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OECD High-Level Parliamentary Seminar

Better Policies for Inclusive Growth and Integrity

Thursday 4 October 2012 (OECD, CC 10) 43 Members of Parliament (MPs) and the European Parliament from 18 countries (Belgium, Bulgaria, Chile, Czech Republic, Estonia, Germany, Italy, Japan, Republic of Korea, Kuwait, Luxembourg, Mexico, Netherlands, Norway, Slovak Republic, Slovenia, Spain and Sweden); 12 parliamentary staffers and 18 observers attended the OECD High-Level Parliamentary (HLP) Seminar. It featured analysis presented by Secretary-General Angel Gurra; Jorgen Elmeskov, Deputy Chief Economist and Director of the Policy Studies Branch, Economics Department; John Martin, Director for Employment, Labour and Social Affairs; Dirk Pilat, Head of Structural Policy Division, Directorate for Science, Technology and Industry; Alistair Nolan, Senior Economist in the same division; Janos Bertok, Head of Public Sector Integrity Division, Directorate for Public Governance and Territorial Development; and Anthony Gooch, Director of Public Affairs and Communications, who also chaired the meeting. Update on the OECD Parliamentary Network Anthony Gooch opened the seminar highlighting the OECD Parliamentary Network as the key for the exchange of ideas, feedback and information between the OECD and MPs. Mr. Gooch previewed the OECD Parliamentary Days in Paris on 11-13 February 2013, which will include an HLP Seminar, a dinner and bilateral meetings with OECD experts. He also gave an update on the OECD Better Life Index and its usefulness for MPs. Chilean MP Pablo Lorenzini shared the experience of the March 2012 HLP Seminar in Chile, highlighting the participation of other Latin American countries and the importance of OECD outreach to the region. Swedish MP Gran Pettersson invited MPs to the next HLP Seminar on the road (17-18 June 2013, Stockholm), proposing as topics fiscal policy, inclusive growth, trust in policies and MPs, and how to use OECD data and analysis in parliaments. Rebuilding confidence: a new agenda for inclusive growth Angel Gurra highlighted how the social, economic and financial crises have led to a loss of confidence. He introduced the OECD New Approaches to Economic Challenges initiative which aims to draw conclusions from the crisis, revisit models and theories and identify policy implications for inclusive and sustainable growth and well-being. Mr. Gurra further mentioned OECDs active involvement with the G20 and its close collaboration with other international organisations. The discussant, Tuur Elzinga, Senator from the Netherlands, emphasised how confidence can only be rebuilt if green and inclusive solutions are identified. He applauded the New Approaches initiative and stressed that going structural is sound but not sufficient advice. He said that too much competition between countries can be harmful, suggesting a more active role of the OECD to co-ordinate policy and enhance competitiveness without harming common goals. Mr. Gurra responded that structural reforms entail better education, innovation, tax reforms, or flexibility in labour markets to fight dualism and provide everybody with a minimum amount of benefits. Main discussion points and questions raised: Austerity measures have been pro- rather than counter-cyclical, particularly in Southern Europe. Asked about strategies to foster counter-cyclical policies, Mr. Gurra responded that there have been institutional improvements in the EU, but they did not happen fast enough and markets are not responding despite the measures. He also stressed that austerity is not a policy in itself, but part of a policy mix that needs to be complemented with a comprehensive growth strategy. A lot of public money has been spent to bail out banks in order to regain the trust of markets, but what about peoples trust? Mr. Gurra explained that governments intervened to rescue peoples savings, not the banks per se. He pointed to the OECDs support for the separation of retail and investment banking as part of broader and necessary reforms to financial regulation. Parliaments need to foster strong co-ordination and communication channels with governments and constituents to ensure a shared problem-solving framework. The OECD was asked to share best practices in the relationship between parliaments and the OECD.

