|
|
1 October 1992
Doc. 6651
1403-1/10/92-15-E
Report
in reply to the report on the activities of OECD in 19911
(Rapporteur: Mr EFRAIMOGLOU, Greece, New Democracy)
I. DRAFT RESOLUTION
1. The Parliamentary Assembly - permitting for the first time delegations from virtually all OECD and Council of Europe member countries to hold an enlarged debate under equal rights - has met in Strasbourg to debate the activities of OECD. The reform of the debate reflects the growing interest of parliaments in OECD matters - and of OECD in the views of parliaments - and their determination to contribute to the Organisation's work.
2. The Assembly has received the report on the activities of OECD in 1991 (Doc. 6624), and a reply thereto has been presented by the Enlarged Committee on Economic Affairs and Development of the Parliamentary Assembly of the Council of Europe (Doc. 6651). Furthermore, opinions have been presented by the following, committees: the Committee on Science and Technology (Doc. 6660); the Social, Health and Family Affairs Committee; the Committee on the Environment, Regional Planning and Local Authorities (Doc. 6666); the Committee on Migration, Refugees and Demography (Doc. 6658); the Committee on Agriculture (Doc. 6676) and the Committee on Culture and Education.
3. Furthermore, the Assembly, while aware of existing political constraints, believes that OECD member countries, and the world as a whole, stand at a crossroads of new opportunities in the event of success - but also of risks in the event of failure - as the currently negotiated GATT Uruguay Round offers the choice between free trade and protectionism, and as the vanished East-West confrontation opens up the road either to democracy and socially just and environmentally sound market-oriented economies in Central and Eastern Europe and the developing world, or, alternatively, to autocratic regimes and economic decline.
4. The Assembly expresses its determination to ensure that the above-mentioned opportunities be seized and not lost, so that an era of greater peace and intensified international exchanges leading to enhanced economic development for all may commence.
A. ECONOMIC POLICIES AND CO-OPERATION IN RELATED FIELDS
5. The overall economic development in the OECD area is still hesitant, with overall growth for 1992 expected at 1,8%, as compared to 1% in 1991. While an upturn is likely within the relatively near future, it is uncertain when exactly it will come about or how strong it will be.
6. Unemployment in the OECD area shows a disquieting, continuous upward trend, and is expected to reach 7,5% (30 million people) in 1992, up from 6,2% in 1990 and 7,1% in 1991. An increasingly large segment of the population risks permanent alienation, and resolute and imaginative action is needed to reverse this development.
7. Although inflation is still a concern in certain OECD member countries, it continues to decrease in the OECD area as a whole, from 4,1% in 1991 to an expected 3,5% in 1992. For the struggle against it to be successful, monetary policies should be directed at achieving price stability. They should be supported by equally prudent fiscal management, particularly in countries with relatively high deficits and inflation.
8. The strong demand for the world's capital resources stems not only from the many unfinished domestic tasks in OECD member countries, but in particular from the glaring needs of poorer developing countries, nations in Central and Eastern Europe and the republics of the former Soviet Union attempting to reform their economies. It is imperative that these groups of countries both find open markets in OECD countries and receive sufficient assistance from them - both material and conceptual - so as to ensure their progress toward greater democracy and more market-oriented economic systems inspired by social justice and efficient protection of the environment.
9. At the same time it is heartening to note the development toward democratic reform and economic liberalisation in numerous countries around the world, not least in South-East Asia and Latin America.
10. Finally, the increase in the world's population - 100 million more people each year and 3 additional thousand million by the year 2020 - presents such a threat to future economic and social development, to the environment and indeed to mankind's survival that it can no longer be ignored by the world community. Family planning is urgently necessary, especially in countries facing rapid population growth.
11. The Assembly in consequence calls on OECD member countries:
i. to ensure that the Uruguay Round - especially after the announced reform of the European Community's Common Agricultural Policy and in conformity with the strong commitments made both at the 1992 OECD Ministerial meeting and at the G7 summit in Munich in July 1992 - is concluded urgently and in a spirit of genuine compromise, permitting an outcome which favours more open trade and which will imbue a still wary world economy with renewed confidence;
ii. to attach particular priority to the struggle against unemployment - and to contribute to the study on employment mandated at the 1992 OECD Ministerial meeting - not least by laying greater emphasis on the development potential of the individual, including his or her basic skills and ability to "learn how to learn", as well as through recurrent education and professional training;
iii. to pursue, parallel to the above, their struggle against inflation - in particular through circumspect budget policies, and through structural reform affecting all sectors of the economy, thus making them more competitive and responsive to market forces;
iv. to regard their domestic policies in fields such as competition, subsidies and investment as integral parts of their trade and economic relations with other countries, and to ensure, in consequence, that measures taken in all these areas are mutually consistent and conducive to global development;
v. to ensure that the commitments made at the United Nations Conference on Environment and Development, held in Rio de Janeiro in June 1992, are kept - offering as they do a first, unique opportunity to counter environmental threats at a global level;
vi. more specifically, to counteract global warming and the destruction of the world's ozone layer, inter alia through more diligent use of fossil fuel.
12. The Assembly also calls on OECD member countries, in their relations with countries in Central and Eastern Europe, and the republics of the former Soviet Union:
i. to pursue their material and conceptual assistance to these countries in order to help them in the establishment of socially just and environmentally sound, market-oriented economies, based on democracy, human rights and the rule of law;
ii. parallel to the above, to reduce substantially and progressively any protectionism in their trade relations with these countries, as otherwise the assistance given will have little chance of being of lasting benefit.
13. Furthermore, the Assembly calls on OECD member countries, in their relations with developing countries:
i. to pursue implementation of OECD Development Assistance Committee (DAC) policy guidelines "Development co-operation in the 1990s";
ii. to supplement these guidelines with a number of criteria as regards the policies observed by recipient countries, influencing the volume, channels and forms of continued assistance. Thus, to the first and foremost criterion - namely, the absolute requirement to help where absolute poverty reigns - should be added those of: efforts to realise democracy and human rights; economic and social reform; reduction of excessive military expenditure; and environment protection;
iii. to augment, in countries where this has not already been achieved, official development aid to 0,7% of GNP - the United Nations target - reiterated by the UN Conference on Environment and Development in Rio de Janeiro, with special attention given to the Least Developed Countries;
iv. urgently to devote more resources to family planning in order to stem the current dramatic increase in the world's population - it being understood that the best longer-term instrument is sustainable human and economic development;
v. parallel to the above, to reduce substantially and progressively any protectionism in their trade relations with these countries, thereby helping to alleviate their debt burden, as otherwise the assistance given will have little chance of being of lasting benefit.
