OECD and the world economy (Annual report on OECD activities)
Report
Doc. 7877
23 September 1997
Rapporteur: Mr Alfred Gusenbauer, Austria, Socialist Group
I. Draft resolution
1. The Enlarged Parliamentary Assembly, composed of delegations of OECD and Council of Europe member countries, has examined the activities of OECD in the light of the organisation's recent activities, and the contributions by various Assembly committees. It welcomes this annual opportunity to contribute to the achievement of the organisation's objectives.
2. The Enlarged Assembly believes that OECD continues to have a vital mission to perform in the management of an increasingly integrated and complex global economy. It expects the organisation to be given the necessary resources to carry this mission out. Finally, the Enlarged Assembly supports OECD in its efforts to streamline and focus its activities.
3. Economic growth in 1997 in the OECD area is expected to be 3%, up from 2.6% in 1996, with 2.7% predicted for 1998. Against a moderate slackening of the comparatively strong growth in countries such as the United States, Australia, New Zealand and the United Kingdom stands an expected recovery in continental western Europe, Japan, Mexico and the Republic of Korea. Meanwhile, world trade growth has slowed down somewhat, to around 6.2% in 1996, with an expected recovery to 8.1% in 1997 — reflecting a continued strong pace of global economic integration.
4. Inflation in the OECD area remains low, at 4.2% in 1996, with a further slowdown to 3.7% expected in 1997, and 3.4% in 1998, thus reducing any risk that stronger economic growth may lead to overheating of economies. Short-term interest rates are also at historic lows, especially in Europe and Japan. Here and elsewhere, however, investment and consumer confidence have yet to resume in response. Ratios of public debt to GDP remain at an average of about 70% for the OECD area and will have to be brought down further, not least in the face of the continued ageing of populations.
5. Growth rates in Latin America, South-east and east Asia, including China, continue to be impressive, and to provide increasing momentum for the world economy. This also holds for several countries in transition in central and eastern Europe.
6. The Enlarged Assembly in this context welcomes OECD's successive enlargement in recent years, to include countries such as Mexico in 1994, the Czech Republic in 1995 and Hungary, Poland and the Republic of Korea in 1996. It hopes that negotiations with the Slovak Republic can soon be brought to a successful conclusion and that co-operation can be further intensified also with other countries having applied for membership, leading to timely membership.
7. The Enlarged Assembly also welcomes OECD's intensified co-operation with Russia and hopes that domestic reforms in that country will in due course permit it to become an OECD member. It also welcomes OECD's growing co-operation with China, whose harmonious integration into the world economy is vital for peace and prosperity in the entire region and for the world at large. Finally, it strongly supports OECD's intensified contacts with a host of rapidly developing economies around the world and its work to improve the quality of development assistance through its Development Assistance Committee.
8. The Enlarged Assembly strongly endorses OECD's advocacy of a comprehensive and coherent approach to development, encompassing wide-ranging policy areas such as trade, investment and the environment. It also welcomes that OECD's New Partnership Strategy has been embraced by an increasing number of developing countries willing to assume responsibility and ownership for their development programmes. It urges the Development Assistance Committee to continue its efforts to promote and review implementation of the strategy in close co-operation with partner countries, emerging donors and international organisations.
9. The Enlarged Assembly calls on OECD member governments to translate their deep concern for unemployment into public policies that give priority to addressing the causes of persistent high unemployment, especially among youth and those disadvantaged by rapid economic changes. Specifically, it urges the implementation of measures recommended by the OECD Job Strategy while recognising that there are different ways to reduce structural unemployment. OECD recommends, in particular: job-creating incentives; investments in education, skills development and social adjustment; and reforms to improve the effective functioning of dynamic labour markets. In addition, stronger commitments by governments are required to ensure that economic growth in fact produces the jobs that are so needed in all sectors of society. Where private sector expansion is not matched by adequate job creation, governments should take action on direct job creation through creative uses of employment insurance funds or other means, including the encouragement of private sector employment growth.
10. Certain OECD countries have managed to reduce unemployment considerably and to reach more rapid growth, but at the cost of reduced social protection of certain vulnerable groups, and at the risk of losing social cohesion. Other countries have managed to preserve an elaborate social protection and social cohesion, but often at the cost of higher unemployment and slower growth. It is essential for all these countries to share their experiences in this regard, and to try to reconcile both sets of aims, for the fate of democracy and the market economy may well lie in our answer to the question: "Should man exist for the market, or the market for man?"
11. The Enlarged Assembly supports OECD's ongoing work on population ageing, and calls on the organisation to further examine wide-ranging policy implications of the emerging phenomenon, which is likely to become a major policy challenge in the next century. The Enlarged Assembly furthermore supports OECD's efforts to have member countries engage in regulatory reform, in order to undertake needed revisions and modernisation aimed at enhancing efficient economic performance while also serving essential public-interest objectives in terms of health and safety, education, environmental protection, and social well-being.
12. With regard to the field of migration, the Enlarged Assembly urges those OECD member countries which do not yet do so, to participate in the Continuous Reporting System on Migration (SOPEMI).
13. The Enlarged Assembly recognises the enormous importance for the world economy of the current revolution in information and communication technologies. It calls on OECD to suggest a coherent policy framework for electronic commerce covering areas such as consumer protection, taxation, transactions, security and privacy. Furthermore, the Enlarged Assembly joins OECD in condemning the use of the Internet for criminal behaviour, including child pornography, and calls on it to work with the Council of Europe and other organisations to put an end to the latter abhorrent practice and to bring its contribution to the development of a regulatory framework for this purpose.
14. The Enlarged Assembly supports OECD's contribution to the work of the World Trade Organisation (WTO), and to the implementation of the decisions of the WTO's 1996 Singapore Ministerial Conference. It asks OECD to devote particular attention to environmental protection within the context of world trade incorporating the principles of sustainable development adopted by the 1992 Rio Conference, and to the raising of core labour standards worldwide.
15. The Enlarged Assembly in this context urges OECD to finalise a multilateral agreement on investment, which would set high standards for the liberalisation and protection of investments with effective dispute settlement procedures, and which would be open also to non-OECD countries. The process towards concluding this agreement should be as transparent and democratically accountable as possible and should ensure that its provisions incorporate OECD's Guidelines on Multinational Enterprises aimed at promoting socially responsible behaviour; support continued regulatory capacity to enforce strong environmental and labour standards in the public interest; and allow governments to continue to pursue national cultural objectives. The Enlarged Assembly also requests OECD to pursue an intensified dialogue with non-member countries, particularly those interested in joining the MAI.
16. Finally, the Enlarged Assembly supports OECD in its combat against corruption and economic crime, which pose a threat to morals and to world economic development. It in particular welcomes the initiation of negotiation by member states for a convention on combating bribery in international business transactions, including that of foreign public officials. The negotiation should be finalised successfully by the end of 1997.
II. Explanatory memorandum by Mr GUSENBAUER
Contents
2. ECONOMIC GROWTH, EMPLOYMENT AND SOCIAL COHESION
6. CONCLUDING REMARKS
1. The enlarged debate of the Parliamentary Assembly on OECD activities is scheduled to be held on 25 September 1997. The present draft report is based on the rapporteur's discussions with the Secretary General of OECD, Mr Donald Johnston, and several directors in April 1997, and on the committee's meeting with them at the organisation's headquarters in Paris on 20 June 1997. It takes into account the conclusions of the OECD ministerial meeting held in Paris in May 1997.