The Economic and Social Situation Jorgen Elmeskov explained how business confidence and activity have weakened in developed and emerging economies. He said that the fundamental underlying economic issue in the euro area is that competitiveness is out of line and demand needs rebalancing. With regard to the US, he mentioned the uncertainty over long-term investments and the fiscal cliff, while deleveraging is underway. In emerging economies there are signs of inflation in India and concerns about financial stability in China, due to too much investment despite slowing growth. John Martin gave an overview of the current employment situation in which job creation in the EU, Japan and US remains anaemic. The unemployment rates in the EU varies between 5 and 20% with Germany having a rate below the pre-crisis level. The greatest danger lies in increasing youth unemployment. The discussant, Norwegian MP Irene Johansen, said that Norway has been less affected by the crisis due to the strong reforms undertaken after the banking crisis in the 1990s, which introduced stricter regulations and structural reforms that had an impact on the welfare system and gender equality. Main discussion points and questions raised: Mr. Elmeskov highlighted the importance of drawing lessons from countries that are doing alright during the crisis. Common traits are good macroeconomic fundamentals, low pre-crisis debt or inflation, and better organised or not yet fully developed financial sectors. Boosts in education, economic and industrial efficiency were also important. MPs asked about the performance of Germany and some emerging countries. OECD speakers responded that Germany undertook significant structural reforms in a relatively favourable economic situation and is now able to ride out the storm, but should aim for more domestic demand. Emerging countries with good economic performance need to focus on environmental performance and income distribution. Asked about where to strike the balance between programmes to encourage youth and middle-aged employment, OECD speakers responded that structural reforms can make labour markets more precarious if reforms are poorly designed or implemented. Another MP said that debt can serve as a short-term bridge to close the gap created by lagging consumption, but should be reduced promptly to enable future debt financing. The OECD emphasised that fiscal rules need to be respected, establishing independent fiscal councils or civil society watchdogs. Asked about how countries can promote exports, the OECD responded that only good structural reforms realigning competitiveness and speeding up the necessary adjustment of labour costs can have a positive long-term effect. The Australian Ambassador to the OECD, Chris Barrett, hosted a lunch for MPs, where he stated his countrys support for the New Approaches initiative, the OECD being the institution where such work could be undertaken. He singled out inequality and social mobility issues as key questions that should be addressed when discussing growth-inducing measures. New Sources of Growth: Knowledge-based Capital Dirk Pilat and Alistair Nolan presented the concept of Knowledge-based Capital (KBC), which involves ICT, innovative property such as patents and copyrights, and economic competencies. KBC represents a new range of investment by business that is increasingly driving growth. Figures show a shift in investments towards KB assets and away from physical capital as a means to drive competitiveness, with the service sector as the main driver. They outlined four key policy areas for action: skills; intellectual property rights: personal data; and an effective tax policy to support R&D investment. A final OECD report will be prepared for the Ministerial Council Meeting in May 2013. Main discussion points and questions raised: Innovation and internationalisation are key for a more diversified and competitive growth model. Tight public resources should be oriented towards innovation and competitiveness, particularly for SMEs. Mr. Pilat added that long-term investments in education and research should be protected. Asked about how to improve the link between universities and the private sector, Mr. Pilat said that innovation processes should be global, not local, with effective knowledge and skills transfer. The barriers on the ground to create and grow companies need to be identified and tackled. There is a risk that KBC comes across as being overly academic. Discussions need to be more concrete, and understandable for citizens. Mr. Pilat responded that KBC is about the application of knowledge to business, also in traditional sectors like agriculture.

In response to questions about the future of manufacturing, Mr. Pilat said that the nature of manufacturing is changing dramatically, becoming increasingly knowledge-intensive and linked to services. An MP emphasised how a shift of funding to KB areas is important, but there should also be a restructuring of investments away from old policies and the funding of obsolete sectors. An MP mentioned that a bold push seems to be lacking in some middle-income countries towards intellectual property protection, investments in innovation or tax incentives for R&D. Mr. Pilat responded that, since most research takes place outside these countries, fostering strong international links and co-operation is crucial.

Financing Democracy: How to Square the Circle of Trust, Transparency and Public Interest in Democratic Societies? Janos Bertok defined political campaign financing as a major concern, particularly due to the lack of comprehensive data and the current deficit of public trust. While tackling campaign financing is key, border issues such as lobbying, conflicts of interest and corruption in public procurement should also be considered. Mr. Bertok proposed three major areas for action: banning certain sources of campaign financing; setting benchmarks for control and transfers; and moving towards a more open and transparent government. To be effective, transparency should be comprehensive, timely and easily understandable. Mr. Bertok stressed the role of the OECD in facilitating dialogue, and how regular exchanges with legislators are imperative to see what works and what does not. The Korean MP discussant, Il-HoYoo shared his countrys reform experience in political financing, which increased public funding, set a limit for spending, regulated private funding and set severe fines. He reported that, even though the reform had public support, trust is still lacking. He believes a strengthening of monitoring and punishments would be effective and enhance citizens trust. Main discussion points and questions raised by MPs: Without a proper system for campaign financing, parliaments are likely to be perceived as corrupt. MPs have the responsibility to create and implement regulation and oversight bodies. Sanctions need to be strong to be effective, and political campaign financing sources should be easy to trace. Systematic reviews by international organisations would be useful tools against corruption. Given that parliaments decide on their own budget, there is a need for mechanisms that respect the independence of the legislative power but are able to control their expenses. This would enhance the transparency and the public perception of parliaments. Empowering citizens to participate in local government can be an effective tool to reduce corruption. Concluding remarks Anthony Gooch concluded with an overview of the main priority issues for the OECD in the coming year: a redefinition of economic models, promoting inclusive growth, and restoring public finances and citizen trust. There will be a particular focus on the emerging and squeezed middle classes and youth as they are the social groups that are suffering the most from the crisis. Mr. Gooch also talked about the activities of the OECD in the context of the G20 and how the OECD Parliamentary Network could be a useful tool to improve information flows to MPs on G20 issues.