In the light of recent developments in the world economy, I believe that we would all agree on what we need to do. More than ever, we need to implement policies which ensure economic stability and improve performance. We need to promote reforms for growth and employment at the national level and improve international policy co-ordination. We have to work together in order to enhance economic prosperity, reduce poverty and promote social cohesion.
The world economy has expanded rapidly in recent years and growth is expected to remain strong in 2006. The impressive strength of the world economy is mostly due to benign financial conditions and an unprecedented increase in trade and worldwide economic integration. However, there are risks due to large global imbalances and mounting insecurity in energy supply. Price stability, which has shown a remarkable persistence in recent years, may be at risk from the recent surge in oil prices.
The large external deficits of some countries, combined with the surpluses of their trade partners and the oil-producing countries, are threatening world economic stability as they are not sustainable over the medium term. Exchange rates that reflect economic fundamentals more closely could be useful in addressing the problem.
It is in our mutual interests to discuss and understand the causes of these problems and try to solve them. Multilateral co-operation and policy co-ordination are necessary. Large organisations such as the OECD can provide a forum for constructive discussions and fruitful exchange of views among all interested parties. Agreement on common policy guidelines is most welcome.
With the growth forecasts as favourable as they are, the time is right for policy adjustments. In the European Union the reform agenda is shaped by the Lisbon Strategy, aimed at increasing growth potential and fighting unemployment and social exclusion in a framework of sustainable development. Increasing resilience to shocks is also being pursued. EU member states have agreed on the central goal to make the Union the most competitive, knowledge-driven economy in the world with an emphasis on social dividends and environmental priorities. This is the common vision we share.
The ensuing policies focus on: maintaining fiscal discipline, making the business environment more attractive, promoting research, development and innovation, modernising labour markets and ensuring increased security of energy supply combined with environmental sustainability, all while adhering to the principles of a social model that is deeply valued by its citizens.
Reforms can be applied only if accompanied by a common understanding. We all have experiences of reforms being hard to implement, especially in labour markets, where benefits come later and seem more uncertain. The same holds for pension reforms, where the challenges of selecting the right timing and ensuring consensus are not always met. Such considerations often result in reforms being mitigated or even cancelled. The optimal strategy for implementing necessary reforms and achieving social consensus would be an interesting topic to exchange views on.
Consensus building entails exhaustive explanation of problems, detailed clarification of alternative solutions and joint agreement and commitment on courses of action. Wide ownership of the reform agenda is required. Social partners have to work together until they reach enforceable agreements. In this way social peace can be maintained. The political constraints to reform can only be avoided through honest co-operation and a process of trust building that lead to the accumulation of much needed “social capital”.
Finally, fostering trade can lead to a new era of prosperity for the world. Trade and globalisation should not be seen as a threat to job security but rather as a challenge for a more prosperous world. Maintaining living standards in our societies cannot be achieved by protecting jobs in uncompetitive industries, but by investing in knowledge, innovation and well-targeted social welfare systems. Also, training, re-training and life-long learning systems have a crucial role to play. There are several examples of countries demonstrating that open, competitive economies can achieve prosperity, without sacrificing social cohesion, especially when assistance for adjustment during transition facilitates the introduction of reforms.
Trade and competitiveness are inextricably linked and a successful conclusion of the Doha Development Agenda is needed now more than ever. To this end, we must remain optimistic that the Doha round will be concluded successfully by the end of 2006. A balanced and realistic outcome is feasible, providing a stimulus to the global economy and bringing benefits to all, but mainly to the poorest countries of the world.
I am honoured to chair this year’s Ministerial Council and look forward to fruitful and open discussions among all participants. Our intention is to create a fuller understanding of the threats to world prosperity and to produce solutions which will make our world a better place to live in.
©OECD Observer No 255, May 2006