’s needs. But instead of turning stone into masonry or gold into jewellery, machine learning turns data into algorithms.

And the more data it has, the more intricate the algorithms.

Humans are the species that adapts the world to itself instead of adapting itself to the world. Machine learning is the newest chapter in this million-year saga: with it, the world senses what you want and changes accordingly, without you having to lift a finger. Like a magic forest, your surroundings–virtual today, physical tomorrow–rearrange themselves as you move through them. The path you picked out between the trees and bushes grows into a road. Signs pointing the way spring up in the places you got lost.

These seemingly magical technologies work because, at its core, machine learning is about prediction–predicting what we want, the results of our actions, how to achieve our goals, how the world will change. Once upon a time, we relied on shamans and soothsayers for this, but they were much too fallible.

Science’s predictions are more trustworthy, but they are limited to what we can systematically observe and tractably model. Big data and machine learning greatly expand that scope. Some everyday things can be predicted by the unaided mind, from catching a ball to carrying on a conversation. Some things, try as we might, are just unpredictable. For the vast middle ground between the two, there’s machine learning.

mained shrouded in mystery. Hardly a day goes by without a story in the media involving machine learning, whether it’s a tech company launching a virtual personal assistant; Google’s AlphaGo beating the human Go champion; US retailer Target finding out a teenager is pregnant before her parents do; or the US National Security Agency (NSA) looking for dots to connect.

But in each case the learning algorithm driving the story is a black box. Even books on big data skirt around what really happens when the computer swallows all those terabytes and magically comes up with new insights. At best, we’re left with

Companies know their customers like never before, and political candidates know their supporters.

Paradoxically, learning algorithms themselves have remained shrouded in mystery. the impression that learning algorithms just find correlations between pairs of events, such as Googling “flu medicine” and having the flu. But finding correlations is to machine learning no more than bricks are to houses, and people don’t live in bricks.

When a new technology is as pervasive and game-changing as machine learning, it’s not wise to let it remain a black box. Opacity opens the door to error and misuse. Amazon’s algorithm, more than any one person, determines what books are read in the world today. The NSA’s algorithms decide who is, or isn’t, a potential terrorist. Climate models decide what’s a safe level of carbon dioxide in the atmosphere. Stock-picking models drive the economy more than most of us do. You can’t control what you don’t understand, and that’s why you need to understand machine learning–as a citizen, a professional, and a human being engaged in the pursuit of happiness.

Domingos, Pedro (2015), The Master Algorithm: How the Quest for the Ultimate Learning Machine Will Remake Our World, Basic Books

Paradoxically, even as they open new windows on nature and human behaviour, learning algorithms themselves have re-

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Business brief

The ascendancy of digital trade: A new world order?

Jacques Bughin Director McKinsey Global Institute

platforms and content. The US accounts for more than 50% of online content consumed in every region of the world except Europe. China is not sitting still. Alibaba has built a global hold on B2B, spawning vast networks of small companies–and recording the largest stock market launch in history in the process.

©McKinsey

Will other developing countries, which long vied for the world’s low-cost manufacturing business to climb the developmental ladder, lose out? What about Europe, especially countries like Germany that built their wealth on large physical export industries?

We are so used to all things digital that we can sometimes lose sight of just how enormous the phenomenon has become, and how disruptive it can be. The bit volume of cross-border digital

The transition from the physical to the virtual would seem to favour the United States flows has grown by 45 times in the past decade. An estimated 211 terabits of data, which is the equivalent of 8,500 entire Wikipedias, flow across borders every second. Approximately 12% of global consumer goods trade is now conducted via international e-commerce. Some 50 million small companies are now on Facebook alone, double the number in 2013.

This data torrent is changing the nature of globalisation–and may shift the balance of global economic power. Recent research from the McKinsey Global Institute (MGI) shows that the value of data flows has overtaken the value of global trade in physical goods.

Together, global flows of goods, services, finance, people, and data have raised world GDP by at least 10% in the past decade, adding US$7.8 trillion in 2014 alone. Data flows accounted for $2.8 trillion of this value–and this is only the start of global digitisation.

EU countries today occupy 19 of the top 25 slots in MGI’s global ranking of participation in cross-border data flows. The Netherlands tops the list, having made smart moves such as adding a virtual data leg to its harbour infrastructure. But a closer look shows three negatives: first, a steep drop-off in the MGI ranking scores for the majority of EU countries; second, Scandinavia, Belgium and southern European countries are slowly migrating to the periphery of those data flows; third, the size of all domestic data activity in the 28 EU countries is smaller than the total data flow import from the US. The winners of this new era will be the well-connected and the digitally literate. That means investment in infrastructure, education, and skill training is more important than ever. For companies, countries and individuals everywhere, the opportunities created by digital flows beckon, waiting to be seized.

Digital globalisation: The new era of data flows, McKinsey Global Institute, March 2016. http://www.mckinsey.com/businessfunctions/mckinsey-digital/our-insights/digital-globalizationthe-new-era-of-global-flows

Harnessing the power of digital should be a top priority for policy makers and business everywhere. One way to unlock more crossborder e-commerce is by addressing issues such as ease of single payments systems, co-ordination of tax issues, and integrated logistics. On the supply side, building local ecosystems between entrepreneurs, universities, and companies, and developing talent able to code or manage big data can give birth to a generation of “unicorns” in Stockholm, London, Berlin, or Paris. Meanwhile, the world’s biggest digital platforms such as Alibaba, Amazon, eBay, Flipkart and Rakuten, are turning millions of small enterprises around the world into “micro-multinational” exporters. Companies everywhere can overcome constraints in their local markets and connect with global customers, suppliers, financing and talent.

These shifts are feeding back to the world of physical goods.

Many firms are simplifying and shortening global supply chains where possible. For a range of goods, labour costs are no longer the biggest concern, as automation takes hold.

The transition from the physical to the virtual would seem to favour the United States, the world’s leading producer of digital

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FUTURE SOCIETIES

©OECD

What dads can do for gender equality

Monika Queisser, Willem Adema and Chris Clarke, OECD Directorate for Employment, Labour and Social Affairs Prince William did it, Justin Timberlake did it, and so did David Cameron and Mark Zuckerberg. All four took paternity leave to spend time with babies George, Charlotte, Silas, Florence and Max. These trailblazers are great role models in combining family and work–at least when a new baby arrives–but men around the world are still too slow in following their example.

And this despite the fact that more than half of OECD countries grant fathers paid paternity leave when a child is born; and paid parental leave, i.e. a longer period of job-protected leave open to both parents, is also available in more and more countries.

Parental leave for fathers typically lasts between two and three months and comes in different forms. Most common are “daddy quotas”, or specific portions of paid leave reserved for the father only. Some countries offer “bonus periods”, meaning that a couple may qualify for extra weeks of paid leave if the father uses up a certain period of a sharable leave. Other countries simply provide both parents with their own individual entitlement with no sharable period at all. So, in theory, more dads could be at home taking care of their kids and making it easier for both the mothers and themselves to live up to the expectations of babies and bosses.

The reality, however, looks very different. Fathers usually take a few days off right after the birth of a baby, but only the most committed and bravest use their right to longer parental leave.

In many countries, fathers account for less than 20% of those taking paid parental leave. Scandinavian and Portuguese men are more progressive: their share among paid parental leave users goes up to 40% or more. Fathers in Australia, the Czech Republic and Poland, by contrast, shun parental leave; only about one in 50 paid leave takers is male. The most generous leave entitlements exist in Japan and Korea: a full year of paid leave is reserved just for the father– but very few men take advantage of it.

Why are we seeing so little movement in breaking up traditional gender roles? We are told that Generations X, Y and Z are looking for a better balance between work and family life. So why are young fathers not even taking the days to which they are legally entitled?

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Financial considerations are powerful factors in making leave decisions. Women still make about 15% less than men, on average in OECD countries. So, economically speaking, it often simply makes more sense for fathers to continue working, especially if parental leave is paid at much lower rates than previous earnings, or not paid at all. The period around childbirth is often a time of considerable stress on household budgets. Many families may feel that they cannot make that sacrifice. Arguably, neither Prince William nor Mark Zuckerberg had to lose sleep over making serious dents in family income when deciding to spend their time cuddling and changing diapers for a while.

Not surprisingly, research suggests that fathers’ use of parental leave is highest when leave is not just paid but well paid–perhaps around half or more of previous earnings. The father quotas in

Fathers’ leave entitlements Weeks of paid paternity and paid parental leave that can be taken only by the father, 2015

Korea

53 weeks

Japan

52 weeks

France

28 weeks

Luxembourg

26 weeks

Portugal

21 weeks

Belgium

19 weeks

Iceland

13 weeks

Sweden

10 weeks

Norway

10 weeks

Finland

9 weeks

Germany

9 weeks

Austria

9 weeks

OECD average

8 weeks

Spain

2 weeks

Slovenia

2 weeks

UK

2 weeks

Poland

2 weeks

Estonia

2 weeks

Denmark

2 weeks

Australia

2 weeks

Mexico

1 week

Hungary

1 week

Chile Netherlands Greece Italy

1 week 2 days 2 days 1 day

US

0

Turkey

0

Switzerland

0

Slovak Republic

0

New Zealand

0

Israel

0

Ireland

0

Czech Republic

0

Canada

0

Three-quarters of OECD countries now provide at least a few days of paid leave that can be used only by the father or other partner, either through paid paternity leave or paid father-specific parental leave. In 12 OECD countries, paid father-specific leave lasts for two months or more, while in Japan and Korea dads can take up to a year. For notes and sources, see the OECD Family Database: http://www.oecd.org/els/family/database.htm

Source: OECD Family Database

©Dinodia Photos/Getty Images

FUTURE SOCIETIES

Pushing for a change

Iceland and Sweden are relatively well paid at over 60% of last earnings. Similarly, a 2007 policy reform in Germany introduced well-paid bonus months for partners; as a result the share of children whose father took leave increased by over 50% in Germany between 2008 and 2013, reaching 32%.

have negative effects on their career and their relationship with colleagues. Such workplace attitudes may be less pronounced in many other OECD countries, but even in Sweden, working in a small workplace or in one with a long-hours culture can keep fathers from using parental leave.

But gender norms and cultural traditions still present serious obstacles to fathers taking leave. A 2013 survey by the Korean trade unions asked Korean fathers why they decided not to take leave; it showed that more than half were worried about the

Public policy can provide the best conditions to enable fathers to spend more time with their children. But change needs to come both from employers and fathers themselves if we want to succeed in a better sharing of paid and unpaid work between men and women. This is not only about promoting gender equality at work and at home; it is also about improving the quality of life—for men, women and children.

Change needs to come both from employers and fathers themselves if we want to better share paid and unpaid work between men and women negative prejudices that they would be exposed to. In France, where men account for only 4% of parents claiming parental leave benefits, 46% of the fathers who did not take their full leave entitlement said that they were simply “not interested”.

And according to data from the International Social Survey Programme, in all but six OECD countries at least 50% of people who believe that paid leave should be available to parents also believe that leave should be taken “entirely” or “mostly” by the mother. In some countries, such as the Czech Republic, the Slovak Republic and Turkey, a whopping 80% agree with this statement.

Finally, employers’ opinions and the environment in the company obviously play a crucial role. Some employers may regard a father taking long leave as not being committed to his job, leading fathers contemplating a longer break to fear for their career and promotion prospects. In Japan and Korea, fathers taking paid parental leave are concerned this would

Article adapted from www.OECDinsights.org blog post, 8 March 2016 Visit www.oecd.org/gender and the OECD Family database, www.oecd.org/els/family/ database.htm References OECD (2012), Closing the Gender Gap: Act Now, OECD Publishing Korintus, Marta and Peter Moss (2008), “International review of leave policies and related research 2008”, No. 100, July, Employment Relations Research Series, Department for Business, Enterprise and Regulatory Reform Bygren, Magnus and Ann-Zofie Duvander (2006), “Parents’ workplace situation and fathers’ parental leave use”, No. 68, Journal of Marriage and Family, Blackwell Publishing Inc Haas, Linda, Karin Allard and Philip Hwang (2002), “The impact of organizational culture on men’s use of paternal leave in Sweden”, Vol. 5, No. 3, Community, Work & Family, Taylor & Francis Online Kim, Hee-Jung (2015), “Korea’s work-life balance policies for sustainable growth”, in OECD Yearbook 2015 Visit www.oecdobserver.org/gender

OECD Yearbook 2016 © OECD 2016

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FUTURE SOCIETIES

Women for peace

©Rights reserved

©Bay Ismoyo/AFP

the Americas and Middle East, are lagging behind.

Haifa Fahoum Al Kaylani, Founding Chair, Arab International Women’s Forum, and Ibrahim Gambari, former Foreign Affairs Minister, Nigeria and UN UnderSecretary-General for Political Affairs

UN Security Council Resolution 1325, which was adopted in 2000, recognised, for the first time, the vital contribution of women to conflict prevention and resolution. As a symbolic act and practical call to action, the UN resolution acknowledged what we have experienced throughout our careers in diplomacy, business, academia, and development: the involvement of women in peace processes significantly improves the prospects for a more durable peace. Each year since, the role of women in keeping and building peace has figured more prominently in the commemoration of International Women’s Day, 8 March.

This is rightly so.

Yet, 16 years on, formidable political, socio-cultural, and economic obstacles remain to the full participation of women in peace efforts, whether as peacemakers or as citizens— something the UN resolution was supposed to help overcome.

This is a major conclusion of the Commission on Global Justice, Security & Governance, on which we proudly serve.

In our report, Confronting the Crisis of Global Governance, we view gender inequality as a fundamental global governance challenge, especially in conflict-affected environments, where, compared to men, women suffer harm differently and disproportionately. Despite the call in Resolution 1325 for greater female participation in peace processes, they remain acutely underrepresented in UN-brokered talks. Research carried out by UNIFEM/UN Women reveals that, in 14 diverse cases since 2000, women’s participation in peace negotiation delegations averaged less than 8%, and less than 3% of their signatories were women.

Today, only two of 22 UN under-secretaries-general are women, and in UN missions, women make up less than a third of the international civilian staff, 21% of senior professional levels, and only 18% of national staff. Moreover, the recent Global Study on the Implementation of United Nations Security Council Resolution 1325 found that only 54 countries have formulated National Action Plans for Resolution 1325. Entire regions, notably

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OECD Yearbook 2016 © OECD 2016

Meanwhile, the plight of millions of women, men and children in the greater Middle East seeking refuge in nearby Europe and beyond reminds us of the need for urgent action to prevent and end ongoing wars. From sitting at the negotiating table to building the blocks for long-term reconciliation and peaceful co-existence, women are poised to contribute, when given the opportunity, to fair and durable solutions so essential to reduce human suffering.

To ensure that women’s voices are heard and decision-makers made more accountable, particularly in fragile states, our commission proposes several innovations to advance a vision of “just security.”

First, strengthen the role of women in peace processes. Global and regional institutions should appoint women to prominent peace-making roles. International actors that support peace

Women are poised to contribute to solutions so essential to reduce human suffering processes should demand women’s inclusion in negotiating teams and as signatories to ensure that their experiences and priorities are represented.

Second, employ National Action Plans for Resolution 1325 as an effective tool of foreign policy. Incorporating such plans into a country’s foreign policy can secure and sustain political will and resources—two critical components for ensuring that a plan’s objectives are met and leaders held accountable.

Third, tackle the socio-economic factors that disadvantage women’s status in society. The commission recognises several such factors, including the lack of access to education, reproductive health services, and decent work opportunities in the formal economy.

Finally, the commission strongly endorses the UN’s goal of empowering women to become national and world leaders in the 21st century. The Campaign to Elect a Woman UN Secretary General, organised by a group of female scholars and civil society leaders, is an excellent example towards achieving this goal.

Other international organisations, such as the OECD, are also making headway in bridging the gender gap. As well as one of its four deputy secretary-generals, the OECD’s chief of staff, chief economist and chief statistician are women, while the organisation has stepped up its efforts promoting gender inclusiveness, via the online Gender Data Portal, Wikigender, and many reports and studies.

But there is still a long way to go for countries, even among the OECD membership, to implement the changes needed to fight gender discrimination. All too often women, especially in

©Parth Sanyal/REUTERS

FUTURE SOCIETIES

She needs more support.

violent conflict and post-conflict settings, struggle to achieve dignified livelihoods and exert decision-making power, lack access to critical services, and suffer serious physical and mental harm—a toxic triple threat that devastates lives and undermines women’s ability to contribute to society. The ideas we lay out above should be considered and acted upon with a sense of urgency. We will only begin to meet the most pressing global governance challenges when women, who are disproportionately victims, are part of the solution. This can only happen if all organisations take an active role in fostering gender balance.

