Challenging globalisation’s winners: The OECD wants to bridge the divides

The annual report on the world economic development, the OECD Economic Outlook 2017, shows weak growth with productivity and wage lagging behind. That is the main message from Chief Economist Catherine L. Mann. The numbers show how differences continue to grow globally, or as Angel Gurría put it:

“The richest are getting even richer and the poor lag more and more behind. Global wealth is concentrated in a few families. In OECD countries, the average income of the top 10 percent has increased to almost 10 times that of the bottom 10 percent, up from seven times in the mid-1980s.”

When it comes to financial assets the gap is even wider. Those in the wealthiest quintile have a mean value of financial wealth that is more than 70 times the value of those in the lowest quintile. Or to put it this way: The richest one percent own 19 percent of global wealth, while three percent is shared between the poorest 40 percent.

According to the Economic Outlook, global growth is set to grow from three percent in 2016 to 3.5 percent in 2017 and 3.6 percent in 2018. This is good news but the main challenge is to share that growth in a better way.

‘Bridging Divides’ was the theme for the OECD Forum 2017.

“We need to bridge the divides. But the road to progress is not to turn back the clock through protectionism and nationalism. A fragile economic recovery and an increasingly polarised world demand exactly the opposite,” said Angel Gurría.

Inclusive growth

The OECD wants the world to change its idea of what constitutes economic growth, and to look again at the global economy developments that lead to greater divides: There is a need for a new narrative with terms like ‘resilient, sustainable and inclusive growth’. ‘Trickle down’ has not worked; the growth first, sharing later narrative is dead. Instead, low income groups must be empowered in order to profit from globalisation, and they must be closer linked to innovation and global business opportunities. What is more:

“We need to increase social spending to improve social protection and safety nets in light of the changing work environment disrupted by digital technologies.

“We need to provide people with the means to succeed,” underlines the OECD Secretary-General.

There are several reasons why things are going in the wrong direction. Globalisation and technological changes are not the only drivers, there are other mechanisms which can explain what has gone wrong, says Angel Gurría: Changes to taxation systems in the past decades have shifted the tax burden from tax on wealth and high incomes to tax on labour, and the tax burden has become less progressive. Globalisation and technological developments have also paved the way for tax evasion and avoidance.

OECD’s Chief Economist Catherine L. Mann highlighted more issues in her presentation: More needs to be done to share the gains from structural trends and trade. Changes like new technology, new consumer preferences and trade are all happening simultaneously. Some regions and industries are particularly badly hit by job losses. And an integrated and holistic approach is necessary if globalisation is to benefit all. 

OECD Jobs Strategy

The new way of thinking about inclusive growth will colour the entire organisation’s way of working, Stefano Scarpetta, the OECD Director for Employment, Labour and Social Affairs, tells the Nordic Labour Journal. The same thinking is also the basis for the OECD’s third ‘Jobs Strategy’. The first came in 1994, it was revised in 2006 and it is now in the process of being updated and extended. 

A lot has changed since the last strategy was presented in 2006, Stefano Scarpetta points out:

“We had the financial crisis in 2007-2008, the worst crisis since the great depression of the 1930s. There has been an acceleration of global trends like globalisation, technological development and demographic changes. A new narrative has also emerged for the whole of the OECD. We are now talking about inclusive growth.”

The OECD has an annual review of the labour market performance of the member countries. The Employment Outlook 2017 shows that employment levels in most OECD countries are back to what they were before the great setback of 2008-2009. Employment is expected to continue to grow to 61.5 percent in 2018, well above the 2007 pre-crisis top level of 60.9 percent.

A polarised labour market

More people get jobs, but job growth is not equally divided, and mid to low-level wages have stagnated or developed too slowly for people to be able to live off them. At the same time, top earners are getting an even bigger slice of the cake. This has led to anger and protests in many countries, according to the Employment Outlook 2017.

“There has been a polarisation in the labour market which has led to growing income gaps.”

The new ‘Jobs Strategy’ reflects the changes and is built on a range of general principles, but will be tailor-made for each individual country. Employment Outlook is a piece in the jobs strategy jigsaw.

2012 saw the launch of the ‘inclusive growth’ initiative. This is rooted in the labour market and the jobs strategy.

