OECD and the world economy
Report
Doc. 8179
22 September 1998
Committee on Economic Affairs and Development
Rapporteur: Mr Terry Davis, United Kingdom, Socialist Group
Summary:
The report has been prepared under the shadow cast on the world economy by the economic crisis in Asia and expresses concern about the situation in countries such as Indonesia, Japan, Korea and Thailand.
The report goes on to discuss the OECD's proposed Multilateral Agreement on Investment, in which, it says, national concerns must be better addressed in areas such as social and labour standards, the environment and national cultural objectives. Other chapters take up the rapid ageing of the populations in most OECD member countries and the OECD's role in both the fight against economic crime and corruption and in the post-Kyoto process on climate change. A final chapter discusses the changing nature of work in the new knowledge-based world economy and the challenges thus posed to education.
I. Draft resolution
1. The enlarged Parliamentary Assembly, composed of delegations of OECD and Council of Europe member states, has examined the recent activities of OECD in the light of the report prepared by the Assembly's Committee on Economic Affairs and Development and the contributions made by various committees of the Assembly. It welcomes this annual opportunity to provide a parliamentary input into the OECD's work, but would also welcome a response from the OECD to the enlarged Assembly's resolution.
2. The enlarged Assembly expresses its serious concern over the economic crisis in Asia. This crisis not only affects the livelihood of millions of people in the countries concerned and reduces their ability to share in the benefits of globalisation, but also risks undermining the stability of the world economy as a whole. It calls on the countries of Asia to undertake speedily the necessary political, economic and social reforms; on the international financial institutions to support these reforms; and on the member states of the enlarged Assembly to assist them in this endeavour. It emphasises that democracy, human rights, the rule of law and transparency are not 'luxuries' which countries may or may not 'afford', but essential for sustainable economic development.
3. The enlarged Assembly expresses concern over the situation in Japan, a situation which it sees as crucial to economic developments in the region and the world as a whole. It believes that swift and speedy action is needed on the part of the Japanese government to remedy this situation. It welcomes Japan's recent measures to stimulate its economy. It shares the views expressed by the OECD Ministers in April that further progress in the strengthening of the financial system and in structural reform would help establish a sound basis for sustainable growth, while, over the longer term, fiscal consolidation remains an important goal in a rapidly ageing society. However, it believes that the Japanese economy needs to be even more open to foreign trade and investment and that the Japanese banking system needs to be urgently reformed.
4. The enlarged Assembly notes that although the OECD area as a whole was forecast to grow by 2.4% in 1998 and 2.5% in 1999, the potential global economic crisis poses serious risks across the world, including OECD member countries. The enlarged Assembly therefore cautions against any complacency over the situation and emphasises the need for the closest possible international co-ordination of policies, in the light of recent events in other continents.
5. The OECD should heed the current problems facing the world economy by adopting new approaches capable of responding effectively to changing circumstances. The enlarged Assembly in this context believes that urgent measures, including clear accounting standards and transparency, are needed to enhance the capacity of global markets to function properly and with stability. The enlarged Assembly also believes that the IMF alone is not likely to be able to address simultaneously the economic crises taking place in many parts of the world, and that there is an urgent need to establish additional mechanisms to safeguard against sudden movements of speculative short-term funds. OECD governments should work co-operatively with other nations to explore practical options for curbing damaging short-term financial speculation, with the aim of restoring a more orderly global system that promotes needed long-term investment flows and mitigates the dominance of speculation over productive enterprise.
6. The enlarged Assembly regrets that unemployment is still unacceptably high in many OECD countries and is particularly concerned about unemployment among young people. In that regard, OECD governments need to find ways to increase the employment of youth through incentives of various types. The enlarged Assembly notes the wide differences in unemployment among OECD countries and encourages them to draw upon one another's experiences in this regard, taking inspiration from OECD's Job Strategy and the organisation's follow-up work in this field.
7. The enlarged Assembly welcomes the successful efforts of OECD countries to keep inflation _ which stood at 3.7% in 1997 for the area as a whole - at historically low levels. It trusts that policies will be followed to avert any risk that such low inflation may turn into deflation and higher unemployment in view of the highly negative effects that such a development would have. In the light of more recent developments, especially in Russia and South America, the enlarged Assembly emphasises that, if a world recession is to be avoided, OECD member countries must take co-ordinated action with regard to reducing the general level of interest rates.
8. The enlarged Assembly welcomes the progress made by many countries in transition in central and eastern Europe and hopes that the OECD's co-operation with them can be further intensified. It also welcomes OECD's growing co-operation with many non-member countries, especially China whose smooth integration into the world economy is vitally important.
9. On the eve of the start of Economic Monetary Union among eleven European Union countries at the beginning of 1999, the enlarged Assembly registers with satisfaction that the divergence in these countries' cyclical positions has recently been reduced - a fact which will facilitate the establishment of a single interest rate for the entire area. It trusts that sufficient policy co-ordination and structural reform will be undertaken by all participating countries; that measures will be taken to ensure that non-participating European and other countries will not be negatively affected by the project but will be adequately consulted and involved
10. The enlarged Assembly also commends OECD countries on their efforts to maintain, in spite of the Asian crisis, an open, multi-lateral world trade system which respects WTO rules and principles and will permit world trade to rise by an expected 7.1% in 1998 with a further increase of 7% in 1999. It hopes that any protectionist tendencies can be withstood in order to allow recovery to be resumed in the countries most affected by the crisis.
11. The enlarged Assembly in this context points to the importance for world trade and economic growth of a similarly open and rule-based system for international investment. With respect to the OECD negotiations to conclude a Multilateral Agreement on Investment (MAI), scheduled for resumption in the autumn of 1998, the enlarged Assembly believes these must take into account the strongly-expressed views of parliaments and citizens groups. Any MAI should in particular incorporate effective provisions, including institutional mechanisms, for preserving the cultures of difference countries and for upholding progress on environmental and labour standards. It should also aim for the regulation of short-term capital movements and the promotion of long-term investment flows.
12. The enlarged Assembly believes, furthermore, that any provisions for investor-state arbitration must safeguard the right of governments to act for legitimate public purposes, notably respecting a healthy environment. With that in mind, what might be taken to constitute "expropriation" or other grounds for investors to challenge government laws and regulations should be given a clear and narrow definition in any MAI. Furthermore, its dispute resolution procedures should be open, accessible and transparent.
13. The enlarged Assembly reiterates the call made in its Resolution 1134 (1997) for the negotiating process to be as transparent and democratically accountable as possible and to involve national parliaments to a greater extent than hitherto. It also urges the OECD to take into account the concerns of member states and non-governmental organisations as regards socially responsible behaviour, strong environmental and labour standards, and national cultural objectives. Since the OECD's work on migration indicates that free trade agreements may also affect migration, the Assembly recommends that the migration implications of the Multilateral Agreement on Investment (MAI) should be taken into account in the forthcoming negotiations.