Haifa Fahoum Al Kaylani and Ibrahim Gambari both serve on the Commission on Global Security, Justice & Governance.

References The Hague Institute for Global Justice and the Stimson Center (2015), “Confronting the crisis of global governance”, Report of the Commission on Global Security, Justice & Governance, June, www.stimson.org/sites/default/files/file-attachments/Commission_ on_Global_Security_Justice%20_Governance_0.pdf UN Women (2015), Global Study on the Implementation of United Nations Security Council Resolution 1325, http://wps.unwomen.org/~/media/files/un%20 women/wps/highlights/unw-global-study-1325-2015.pdf UN Women (2010), Women’s Participation in Peace Negotiations: Connections between Presence and Influence, www.unwomen.org/~/media/headquarters/media/ publications/unifem/0302_womensparticipationinpeacenegotiations_en.pdf Visit http://wps.unwomen.org and https://staging.stimson.org/programs/global-securityjustice-and-governance

OECD Yearbook 2016 © OECD 2016

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FUTURE SOCIETIES

Local growth and development: An era of new priorities Michel Landel CEO, Sodexo

©Stéphane Lavoué

I see two explanations for this shift. First, businesses are taking a harder look at their real return on investment. Between 2000 and 2011, wages doubled in Asia, while they inched upwards by only 5% in developed countries. Factor in added expenditure due to poor or inconsistent manufacturing quality, soaring

Not so long ago, “globalisation” was a favourite paradigm in international business. It was a trend that began in the late 1970s and accelerated in the 1980s, when corporate takeovers were the order of the day and multinational companies fixated on maximising short-term profits and boosting share prices.

One approach was “global sourcing”, also called outsourcing or offshoring. The strategy typically involved moving the company’s operations to wherever labour was cheapest. First the production work went abroad, and then companies were offloading all but their most essential core activities.

©Sodexo

Today this paradigm seems out of date, at best. The era of offshoring at any cost has ended. Some of the largest multinational

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corporations are re-localising–that is, re-rooting their activities at the community level. To stay competitive in the global marketplace, companies have no choice but to focus on new priorities and adopt a more sustainable vision.

OECD Yearbook 2016 © OECD 2016

One survey shows that 54% of corporate leaders are planning to bring production back home in the next five years transport costs or the risks of counterfeiting, and the competitive advantage of offshoring shrinks dramatically. No wonder that, in the US, the movement to re-localise is gaining traction: one survey shows that 54% of corporate leaders are planning to bring production back home in the next five years.

Second, consumer demand has clearly changed. From the popularity of farmers’ markets and food co-ops to the revitalisation of community banking, consumers are embracing the sustainable and the local. Purchasing decisions increasingly take into account the environmental impact and the social costs of production. Despite the economic downturn, consumers will

FUTURE SOCIETIES spend more to buy local: in France, more than two-thirds of consumers (up from less than half in 2005) are ready to pay more for a “Made in France” label.

This new social, cultural and environmental awareness also affects how companies operate: their top management and staff are also global citizens, knowledgeable consumers and demanding clients. They understand that ruthlessly chasing

In France, more than two-thirds of consumers (up from less than half in 2005) are ready to pay more for a “Made in France” label profits in a global, fossil-fuelled economy is no longer viable, and that “going local” is the way forward. Today, many business leaders are finding ways to increase proximity to local markets.

Although this strategy is not easy to roll out, it can certainly lead to improved efficiency and a better bottom line. But those are not the only payoffs. This is a way of achieving long-term benefits, sharing advantages as well as meeting challenges with local talent, producers, and communities.

I am convinced there’s nothing contradictory in having a local foot-hold and a global footprint: both aspects are inextricably linked in the quest for sustainable growth. For a services company like Sodexo, with operations in 80 countries, this approach underpins our core business. All industries, in which we provide quality-of-life services, are impacted by these fundamental changes: health care, education, corporate, in-home care, to name a few. Given that the added value of a service depends by definition on being close to our clients, we strive to always have a local presence. As such, local development is an integral part of our mission and boosts our own growth.

staff are local, and very often we are the biggest employer in the region. So as to attract and retain the best talent, we offer a stable job and training in order to give them opportunities to move within the company and advance in their career.

We also serve large numbers of local small businesses. It is in our own interest to help them grow. Being close to local suppliers and building long-term relations with them has a number of advantages. It gives us better control over the quality of our own service and production; it lets us be more nimble; and it helps us build closer bonds with the local business communities where our clients, our partners and consumers are located. Sodexo’s Supply Chain Inclusion Program (see reference) encourages our subsidiaries to source more from small businesses and to provide them with training so they may improve quality and, ultimately, gain access to new markets. At the most recent annual Clinton Global Initiative conference, we pledged to invest US$1 billion with 5,000 small businesses by 2017, which we expect will lead to more than 250,000 new local jobs.

In step with governments and non-governmental organisations (NGOs), global companies have a new role to play, expressed through their commitments and priorities with respect to economic, social and environmental development in local markets. The booming digital economy that is rewriting the rules of production, with national regulations and tax laws struggling to keep pace, will be one more hurdle to overcome.

More than ever, we must be exemplary in how we do business and set our priorities, so that wherever we operate we build sustainable trust-based relations with our locally-based clients and communities.

Sodexo is a sponsor of the OECD Forum 2016 Landel, Michel (2015), “Towards a more human economy”, in OECD Yearbook 2015

Every time we set up a new location, we tailor our organisation and working practices to the specific local context. Most of our

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FUTURE SOCIETIES development forums should recognise this fact, as the OECD is doing, thanks to its work on promoting good governance at every level.

Local logic: How cities can make a difference

After all, diverse forms of local democracy in particular can be innovative and enriching, both for political participation and governance, and for people’s lives. By giving citizens more than a voice and actually encouraging them to participate in decisions about how to invest resources, for instance, municipalities build solidarity and cultivate togetherness. This is

Carolina Tohá Mayor of Santiago, Chile

Local democracy can be innovative and enriching ©Rights reserved

the approach we have adopted in Santiago, through our public consultations, participatory budgets, and other forms of social involvement.

The world of the 21st century challenges policy makers to involve citizens in the decisions that matter. What kind of development do we want to strive for? How can we take care of our planet and stop permanent damage to our environment?

How can we reach our goals? What must each citizen do to contribute, and what should they expect in return?

The world cannot resolve today’s development challenges with purely national approaches. We need to complement them with local approaches, too. We live in an era of enormous transformations, in which our traditional political structures and forms of democratic participation must adapt. That means casting a bigger focus than ever on the important role of local power and communities. Local territories and cities are essential players in the pursuit of a just and sustainable development, and their voices must be given more sway in international forums.

Municipalities and local spheres hold the answers to these key questions. The inclusion of local actors in OECD discussions represents progress. It is an opportunity to bridge the gap that too often divides the citizens of many countries from their national and international political institutions. In Santiago we are determined to help bridge that gap for good.

On all continents, the local level of power has become a driver of social innovation and public policy, showing promising results in challenging areas such as social inequality, environmental protection, multicultural coexistence and democracy. In Santiago, there are policies, actions and projects that have stood out as being exemplary; many have been emulated at national level and are applicable to the realities and experiences of other countries, too.

Visit www.municipalidaddesantiago.cl/

The same can be said of urban mobility policies. Cities around the world are changing their transport systems and how they move about, leading to improvements in social equality, greenhouse gas emissions and the quality of urban life generally. Our Downtown Plan initiative is a case in point, by transforming how people use the streets in downtown Santiago. Through the plan, we have shown how favouring pedestrians, cyclists and public transport helps reduce traffic congestion and pollution. It is a valuable step towards our goal of providing a kinder, fairer city, where both rich and poor can move, work and live in dignity and security.

More than half of the world’s population lives in cities, but in Latin America that figure soars to 80% and in Chile to 90%. This gives immense importance to urban policy making, both to help us understand the present and anticipate the future. International

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OECD Yearbook 2016 © OECD 2016

©Ivan Alvarado/REUTERS

Take waste management, for instance. Refuse is no longer a highcost nuisance, but a resource for generating energy and wealth.

In Santiago we are pursuing a waste-conversion programme that goes beyond the usual “green” recycling spots in public space to cover every step of the waste management process, including waste separation at home. It implies a cultural change and, for it to work, requires the support of entire communities.

FUTURE SOCIETIES

Inequality and urban growth Ricky Burdett Professor of Urban Studies, London School of Economics

Gated wealth in Paris ©Rights reserved

levels of deprivation and requirements for social infrastructure are of a different order of magnitude.

This year London’s population overtook its historical high of 8.6 million reached at the outset of the Second World War, bucking the trend of many European and North American cities, which have experienced only slight, or even negative, growth. Compared to other global cities, London is inching forward, with only nine new residents per hour, compared to double that number in São Paulo and over 70 in Delhi, Kinshasa and Dhaka. Nonetheless, London will accommodate a million more people by 2030.

These snapshots reflect deep differences in patterns of urban growth and change across the globe, often masked by the crude statistic that the world is now more urban than rural.

Today Europe and South and North America are the most urbanised of the five continents, with 73%, 83% and 82% of people respectively living in cities, towns and other urban

Urbanisation has become more spatially fragmented, less environmentally responsive and more socially divisive settlements. Africa stands at around 40% and Asia at 48%: both of these regions are set to experience exponential growth in the coming decades, thanks to increased birth rates and migration.

While there are stark differences in patterns of urban growth across the globe, there are equally stark differences in the distribution patterns of inequality. All cities display some level of inequality. Some are more pronounced than others, depending on their national and regional contexts, and the level of economic development and informalisation. What we are observing today, especially in cities of the developing world, is that social inequality is becoming increasingly spatialised.

Designers, developers, investors and policy makers are faced with increasingly tough choices as to how to intervene within changing urban physical and social landscapes. How do you maintain the DNA of the city when it undergoes profound transformations? Who is the city for? How do you reconcile public and private interests? Who pays and who gains? The city planners of London, Paris, Barcelona, Hamburg and New York are grappling with the same questions as the urban leaders of African, Latin American and many Asian cities, even though the

Many urban projects of recent decades have contributed to a physical reinforcement of inequality. Gated communities and enclaves proliferate. They cast differences in stone or concrete, not for a few undesirable outcasts, but for generations of new urban dwellers who flock to the city in search of jobs and opportunities. A key question for policy makers is what role, if any, does the design of the physical environment play in exacerbating or alleviating inequality?

In many African and Latin American cities, inequality is indeed a stark reality. Despite recent improvements, Rio de Janeiro and São Paulo, for example, still top the Gini index charts, which measure inequality. In fact, inequality in these cities is nearly twice that of London or Berlin, although it remains less extreme than some African cities like Johannesburg and Lagos, or indeed other Latin American cities like Mexico City and Santiago, or the highly planned Brazilian capital of Brasília.

London, for example, has average income levels four times higher than Rio de Janeiro. Yet, it has a marked intra-urban distribution of inequality. The most deprived neighbourhoods are concentrated in the east and south, with more affluent residents concentrated in west London and the periphery of the city (the suburbs on the edge of the Green Belt). In Paris, by contrast, social deprivation is concentrated at the northern edges of the city, and among poorly serviced, predominantly migrant communities living in 1970s’ block typologies in the suburban banlieues beyond the périphérique motorway.

The reality is that in many parts of the world urbanisation has become more spatially fragmented, less environmentally responsive and more socially divisive. Adaptable and porous urban design, coupled with social mix and density, will not solve social inequality on its own. But they will go a long way in mitigating the negative impacts of exclusionary design and planning. By developing a more open form of urbanism that recognises how the spatial and the social are inextricably linked, cities could help provide solutions, not just exacerbate problems.

This text draws from research carried out by LSE Cities, a research centre which Professor Burdett directs at the LSE. Visit https://lsecities.net/ References UN-Habitat (2011), “The Economic Divide: Urban Income Inequalities”, State of the World’s Cities 2010-11, www.unhabitat.org.jo/en/inp/Upload/2233036_pages%20 from%20Report-Englishrd-2.pdf Burdett, Ricky and Deyan Sudjic (2011), Living in the Endless City, Phaidon Press, London

OECD Yearbook 2016 © OECD 2016

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Business brief

A new vision for living and ageing in America Jo Ann Jenkins CEO, AARP

©AARP

The way we are ageing today is dramatically different from how it was a generation, even a decade ago. Yes, we are living longer and in better health, but it’s much more than that. We haven’t just added more years to the end of life, we’ve extended middle age and, in essence, created a new life stage that has opened up a whole new world of possibilities for how we live and age. And, we’re just beginning to understand the full range and depth of those possibilities.

I first stepped onto the stage at AARP’s Ideas@50+ national member event in San Diego in September 2014 to deliver a keynote address urging the 8,000 attendees to disrupt ageing.

Since then, the response has been over whelming. It turns out that this is a message that people aged 50 and over have been

We haven’t just added more years to the end of life, we’ve created a new life stage waiting to hear. People across the country, from all walks of life, have been sharing their experiences with me and telling me that although they don’t want to age the same way their parents did, they aren’t sure what to do about it. They are anxious to change the conversation in our society, and in some cases, to start having the conversation. They want more choices for how to live when they get older. They want new and better solutions to help them age with independence, dignity and purpose. They are ready to chart a new course. So am I. I wrote this book to provide a pathway for those who are 50 and over and to create a new vision for all generations for living and ageing in America. I can no more identify with my parents’ experience of ageing than my own kids can identify with mine.

It’s just different. Sometimes I play this little game when I hit certain milestones in my life–like birthdays, sending my kids off to college, attending their graduations, etc–I think back and

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try to remember my parents as they experienced those same milestones. What was my mom like when she was 57? What were my parents doing when I graduated from college? How did they view their lives at various milestones along the way? It can be a real eye opener and really makes me realise how much things have changed from their generation to mine.

OECD Yearbook 2016 © OECD 2016

Yet, most conversations around ageing still view it as a problem to be solved. It’s a premise that is absolutely and fundamentally wrong, and millions of people are proving it wrong every day.

The conversation can’t be about how to avoid a crisis, it needs to be about how to take advantage of the opportunities we have so we individually and as a nation can thrive.

Our culture, institutions, social supports and infrastructure have not kept up with the advancements in the way we age that science, technology and innovation have made and continue to make possible. That’s what the conversation is about. We need to get rid of the outdated beliefs and stereotypes about ageing and spur new solutions so more of us can choose how we want to age. That means replacing old models that don’t work with new ones that do and updating those that do work so they continue to work in the future. That’s what disrupting ageing is all about.

Ageing’s four freedoms On 6 January 1941, the eve of the United States’ entry into Second World War, President Franklin Delano Roosevelt argued for an end to the isolationist policies that grew out of First World War and offered a new ideology based on four freedoms: Freedom of Speech, Freedom of Worship, Freedom from Want and Freedom from Fear. In much the same way that Roosevelt’s Four Freedoms inspired America to wake up and realise what was happening in the world and to act, I have identified the Four Freedoms of Ageing that will define a new vision for living and ageing in America and inspire us to disrupt ageing, making that vision a reality.

Freedom to choose how and where you want to live as you age.

When it comes to ageing, there is no one-size-fits-all solution.

If you want to follow a traditional path to retirement, you should

there. As we disrupt ageing, we will break down the barriers and create new opportunities to learn as we get older.

Freedom to pursue happiness by discovering and fulfilling your purpose. This is what it’s really all about. Our longer lives give us an extraordinary opportunity to become the people we have always wanted to be. But if we’re going to win at attaining Ageing’s Four Freedoms, we have to work together to create a society where we have access to the care, information and services we need to lead healthier lives with independence and dignity; where we have the financial resources and opportunities to match our longer life spans; and where we are seen as an integral and inspirational asset to society.

Winning these freedoms begins with each of us. We can’t afford to sit on the sidelines and wait for someone else to win these freedoms for us; we have to do it for ourselves. It’s time to tell our stories–what we believe and what we can do. So, in conversations with your family and friends, what beliefs will you challenge?

We need to change both the culture and the infrastructure of ageing–the systems, programmes, products and services that we encounter every day. In your life and in your work, what solutions will you spark? In everything that you do, think about what new possibilities you can create for yourself and others. What will you do to disrupt ageing?

This is an edited excerpt for the OECD Yearbook 2016 from Jo Ann Jenkins’ forthcoming book (2016), Disrupt Aging: A Bold New Path to Living Your Best Life at Every Age, published by PublicAffairs.

be able to do that. If you want an active, engaged life, you should have options to pursue that as well. It’s all about having options available that allow you to choose how you live and age.

Freedom to earn. A key part of the retirement model that most of us have grown up with is freedom from work. Today, a key part of extended middle age is the freedom to work. Many of us want or need to continue earning a living and are searching for ways to make a difference in society through the work we do.