The OECD wants to work more together with individual member countries and create a process where they can analyse the situation, find out what can be done and how to proceed in order to achieve results.

New thinking to reach member states

The ETUC’s Luca Visentini claims the OECD’s new narrative so long has failed to reach the country-specific recommendations, what do you think?

“We must be credible in what we say,” underlines Stefano Scarpetta. 

“I think we are talking about a paradigm shift, but I don’t believe all the elements are perfectly settled. This is a paradigm shift because we have gone from a goal of maximising economic growth, and then looked at the consequences of distribution.

“We now realise that the model has not been working. That is why we have changed the model, to put growth and distribution on the same level and talk about inclusive growth."

The model doesn’t work?

“No, because we have had growth while seeing inequality increasing. Inequality has been increasing in most OECD countries, including the Nordic countries.

“Take Sweden. In the early 1990s it had a very small income divide, but in recent years we have seen a strong trend towards increasing inequalities. Sweden is still a more egalitarian society than most, but the growth in differences is major, albeit from a low level.”

Scarpetta mentions Germany as another example. Since reunification there has been a trend towards increased inequalities. Also here from low levels, below the OECD average, but the inequalities are growing.

How would you characterise this?

“There are different factors at play. We see an increasing polarisation in the labour market. Globalisation, and in particular rapid technological changes, have led to increased demand for high skilled workers, while the demographic development has led to increased demand for service on a lower level. This has led to a polarisation of new jobs and a hollowing out of middle-skilled jobs in most countries, with many middle-skilled workers facing the risk of sliding behind. This contributes to increasing divides in pay and career opportunities. Even though the Nordic countries have a well-established system for maintaining equality through taxes and services, they have not managed to fully compensate for this change in the labour market.”

The Nordic region is not an exception?

“No, Nordic countries cannot avoid these trends, but they are better at ironing out divides and coming up with counter-measures. But we are seeing growing income inequality in Sweden, Denmark and Finland, and perhaps to a lesser degree in Norway.”

A new instrument for measuring development

There is a need for a new jobs strategy which puts more emphasis on quality and not only quantity of jobs, says OECD director Stefano Scarpetta.

“The OECD has developed a framework to measure each country’s development according to factors like pay versus inequality in pay, labour market security versus insecurity and working environment quality and job strain.

“Inclusion is the other important factor. We look at how we can get more people into the labour market; women, parents, people with disabilities, refugees and migrants. Groups who are underrepresented in the labour market because of certain barriers against full participation. So inclusion is starting to become a key factor in the labour market.

“In the aftermath of the crisis, it is also necessary to make the labour market resilient. The question of resilience is how the labour market policy institutions can help workers and companies withstand a major shock like the one with had in 2007-2008. This is important."

The jobs strategy reflects changes which have taken place, and builds on a range of general principles, but the development criteria are tailored to each individual country. The plan is for the jobs strategy, which is being developed in cooperation with the countries, to be presented at the OECD’s ministers’ meeting in 2018.

The OECD wants to work more with the member countries in order to achieve better results. To begin with it is about discussing the broader terms.

“Quantity, quality, inclusion, resilience. This must be put into a national context and may be recorded in for instance 10 national targets.”

Tailor-made

“This is the challenge, but this is what we are going to do in the OECD. We must look at each country’s capacity and keep in mind that they have different models. 

“What we have learned over the 20 years we have been working with ‘Jobs Strategy’, is that best practice cannot be easily transferred from one country to another. Perhaps the goals must be put closer to what each country can feasibly achieve. So we cannot simply look at the very best practice, but must look at what is realistic in the individual countries.”

Does this mean you will lower the demands for the countries?

“Not really, but it means making the targets more practical and achievable. Many countries want to do what Germany or the Nordic countries do, but the distance may be significant and countries may consider a step by step approach. That is why it is important to set realistic targets and implement a path of reforms over time.”

What does this mean on a mental level?

“At the OECD we know that we can help countries identify their policy targets and assist them on how to achieve them by also drawing on the experience of other countries” Stefano Scarpetta, the OECD Director for Employment, Labour and Social Affairs tells the Nordic Labour Journal.