14. The enlarged Assembly would welcome it if the Parliamentary Assembly of the Council of Europe could convene a public hearing on the subject as soon as possible through its Committee on Economic Affairs and Development, with the participation of the other committees concerned.
15. The enlarged Assembly congratulates the OECD on its progress in the struggle against economic crime and corruption. It welcomes the signing of the Convention on Combating Bribery of Public Officials and hopes that this open treaty will be signed and ratified by all OECD and Council of Europe member states. In this context, it recalls Resolution 1147 (1998) on the threat to Europe from economic crime adopted by the Parliamentary Assembly of the Council of Europe in January 1998 and encourages the OECD and the Council of Europe to intensify their close co-operation in this field.
16. The enlarged Assembly commends the OECD on its efforts to monitor the compliance by its member countries with the United Nations Framework Convention on Climatic Change and particularly the Convention's first Protocol concluded in Kyoto in December 1997. It recalls the importance of fully respecting the Kyoto Protocol in order to reverse the trend in the emission of CO2 and other greenhouse gases. It also asks OECD member countries to pay particular attention to the preparation of the negotiations which will take place at the next Conference of the Parties (Buenos Aires, November 1998), and which will be decisive for the effectiveness of the convention. It stresses the importance of involving national parliaments in preparation of these negotiations).
17. The enlarged Assembly asks OECD member countries to shape policies which take into account the continuing decline of ‘work’ in its traditional form and its changing character in a global ‘knowledge economy’. The rationalisation of work resulting from computerisation and robotisation - leading to a decline in many forms of manufacturing and an increase in the ‘brain content’ in products and services – should encourage the formulation of policies which permit an expansion of the more labour-intensive service sector and which promote the capacity of the labour force to adapt to technological change. Social security guarantees are also needed for the increasing number of people employed in the part-time work system and other atypical forms of work.
18. The enlarged Assembly is aware of the recent G8 report on the threat to international business, especially banking and financial services, telecommunications, transport and infrastructure of the failure of many of the computer systems involved to recognise the century date change. It is particularly concerned that there is no agreed international standard for Year 2000 compliance. It urges the OECD to consider, as a matter of urgency, the establishment of such a standard, (the British Standards Institution's Year 2000 standard, for example), and the need to ensure that member states are taking the action necessary to avoid national and international disruption, and are drawing up contingency plans to cover the key sectors of their economies.
19. The enlarged Assembly expresses its concern over the medium and long term consequences of the rapid ageing of the populations in the OECD area as identified by the OECD. These consequences - especially noticeable from the year 2010 - will include a smaller tax base, higher pension, public health and long-term care expenditure, lower savings and a generally less dynamic society. The enlarged Assembly calls on OECD member countries to utilise fully the organisation's policy findings in this field in avoiding this development .
II. Explanatory Memorandum by Mr Davis
Contents
II. The general economic situation including developments in Asia
III. The OECD's Multilateral Agreement on Investment (MAI)
IV. Fighting economic crime and corruption
V. The OECD's contribution to the post-Kyoto process on climate change
VI. The economic and social implications of ageing populations
The enlarged debate of the Parliamentary Assembly on OECD activities - entitled "OECD and the World Economy" - is scheduled to be held on 23 September 1998. This report is based on the Rapporteur's discussions with the Secretary General, Mr Donald Johnston, and his senior staff in March 1998, and on the meeting of the Committee on Economic Affairs and Development with him in June. The Rapporteur thanks all those involved – his Committee colleagues as well as Mr Johnston and his staff – for their valuable contributions to the report. The report also builds on the conclusions of the OECD Ministerial meeting held in Paris on 27 and 28 April 1998.
Following the precedent in last year's report presented by Mr Gusenbauer (Resolution 1134 (1997); Doc. 7877), this report will focus on a limited number of themes agreed with the OECD Secretary General. These are:
- The general economic situation including developments in Asia
- The OECD's Multilateral Agreement on Investment (MAI)
- The OECD's contribution to the post-Kyoto process on climate change
- The economic and social implications of ageing populations
- Work and leisure in a knowledge-based economy
As regards the first of these themes _ the general economic situation including developments in Asia _ the Rapporteur feels like an artist trying to paint a picture of the setting sun: by the time he has placed it on his canvas, it has moved on across the sky. In the case of Asia, the situation is of course moving very fast indeed - especially in Japan. It follows that, in spite of the Rapporteur's best efforts, this Explanatory Memorandum _ the publication of which was deferred from July to late August precisely to take the most recent developments into account _ may no longer be fully up-to-date by the time the Enlarged Assembly debates this report in late September .
II. THE GENERAL ECONOMIC SITUATION INCLUDING DEVELOPMENTS IN ASIA
The most significant developments in the world economy since the enlarged Assembly's report on OECD activities last year are of course the tensions in financial markets in Asia. They began in Thailand in mid-1997 and spread, in the course of the autumn, to a number of other countries in Asia, including OECD member Korea. By summer 1998, they had reached the shores of Japan in the form of a dangerously depreciated yen _ endangering the financial stability of the region and the world. The Committee on Economic Affairs and Development at its June 1998 meeting considered this situation to be highly worrying and called on Japan to take speedy action to remedy it and to proceed urgently with the necessary reforms. The two countries worst hit so far have been Thailand and Indonesia. Millions of people have lost their livelihoods and savings, and along with them much of their hope for a brighter future. As inflation has soared, many of life's necessities, such as food and medicaments, have been priced out of reach for many of the poor. Thousands of Indonesians have fled the country for neighbouring countries such as Malaysia, where they have not been welcome.
As some observers have pointed out, a common feature of all these countries has been inadequate regulation of the financial sector of the economy. They have also suggested that more attention should have been paid by national and international institutions to the state of the financial sector before the crisis. They have therefore called for the creation of a new institution with responsibility for the surveillance of the financial sector. The Rapporteur understands that this idea was strongly endorsed by the most recent Annual Meeting of APEC Finance Ministers in Canada.
More fundamentally, the Rapporteur wishes to refer to what he considers an extremely important Motion for Resolution tabled by Mr Elo, First Vice-Chairman of the Committee on Economic Affairs and Development, and several other Assembly members. In their text, entitled "Implications for Europe and the World of the Financial Crisis in Asia" (Doc. 8014 of 10 February 1998), Mr Elo and his colleagues say that this crisis "has as its roots not only imprudent lending and investment but, even more fundamentally, the lack of democracy in the countries concerned - with a resulting absence of transparency in public affairs, of free and open debate, and of an appropriate legal and institutional framework". They go on to say that "… democracy, human rights and rule of law therefore take on a meaning going on beyond the dignity of man to include also the prospect for lasting economic and social development, adding urgency to the need to defend these values…".