This requires reimagining work and breaking down both social and institutional barriers that stand in the way.

AARP is a Knowledge Partner of OECD Forum

Freedom to learn. If we want to stay engaged, involved and productive during our extended middle age and beyond, we need to keep learning. But let’s face it, the opportunities for us to keep learning diminish as we get older. In many cases, they’re just not

OECD Yearbook 2016 © OECD 2016

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OECD FACTBOOK INDICATORS Gap in unemployment rates between foreign- and native-born populations Percentage points, 2014 12 10

Foreign-born have higher unemployment rates than native-born.

8 6 4 2 0 -2

Foreign-born have lower unemployment rates than native-born.

-4 -6 -8

http://dx.doi.org/10.1787/888933335247

Distribution of foreign and international students in tertiary education 2013

Other nonOECD countries 20%

By country of destination Turkey 1%

United Kingdom 10%

Other OECD countries 10%

Korea 1%

United States 19%

Spain 1%

Australia 6%

Saudi Arabia 2% Netherlands 2%

France 6%

Austria 2%

http://dx.doi.org/10.1787/888933335551

Infant mortality rates

Italy 2% China 2% Canada 3%

Germany 5% Russian Federation 3% Japan 3%

Deaths per 1000 live births, 2013 or latest available year

45 40 35 30 25 20 15 10 5 0

http://dx.doi.org/10.1787/888933335136

Selected charts from OECD Factbook 2016-2017; available at www.oecdbookshop.org and www.oecd-iLibrary.org

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GOVERNANCE FOR A BETTER WORLD INTRODUCTION

From agreement to action

In 2015 the world came together in historic fashion to address some of the biggest challenges facing our planet. Significant agreements were struck, including the UN Sustainable Development Goals (SDGs) in September; the Paris Agreement at the UN Climate Change Conference (COP21) in December; international agreements to combat unfair tax practices in the autumn; and agreements to unblock world trade in December.

But agreement is only half the battle. The other half is action– if 2015 was a year of agreement, then 2016 must be the first year of implementation, and overcoming the challenges that this will entail.

Simon Upton opens the section by outlining what is needed to advance the fight against climate change, and asks governments to check that their policy settings can accommodate new business models and technologies. Miguel Arias Cañete argues that the Paris Agreement means that clean energy must become the new reality, and highlights some EU initiatives to meet its targets. Xuedu Lu looks at the challenges facing China, and argues that the government is determined to reach, if not beat, its targets. However, data is a challenge, he points out. It’s a point that applies to the Sustainable Development Goals, too. Martine Durand says we need a GPS to guide us towards those goals, and calls for investment in more statistical capacity to monitor progress. Dambisa Moyo says the SDGs can be a global compass for policy makers. Belynda Petrie returns to the Paris Agreement, which has a bearing on the SDGs, and argues that Africa’s hopes for vital structural reform rest on renewable energy. The role of women and girls is Michael Elliott’s theme: he insists that fighting poverty means fighting sexism. Children take centre stage for Helle ThorningSchmidt, who states that SDGs will only be met if we tackle the barriers stopping children from surviving and learning, while Kailash Satyarthi argues that businesses and consumers must both work harder to combat child labour. Adrian BlundellWignall looks at the growing pressure on corporations to behave responsibly, and says more effort is needed to implement the OECD Multinational Enterprise Guidelines, which celebrate 40 this year. The focus then turns to global finance and tax avoidance. Pascal Saint-Amans argues that we now have the tools to fight tax abuse and boost transparency, but must now use them, with the Panama Papers scandal serving as a sign that initiatives towards more transparency may be starting to work, and as a reminder that more effort is needed. Gabriel Zucman also states that it’s time to get tough on tax fraud and calls on countries to create financial and property registers to improve transparency. Joris Luyendijk fears that talk of culture change in big banks may be just that–talk, while Brooke Harrington exposes the role in rising inequality of wealth managers, from lawyers to accountants, who protect the fortunes of their clients from tax authorities.

Noah Beckwith explains how “inclusive businesses” are taking hold and could become an effective tool against poverty.

Finally, Todd McClay decries creeping protectionism in global trade and calls on ministers to act by honouring trade agreements and promoting multilateral trade.

OECD Yearbook 2016 © OECD 2016

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FROM AGREEMENT TO ACTION

The Paris Agreement demands climate action

©OECD

Simon Upton Director OECD Environment Directorate

The Paris Agreement is a landmark in collective efforts on climate change and is the result of many years’ hard work. It must now be implemented.

In a remarkable show of solidarity, 177 countries have now signed the Paris Agreement and 16 of them have already deposited their instruments of ratification, acceptance or approval. However, the jury remains out on whether countries will scale up their action sufficiently quickly to achieve the Paris Agreement’s long-term aims to limit the extent of climate change to “well below 2°C”. The

The world will not wait, with 2016 already on track to become yet another “hottest on record” Paris Agreement lays out the foundation for meaningful longterm action, providing transparency and review mechanisms that should allow countries to assess and adjust the scale of their efforts. Over the next few years, parties to the Paris Agreement will be working to finalise these important operational details and rules. Importantly, they also have the opportunity to scale up their emissions reductions efforts before 2020, which is vital if we are to meet the Paris Agreement’s stated goals.

In the run-up to the Paris COP, it was certainly not a foregone conclusion that such an outcome could be achieved. In the end, COP21 saw global climate governance evolve into a hybrid system made up of an overarching transparency, accounting and stock-taking process, complemented by a bottom-up pledge and review process based on the (Intended) Nationally Determined Contributions (INDCs). Successive INDCs are supposed to represent a progression beyond the the preceding one and reflect each party’s highest possible ambition. All this can be made to work.

But every country must act now to deliver on their commitments.

The world will not wait, since 2016 is already on track to become yet another “hottest year on record” for the planet.

One feature of the COP mechanisms is their universality. While the type and scale of actions required to implement the Paris Agreement differ across developed and developing countries, all economies will have to mitigate and adapt to the climate challenge, with co-operation at the heart of the agreement so that no country is left behind. The OECD is working with governments around the world to support their efforts to prepare for a changing climate. The way governments manage their potential financial liabilities from climate change needs to

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OECD Yearbook 2016 © OECD 2016

be improved. These liabilities include compensation payments, loss of tax revenues and repairing damage to public assets.

These “hidden” risks from accumulating damage need to be prevented through better policy choices. In particular, that will mean ensuring that climate resilience is integral to the design, construction and operation of infrastructure networks.

The Paris Agreement recognises that developing countries require tailored support. Much of the detail is still to be worked out, but its “enhanced transparency framework” is intended to help track progress on financial, technology and capacity building support for developing countries, as well as on mitigation and adaptation action. Developed countries extended their current commitment to mobilise US$100 billion a year in climate finance by 2020 through to 2025, with a new collective quantified goal to be set before 2025. The OECD continues to actively support international efforts in improving transparency on climate finance, drawing on the Development Assistance Committee’s statistical database for development finance, and the OECD-led Research Collaborative on Tracking Private Climate Finance.

While many developing economies will inevitably increase their emissions for some years to come, development in the 21st century is unlikely to be as fossil-intensive as the previous one if the right policies are put in place. Given rapid reductions in the cost of low-carbon alternatives, there is no reason why coal-fired power should continue to be the default power option

Governments need to work through their existing policy settings and make sure they can accommodate new business models and new technologies for expanding energy access, for example. The low-carbon transition will have major implications for companies, financial institutions and investments, as new markets emerge, in energy technology, construction, transport and so on. The OECD plans to establish a Centre on Green Finance and Investment to help catalyse and support the transition to a green, low-emissions and climate-resilient economy.

Moving away from our historic reliance on fossil fuels implies profound changes to the shape of our economies. These will be challenging for even the most advanced countries. The quality of policies in navigating this transition will be crucial. The core of the policy prescription is clear: a price on emissions of greenhouse gases; the removal of fossil fuel and other pervasive (though sometimes not very transparent) subsidies which run to hundreds of billions of dollars per year and contradict climate targets; regulations to stop excesses where there is urgency and economic instruments are less effective; and support to lowcarbon technologies to get them to the point where they are competitive and attractive to long-term investors.

A better alignment of policies is needed generally for core climate policies to be effective. Addressing the policy alignment issue is

©GDE AGUNG/Citizenside/AFP

FROM AGREEMENT TO ACTION

Citizens demand action at the UN climate change conference in Paris in November-December 2015

something that all governments can start right away as they begin developing the long-term low greenhouse gas emissions development strategies called for in the Paris Agreement.

Climate action must be structural and inclusive, or it simply won’t work. This is all the more important in an era of highly volatile fossil fuel prices. Price instability does not encourage efficiency or innovation and it’s not good for economic growth.

A long-run problem requires policies that send long-run signals.

These policies cannot be constantly fine-tuned to the volatility of the moment. As we embark on the implementation phase of the Paris Agreement, the time is ripe for each country to sort out the policy tangle that has grown up over decades and undertake

its own diagnosis of policy misalignments. It is then a matter of prioritising actions to ensure that mitigation efforts deliver real outcomes. While there are obvious common elements to any policy roadmap, there is no off-the-shelf prescription. Finally, to make the Paris Agreement work, governments need to work systematically through their existing policy settings and make sure they can accommodate new business models and new technologies. The future won’t look like the past .

For OECD books, working papers and other references on COP21, visit http://www.oecd. org/environment/cc/ For articles and references see www.oecdobserver.org/climatechange

OECD Yearbook 2016 © OECD 2016

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FROM AGREEMENT TO ACTION

Renewable energy: Catalyst for a clean energy transition Miguel Arias Cañete EU Commissioner for Climate Action and Energy

These results come together with opportunities for investment and growth. Investments historically allocated to fossil fuels are gradually shifting towards renewables and other sources

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We have set targets of a 20% share of renewables by 2020 and 27% by 2030, and have set up the instruments to facilitate the shift

The Paris Agreement is an unprecedented achievement in the fight against climate change. A record number of countries came together, first in the French capital for the COP21* conference in November-December 2015 and then formally to sign the agreement at the UN on 22 April 2016, to ensure that future generations enjoy a stable, healthy and habitable world. The agreement sets us on a path to limit global temperature rise through reduced emissions.

This reduction can only be achieved through far-reaching changes to our energy system–something recognised in Paris. There was a clear acknowledgement that clean energy can reduce emissions and help achieve global climate goals, while at the same time driving our economies forward. Half of the climate plans that countries put forward for COP21 include explicit energy targets, mostly focusing on increasing renewable energy sources. This sends a clear message to stakeholders, investors, businesses, civil society, and policy makers: transition to a clean energy economy is not a fad, it is the new reality.

What we have achieved so far In the European Union we are embracing the clean energy transition. An effective way of doing so is through the development of advanced and competitive green technology–we want Europe to be the world leader in this field. To work towards this goal we have set ourselves short and mid-term targets of a 20% share of renewables in our energy system by 2020, and 27% by 2030. Achieving these targets won’t be easy, but we have set up the instruments and tools necessary to facilitate the shift. We have legislation establishing the overall policy for the promotion of energy from renewable sources, including specific national targets to facilitate implementation.

Our efforts are bearing fruit: recent data from the European Environment Agency for 2014 demonstrate that, thanks to renewables, fossil fuel use has been reduced by an estimated 114 Mtoe (megaton oil-equivalent), comparable to the fossil fuel consumption of France. In absolute terms, Germany, Italy and Spain achieved the largest reduction in domestic fossil fuel use and avoided greenhouse gases emissions, as a result of national renewable energy deployment since 2005. All in all,

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around 380 Mt of carbon dioxide emissions have been avoided, which is equivalent to the yearly emissions of Poland.

OECD Yearbook 2016 © OECD 2016

of clean energy. By 2030, according to the International Energy Agency, we expect investment in renewables to be almost three times the investment in fossil fuel power plants. This is a tremendous opportunity to position European energy companies at the head of the new global market of low carbon technologies and one which they are beginning to seize. According to the 2015 State of Renewable Energies in Europe report, the renewable energy sector generated a turnover of €143.6 billion and over a million jobs in Europe in 2014. Wind energy has been the main driver of growth and jobs, accounting for 324,000 jobs and a turnover of €48.3 billion in the same year.

The way forward The Paris Agreement vindicates the targets and legislation we had in the EU, and member states have been working hard to

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FROM AGREEMENT TO ACTION achieve these goals. There is a long way to go, and work has begun on proposals and legislation to help in this endeavour.

Our energy system is evolving fast. By 2030 half of all our electricity will be powered by renewables, and in about 35 years it will be carbon-free. That is a big step up from todayâ&#x20AC;&#x2122;s 27.5% renewables. We must prepare our electricity system, making it more ďŹ&#x201A;exible and market-oriented. For that reason, we are now ďŹ nalising a proposal on a new electricity market design to help embed renewables at the heart of our system and way of life. We want to encourage citizens, energy co-operatives and local authorities to take ownership of the energy they produce and consume. Using renewables for our heating and cooling needs is also part of a proposal we aim to put forward this year.

Unlocking this opportunity will be huge for our development in renewables, as this sector accounts for half of the energy we use in Europe.

In the EU, we are in the process of reforming and strengthening our carbon market. In 2015 we proposed the reform of the emission trading system (ETS), covering around 45% of the EUâ&#x20AC;&#x2122;s greenhouse gas emissions. This year, we are working on setting targets for the sectors not included in the previous proposal, such as housing, agriculture, waste and transport. Both initiat-

ives will help us reach our 2030 target of a 40% cut on emissions, and will increase incentives for further deployment of renewable energy.

Proposals to be set out later in 2016 will concentrate on increased regional co-operation for support schemes, and seek to ensure that the EU stays on the path towards becoming the world leader in renewables, which we aim to achieve through our targets, together with our COP21 commitments.

There is every reason for optimism: Europe and the rest of the world are going in the right direction. Global energy emissions stalled again in 2015, a major reason being the surge of renewable power around the world. This is cause for cheer but not complacencyâ&#x20AC;&#x201C;we must redouble our efforts to allow us to meet our commitments. *COP21, also called the Paris Climate Conference, denotes the 21st session of the Conference of the Parties (COP) to the 1992 United Nations Framework Convention on Climate Change, see www.cop21paris.org/about/cop21 EEA (2016), Renewable energy in Europe: Recent growth and knock-on effects, European Environment Agency Visit https://ec.europa.eu/energy/ Visit www.iea.org

Mapping carbon emissions Carbon dioxide (CO2) emissions worldwide have been trending upwards for decades. A small group of large countries is responsible for the lionâ&#x20AC;&#x2122;s share of these global emissions.

The US and China on their own each emit more than all the European OECD countries together. European emissions have long been fairly ďŹ&#x201A;at around the

Carbon emitted from the US steadily rose during the 1990s, but levelled off during the mid-2000s, with latest data in 2012 showing 5.7 billion tonnes of CO2 emissions. This positions the country as the second largest emitter globally, after China, who overtook it by around 2006. From 2000 to 2012, Chinaâ&#x20AC;&#x2122;s emissions rose sharply from 3.3 billion tonnes to 8.2 billion. Rather than promising reductions, as many countries are, leading up to COP21, China says their emissions will peak by 2030.

4 billion tonne mark, with a slight decline beginning around 2008. Most countries showed some decrease following the crisis, while China continued its climb. Japanâ&#x20AC;&#x2122;s carbon emissions have trailed those of the US, China and OECD Europe, but have been edging upwards, with the country remaining the second largest single emitter in the OECD in 2012.

From OECD Observer No 304, November 2015.

Visit www.oecd.org/environment/cc/

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FROM AGREEMENT TO ACTION

China’s climate change combat

©Rights reserved

Interview with Xuedu Lu, Advisor, Sustainable Development and Climate Change Department, Asian Development Bank

China was among the near-200 countries to adopt the Paris Climate Change Agreement (Paris Agreement) at an historic UN conference in Paris, France on 12 December 2015. As an emerging economy and one of the world’s major emitters of greenhouse gases, how China implements the Paris Agreement will be important. We asked Dr Xuedu Lu of the Asian Development Bank for his views.

Moreover, the National Development and Reform Commission and the Ministry of Housing, Urban and Rural Development issued the “Adaptation Action Plan of Cities” on 17 February 2016, to guide policies and actions for enhancing the resilience of cities to climate change.

OECD Yearbook: What has China agreed to implement as part of its contribution to the Paris Agreement?

Are you optimistic that the targets can be met and what would you advise?

Xuedu Lu: There’s no doubt that China made important contributions to the Paris Agreement, and this fact was acknowledged by UN Secretary General Ban Ki-Moon and President François Hollande of France, which hosted the event. In its Intended Nationally Determined Contributions (INDC) submitted to the UNFCCC* as part of the Paris Agreement, China shows its determination to be fully involved in global efforts to protect the climate.

