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The OECD´s New Role as a Global Institution

 

Angel GURRIA (*)

The great challenge our societies face today is how to make globalisation work for all. This is the fundamental new mission of the Organization for Economic Cooperation and Development, as the hub of globalisation.

In working for a successful globalisation, the OECD has the key role to engage the new players in the global economy in managing globalisation so that it brings prosperity, equity and sustainability in all parts of the world.

The OECD brings a unique set of skills to this great challenge, based on more than 45 years of sharing experiences and benchmarking best practices by its member states. This past success has attracted interest from many countries at different stages of development. The result is that the OECD today is a global institution, in which all the major actors in the international economy are working together in an expanding partnership.

The OECD is now well engaged with all of the big new economic players, known as the BRICS, which include Brazil, Russia, India, China and South Africa. But the OECD’s work extends much further, to North Africa and the Middle East, to Chile and Israel, Ukraine, to the ASEAN countries and Central Asia, to Latin America and Africa.

This new and expanding role for the OECD as a global institution should not be a surprise. Even though the OECD was launched in 1961 as a 16-member trans-Atlantic initiative of Europe and North America, its wise founders already had a vision of a globalised world economy which would encompass the developing as well as the developed world.

Article 1 of the OECD Convention made it clear that the major task of the OECD was not only to assist its member countries to achieve sustainable economic growth and rising living standards but also to support sound economic expansion in non-member countries around the world that were seeking to develop their economies. In the year following its establishment, the OECD created the Development Centre. Its purpose was to provide an open and credible channel of communication between the more advanced countries and the developing world. So the OECD was globally engaged from the start.

Today, the international context is dramatically different from the 1960s, when only a small number of countries pursued open trade and investment. Today, almost the entire world is seeking to integrate into a global economy. The Iron Curtain and the Bamboo Curtain have gone and nations pursuing inward-looking import substitution strategies are now actively seeking to succeed though open market and export oriented approaches.

The OECD has changed as well. Four of its now 30 members are former Communist states from Eastern Europe, three of its members are emerging market economies, and it has close relationships with more than 70 countries.

With the emergence of important new players, the so-called BRICS, it is necessary to engage them all, to address current challenges of the world economy. Issues such as the Doha Round and climate change clearly show this. Should a new G14 of global leaders emerge as it has been proposed, combining the G8 with China, India, Brazil, South Africa, Mexico and Egypt, to better manage globalisation, the OECD could well play a supporting role. The OECD in fact is participating in discussions exploring the possible creation of a G14 and will host a meeting in the Spring of 2007 to explore this potential evolution in global governance.

This mandate to shape globalisation for the benefit of all has never been more important. It will represent a growing role of OECD in the coming years. Addressing such critical global issues as trade, water, migration, health, the environment, and developing indicators to measure the progress of human societies are all key elements of the OECD agenda. Indeed, the future well-being of the OECD countries themselves depends upon successful global development; failure could mean more conflict, environmental disasters, forced migration and a reversal in the fight against poverty. The creation of a larger and sustainable global economy, on the other hand, should contribute to a more peaceful and stable world. So successful globalisation is more than just an economic issue, it is about global peace and security as well.

The experience of the past 25 years shows that globalisation brings great benefits to those countries that join successfully. Hundreds of millions of people have been lifted out of poverty. Life expectancy has been raised. And a growing number of countries are now on growth paths that enable them to make investments in education, health, infrastructure and institutions that will lead to rising living standards for their populations. Our contribution at the OECD is to support countries in these efforts by helping them to design and implement reforms to undertake structural change.

The World Bank estimates that by 2030 the international economy could reach $75 trillion, compared to $35 trillion in 2005, with the developing world tripling its output and increasing its share of the economic pie increasing to 33 per cent, from 23 per cent now. While this would still leave a wide gap between average incomes in the advanced countries and the developing world, the gap is set to narrow, with the emergence of a strong middle class in much of the developing world.