This message is important because it highlights the fact that democracy, human rights and the rule of law, are not luxuries which can be afforded by a free market economy - nor a burden which can be carried, but which is not essential for economic development. To the contrary, the authors argue, that these values constitute a sine qua non for sustainable economic development because lasting economic development can only be maintained in a country where the people have their say and can scrutinise every aspect of political and economic life. This statement was echoed in the Communiqu� of the OECD Ministerial meeting held in April, which considered "good governance" as being "critical to good economic performance", and a similar paragraph was contained in the Declaration which was issued at the G-8 Summit in Birmingham in May 1998.
As these lines are being written, the situation in Korea seems to be stabilising, even though the country’s real output in 1998 will stagnate at best according to the latest OECD Economic Outlook and the won suffers along with the yen and other currencies in the region. The Korean people are being asked to make sacrifices and seem to be making them even as they demand fundamental political and economic reforms to remedy the situation. The OECD in its December 1997 "Economic Outlook" referred to "fundamental governance problems" in the country. Beyond the immediate need to provide adequate liquidity to over-indebted banks and too closely knit business groups, there remains the task of speeding up the liberalisation of the country's financial market while strengthening prudential measures. The corporate sector will have to be restructured and the country’s business life and government will have to become more transparent. The assistance provided by the International Monetary Fund is a first and important step in tackling these challenges.
As indicated above, the big question now is no longer whether, but to what extent, the turmoil in the rest of the region will affect Japan, with its close economic links to the rest of Asia and much outstanding debt. To the extent that banks or Japanese subsidiaries in Indonesia or Thailand collapse, many banks and companies in Japan will suffer because loans will not be repaid and investments will not create revenue.
A shaky Japanese economy means less trade among all Asian countries and hence a contraction of their economies in a potentially vicious circle. Furthermore, a continuously weaker yen (it had sunk below 145 to the dollar by mid-August 1998 with the potential of weakening to 150 over the coming weeks) means not only that there will be a major change in trade between Japan and the rest of the world (with Japanese exports benefiting and exports by others to Japan suffering), but also that Japanese products will brush aside, say, those of China, Singapore or Taiwan in European and North American markets. It may also lead to deferred or cancelled Japanese investments in other countries, as a depreciated yen buys fewer francs, pounds or dollars.
The risk is increased by the underlying weakness of Japan's financial sector in its domestic dealings. Already fragile balance sheet positions of numerous banks have been affected by falling equity prices, forcing the government to step in with support from public funds. The OECD recommends that Japan should increase the transparency in its financial sector by strengthening accounting standards and by improving reporting and disclosure procedures. Its June 1998 Economic Outlook also calls on Japan to stimulate economic demand in order to prevent any further shrinking of the economy; to tackle the problems besetting the country's banking sector which, according to OECD, is saddled with "bad or non-performing loans" of about US$ 570 thousand million; and to liberalise the domestic economy and open it up to more foreign competition.
Another problem besetting the Japanese economy is its anaemic growth. In 1997 the economy grew by only 0.9%. In 1998 it is expected to contract - by precisely how much is impossible to say at the present moment. Since little can be done with monetary policy given central bank interest rates at close to 0%, fiscal stimulus seems the only way out. The international community is calling for a substantial tax stimulus which would persuade the Japanese people to consume more. However, a wary public is not likely to consume unless such a tax stimulus is seen as permanent and unless people feel confident that their savings are safe.
Japan's situation is made more difficult by a rapid ageing of the population (which means that fiscal consolidation is even more urgent) and the considerable subsidies given to some economic sectors. The Rapporteur looks forward to hearing what our Japanese parliamentary colleagues will say about this problem in the course of the discussions on this report
So far, the currency of the People's Republic of China has withstood the pressure, even though the country's central bank had to start supporting it actively by mid-August 1998. As long as the yuan holds, the risk of competitive devaluations in the whole region may be contained. Chinese resistance to devaluation has been due in part to political foresight on the part of the Chinese government. It has also been made possible by the fact that many Chinese exports do not directly compete with those of Japan in world markets (since they often have less value-added) and by the resilience, indeed dynamism, of the enormous Chinese domestic market accounting for about one-fifth of the world's population. Still, the yuan could come under attack if China's neighbours were to suffer even more in the course of the early autumn of 1998.
Other OECD countries in the region, such as Australia and New Zealand, are increasingly feeling the impact of the Asian financial crisis. Thus, their economic growth for 1998 will probably fall quite sharply. Australia's unemployment is stuck at around 8%, and the Australian dollar has lost in value as the yen has plunged. Fortunately, it is possible that both the Australian and the New Zealand economies are so basically sound that they may be able to ride out the crisis, especially if Europe and North America pull through. Again, much depends on how seriously Japan and its neighbours are affected in the months to come.
To date, the rest of the OECD area in Europe and North America has only felt the crisis to a relatively limited extent, in spite of many fears to the contrary a year ago. True, the exports of these regions to Asia have suffered, and some European banks with large market exposure in the area have taken losses. However these losses have not endangered the continued existence of the majority of the banks and companies in question. Indeed, many of them have made new investments in the region, profiting from the reduced value of many local currencies - but also of course making them even more dependent on the region's recovery. Anyhow, the OECD in its June 1998 Economic Outlook forecasts a steady rate of growth of 2.7% in 1998 for both the US and the EU, with the former falling to 2.1% growth in 1999 and the latter increasing to 2.8% in the same year.
Furthermore, the interruption of trade, while important in its own right, is limited in comparison with overall trade flows within the OECD area of Europe and North America. Therefore, although some individual companies and sectors have suffered, the economies of Europe and North America have escaped relatively unscathed to date. In June 1998, the OECD predicted only a limited slowdown in the growth of world trade, from 9.8% in 1997 to 7.1% in 1998 and 7.0% in 1999. It is also difficult to distinguish between the effects of the crisis in Asia and the effects of other (domestic) developments. In the United Kingdom, for example, there have been several major layoffs of workers, especially in export manufacturing, while the service sector has escaped relatively unharmed. However, these difficulties are generally attributed to higher interest rates intended to reduce inflationary pressure rather than the events in Asia.
To the above should be added that the feared flood of exports to Europe and North America from Asian countries using sharply depreciated currencies has not yet happened to the extent feared - largely because many local companies are too devastated to regain their former production levels and have difficulties financing the purchase of inputs which must be paid in expensive foreign currencies. If a deluge of exports were to take place and were accompanied by rising US unemployment and a reduction in domestic demand, then protectionist sentiment could well grow in the United States and further aggravate the global situation. So far, however, this has not yet happened, but there are some disquieting signs. Thus, the US trade deficit in May 1998 amounted to over 15 billion dollars, much of it caused by higher imports from Asia. Obviously, the increase was much higher in terms of the volume of goods imported. If there is a boon to consumers, there is also greater competition for domestic producers with a possible rise in unemployment and protectionist pressure.
To the extent that exports to the rest of the world from Asia will eventually increase, this may dampen inflation in Europe and North America. However, it may also increase unemployment. There is general consensus, therefore, that the situation would be greatly helped if Japan expanded its economy so as to absorb part of the export surge, and that Europe must increasingly share in this effort so that North America, and in particular the United States, is not left as the "market of last resort".
