The US and the EU are urged to reduce their farm support, while the EU is also asked to raise competition in energy, telecommunications and other network industries.Both Germany and France are urged to reduce barriers to competition, and also to reduce wage costs to help fight unemployment. For France, for instance, the report recommends that the minimum cost of labour be allowed to grow less quickly than productivity and suggests introducing a single job contract, with job security rising with length of service.Competition, liberalisation and reducing support for agriculture are also recommendations for Japan and Korea, where productivity remains relatively low. Japan should also fully open its mergers and acquisitions market to foreign-owned firms. Snapshots of other recommendations include phasing out early retirement for Finland, and reforming sickness and disability schemes in Norway and Sweden. This recommendation also applies to the UK where, the report notes, the number of disability benefit recipients has grown rapidly. Transport congestion also affects UK productivity, and the report recommends investing in infrastructure and pushing ahead with road pricing schemes. As for Mexico and other lower income countries, the level of productivity must be lifted, which means improving education and competition, as well as easing restrictions on foreign investment to help boost growth.Beyond recommendations on individual countries, Going for Growth also examines some of the factors that drive growth and which might further explain the gaps in GDP per capita between OECD countries. A year ago, the authors focused on financial market liberalisation and innovation, and this year the spotlight turns to labour, technology and policy design.Labour utilisation is a key determinant of growth, and it is no surprise that laggard countries tend to display lower employment rates. The report reiterates some of the findings in the 2006 reassessment of the OECD Jobs Strategy, arguing that the differences appear to reflect policy and institutional settings, such as labour regulation, training, job mobility, and so on, all of which affect labour performance.Technological progress also helps explain productivity differences. Innovation has offered the opportunity for all countries to increase their prosperity, but those countries with higher trend growth also harnessed these innovations better and faster than others. And again, those with lightly regulated markets have tended to gain most. One reason is that competition-restraining regulations have a habit of slowing innovation and preventing ideas and technology from filtering through to the production process. Moreover, countries that embrace foreign investment tend to benefit also from innovations that those investments bring.Strengthening competition in product markets is another area of policy considered in the report. Indeed, a review of the remaining obstacles to competition shows that enforcement of laws differs across OECD countries; regulations still limit competition in a number of sectors, notably in services; and the design of regulations in network-based industries does not always ensure access to those networks nor provide incentives to expand capacity.Some will say they have heard much of this advice in Going for Growth before, from the OECD and others. However, some messages are worth repeating, for although facts might not change, the circumstances do: decision makers come and go, and new support builds to push reforms that were once seen as unpalatable or impractical.Also, whereas some governments may have implemented reforms successfully, others may simply have had less luck. One reason, the report concludes, may be poor policy design, which led to a bumpier ride than expected. Together with a knowledge of how to “grease the wheels”, whatever the market, better design would help reform-minded governments achieve growth by bringing about changes in both policies and institutions.No reform is not an option. As Mr Cotis points out, lack of reform has often worsened perceived insecurity, depressing confidence. Yet, while reform sluggishness is understandable, it is also paradoxical, he writes, since the effects of good reforms are there for all to see.So, why does best practice in policy not spread? The report suggests that reform is often wrongly perceived as a threat to social cohesion and deeply held values. Aside from any philosophical objections to market-oriented reforms, gains from reform take time to materialise, but progress may be slowed down by those who fear they may lose from change. The risk then is for a crisis to occur as the main driver of institutional change. That is a situation which timely, well-designed reform to unblock growth would help avoid. RJCReference
- OECD (2007), Going for Growth: Structural Policy Indicators and Priorities in OECD Countries, Paris.
- ISBN: 9789264030473. www.oecdbookshop.org
- Visit www.oecd.org/growth/goingforgrowth2007