Scarpetta: The OECD has learned a lot from studying the Nordics

He smiles often, the man who has been responsible for work, employment, and welfare issues for the last ten years in the OECD. The conference topic is serious, however. How did the Nordic labour markets manage during the pandemic and what can the countries themselves – and the rest of the world – learn from what happened in the Nordics?

"It was like a hurricane hit us," says Unnur Sverrisdóttir, who heads the Icelandic employment agency Vinnumálastofnun (VMST) in a panel debate during the conference.

You can read more about the conference and the OECD report here. But the Nordic Labour Journal also got the opportunity to have a longer conversation with Stefano Scarpetta about the organisation's relationship with the Nordics, and about the mutual transformation that has taken place in the OECD and in the Nordic countries during the past decades.

The OECD has its roots in the US Marshall Plan, put in place after the Second World War in order to rebuild Europe and promote economic growth. The US lent Europe billions of dollars. A new organisation was started in 1948: the Organisation for European Economic Cooperation (OEEC), to administer the American aid.

The work done by the OEEC was so significant that the member states wanted to carry it forward in an even bigger arena. Therefore, the existing 18 member countries, together with the USA and Canada, created a new organization in 1961 which was named the Organisation for Economic Cooperation and Development, OECD, with headquarters in Paris.

“The goal is the same now as then: as our motto says, 'better policies for better lives', which means to help the member countries develop and implement policies and regulations that foster sustainable and inclusive economic growth. The role of the OECD is to go behind politics and assess what actually works and what does not,” says Stefano Scarpetta.

Stefano Scarpetta started working as an economist at the OECD in 1991. During his career in international organisations, he also worked at the World Bank between 2002  and 2006. He holds a PhD in Economics from the École des Hautes Études en Science Sociales in Paris, a master's degree in economics from The London School of Economics and a bachelor's degree in economics from the University of Rome.

“I encountered the Nordic countries almost as soon as I began at the OECD, because of the strong ties between the Nordic countries and my organisation. Not only are they engaged participants, they are also very open to learning from others.”

Scarpetta participated and wrote several of the reports that have become a hallmark of the organisation. In the 2000s he was also in charge of both Sweden and Denmark at the Economics Department.

“The Nordic countries are different, and they are in some ways unique in their labour and social policies. They devote significant public funding to their labour market and social policies. They also work closely with the social partners, and collective bargaining plays a key role in managing labour issues.”

But the Nordic countries also resemble each other in a way which makes them interesting to the OECD.

“The interesting thing with this report assessing the policy responses to the Covid-19 crisis was that we were able to compare the Nordic countries among themselves and vis à vis other OECD countries. This was a challenging exercise for us, since in many ways the Nordic countries are a model for other OECD countries, and it is not immediately obvious to see what could be improved. Yet, the report highlights a number of policy recommendations for all of the Nordic countries as well as for each of them.”

The relationship between the Nordic countries and the OECD was not always as rosy. The political left in particular for a long time believed they had a better social model than the other OECD countries. The perception was that the OECD had its own "cookbook" for the economy that did not take that into account.

I was unsure whether I remembered how the OECD was perceived back then, so before the interview I had a look at a Norwegian newspaper archive, just searching for OECD in a random year during the 80s. The first hit I got was a photograph in the daily Arbeiderbladet of a woman throwing money in the air. The headline was: “OECD report about our economy: Excessively high labour costs”, and the caption underneath the picture read:

Instead of being happy about the salary, Norwegian workers should think more about the industry's competitive difficulties, says the OECD.

When did the OECD begin to change from being fixed on balanced budgets and competition to also caring about other factors, like sustainability and inclusiveness?

“It was in the early 1990s that the OECD developed the first comprehensive strategy for the labour market, the 'Jobs Strategy'. The strategy called for a good balance between the required flexibility of the labour market and the protection of workers.

"It actually praised the flexicurity model of Denmark. But it is true that our own policy narrative has evolved since then. In the mid-2000s, we launched a major comparative report on inequalities and adopted the concept of inclusive growth.

"In 2008, we published the first comprehensive report showing income equality was rising in most member states, including in countries where inequality was lowest,” says Stefano Scarpetta.

“Sweden is a good example. It used to be one of the most egalitarian countries in the OECD, but it is the country where inequality has risen the most in the past decades. Of course, they are still way below many countries, but they have been following a general tendency to widen the income disparities, because of skills-biased technological progress.

“Following these findings, our narrative on growth has evolved, and we showed that high levels of inequality could be detrimental not only to social cohesion but also to economic growth. We presented a report on the drivers of inequalities in 2015.