Against the background of this turmoil, there has been a "flight to quality" on the part of international capital, that is to countries and regions which are seen as offering safer, even though lower, returns. This has contributed to historically low interest rates in Europe and North America, stimulating investment and economic growth but also, in some eyes, bringing with it a risk of deflation.
Overall, the world economic situation could have been considerably worse. The June 1998 Economic Outlook stated that "growth prospects for 1998/1999 remain relatively favourable for the OECD area as a whole". Inflation - while potentially under the surface in countries with low unemployment and with economies close to overheating - is nevertheless very limited. Thus, for the total OECD area, inflation in 1997 stood at 3.8%, a figure expected to decline to 3.4% in 1998 and to remain virtually steady in 1999. ( Indeed, if one excludes the so-called "high inflation countries" with figures above 10% - the Czech Republic, Greece, Hungary, Mexico, Poland and Turkey - inflation in the OECD area was only 1.7% in 1997.)
On the unemployment front, the picture varies considerably from one country to another. The latest OECD figures of June 1998 list Japan as having only 3.5%, and the United States only 4.8%. The Netherlands has 5.1%, and the United Kingdom has 6.8%. However, Germany has 11.4%, France has 12% and Spain has 20%. Fortunately, the figures released by other sources in the late summer of 1998 indicate reductions in all three countries. The OECD forecasts that unemployment in the whole of the area will go down slightly from 7.2% in 1997 to 7.1% in 1998 and undergo a further slight reduction to 7% in 1999.
Looking at different OECD regions, we can expect the United States and other countries - where a prolonged upturn in the economy has been maintained with low inflation and strong employment growth - to keep a satisfactory level of economic growth in the year ahead even though the pace might slow down somewhat. In the eleven countries listed for membership in the European Union's Economic and Monetary Union, expansions look increasingly firm, even though they could be negatively affected by the Asian crisis. They can be expected to gather pace over the next few years, especially where reduced budget deficits are accompanied by structural reform.
These countries will no longer be able to vary the value of their national currencies. Nor will they be able to set independent interest rates. In addition, their ability to shape fiscal policies will be severely restrained through the Stability and Growth Pact.
Indeed, since early May 1998, when indicative values were given for the participating currencies vis-�-vis one another, the currently still diverging interest rates are required to converge to one single level. This could prove painful, considering what the OECD in its December 1997 Economic Outlook called a "somewhat uncomfortable degree of divergence in the cyclical positions of countries . notably between the three largest economies, where the expansion has been lagging, and most smaller countries that are at a more advanced stage of the recovery".
In other words, countries with economies close to overheating will have to reduce their interest rates, thereby adding to overheating; while countries in earlier stages of a recovery, with correspondingly lower interest rates, will have to raise them, thereby dampening investment and consumption. The OECD in this situation recommends an "increasingly co-ordinated approach to setting monetary policy in these countries". It would seem that the new, as yet informal, economic policy consultations foreseen between the participating countries as from mid-1998 will face a challenging task.
Several countries in transition in Central and Eastern Europe _ including OECD members Hungary and Poland - show relatively high growth rates of 4-5% and sometimes higher. This is heartening because it shows that the transition process is indeed working in many places . However, the situation in Russia by August 1998 had become a source of concern, as the country's stock and bond markets plunged along with the rouble. In large measure this development reflected a lack of confidence by foreign investors in Russia's ability to shape a coherent economic framework and reduce the budget deficit.
In Japan, whose economy started to grow more robustly in 1996 but where growth faltered last year, the recovery prospects still look more than fragile. Indeed, as explained above, the Japanese economy is expected to contract in 1998. Much will depend on the effects of the new Japanese government's stimulus package and the impact of the financial crisis in the surrounding region.
Finally, a number of other countries in Asia, including Korea, will no doubt be adversely affected by the financial crisis, as expressed in much lower growth rates than those to which we have become accustomed over the past decade.
At the meeting of the Committee on Economic Affairs and Development in June, the leader of the Canadian parliamentary delegation raised the issue of a tax on international financial transactions. Such a tax _ commonly known as the "Tobin tax" _ could be used to counter future crises of the kind now afflicting Indonesia. The Rapporteur agrees that there is a need for the international community to be able to limit the destabilising effects on the world economy from the present ability of capital to move instantly and in massive amounts from one part of the globe to another. At the same time it is important to safeguard the positive effects of such mobility. It would be difficult for the Tobin tax to distinguish between investment and speculation. There is also the question of who would administer such a tax. However, it is clear that the world community will need to tackle this issue sooner rather than later The Rapporteur therefore suggests that it should be the subject of a separate report by the Committee on Economic Affairs and Development.
At the meeting in June, the Committee also discussed the merits of IMF policies in Indonesia and other crisis-ridden countries. Some members felt that the austerity imposed as a price for IMF support was too harsh on the people of Indonesia, and that it has allowed the country's �lite who are responsible for its ills to escape scot-free. (It should also be noted that although the declaration at the end of the G-8 Summit in May did not go as far as some of the members of the Committee in this criticism, the G-8 participants referred to the "serious impact of the crisis in Asia on the poor and most vulnerable" and called for "actions and policies by the countries concerned to help protect these groups from the worst effects of the crisis".) Other members of the Committee, fully recognising this injustice, argued that it was the inevitable result of a necessarily blunt instrument, but that any programme to remedy an economy in a tail-spin must include a reduction in budget deficits, inflation and excessive subsidies. Overall, the discussion still left the impression that risks and rewards are not evenly balanced for imprudent or unscrupulous investors, who believe, correctly so far, that they can reap easy gains as long as the going is smooth and can expect to be bailed out by the IMF and others (indirectly the world's tax payers or bank customers) when things go wrong. Thus, the system for international rescue operations needs fixing. The question is how.
Earlier Enlarged Assembly reports have dealt extensively with the OECD Jobs Strategy. The Enlarged Assembly has always supported this work of the OECD and has called for rapid implementation of many of its findings.
The OECD says that much remains to be done to ensure the smooth absorption of potential shocks, such as the one that might happen within the EMU. At the same time it warns of the risk that increasing inequality of wages and family incomes, or indeed outright poverty, might hamper the implementation of the Jobs Strategy recommendations. Action is recommended on a broad front: wage bargaining outcomes must permit companies to be sufficiently profitable to stimulate investment and job creation: segmentation of labour markets into "insiders" and "outsiders" must be avoided; flexible working arrangements should be sought that not only suit employees but render the companies they work for more competitive; the tax-benefits systems must both protect those who are unable to work and ensure adequate incentives to employment for those who can; the prospects of the less skilled and the long-term unemployed must be improved; education and training policies must become more effective; and economic sectors where competition remains inadequate must be liberalised to promote efficiency and stimulate entrepreneurship.
Needless to say, every country here has its own preferences, and this Rapporteur will only reiterate what last year's Resolution 1134 (1997) concluded, namely that it is "essential for all these countries to compare 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?'"
