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The Grapes of Wrath

Posted by Patrick LOVE Jun 24, 2009

Great slogans usually involve three aspirations. “Life, liberty, and the pursuit of happiness” are inalienable rights according to the 1776 US Declaration of Independence. A few years later, the French people would execute their king and queen in the name of Liberty, Equality and Fraternity. In 1917, millions of workers, peasants and soldiers joined the Russian Revolution with the much more pragmatic aims of “Peace, Bread and Land” ("measurable outcomes", according to fellow blogger Brian Keeley, who only reads OECD books).

No, I’m not going to expose myself to ridicule by suggesting in these personal comments that the OECD with its slogan of “Stronger, Cleaner, Fairer” should be up there with movements that changed history. Especially since in this final post from the Forum, I’d like to add a word that is missing from our trinity, but was strikingly evident in many of the sessions I covered: angrier.

Anger isn’t usually a feature of OECD meetings. We work by consensus. When there is disagreement, we try to find the best deal that everybody is prepared to implement.

But time and again at the Forum, participants from NGOs and trade unions voiced the opinion that there was something profoundly unjust about trillion dollar bailouts for the people who caused the crisis, but nothing for those who were paying the price in terms of lost jobs, lost homes, lost pensions.

A lot of the anger was directed against the financiers in OECD countries and the governments who helped them, but not all. Former ANC Chair Cobus de Swardt, now of Transparency International, was outraged by corruption in his native South Africa. He cited the case of a small community of 350 people where in one month, 7 babies aged under 3 died of malnutrition in hospital. Not because there was no money to treat them – the government had set aside a special budget. But because the money never got down to the local level.

Even the solutions being proposed were criticised. Talking about calls for greater transparency in financial markets, a Canadian trade unionist said “Workers are saying: last time we got screwed. This time we’re going to get screwed again, but it’ll be with transparency added”.

I hope the anger came as no surprise to the government and business leaders and representatives of international organisations, and that they’ll act on it. Otherwise, as many participants warned, we’re heading for a social crisis to match the financial one.

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It is widely accepted that innovation is a key driver of growth and well-being in OECD countries. New technologies, products, services and organisations create jobs and contribute to social progress. Promoting innovation becomes then a must for policy makers, who should foster policies that enable the genesis and diffusion of these innovations.

What are our education systems doing about that? Yesterday (25 June 09) at the OECD Forum panel on innovation and sustainable growth, Belgian Minister Vincent Van Quickenborne noted that education systems were only measuring hard skills, maths, etc, but not creativity, and called for a change of European education systems.

Innovation is about putting new ideas into action. Creativity deals with the generation of these useful new ideas, and is thus a prerequisite of innovation. The European Union has recognised the importance of creativity and has made of 2009 the “European Year of Creativity and Innovation”.

But promoting creativity is not an easy task as it depends on a wide range of elements. It requires some domain-specific skills (e.g. physics, mathematics, art, music) and some general behavioural and social skills, such as divergent and critical thinking, risk-taking attitudes, self-confidence, resilience, communication. Creating learning environments that allow for the development and promotion of all the necessary skills or striking a good balance between hard and soft skills is not always an easy task.

As noted by Minister Van Quickenborne, assessment plays an important role. High stake assessments do often give incentives to teach/learn to the test and limit the development of higher order competences and of risk-taking within education systems. Pedagogy can be important too. Several innovative pedagogical initiatives, such as inquiry-based science education, have been experimented across OECD countries over the past decade. Instruction based on inquiry and human curiosity may be an interesting avenue for school systems to enhance student’s creative attitude, while providing them with the hard knowledge and skills that they need.

Changing our education systems to make them more innovative and make them value innovation more is an important goal. Creating a culture of innovation and continuous improvement in the education sector is certainly a key challenge of decades to come.

The ongoing project of Innovation Strategy for Education and Training led by the OECD Directorate for Education (Centre for Educational Research and Innovation) is precisely about helping countries to achieve these objectives. It will provide further evidence on the necessary skills for the 21st century that promote innovation and creativity and highlight the role of the educational systems to promote the development and uptake of these skills. It will also emphasise key elements of any viable innovation strategy in the education sector.

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Disquiet, distrust and dissatisfaction mixed with anger about the global crisis, but also a broad desire for new and innovative policies, for change from the status quo and a strong call for determined leadership to improve standards and beat a path towards a stronger, cleaner and fairer economy: this was the overall tone of the sentiments expressed by participants at the 10th OECD Forum, which opened with a dozen panel sessions on Tuesday 23 June at the Conference Centre, and continues until lunchtime Wednesday 24 June.