14. relative to OECD, the Assembly:
i. asks the organisation to undertake an annual review of the implementation of the key orientations given in its policy statement "Development co-operation in the 1990s" referred to in sub-paragraph 13.i, and also to take into account, in so-doing, the five criteria guiding official development assistance indicated in sub-paragraph 13.ii above;
ii. renews its call for OECD to study, within its structural adjustment work, the economic and social implications of reduced military expenditure, and in particular the problems, possibilities and consequences related to the conversion of armaments industries towards civilian production;
iii. recommends that it study, possibly in concert with the Council of Europe, the problems of social alienation, marginalisation, family disintegration and crime in large cities, and that it suggest policies to remedy them;
iv. calls on the Organisation to examine the issue of poverty, and to explore ways of improving public and private efforts to address the problems of those excluded from the benefits of economic growth;
v. welcomes OECD's efforts to initiate comprehensive research into unemployment and move towards a system of structural surveillance in labour markets;
vi. asks it also to examine the relationship between democracy, human rights and social equality on the one hand, and the ability to carry out growth-promoting structural adjustment based on popular consensus on the other;
vii. asks OECD to study how the globalisation of capital movements influences the stability of the financial system and the possibilities of international economic and monetary co-operation;
viii. welcomes OECD's expanding contacts with non-member countries, which will take into account the varied situations of non-members in devising appropriate structures for co-operation. These new links should serve to enhance the Organisation's international relations, and to promote the spread of the OECD's aims and principles;
ix. notes Mexico's interest in membership in the Organisation and welcomes the development of OECD's relations with this country;
x. welcomes the development of OECD's dialogue with the Dynamic Asian Economies, as well as the increased formal contacts between the Republic of Korea and the Organisation.
xi. welcomes OECD's rapidly expanding activities to assist economic reform in the countries of Central and Eastern Europe and the republics of the former Soviet Union, and regards the projects launched by the organisation's Centre for Co-operation with European Economies in Transition - such as the Partners in Transition Programme (PIT) undertaken together with Czechoslovakia, Hungary and Poland, and the SIGMA project (Support for Improvement in Management and Government) -as essential contributions toward the aims mentioned in paragraph 12 above;
xii. invites OECD not to divert attention from the problems of developing countries and to increase scientific and technical co-operation with them as a means of reducing disparities in development between the North and the South;
xiii. strongly supports the OECD International Futures Programme which it sees as essential to fulfilling OECD's role of identifying in time long-term trends, new opportunities and problem areas. Indeed, the Assembly itself wishes to make significant contribution to this effort;
xiv. asks the Secretary General of OECD to report back to it in 1993 on the action OECD will have taken as regards the present resolution.
B. AGRICULTURE:
15. The Assembly emphasises that increased trade in agricultural commodities should have positive effects for sustainable rural and agricultural development and contribute to guaranteeing all persons access to food.
16. The Assembly believes that all policy reforms affecting the agricultural sector and rural society must be subjected to a careful and interdisciplinary analysis in order to evaluate the effects on producers, consumers, markets, trade, the environment and the economy.
17. Consequently, the Assembly calls on the governments of the member countries of OECD, and whenever relevant, on the Organisation itself:
i. to conclude the Uruguay Round of Trade Negotiations by agreeing on the substantial and progressive reduction of agricultural support and protection thereby promoting liberalisation of trade in agricultural products under fair conditions of competition while safeguarding the principle of sustainable development of rural regions and promoting access to food supplies in all countries;
ii. to continue, intensify and broaden their work on decision support and policy simulation models for the monitoring of agricultural policy reforms (including fisheries and forestry) and accompanying structural changes and their effects on markets, trade, producers and consumers as well as rural economies and the environment;
iii. to increasingly include in this work and other parts of OECD's activities programme, the policy principle of sustainability;
iv. to give more attention to the research for the use of agricultural land for the production of electricity (wind generated electricity, etc.) and renewable raw materials for industry and the energy sector (biomass), with the aim of reducing the nuisance stemming from the use of fossil fuels and offering new perspectives for agricultural activity and rural development;
v. to encourage policy reforms which will contribute to the recognition of quality products and ensure that consumers be better informed of the quality of the products;
vi. to let market signals increasingly influence agricultural production and help such development by making support measures affecting agricultural, fisheries and forestry more transparent;
vii. to assist the countries of Central and Eastern Europe but also other non-member countries in their reforms of the agro-food sector and to favour exchange programmes involving private farmers, teachers and students;
viii. to promote and help co-ordinate agricultural research among member states and extend such activities to non-member states where relevant.
C. MIGRATION AND DEMOGRAPHY:
18. International migration plays an increasingly important role in the economies of both the receiving and the sending countries, especially in conditions of sluggish economic performance and persistent unemployment in the West, considerable difficulties in the transition from command economy to market economy in the East, and rapid population growth in the South.
19. For the accurate assessment of the impact of international migration, reliable statistics and close contacts between the authorities of sending and receiving countries are indispensable.
20. The Assembly therefore invites OECD:
i. to carry out studies of the economic consequences of migration in order to provide better tools for governments to deal with this persistent phenomenon;
ii. to continue associating Central and East European countries as well as countries of the Third World with its work on migration and demography and particularly with its efforts to improve the reliability and comparability of statistical data;
iii. to further develop its co-operation with the Council of Europe in matters concerning international migration and demography;
iv. to hasten the inclusion of East European countries in the Continuous Reporting System (SOPEMI);
v. to study the possibility of recommending to the governments of its member states some form of linkage between the granting of development assistance and family planning programmes in the recipient countries.
D. ENVIRONMENT
21. The Assembly appreciates the important achievements accomplished by OECD in the environmental field, and notably its effort to integrate ecological measures into economic policies of the member states to the aim to ensuring a sustainable development.
22. The Assembly welcomes also the series of studies undertaken by OECD in the field of energy, especially as regards sources of renewable energy, energy efficiency and pollution caused by car exhaustion.
23. Having noted with satisfaction the formulation of priority objectives in the form of an "OECD Environmental Strategy for the 1990s", the enlarged Parliamentary Assembly emphasises the urgency of co-operation among different international bodies and the necessity of a wider use of economic instruments and pricing policy.