Based on my own experience of working in government in China, I am quite optimistic that every effort will be made to achieve the targets as submitted. Everyone knows that it is in the national interest to halt climate change. This is clear in official documents and in statements by President Xi Jinping, Premier Li Keqiang and Vice Premier Zhang Gaoli. In China, once top officials focus on something, the institutions follow.

So, I am confident that China will act.

It has set the following targets for 2030: to reach peak carbon dioxide emissions, if possible, earlier than 2030; to lower carbon dioxide emissions per unit of GDP by 60% to 65% from the 2005 level; to increase the share of non-fossil fuels in primary energy consumption to around 20%; and to increase the forest stock volume by around 4.5 billion cubic metres compared with the 2005 level.

However, clearly, China still faces huge challenges to achieve the targets, in particular ensuring that emissions peak by 2030. Boosting the share of non- and low-carbon energy will be difficult enough, given the limited availability of such resources while meeting the needs of society as a whole. And let’s not forget the burgeoning areas in central and western China, where demand will likely rise for energy-intensive products like steel and iron, cement and glass in the years ahead. Collecting and monitoring accurate data on GHG emissions will be challenging too.

China also aims to accelerate the transformation of energy production and consumption, optimise its energy mix, improve energy efficiency and increase its forest carbon sinks to help in mitigating greenhouse gas (GHG) emissions.

Have any actions already been taken or are there any in the pipeline?

Clearly, China must now make the climate agreement official.

A senior state leader of the Chinese government, Vice Premier Zhang Gaoli, who oversees climate change affairs, announced at a ceremony to sign the Paris Agreement in New York on 22 April 2016 that China would approve the Paris Agreement before the G20 Summit 2016 on 4-5 September 2016 in Hangzhou.

Meanwhile, China published the “China Energy Outlook 2030” report on 1 March 2016, which indicates that its GHG emissions may reach peak earlier than 2030 if the share of low-carbon energy is enhanced. New attention is being given to this. Also,

64

under its 13th National Economic and Social Development Planning (2016-2020) China has included a chapter on “Actively Addressing Climate Change” which calls for a priority to be placed on actions to control GHG emissions in the energy and industrial sectors; for pilot low-carbon cities to be launched to help ensure early peaking; and for near-zero-emission engineering projects to be demonstrated. The chapter also calls for the establishment of a nationwide emission trading scheme, and for measures related to emission accounting and emission standards to be enforced.

There are currently 42 Pilot Low-Carbon Cities in China, and the government plans to expand that number to 100 by the end of 2016. All of them are being asked to set their targets for peaking emissions earlier than 2030.

OECD Yearbook 2016 © OECD 2016

For China to achieve its targets, it must overcome such challenges. This is why international co-operation, including multilateral support and access to global knowledge bases, is so important. When it comes to climate, no country can do it alone. *UN Framework Convention on Climate Change: www.unfccc.int References For more on China’s INDC, see www4.unfccc.int/submissions/INDC/Published%20 Documents/China/1/China’s%20INDC%20-%20on%2030%20June%202015.pdf China’s 13th National Economic and Social Development Planning (2016-2020): www. sdpc.gov.cn/gzdt/201603/P020160318576353824805.pdf China’s Adaptation Action Plan of Cities: http://qhs.ndrc.gov.cn/syqhbh/201602/ W020160428541975249619.pdf For more on the “China Energy Outlook 2030” report: www.cers.org.cn/ xhdt/2016/03/8920.shtm

FROM AGREEMENT TO ACTION

How to reach the Sustainable Development Goals?

We need a GPS

©OECD

Martine Durand Chief Statistician and Director Statistics Directorate, OECD

With the Sustainable Development Goals, the world has set itself ambitious targets for the next 15 years. But ambition will also be essential if we are to collect and process the data needed for monitoring the goals. Thanks to more than half a century of experience, the OECD is well-placed to support this global project.

In September 2015, world leaders meeting at the United Nations endorsed 17 SDGs comprising 169 targets ranging from ending poverty and hunger, through tackling climate and environmental threats, to achieving peace and justice for all. The SDGs may be complex and wide-ranging but their ultimate goal is simple – “leave no one behind”.

Meeting the goals will be a challenge. But so, too, will be getting the data we need to keep on track–a fact acknowledged by leaders at the UN meeting. They recognised that tracking progress towards these objectives, and adjusting policies accordingly, will require good data to monitor progress but will enable governments to make evidence-based decisions and citizens to hold them to account. In short, the world needs a new global positioning system – a GPS for the SDGs. The OECD is particularly well-placed to help tackle the new and diverse data challenges raised by the SDGs. The Organisation is renowned for its statistics and has been at the forefront of global innovations in statistical methods, systems and dissemination for over half a century. We are also a recognised authority on a vast array of economic, social, environmental and development-related statistics.

Many of the SDG targets are complex, interlinked and multifaceted, requiring the development of new concepts and measures. The SDGs’ emphasis on leaving no one behind will also require disaggregated data across multiple dimensions, such as gender, age and socio-economic status. The OECD’s experience in developing measures of well-being in multiple dimensions that pay attention to both distributions and averages provides useful lessons in this regard.

To be sure, the SDG measurement task is daunting. No country, even among OECD members, currently has all the necessary

data. New sources must be tapped to fill the gaps, and an unprecedented and sustained international effort will be needed to develop all the information required. But there are good reasons to hope that the challenge can be met. There are now more data available than ever and new technologies and methods can provide more detailed and granular information.

New partnerships are emerging to harness this data revolution, and the OECD is supporting several of these, including the Global Partnership on Sustainable Development Data.

The first steps in building the GPS for the SDGs have already been taken. Throughout 2015 and into 2016, a group of 28 UN member states, assisted by observers including the OECD, elaborated a global indicator framework comprising 230 unique indicators covering all the goals and targets. In March this year, the UN Statistical Commission agreed to this as

To be sure, the SDG measurement task is daunting. No country, even among OECD members, currently has all the necessary data a practical starting point. The data on these indicators will form the basis of UN reviews of progress at the global level, including official reports and high-level policy discussions. But careful interpretation will also be required. In support of this, the OECD is already supplying both data and commentary to the UN for use in its first SDG reports.

There will also be thematic, regional and national follow-up and review of the SDGs, and the OECD is assisting its members on all these levels. We are contributing in particular to interagency follow-up processes in the education sector, and we are also collaborating with the UN and other organisations to help improve the statistical base, especially in the environmental and governance fields. At the regional level, many OECD members are members of the UN Economic Commission for Europe, and the OECD is helping them and the commission to develop a road map for regional SDG reporting for approval by the Conference of European Statisticians in 2017.

National-level reporting presents special challenges, as countries must first adopt and adapt the global goals in the light of their own situations and objectives. To help members orient their thinking on national follow-up, we will produce a preliminary assessment of their starting positions against the SDGs. This will help shed light on national priorities to deliver on both domestic outcomes and global responsibilities, thus demonstrating the importance OECD countries attach to this universal agenda.

Ongoing work to further develop our statistics will also benefit the SDG review process. For example, our Programme for International Student Assessment (PISA), already the world’s most widely used gauge of educational outcomes, is being adapted for use in more countries under our PISA for Development initiative.

And we continue to develop and extend other measures of

OECD Yearbook 2016 © OECD 2016

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FROM AGREEMENT TO ACTION progress in areas as diverse as science and technology, income distribution, trust, health, labour, international investment and regional analysis.

Many of the SDG targets require measuring how actions taken in one country affect other countries’ performance. Through our world input-output tables, we track the transboundary impacts of production and consumption in OECD countries on CO2 emissions and critical natural resources. Our data on official development assistance provide information on country

Many of the SDG targets require measuring how actions taken in one country affect other countries’ performance

©Charlotte Moreau

efforts to meet aid targets, and we are developing new metrics, such as Total Official Support for Sustainable Development (TOSSD), to give a more comprehensive view of resource flows.

Similarly, our Revenue Statistics provide unique information on the capacity of developing countries’ tax systems to raise domestic resources. The OECD has for decades been a key contributor to the process of setting global goals and tracking

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OECD Yearbook 2016 © OECD 2016

progress. Our 1996 development co-operation strategy Shaping the 21st Century was a key step towards formulating the Millennium Development Goals, and we have played a vital role in monitoring the MDGs over the past 15 years. Since 1999, we have also hosted PARIS21, the Partnership in Statistics for the 21st Century.

Clearly, building a statistical system capable of pinpointing countries’ progress against the SDGs will demand even greater investment in capacity and skills across the entire spectrum–from conceiving and collecting data to interpreting and communicating them clearly, and making them open and accessible to all. We will mobilise our long-standing expertise and knowledge to help our member and partner countries and the whole international community to rise to the unprecedented measurement challenges presented by the SDGs. Visit www.oecd.org/statistics/better-life-initiative.htm and www.paris21.org References OECD (1996), Shaping the 21st Century: The Contribution of Development Co-operation OECD (2015), How’s Life? Measuring well-being, OECD Publishing

FROM AGREEMENT TO ACTION

Implementing the Sustainable Development Goals is an imperative Dambisa Moyo Economist and Author

have seen their growth rates dip below the 7% per year needed to make a real dent in poverty.

©Rights reserved

Job-eroding technology, worsening income inequality, demographic shifts, depleting natural resources and environmental impacts all contribute to an unsettling backdrop for the world economy.

On 25 September 2015, the 193 countries of the United Nations’ General Assembly adopted the Sustainable Development Goals (SDGs). This comprehensive set of goals aims to “end poverty, protect the planet, and ensure prosperity for all” as part of a new development agenda. Each goal has specific targets to be achieved by 2030, and by including education, health, poverty, climate change and the gender divide on the list of 17 goals, the SDGs place in stark light some of the seemingly intractable challenges facing the world.

No reasonable person will find any of the SDGs to be inherently objectionable. In our modern, interconnected and global society, we should care about redressing all manner of issues plaguing economic growth and placing continual human progress at risk.

Like their predecessors, the Millennium Development Goals, the SDG framework affirms explicitly the international community’s commitment to attaining societal ideals. But more crucially, the SDGs impose specific, easily measurable and observable targets that can be monitored to gauge progress towards meeting the goals.

This is an imperative, as policy makers have tended to struggle with implementing global policy initiatives in the past.

Implementation challenges are partly a manifestation of coordination failures among different countries, particularly when individual nation states place their own short-term interests ahead of other countries, and the global good. Protectionist trade policies, such as the US Farm Bills and the EU’s Common Agriculture Policy whereby countries impose tariffs and quotas that favour local farmers but hurt foreign farmers, are just one example of poor global co-ordination. Such failures can cost hundreds of billions of dollars in lost jobs, incomes and deleterious effects on global growth.

Also, shortfalls against globally agreed policy goals may reflect poorly defined objectives that do not adequately take the local context into consideration. Thus inasmuch as the SDGs offer an ever-more refined approach to global objectives that local stakeholders played some role in setting, they enhance the chances of broader success.

The SDGs are all the more critical to framing practical solutions now, at a time when the world’s advanced economies continue to suffer under the weight of high, unsustainable debts and deficits, weak labour markets and declining productivity. And they are critical at a time when emerging economies, in which 90% of the world’s population (most of them under 25) live,

There is also the rise of radicalised terrorism, disorderly migration across Europe and the serious challenge of accommodating 60 million refugees, the highest number globally since the Second

No reasonable person will find any of the SDGs to be inherently objectionable World War. All of this and the resurgence in political and social instability throughout the world (according to the Economist Intelligence Unit, 65 out of 150 countries face high or very high instability) underline the urgency of delivering on the SDGs. The SDGs should serve as a reference point and a global compass for policy makers as they navigate a complex, dynamic, and difficult economic and political backdrop. After all, unless we meaningfully implement the SDGs, the fundamental macroeconomic trajectory and geopolitical arc of the global community will be in peril.

“Transforming our world” was the tag line of the 2030 agenda for the United Nation’s sustainable development goals. It remains an appropriate rallying cry for governments, the private sector, civil society, and most of the world’s citizens. Ultimately, the UN’s SDGs will be judged by how effectively they address the manifold challenges impacting the world today and threatening the world tomorrow.

Dambisa Moyo is a global economist and the author of Dead Aid, How the West Was Lost and Winner Take All. She serves on the boards of Barclays Bank, Barrick Gold, SABMiller and Seagate Technology.

Visit http://dambisamoyo.com and www.oecd.org/dac/sustainable-developmentgoals.htm Follow @dambisamoyo on Twitter and Instagram

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67

FROM AGREEMENT TO ACTION

Africa’s choice: Business-as-usual or a green agenda?

Belynda Petrie CEO and Co-Founder OneWorld Sustainable Investments

poor countries have promised to reduce carbon emissions and to increase these reductions over time. Current commitments are not yet sufficient to limit global warming to the desired 1.5°C, but, the Paris Agreement binds all countries to regular reviews on progress.

Africa’s imperative

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African countries have a choice: continue along a business-asusual path or help lead the way to the new global low-carbon economy. Critically, the Paris Agreement signals the end of business as usual for global energy industries and sounds a death knell for fossil fuels. In sum, it is evident that future energy investments will need to be compatible with a zero-

The Paris Agreement on climate change signals the end of business as usual for energy industries. For the first time in history more than 150 developed and developing countries have promised to reduce greenhouse gas emissions. But how binding are these agreements? And do they provide impetus for local action in Africa?

The 2015 Paris Agreement revived the global process of curbing global warming. It has been hailed as a turning point for the low-carbon economy on the road to achieving planetary sustainability. Because of the political unity that stands behind the agreement, it also sends a strong economic signal to invest in green energy .

All this comes at a time when Africa is struggling to translate economic growth into structural transformation. Thus a review of industrial policy in Africa is necessary. A regional approach to diversifying economic structures, alongside investment in infrastructure, particularly energy, water and transport, will establish the foundations essential to further economic growth and structural change.

With this, climate change brings increased risks (droughts and floods, rising temperatures and altered rainfall patterns), to which Africa, with its infrastructure deficit and inadequate institutional capacity, is particularly vulnerable. Consequently, African countries need to build resilient economies. The Paris Agreement, and the preceding Sustainable Development Agenda for 2030, provide clear directions for future growth and investment.

The Paris Agreement is global, but implementation depends heavily on decisive national action. A lot hinges on governments and industries deciding to take committed action now and ratcheting up future ambition. This will depend on perceptions of the related gains and losses. In preparation for the Paris negotiations, countries stated their non-binding Intended Nationally Determined Contributions (INDCs). Realising these intentions is essential to a global low-carbon future while advancing sustainable development. The process and reasoning builds on emission reductions commitments from 187 countries, starting in 2020. For the first time in history rich and

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OECD Yearbook 2016 © OECD 2016

In Africa, the imperative for transformation to renewable energy is essential to achieving structural transformation carbon world. Currently, the 6.5% of global GDP spent on fossil fuel subsidies translates annually into around $5.3 trillion.

Redirecting part of these funds makes the growth of renewables in energy-poor regions such as Africa plausible.

In Africa, the imperative for transformation to renewable energy is essential to achieving structural transformation.

Africa is endowed with substantial renewable resources, with adoption being about improved technologies and favourable pricing. The possibilities of both are evident in emerging economies around the world, providing a meaningful way of achieving the ambitious global warming goal embedded in the Paris Agreement.

Thus the focus of energy transformation in Africa is first and foremost a sustainable development prerogative. There are three primary reasons for this.

First, the global renewable energy market has taken hold, with 2015 setting a record for investment. Prices for some renewables are steadily decreasing, spurring investors to find new markets.

Africa presents a substantial, relatively untapped market where investors require government support to open market access.

Second, Africa needs a regional approach to economic restructuring, improving regional integration and opening trade to facilitate infrastructural investments, particularly in the energy needed to power economic transformation. Under business as usual, Africa will increase its reliance on fossil fuel imports by 2050, assuming only marginal growth in industrialisation.

Moreover, Africa’s reliance on fossil fuel imports will widen dramatically as countries attempt to close the supply-demand gap.

Third, although many factors are to blame for Africa’s colossal energy deficit, the biggest problem, and opportunity, is population growth and the unstoppable influx of people into the continent’s cities. Herein lies one of the most important incentives for African countries to pursue renewables. The rapid rate of urbanisation is

FROM AGREEMENT TO ACTION

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a major challenge for cities throughout the continent, where the historical deficit of infrastructure will see energy crises looming large. If Africa continues along its current path reliance on fossil fuel imports will increase, subjecting countries to unacceptable levels of energy insecurity. The United Nations Environment

Crises stimulate change–the African energy crisis can be turned around into positive industrialisation, accelerating economic growth Program (UNEP) places energy consumption in urban areas at no less than 75% of total consumption. The only solution is renewables, using growing urban centres as hubs of innovation and skills.