"We also presented this report to the finance ministers, as well as the ministers of labour and social affairs.  And then suddenly the narrative changed. Because inequality is not only detrimental to social cohesion. It might also undermine economic growth, which has always been the OECD's main objective.

"We showed that in countries with high levels of inequalities, those at the bottom of the income distribution cannot invest enough in their and their children's human capital. This has a negative aggregate effect on economic growth”, he says.

His view is shared by historians like Peter Carroll and Aynsley Kellow, whose book The OECD: A Decade of Transformation, focuses on the period 2011-2021:

“The OECD has leapt boldly to reinterpret its constitutional requirement, embedded in its Convention, of maximising sustainable economic growth. For most of its history, that has meant a focus on increasing GDP, but this measure has long been questioned as the sole basis for assessing human welfare. The reason for this focus was well enough known: other aspects of welfare were notoriously difficult to measure.”

Central in the transformation was the 2006 election of the former Mexican finance minister Angel Gurría as Secretary-General, a position he kept until 2021. 

“The OECD has not only led the world in attempting to overcome this difficulty by focusing on well-being and inclusion and developing statistical techniques to measure them, it has also sought to develop policies in education and skills development that will improve well-being and reduce inequality in future,” write the two historians.

Stefano Scarpetta became the Director of the Employment, Labour and Social Affairs (ELS) Directorate of the OECD in 2013. He heads the organisation's work on employment, labour, migration, health, skills, gender and tackling inequalities. He also contributes to the implementation of the Secretary-General’s strategic orientations in these areas.

As Stefano Scarpetta puts it:

“Then we went further and looked at social mobility in a report in 2008 – how inequality was inherited between generations and how this impacted growth.

"We found that when inequality is high, many people and their siblings get stuck in a low-income loop. Many disadvantages are transferred from ‘father to son’ as we say. This is even the case in France and Germany. They do not have particularly high levels of inequality, yet mobility is low.

“Then we investigated what prevents people from moving up the ladder. There are different policies that prevent or facilitate that. And it’s not just an issue for the poor. The middle class is eroded and affected by rising inequality, too. All of this led to us looking at disadvantaged groups, women, people with disabilities, young people, migrants and so on.

“To some extent, this has been an intellectual process, but we always present proof. We are not ideological; we are saying this because that is the evidence,” Stefano Scarpetta underlines.

“Of course, the countries have different preferences and priorities, and they listen to us more or less. But this was 2015 when the G20 declaration for the first time in the opening paragraph stressed the need to promote inclusive growth.”

He says that the change in some ways came naturally:

“The OECD is not the secretariat, it’s not me and my colleagues. The OECD is the member countries. Of course, we do the analysis, and we closely interact with them, so the change and evolution of the narrative is also to some extent an evolution of the joint perspective of the secretariat and member countries. We have probably contributed to this evolution of thinking, I hope."

But will this continue? What will happen when emerging economies like China and India represent an increasingly large share of global economic activity and trade across the Pacific becomes more important than trade across the Atlantic? Will these countries agree with your definition of inclusive growth?

“The answer to your two questions is yes and yes. China, India and to a certain extent, Indonesia as well as Brazil – these are big economic players. Of course, we are working with them already to an extent, in some cases very closely.

"We define all non-OECD G20 countries as partner countries, which means they are not members of the OECD but they are always invited to our meetings and they do participate. We run economic surveys in all of them.

“The OECD is founded on the basis of democratic values, human and labour rights, a set of legal instruments, transparency and multilateralism. Some of these principles are being challenged in the current geopolitical situation.

"We stand by our basic values in all our engagements with member countries and non-member countries. But we can’t ignore some of the big players in the global economy – otherwise, our assessments and our support to our members can suffer and not be as useful.”

“On the other hand, I think emerging economies increasingly appreciate what the OECD can do. Because we basically produce evidence of how policies and outcomes vary across countries. For example, China is one of the most eager consumers of our reports.

"Whenever I go to China and highlight findings from a report, I am often told that they have already studied our findings very carefully. Taking another next step and producing equally comprehensive reports on China as we do on our member countries – now, that's a different story. They are a bit more resistant of course, but we do produce economic surveys for emerging countries.

Now I will ask you a final question I know you can’t answer. If you had to move to a Nordic country, which would you choose?

“After the Northern lights last night, I must say I was impressed by Iceland, but I have to say that I think I would move from one to another and spend a couple of months here and there,” Stefano Scarpetta answers with a smile.