24. Convinced of the priority of the co-operation with the countries of Central and Eastern Europe, the enlarged Assembly urges the necessity of a harmonised approach for the Ministerial Conference on the Environment to be held in Lugano in spring 1993.
25. The Assembly considers that co-operation between OECD and the Standing Conference of Local and Regional Authorities of Europe (CLRAE) would be profitable, especially when it comes to the implementation of the European Urban Charta's objectives (Resolution 234 adopted by the CLRAE in March 1992).
26. The Assembly calls for especially close co-operation between Council of Europe and OECD in the areas which fall entirely within the competence of the former, that is, in the field of environmental education, or in matters such like waste management and recycling where OECD has greater expertise.
II. EXPLANATORY MEMORANDUM
by Mr EFRAIMOGLOU
TABLE OF CONTENTS
Page
I. INTRODUCTION: THE GENERAL ECONOMIC SITUATION IN
THE OECD AREA 9
1. Economic growth, unemployment, inflation and other
factors 9
2. Trade: The Uruguay Round 12
II. SOME CURRENT PRIORITIES OF OECD 14
1. The social aspects of economic development 14
2. Facing the challenges of a new world: OECD
membership. Central and Eastern Europe.
Development co-operation 16
3. The Environment 21
III. CONCLUDING REMARKS: OECD'S INTERNATIONAL FUTURES
PROGRAMME 21
APPENDIX 1 Summary of projections until 1993 in the OECD
area as regards gross national product, total
domestic demand, inflation, current balances
and unemployment 23
APPENDIX 2 Growth of real domestic product in major OECD
countries and country groups, from 1989 to
1993 24
APPENDIX 3 Unemployment, past and projected 25
APPENDIX 4 Inflation rates in the OECD area 26
APPENDIX 5 Official Development Assistance (ODA) from
OECD, DAC (Development Assistance Committee)
countries 27
I. INTRODUCTION; THE GENERAL ECONOMIC SITUATION IN THE OECD AREA
1. Economic growth, unemployment, inflation and other factors
1. The purpose of the present preliminary draft report is to present current activities and concerns of OECD. The Rapporteur will from time to time make observations of his own on issues which he sees as being of importance, or which were raised during his discussions with OECD officials in Paris in late April 1992, at the Committee's meeting with the Secretary General of OECD, Mr Jean-Claude Paye, and his senior staff in Paris on 26 May 1992. The report also takes into account the results of the OECD Council meeting held on 18 and 19 May 1992.
2. The debate in the Parliamentary Assembly on OECD activities is foreseen for 2 October 1992. Following the reform of the rules governing the debate, parliamentary delegations coming from OECD countries which are not members of the Council of Europe will, for the first time, participate with exactly the same rights (to vote and to present amendments both in Committee and in the plenary Assembly) as delegations from the member states of the Council of Europe2. In addition, the European Parliament will participate in an observer capacity, with a right to present amendments (although not to vote).
3. Present economic activity in the OECD area can best be described as "sluggish", with overall growth for 1992 expected at 1,8%, better than the 1% of 1991 (a true recession year). While there is general consensus that an upturn will eventually come, few will venture to say when or how strong it will be. (Appendix 1 gives a summary of projections until 1993 in the OECD area as regards gross national product, total domestic demand, inflation, current balances and unemployment. Appendix 2 shows the growth of real gross domestic product in major OECD countries and country groups from 1989 to 1993 (expected).
4. The reasons for this uncertainty are manyfold. Firstly, while interest rates have fallen somewhat in certain countries such as the USA or Japan, they are relatively high in Europe, where the German Bundesbank in particular sees a high interest rate for the DM as essential to halt the inflationary pressure resulting from the costs of unification.
5. A second reason is the lack of confidence in the future manifested by companies and consumers alike. Many financial institutions restrain their lending in order to improve their balance sheets (frequently eroded due to careless policies in the past). Households and firms for their part hesitate to increase spending and investment respectively, because of already high indebtedness and scepticism about the future. Finally, several governments that in the past could have been relied upon temporarily to "overspend" (that is
increase their budget deficit) in order to "jump-start" the economy are
no longer in a position to do so due to already elevated budget deficits. In Germany's case this is largely because of the previously mentioned, extensive assistance to its new "Länder", while the United States' margin of manoeuvre is much reduced by the high deficits incurred ever since the early 1980s. (The deficit for 1992 is expected to reach about 400 thousand million dollars.)
6. As the United States remains the world's largest economy, its evolution is of major significance for the rest of the world. A certain recovery from the recession can be observed, but it is by far not so resolute as those following the recessions of 1974-75 and 1980-82. Furthermore, it is imperiled by three developments: the economic situation in Germany, that in Japan, and the fiscal evolution in the United States itself.
7. In Germany, much will depend on whether future wage agreements can be kept at levels compatible with low inflation. The recent (May 1992) 5,4% increase in the public sector must be considered as relatively moderate, and have already set a pattern for agreements in industry.
8. As regards Japan, where the stock market has recently shrunk in value by about half, banks and companies are hard struck and in possession of less abundant, and less cheap, capital. Still, Japanese corporate investment remains high, and although capital flows to the United States have been reduced, they have not yet stopped. Furthermore, investments from other parts of the world are at least in part taking their place, thus assisting in the further financing of the US budget deficit.
9. A final reason for the relatively hesitant US recovery is to be found precisely in that deficit, not only the current federal one, but also those of individual states in the Union and the cumulative deficits, (ie including years in the past). The budget deficits, unless financed by foreign investment, drive up US (and world) interest rates by competing with the private sector for scarce capital resources, and also reduce the American government's ability to "spend itself" out of a recession along Keynesian lines. Thus, the traditional way of dealing with economic downturns is less and less available to the US Government, and to many others in a similar situation.
10. On a more general score, the Rapporteur wishes to draw attention to the difference - almost always negative - between GNP growth figures as forecast by OECD and other international organisations, and the actual figures as observed post hoc. This is not to place in doubt the sincerity, integrity or expertise of the organisations concerned, but only to point to the danger that the credibility of the forecasts, and therefore their usefulness, is reduced in the process. For instance, in June 1991 OECD predicted overall growth in the OECD area in 1992 at 2,9%, whereas now it is foreseen at 1%. In June 1990, the forecast for 1991 was likewise 2,9%, while actual growth was only 1%. No doubt some of the above discrepancies can be attributed to unforeseen events, such as the Iraqi invasion of Kuwait or the unexpectedly high cost of German unification, but the Rapporteur would nevertheless like the Committee to raise the issue in its pourparlers with OECD.