Continued population growth means the scale of these challenges will only grow. By 2050, Africa’s population is forecast to double from about 1.2 billion people in 2015 to almost 2.5 billion. Scenarios developed for the United Nations Economic Commission for Africa (UNECA) by OneWorld Sustainable Investments suggest that most of this growth will be in cities, with the urban population reaching more than 55% of the total by 2050. Throughout Africa, population growth is the main reason for the increasing demand for energy. But a growing middle class, with people earning higher incomes, along with increasing industrialisation, is also driving up energy demand.

Nevertheless, UNECA is upbeat about the potential for positive outcomes, provided a Green Agenda is pursued. Arguing that reliable and affordable energy is central to responding to

population growth, to urbanisation and to greatly improving industrialisation, their Green Agenda predicts a drop in energy production costs of 5% per year between 2015 and 2050, while seeing generation of per capita capacity increasing by 400%, investment in hydropower by 300% and investment in renewables by 3,000%.

But achieving this Green Agenda is reliant on effective policies and incentives that attract investors. A number of African countries are currently in an energy crisis and the situation is worsening. However, crises stimulate change–the African energy crisis can be turned around into positive industrialisation, accelerating economic growth. But there is very little time– urbanisation will reach a critical threshold long before 2050.

Where does Africa’s strategic advantage lie? This is the crux of the choice facing the continent. Implementing the Paris Agreement and ratcheting up ambition beyond the INDC targets is important for political solidarity and global diplomacy. Achieving goals that substantially exceed these is critical to Africa’s socio-economic development and to economic transformation.

Visit www.oneworldgroup.co.za References Denton, Fatima (2014), “A new development paradigm for Africa”, the 2014 Barbara Ward Lecture, 20 November at the British Library, International Institute for Environment and Development UNECA (2016), Economic Report on Africa: Greening Africa’s Industrialization, 2016, United Nations Economic Commission for Africa

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FROM AGREEMENT TO ACTION

Act today for tomorrow’s children

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Helle Thorning-Schmidt Chief Executive Officer Save the Children International

The adoption of the 2030 Sustainable Development Goals (SDGs) signals a clear commitment to set the world on track for a more just, prosperous and sustainable future, in which all children can reach their full potential. The challenge of sustainable development is an intergenerational one: effective action now will both improve children’s lives today and create a better future for children tomorrow.

Over the last 15 years, the world has made unprecedented progress for children. The number of children dying before their fifth birthday has halved, as has the number of out-of-school children. This has coincided with a dramatic fall in extreme poverty–from 1.9 billion people living on less than US$1.25 a day in 2000 to 836 million in 2015.

It is important to celebrate these achievements, but there is no room for complacency. There is a huge and urgent unfinished agenda: development outcomes are uneven, inequalities persist and millions of children are being left behind because of who they are and where they live. If we want to achieve the 2030 goals, we need to tackle the barriers stopping these children from surviving and learning, and break the intergenerational cycle of poverty.

The 2030 agenda provides the framework to make this happen.

With 17 goals and 169 targets, it provides a comprehensive plan of action for people, planet, prosperity and peace. The framework is both transformative in its scope, including commitments to get to zero on key dimensions of poverty, and transformative in its universality, with all goals and targets applicable to all countries.

The cross-cutting commitments to leave no one behind, to see targets and goals met for all parts of society, and to endeavour to reach those who are furthest behind first are arguably the most important shifts in this new framework. Governments will not be able to meet their SDG commitments if they fail to tackle the obstacles faced by excluded groups.

The challenge now is to bring these commitments to life through concrete changes in policy, practice and budgets to ensure progress toward each and every SDG. Research from Save the Children has identified five key areas of action for SDG implementation. At the national level, integrating goals and targets into national plans, sector strategies and budgets is an important first step; however, this must be accompanied by

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strong national institutions and co-ordination mechanisms to translate plans into progress.

Realising the commitment to leave no one behind means we need targeted policies and approaches to accelerate equitable progress across all goals. This includes setting “stepping stone” equity targets–interim benchmarks between 2016 and 2030 that aim to reduce the gap between the best and worst-off groups. Collecting strong, disaggregated data will provide the

By making their voices heard and shaping policies that will affect them, children have a pivotal role to play in the delivery of the SDGs robust evidence needed for planning, designing policies, and monitoring the progress of all segments of society. The successful implementation of the global goals also requires inclusive and participatory accountability systems at all levels, in which all people, including children, have meaningful opportunities to participate.

Children will be among the greatest beneficiaries of progress towards the SDGs. But, by making their voices heard and shaping policies that will affect them, they also have a pivotal role to play in their delivery. The right to participate, enshrined in the UN Convention on the Rights of the Child, can ensure not only smarter, more child-friendly policy, but also greater accountability for results. We see this in our own programme experience in Save the Children: from Tanzania to Bangladesh, children are already making their voices heard and having a direct impact on local governance and on the quality of services they use.

The Millennium Development Goals–the precursors of the SDGs– were an important starting point in galvanising international support for poverty reduction and driving national policy change.

The SDGs–through effective implementation efforts–will help us finish the job and go beyond, ensuring that all 17 goals are achieved and that no one is left behind.

Visit www.savethechildren.net References United Nations (2015), The Millennium Development Goals Report 2015, UN, New York Save the Children (2016), From Agreement to Action: Delivering the Sustainable Development Goals, Save the Children, London Save the Children (2014), Leaving No One Behind: Embedding Equity in the Post-2015 Framework through Stepping Stone Targets, Save the Children, London

FROM AGREEMENT TO ACTION

Fighting poverty means fighting sexism

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Michael Elliott President and CEO The ONE Campaign

Nowhere in the world do women have as many opportunities as men, whether those opportunities are economic, social or political. If we’re going to make our commitments under the Sustainable Development Goals count, we have to start here.

When the Sustainable Development Goals (SDGs) were adopted by the United Nations in September last year, it was plain that 2015 was a key year for development. But now it’s time to put the plan into action. One of the most important promises of the goals is the pledge of equity to 50% of the world’s population: women.

To start with, that means more and better data. World leaders cannot pledge to “leave no one behind” if we don’t know where everyone is and how they live. On International Women’s Day, ONE released its second “Poverty Is Sexist” report, including an

We’re facing a sexist data crisis–we must have gender disaggregated data index of the 20 toughest places in which to be born a girl–with Niger, Somalia and Mali topping the list. The index was based on recent data, which had 80% coverage across all countries.

Yet even so, some 30 countries couldn’t be included because of incomplete information. We’re facing a sexist data crisis–we must have gender disaggregated data in order to know where and how women and girls are being left behind.

Two areas where we know they are being left behind involve health and nutrition. Over a woman’s life the lack of nutrition and provisions against diseases create a vicious cycle, which feeds down from mother to child. Too many children are born into the world without full and robust health; they are left behind in the race for a prosperous and flourishing life before it has even started. But if all pregnant women had access to all the nutrition they needed, over 800,000 infant deaths could be averted every year and millions more would live better lives–as would their mothers, of course.

still be threatened time and time again by preventable diseases.

In South Africa alone more than 800 girls aged 15-19 are infected with HIV every week. That’s why, in 2016, ONE is championing health and nutrition for women and girls. Access to health care and proper nutrients its vital, and we must tackle the obstacles to getting these, such as finance, cultural attitudes and distance.

Making headway against preventable diseases such as HIV, tuberculosis and malaria, will take gender-specific and smart financial investments. It’s vital to encourage African governments to use their own domestic budgets to fund such programmes, and to tackle the corruption that can cripple health services. But international donors still have a role to play. Over the next 15 years, while the development sector adopts new campaigns and uses new technology, we mustn’t forget what works. And The Global Fund to Fight AIDS, TB and Malaria is one of the institutions that really does. The fund is on track to have saved 22 million lives by the end of 2016, an extraordinary amount of human potential that would have otherwise been lost.

To protect girls and women from these three deadly diseases, we need world leaders to strengthen their support for the Global Fund–some 60% of its investments specifically support girls and women. That’s why a successful Global Fund replenishment this year will be one of the first real tests of the Global Goals.

Of course, no single organisation–no single intervention–can ensure that the Sustainable Development Goals are achieved.

But if we work together, we can see an end to poverty, gender inequality and preventable diseases by 2030. That is an inspiring challenge for civil society, governments and business to work towards–together. At ONE, we are all in. Join us.

Visit www.one.org References Black, Robert E. et al (2013), “Maternal and child undernutrition and overweight in lowincome and middle-income countries”, The Lancet, Elsevier Ltd http://www.thelancet.com/journals/lancet/article/PIIS0140-6736(13)60937-X/abstract Lake, Anthony and Michael Sidibé (2015), “To End the AIDS Epidemic, Start Focusing on Adolescents”, www.unaids.org http://www.unaids.org/en/resources/presscentre/featurestories/2015/ february/20150217_oped_all-in Global Fund, The (2015), “The Link Between HIV and Violence Against Women”, www. theglobalfund.org www.theglobalfund.org/en/blog/2015-11-24_The_Link_Between_HIV_and_Violence_ Against_Women/ ONE (2016), Poverty Is Sexist 2016, one.org https://one_org_international.s3.amazonaws.com/international/media/ international/2016/03/05003440/PovertySexist_2016.pdf

Poor nutrition in early childhood is not the only threat that children face. Even if a girl makes it past her fifth birthday, she’ll

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FROM AGREEMENT TO ACTION

The MNE Guidelines at 40: Implementation still matters Adrian Blundell-Wignall Director OECD Directorate for Financial and Enterprise Affairs Special Advisor to the OECD Secretary-General on Financial Markets

been particularly active. It is currently drafting regulation on minerals from conflict zones based on the OECD guidance for responsible mineral supply chains. In addition, an EU directive on non-financial reporting recognises the OECD MNE Guidelines’ disclosure chapter as an appropriate reporting framework and promotes reporting on supply chain due diligence.

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References to responsible business conduct and the OECD MNE Guidelines have also been included in a large number of economic instruments and trade agreements in recent years. For example, more than three-quarters of international investment agreements agreed between 2008 and 2013 included language on sustainable development or responsible business conduct. These examples all demonstrate the continued and growing relevance of the OECD MNE Guidelines since their adoption in 1976. But they also reflect determined efforts to ensure the guidelines keep up with the changing global and business environment.

Four decades after their adoption, the OECD’s Guidelines for Multinational Enterprises have never been more relevant to ensuring that businesses behave responsibly, wherever they operate.

If you were asked to name the most recent year when a major European country passed a law against slavery, you might suggest some date in the 19th century. Surprising, then, to learn that the British parliament approved a law called the Modern Slavery Act just last year. This new law is recognition that, far from being an evil of the past, slavery survives today. But the law is also recognition that international business has a major role to play in fighting slavery. As Karen Bradley, a minister in the UK Home Office told The Guardian: “Businesses risk damaging their reputation, or their bottom line, if they don’t take action to prevent modern slavery in their supply chains.”

Slavery is just one area where multinationals are being told to clean up their act. Across the whole range of ways in which business affects the world, including employment, the environment, taxation and investment, there is growing international and domestic pressure on businesses to do the

The most recent update took place in 2011, following a process of intensive consultation with a wide range of stakeholders, including the private sector. That process led to the addition of provisions recommending that companies apply due diligence in global supply chains to identify, address and mitigate risks. The OECD Guidelines thus became the first international corporate responsibility instrument to incorporate risk-based due diligence into major areas of business responsibility, including human rights, environmental and labour issues and anti-corruption.

To help companies implement risk-based due diligence in supply chains, the OECD has also developed tailored guidance for the minerals, agriculture, extractives, garment and footwear, and finance sectors.

National Contact Points The National Contact Points (NCPs) are a key feature of the OECD MNE Guidelines. NCPs are government agencies set up in each of the (currently 46) countries that have adhered to the

Recent high-profile cases include one involving Formula One, which publicly committed to respecting internationally recognised human rights right thing, not only in their own operations but also in their supply chains. And, increasingly, that means following the recommendations of the OECD Guidelines for Multinational Enterprises (MNE Guidelines), a set of comprehensive standards on responsible business conduct that governments worldwide expect their enterprises to meet in their global operations.

Examples of the pressure on business to behave responsibly abound. As well as the Modern Slavery Act, G7 countries last year issued a high-level endorsement of responsible business conduct initiatives in their Leader’s Declaration, signalling that this was now a priority issue for them. The EU has also

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©David Rooney, originally for OECD Observer No 220, April 2000. All OECD Observers since 1962 are on www.oecd-ilibrary.org

FROM AGREEMENT TO ACTION guidelines. They have the task of furthering their effectiveness by undertaking promotional activities, handling enquiries and, most importantly, contributing to the resolution of issues related to the guidelines–in other words, acting as a grievance mechanism in cases where a company does not observe the guidelines.

In June 2015, G7 leaders made a commitment to facilitate access to remedy, including the NCPs. In addition, the 2015 OECD Ministerial Council statement called on the OECD to continue its efforts to further strengthen the performance of NCPs. In response, the OECD is currently implementing an Action Plan to strengthen NCPs, including through peer reviews, capacity building, peer learning and tool development.

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The significance of the role played by the NCPs is clear in both the scale of work they undertake and its breadth. Since 2000, when they were created, NCPs have handled around 360 cases, related to MNEs’ operations in close to 100 countries, dealing with issues including human and worker rights and environmental issues. As well as resolving specific disputes, many of the final statements by NCPs had wider impacts, including changes to company policies, remediation of adverse impacts and strengthened relationships between parties. In one recent case, for example, an oil exploration company committed to cease exploration in a UNESCO-recognised national park and “not to conduct any operations in any other World Heritage site”. In another case, and for the first time ever, a government withdrew support in foreign markets from a company over its failure to engage with the NCPs and participate in a dialogue with a complainant.

Other recent high-profile cases include one involving Formula One, which publicly committed to respecting internationally recognised human rights, and two ongoing ones with soccer’s governing body, FIFA, also over human rights impacts.

beliefs Central banks: False s and unhappy ending Databank Information jobs: Missing entrepreneurs k Outloo ic Econom OECD

In 2016, the OECD MNE Guidelines mark their 40th anniversary.

They remain as relevant as ever, perhaps even more so. Business scandals have not gone away. Indeed, thanks to the rise of social media campaigns, leaks of documents like the Panama Papers, and continuing controversies over the tax affairs of household-name corporations, the public has never been more aware of corporate misbehaviour–and never more determined in demanding accountability.

No 305 Q1 2016

www.oecdobserver.org

economy Spotlight: Ireland’s at the cutting edge

The future of work

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References

OECD Due Diligence Guidance for Meaningful Stakeholder Engagement in the Extractive Sector http://mneguidelines.oecd.org/stakeholder-engagement-extractiveindustries.htm OECD Due Diligence Guidance for Responsible Supply Chains in the Garment and Footwear Sector http://mneguidelines.oecd.org/responsible-supply-chains-textilegarment-sector.htm

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FROM AGREEMENT TO ACTION

It’s up to us all to end child labour Kailash Satyarthi 2014 Nobel Peace Prize Laureate Founder, Kailash Satyarthi Children’s Foundation

During the first phase of my fight against child labour in the 1980s the world remained ignorant. There were 250 million children in labour then, but the issue of child rights was not a mainstream topic. Even though this number has decreased, there is far more work to be done and the role and centrality of the corporate sector cannot be overlooked.

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To illustrate this, I will draw upon my own experience and share the story of Rugmark, now known as GoodWeave. To ensure there were no more children forced to be carpet weavers like Kalu, I started Rugmark in 1995 following intense discussions with carpet manufacturers, middlemen, exporters, NGOs in India and abroad and leading carpet importers in Germany and the US.

A young boy named Kalu, who had been rescued from a carpetweaving unit in Bihar, once raised a compelling and very significant question when he met then-President Bill Clinton. In conversation with the president, Kalu politely inquired about his plans and policies with regard to the world’s children and their condition. I remember distinctly Mr Clinton trying to explain to the boy that he had virtually served his tenure and would soon be replaced by someone else who, as president, would be in a more appropriate position to initiate actions and take responsibility. To which Kalu very sincerely asked, “Why do you have to be the president to do anything for children?”

Kalu’s question had an overwhelming impression on the president and the onlookers. I remember being completely astonished at the brilliance of the boy and his question, and being even more proud of the earnestness with which he had asked it. That question was not an appeal to the president alone. It was the question of every child who has been denied their basic rights to the entire world and it was Kalu who had raised it in that moment.

Globally, 168 million children are employed in labour and 5.5 million are captive in modern forms of slavery; the rising refugee crisis is only adding to this predicament. Although there are no official figures on the employment of Syrian children in the Turkish garment industry, the number of child labourers employed by international brands is increasing.