2. This year's report introduces a novel format, in that it will exclusively focus on four themes agreed between the rapporteur and the OECD Secretary General. These themes are:
3. In a concluding chapter the rapporteur will discuss certain other items of a more contextual nature, such as OECD's current budgetary constraints, reorganisation and reorientation of its activities, as well as its outreach to non-member countries and possible enlargement over the years to come. There will thus be relatively little mention of the more detailed work of OECD in the various areas covered, although that work is often very impressive in its scope and depth. The reader is here referred to the Annual Report of OECD for 1996, which is scheduled to be published in time for the September debate.
2. ECONOMIC GROWTH, EMPLOYMENT AND SOCIAL COHESION
4. The economic situation in the OECD area as a whole is holding steady from the year before, with growth predicted at 3% (up from 2.6%) and foreseen to decrease to 2.7% in 1998. Growth is also expected to be more similar in the different OECD regions. Thus, growth in the United States is forecast to slow down somewhat — from 3.6% in 1997 to 2% in 1998 — but still remain robust and sustainable. The recent strengthening of the dollar has had a cooling effect on the US economy while stimulating exports from other OECD countries. The same moderate slow-down is expected for countries in a similar situation such as Australia, New Zealand and the United Kingdom. A certain pick-up is expected in the previously languishing economies in continental western Europe and in Japan. Growth in some new OECD member countries, such as Poland, is expected to remain high, or at around 5%, with slightly lower figures for Hungary and the Czech Republic.
5. World trade, which over the last few years has grown at about double the speed of that of world economic growth (6%-8% versus 3%-4%) may be slowing down somewhat. Although OECD places the 1996 growth at 6.2%, with a pick-up to just over 8% in 1997, recently published estimates by the World Trade Organisation would indicate that it has fallen to only 4% in real terms in 1996. (Even the traditionally faster-growing trade in services is reported by WTO to have fallen from 14% in 1995 to 5% in 1996.) Much of the reduction is reported to be due to the somewhat slower growth in the Asian region and the relative stagnation in much of continental western Europe.
6. Inflation remains low throughout most of the OECD area — with a slow-down from 4.2% in 1996 to 3.7% in 1997 and an expected 3.4% in 1998. The substantial "output gaps" that exist in many of the countries — that is, the difference between actual output in the economy and the maximum one that could be tapped without fuelling inflation — are expected to reduce the risk of any overheating, at least for a year or two.
7. Unemployment stopped rising in the total OECD area in 1997 (7.3%, down from 7.5% in 1996), but it remains a major problem in a number of European Union countries where it may not yet have reached a peak. The OECD ministerial meeting held in Paris on 26 and 27 May 1997 called the unemployment in a number of member countries "unacceptably high". They also noted as a "major finding" that "those countries that had moved ahead with the comprehensive implementation of the macro-economic structural policies recommended in the OECD Jobs Strategy .... had experienced significant improvements in their employment situation". Finally, they recognised that the "gap between the 'haves' and the 'have-nots' within some OECD countries may have widened, the latter more often than not being less skilled".
8. In sum, if the overall economic situation in the OECD area seems to hold stable or even improve, especially in the United States, Canada, Australia and New Zealand, then this is due to a number of positive forces. Fiscal policies are increasingly geared toward reducing budget deficits and the accumulated public debt, permitting some countries to engage in a more productive mix of policies. Reduced inflation has, together with fiscal consolidation, cut short-term interest rates to historic lows, especially in the European Union and Japan. Short-term interest rates have also fallen sharply in Mexico. This does not always mean, however, that investment and consumer demand have risen in response. In Europe and Japan for instance, there seems to be a considerable lack of confidence on the part of investors, and a lack of demand on the part of consumers due to stagnating wages. This acts as a break against a resumption of the kind of economic activity which normally accompanies low interest rates.
9. This notwithstanding, ratios of public debt to GDP remain high in many OECD countries (around 70% for the area as a whole). As a result, pressures on public finances will likely intensify over the coming decades as populations become older. The famous "population pyramid", with more younger and working-age people supporting fewer pensioners, will as from around 2010 become virtually cylinder-shaped. Also for that reason it is important that the fiscal consolidation now started, which OECD sees as the key macro-economic policy challenge facing members, should continue, although there are severe doubts about its structural sustainability in many countries. Success in fiscal consolidation will permit a reduction in long-term real interest rates and stimulate productive investment, growth and employment. The higher growth rates in countries like the United States, Canada, the United Kingdom, Denmark, the Netherlands, Australia, Ireland and New Zealand show what can be achieved. Not only the absolute improvements matter, but also the trend and expectations for the future. If households, companies and financial markets are assured that fiscal corrections are being carried out according to a laid-down time plan, then consumption, investment and lending might improve.
10. Another factor behind resumed economic growth in some countries has been the depreciation of their currencies vis-�-vis others, helping exports in particular. Some, such as the United Kingdom, Italy, Sweden and especially the United States have seen their currencies firm up more recently. True, exports then suffer somewhat, but overheating in the economy can be avoided both through the reduced strain on the export sector, and by having more imports assist the domestic economy in the supply of needed goods and services. For the EU members concerned this may not be in line with the EMU orthodoxy, but it seems nevertheless to have been of help to their economies, which is not the least important.
11. One of OECD's virtues is that it provides a forum where experiences can be compared and solutions suggested by the various governments, aided by an active contributing secretariat. One area where this has been demonstrated particularly well over the last few years is employment. Indeed, the reader will not be surprised that the rapporteur considers unemployment the key issue for the world, for the OECD area and for Europe in particular. OECD has shown how structural and long-term unemployment has risen in many countries, and particularly in Europe, during the last twenty-five years. In OECD-Europe there are large variations, from over 22% in Spain to over 12% in France to close to 11% in Germany to only slightly over 7% in the United Kingdom, around 6% in the Netherlands, around 4% in Norway and Austria and 3% in Luxembourg. However, even in some countries with lower unemployment, such as the United States and the United Kingdom, there are growing concerns over the adverse social consequences arising from growing wage and income inequality.
12. The choice between what is sometimes referred to as the "Anglo-Saxon model" and the so-called "Rhineland model" is imposing itself on many hesitating countries, with pressure coming from financial markets to go for policies in the direction of the former. Certain countries with relatively high unemployment, such as France and Germany, are perhaps close to a vicious circle: for every worker that loses his/her job, taxes have to be raised to support him/her in unemployment; but with higher taxes, growth becomes even slower, leading to another worker losing his job, etc., certain other countries with relatively low unemployment, such as the US and the UK, might face the risk of seeing growth hampered by a deterioration or possibly even a breakdown in public infrastructure, rising crime and growing social tension. Indeed, yearly growth of between 2.5% and 3% is generally considered necessary only to keep unemployment unchanged. Anything lower than that will set the vicious circle in motion again.