But this requires that we pay special attention to the problems of extreme poverty and to achieving the Millennium Development Goals. A large number of people remain marginalised, for example, in Sub-Saharan Africa. About 1 billion people live on less than $1 a day, while the number living on less than $2 a day is about 2.6 billion.

At the same time, the world faces a significant population increase of about 1.5 billion people over the next 25 years, for a total of just over 8 billion. Virtually all of this increase will occur in the developing world. One billion new entrants to population growth will add another billion-plus workers to the world labour force over the next 25 years, practically in developing economies.

This will inevitably mean further restructuring of the international economy as technology, trade, investment and migration continue to relocate industries and jobs. This must be carefully managed or there will be costly setbacks. The difficulties with the Doha Round are one example of how advances that would bring significant benefits can be sidetracked by domestic lobbies fearful of change.

Thus, the challenges, and risks, are enormous. This is why, at their 2005 Ministerial Council Meeting, Ministers from the 30 OECD countries reaffirmed the original charter of the OECD by pledging to “engage with developing countries through the OECD in sharing of experience, best practices and view on how to gain for all the most from globalisation.” This strategic framework to guide the work of the OECD aims to contribute to the harmonious functioning of the world economy by promoting global policy coherence, engaging the major players and reducing the risk of tensions and conflicts through policy coordination dialogue and comparative research. At the same time, the OECD will promote shared prosperity by facilitating the integration of developing nations into the global economy

The OECD’s work with Turkey in support of its major structural reforms illustrates the kind of role the OECD can play. Indeed, as a result of recent reforms Turkey is showing outstanding economic performance, with the strongest growth of any OECD country in the period 2002 to 2006 and the possibility of achieving a transition to a more sustainable and stronger growth path that that would bring its living standards closer to the OECD average.

The willingness of Turkey to undertake major reforms has been an essential part of this move to a strengthened macro and microeconomic framework economy. In our most recent economic survey we point to Turkey’s recapitalisation of the banking system, major privatisations, changes in competition policy institutions, corporate law and other regulatory practices, as well as a new emphasis on fiscal consolidation and the transition of the central bank to an independent institution as examples. We also point out that further reforms are needed: in education; in easing of labour market regulations; reform of pension rules; facilitating access to bank and equity financing; reducing tax distortions and reforming agriculture. We will continue to work with Turkey in supporting future reforms.

Not long ago the OECD also published a report on corporate governance in Turkey. This was based on a pilot study of how Turkey is implementing the OECD Principles of Corporate Governance, which have become the global standard. It found that while corporate governance is improving in Turkey, there is still significant room for further improvement.

The report set out key areas where reforms should be made – for example, protecting the rights of minority shareholders, transparency on laws involving related parties that belong to a corporate group, grater scope for institutional investors to exercise their rights as shareholders of companies and strengthening the role of boards of directors in improving company performance.

Clearly, if globalisation is to bring further benefits to countries in the process of reform, then strengthening the architecture of market economies, the rules, practices and institutions, is critical. Many of the OECD’s conventions and guidelines, representing the best practices of OECD countries, can be of great value to developing countries. These include the OECD Model Tax Convention, the OECD Convention for Combating Bribery of Foreign Public Officials in International Business Transactions, the OECD Principles of Corporate Governance, the OECD Policy Framework for Investment, The OECD Principles for Corporate Governance of State-Owned Enterprises, the OECD Guidelines for Multinational Enterprises, and the OECD Checklist for Investment Incentives.

This growing OECD role with non-members dates back to the late 1980s when structured dialogue with the Dynamic Asian Economies was initiated. In the early 1990s the OECD Centre for Cooperation with Economies in Transition, the former Soviet Union and Eastern European countries, was established. These and other activities with non-member countries were consolidated into the Centre for Cooperation with Non Members in 1998 when it became evident that the OECD had to give a much higher priority to supporting non-members in integrating into the global economy.

When the Iron Curtain fell, and Eastern Europe and the former Soviet Union opened to the world, the OECD played a central role in supporting the institutional changes that were essential if these countries were to succeed as market economies. The OECD drew on its extensive experience and advice for systems of taxation, competition policy, fiscal management, structural adjustment, public and private sector governance, regulatory reform, social insurance, privatisation and investment incentives and policies.