According to a Tulane University survey, the number of children involved in hazardous activities in cocoa farming increased by 46% in Côte d’Ivoire between 2009 and 2014. Despite consistent efforts to combat this situation, there are still 2.1 million child labourers involved in the industry, usually working in hazardous conditions.

This survey is a follow-up to the 2001 Harking-Engel Protocol, which seeks to eliminate the worst forms of child labour in cocoa-growing countries. The agreement is a voluntary publicprivate partnership and lays out a series of actions, including the development of industry certification. However, due to extreme poverty, limited access to education and lack of monitoring, along with governments’ needs to address other issues, proper

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enforcement of the law and recommended guidelines has not been possible.

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The idea behind Rugmark was to eradicate child labour in the carpet manufacturing industry with well-placed interventions in the supply and demand chains. I believed that after sparking the will for change the industry could be moved successfully from child-labour afflicted to child-labour free, and could help social development by disrupting the circle of poverty, illiteracy, poor health and illegal employment.

This initiative led to a decline in child labour in the carpet industries of South Asia from over a million child labourers in the 1990s to less than 200,000 today. The most remarkable fact of this endeavour is that there was no adverse effect on rug exports from South Asia to the West. In fact, there was more awareness amongst consumers about child labour in the carpet industry and exporters were able to strike better deals with buyers. Optimism amongst the stakeholders brought about a remarkable change that was channelled through the power and reach of the corporate sector.

Most innovations dreamt up in the industrial and information technology revolution have served only financial indicators.

The condition of our children now demands the corporate sector to launch another revolution, with stringent social audits and ethical sourcing and trading. I firmly believe that the business community can put compassion alongside profit.

Businessmen with compassionate hearts and businesses with compassionate intelligence should be the norm. We cannot hold the government solely accountable for the condition of our children. Also, we should not continually undermine our role in reforming society.

Innovation is an evolutionary process and to create a future more considerate of our children we need to think with more conviction and more creativity. To provide all children with an equal opportunity to realise their full potential innovation must not only benefit those who can afford it, but reach and meet the needs and rights of those who are the most marginalised and vulnerable.

Inclusive growth can only be accomplished with progressive and innovative methods. That means implementing ideas that are based on sound evidence and that can be subjected to rigorous

FROM AGREEMENT TO ACTION

monitoring, evaluation and revision for adaptation to differing contexts. Yet these ideas need to be participatory, scalable and adoptable by the most victimised and marginalised groups– essentially we must establish equity through their execution.

Inclusive innovation offers more sustainable development than charity and philanthropy. The development of these

Why do you have to be the president to do anything for children initiatives needs to be fostered with policy changes and a paradigm shift to integrate people’s voice in the process must be ushered in. Since the success and failure of social innovation is our collective responsibility, all stakeholders should be made equally accountable for its scaling.

So, how can the corporate sector put these principles into practice? First and foremost, we need to move from corporate social responsibility and philanthropy to the much wider concept of “corporate social accountability”. To be able to grow inclusively and sustainably businesses need to assess the context and identify the barriers that keep the poorest children and families from realising their rights. We need to think of measures that can be taken to engage the entire community, especially the most marginalised members, like women and children, in developing and implementing solutions.

A principled approach to innovation starts with, and is guided by, questions throughout the process–from identifying problems to developing and scaling up solutions to evaluating their impact.

How can we ensure that the poorest and most marginalised children are not excluded from such opportunities? And why should we? There is concrete evidence of the positive impact investment in children and education has on individuals, families and nations, in terms of national income, economic growth and poverty reduction, and in human development. With regard to education, the global average rate of return on investment is estimated to be around 10%, whereas each additional year of education is associated with a 35% higher GDP per capita.

On our journey to discovering, or rather creating, the answers and solutions to questions such as the one above, we will experience an ethereal joy in performing business. The same joy I feel when I see the smiling faces of children rescued from their lives of misery, poverty and captivity.

I am also seeing a large number of corporate leaders take responsibility and move from agreement to action. We are seeing the evolution of a more considerate and compassionate partnership between civil societies, governments and corporations. However, the situation of our children demands more.

Your active co-operation and participation will help build a more sustainable future. Our children are the present and the future, and we must enable them to take over the world.

This is an abridged version for print: the full article is available online at www.oecd. org/forum/oecdyearbook Visit www.satyarthi.org Reference School of Public Health and Tropical Medicine (2015), “Final Report 2013/14, Survey Research on Child Labor in West African Cocoa Growing Areas”, Tulane University.

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FROM AGREEMENT TO ACTION

Global tax and transparency: We have the tools, now we must make them work Pascal Saint-Amans

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Director, OECD Centre for Tax Policy and Administration

If there is a silver lining to the 2008 financial crisis, it is that it was a catalyst for the unprecedented progress we have made in building robust international tax standards for the interconnected global economy of the 21st century.

The current international tax agenda relies on two building blocks: tackling tax avoidance via the OECD/G20 Base Erosion and Profit Shifting (BEPS) project; and promoting transparency and exchange of information among jurisdictions for tax purposes. Today we are at a crucial juncture. After all, building universally acceptable tax solutions would be pointless without global implementation.

Global tax transparency was further enhanced in 2014 when we developed the global Common Reporting Standard (CRS) for Automatic Exchange of Information (AEOI), which 101 jurisdictions have now committed to implement, with the first such

The “Panama Papers” scandal demonstrated that, in spite of remarkable advances on tax transparency, the veil of secrecy continues to damage our communities exchanges due to begin by 2017. This common global standard will minimise the compliance burdens for both governments and financial institutions and result in an increase in voluntary compliance, as demonstrated by the over US$48 billion already collected through voluntary disclosure programmes aimed at encouraging taxpayers to report income and wealth previously hidden from their tax authorities.

©Amer Ghazzal/Alamy Live News

The international debate on taxation first went global in 2009, when at the height of the crisis, the G20 declared that bank secrecy was over and committed to take action against non-co-

operative jurisdictions, including tax havens. Countries around the world agreed to fight cross-border tax evasion together by committing to the international standard for exchange of tax information on request (EOIR) developed by the OECD, and by joining the restructured Global Forum on Transparency and Exchange of Information for Tax Purposes. The Global Forum, which now has over 130 members, all participating on an equal footing, has enabled rapid implementation of the standard through a comprehensive peer review process.

A postcard to beneficial owners from a protester, London, May 2016

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FROM AGREEMENT TO ACTION To duly implement the automatic information exchange standard, the OECD is now working with G20 countries and the Global Forum to provide all participating jurisdictions, rich and poor, with the tools and practical guidance necessary for globally consistent implementation. The OECD’s Forum on Tax Administration (FTA) has just agreed a Common Transmission System (CTS) creating the first global bilateral exchange system to operationalise automatic exchanges in a truly transformative way. The cornerstone of the CTS is data security, with leading industry standards of encryption applied to each transmission.

The FTA members have funded its development but will make the system available to developing countries.

Recently, the “Panama Papers” scandal demonstrated that in spite of the remarkable advances over the last seven years in the establishment of robust international standards on tax transparency, the veil of secrecy continues to damage our communities, whether by concealing earnings to evade taxes or to commit other serious financial crimes like money laundering. But would the media have been able to draw such massive attention to those papers had it not been for the progress made to date? Thanks to our efforts, and building on years of work before the crisis, tax matters and transparency are finally front and centre in public discussions about fairness, good governance and responsible business (and individual) conduct.

The international pressure on Panama, encouraging it to fall into line with our global standards, shows the impact that the OECD’s tax work is having. Further progress is still needed. To this end, the G20 has recently mandated the OECD to establish criteria to identify non-co-operative jurisdictions. The OECD and the Global Forum, in partnership with the Financial Action Task Force (FATF), have been mandated by the G20 and Anti-Corruption Summit to work on improving the availability of beneficial ownership information to ensure effective implementation of the standard that will enable tax authorities to identify the true owners behind shell companies and other legal arrangements.

Implementation is also important for the BEPS measures to work.

The problem here is that, when reporting their global earnings, too many multinational companies can artificially (and legally) move their profits around in search of the lowest tax rates, often undermining the tax bases of the jurisdictions where the real economic activities take place and where value is created.

Launched in 2012 at the behest of G20 Leaders, the OECD/G20 project to combat BEPS aimed to close the loopholes in the international tax system that allow this to take place. After two years of strenuous work, a comprehensive package of anti-BEPS measures was endorsed at the G20 Leaders Summit in Antalya, Turkey, on 15-16 November 2015.

What looked like a risky bet for many has proven to be a success story. For the first time in history 44 countries (all OECD and G20 members plus Colombia and Latvia), representing their equivalent of about 90% of the world’s economy, worked together on an equal footing to tackle tax avoidance. Some 62 countries have also provided input directly to the decision-making body and technical working groups which helped to shape the final outputs. In addition, over 120 jurisdictions worldwide provided input through dedicated regional networks and regional tax organisations, such as the African Tax Administration Forum

(ATAF) and the Inter-American Centre of Tax Administrations.

The BEPS package covers three unifying themes: to align rules on taxation with the location of economic activity and value creation; to improve coherence between domestic tax systems and international rules; and to promote transparency. Like our exchange of information standards, BEPS also provides governments with practical measures and tools for implementation, including model provisions for tax treaties and domestic legislation, good practice templates and more. The anti-BEPS measures offer a real chance of restoring taxation for many jurisdictions by ensuring that profits are reported where they are made.

Much work still lies ahead, but progress will be hard, if not impossible, without widespread and effective implementation.

The OECD and G20 countries have now agreed to move forward on implementation and monitoring, welcoming all interested countries and jurisdictions that are ready to commit to the BEPS package. A proposal for the structuring of a new more inclusive framework was endorsed by the G20 finance ministers at their Shanghai meeting in February 2016, and will be inaugurated in Kyoto in June. If successful, the framework will mark a major step towards building a sound and reliable international tax system for all.

Reflecting the fact that tax has never been higher on the political agenda, the 2016 Chinese Presidency of the G20 has proposed linking tax policy with broader G20 objectives, namely strong, sustainable and inclusive growth. The OECD is uniquely positioned to identify tax policy reforms and opportunities, and this could become a third building block of the international tax agenda, if not its raison d’être.

Establishing global taxation standards and making commitments to implement them, while essential steps, are just the start. It is time to move emphatically towards implementation.

Not only do governments wish it, but citizens do too. The Panama debacle was a public warning that there is no appetite to let up in our efforts. With the G20-OECD partnership at the heart of the international tax agenda, we are determined to promote better tax policies for better lives, everywhere.

Visit www.oecd.org/tax www.oecd.org/tax/beps.htm

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FROM AGREEMENT TO ACTION

Tax fraud: Time to get tough Gabriel Zucman Assistant Professor University of California, Berkeley

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In other words, not only can a small elite increase their riches by avoiding tax, there is also no way of guaranteeing that their fortunes are legitimate. The wealth management industry can hardly be relied upon to carry out any initial screening.

Sanctions need to be imposed on offshore centres to make money laundering more expensive. And, in response to shell companies investing their wealth in the London and New York property markets, French stocks and German bonds, a worldwide financial register should also be created.

What did we learn from the Panama Papers? That Mossack Fonseca, the company at the heart of the data leak obtained by the International Consortium of Investigative Journalists, which includes Le Monde, is just a small cog in a colossal machine–an industry that hires thousands of young graduates from the best universities in the world to go to New York, London and Singapore and do one thing: protect fortunes.

The lesson from the Panama Papers is clear. The regulations governing this industry, and the countries that enable it, need a thorough overhaul. This is vital if rising inequalities and a drift towards global oligarchy are to be avoided.

The business of preserving wealth has been around for centuries but really took off in the 1980s. The turning point was the industry’s decision to examine, from every angle imaginable, one particular way of preserving wealth—Wtax avoidance. There are legal ways to do this (tax loopholes) and illegal ways (undeclared offshore accounts), and then there are those that lie in a vast grey area in which no one, in many cases, is really able to determine whether they are legal or not.

By laying bare these strategies for all to see at a time of rising inequalities and falling growth, the Panama revelations triggered a global outcry. They revealed that, while most ordinary people are faced with high tax bills, a small elite have at their disposal increasingly sophisticated and varied methods for growing their assets by avoiding tax. They exposed the ruthless techniques employed by oligarch firms to defend their wealth, which Jeffrey A. Winters has already covered in his fascinating book Oligarchy.

And there was worse to come. At the heart of financial regulation, there is an essential, albeit ambiguous, distinction between legitimate and illegitimate wealth. Anti-money-laundering laws require financial institutions to know their customers and prohibit them from investing the gains of drug traffickers, criminals, corrupt officials and money launderers.

78

The Panama Papers showed that many institutions located in tax havens pay little heed to this distinction, considering that any client is a good client. In 2015, Mossack Fonseca only knew the beneficial owners of 204 of the 14 086 shell companies it had registered in the Seychelles.

OECD Yearbook 2016 © OECD 2016

It is high time to look at the practical implications of this situation.

Since the creation of the Financial Action Task Force in 1989, the main riposte to money laundering has been to create regulations, ensure that a maximum number of countries enforce them and

One of the main objectives of financial regulation and the fight against inequality is to identify the beneficial owners of all this wealth carry out the occasional inspection. Despite the fact that antimoney-laundering standards and systems have been perfected over time, the recent revelations demonstrate that the ground rules–in particular the identification of beneficial owners and politically exposed persons–continue to be broken on a regular basis.

The approach of trusting offshore centres with law enforcement may be necessary but it is not sufficient. There is too much money to be made from helping money launderers and fraudsters and too little to lose in the absence of tangible international sanctions.

Create registers A new approach is needed. It is common knowledge that hundreds of thousands of shell companies are based in Panama, the British Virgin Islands and the Cayman Islands, to name just a few. Why is the presence of such a developed financial industry in the British Virgin Islands accepted, especially when it is evident that it is used, to some extent at least, as a channel for criminal activity?

The US and the EU should impose immediate sanctions on these territories and maintain them until proof is given that they have correctly identified the beneficial owners of all the shell companies on their soil.

The overriding lesson of the financial crisis and the strings of scandals is that some financial actors have no qualms about breaking the law if there is a large enough profit to be made.

The implementation of an approach focusing on sanctions could result in a radical change in behaviour by greatly raising the price to pay for fraud and money laundering.

Lastly, shell companies do not bank their wealth in Panama or the Virgin Islands: they invest it in property in London and New York, in French stocks and in German bonds. One of the main objectives of financial regulation and the fight against inequality

FROM AGREEMENT TO ACTION is to identify the beneficial owners of all this wealth. There are two ways of doing so.

investment funds. They would trace back the chain of financial intermediaries to the real beneficiaries.

Europe and the US can politely ask Swiss banks, Luxembourgbased investment funds and the creators of Panamanian shell companies to provide them with this in-formation. This is the essence of current efforts under the aegis of the OECD and the G20 to create a global system for the automatic exchange of banking information. Some financial actors will properly fulfil their obligations, whereas others, if recent scandals are anything to go by, will do so half-heartedly or not at all.

Registers of this sort would benefit our economies. More importantly, they would also benefit developing countries, which are currently unable to locate the fortunes squirreled away in western countries by their ruling elites, and are unlikely to be able to do so in the near future, given how removed they are from the projected automatic exchange of banking information. A European and American financial register would be a global public asset. It is the very substance of the fight for financial transparency.

There is, however, another approach. Europe and the US could themselves try and establish the identities of the owners of the riches on their territory, such as the homes in Manhattan and Chelsea, the stocks listed on the Paris stock exchange and the bonds purchased from German issuers.

www.lemonde.fr/idees/article/2016/04/06/la-lutte-contre-la-fraude-fiscale-est-arepenser-de-fond-en-comble_4896602_3232.html References Zucman, Gabriel (2015), The Hidden Wealth of Nations: The Scourge of Tax Havens, University of Chicago Press Winters, Jeffrey A. (2011), Oligarchy, Cambridge University Press

©Charlotte Moreau

In practical terms, this would involve creating financial and property registers listing the beneficial owners of buildings, land and financial securities in Europe and the US. The basis of these registers would be existing property registers, which would be expanded to include stocks, bonds and shares in

This article was first published in Le Monde on 7 April 2016. The original piece in French is available here:

OECD Yearbook 2016 © OECD 2016

79

FROM AGREEMENT TO ACTION

Finance, amorality and double-speak Joris Luyendijk Author

would enquire if what they were doing was legal and, if it was, there was no more discussion.

For bankers “amorality” is the word. To them, it is fundamentally different from immoral. Gordon Gekko in the iconic film “Wall Street” deliberately breaks the rules, while in the “Wolf of Wall Street” Jordan Belfort is continually flouting the law. Gekko and Belfort are immoral.