13. This is a major dilemma for us all, including this socialist rapporteur. Europeans have fought for decades for the kind of society of solidarity and support for the weak that they have largely obtained today. Are all our efforts now to be frustrated? Was it all in vain, just a transitory peak before a new era of precariousness sets in, one in which the "survival of the fittest" will replace the "help to the weakest"?
14. There can be no doubt that many OECD countries, especially in Europe, stand before a crossroads. Others seem already to have passed it. The United States has chosen its type of society, but many Europeans feel they do not want to go down the same path. Others have gone down that road partly but not throughout, such as the United Kingdom and New Zealand. Others again, for example Denmark, the Netherlands and Austria have shown that essential features of the "Rhineland model" for social partnership and social services can be maintained and accompanied by sufficient growth. But countries where unemployment is high and social alienation and marginalisation are on the rise stand before a critical situation. All OECD countries have to pursue structural and regulatory reform. It seems as if the most pressing choices are upon some of the "Rhineland model" countries. But the same is true for countries following more of the anglo-saxon model, although the priorities may differ depending on their particular history of reform (for example, in education).
15. Reducing the budget deficit and the overall debt may not be enough per se. Much will depend on how they are cut. OECD speaks about the "quality" of fiscal consolidation. If it is done by simply increasing tax burdens — which is the case in many EU countries trying to meet the Maastrict criteria for entry into the EMU — then this may only result in lower economic activity and rising unemployment, soon resulting in higher deficits again. Similarly, reliance on one-off measures, such as capital transfers from publicly-owned enterprises, will only delay the day of reckoning.
16. It is essential to reduce the structural deficit, and to do so in such a way that a decent social protection of the poor is not jeopardised, nor that their consumption is overly sapped. The latter factor is important, because if even the poor, with their comparatively low savings ratio, stop consuming, then the overall economy will lose even more of its vigour.
17. The rapporteur would also warn against excessive competition among European countries when it comes to reducing corporate taxes, since this could result in a downward spiral where countries bend over backwards to please companies while forgetting the interests of workers and non-corporate tax payers. Corporate taxes should be essentially the same across the European Union, and the same holds for taxation levels in general. At a minimum, an agreement on minimum corporate taxes should be reached. Furthermore, the whole issue of tax havens and how to eventually close them down should be tackled. Current European fiscal regimes are heavily oriented toward taxing labour, products and investment, whereas they should be more geared to things like emissions, water waste and certain types of energy. In brief, there should be a "greening of the taxation systems".
18. Meanwhile, there is a risk that the efforts by a number of EU countries to meet the EMU criteria for a single currency are bringing about the very type of generalised recession which everybody is fearing. The OECD Economic Outlook of December 1996 describes the situation in this way: "In Europe, fiscal retrenchment is already operating as a negative force on activity and continued tightening is assumed over the projection period. Moreover, for a number of EU countries, meeting the Maastricht fiscal target by 1997 is likely to require restrictive measures beyond those already in place ... Although fiscal consolidation should help improve economic performance over time, there is a question as to whether the short- run direct negative demand effects of such fiscal action can be fully offset by the favourable confidence effects, as well as by the induced declines in real interest rates. There is also a question about how much further monetary policy should attempt to stabilise the economy in the short run if such automatic adjustment mechanisms are sufficient".
19. When discussing the Maastrict criteria — especially the 3% lid on the GDP budget deficit and the 60% national debt to GDP maximum — it is important to remember that these were decided in the heady days of the very early 1990s. They were then the averages among the, at the time Twelve, of the EU. However, the recession that followed forced budget deficits much higher, with the result that trying to bring them down in a hurry now to meet the EMU criteria risks exacerbating an already difficult situation.
20. OECD Ministers in 1995 asked the organisation to undertake a major study on regulatory reform. In response to this study, OECD Ministers in May 1997 "agreed on the need for regulatory reform, for the elimination of structural rigidities in product and factor markets and for policies to improve the innovative capacity and competitiveness of enterprises, so that economic activity can flourish more robustly. They also agreed that "attention needs to be given to improving the prospects for the most vulnerable in society".
21. OECD sees regulatory reform as all the more important as many of the member countries are struggling with low growth and high unemployment, and as we politicians try desperately to find ways of stimulating growth and job creation. In most of our countries there are increasingly tight limits on the use of monetary and fiscal policy (and perhaps especially so in the European Union countries trying to meet the EMU criteria). We are increasingly being asked to show more creativity than that involved in raising taxes even more.
22. It is clear that OECD sees regulatory reform in a broader perspective. It is not an end in itself but rather one important means among several for furthering the objectives of public policy and policy reform. The goals of regulatory reform are to promote better economic performance, enable governments to protect social values in an efficient way, and contribute to global economic integration. Introducing greater job market flexibility, improving the education and training of the workforce, stimulating innovation and entrepreneurship and maintaining an overall stable macro-economic environment: all of these are policies aimed at helping economies and societies both to adapt to change and to take advantage of that change in order to compete better in an increasingly tough global market.
23. Sometimes regulatory reform means deregulation. OECD calls for far-reaching reform in five key sectors: electricity, telecommunications, air transport, road haulage and retail distribution. It believes that deregulation in those areas could raise the level of GDP by as much as 6% over the longer-term in some countries. The rapporteur has doubts, however, whether this estimate is realistic, especially in circumstances where deregulation is undertaken in isolation from other, accompanying measures.
24. But regulatory reform is more than that. OECD, the rapporteur was assured, is not embarked on any project aiming to get governments out of markets altogether and leave them to total laissez faire. Rather, the organisation wants better regulations, and probably fewer regulations in order to permit markets to work better and enable the potential of our economies to be tapped more fully even as important social objectives are being met. In other words, governments will still have a role, for no part of a modern, sophisticated society can live without rules. They will still have an important role to play in areas such as ensuring health and safety, protecting the environment and providing equal employment opportunities. In the area of pollution, for example, OECD believes it makes more sense to set a standard for emission control and then let companies find the best way to meet it, rather than having regulators adopt a command-and-control-type system where they specify what technologies must be used regardless of cost and the impact on competitiveness.
25. OECD countries today are burdened with more regulations and paperwork than ever in the past. We legislators are among the culprits. As issues become more complex, we pass more and more legislation. We also often content ourselves, either out of intellectual laziness or because of political compromise, with setting broad guidelines for objectives that we want to see met, leaving it to the regulators to fill in the details. However, as is well known, that is precisely where the devil tends to be. If the regulators are not watched through some kind of review mechanism, the result of their zeal can be excessive and burdensome regulations. Just as the road to hell is paved with good intentions, the implementation of the best-intentioned laws can result in hell for our citizens. (This also, of course, holds for the European Union where thousands of acquis communautaire legislation is added to that of the member states, and in federal countries to that of regions.)
26. Not only legislators are to blame. Much of the current regulatory jungle serves various vested interests — in the business, labour and regulator communities. But of course, to the extent that excessive regulations stifle the economy, the cake which everybody has to share will shrink in size. In order to achieve regulatory reform we therefore need broad public support, and we need to explain to the public why a reform is needed and what are its objectives. In brief, it requires a functioning, dialoguing democracy.