11. The employment situation also looks bleak. The Parliamentary Assembly has on many occasions deplored that unemployment in the OECD area seems to increase rather than decrease as years go by, and this in spite of the fact that OECD member countries devote an average
1/2% of their GNP to labour-market policies. The reasons behind such persistently high joblessness are complex, but the risk is great that a larger and larger segment of the population will be marginalised, shut out from society. This is a tragic evolution and one which the
Rapporteur intends to take up in greater detail later. At any rate, unemployment in the OECD area in 1992 is expected to reach 7,5% (30 million people) of the active workforce, a figure which is not expected to be brought down noticeably even when the economy eventually picks up. (The unemployment in major OECD countries and country groups is given in Appendix 3.)
12. Given this situation, do we need to take a fresh look at some of the "received truths" of the past, such as for instance that wage differences between regions of a given country are always "bad", and uniform wages good? What if a more remote region, for example, has as its only "comparative advantage" (to speak with Ricardo) the readiness of its people to accept lower wages than is the case elsewhere (perhaps because costs of living are lower)? By enforcing nationwide (or perhaps, in future, Europe-wide) salary agreements, do we risk condemning entire regions to economic oblivion? By insisting that young entrants to the labour market, or the long-term unemployed, should always have the same salary as others, do we dissuade employers from hiring them in the first place, thus preventing them from gaining a first foothold in the labour market?
13. Your Rapporteur is aware that the subject is sensitive, but he nevertheless feels that it needs to be addressed openly, particularly in an era or international economic integration. If we decide to continue as in the past, for instance in the name of the, in itself laudable, "social equity" or "regional solidarity", then we should at least be aware that this may have unexpected negative consequences of the kind outlined.
14. At any rate, your Rapporteur came away from his meeting with OECD officials with the impression that the organisation is highly concerned about the fate of poorer regions in its member countries, and about the long-term jobless who as time goes on become more and more apathetic about their situation, and less and less attractive to presumptive employers.
15. Perhaps the only bright spot in the picture is that inflation is continuing to come down, from 4,1% in 1991 from the OECD area as a whole, to an expected 3,5% in 1992. It should be noted, though, that this is, in many countries, due more to the lackluster state of the economy than to any major reduction in government budget deficits. However, the Rapporteur welcomes the growing determination on the part of governments to follow anti-inflationary policies under any circumstances. The close co-operation among Finance Ministers of OECD member states - not least within the Exchange Rate Mechanism in Europe - is a most useful tool for fighting inflation. (Appendix 4 shows inflation rates in the OECD area.)
16. International monetary co-operation - whether at European or world level - makes it increasingly clear that inflation in any given country in fact has two components: one relates to the price evolution for internationally traded goods or services: here, inflation tends continually to go down due to increased world competition. The second component derives from the price development of domestic products or services not subject to international (or sometimes indeed national!) competition. In this sector, inflation has been much higher, precisely because of its being more sheltered. The virtue of international monetary co-operation - brought on naturally by the increased ease with which capital moves across borders - has been to "expose" this second component for what it is - namely the result of a lack of competition.
17. Countries with doggedly high inflation rates will increasingly have to come to grips with this second component of inflation - in Europe's case at the latest when the Economic and Monetary Union (EMU) comes knocking on the door. To the extent that unemployment results from efforts to render the "protected" sector more efficient (or less inflationary), then requests by the poorer countries within the European Community to be "compensated" by their richer neighbours may well grow stronger. However, neither side will stand to gain in the longer term from such a "transfer mentality". The richer may well become wary of giving more, and the others could easily be distracted from addressing the core problem, which is how to render all sectors of the economy more responsive to market forces.
2. Trade: The Uruguay Round
18. One uncertainty hanging over the world economic scene is the as yet unconcluded Uruguay Round. It would seem that, with so many elections coming up in key participating countries, the chances of concluding the Round successfully in 1992 are rather compromised - and this in spite of the positive declarations made in this regard at the G7 economic summit meeting in Munich in July 1992. An agreement, especially one which would decisively confirm the trend toward more open, multilateral trade, would send a forceful signal of optimism to producers and consumers around the world. It will be recalled that the Parliamentary Assembly in its Resolution 948 (1990) spoke in the same spirit when it called on Council of Europe member states to "do their utmost to ensure that the Uruguay Round is crowned with success and heralds an era of expanding, open and increasingly unfettered world trade". Agriculture is one obvious area where improvements could be made - especially following the recent agreement in the European Community to reform the Common Agricultural Policy - but the Rapporteur will not discuss it in detail out of deference to the Parliamentary Assembly committee concerned.
19. A successful Uruguay Round would also be well-received by the many developing countries which have engaged in far-reaching trade liberalisation in recent years, and it would bolster the substantial steps in this direction taken also by several of the formerly centrally-planned economies.
20. However, it is worth pointing out here what the world would risk were it to allow the Uruguay Round to fail. Then we are most likely not talking about a status quo in the state of world trading conditions or wealth, but a "downward spiral" of more and more overt protectionism, unilateral measures and bilateral deals among countries or trade groupings. The tendency is already there. A successful Uruguay Round could reverse it, or at least hold it at bay. A failed one would give it free rein, and with it economic stagnation, a halt to the process of increasing international "division of labour", and increased poverty for countries and individuals.
21. OECD, which views trade policies as increasingly tied up with domestic policies, also pays great attention to the non-trade chapters of the Uruguay Round, such as subsidies. It is essential that a successfully concluded Uruguay Round include clear and equitable rules also in these domains, which could otherwise easily offset hard-won gains in the area of trade proper.
22. Trade is also more and more affected by policies regarding competition - either at national level or, as in the European Community, internationally. Yet competition policies vary widely among different member countries, rendering the idea of a "level playing field" largely illusory. Even trade within, say, the European Community is hampered by the fact that the Commission tries to impose one set of standards, and some member states another. The dilemma for both regions and countries is often as follows: if mergers of already big companies are allowed to improve their chances to compete globally, will this not lead to an oligopoly or monopoly situation at home? Yet, if such mergers are not permitted, will it lead to the industry being taken over entirely by foreign, perhaps overseas companies? Clearly, against this background OECD has an essential task in ensuring that competition policies among its member countries are harmonised.
