What a lasting recovery needs

A fundamental driver demanding a big push is innovation
Secretary-General of the OECD

One of the difficult challenges for governments facing a crisis is to keep  an eye on the wider picture. This is particularly true in OECD countries  today, as they fight down unusually wide fiscal deficits and heavy debt.  These problems are a sequel to the financial crisis that started in 2008.  Now, most countries, from the largest to the smallest, have to make  new sacrifices. People are understandably angry, feeling they are not  responsible for the current situation.

Still, most people probably accept that tough measures are needed. Just  like some banks, several countries had lived beyond their means. For  years, OECD experts had urged reforms to improve efficiency. Now  there is no choice but to act.

Dealing with massive fiscal deficits, unemployment and new sources  of growth will absorb policymakers’ attention in the near term and will  be high on the agenda when ministers and stakeholders from around  the world gather for this year’s OECD Ministerial Council Meeting and  Forum on 26-28 May. But lifting our collective sights to focus on wider  issues, such as the environment and development, is a challenge we  must also meet.

Start with fiscal consolidation. Spending cuts are inevitable, and  consequently every effort must be made to reduce their impact on  the drivers of long-term growth. As I outlined in the previous edition,  governments should target their actions, for example, on cutting  subsidies that distort competition or harm the environment, and  shifting taxes towards consumption and away from income. They must  step up their active labour market policies too, particularly for young  people, the long-term unemployed and other vulnerable groups.

One fundamental driver demanding a big push is innovation. The facts  before the crisis are even more important now: innovation underpins  sustainable growth and is essential for new businesses, jobs and better,  healthier, lives. Governments must try to strengthen innovation, and  avoid actions that might weaken it. How?

The OECD Innovation Strategy, which we will present at the Ministerial  Council Meeting, offers clear guidance. To be sure, spending on science  and technology, R&D and training are important, but if innovation is to  lift productivity and growth, we must venture further by transforming  universities and research institutions into independent, entrepreneurial  hubs that can interact on a global scale.

Entrepreneurship is particularly important. New data from the US shows that firms less than five years old accounted for nearly all the increase in employment in the private business sector over the last 25 years. By focusing on their needs, for example,by simplifying administrative procedures, easing access to  finance and providing broadband, these “gazelles” will leap  forward, generating productivity and employment along the  way.

Innovation is also the dynamo behind green growth; without  it, the economic potential of renewable energy, cleaner  supply chains and green-collar jobs would be seriously  compromised. What can policymakers do?

The OECD is midway through preparing a Green Growth  Strategy to be issued at the Ministerial Council Meeting  in 2011. The aim is to provide a strategic vision to guide  national and international policies so that the potential of  green growth is realised for all countries. So far, our analysis  shows a need for governments to take a stronger lead in  fostering greener production, procurement and consumption  patterns by devising clearer frameworks and ensuring that  markets work properly. They should drop some costly habits  too, notably subsidising fossil fuels, which would help fight  climate change and save money as well.

The OECD’s Innovation and Green Growth Strategies  underline the principle that no recovery or exit strategy will  last if it overlooks sustainable growth. In my yearly report to  OECD members, I highlight other priorities that will demand  our increased attention for similar reasons. First among these  is development.

As part of our historic responsibility, it is appropriate that  we should mark the OECD’s 50th anniversary starting in  December this year by revitalising this mission. As President  John F. Kennedy said in his State of the Union address  in January 1961, the OECD must support “the hopes for  growth of the less developed lands”. After half a century of  increasingly close trade and investment links, and stronger  co-operation, developing countries are now integral to the  world economy. Their future is our future and the OECD  must work harder in these tight times, through aid, capacity  building and the mobilisation of internal resources, based on  a “whole-of-government” approach that includes innovation  and green growth, to help poorer countries make faster  progress.

But the OECD can only contribute to a stronger, cleaner,  fairer world by working alongside other international  organisations, the G20 and other fora. Openness is key.  This year we welcome Chile as our newest member and  have extended invitations to Estonia, Israel and Slovenia to  join us. Accession talks with Russia are advancing, and our  engagement with the largest emerging economies of Brazil,  China, India, Indonesia, and South Africa are being gradually  but steadily enhanced.

This new, inclusive global outreach will help countries  respond to wider common challenges as they battle along the  road to recovery. The OECD is there to support them.

©OECD Observer No 279 May 2010

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