OECD co-operation with Russia began in 1992. We have conducted six economic surveys of Russia, the most recent in 2006. These have dealt with many areas of reform, from health care and innovation to electricity pricing and banking reform. The OECD is working closely with Russia on corporate governance, competition law, fiscal policy, regulatory reform, energy, post-secondary education, regional development, anti-corruption measures and the environment. Russia is an observer in 18 OECD Committees and in many OECD Working Groups.

In 1995, the OECD-China Programme was established and since then the OECD has maintained regular exchanges with 24 Chinese ministries and is working in about 20 policy areas to support its deepening integration into the global economy. In 2005 the OECD published its first Economic Survey on China. It has also published reports on governance and agricultural polices, and this year (2007) will publish a review of China’s environmental performance. China is an Observer in the OECD’s Committee on Fiscal Affairs and in the Committee for Scientific and Technological Policy. It also adheres to the OECD-Asian Development Bank Anti-Corruption Initiative. As with Russia, the OECD is supporting Chinese initiatives in private sector development, human resources and social policies, regulatory reform, governance and statistics.

The OECD is now embarking on a study of the regional development of Shanghai area, and is also working on an assessment of China’s innovation system and policies, in cooperation with the Chinese Ministry of Science and Technology. We are also looking at the regional dimensions of two less advanced regions, Sichuan in the west of China and Lianning in the north.

Brazil was the next emerging market economy with which we developed a formal link. The OECD-Brazil programme was launched in 1998 and since then has produced three economic surveys, the most recent in 2006. The OECD has also conducted a peer review of Brazil’s competition law and policies, has reviewed its agricultural policies, and assisted in improving its statistical data.

Brazil has voluntary signed on to the OECD’s Anti-Bribery Convention and the OECD Declaration on International Investment and Multinational Enterprises. It is taking part as an Observer in 10 Committees and is a full participant in the OECD Development Centre Governing Board. Brazil is also one of a growing number of developing countries which, with UNESCO support, is participating in the OECD’s PISA project.

The OECD is now in the process of developing new partnerships with India and South Africa, and with this, will have a relationship with all the emerging powers whose role will become much more significant over the next 25 years. It will publish its first review of India in 2007. The OECD is also working closely with other emerging market economies, such as Chile and Israel, as well as with Argentina, Indonesia and others.

The OECD’s work with 18 economies in the Middle East and North Africa – what we call the MENA Programme – is a good example of how the OECD is working to improve prospects for social and economic progress on a regional basis. These countries face enormous challenges in reducing unemployment and creating opportunities for their young and fast-growing populations and are looking to OECD members to help them deal with the enormous challenges they face.

The Program goals are to achieve modernisation of government through the Good Governance for Development Initiative and a flourishing private sector through an initiative for Investment Climate Reform. This is the first time the OECD has engaged in a policy dialogue with this part of the world.

In another initiative to reach out to non-members, the OECD has established OECD Global Forums which bring together government officials, policy analysts, business leaders and other experts to engage in policy dialogues to discuss solutions to problems, based on OECD work. Up to 250 participants attend each forum and they have been a regular event since 2001. The topics discussed include taxation, trade, agriculture, governance, international investment, competition policy, education, sustainable development and the knowledge economy.

In the coming years, the OECD will pursue what we call “enhanced engagement” with individual countries or with regional groupings. These are measures for deepening our relationship with countries which are important to the work of the OECD but which are not presently seeking OECD membership or do not at this time satisfy the criteria for membership.

The OECD believes the world can achieve a new era of peace and prosperity, poverty reduction, improvements in human health, technological advances and a sustainable environment. This is our vision for the 21st century. The OECD is fully committed to doing its share to help turn this vision into a reality by supporting countries at all stages of development and in all parts of the world in the challenging process of reform.

(*)Secretary-General, The Organisation for Economic Co-operation and Development (OECD)