Meanwhile, the OECD "Financial Market Trends", published in March 1998, gave important indications as to where the world economy is heading. For one thing, a record 1.8 trillion dollars was raised in international financial markets in 1997, an increase of 13% over the year before. The OECD believes that the growth in international financial markets will continue as all major components - bonds, international equities and bank loans - show record levels of activity. Not even the Asian financial crisis has been able to alter this picture significantly. Favouring the growth in international financial markets is the current environment of low interest rates, in which investors will look for assets offering better yields than government bonds.
The second trend indicated in the "Financial Market Trends" report concerns privatisation. In the OECD area alone, the value of privatised - that is, formerly state-owned - assets rose from around 30 billion in 1990 to over 156 billion dollars in 1997. The "withdrawal of the state" was particularly noticeable in the European Union, where privatisation in 1997 stood at 68 billion dollars - double the amount of 1995.
As for agriculture, it is significant that in March 1998 the OECD held its first Agricultural Ministerial meeting since 1992. Much has happened in world agriculture since the conclusion of the Uruguay Round. Above all, subsidised exports of agricultural products have been severely reduced, and agriculture in many OECD countries has undergone substantial reform. The ministerial meeting brought out two opposing views as regards the future of agriculture. On the one hand, there is growing concern on the part of the consumers about the safety of food increasingly produced using new technologies. Related to this concern is the view that agriculture should be seen as a "multi-functional" economic sector, which apart from purely economic aims also has social, regional and environmental obligations. In the other camp are those countries which seek a speedy and worldwide liberalisation of the agricultural sector. The Europeans and the Japanese are on the one side. Australia, New Zealand and North America (the so-called "Cairns Group") are on the other side. The two factions can only agree that whatever the stance of the one or the other, there should be no return to the protectionism of the past, and that the long term goal should be a considerable reduction in agricultural support and protection.
III. THE OECD'S MULTI-LATERAL AGREEMENT ON INVESTMENT (MAI)
MAI _ a new household word
In 1995 the OECD started negotiations on a Multilateral Agreement on Investment (MAI) - a phrase which, in the course of three years of discussions, has gone from being virtually unknown to being almost household words in political, economic, environmental and development circles (especially NGOs) around the world. Launched by governments, the business world and especially the multinationals soon caught on and urged a speedy conclusion of the agreement.
The Enlarged Assembly's Resolution 1134 (1997) on OECD activities also urged the OECD to finalise the MAI as quickly as possible, but it also called for the negotiating process to be "as transparent and democratically accountable as possible" and argued that its provisions should "include the 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 requested the OECD to "pursue an intensified dialogue with non-member countries, particularly those interested in joining the MAI".
By early spring 1998, it became clear that no agreement would be possible in time for the OECD Ministerial meeting at the end of April. At the meeting it was decided to engage in a "period of assessment" and informal talks until October 1998 when it was hoped that formal negotiations could be resumed.
What is at stake?
As a result of globalisation, foreign direct investment increased eleven-fold from 25 billion dollars in 1973 to 350 billion dollars in 1996. The increase has been considerably higher than that of international trade in products, which increased only nine times from 575 billion to 5100 billion dollars over the same period. Contrary to what is the case for products and services - for which there is, since 1995, the World Trade Organisation with a multilateral rules framework based on such principles as 'Most-Favoured-Nation Treatment' and 'National Treatment', there is no such context for foreign direct investment (FDI). The only thing in existence apart from the so-called "TRIMS" (Trade Related Investments Measures) is a world-wide, finely woven but opaque network of 1630 bilateral investment treaties, regional agreements such as the EU and NAFTA and investment co-operation instruments such as those of the OECD.
Through the MAI, which would also include the service sector, the OECD countries would take a qualitative leap in the direction of a comprehensive, liberal and multilateral framework for the elimination of investment obstacles such as market access, the right of establishment and the right of business operations after investments have been made. The MAI could soon cover investments worth about 500 billion dollars a year.
The basic goals of the MAI (liberalisation and protection of investment) are meant to be reached through a whole series of basic principles and norms - all based on the fundamental tenet of 'non-discrimination' as between different types and ownership sources of investment.
As the draft Treaty now stands, the MAI Parties would commit themselves to treating foreign investors and their investments no less favourably than their own investors ('National Treatment'). They would agree not to discriminate among investors or among investments of different MAI parties ('Most Favoured Nation Treatment'). Any favours shown to one investor must be given to all others. Discriminatory rules on the repatriation of profits and export obligations would be banned. The right to recruit foreign key personnel would be guaranteed, and expropriation would only be permitted for a public purpose and subject to prompt, adequate and effective compensation. In the event of conflict between individuals or between a country and a foreign investor, the MAI foresees an initial effort to solve the dispute through consultations and, if this is not possible, binding arbitration through a special body, whose verdict would be final.
It goes without saying that such an agreement would help many multinational companies. Not surprisingly therefore, the strongest political support has come from business and countries with the most developed economies.
The current situation in the negotiations
The picture given to the Rapporteur during his discussions with the OECD Secretary General in March 1998 was one of the complex and conflicting nature of many of the issues involved. As is well known the devil is in the detail. In MAI he appears in a large number of loopholes in the draft treaty text aimed at reconciling the seemingly irreconcilable.
Apart from the traditional exception clauses related to national security and public interest, the draft also has more than 600 country-specific exceptions. The 'blame' for such an MAI '� la carte' is not to be found with any particular country or group of countries. What seems fair and just to the Americans with their extra-territorial laws such as the Helms-Burton and D'Amato Acts finds its counterpart in the 'exception culturelle' clause wanted by other countries such as Canada, France, Italy, Portugal and Spain. For Switzerland the Lex Friedrich (restricting the right of foreigners to buy real estate) remains a national priority, and the European Union wants an integration clause giving preference to EU members vis-�-vis others in seeming contradiction to the MAI's 'Most Favoured Nation Treatment' and 'National Treatment' principles.
Canada's standpoint is particularly interesting because of the vast range of guarantees it wishes to be included. A report submitted by the Sub-Committee on International Trade, Trade Disputes and Investment of the Canadian Parliament in December 1997 contains 17 recommendations for the Canadian negotiators. (Incidentally, this report marks a breakthrough in the sense that, for the first time, parliamentary scrutiny is undertaken before government negotiators have finished their job and the government has signed a treaty.) .
According to Recommendation 1, Canada should "become a Contracting Party to the MAI subject to a final text which fully protects Canadian culture, the environment, labour standards, health, education and social services at the federal and sub-national levels". Recommendation 3 calls on the Canadian government to "pursue a process that fully involves the provinces and that will allow sufficient time for the text available at that time to receive the benefit of further parliamentary examination by this committee prior to the signature of any negotiated agreement". Recommendation 5 calls for "an open and transparent process" in the negotiations. Recommendation 14 says that Canada "must achieve an adequate and effective cultural exemption in order to sign the agreement", and the same Recommendation calls on Canada "to remain part of the coalition of countries supporting the principle of the French approach to exempting culture from the agreement: incorporating a broad self-judging exception within the text of the MAI. Canada should aggressively pursue alliances with other OECD member countries in support of this position".
