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Remarks by Angel Gurría, OECD Secretary-General
Dinner hosted by the Italian Minister of Foreign Affairs
Rome, 22 February 2007
Dear Minister, Ladies and Gentlemen,
Thank you very much for this invitation. Let me take the opportunity to share with you some thoughts about the ways in which member countries can benefit from the work of the OECD, with particular reference to the challenges of improving economic performance and advancing in the so called political economy of reform.
Our Organisation provides a forum where governments can: compare and exchange policy experiences, identify good practices and promote decisions and recommendations through peer pressure in all areas of policy making.
We have a longstanding tradition as a source of policy solutions to common problems, derived from the shared experience of 30 democracies, in the almost 50 years in which we have served our member countries.
The challenge of globalisation and the need to adapt to a fast changing world have increased the importance of structural reforms. Paradoxically, they are increasingly being opposed, and therefore, as you are experiencing now in Italy, their advancement is becoming one of the hardest tasks for today’s democratic governments.
The OECD is a strategic partner of decision-makers in the complex tasks of promoting structural reforms, in the so called political economy of reform. These reforms often entail highly visible costs for some clearly identifiable groups, whereas the benefits come later and are less certain and more diffuse. At the OECD, we provide governments with analysis, comparable statistical data and policy content to help them build targeted messages that will make those benefits more evident.
Indeed, we have enough empirical evidence to show how countries that advanced their reform agenda improved their economic performance. For instance: countries like Spain, Ireland and Finland have managed to boost employment levels based on some of the recommendations of our OECD Jobs Strategy of 1994; Sweden’s early efforts in implementing regulatory reform in the 1990’s have resulted in an excellent macroeconomic performance with high rates of growth, low unemployment and stable inflation; the liberalisation strategies of Poland and Slovakia in the early 1990’s are also full of positive experiences on how economic reform can unleash growth.
Our analysis on OECD countries reflects that red tape and over-regulation has slowed the rate at which laggard countries have closed the gap between themselves and the leaders, by discouraging FDI and investment in Information Technology. We estimate that 12% of the country-by-country differences in IT investment (as a share of business total) between 1985 and 2003, can be related to variations in product market regulation; with the US leading in IT investment share and countries like France, Italy Greece and Portugal falling behind.
Based on this empirical knowledge, the OECD has also developed a benchmarking exercise to measure how much progress countries have achieved in their reform agenda. Our publication Going for Growth 2007, is a comprehensive assessment of our member countries’ progress in achieving market competition, innovation and higher productivity.
The OECD works with rigour and imagination to provide politicians with the necessary tools to turn reforms into successful political platforms. We know the political cycle has a strong influence on the progress of structural reforms. Reforms are not undertaken once the next election is on sight – and the next election never far from politicians’ minds. But reforms should not always be a political liability; they can be a political asset.
We have also identified a number of triggers to facilitate reform. Take macroeconomic policy for example. The monetary policy framework matters: if households and firms recognise that monetary policy is designed to keep demand close to the production potential of the economy, structural reforms are easier. This is one of the areas in which the OECD is more active: helping governments build a sound macroeconomic framework.
Liberalisation abroad often serves as a source of inspiration for domestic reforms. External factors can explain a significant part of liberalisation in OECD telecommunications markets, for example. An important impetus for structural reforms has been an international cooperative approach. I am positive that our coming Ministerial Meeting and OECD Forum on Innovation, Growth and Equity, will provide a great opportunity to enrich and foster Italy’s economic liberalisation effort.
Finally, at the OECD we are convinced that pedagogy is an essential ingredient of successful structural reform. The various stakeholders should have a clear understanding of the problems and solutions, the costs and benefits. This is an area where OECD studies and publications make a key contribution. Explaining complex issues in simple language is one of the strengths of the OECD. Countries benefit from this vastly.
Ladies and gentlemen,
During the last few years, the economic performance of Italy has been weak, with an annual average growth rate of labour productivity and GDP per capita of 1%. To achieve vigorous, sustained growth, Italy will have to put in place important reforms. The two recent liberalisation packages are a welcome move towards freeing up market forces and spurring productivity. However, further actions should be pursued to increase potential growth; especially in sectors like transport, energy and pensions.
While you are designing and pushing through these policy adjustments and reforms, I want you to think of the OECD as an extension of your own capacities. In fact, OECD assistance is already being considered to help Italy design future reforms. By mid June the new OECD Economic Survey of Italy will make a balance of achievements and challenges and suggest additional policy measures.
At the OECD we are committed to support Italy in its effort of economic renovation. The current reactivation of the European economy is an ideal opportunity to make significant progress. With political commitment and technical support, I am convinced that very soon we will prove to the world that Italy is not “the sick man of Europe”, as some economic columnists have wrongly suggested, but “a school of great spirits” as that fantastic Italian poet Giacomo Leopardi once very rightly put it.
Thank you very much.
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