©Rights reserved

For an amoral decision, however, concepts like good and wicked simply do not enter the process. The question is whether something is forbidden or allowed and, if it is, the only remaining issue concerns reputation risk, and how it might look in the news.

When I was interviewing 200 bankers and banking staff working in Europe’s financial centre the City of London, perhaps the most telling was the language. Not so much the profanities– though there were many of those–nor the technical stuff and threeletter acronyms (TLAs). Most striking were terms that seemed designed to sidestep any possibility of ethical discussion.

When discussing their banks’ use of loopholes in the tax code to help corporations and rich people legally evade taxes, bankers used words such as “tax optimisation” or “tax-efficient structures”. Financial lawyers and regulators who went along with whatever banks propose were “business-friendly”; cases of proven fraud or abuse became “mis-selling” and exploiting inconsistencies between two countries’ regulatory systems was ‘regulatory arbitrage’.

If you work for a big bank in the City, people explained, you do not ask if a proposal is right or wrong. You look at whether it is

Cultural change by top bankers in the aftermath of 2008 are hard to take seriously profitable and compliant, i.e. in accordance with the law. The banking talk is about “getting past” the legal department, past compliance, past risk, past internal and external auditors, and past the regulator. Once these boxes have been ticked, there is nothing to stop you.

And so the cliché of evil and immoral bankers does not hold up. Banks have vast structures with tens of thousands of staff in internal control departments, such as compliance and internal audit. Leaving the inevitable rotten apples and those caught up in the Libor and foreign exchange scandals aside, most bankers seem anxious about not breaking the rules. Instead, the question they ask is always: how, within those rules, can we game the system?

Before 2008 the bankers involved in the toxic products that were eventually to blow up did not wonder whether these products were good for clients, or the economy, or even for their banks– which could fire them in a jiffy anyway. Rather, the bankers

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Compartmentalisation is another word that bankers use: being upstanding and decent citizens at home is okay, but at work, hard selling lucrative financial products to “some guy at a small bank in Sweden” who clearly doesn’t understand what he is buying is also not a problem. The biggest compliment in the City is to call someone professional. It means you do not let your emotions get in the way, let alone moral beliefs–those are

©20th Century Fox/DPA/AFP

FROM AGREEMENT TO ACTION

Amoral fibre: Michael Douglas as Gordon Gekko in “Wall Street”.

definitely to be left at home. The word ethics comes up only in combination with work, referring to an almost absolute obedience to one’s boss.

This is the mind-set created by an ideology of “shareholder value”; employees of a publicly listed corporation are taught and drilled into believing they have one task and one task only: to make as much money as possible for their shareholders– within the law.

Still, I pressed interviewees on the deeper moral dilemmas, about hiding behind laws that their bank’s lobbyists helped write, for instance. That’s where the laws exist: after all, laws always have to catch up with technology, so initially there are no rules governing new financial products, which helps explain the deliberately complex and highly opaque variations of the collateralised debt obligations that nearly sank the world economy in 2008.

In the final analysis, all the solemn promises of cultural change by top bankers in the aftermath of the Lehman Brothers’ crash are hard to take seriously. Banks are still publicly listed and

therefore conditioned with the mind-set of amorality. The crisis may have had citizens the world over clamouring for a new beginning, but most of my interviewees claimed that at their bank it was back to business as usual.

Luyendijk, Joris (2015), Swimming with Sharks: My Journey into the Alarming World of the Bankers, Faber

Order this now!

Browse and order at

www.oecd.org/bookshop

OECD Yearbook 2016 © OECD 2016

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FROM AGREEMENT TO ACTION

To have and have more: Wealth management and the growth of global inequality Brooke Harrington Author and Associate Professor Copenhagen Business School

©Bob Ebel

Wealth managers enable their clients to defeat the spirit of the laws without violating them formally When it comes to global wealth inequality, we know how bad it’s getting, but what do we know about who is responsible?

When Oxfam reports that 1% of the world population owns more than the other 99% put together, the question arises: who or what is making the rich so much richer, and the poor so much poorer?

It turns out we know surprisingly little about the key actors behind this momentous change. This creates a problem for policy makers who want to stop or reverse the growth of wealth inequality. The trend cannot be arrested without understanding its sources.

The research I’ve conducted over the past eight years suggests that some of the most important players have been overlooked: wealth managers. They are an elite group of lawyers, accountants, bankers and others who protect the fortunes of their high-networth clients from tax authorities and creditors, among others.

To achieve these ends, wealth managers design complex, often multi-national structures composed of trusts, foundations and offshore corporations–the building blocks of tax avoidance, and law avoidance more generally. There are at least 20 000 wealth managers spread across 95 countries, and their control of billions in private capital flows plays a major role in the extreme concentration of wealth worldwide.

Making the rich richer When economists such as Gabriel Zucman tell us that governments around the world lose $190 billion annually in revenues due to tax avoidance by the ultra-rich, that points to the work of wealth managers. Such a feat is not accomplished by millionaires and billionaires themselves: they are otherwise occupied, often in accumulating more wealth or in spending it. Instead, the task of mastering the intricate and changing body of laws applying to tax, estates and multi-national transactions falls to a highlyspecialised group of professionals. The skills they offer–which enable their clients to defeat the spirit of the laws without violating them formally–cost handsomely. That in itself is a major factor in the growth of inequality: the old saying “it takes money to make money” is true not because wealth accumulation is natural or inevitable, but because rich people can afford the best advisors.

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This helps explain an unanticipated result of the 2008 financial crisis: while some expected it to be a great leveller in terms of inequality, the opposite occurred. Although the wealthy initially lost money in the crash, within a few years they had not only recouped it all, but had become wealthier than ever. According to Oxfam, the richest 62 people in the world increased their fortunes by a total of US$500 billion between 2010 and 2015; meanwhile, the majority of the world’s population has yet to recover their

OECD Yearbook 2016 © OECD 2016

losses. This can be attributed in part to the multi-pronged “wealth defence” strategy that professionals can provide to the world’s economic elites. This involves not only the avoidance of taxes and debts that could dissipate clients’ fortunes, but access to exclusive investment opportunities.

States and international organisations like the OECD are aware of the wealth management profession, which gets occasional mention in policy briefs and legislative hearings. But little effort has been made to address the professionals’ role in exacerbating inequality. Instead, the vast majority of political and institutional efforts to combat the problem have been directed at states (particularly offshore) and the wealthy themselves. These efforts have consistently proven to be disappointing. It seems that every

A must read!

Harvard University Press ISBN 9780674743809 Publication: September 2016 Available 08/15/2016 www.hup.harvard.edu

FROM AGREEMENT TO ACTION

©Rights Reserved

centration of economic power. For example, a recent study

by Michael Norton and Dan Ariely found that people in the US underestimate the extent of wealth inequality in their own country by 42%. Similarly, research conducted in Argentina suggests that the poor significantly underestimate how economically disadvantaged they are and have no idea how much better off the rich really are. This lack of awareness is partly due to the physical segregation of rich and poor in most parts of the world. But it is also linked to strategic obfuscation by wealth managers, who keep their clients’ affairs out of the newspapers and courtrooms that might otherwise expose the real extent of the economic divide.

time a loophole is closed or a sanction imposed, someone is there to get around it. That someone is often a wealth manager.

Making the poor poorer Wealth management techniques don’t just make the rich richer: they also make the poor poorer. When professionals help high-networth individuals avoid paying their taxes or their private debts, the poor—and the middle class—bear the costs, both directly and indirectly. Indirectly, they pay through a reduction of public services, such as education, health care and transportation, which are critical for making a living and becoming upwardly mobile.

The direct costs come from the surcharges on honest taxpayers and borrowers. Even with service cuts, the fiscal burden of the state must still be borne; tax avoidance by the rich shifts those costs downwards. In the US and Europe, estimates of this surcharge vary between 7% and 15% in additional taxes to cover the underpayment by the rich. At the same time, banks and other financing firms such as car dealerships raise the costs of borrowing to recoup their losses from high-net-worth individuals, who can default on their debts without penalty by using wealth management strategies. The resulting increase in borrowing costs has the largest impact on the poorest members of society, deepening their indebtedness and making upward mobility increasingly difficult to attain.

This has ominous long-term implications for human capital and national development. Drastic cuts in public services are occurring now in Greece, Spain and other EU countries where massive levels of tax avoidance by the wealthiest citizens depleted government coffers prior to the financial crisis. As underfunded states crumble, the most able and talented citizens often leave. Those left behind are ripe—in the words of economist Thomas Piketty—to be “tempted by nationalist solutions, ethnic divisions, and the politics of hatred”. Thus, rising inequality creates a threat to democracy itself.

Perhaps the most significant political issue is how wealth managers’ work has enabled inequality to grow in obscurity for so long. Trusts, foundations and offshore finance work by concealing the true ownership of wealth. This not only makes it difficult to collect taxes and debts: it also cloaks economic privilege in a strategic veil of privacy.

Wealth managers have been very successful in keeping their clients off the radar, and limiting public awareness of the con-

A new approach to policy?

As the title of Tolstoy’s book about the wealth divide in his time put it, “What then must we do?” With 21st century inequality already so extreme, it may seem too late to reverse the trend.

Since tightening tax laws, sanctioning offshore states, and pursuing tax avoiders in court has not stemmed the tide of wealth concentration, there would appear to be few options left.

My research points to a new policy direction: lawmakers must engage directly with the experts who control wealthy clients’ capital flows, and who devise the strategies that undo the intent of laws governing private taxation and debt. A recent study on Israel by Adam Hofri suggests some reason for optimism on this front. With a few targeted legal changes, the government there was able to co-opt wealth management professionals and enlist them on the front lines of combating tax avoidance by highnet-worth individuals. As a result, wealthy Israelis now have fewer incentives to take their money offshore, and Israeli wealth managers now profit from ensuring tax compliance as much as they once profited from facilitating avoidance.

Whether these innovations can be adapted to other national contexts remains to be seen. Some argue that Israel is a special case due to traditionally high levels of social solidarity. Others point out that recent opinion polling among Israelis reveals that social solidarity is now quite low, particularly when it comes to economic inequality and measures to combat it. This suggests that the case may offer a useful precedent, and even inspire a new approach at the OECD: focusing on wealth managers can help states address revenue losses from tax avoidance, and enable governments, international organisations and others to combat the growth of economic inequality more effectively.

References Harrington, Brooke (2016), Capital without Borders: Wealth Management and the One Percent, Cambridge, MA: Harvard University Press, www.hup.harvard.edu/catalog. php?isbn=9780674743809 Hofri, Adam (2014) “Professionals’ contribution to the legislative process: Between self, client, and the public” Law & Social Inquiry, 39: 96-126 Norton, Michael and Dan Ariely (2011) “Building a Better America—One Wealth Quintile at a Time”, Perspectives on Psychological Science, 6: 9–12 Piketty, Thomas (2015), “Foreword,” in Gabriel Zucman, The Hidden Wealth of Nations, Chicago: University of Chicago Press, Page viii Tolstoy, Leo (1941 [1886]), What Then Must We Do?, Oxford University Press, New York Zucman, Gabriel (2015), The Hidden Wealth of Nations, University of Chicago Press, Chicago Visit Brooke Harrington’s website at www.brookeharrington.com

OECD Yearbook 2016 © OECD 2016

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FROM AGREEMENT TO ACTION

Inclusive business can help solve the sustainability equation

©Noah Beckwith

Noah Beckwith Development Finance Practitioner

Actions that address the inter-connectedness of environmental and social challenges are critical for achieving sustainable development. Governments, international organisations, development finance institutions and donors, among other actors, recognise that long-standing barriers between aid, trade, investment and natural resource management must fall, both in the developed and developing world. The twin objectives of economic growth and poverty reduction cannot be achieved without modifying entrenched commercial practices that harm or destroy environmental and social capital.

This is where inclusive business comes in as one of many so-called impact investment strategies. It is about investing for profit and purpose, and fighting poverty, too. In 2004, our perception of the poor was transformed from a dependent millstone to a 4 billion-strong market opportunity by the late CK Prahalad’s book, The Fortune at the Bottom of the Pyramid. Inclusive business takes this opportunity as its point of departure. It refers both to companies whose goods or services address issues of access, affordability, or quality, enabling the poor to meet their basic needs; and to firms which draw the poor into supply chains as producers, suppliers, distributors or employees in enduring and mutually-beneficial ways.

Since the mid-2000s, the development finance community, long aware of the correlation between poverty and unsustainable resource usage, has come to see inclusive business as a promising sustainable development strategy for two reasons. First, it enables economic growth, private sector development and poverty alleviation in a resource-neutral or positive way. And second, it allows stretched public funds to be strengthened with private-sector capital looking to combine profit with purpose.

The challenge now is to move inclusive business higher up the agenda. With nearly 10% of the world population living in poverty and over 700 million people living in extreme poverty in 2015, the poor, long at the epicentre of environmental and social degradation, must be engaged as part of the solution.

The agriculture sector, which accounts for over 90% of economic output in some developing countries, shows how this is possible. It is beset by low yields, little value addition, fragmented supply chains and often harmful environmental practices (use of damaging fertilisers and pesticides, for example). Subsistence or small-holder farmers, lacking know-how and technology, are trapped in a vicious circle of limited output and earnings.

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An inclusive business approach to agriculture addresses this as an opportunity. It invests in a range of actors along the supply chain–agro-processors, seed companies, equipment leasing companies, financial institutions creating input-financing and crop insurance schemes–so that the poor can produce less harmfully, more efficiently and sustainably. The motivation is not altruism or philanthropy, nor is it corporate social responsibility (CSR); rather, these are businesses generating financial returns and positive impacts by addressing environmental and social challenges in a “win-win” for people’s earnings and the market.

Take rice production in Thailand, for instance. Since the early 1990s, Arvind Narula, a third-generation Indian-Thai, has produced basmati rice through a contract-farming model engaging the hill tribes of north-east Thailand, an ethnic group

The poor, long at the epicentre of environmental and social degradation, must be engaged as part of the solution marginalised for centuries. By converting farmers to organic production and providing training and know-how, his company, Urmatt (www.urmatt.com), which espouses inclusive business, produces superior-grade rice, which commands premium prices worldwide. Local value capture is increased through processed by-products, such as rice bran (made from rice husks, usually discarded) keenly sought by the cosmetics industry and the medical community. In fact, preliminary research indicates that rice bran may have cancer-fighting properties.

Urmatt’s strategy has created a virtuous circle whereby it is able to secure a consistent, quality supply of its products by investing in farmers and expanding their opportunities. Their incomes have increased dramatically as a result. As more products are introduced–chia seeds, organic eggs–the waiting list of farmers looking to work with Urmatt grows. Moreover, environmental degradation is averted in the process, while social capital develops as livelihoods improve and poverty falls. Inclusive business approaches such as Urmatt’s show how needs can be met in ways that enhance rather than deplete environmental and social capital. It also shows that small and medium-sized enterprises, which account for over 90% of economic activity in some development countries, are a key constituency in solving these challenges. As countries refine their implementation strategies on climate change and the Sustainable Development Goals (SDGs), they should look to the growing coalition of investors who are ready to deploy capital for financial return as well as impact. Multilateral organisations such as the OECD, by collecting data and scrutinising per-formance, could play a key role in promoting inclusive business, too. After all, sustainability, but also productivity, would benefit. beckwithnb@aiif.net World Bank (2016), Development Goals in an Era of Demographic Change, World Bank Group, Washington DC Prahalad, Coimbatore Krishnarao (2004), The Fortune at the Bottom of the Pyramid, Wharton School Publishing

FROM AGREEMENT TO ACTION

World trade: Why ministers must act

©Crown copyright

Todd McClay Minister of Trade, New Zealand

Creeping protectionism is alive and well. Last year’s monitoring report on trade for the G20 reminded us that of the nearly 1,500 trade-restrictive measures imposed by G20 countries since 2008, fewer than 400 have been removed. The stock of these barriers continues to grow, despite a pledge by the G20 to reduce protectionism. Not surprisingly, given this context, a recent World Trade Organisation (WTO) report concludes that the risks to the international trading system and to trade flows more generally “are tilted to the downside.”

These troubling assessments are reinforced by growing unease in our communities about the impact of globalisation in general and trade agreements in particular. As ministers, we are all under increasing pressure to better explain the benefits of trade. The proliferation of bilateral and regional trade agreements has also made our task more complicated, while simultaneously posing a serious risk of fragmentation of the multilateral trading system.

The challenge we face is a profound one.

It is therefore difficult, not least in the context of the risks we now face, to overstate the importance of the WTO and the rulesbased multilateral trading system which it embodies. The WTO is an essential piece of the global architecture ensuring that all countries–big or small–can compete fairly, transparently, with certainty and on the basis of the same set of rules. It played a vital role in keeping the worst excesses of protectionism at bay during the global financial crisis.

