It is a great pleasure, and a source of great pride, to present OECD’s 2011 Edition of Going for Growth.
Going for Growth is OECD’s flagship report on structural policies. Every year since it was launched in 2005, we have identified and reviewed progress on five key priorities to boost long-term growth individually in each OECD country and in the European Union as a block. We have done so by using a unique methodology that builds on structural policy indicators and links them to cross-country differences in employment and productivity levels. This year, we have deepened and broadened the exercise.
For the first time, we have integrated fully Brazil, China, India, Indonesia, Russian Federation and South Africa in the benchmarking exercise, increasing its relevance also in the context of the G20 Framework for Strong, Sustainable and Balanced Growth. We have identified a number of common priorities for these countries that include strengthening education systems, relaxing stringent product market regulations, addressing the more specific challenges of labour market informality and, in some cases, improving the quality of governance and legal systems.
These countries are essential pillars of the world economy and increasingly, through the G20, of its governance. And it is in everybody’s interest that they implement structural reforms. They are key to addressing many of our common challenges, from global imbalances to climate change.
Our starting point is the post-crisis environment, which underpins this edition of Going for Growth. The global recovery is well under way, but it remains uneven. Emerging-market economies are growing fast, whereas most mature economies are growing at a pace that is insufficient to reduce unemployment significantly. Furthermore, public finances remain on an unsustainable path in many countries. And global current account imbalances are widening again.
As the capacity of fiscal and monetary policies to further support the recovery runs out, a new emphasis on structural reforms is the only way to boost growth and job creation.
Many of the reform priorities we flag in this issue of Going for Growth would not only boost long-term growth but also speed up the recovery and strengthen its job content. For example, reducing entry barriers in retail trade or in the liberal professions would deliver income and job gains in many advanced economies. In emerging economies, reducing administrative burdens on firms and scaling down public intervention in markets are the main priorities to sustain long-term growth.
It is also important to prevent high unemployment from becoming structural. Many of the labour market policy responses to the crisis -- such as the scaling up of short-time work arrangements or extensions in the length and coverage of unemployment benefits -- dampened the unemployment impact of the recession and mitigated hardship on workers.
But as economic conditions evolve, new policy initiatives should be taken to strengthen the job content of the recovery. Activation and training policies are one example: despite the difficult budget situation they should be strengthened, especially for young workers.
Another example is job protection legislation reform: more balanced protection between permanent and temporary workers holds the promise of more and better jobs for other marginalised groups in the labour market, such as youth, low-skilled females or migrants. Several countries, in the EU, but also Japan and Korea, need to address this dualism of labour markets. The recent Spanish reform is a promising example, which should help alleviate job losses for temporary workers in future recessions. Many emerging economies face an extreme form of dualism, with a vast informal labour market. Take India, for example, where job protection reforms, along with other measures such as better education, could go a long way to improve labour market outcomes.
Product and labour market reforms are also essential to boost short-term growth while increasing labour productivity. And let me stress, as a message to the Ecofin meeting here in Budapest, that these reforms are a priority for European countries, especially those that have an urgent need to boost competitiveness.
Many of the recommendations we make in this edition of Going for Growth could also assist much needed fiscal consolidation. This is especially true of labour market and pension reforms, as they would boost employment levels and tax receipts while at the same time reducing public spending. This is also the case of cost-saving public sector reforms. For instance, our special chapter on the efficiency of OECD health care systems points to large potential public savings, which might reach as much as 2% of GDP on average across OECD countries.
The need to consolidate public budgets has also increased the urgency of other types of structural reforms we recommend in OECD’s 2011 edition of Going for Growth. They include reducing public subsidies and tax expenditures, and addressing environmental problems through greater use of price instruments such as carbon taxes and emission permits.
Developing social welfare systems in China and other Asian economies would fulfil an important social goal in its own right. As a side-effect, it would reduce the need for precautionary savings and help curb current account surpluses.
Pension reforms that increase the age of retirement would boost income levels and also reduce the need to save for old age, which would weaken current accounts in external surplus countries.
Product market reforms in network industries, retail trade or professional services would encourage capital spending, and thereby reduce current account surpluses in some advanced economies, including Japan and Germany.
Removing tax policy distortions that encourage consumption, for instance in the housing sector -- such as tax deductibility of interest payments on mortgages in the absence of taxation of imputed rent -- would deliver more efficient and equitable housing outcomes, could help increase household saving and thus reduce external deficits in a number of countries, including the United States. This is one of the key findings of this year’s special chapter on housing.
Last but not least, financial market reforms that would increase the sophistication and depth of financial markets in emerging economies could relax borrowing constraints and boost consumption and investment, thus downsizing their current accounts.
To give you a flavour of the potential role of structural reforms in reducing global account imbalances, we present in this year’s edition of Going for Growth a number of illustrative policy scenarios. For instance, a combination of fiscal tightening in OECD countries, product market reforms in Germany and Japan, coupled with increased public health spending (by 2 percentage points of GDP) and financial market liberalisation in China could reduce the size of global imbalances by as much as one-third. A combination of fiscal tightening and structural reforms could also help to narrow imbalances within the euro area.
Serious deficiencies in housing policies contributed to amplify the crisis and should be fixed. Our chapter on housing shows that there is much room for reform in many OECD countries, and better housing policies could deliver more efficient and equitable housing outcomes, increase geographical labour mobility and improve macroeconomic stability going forward. It is not too late to fix them.
Through Going for Growth, the OECD builds on its historical expertise, its accumulated knowledge and its commitment to continuous learning. Our goal is to work with our members and partner countries to promote better policies for better lives.