The Rapporteur warmly welcomes the Canadian stance on transparency and Parliamentary scrutiny. Indeed this is what last year's Enlarged Assembly Resolution clearly stated. At the same time, he is aware that it may make the negotiating process more difficult and even lead to its abandonment. (It was doubtless easier for countries to negotiate difficult issues some twenty or thirty years ago. At that time there was not only a tradition of secrecy but also greater dominance on the part of governments over parliaments and of capitals over regions. There was also no Internet.) However, if the result is an MAI which takes account of local, regional, cultural, environmental and social interests as well as business interests, then it is worth taking a longer time for negotiations.
In the meantime, the world must live, and pursue and expand its business, in the absence of an MAI. If an eleven-fold increase in investment was possible between 1973 and 1996 in the absence of an MAI, the situation cannot be that desperate.
NGO criticism
It is not only governments which have raised reservations about MAI in recent times. Criticism has also been forthcoming from a whole range of non-governmental organisations (NGOs). Their arguments are as numerous as they are varied. Thus, it is maintained that the MAI has been negotiated among the rich countries alone within the OECD framework _ without the participation of all those poor developing countries which are unable to influence the deal but which will be required to ratify it as it stands.
Another argument is that MAI gives vast new powers to companies and international investors with only obligations in store for the 'host countries' where investments are made. Many NGOs see essential social and environmental goals as being sacrificed on the altar of economic globalisation. At the end of March, the Green parties of 27 European countries met in Helsinki to disavow the MAI effort on the grounds that social and environmental issues under an MAI would even more than hitherto become subordinated to market forces. They also claimed that the MAI negotiations were being conducted in secret, and that it is impossible to obtain full information about the contents of the agreement. The Green parties called for the negotiations to start afresh and to be accompanied by a public debate around the issues. On these last two points, the Rapporteur is obliged to point out that a great deal of information about the MAI progress, including the draft text, can be obtained on the OECD Internet site (http://www.oecd.org/daf/cmis/mai/maindex.htm).
On the other hand, there is some validity in the criticism that the MAI is being negotiated among 29 OECD countries rather than 132 members of the WTO. It can be argued that the MAI represents a particular interest for the OECD group, given that 60% of the world's foreign direct investment goes into OECD member countries and 85% comes from these countries. Furthermore, negotiations for an MAI among the much more numerous WTO countries would certainly be more complicated and time-consuming with the prospects of success even leaner than in the OECD context. It is a matter of opinion whether one sees this situation as a dictate on the part of industrialised countries vis-�-vis the others.
The MAI does not foresee the inclusion of explicit social or environmental norms, since this could be seen as a dictate by the industrialised countries for protectionist purposes. The OECD deems that other organisations are more competent in these fields, and it is also anxious to avoid the risk of international efforts in these areas being undermined by MAI. For both labour and environmental standards, national governments will be free to implement their own policies, as long as these standards are not more stringent for foreign than domestic investors. It has also been suggested that the MAI should include a provision which would specifically call on MAI countries not to lower labour standards in order to attract foreign investment. There could also be a recognition in the preamble of the importance of core labour standards and the need for sustainable development. The MAI could also refer specifically to the environmental chapter contained in the OECD Guidelines for Multinational Enterprises.
In conclusion, two fundamental forces will again meet over the MAI negotiating table when _ or, perhaps we should say, if _ the negotiations are resumed. On the one hand, there is economic globalisation which increasingly requires a level playing field and universally shared principles making investment safe and productive. On the other hand, there is the belief, intensely felt by many individual countries and people, that the "economic machine" must not become a steamroller, and that some recognition should be given to the many needs of people which are not primarily economic but which relate to the need to preserve a culture; the particularity of a region, country or ethnic group; the natural environment; the social rights which have been achieved over many years of struggle and negotiation. It is important that any MAI reconciles these two forces. The Committee on Economic Affairs and Development would therefore like to organise a Hearing on the MAI in the near future, inviting representatives of all the parties concerned. The more light shed on the issue, the better any future agreement will be _ and the sounder the basis on which our respective parliaments will eventually deliberate.
IV. FIGHTING ECONOMIC CRIME AND CORRUPTION
In January 1998, the Parliamentary Assembly of the Council of Europe adopted Resolution 1147 (1998) on the Threat to Europe from Economic Crime calling for increased co-operation between countries and institutions in the fight against this threat to the structure of the world economy and democratic societies. The Rapporteur is glad to note that the struggle against economic crime and corruption is a priority area for the OECD. Since the enlarged Assembly's 1997 report on OECD activities, the OECD has opened its Convention on Combating Bribery of Foreign Public Officials for signature and is now trying to obtain ratification of the Convention by the required number of countries for it to enter into force.
At its April 1998 Ministerial meeting, OECD member countries renewed their commitment to eliminate tax deductibility of bribes and to stop bribery in relation to foreign political parties. The OECD has also extended the mandate of its Financial Action Task Force (FATF) for another five years. During this period one priority will be to establish a world-wide anti-money laundering network. The Rapporteur believes that these areas should continue to be at the centre of OECD concerns.
V. THE OECD'S CONTRIBUTION TO THE POST-KYOTO PROCESS ON CLIMATE CHANGE
Another development at OECD during the last year has been its responsibility for monitoring, among its member countries, the United Nations Framework Convention on Climatic Change (UNFCCC) - the first Protocol of which emerged at the major conference held in Kyoto in December 1997. The Kyoto Protocol strengthens the commitment of industrialised countries to reducing greenhouse gas (GHG) emissions within agreed time frames (2008-2012). As will be recalled, the negotiations were held against the looming prospect of considerable climate change resulting from ever growing emissions of CO2 and other greenhouse gases around the world. As the OECD Ministerial meeting in April 1998 stated "All OECD countries .. need to play their part in combating climate change by implementing national strategies, including measures such as clear targets and effective regulatory and economic measures, as well as through international co-operation".
The OECD's starting point for further work to develop a compliance system for the UNFCCC and the Kyoto Protocol is based on three elements: monitoring and reporting; review and verification; and non-compliance responses and enforcement.The three are interrelated. Monitoring and reporting aims to gather information to enable an assessment as to whether the Protocol has been respected. Review and verification are used to check the accuracy of data. Finally, non-compliance responses and enforcement include ways of encouraging those countries which do not meet their obligations to improve their performance.