27. OECD has a unique potential to assist in this work. It combines depth of analysis within individual problem areas with links between them. This role can only grow in the future as the world economy becomes more integrated and as our problems span across wider and wider fields. The technique OECD uses is often that of "best practices". It looks at what countries have done to reform various regulations, what has worked and what has not, where the problems have lain, and whether conclusions can be drawn to make overall recommendations to member governments. If today we see that some countries are reforming, this is in no small measure thanks to OECD. Of course, as positive results start coming in countries that try will be encouraged to pursue the process, while those left behind will try to emulate them. For the alternative to doing so, that is doing nothing, will inevitably mean falling further behind in an increasingly competitive world, and risking further social tension.
28. Among the examples listed by OECD of results of regulatory reform we find airline transportation in the United States. Here liberalisation has resulted in an increase in labour productivity by 50% and in capital productivity by even more. In the United Kingdom, output per worker in the electricity sector has more than doubled following deregulation. The road haulage industries in the United States and the United Kingdom saw increases in capital productivity of around 50% after outdated operational controls were relaxed or phased out. Market liberalisation in telecommunications led to a doubling of labour productivity in the United Kingdom. In addition, regulatory reform in these areas has meant lower prices for consumers. Since airline transportation and telecommunications are areas where rapid liberalisation is currently taking place, we can expect both the world economy and our individual economies to benefit greatly.
29. What, then, about jobs and regulatory reform? While OECD reports that the deregulation of the United States airline industry has led to a total employment increase of up towards 80% between 1985 and 1986 (mainly due to increased travel following lower fares) similar reforms in the electricity industry in the United Kingdom were accompanied by a halving of the workforce. This leads us naturally to a discussion about regulatory reform and the labour market.
30. We are all aware of the shortcomings in this field. OECD's 1994 Jobs Study points to various "traps": the "unemployment trap", where unemployment pays more than employment; the "poverty trap", when a higher wage makes somebody worse off by having him lose various benefits; and the "fiscal wedge", where higher incomes bring taxes which are so much higher that there is a net loss to the earner.
31. OECD is now in the middle of drawing the practical implementations of the Jobs Study. Again, it is a variation of the "best practices" exercise. In the yearly Country Surveys drawn up for each country, a "check list" is drawn up indicating how well or how poorly it is meeting the various recommendations in the Jobs Study. One emphasis is to move from passive to "active" labour market policies, in other words encouraging the unemployed to find a new job rather than just ensuring him/her a guaranteed revenue. Excessive recourse to early retirement is also discouraged, especially when it is done on flimsy grounds such as to keep unemployment figures down. Special attention is being paid to ways of helping unskilled workers find new employment. Increasingly, along with the "knowledge society" which is already upon us, the level and quality of education will determine who will find a job and who will not.
32. Especially we Europeans are concerned that deregulation of labour markets, while maybe resulting in higher overall employment, will come at the expense of greater income disparities. Many in the United States and elsewhere argue, however, that the increased employment — in terms of jobs and hours worked — that would result from appropriate labour market reforms, might more than offset a wider wage rate distribution. Also, inequalities in labour earnings may not result in similar inequalities in disposable income, especially in the more countries where welfare support is greater. Here, there are important redistributive effects through taxes and transfers (to the extent that they exist).
33. Perhaps it is also time that we Europeans rethink our possible reservations against, say, the American system. The United States now has an unemployment rate of only 5.4%. Yes, we Europeans used to say, but this has been at the price of ruthless exploitation of the young and the unskilled in poorly paid, McDonalds types of jobs. Many European countries have stuck to relatively high minimum income, even as unemployment reaches higher and higher levels.
34. If 4 million to 5 million jobs in the US have been lost in the last few years, but 8 million to 9 million new jobs have been created, is this not an overall positive result, and has it not resulted in the kind of restructuring of the economy which OECD is recommending? Should not the fact that the United States economy creates hundreds of thousands of new jobs every year (although some are poorly paid and many are precarious), whereas the economies of the European Union create preciously few, with employment rising every year, make us stop and think? And here it is, doubtless, not only the restructuring of the US economy which has created new jobs, but also the macro-economic policies that have been followed and which have often differed from those observed in Europe.
35. Could it also be that we have too many rules and regulations, that we protect the interests of those who have jobs excessively and forget about those who do not? Could it be that we are subsidising our economies too much? Newly-published figures of the European Commission show that the fifteen member states in 1996 paid subsidies to various sectors of the economy totalling ecus 95 thousand million, or ecus 1 419 per employed person. (To this should be added about ecus 80 thousand million from various European Union subsidies, especially to agriculture and regional development.) There may be perfectly good reasons for each of these subsidies when seen individually. However, the combined effect may well be to stifle the market and suffocate growth. OECD is essential for telling us that there may be other ways to follow, while upholding the principles of a socially fair society.
36. It is not only Europe which subsidises its economies, however. The US does, too, though sometimes in different ways. Some subsidies are often referred to as "corporate welfare". It would be interesting if OECD could provide more precise figures showing what percentage of the annual US budget is actually going "corporate welfare".
37. Of course, OECD can only make suggestions. It is for us politicians to make the choices. The political process is there to make the necessary trade-off among competing interests. It takes political courage to overcome the opposition of entrenched interests, especially in situations where a government has only a small majority, is split among the coalition partners or faces a difficult election in the near future. But unless we take action soon, especially on regulatory reform, social tension in our societies may become so high as to render dialogue impossible and compromises impossible to find. Demagogues with simplistic arguments may take over. In brief, pursuing regulatory reform is also about preserving democracy.
38. There is the more general question whether the European reality is reconcilable with a society of very wide income gaps such as that of, say, the US. Europeans would like to have the dynamism of the US economy, but would their governments be able to ensure the protection of the poor and the vulnerable, with the reduced government resources that would come with so much lower taxes?
39. Electronic commerce is not only here to stay, but OECD maintains that over the coming years the economies of its member countries will rapidly become integrated into a global "information economy", in which the "information-intensiveness" of most goods and services will increase even further, and in which the development of electronic commerce will be a key element. Electronic transactions, electronic money and electronic cash will also become a feature of the daily lives of the citizens of the "information society". OECD's 1997 ministerial meeting called the new information and communication technologies "fundamental driving forces in globalisation" and said that "the stakes and challenges ahead are enormous". The 1997 ministerial communiqu� also asked OECD to carry our further work on electronic commerce and report back to ministers in 1998. The most conservative private sector estimates indicate growth of at least an order of magnitude by the year 2000.
40. Electronic commerce refers generally to all forms of commercial transactions, involving both organisations and individuals, that are based on the electronic processing and transmission of data, including text, sound and visual images. If in the past the "electronic market-place" tended to occur in clusters — say, a big company or government agency — it is rapidly beginning to provide a direct, general interface between a wide range of customers and an array of products. It is spurred on by the enormous recent growth in the use of the Internet on the part of companies as well as millions of individuals, and by the spread of data networking systems.
41. A few examples: a major bank conducts some 10 million electronic transactions per day, of which 70% are automated; a major retailing firm conducts all of its transactions with suppliers electronically, amounting to over US$ 10 thousand million; a European car manufacturer maintains electronic connections with over 800 suppliers, supporting transaction volumes of nearly US$ 7 thousand million per year; an American aerospace firm reports that 60% of orders for spare and replacement parts are fully automated, enabling delivery anywhere in the world in less than twenty-four hours.