23. Related to the above is the global surge in recent years in foreign direct investment - often referred to as the "neglected twin of trade". In the 1980s, it actually increased much faster than trade (by about 30% annually as opposed to 7-10%). Foreign direct investment in part substitutes for trade (for instance, a United States company with a European subsidiary sells to Europe from there rather than from the US), but it also encourages trade and economic activity generally. (The post-World War II period saw an enormous, parallel increase in both trade and foreign direct investment.)
24. OECD's 1976 Declaration and Decisions on International Investment and Multinational Enterprises continue to constitute the most important code of conduct for companies and governments alike when it comes to engaging in, or acting as host to, foreign direct investment. The organisation is at present trying to strengthen the "National Treatment" concept in the 1976 Agreement, that is, ensuring that foreign companies benefit from the same conditions as domestic ones. The issue is not as straightforward as it may seem. The European Community, for instance, is divided over whether Japanese car plants in the EC should be considered "domestic" or not, and the outcome of this discussion will affect entire regions.
25. Generally speaking, OECD tries to ensure a more global, less compartmentalised, approach to trade. Even migration - including the "pull" economic factors in richer countries and the "push" factors in poorer ones - is scrutinised from this angle to see if changes in trade conditions can be used to monitor the problem. As was pointed out in the May 1992 meeting with OECD, immigration also has major consequences for receiving countries in terms of infrastructure investment, housing and education.
26. The discussion about the GATT Uruguay Round has in the Rapporteur's view come to centre excessively around the quarrels among industrialised countries. What is less obvious - but equally important and possibly more portentous - is the vital need for the developing world to gain greater access to the markets of the industrialised world. Recent tendencies toward protectionism on the part of European countries will only hurt them in the long run, in the form of higher prices for domestic consumers and the need to increase development assistance - a measure which is much less conducive to economic development in the South than is freer trade.
27. OECD also stresses the need to pay greater attention to the environmental aspects of trade, to how trade liberalisation may in fact not be contrary to environmental interests, but in fact promote them. Freer trade should not be seen as an end in itself, but rather as a means towards ensuring sustainable development for all countries. Since the latter phenomenon can only take place if our environment is preserved, trade policies should be subordinated to concerns for nature. OECD continues to study the impact of trade on the environment. Whether we are considering the careless deposit of chemical or other waste in developing nations, excessive timber export leading to deforestation or the loss of genetic variety in flora and fauna, this is an area which will grow in importance in coming years.
28. In conclusion, the world economy stands at an important crossroads. If the Uruguay Round can be concluded successfully - meaning a retreat from the brink of unfettered protectionism and back onto the path of a continuously more liberated trade - then we could well stand before a new era or strong economic development worldwide. If, furthermore, governments persist in fighting inflation - as indeed they are increasingly forced to considering the steadily freer flow of capital - then that era may be all the more sustained. Finally, if the combined challenge of helping developing countries and the nations of Central and Eastern Europe - chapters to which we shall return - can be resolutely tackled, then the increased size of the genuine world market for goods and services may bring further benefits in terms of enhanced trade and greater international specialisation.
II. SOME CURRENT PRIORITIES OF OECD
1. The social aspects of economic development. The problems
of cities
29. As previously hinted, OECD is seriously concerned about the seeming inability of member countries to alleviate a host of social problems, in spite of decades of nearly uninterrupted economic growth.
These include such things as: the consequences of demographic stagnation and the growing number of elderly in many OECD countries; unemployment; poverty; migration from rural to urban areas caused by low incomes, limited opportunities, and poor conditions in large parts of the countryside; inadequate training and education; drugs; the crime and alienation following rapid urbanisation and the decay of city infrastructure; the anxiety and doubts aroused by permanent structural adjustment, the harshness of competition and the speed of technological change (even though such adjustment is the best means of securing long-term general progress).
30. OECD warns against regarding these blemishes on the record of member countries as somehow "inevitable" side effects of economic growth. On the contrary, the vague but widespread disillusionment that these problems provoke in large strata of the population could in due course cause the very foundations of our societies' prosperity - the market economy, private enterprise and free trade - to be called into question. It is incumbent on all those bearing a responsibility in society, and in particular the public authorities, to appraise this danger and identify ways of guarding against it.
31. The Committee on Economic Affairs and Development at its May 1992 meeting with the also raised the social problems of big cities - especially in view of the recent visits in Los Angeles and other American cities, but also considering the rising criminality and alienation in numerous suburbs of European cities. It was agreed that this question would merit greater attention in the future, both in OECD and in the Council of Europe. This is also in line with the conclusions of the May 1992 meeting of the OECD Council, which stated that "economic, social and environmental problems are so severe in many urban areas that a large and growing part of the population risks drifting away from the economic and social mainstream. Ministers consider that governments, both central and local, will need to pursue new and reinforced policies to improve the quality of life in urban areas across its economic, social, and environmental dimensions."
32. Mr Edwards, Deputy Speaker of the Australian House of Representatives, who participated in the Committee's May meeting at OECD, also made the observation that structural reform of a nation's economy presupposes a certain minimum popular consensus that the sacrifices required are necessary. As the recent visits in Thailand showed, such popular consensus cannot be found in the absence of democracy. Thus, Mr Edwards maintained (and the Committee agreed), democracy is not a "luxury" but a necessity in a modern society, in order to ensure that adjustment is understood, supported and shared by all. We are indeed reminded of the recommendation, in last year's Assembly Resolution 968 (1991) on OECD activities, that the OECD "study - preferably in collaboration with the Council of Europe - the relationship between democracy and human rights on the one hand, and sustainable economic development on the other.
33. It would seem natural that the generation of the "second age" - that is, the professionally active age groups - should carry the main burden of taxation in aid of the "first" and "third" ages in our own societies - ie the young and the old - as well as of the "Third World". In many OECD countries, however, the "second-agers" have said no - at the polling station - by opting for parties committed to reduced taxes. This could point to a new era characterised by a lessening of the solidarity between the age groups. (Alternatively it could reflect a change in priorities regarding the balance between public and private provisions, eg in pension schemes.) At any rate, your Rapporteur suggests that this question also be raised with OECD in order to gain a clearer understanding of the situation.