It is, of course, too early to say whether the UNFCCC or the Kyoto Protocol will be respected, but the OECD should be congratulated on its efforts to devise a system of monitoring. Some observers argue that OECD should go further than monitoring, and that it should play a leadership role in stimulating initiatives by member states in the field of energy efficiency and innovation and integrating economic objectives with environmental and social goals in order to facilitate progress toward sustainable economic growth in a practical way. Much is at stake. OECD scenarios predict that, unless something is done, emissions from industrialised countries will continue to increase, possibly reaching levels which are 50 to 70% above those of 1990 by the year 2020. Many developing countries _ in particular India, China and other countries of Asia and Latin America _ are expected to increase their emissions even more rapidly from 30% to 50% of the global figure by the year 2020. The Enlarged Assembly will need to follow this issue closely in the future.
VI. THE ECONOMIC AND SOCIAL IMPLICATIONS OF AGEING POPULATIONS
Greying hairs
All of us who live in "OECD-land" are living much longer and retiring earlier on average than ever before, with the result that we spend less and less of our lifetime in work and more and more time out of work - mainly in retirement. In 1960, men in a typical OECD country could expect to live for 68 years. They would enter the labour force at 17, work some 46 years with 3 years without work in unemployment or outside the active labour force. They would retire at the age of 66 and spend only a little over one year in retirement. (This average included those men who never retired because they died before the retirement age.)
Today, men can expect to live to 76 with only half their lives - 38 years - spent in employment. The other 38 years are spent in education, unemployment or retirement. Time spent in retirement has gradually increased so that it is now over 11 years in some countries. The time in work has shrunk accordingly.
In 1960 the older population was about 15% of the working age population. Now it is about 20%. By 2030, it could jump to 35% with most of the growth after the year 2010. In other words, there were nearly 7 people of working age for every older person in 1960. Today there are about 5 people of working age for every older person and by 2030 there will be fewer than 3 people of working age for each older person. Alternatively, we can say that there were over 4 workers to support every older person in 1960. Today there are 3. By 2030 there will be only 2.
As a result, the age structure is changing from the classical 'pyramid' shape - that is, more younger people at the base and fewer older people at the top _ toward that of a 'cylinder', with approximately the same number of citizens in the young, middle and older age groups.
Not much will change before the year 2010 even though some countries, such as Japan and Italy, are already feeling the impact. However, from then to 2030, when the "baby boom" generation reaches retirement age, all the pertinent trends - such as longer schooling, early retirement, population ageing, and increased longevity - will combine to reduce the proportion of the population in employment. Unless we can somehow counteract the effects of those developments, fewer people will work to produce the goods and pay taxes to support the growing number of people who are not in work. Living standards will be threatened together with the quality of life.
Even though many of our countries are trying to reform their pension systems by raising the retirement age or reducing pension benefits, projected pension payments are still much bigger than projected contributions. And the solution will not be found in reduced expenditure on young people because the reduction in expenditure on education as a result of a reduction in the number of young people will be offset by the period of education being extended _ especially since all countries will compete more and more intensely via better-trained workforces.
What can be done?
People who are now under the age of forty will incur most of the financial burden of ageing. One way to reduce their payments would be to increase the amount of time the post-WWII "baby-boomers" spend in work by encouraging a later and more gradual retirement. But there is another approach to this issue. Perhaps we should reconsider the organisation of "productive work" with its emphasis on the traditional 'time-spent-in-the-office-or-on-the-shop-floor' rather than what might be more rewarding for the individual and for society as a whole, such as taking care of children or the elderly. The problem is, of course, that if one lives without working, one must be able somehow to support oneself or be supported by others.
There would be less of an economic problem if most European countries had not relied on a 'pay-as-you-go' system for pensions. In other words, today's workers pay for today's pensioners. The alternative consists of contributions by today's workers (the pensioners of the future) to funds, mainly private, which are then available when they reach retirement.
The 'pay-as-you-go' system works well as long as the 'pyramid' shape holds. It works less well if the shape turns into a 'cylinder' and even worse should the pyramid turn on its head. Then the pensions need to be reduced or taxes increased, or both, with political consequences if the young refuse to pay. Early retirement, now a favourite method to hold down unemployment in some countries, is then restricted, and the retirement age may actually be raised. At the same time, public health costs will rise as older people have more health problems than young people. Financial markets will also be affected as more savings will be called upon to finance more and more time spent in retirement due to increased longevity. As a result, interest rates will be raised and economic activity dampened.
Are we being too pessimistic? Could it be that the same forces which are now largely responsible for 'down-sizing' and which in some countries are seen as contributing to unemployment - namely computerisation and robotisation - may permit a smaller proportion of the population to support both themselves and the elderly?
Credit should be given to OECD for not only posing these questions, but also trying to answer them. Later retirement, it says, will go a long way toward reducing fiscal pressure. This presupposes the redesign of many public pension systems, which at present encourage people to retire early, with much of the resulting burden falling on those still in work. Hence, old age pensions, disability and unemployment benefits as well as social programmes must be carefully examined to ensure that they do not distort the choice between continuing employment and retirement. (The OECD recommends what it calls 'actuarial neutrality' in the work-to-retirement transition, signifying that individuals would decide if they wish to retire in their fifties on a lower pension or in their seventies on a higher one.) Financial disincentives to work after the standard retirement age also call for scrutiny. For instance, if taxes could be lowered on a "retired" person's earnings, many might continue working on a part-time basis in what the OECD calls "active ageing".
VII. WORK AND LEISURE IN A KNOWLEDGE BASED ECONOMY
The changing nature of work
If the conclusion in the preceding chapter was that we shall need to work much longer in the future to support the growing numbers of old people, then the present chapter will add confusion by arguing that we also need to think more about our leisure in the midst of a society increasingly dominated by "knowledge" _ as described in the OECD's forward- looking "International Futures Programme" which has become an increasingly important tool for helping people in government, parliaments, industry and education shape appropriate policies in an increasingly complex and uncertain world. The present is changing more rapidly than ever, and the speed will only increase over the coming years. The ability to see ahead will therefore be more and more essential, especially since a growing deluge of information makes it harder to see the forest for all the trees. An OECD Forum for the Future devoted to "The Future of Work and Leisure" was held in 1994, and its ideas found further expression in the OECD's Jobs Study.
The problem is that "work" in its traditional form seems to be on a long-term decline and changing in character.
In the OECD area, 35 million people are without jobs - a figure which does not include the under-employed, those in early retirement or those not captured by the statistics. There has been an upward drift in unemployment in most OECD countries since the early 1970s. Although the labour force in the OECD area is set to grow at an annual average rate of 1% over the coming years (much slower than in earlier decades) as a result of the ageing discussed in the previous chapter, more and more people will work part-time or in non-regular forms of employment.
Much will depend on how fast our economies grow. Given the rationalisation of work resulting from such things as computerisation and robotisation, it is generally agreed that growth rates of between 2 � and 3% per annum will only hold unemployment at bay and will not significantly reduce it.
Even with relatively low levels of unemployment, those in the labour market may be less and less fully employed and more and more engaged in part-time employment. Many people will continue to be underemployed, and they will be required to shift at short notice from one job, or even occupation, to another.