42. Even though much electronic business will be done within a given domestic market, it is by definition global. As electronic network facilities increase in sophistication, they tend to become oriented to an international trading context. Electronic commerce will facilitate the globalisation of business by providing more economical access to distant markets, and by supporting new opportunities for firms to increase economies of scale and scope by spreading their production and distribution assets internationally.
43. An electronic commerce environment will be increasingly non-material, or "de-material", as OECD puts it. Whereas it is easy to identify a product, suppliers, distributors and the responsibilities of buyers and sellers when a "material" product is transacted non-electronically, "de-material" transactions blur many of the existing distinctions between domestic and foreign business. Indeed, it can be difficult to define the location at which the transaction actually takes place, and hence the jurisdictions to which it may be subject. We may be entering the era of the "virtual enterprise" — even more nationless than before, invisible and run by anonymous people operating in a dehumanised market-place. Rather scary indeed, but current technological development may permit the means by which buyers and sellers can carry out business transactions which are secure, verifiable, authenticated, non repudiable, etc., even though the buyer and seller amy not know one another. In other words, the deployment of cryptographic methods may allow them to transact business quite securely.
44. If this sounds scary, then electronic commerce could on the other hand no doubt contribute to more responsive, flexible and efficient business. It can support advanced design in manufacturing concepts like "just-in-time", "quick response" and "concurrent engineering" oriented toward co-ordinating and often integrating various aspects of the production and distribution processes. It can also permit products to be more "tailor-made" to the needs of the individual consumer. Already today a major jeans manufacturer uses electronic links with retailers to supply made-to-measure clothing; and a car manufacturer assembles cars to order according to specifications worked out between the customer and the dealer. These are real world examples already upon us.
45. The three basic means for electronic commerce are telecommunication terminals, computer terminals and broadcast terminals (for example, cable and satellite transmission). Some observers believe that the Internet can become the basic vehicle for the delivery of virtually any kind of economic commerce, especially when aided by "navigational" tools such as the World Wide Web (WWW). If the Internet is sometimes difficult to use, especially with long waiting times (the WWW is now jokingly referred to as the World Wide Wait), then there is likely to be rapid development of new computer hardware and software to make the system more consumer-friendly. Merchandising on the Internet is predicted to grow from the present around US$ 500 million to over US$ 5 thousand million by the year 2000. "Congestion on the information highway" may be resolved by allowing the market to (i) give infrastructure providers an incentive to construct or activate new capacity; (ii) give service providers the incentive to rent that capacity; (iii) give users the incentive to subscribe to higher-bandwidth lines (for example, ISDN). This may be achieved by encouraging an appropriate pricing structure — more competition, basically. Recent studies by OECD on the Internet pricing and the "IT Outlook 1997" give more information.
46. OECD member countries have a prime responsibility to ensure that electronic commerce can develop freely, effectively, fairly and prosperously. They will have to come to terms with the global and transfrontier nature of new networks and communication systems, and establish the legal and regulatory framework in which electronic commerce can flourish and thereby help global exchange and economic growth. National legislations on privacy will have to be harmonised so that human rights can be upheld. What limits should be placed on the collection and use of data? What security safeguards should be observed? How can the individual see what data on him/her are assembled? In this context it should be noted that OECD ministers in May 1997 also "strongly condemned the dissemination on the Internet of child pornography and information that promotes child abuse". They urged that this "abhorrent and unacceptable misuse of the Internet be addressed immediately, including in the appropriate international organisations". Ministers also encouraged OECD to compare national legislations and practices concerning the Internet conduct to identify whether issues of common concern warranted international co-operation.
47. OECD member countries are also engaged in drafting a set of guidelines for cryptography policy. The Cryptography Guidelines, to be approved shortly, are meant to provide internationally comparable criteria for the encryption of computerised information, which business, individuals and law-enforcement officials can apply in safeguarding electronic transactions, communications and data storage. The cryptology guidelines were adopted by OECD as a recommendation of the Council on 27 March 1997.
48. As the need for information increases worldwide, there is a considerable job potential in electronic commerce involving knowledge, such as in electronic publications and multimedia services delivered "on-line". OECD calls this the electronic commerce "content industry". The "content industry" can flourish if the appropriate international agreements exist and if creators of knowledge are remunerated appropriately for their efforts.
49. The communications revolution has the potential to create a parallel banking and payment system outside of conventional channels. A key question for tax policy-makers is how these developments relate to current systems for taxation and tax administration. For instance, traditionally an economic activity has been tied to a specific geographic location. With the new technology this relationship will weaken considerably, or even disappear. How does the tax collector identify such things as the source of the knowledge production, or the residency of a buyer and seller of knowledge? Furthermore, a new aircraft engine can now be designed in "Concurrent Engineering" using dozens of specialists working in parallel through electronic communication in all the five continents. How should profits or losses arising from such an activity be apportioned among different countries? Finally, entrepreneurs can now engage in worldwide activity without creating a permanent establishment in any given country. Where should they be taxed?
50. As the reader can see, the whole issue of electronic commerce is extremely complicated, and this brief description can hardly do it justice. It is an example of OECD's effort to "grab hold of" new trends in the world economy, force member countries to reflect on them in time so as to get the maximum of good for the world community out of them and minimise the havoc they may wreak. We look forward to the results of the conference OECD will organise in Turku, Finland, in late 1997 entitled "Dismantling the Barriers to Global Electronic Commerce" and to OECD/Canada/APEC symposium "Borderless World" to be held in the spring of 1998. It is important that the previous work done by OECD in this field — such as the "privacy guidelines" of 1980, the "Declaration on Transborder Data Flows" of 1985, the "Security Guidelines" of 1982 and the draft guidelines for cryptography policy currently under preparation — be integrated into an organic whole that is sufficient to protect the rights of individuals and yet move international economic co-operation forward.
51. The preceding chapters have all pointed toward the same conclusion, namely, that the world economy is becoming increasingly global and integrated. If inflation in the large majority of OECD member countries is at a historic low, then this is largely because of increasing world competition and low demand. If unemployment is high in some countries, then this is at least in part due to insufficient deregulation and to insufficient adaptation of the skills of the work force to a new international environment and to insufficient growth rates. If regulatory reform is now being introduced or seriously contemplated by more and more OECD countries, then this is because an absence thereof impedes growth. Finally, the electronic commerce described in the last chapter both provokes globalisation of economic activity and is the main means by which it is carried out.
52. As we enter the "knowledge era", trade and investment become increasingly complementary, and the world economy is simply following suit. Before the industrial era, the acquisition of knowledge was undertaken in order to enrich the individual's personal life or to give him a position of influence in society, for instance in religious service. During the industrial era, "making" became more important than "being". This was the high point of engineering. Between the end of the last century and up until around 1945, the Industrial Revolution increasingly became the revolution of productivity. Producing relatively simple things but in the largest possible quantities and with the highest cost-efficiency became the overriding concern. Since the post-second world war reconstruction, however, knowledge is increasingly applied to knowledge itself. We find ourselves in the middle of the management revolution, in which knowledge and expertise are rapidly becoming the most important production factor — relegating those of land and raw materials, capital and work to second rank.