34. Although it is for another Parliamentary Assembly committee to pronounce itself at greater length on education, your Rapporteur cannot refrain from relating some of the impressions that struck him most in conversations with OECD officials on this subject. To the organisation, education in its widest meaning is perhaps the fundamental factor behind economic development. The best way to integrate people into the labour market is through training and continued education.
35. While some of that training or education must necessarily be specific, some of it should also be more general, perhaps even "old fashioned", emphasising basic skills. In this sense, "traditional education", can still be "forward-looking". If history, by teaching us about the past, makes us better able to understand, hence master, the present and the future, then why should it be disfavoured compared to, say, computer knowledge? Your Rapporteur also believes - and this indeed seems to be along the lines of OECD's own thinking - that even the study of Latin and ancient Greek (please overlook the Rapporteur's nationality!) can be highly useful, not only for learning about ancient civilisations but also in order to facilitate the acquisition of modern languages. If such studies help us to think more logically and understand grammar better - hence improving our drafting (an acknowledged shortcoming among many young people) - then why should it be considered "unproductive", or a "luxury"? Only informed people will become responsible citizens and carry forth the great notions of civilisation. We must not deprive our young of the privilege of learning about the great thoughts and achievements of mankind.
36. OECD at any rate lays great emphasis on the ability to "learn how to learn". It recommends a shift from "passive" labour market policies (such as income transfers) to "active" ones in the form of training and education - more directed at specially affected groups in order to mobilise their "hidden potential", and relying to a greater extent on co-operation between non-governmental and public bodies.
37. It is worth mentioning in this context OECD's so-called "TEP"
project, or "Technology Economy Programme". Launched in 1988, it has now been concluded. Its main message is that widely spread knowledge, including technological, is vital to economic development. It behooves governments not only to foster efficient educational institutions towards this end, but also to permit individual companies to share and apply knowledge as rapidly and thoroughly as possible. This is best achieved, OECD argues, if subsidies to both rising and declining industrial sectors are avoided, and if the work-force is sufficiently well trained. The emphasis is therefore on the "micro-economic" level of the economy, ie the company and its internal and external environment. Both have to be conducive to innovation and creativity.
38. A few words may be in place here regarding rural development. In the Rapporteur's view, a few basic questions will have to be asked. For instance, are OECD member countries really committed to the rescue of rural areas? If so, what resources are they prepared to set aside, for instance for medical care? If not all rural regions can be preserved, then which should? Can new activities, such as tourism, come in if agriculture is no longer profitable? If only part-time farming is possible, what other types of gainful employment may be envisaged? What kinds of infrastructure projects should be given priority in rural areas?
39. The Rapporteur is well aware that the above questions can best be answered by other Parliamentary Assembly committees providing opinions for our debate on OECD activities. However, his impression is that OECD favours a multidisciplinary approach to the problem, not least because rural regions are often very different from each other -in terms for instance of distance to cities, natural endowments or conditions for agriculture.
40. A final observation: do we stand before an era when cities, especially big ones, are no longer necessarily more conducive to economic growth than rural regions - because of traffic congestion, pollution, high costs of living or crime? Will new technologies - in transport, computers or telecommunications - reduce or even eliminate the disadvantage of remoteness? These are questions which should guide future policies, and which already inspire OECD.
2. Facing the challenges of a new world: OECD membership. Central and Eastern Europe. Development co-operation
41. OECD can indeed be said to be cautious when it comes to expanding its current membership of 24 countries3. Thus, although relations are intensifying with such rapidly developing countries as Mexico (already an observer) and the Republic of Korea (not yet an observer but an active participant in certain specialised activities), and while contacts are growing with other economies in Latin America and South-East Asia, no new member countries are likely in the immediate future.
42. The Rapporteur believes, however, that it would be useful to engage OECD in a discussion about the criteria and prospects for its possible future enlargement. For if the organisation today stands to gain from the relative homogeneity of its member countries, it will profit tomorrow from having others embrace its principles. While expansion could mean dilution of one's message, status quo could contain the seeds of stagnation.
43. Is it reasonable to expect, for instance, that Mexico may join in the next two to three years, and the Republic of Korea in, say, five years - all on condition, of course, that these countries, proceed along the path toward democracy? And when will the turn come to countries in Central and Eastern Europe?
44. The relative strictness of OECD in accepting new members should, however, not be confused with indifference. Firstly as regards Central and Eastern Europe, OECD's Partners In Transition Programme (PIT) is now in full operation, with some 50 meetings, expert visits or exchanges to be held only in the first half of 1992 - ranging from anti-trust legislation and franchising techniques to the restructuring of the banking sector, education in the agro-food industry and conversion of military industry toward civilian production.
45. The PIT Programme undertaken within the framework of OECD's newly created (1990) Centre for Co-operation with European Economies in Transition, have also led Czechoslovakia, Hungary and Poland to accept to form the subject of OECD "Country Reviews", that is, regular independent scrutiny of their economic policies and development enabling them, if need be, to carry out corrections to the reforms. OECD's work in this area will at any rate be of great use in the preparation of the Parliamentary Assembly's Conference "Progress of Economic Reform in Central and Eastern Europe: Lessons of the Past, A Course for the Future", to be held in Finland in 1993.
46. The role of the Centre is thus to organise and coordinate all OECD's co-operative activities with the reforming countries of Central and Eastern Europe. Its work programme focuses essentially on policy advice on the overall "problématique" of moving from a centrally-planned system to a market-oriented economy; on technical assistance in the design and implementation of policies, and on training.
47. It is not surprising that the Centre has undergone strong growth in the past two years, so that it now has over 220 individual activities, not only with Czechoslovakia, Hungary and Poland, but with other countries in Central and Eastern Europe as well (including the Baltic States and Albania). Contacts have also been established with certain CIS members, such as Russia, Belarus, Kazakhstan and Ukraine. Finally, with financial support from the European Community's PHARE programme, OECD has launched the so-called SIGMA project (Support for Improvement in Management and Government) aimed at helping the civil services of the countries concerned to face the new situation.
48. Finally, OECD's current efforts to streamline and improve statistics in the economic field among its member countries - and generally to adopt a higher profile in this sector of activities - is also likely to be of benefit to the countries of Central and Eastern Europe, where statistics are often incomplete.