The increasing role of services
We also know that structural change is likely to be in the direction of a greater role for some services, in particular those related to management, computers and data processing, accountancy, legal affairs, health and social matters, and entertainment and leisure activities, including tourism. The shares of the primary sector and manufacturing in our economies will almost certainly continue to fall through the continued decline (and continuing automation) of sectors such as agriculture, mining, footwear, textiles and clothing, leather goods, metals and household appliances in spite of increases in other sectors such as electronics, chemicals, medical equipment, pharmaceutics, cosmetics and environmental protection equipment.
At the same time, we can expect an increase in low-skilled jobs in the 'personal services' sector such as sales persons, cashiers, food preparation workers, waiters and waitresses. (This trend is particularly noticeable in the United States, where the rapidly growing groups of newly affluent demand more and more 'personal services'. Thus, the US Bureau of Labour Statistics has estimated that there will be 39% more restaurant cooks and hotel personnel and 40% more gardeners and groundkeepers in 2005 than there were in 1990.)
But this forecast presupposes that we can restructure our economies to enable the service sector to expand. Above all, it presupposes significant growth, since only if there is growing wealth will enough people eat in restaurants and employ gardeners.
Within Europe, a more unified market, and especially the European Union's Economic and Monetary Union, is likely to lead to a massive employment shakeout in such sectors as transport, banking, insurance and financial services. Similarly, offshore information processing can already be done without any difficulty from anywhere in the world. It is expected that within a few years up to two-thirds of all the data processing in OECD countries will have been relocated to such countries as Singapore, Taiwan, the Philippines and India.
This being said, employment worldwide can be vastly stimulated as more and more parts of the globe become involved and expand economically. The Uruguay Round, the European Single Market, NAFTA and the Multilateral Agreement on Investment could promote such a development. Finally, referring to our discussion about ageing in the last chapter, there could be important new markets and hence employment for the products and services which an ageing but wealthy population will require.
Turning to the broader aspect of the issue, we can safely assume that, notwithstanding current economic difficulties, OECD societies will become increasingly affluent in the years to come. Thus, a country like the United States will see its per capita disposable person income increase by about one-quarter in real terms between now and the year 2010. To this should be added the prospect of many families inheriting the wealth accumulated by the post-World War II generation.
A changing attitude toward work
In view of this, we are likely to become increasingly willing to contemplate working fewer hours. Indeed, the average amount of time devoted to work has declined from 3,000 hours per year a century ago to 1,700 hours per year today.
Numerous public opinion polls indicate that important changes are under way in how people view work. These polls discern a fundamental shift within advanced societies away from materialist values (such as economic and physical security) and towards what have been called 'post-materialist values' related to such things as self-development, self-fulfilment, self-organisation and artistic and intellectual orientations. Coupled with this trend is a generally diminishing commitment to work among large segments of the population, even in countries associated with a traditionally strong work ethic such as Germany and Japan. It is particularly pronounced among young people. People also pay greater attention to the qualitative, as apart from the purely remunerative, dimensions of work: greater autonomy at the work place, the degree of co-operation and team work, and opportunities for further education and training.
When seen together, rising prosperity and the changing attitude to work open up new vistas. There will be more favourable conditions for work sharing and reduction in working time. Both France and Italy are moving towards a 35-hour work week. These moves have met with considerable criticism within these countries and from abroad. However, it may be that France and Italy are ahead of developments rather than running counter to them. After all, similar doubts were expressed when the 40-hour work week was introduced in Germany a century ago. World-wide, it has been reduced little since.
We may be heading towards societies where, to put it jokingly, 'half the population will wait on the other half of the population' and take turns in so doing.
Heaven knows there are things to do. Caring for our growing numbers of elderly is one. Some countries have already taken fiscal initiatives to encourage families to care for their older members, thus reducing the demand for old age homes and similar institutions.
Do we have to be what we do?
However, a new attitude to work and leisure faces a number of hurdles. For one thing, work is not only a key source of income, but it is also the most important source of social recognition and status. In brief, we are what we do, or rather what we are seen to be doing. Instead of asking one another what we are as persons in the deeper sense, we tend to enquire as to the other person's occupation, drawing conclusions on someone's contribution to society. In future, we shall need to give broader public acknowledgement to activities outside the traditional concept of regular remunerated work - such as volunteer efforts, helping to improve the environment, caring for children and the elderly and other socially productive tasks for the community as a whole.
Another problem is how to use our leisure time. Not only do some population groups have more leisure time than others, but some also seem to be better equipped to take advantage of it.
Generally speaking, the benefits of more leisure to society as a whole will largely depend on the nature of the leisure activities as well as on access to it.
The knowledge economy
If in the past the arm dominated the world - and if in the more recent past the brain started to compete with the arm - today the brain is the undisputed ruler. The global economy finds itself in fundamental change as the emerging and rapidly developing information industries permeate all aspects of economic and social life. This necessitates improved methods of learning as institutions, firms and individuals try to meet the new challenges. This also holds for governments, who must learn how to pursue the national _ and international _ interest in a new environment.
The OECD has coined the expression the 'knowledge economy'. "The defining technological fact leading to the knowledge economy", says an OECD Report, "is the ability to deliver codified knowledge, assembled on a global basis if necessary, very quickly and very cheaply to the area where it is needed, to transform such knowledge extensively as required and to make it effective in machines and other production and service delivery".
The OECD sees the advent of the 'knowledge economy' as being led, not by government, but by the aspirations of millions of individuals seeking to identify new approaches to the challenges with which they are faced. Advancements in information and communication technology permit new knowledge to be built upon by millions of other people at an increasingly rapid pace, paving the way for new discoveries. As governments and societies struggle to understand the new rules of the game, many see the risks as being greater than the opportunities. We have already referred to the reduction in job security and the widening of gaps in income.
Reshaping education
How should societies react? We know that it would be counter-productive to try to slow down technological progress even if we could do so. The answer, rather, lies in continuous restructuring of our economies and in improving our educational systems to prepare for more broad-based innovation. In particular, we must strengthen education and training programmes, raise learning and creativity and promote the development of new knowledge. We must also facilitate the diffusion of new knowledge. In other words, we need to undertake a major effort on education and training. We must make substantial investment in human capital to match the skill and qualification requirements of future jobs. This is so in particular in view of changes in the composition of the workforce over the coming years, the growing internationalisation of our economies, further advances in technology and the spread of new types of work organisation based on networking and greater personal autonomy.
We must recognise that it may be better to equip young people with broader skills, facilitating mobility and flexibility in later life, rather than with too specialised a training. We must prepare young people for the advent, already upon us, of the 'learning society'. The educational system itself must encourage competition outside its walls, such as self-instruction using a variety of knowledge and media, TV and Internet schools and colleges, consulting and counselling, learning and project teams.
Reporting committee: Committee on Economic Affairs and Development
Budgetary implications for the Assembly: none
Reference to committee: standing mandate
Draft resolution provisionally adopted by the committee on 19 June 1998.
Secretaries of the committee: MM Torbi�rn, Bertozzi and Ms Ramanauskaite.