53. With present and future means of communication, the overriding creator of wealth will be our ability to apply our knowledge to already existing knowledge. Distance no longer plays any role for the transmission of ideas and information, while the transport of goods and people is becoming less costly due to the input of knowledge into creating better means of transportation. For the solution to an engineering problem in Vienna, an expert in Indonesia or Quebec may have the best and cheapest solution, and he or she may be increasingly called upon to provide it. As the knowledge content in products is going up and more and more of world exchanges are in services, the unskilled suffer the most and competition becomes stiffer and stiffer also between experts. Organising and selling a solution by combining and managing one's own knowledge with that of others becomes the key to economic success.
54. The Uruguay Round is already in part overtaken by events. Launched in 1986 and entering into force in 1995 along with the establishment of the new World Trade Organisation, the world economic community is already in the midst of trying to implement it and thinking of what is to come next. The WTO is active on all fronts: unfinished traditional issues such as remaining (and sometimes re-emerging) tariff barriers; the beginnings of a new disputes settlement mechanism already under strain by issues such as the United States Helms-Burton Act; and the tackling of the so-called "built-in agenda" involving domains so far considered domestic, such as services, investment conditions, competition, environment, tax policy, regulatory reform and possibly labour conditions. The WTO Singapore Summit at the end of 1996 spelt out all these challenges and made it clear that WTO would need the help of others, prominent among them OECD.
55. It is noteworthy in this situation that many developing countries are now more in favour of trade liberalisation than certain of the traditional industrialised countries, at least in areas where they have a competitive edge in the form of lower labour costs or cheaper raw materials. The industrialised nations, for their part, continue to press in such areas as intellectual property and services.
56. Whatever the position of individual OECD members, the organisation as such is a force to be reckoned with in world trade liberalisation. OECD's Secretary General calls globalisation a historic chance and it is clear that he intends to use OECD to continue in the tradition started over a decade ago, namely that of a creator of new ideas that can later on become worldwide principles within the WTO framework. Some could see this as the established industrialised countries imposing their will on the world. But others view such a "preparatory" function for OECD as flowing naturally from its much smaller and more homogeneous membership compared with an WTO of well over a hundred members.
57. If services and agricultural subsidies were the "food for thought" which OECD gave the WTO during the Uruguay Round, then that of the future may well be the organisation's soon-to-be-concluded Multilateral Agreement on Investment (MAI). The MAI reflects the recognition that trade and investment are really two sides of the same coin, that of doing business. Trade is access; investment is presence. In a world of instant communication as just described, trade and investment are becoming increasingly interchangeable ways of contesting markets. The MAI will be the first attempt to combine in the one multilateral agreement the three key areas involved in foreign direct investment rule-making: investment protection, investment liberalisation and dispute settlement regarding investments. For the MAI to be adaptable to WTO needs, it is foreseen to make it open also to non-OECD countries.
58. The requirements will be tough. Not only traditional foreign investment will be covered, but also portfolio investments and "intangible" investments. "National treatment", that is, the same treatment within a given country between domestic and foreign investment, will be assured. Free transfer abroad of profits and dividends will be expected, as will compensation for expropriation. The rapporteur believes that equal treatment should also involve solid taxation of profits and dividends.
59. Called for by OECD Ministers in 1995, the MAI was to be finalised in time for this year's OECD's ministerial meeting at the end of May. Last minute complications prevented this from happening but there is a commitment to get the job done by next year. These include reservations by various countries wishing to exempt specified sectors of their economies from the agreement; how far tax issues and financial services should be covered; and how extraterritorial legislation such Helms-Burton should be dealt with.
60. Other difficult issues remain. Certain countries or regions want to protect their particular cultural heritage, which they see as threatened by a foreign cultural invasion. Some fear unacceptable levels of unemployment and an erosion of social order unless certain national industries are protected from too harsh foreign competition.
61. How can it be made sure that regional economic integration does not discriminate against global integration? New regional economic groupings crop up every year alongside the more established ones such as the European Union. If they offer a protected environment internally, how will this rhyme with the kind of universality inherent in the MAI and in the principles on which the WTO is founded ? If the MAI and the WTO become really effective, what is the need for regional groupings?
62. This leads us naturally to areas where the various OECD regional groupings have come further than the world as a whole. Labour standards is one. Your rapporteur will not conceal his strong ideological preference for seeing the entire world adopting labour standards which protect the basic rights and welfare of all workers — especially those which many OECD countries consider as "core" ones, that is, relating to human rights. OECD is examining the possibility of having the MAI include labour standards, but maybe we should not be too optimistic; for the more the new treaty will include labour standards, the less willing may non-OECD countries be to adhere. The rapporteur firmly believes, however, that the final MAI must include both environmental and labour standards.
63. There can be no doubt, however, that also a country such as the United States is now paying greater attention to this issue. A MAI-world where child, slave and prison labour is coupled with complete freedom to trade and invest could well lead to a worldwide erosion of all the principles that make for human dignity. It is, on the other hand, important to ensure that the concern for labour standards should not be used for protectionist purposes. One of the great achievements of the GATT-WTO era is the involvement of an increasing number of developing countries in the world economy. In the absence of open trade they will stand to lose all they have achieved.
64. And yet the risk of a backlash in some OECD countries against continued world trade liberalisation is real, as companies continue to "downsize" operations and move production to lower-cost countries. People may increasingly feel that unfair competition results from international differences in domestic policies, business practices and levels of prices, wages or living standards. Since the MAI will undoubtedly contribute to this process, one has to make sure that its other consequences — more trade and hence economic growth, more foreign investment hence more employment — will be sufficiently felt. The link with deregulation at national level is obvious.
65. As regards labour standards, the WTO Singapore Summit decided in effect to put it on the back-burner, leaving it to ILO to tackle the issue. It is to be hoped that it is not buried there for good, but that it will come back on the WTO agenda soon.
66. One word regarding corruption. Corruption has been identified by OECD, most recently in a 1994 Ministerial Recommendation on Bribery in International Business Transactions, as one of the major threats against world economic development. It is widespread and spreading. It corrupts morals, distorts competition, raises the cost of transactions, undermines the political basis of government by destroying public confidence in leaders and institutions. In development co-operation it can result in the fraudulent use of international resources.
67. OECD ministers in May 1997 called on the organisation to continue to study the issue of "corporate governance" which they said has "important impacts on corporate behaviour, and hence countries' economic performance". They also, on this occasion, reached agreement to outlaw the bribery of foreign officials by the end of 1998. Under this accord, OECD member countries have until April 1998 to introduce legislation making foreign bribery a crime. The laws must be passed by the end of 1998, and member countries are committed to opening negotiations for an international treaty to deal with bribery.
68. The rapporteur in his talks with OECD was assured that the OECD 1976 guidelines on multinational enterprise would be appended to the MAI. His proposal would be to also include the 1994 Recommendation in the new instrument.