49. Your Rapporteur feels that the present situation in Central, Eastern and South-Eastern Europe - and perhaps particularly in the area of the former Soviet Union - is critical and indeed necessitates large-scale assistance. He hesitates to talk about a "Second Marshall Plan", well aware of the very different conditions prevailing today when compared to the late 1940s. The countries receiving Marshall Aid grants or aid were for the most part acquainted with the market economy, whereas the countries of Central and Eastern Europe have gone through a period of about 40 years of a centrally planned command economy. (This circumstance incidentally points to the need today to accord "conceptual assistance" in the shaping of a market economy and institutions a large share in any aid programme, as does indeed OECD.)
50. A second difference is that the world's hunger for imports, especially raw materials, was considerable at the time of the Marshall Plan, whereas today most regional markets are mired in recession. In addition, the demand today is mainly for highly sophisticated products, in which the countries of Central and Eastern Europe have to compete against goods and services developed by the industrialised market economies during decades of hard competition. A third problem - which also did not exist in the Marshall Aid years - is the lack of certainty about how well money lent will be utilised - less so in countries clearly committed to economic reform than in, particularly, a country like Russia. Debtor accountability and "good governance" therefore become critical factors in any large-scale material aid effort.
51. It is doubtful whether the $ 24 thousand million in aid to the Commonwealth of Independent States (and in particular Russia) decided on in early April 1992 by Western industrialised countries (through the International Monetary Fund) will be sufficient. We will probably have to be more imaginative, and make greater sacrifices, if we are to meet with success in this vital enterprise, and the matter is well worth raising with OECD. If we fail we may well pave the way for major international disturbances in the years ahead, not least in South-Eastern Europe where political conditions are especially unstable, as the Yugoslav crisis has illustrated.
52. The Marshall Plan, which from 1948 to 1952 gave about $12 thousand million to 16 West European countries (the countries of Central and Eastern Europe, including the Soviet Union, declined the offer under Soviet pressure), was undoubtedly one of the most visionary and generous projects ever undertaken. Yet it also came to benefit the donor, the United States, in that it soon created a strong market for that country's exports and turned Western Europe into a steadfast political and commercial ally. The same opportunity exists as regards Central and Eastern Europe, and if seized it could usher in a new era of vastly expanded world trade, prosperity and peace.
53. However, just as the United States championed free trade in the years of the Marshall Plan, and indeed opened wide its borders to European and Japanese imports, so OECD countries must now show the same attitude vis-à-vis Central and Eastern Europe, and the Third World too, for that matter. As one OECD official put it to the Rapporteur: "The best Marshall Plan is trade liberalisation".
54. The industrialised countries must not repeat the mistakes made with regard to many developing nations, which were told that the key to economic progress lay in industrialisation, only to find out later that the door to increased exports of finished goods to the North had been slammed shut before them! It is mainly through increased trade that the world economy develops. Whereas in the 1980s annual trade increases were 7% or more per year, in 1990 they had slowed to 5% and in 1991 to 3%. The first to suffer from this stagnation have been developing nations, whose foothold in the world trade scene is at any rate the most precarious.
55. Development co-operation with the Third World continues to occupy a prominent place on OECD's agenda, and the organisation has been among the first to sense what some officials called "a new era in donor-recipient relations" following the end to East-West confrontation and the near-universal recognition of the virtues of a market-oriented economy. (Appendix 5 shows official development assistance from OECD, DAC countries.4)
56. OECD lays emphasis on "participatory development", ie involving all layers of the populations in developing countries, and on the link between democracy, human rights and accountable government on the one hand, and sustainable economic development on the other. The so-called "conditionality debate" continues unabated among OECD member countries: ie whether and, if so, to what extent official development assistance should be made contingent on things like economic reform, environment protection, democratisation, respect of human rights and reduced defense spending.
57. The Rapporteur sees no intrinsic fault with a certain degree of "conditionality" in North-South co-operation, and the latter is also taken up in the latest Resolution by the Parliamentary Assembly of the Council of Europe on "North-South Interdependence and Solidarity" (Resolution 981 (1992)), where four criteria - apart from the "absolute requirement" to help where absolute poverty reigns - are listed as conditions for continued assistance to developing countries:
- the human rights criterion
- the economic and social reforms criterion
- the military expenditure criterion
- the environmental criterion.
58. After all, it is not unreasonable that donor countries, which often themselves operate under tight governmental budgets, should place certain requirements to ensure that assistance resources are used efficiently. And this is also, of course, in the interest of developing countries themselves as it will speed up their economic development.
59. The International Monetary Fund in fact today acts as a "world financial policeman", whether it be in Central and Eastern Europe or in the Third World. There may be different opinions about how well it performs this role, as some say the IMF is too strict in its "conditionality". The Rapporteur feels, however, that it on the whole serves a useful purpose by instilling a certain "code of conduct" for the economic policies of debtor countries, a process which in turn may enhance economic growth and confidence of creditor nations in subsequently lending additional money. And OECD itself carries out a vital and supplementary role, in and outside its own membership, by formulating policies for a more efficient economy in a wide range of areas.
60. The Parliamentary Assembly has on several occasions spoken in favour of equipping the World Bank and the International Monetary Bank with parliamentary observer institutions which can monitor their activities, and the Rapporteur feels sure that the future enlarged Assembly will maintain this request. It is particularly important to ensure that their policies (1) promote sustainable, socially just and environmentally sound development in the Third World, with particular emphasis on human rights, democracy and reduced defence spending and
(2) involve recipient countries, and in particular the populations concerned, at all stages in the planning and implementation of projects, thus ensuring their essential "human dimension";
61. OECD recognises, however, that the notion of "developing countries" covers a more and more diverse reality. Indeed, the organisations's Development Assistance Committee (DAC) may soon have to wrestle with such questions as whether for example Kuwait should remain on its list of recipient countries; and whether some CIS states, or Rumania, should be added.
62. To illustrate the above diversity, it is worth pointing to the significant economic development during the last decade of countries such as the People's Republic of China and India. (After all, these two countries together account for a third of the world's population.) Prospects for per capita growth for them, as well as for numerous countries in Latin America and South-East Asia are for up to 3% per annum. The outlook for Africa, and for developing countries in the Middle East are on the other hand more cautious.
63. Finally, OECD sees a number of clouds on the horizon for the next decade and beyond, such as water scarcity, migration and the socio-economic impact of AIDS.
