The time for change
The current 30-year cycle of deregulation and uncompromising belief in the “invisible hand” of the market is coming to an end.
This is happening amid a serious financial and economic crisis that is often compared with the Great Depression of the 1930s. Civil unrest is spreading.
Time is running out. Decision makers will soon have to agree on real solutions if they are to avert a serious disaster. The European Union will have to decide on the path to closer integration in fiscal matters and to develop instruments for solving the public debt crisis. The US will have to find ways to trigger growth and create new jobs, which is likely to require movement away from the belief in the magic of tax cuts towards a more balanced policy approach. On both sides of the Atlantic, decision makers will have to agree on ways to rein in the financial sector. The common denominator of all these policy requirements is regulation.
It is obvious that the global economy needs complex monitoring and regulation, primarily in the sector of finance, to ensure a sufficiently stable and reliable framework for future development. Thus, the decision makers will have to think and act globally and find global regulatory arrangements which will involve China and other leading economic players.
Admittedly, this is a tall order. In addition to its intrinsic difficulty, it requires two basic changes in the political and economic philosophy. The first change relates to the understanding of the role of the state. For decades now, the prevailing attitude of the leading economic thought has been suspicious vis-à-vis the role of the state. The state has been perceived as a threat to economic freedom and to human freedom.
However, the market is not a substitute for the regulatory role of the state. The time has come to realise that the state is not the only organised power which has to be kept in check in order to preserve space for human freedom and development, but also a crucial repository of legitimacy, something that the market is not and cannot be. When properly administered, the state is also a powerful force for good, and, above all, only the state has the regulatory authority needed to make a sufficiently widely accepted system of rules within which development can take place.
The second significant and much needed change relates to the way in which the notions of prosperity, development and a good life are understood. The affluent societies are unlikely to grow at high rates. For them, GDP will no longer be the real measure of prosperity and development, let alone of a good life. Solutions need to be found in greater environmental sustainability, in the improvement of services, and in technological advancements that will make a better environment and better services possible. New jobs may be found in human activity not yet reflected in the growth of GDP. This calls for a fundamental rethinking of development of the most affluent and most advanced societies. At the same time, the developing states and economies will still have to continue to focus on ways to bring people out of poverty and, consequently, on the high rates of growth measured by GDP.
It is only natural that the OECD, an organisation of the most advanced and affluent countries of the world, turns its attention to the fundamental issues of prosperity, development and a good life. This includes exceptional attention to acute challenges of youth unemployment as well as to patterns of development based on small and medium-sized enterprises. It is increasingly understood that these priorities have to be put in the larger context of the fundamental rethinking of development. Appropriate tools need to be developed to help measure progress, prosperity and development.
What should be measured? It is axiomatic to say that we measure what we strive to pursue and that what we pursue we strive to measure. In other words, consensus on what we measure will represent a large part of the vision of our future development. This is why the work done by the OECD in preparing the Better Life Index has been so important. It suggests a significant shift of focus in the understanding of development—from economic production to prosperity in a broad meaning, from consumption to well being.
The publication of the Better Life Index in 2011 marks a pivotal beginning. It provides governments, researchers and civil society groups with a tool for defining their objectives and preferences in development, which, in turn, enables more adequate policy making. However, here again the regulatory function of the state will be critical. Policies require a normative framework that only states can provide. The time for change has arrived.
Office of the President of Slovenia: www.up-rs.si/eng
Create your Better Life Index: http://oecdbetterlifeindex.org
©OECD Yearbook 2012
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