69. OECD ministers in May 1997 talked about a "historic coincidence of interests for OECD and non-OECD countries in today's globalising world economy". They referred to an OECD study, "Towards a New Global Age", which outlines a vision for the year 2020 promising a large increase in prosperity and welfare across the world, and the progressive integration of developing and transition countries into the global economy. This, they argue would, however, require the countries concerned to move forward with trade and investment liberalisation, macro-economic discipline, comprehensive market reforms, strengthening of financial systems and the implementation of environmental policies.
70. The above leads the rapporteur to a more general point. This is that economic globalisation has entered a critical phase. A popular backlash against its effects, especially in the industrial democracies, is presenting the threat of a highly disruptive impact on economic activity and social stability.
71. Two distinct tendencies are at work. The first may be called "zero sum nationalism", by which it is believed that what other nations or regions gain, one's own nation or region loses. This notion has spread among the general public to a worrying degree, and it is exploited by populist politicians. The second tendency could be called "apathetic cosmopolitanism" and is to be found among the elites of many countries. They may sense the global moral problem, but they do not feel any incentive to do much about it.
72. Globalisation means a tremendous redistribution of economic power primarily within countries but also at the world level. This will inevitably translate into a redistribution of political power. By the beginning of the next millennium, we will virtually have economic parity among the United States, east Asia and Europe.
73. Whereas technological changes in the past meant increased productivity that translated into more jobs and higher wages, they now more often than not result in company "down-sizing" and departure of production units to lower-cost countries. What used to be "creative destruction" now seems only to be "destruction", first in production and now increasing also in services. Unless we are very careful, this may lead to a "winner-take-all" situation, in which those who are able to ride the wave of globalisation — especially because of their knowledge and communication oriented skills or their strong position in the market — will win big. Those who are not are mercilessly left behind, whether we are talking about nations, corporations or individuals.
74. Globalisation also has the effect of increasingly "delinking" the fate of the corporation from those of its employees. Higher profits used to mean more job security and better wages. Today corporations announce new profit increases on day one, and new waves of lay-offs on day two. For those who manage to keep their jobs for now, the bonds of loyalty to their company become weaker and weaker. Public opinion is on the defensive, increasingly anxious about the future. Protectionism is often the facile response offered.
75. In order to meet the challenges of globalisation, the rapporteur recommends that sincere consideration be given to a set of pragmatic guidelines offered by Mr Robert Reich, former US Secretary of Labour. Because they are so relevant your rapporteur would like to quote them in full. Mr Reich argues that :
76. At the same time we must be careful not to blame everything on globalisation, for globalisation also takes place in within regions. OECD has repeatedly drawn our attention to the relatively small percentage — around 2% — of total European trade actually performed with, say, east and South-east Asia. That is, the large share of European trade is within Europe itself. And here the EU and the European Economic Area countries are more affected by the implementation of the EU Internal Market than by any non-European competition resulting from WTO achievements.
77. Furthermore, it would be interesting to compare the economic growth and the effects on employment predicted at the time in the EU White Paper heralding the Single Market, with what has actually happened in these fields. Moreover, in 1995 the EU resolved to halve unemployment by the year 2000, but since then unemployment has hardly come down at all within the EU and has actually increased in some EU member countries. Similarly, what have been the effects in terms of growth and employment of the EU's lavish support to its poorer region. The rapporteur does believe that these regions should be helped. But if large sums of money are spent with no or little economic development or added employment to show for it, then should we not reconsider? OECD, joined by the World Bank, the IMF and others, never tire of pointing out to us that aid to developing countries is only efficient when accompanied by structural reform. The same would seem to hold for the EU.
78. What is striking is the inability of so many of our countries to come up with coherent, effective and sustainable policies to make globalisation a friend rather than a foe. We have to start focusing on training and education, on the permanent reform of our telecommunications and transportation infrastructures, on fiscal policies that serve as incentives for companies to expand and hire new people, and to recalibrate and retarget social policies so that they are more efficient at a lower cost. We also have to rethink state expenditure, for instance on pensions, considering the previously mentioned reduction in birth rates (paragraph 9). Traditional patterns may have to be modified to take into account new aims. The "politically efficient", that is that which may help us politicians win the next election, will have to be weighed against the "economically efficient". Generous advanced retirement rules may be an example of former, while maintaining or even raising retirement age, such as now contemplated or introduced in certain OECD countries, may be an example of the latter.
79. Whatever we do, globalisation will stay with us. This is assured by the revolution in information technologies, the emergence of new strategic centres of power such as east Asia, and the addition of over two thousand million people to the world market along with the opening up and liberalisation of previously closed societies. If we play our hand right, emerging economies can become not only new competitors but also new markets and new sources of investment, as shown by Asian investments in Europe. However, globalisation is a gradual process. It should not be allowed to proceed without certain conditions being applied, in order to avoid that certain countries or companies cause negative external effects or become "free riders".
5. CONCLUDING REMARKS
80. Up until 1994, OECD remained at its long-standing size of twenty-four member countries. Reflecting the since then rapidly changing world economy, five new countries have joined the organisation more recently: Mexico in 1994, the Czech Republic in 1995 and Hungary, Poland and the Republic of Korea in 1996.
81. At twenty-nine, OECD will now likely spend some time digesting its enlargement, especially as it further taxes scarce staff and budgetary resources. OECD ministers in May 1997 in consequence "reaffirmed that the future role and membership of the organisation need to evolve". They recalled that OECD must remain "open to states sharing the common values of OECD members, on the basis of mutual interest". At the same time, they said that the organisation also had to be "selective while preserving the tradition of high standards of membership". Advanced negotiations are under way with the Slovak Republic, and there are increasing contacts with countries like Chile, Argentina and Brazil. It is well known that the Baltic countries want to join.
82. A "Declaration of Co-operation" was signed with Russia in 1994, and the country is a special priority for the organisation, which already has a string of projects under way. However, while Russia is being increasingly integrated into the Group of Seven (thus soon to become the "G8"), OECD membership will not be so easy. Russia's application has been acknowledged by OECD, but the country has not yet been invited to start the formal membership application process. Membership for Russia would require a commitment to liberalisation and reforms in such areas as regulatory transparency, fiscal systems, the environment and the securities markets. OECD ministers in May 1997 established a special Liaison Committee for Co-operation with Russia, hoping that this would help the country "establish a fully fledged market economy within a framework of democratic institutions ...".
83. Co-operation with China will be of particular importance. China is already the eleventh economic power in the world and it is of profound importance to OECD member countries, not least its nextdoor neighbour Japan. There can be no doubt that China will be, if not the first, then the second economic and political power in the early twenty-first century. For South-east Asia and for the world at large, it is vital to ensure that China integrates its economy and its political ambitions smoothly into the world community. OECD's programme of dialogue and co-operation with China, launched in 1996, will therefore have to be given top priority.
84. There is a contradiction between, on the one hand, calling upon OECD to enlarge and to take on all the new tasks that come with a globalised economy, and on the other hand to deny it the resources it needs to carry them out. The OECD Secretary General announced his great concern over having to cut the organisation's annual budget of 1.3 thousand million francs by 10% over the next three years. Close to a hundred staff positions have been eliminated already and he expressed fear that more will need to go. Since 85% of OECD's budget is for staff, budgetary cuts will of necessity result in staff reductions. The situation is not helped by the fact that the United States is already in arrears by close to 9 million dollars on its 1996 contribution. Washington is also the most prominent capital in calling for further budgetary cuts.