The WTO can still surprise us. The achievement of the 10th WTO Ministerial Conference in Nairobi, Kenya, in eliminating agricultural export subsidies and imposing disciplines on measures with equivalent effect was truly historic. This is the first legally binding outcome in agriculture since the end of the Uruguay Round in 1994, and reminds us that no matter how prolonged and difficult the process may be, multilateralism can still deliver. The recourse to export subsidies increased the risk of price volatility, import surges and unfair competition.

Eliminating those risks at Nairobi therefore mattered, for our rural communities, for agricultural markets and for development.

Success at Nairobi has breathed new life into the WTO’s negotiating function. OECD ministers have a responsibility to harness

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this new momentum in the effort to deal with the remaining unresolved Doha issues, as well as to address new issues. The 11th WTO Ministerial Conference (MC11) is now less than 18 months away. As ministers we need to agree now on how we can ensure that this too delivers a successful outcome. A good starting point would be to agree to develop enhanced disciplines on agricultural domestic support–something that is only possible multilaterally. Other issues need attention too. Reducing barriers to services trade is one area where we have yet to achieve the type of success that has been possible in other areas of the WTO’s work.

Trade ministers must ensure that we do not repeat situations where negotiations drift on for years. It is obvious that enhanced transparency and inclusivity must also inform the negotiations.

Our domestic constituencies want to understand why trade matters–and on this the OECD’s work has been crucial. Increasingly, civil society also wants to hear about how trade can contribute to addressing global challenges. A good starting point is to consider how trade can help us achieve the UN Sustainable Development Goals (SDGs) agreed by world leaders in September

Success at Nairobi mattered, for our rural communities, for agricultural markets and for development 2015. The WTO could help deliver on SDG 2 which seeks to “correct and prevent trade restrictions and distortions in world agricultural markets”. SDG 14 is about protecting the oceans and global fish stocks, including through the development of disciplines on fish subsidies. Again, the WTO is already contributing with ongoing negotiations on this issue.

Can trade do more? Take the historic agreement in Paris on climate change in December 2015. Thanks to the OECD, we know that fossil fuel subsidies are huge–literally hundreds of billions of dollars are spent on such measures a year. These subsidies are a major contributor to climate change while unfairly distorting trade. Can we convert the political commitment made by the G20, APEC* and through SDG 12 to reform fossil fuel subsidies into legally enforceable disciplines? Again, the only way to do that effectively is on a multilateral basis, and the only place to do it is in the WTO. In practical terms, is it worth us starting to think seriously about how the WTO might successfully discipline fossil fuel subsidies? Something like this could demonstrate that, as with efforts to save global fish stocks, enhance agricultural food security and now mitigate the worst effects of climate change, trade agreements can contribute to solutions to the most pressing global problems of our times.

OECD, WTO and UNCTAD* (2015) ”Reports on G20 trade and investment measures”, October, see http://oe.cd/G20-investment Visit http://www.oecd.org/investment/investment-policy/g20.htm Visit http://www.oecd.org/trade *APEC: Asia-Pacific Economic Co-operation; UNCTAD: United Nations Conference on Trade and Development

OECD FACTBOOK INDICATORS OECD renewable energy supply Hydro

Geothermal

Thousand tonnes of oil equivalent (ktoe)

Solar/wind/other

Biofuels and waste

600 000

500 000

400 000

300 000

200 000

100 000

0

http://dx.doi.org/10.1787/888933335468

Sulphur and nitrogen oxides emissions Nitrogen

Kilograms per capita, 2012 or latest available year

Sulphur

262

110 100 90 80 70 60 50 40 30 20 10 0

http://dx.doi.org/10.1787/888933335546

Distribution of foreign and international students in tertiary education 2013

Not specified 5% Oceania 1% North America 3%

By country of origin

Latin America and the Caribbean 5% Asia 53%

Africa 8%

Europe 10%

http://dx.doi.org/10.1787/888933335551

Selected charts from OECD Factbook 2016-2017; available at www.oecdbookshop.org and www.oecd-iLibrary.org

88

MERCI THANK YOU, DR. CAMPBELL …for giving generations of people the gift of sight.

69,000 MSD colleagues around the world send our heartfelt thanks and congratulations to William C. Campbell who was jointly named the 2015 Nobel Prize winner in Physiology or Medicine with Satoshi Omura for the discovery of avermectin.

While performing his Nobel-prize winning research at MSD, Dr. Campbell advanced the discovery of avermectin and suggested that a derivative compound—ivermectin—might be effective against river blindness in humans.

He was right.

This led to the development of Mectizan® (ivermectin), a treatment for river blindness, a devastating parasitic disease affecting millions of people living in poor, rural communities in Africa, Latin America and Yemen.

In 1987, MSD began donating the product to all who need it, for as long as needed. Through the 28-yearold Mectizan Donation Program—a first-of its kind global partnership—MSD has donated more than one billion treatments in affected areas. Now, three countries have been verified as free of river blindness by the World Health Organization.

Dr. Campbell’s work is a shining exemplar of MSD’s mission of saving and improving lives through both science and social responsibility. We applaud the innovation and collaboration that has made this remarkable achievement in global health possible.

To learn more about our journey to bring more hope to more people around the world, visit www.msd-uk.com.

Copyright © 2015 Merck Sharp & Dohme Corp., a subsidiary of Merck & Co., Inc. Kenilworth, NJ, USA. All Rights Reserved.

FOCUS: Latin America

Latin America’s potential: Some snapshots After performing strongly for almost a decade, many of Latin America’s countries slowed in 2015, with average growth in the region falling below that of OECD countries for the second consecutive year. How can the region recover its momentum?

0.04

Growth in Latin America, which was strong before the crisis,

0.02

started to ease from 2010. Loss of investment momentum is one of the key factors behind the recent slowdown. Investors’ expectations have deteriorated over the past few years, partly because changes in the global context led to subdued external

Slowing trend .+7 NYV^[O PU 3H[PU (TLYPJH HUK KLTHUK JVTWVULU[»Z JVU[YPI\[PVU HUU\HS NYV^[O

0.10 Net exports Investment

0.08 3.7%

0.06

2.0%

such as policy uncertainty and the passing of reform bills

0.4%

4.5%

0

3.7%

0.6% 1.1% - 0.6%

2.4% -0.8%

-1.0%

-1.4%

-1.9%

0.8%

3.2%

-0.02 -0.04

2010

conditions including softer global demand, lower commodity prices and tighter financial conditions. Also, domestic factors

Consumption GDP at market prices

2011

2012

2013

2014

Source: OECD (2016), Latin American Economic Outlook 2016: Towards a new partnership with China, OECD Publishing http://dx.doi.org/10.1787/888933291400

(notably on taxes) may have had an effect in some countries.

The contribution of public investment was not strong enough to compensate for the retrenchment of the private component; actually, in some cases, it even reinforced it.

Evading the middle-income trap

Middle-income trap Latin America’s recent slowdown looks set to persist in the

.+7 WLY JHWP[H PU ZLSLJ[LK 3H[PU (TLYPJHU HUK V[OLY LJVUVTPLZ <: 7\YJOHZPUN 7V^LY 7HYP[PLZ" ZLL :[H[SPUR MVY TVYL JV\U[YPLZ

medium term, a trend that reflects a slowing global economy

35 000

but also persistent regional weaknesses. These include low

30 000

productivity and weak investment growth as well as high levels of inequality–28% of people in Latin America live in

20 000

challenges, many of them risk getting stuck in the middle-

15 000

of growth and becoming unable to build on earlier success.

Other economies, such as Korea and Spain, managed to escape the middle-income trap; some of Latin America’s economies, such as Chile, Uruguay and Argentina, have also done so, but most have not.

1980

1950

25 000

poverty. If the region’s economies do not confront these income trap–a phenomenon that sees countries hit a ceiling

2014

10 000 5 000 0

il ile ay ina uela Rica xico bia raz Peru m nt Ch rugu z ta e B M olo ge ne U C Ar Ve Cos

a

re

Ko

ain

Sp

Source: OECD (2016), Latin American Economic Outlook 2016: Towards a new partnership with China, OECD Publishing http://dx.doi.org/10.1787/888933291317

More data on page 94

OECD Yearbook 2016 © OECD 2016

91

FOCUS: Latin America and the Caribbean The OECD LAC Regional Programme launched on 1 June with Chile and Peru as co-Chairs will support the region with a view to increasing productivity, enhancing social inclusion and strengthening institutions and governance.

Views and perspectives The challenges that Latin America faces are enormous in magnitude and complexity. We are the most unequal region with a poverty of 28%, in which a high degree of precariousness and informality persists. It is imperative to seek ways to boost sustainable growth for the region, diversify our economies and increase our productivity.

The OECD Regional Programme for Latin America and the Caribbean is an important step in this direction.

Michelle Bachelet, President of Chile

Latin America is currently implementing economic reforms to lead the region on the path of sustainable growth. We still face major challenges like poverty, informality and low productivity, which can only be tackled with decisive political will to promote sound public policies where social inclusion is at the core. The LAC Regional Programme is one of the most important OECD initiatives to strengthen efforts aimed at deepening reforms and creating conditions to overcome current obstacles to strong sustainable growth with social inclusion. Peru is committed to this goal.

Ollanta Humala, President of Peru

Colombia already has clear evidence of the impact that the OECD can have in a Latin American country. The accession process has initiated several institutional reform processes and triggered very important internal reflections. The OECD does well to turn their eyes towards our region, as evidenced by its new Regional Programme for Latin America and the Caribbean. This is a region that has much to learn and much to offer in experiences of social and economic policies.

Juan Manuel Santos, President of Colombia

We celebrate with deep enthusiasm the launch of the OECD Latin America and the Caribbean Regional Programme. We are convinced that this important initiative will contribute to closer ties between the OECD and the Latin American region and serve as a guide for the adoption and implementation of practices and policies that contribute to transform the region into a more transparent, prosperous and inclusive society.

Luis Guillermo Solís, President of Costa Rica

Uruguay has adopted measures and actions that accredit it as a State that meets international standards on transparency and exchange of tax information in order to combat tax evasion and money laundering. Recently, our country became an active member of the OECD Development Centre. We are confident that through these joint efforts we will succeed in promoting policies that improve the economic and social well-being of people around the world.

Tabaré Vázquez, President of Uruguay

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Argentina has begun a new stage in its development that our Government summarises in three objectives: moving towards a country with zero poverty, fighting drug trafficking and uniting Argentinians. […]Argentina is open to international co-operation and looks forward to working closer with the OECD to achieve effective policies in our country to improve the quality of life of our people.

Mauricio Macri, President of the Argentine Republic

In Latin America inequalities are not restricted to the income distribution; they are also common at the geographic, gender, or educational level, or in terms of access to services and opportunities. Since 2010 poverty has stopped receding, which shows the limits of cash transfer programmes. The solution lies in promoting structural change towards knowledge-intensive sectors with environmental sustainability, setting equality as the core objective and using policy as the instrument.

Alicia Bárcena, Executive Secretary of the Economic Commission for Latin America and the Caribbean

We have witnessed how the OECD contribution to the policy debate in Latin America and the Caribbean has led to economic and legal reforms, which have been key to building stronger and more transparent economies.

Luis Alberto Moreno, President of the Inter-American Development Bank

The OECD has been a strong, close ally of Mexico’s: the work of its researchers and policy experts enabled us to make better decisions, based on recent studies and successful international practices.

Enrique Peña Nieto, President of Mexico

The OECD Regional Programme for Latin America and the Caribbean constitutes a valuable initiative to work together in promoting sustainable development in the region.

Enrique García, President of the Development Bank of Latin America

The region needs to enhance the quality of its institutions and public policies, striving to avoid reversals in its social gains, while at the same time diversifying its productive matrix, increasing productivity, boosting innovation and transitioning towards knowledge-based economies. Regional integration will be essential for this purpose, as well as a discussion on the different forms it is adopting. The Ibero-American General Secretariat (SEGIB) is proud to work alongside the OECD and the LAC Regional Programme in these endeavours.

Rebeca Grynspan, Ibero-American Secretary General

L AST WORD: A WRITER’S VIEW Latin America is very fond of the word “hope.” We like to be called the “continent of hope.”

Pablo Neruda, quoted in New Times, 1987

OECD Yearbook 2016 © OECD 2016

93

FOCUS: Latin America

Skills priority

Skills gap

To escape the middle-income trap, Latin American economies must confront challenges in areas like productivity, economic diversification, innovation, regional integration, informal employment and social policies. Skills are also a priority.

In second-ary education, the gap between the performance of OECD and Latin American students is equivalent to more than two years of schooling, according to 2012 PISA. At tertiary level, only around one in five Latin American students are studying a science, technology, engineering and mathematics

-PYTZ [OH[ MHJL KPɉ J\S[PLZ PU Ä UKPUN [OLPY YLX\PYLK ^VYRMVYJL

JPYJH % 40 35 30 25 20 15 10 5 0

(STEM) subject. And, more than in any other region in the world, employers in Latin America struggle to find the workers they need.

Latin America and the Caribbean

China

OECD

Source: OECD (2016), Latin American Economic Outlook 2016: Towards a new partnership with China, OECD Publishing http://dx.doi.org/10.1787/888933292011

China’s role China will be a key factor in the region’s future economic

Loans to Latin America

development, according to the Latin-American Outlook 2016:

-YVT ZLSLJ[LK T\S[PSH[LYHS VYNHUPZH[PVUZ HUK *OPUH <: TPSSPVU

Towards a New Partnership with China. This will create both challenges and opportunities. Over the past 15 years, trade

40 000

between China and the region has risen 22-fold, and today,

35 000

China ranks as the largest trading partner for Brazil, Chile

30 000

and Peru. At 73% of exports, the region’s trade with China is dominated by commodities. The limitations of this export model highlight the need for Latin America to increasingly

20 000 15 000

increased domestic and foreign investment are needed, and

10 000 5 000

Latin American exports to China

0

)` WYVK\J[ <: IPSSPVU Copper ores and concentrates Petroleum Refined copper

CAF China

25 000

pursue higher value-added industries and activities. Both

Soybeans Iron ores and concentrates

World Bank IDB

2009 Other

100

2010

2011

2012

2013

2014

Source: OECD (2016), Latin American Economic Outlook 2016: Towards a new partnership with China, OECD Publishing

90

http://dx.doi.org/10.1787/888933291344

80 70 60

this is an area where China is already having an impact.

50 40

Since 2010, loans from China have reached US$94 billion,

30

and continued investment looks highly likely. However,

20 10 0

Latin American economies need to boost their trade agreements and platforms, and improve their focus on 2

1 0 0 200 200 20

3 0 2 1 3 4 5 200 200 200 2006 2007 2008 2009 201 201 201 201

Chinese loans include loans provided mainly by China Development Bank and China Ex-Im Bank. World Bank loans are IBRD and IDA commitments. Development Bank of Latin America (CAF) loans refer to loans commitments, and Inter-American Development Bank data include loans and guarantees approved.

Source: OECD (2016), Latin American Economic Outlook 2016: Towards a new partnership with China, OECD Publishing http://dx.doi.org/10.1787/888933291696

94

OECD Yearbook 2016 © OECD 2016

regulation, governance and transparency and environmental sustainability.

Reference OECD, UN, CAF, (2015) Latin-American Economic Outlook 2016: Towards a New Partnership with China, OECD Publishing

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OECD Yearbook 2016 PRODUCTIVE ECONOMIES INCLUSIVE SOCIETIES The sixth edition of the OECD Yearbook focuses on some of the key social, economic and environmental challenges arising both from the continuing aftermath of the economic crisis, but also from ambitious global agreements struck over the past year on taxation, development and climate change. Part 1, Innovative and Productive Economies, explores the declines in productivity and the increases in inequality witnessed in recent years and asks whether there is a link between these two trends that might inform policy making. It also looks at the impact of the digital economy, both on our understanding of productivity and on the future of the economy. Part 2, Future Societies, examines a range of issues that are already starting to make an impact on the way we live today, including digitalisation, the integration of migrants in our societies and economies, how we educate children and support parents, and how we remove barriers to success for women. Part 3, From Agreement to Action, examines what is ULLKLK [V OVUV\Y ZPNUPĂ&#x201E; JHU[ NSVIHS HNYLLTLU[Z Z[Y\JR PU HUK SVVRZ H[ the implementation challenges facing the international community in combating international tax abuse, meeting sustainable development goals and tackling climate change.

0U [OL OECD Yearbook, OECD experts are joined by leaders from government, business, labour, academia and civil society to examine these and other questions facing our societies today.

OECD Observer Volume 2016 Supplement 1 ISSN 0029-7054 Volume 2016 Supplement 1