64. The question presents itself whether North and South alike should at last seriously begin to tackle the population issue in large parts of the developing world. The world's population now stands at 5,4 thousand million, with 250 000 added every day, 7,5 million every month, and 100 million every year. Whereas the population in the industrialised North increases 0,6% per year (with some countries indeed registering decreases), in the developing South the yearly increase is 2,1%. In 37 developing countries, among them 22 African and Arab countries, the yearly rise is over 3%. This means a doubling of the population in 25 years in areas least able to support such increases, while for the world as a whole the expected figure in the year 2020 is 8,4 thousand million.
65. Although so far increases in agricultural production worldwide have been even more important, in Africa in particular they have not, leading to a per capita reduction in food supply of 10% during the last decade. But even in other areas where production has more than kept up, such as in South-East Asia or Latin America, it is uncertain for how long still this can continue given the limits on arable land and soil erosion. And continued explosive population increases will frustrate any effort to raise per capita incomes.
66. Increasingly therefore, the population issue has to be tackled and more resources given not only to family planning but also to economic development in the South. For it is only when a certain minimum income level is reached that families will have fewer children, and it is only when women receive education and better employment that they will reach a similar conclusion. The Rapporteur came away from his preliminary discussions with OECD with the belief that the organisation shares his concern in this regard and strongly advocates appropriate family planning programmes in the developing world.
3. The environment
67. OECD has set itself a three-pillar environmental strategy for the 1990s. The first of these pillars concerns the integration of environmental and economic policies (such as agriculture, transport and energy), such as the use of market mechanisms for environmental purposes, or the integration of environmental considerations in policies on agriculture, energy, transport etc. A second aim is to reduce pollution in OECD countries through better waste management, the control of chemical products, air quality management, the promotion of clean technologies and the improvement of energy efficiency. A final objective is to promote international co-operation both with non-member countries (developing countries, the countries of Central and Eastern Europe and of the Community of Independent States (CIS), and the dynamic Asian economies) or with other international organisations such as the United Nations, to tackle such worldwide problems as "global warming".
68. It will be recalled that the Parliamentary Assembly's 1991 report on OECD activities for the first time introduced the notion of a "CO2 tax", that is, a "fee" on the emission of carbon dioxide through vehicles etc. The debate on this subject is continuing in OECD, and a consensus seems to be emerging that:
a. such a tax must be fairly high to be effective;
b. it should be considerably higher for richer than for poorer countries, and;
c. other taxes may have to be lowered so as to avoid an overall net tax increase.
69. It is interesting to note the emerging debate also in many member countries of OECD about such a tax, including the Rapporteur's own country, Greece. Its outcome will be of great importance not only for the combat against "global warming" but for the quality of the air in our cities.
70. It should be noted, however, that OECD activities in the field of taxation and the environment have a much wider scope than just the possible introduction of a CO2 tax. Thus, since 1991 an inter-directorate "Joint Task Force" has been studying the important question of how tax systems and tax structures can be modified or reformed with the aim of reducing pollution. This project is a core element in the more general work on the use of economic instruments in environmental policies. The Task Force is expected to finalise a report during 1993.
71. Generally speaking, taxes on, or "fees" for, environmental abuses should be introduced in all countries, and especially in the industrialised world. It is here, among those who can best afford it and whose technology can be expected to yield the first positive changes, that the battle for an environment-friendly production must start. It can only be hoped that the United Nations Conference on Environment and Development in Brazil in June 1992 will be successful also in this regard.
III. CONCLUDING REMARKS: OECD'S INTERNATIONAL FUTURES PROGRAMME
72. OECD will in the future be called upon to tackle increasingly complex problem areas, underlining its role as a "think tank on the future". Thus, apart from the previously-mentioned, more "traditional" areas - such as gaining a deeper understanding of member countries' economies, the study of societal problems or the promotion of an open multilateral trading system - an equally important task for the organisation will be to identify long-term trends, new opportunities and problem areas in time. For this purpose it set up, in 1990, an International Futures Programme which is now fully operational. The future enlarged Assembly Debates on OECD's activities can make a significant contribution to an analysis of these concerns and orient OECD's work toward problem areas that we parliamentarians, as representatives of the people, are often the first to distinguish.
Reporting committee: Committee on Economic Affairs and Development.
Draft resolution: unanimously adopted on 1 October 1992 by the Committee on Economic Affairs and Development at its meeting enlarged with delegations from the parliaments of Australia, Canada, Japan and New Zealand, and with the participation of representatives from other committees concerned.
Members of the committee: Mr Holtz (Chairman), Dame Peggy Fenner, Mr Lotz (Vice-Chairmen), MM. Aarts, Auken, Bjarnason (Alternate: Mrs Ragnarsdottir), Bokov, Bloetzer, Bonnici, Brach, Brennan, Capanna, Croze (Alternate: Dhaille), Csepe, Davis (Alternate: Lord Kirkhill), Demiralp, Efraimoglou, Fabra, Flückiger (Alternate: Columberg), Garcia Sanchez, Gasperoni, Gassner, Goerens, Mrs Haglund, MM. Hellström, Kempinaire, Kiliç, Kittelmann, Konecny (Alternate: Gusenbauer), Koritzinsky, Le Grand (Alternate: Grussenmeyer), Lewandowski (Alternate: Wielowieyski), Mesoraca, Pinto (Alternate: Roseta), Rehn (Alternate: Särkijärvi), Rodrigues, Rokofyllos, Schwimmer, Sinesio, Mrs von Teichman, MM Townend, Valleix, Mrs Verspaget (Alternate: Dees), Mr Wintgens. Also present: Mr Gonzalez Laxe and Mrs Håvik.
Delegations from non-European OECD member countries:
Australia: MM Morris, Herron, Langmore, McGauran, Reid
Canada: MM. Clifford, Kenny, Porter, Sylvain
Japan: MM. Otsuka, Inoue, Iwamoto, Otsuji
New Zealand: Mr Kimber, Mrs Tinnet
NB: The names of those members who were present at the meeting are underlined.
Secretaries of the committee: Mr Torbiörn and Mr Mezei.
2 2 The reform has been approved by the Parliamentary Assembly of the Council of Europe, the Council of OECD and the parliaments of Australia, Canada, Japan and New Zealand. (The United States Congress has not given its explicit approval of the reform but has not objected to its entry into force.)
3 3 Australia, Austria, Belgium, Canada, Denmark, Finland, France, Germany, Greece, Iceland, Ireland, Italy, Japan, Luxembourg, Netherlands, New Zealand, Norway, Portugal, Spain, Sweden, Switzerland, Turkey, United Kingdom, United States.
4 4 Figures not yet available. To be inserted in final version.