85. This is all the more surprising since OECD in many respects works to realise the kind of world economy that the United States would prefer. More open trade, more deregulation, fewer subsidies and less corruption. It would be a fallacy to believe that a more global economy would need less monitoring, or even less policing. If much of US policy over the last decade has been towards "getting the government off the economy's back", then liberalisation between national economies paradoxically calls for greater co-ordination of action, not less. How, for instance, can the Multilateral Agreement on Investment be made to work without constant checking on how countries live up to it? How can the cancer of bribery and corruption be cured without constant follow-up?
86. No doubt OECD will have to reform. Traditional sector-by-sector research may well have to be down-played, with more attention paid to over-arching studies such as those pursued within the organisation's International Futures Programme. A larger and more heterogeneous membership will lead to a new emphasis on the effects on globalisation, on the social implications for new trade and investment flows and on forging links with such emerging economic powers as China, India, Russia, Indonesia and Brazil. The intensifying co-operation with what OECD calls the Dynamic and Emerging Non-member Economies (DENEs) — Hong Kong, Malaysia, Singapore, Chinese Taipei and Thailand — is a sign of this, as is its Emerging Market Economy Forum, with over a dozen countries such as Egypt, Israel, South Africa, Venezuela and Vietnam participating.
87. OECD Ministers in May 1997 at any rate expressed "strong support for the process of reform ... now under way in the organisation" and looked forward to "the results of the current streamlining and priority-setting exercises in 1998 programme of work and budget of the organisation". They further said they "believed that a well-focused and effective OECD, working to improve policies in both national and international contexts, is an especially potent instrument of global change and reform". Finally, recalling the 50th anniversary of the launching of the Marshall Plan — which also gave rise to OECD's forerunner, the OEEC — the ministers expressed their belief that the organisation's mandate "remains valid and relevant", while saying that the organisation "must and can adapt its operations and work priorities to meet the continuing resource pressures and the changing needs of its members". At the same time they said they were "committed to work collectively towards strengthening OECD's role in the global economy of tomorrow".
88. Neither the contemporary version of the Anglo-saxon model, nor the Rhineland model, offer satisfactory answers to the rapporteur. He, on the contrary, feels challenged by the vision of the previously quoted Robert Reich, former US Secretary of Labour, as set out in his Commencement Address at the University of Maryland in December 1996. Mr Reich said the following on this occasion:
"Instead of an America that is growing together, the Class of 95 has been handed an America that is growing apart. From 1979 to 1993 our economy continued to expand. But almost all the growth in income went to the wealthiest fifth of American households. The poorest fifth saw their incomes fall. The American economy is again percolating with possibilities. But not for everyone. Gone for ever are the assembly lines that used to provide lifetime jobs with rising wages and benefits to people straight out of highschools. The winners in the new economy are those who can identify and solve problems, manipulate and analyse symbols, create and manage information.
You [students] are thus likely to end up on the happier side of the great divide. Indeed, you may even come to see yourselves more as inhabitants of the global economy ... than as citizens of a particular economy. And this ability to succeed in the information-rich global economy may lead you to withdraw, to secede from that part of America which remains trapped in the old economy, on the other side of great educational divide.
We are witnessing a retreat form common ground ... from the very idea of shared aspiration and common responsibility. And as the successful secede, they ask with ever loud voice. Why should we care?
With the degrees you will soon receive, many of you have been handed a ticket to secede, if you wish to. But let me urge you to resist. Not because commencement speakers are obliged to offer lofty sentiments. But because you will not want to live in a society sharply divided between winners and losers.
The underlying question is this. Are we simply an economy, in which the only thing binding us together is the business we transact with one another? Or are we still a society, whose members have responsibilities toward one another, who continue to join together to create opportunity for all?"
89. The rapporteur, with the above and all that has preceded in mind, wishes to propose a set of policy recommendations which, although possibly provocative to some, address the macro-economic side of the unemployment problem and which aim at reconciling a policy growth with the object of assisting the underprivileged in society. In order to "reconnect" economy and society, the following measures should be contemplated:
90. In closing, the rapporteur looks very much forward to the further inputs — in addition to those given in June 1997 at the provisional adoption of the draft resolution — to be provided by the non-European OECD delegations in September 1997, adding their various perspectives, and also of course from his colleagues on the Committee. He again regrets that his concentrating on a few salient issues has not permitted numerous other areas to be covered: agriculture, where he hopes for a strong contribution by the Enlarged Committee on Agriculture and Rural Development; the environment; and, last but not least, OECD's extensive work on development co-operation pursued both within its Development Assistance Committee and within its Development Centre. It has, however, been a sacrifice the rapporteur has been willing to make, for the purpose of concentrating the reader's mind on a few particularly important issues and messages. Perhaps the most basic question is this: can we reconcile strong economic growth with the kind of society we want, one which adequately supports its weaker and more vulnerable members? The rapporteur persists in believing we can and we should. He turns to the members of the Enlarged Assembly, and OECD, in his search for a way how to.
Reporting committee: Committee on Economic Affairs and Development.
Budgetary implications for the Assembly: none.
Reference to committee: standing mandate.
Draft resolution unanimously adopted by the Committee on Economic Affairs and Development on 23 September 1997 at its enlarged meeting with delegations from the Parliaments of Canada, Japan and Mexico and with representatives of the European Parliament and other committees concerned.
Members of the committee: MM. Davis (Chairman), Mrs Degn, MM. Blœtzer, Valleix (Vice-Chairpersons), Aliko, Andreoli, Behrendt, Bilinski, Billing, Mrs Blattmann, MM. Bog�r, Bonet Casas, Mrs Bribosia-Picard, Mr Brunhart, Mrs Calner, MM. Cunliffe, Cusimano, Dumitrescu, Mrs Durrieu, MM. Elo, Eyskens, Figel, Frey, Mrs Frimannsd�ttir, MM. Galanos, Galv�o Lucas, Mrs Gatterer, MM. Gonzalez Laxe, Gusenbauer, Gylys, Jelenkovic, Kamhi, Kiratlioglu, Kirilov, Kouck�, Kuznetsov, Lambergs, Le Grand, Leers, Liapis, Malinowski, Merkushov, Minkov, Mitterrand, Muravschi, Pereira Coelho, Poppe, Puche, Rigo, Rippinger, Rutskoy, Sceberras Trigona, Siebert, Mrs Squarcialupi, Mrs Št_pov�, MM. Szalay, Telgmaa, Thaler, Townend, Tripunovski, Vasile, Verivakis, Mrs Verspaget, MM. Wallace, Yavorivsky.
Canada: Mrs Phinney, MM. Axworthy, Dromisky, Mrs Lalonde, MM. Gigantes, Grimard.
Japan MM. Nakayama, Yamaguchi, Nakamura, Narasaki, Uozumi
Mexico MM. Solana, Navarro, Conchello
N.B. The names of those members present at the meeting are printed in italics.
Secretaries to the committee: MM. Torbi�rn, Bertozzi and Ms Ramanauskaite.