 

Read summaries at www.oecd.org/forum2009 under Daily summaries. Click here.

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The slowdown in OECD economies is reaching the bottom following the deepest decline for more than 60 years, says the OECD’s latest Economic Outlook. But recovery is likely to be weak and fragile, and the economic and social damage caused by the crisis will be long-lasting.

Click here for the latest OECD GDP growth projections.

  500afcc6-6097-11de-88ee-000255111976  Blog_this_caption

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In a domain much derided for its inability to agree about anything, there was a remarkably cheerful consensus among economists, business leaders, politicians and journalists in the period leading up to the 1929 Wall Street Crash.

President Hoover could claim with pride in 1928 that: "We in America today are nearer to the final triumph over poverty than ever before in the history of any land. We have not yet reached the goal but, given a chance to go forward with the policies of the last eight years, we shall soon with the help of God be in sight of the day when poverty will be banished from this nation."

Economist Irving Fisher, writing in October 1929, pointed out that "There may be a recession in stock prices, but not… a crash." Back in the real economy, IBM’s founder Thomas Watson looked forward "with confidence to the progress of business in 1929". So did the workers. The Department of Labor's New Year’s Forecast published towards the end of 1929 promised that "1930 will be a splendid employment year."

How about the eggheads? The Harvard Economic Society’s Weekly Letter dated January 18, 1930, had no time for the moaning Minnies. "With the underlying conditions sound, we believe that the recession in general business will be checked shortly and that improvement will set in during the spring months." The Letter put its money where its mouth wasn’t and went bankrupt shortly afterwards.

Do failures like this mean that forecasting is a waste of time? Governments and businesses have to forecast. They can’t just wait to see what happens and react later. But how useful are forecasting exercises?

Jordi Pons of the University of Barcelona had a look at the OECD’s track record to see whether economists can forecast economic growth. “No. not very well” is his answer. But he goes on to say that “… despite the fact that many studies have demonstrated the imprecision of economic forecasts, in this article it has been shown that the forecasts of the OECD are mostly efficient”. 

The OECD’s latest Economic Outlook, to be published at 10:30 this morning, is unlikely to promise us splendid prospects. Whatever the precise figures, it’s more likely to echo the tone of Monday’s World Bank analysis: global output falling by 2.9% this year and world trade by nearly 10%, with private capital flows expected to decline from $707 billion in 2008 to $363 billion in 2009.

You can follow the press conference live here: http://www.viewontv.org/oecd/forum2009/ and get (and give) instant reactions on Twitter by searching for #OECD.

Hard core forecasting fans will find Jordi Pons’ article here: http://pdfserve.informaworld.com/762956_904369598_713758371.pdf

If you’d rather just snigger at forecasting failures, you can nourish your superiority complex here:

http://www.oecd.org/document/6/0,3343,en_2649_33707_37968198_1_1_1_1,00.html

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In the 1990s, the World Summit for Children set out an ambitious series of goals concerning education, health, access to clean water, and so on. UNICEF estimated it would cost $20 billion a year, a huge sum.

But as UNICEF pointed out, this was the equivalent of one week's military spending at that time. Speaking at today’s session on “Financing development”, Hetty Kovach of Oxfam said that at least $6.2 trillion of developing country wealth is held offshore by individuals, depriving developing countries of annual tax receipts of $64-124 billion. By individuals. It doesn’t even include funds held by companies.

Examples like this suggest that the resources required to provide for the basic needs of humanity exist in the world economy, even in times of crisis. Cleaning up tax havens and other ways of evading tax would provide governments in developing countries with new revenues.

It would provide aid donor countries with more money too. Would they be prepared to spend it on development? You might expect that in a recession, aid spending would be less popular. Yet opinion polls on the subject are surprising.

On the one hand, most people overestimate how much aid their country gives, and at the same time, they would like to give more. You can see a number of polls about development here: http://www.oecd.org/document/6/0,3343,en_2649_34101_39295366_1_1_1_1,00.html

But even if the money is there in theory, in the meantime, aid agencies and others involved in development are faced with difficult choices. How do you allocate scarce resources?

It’s only natural that experts, like everybody else, tend to think in terms of their own knowledge and domain of expertise. An economist, for example, would most likely think that cost-benefit analysis is an objective way to decide such an issue.

A politician might pay more attention to the questions of power, influence and governance. A priest, a doctor, a business leader and a police officer would bring their own differing worldviews to bear on the exercise.

There would probably be a consensus on at least the broad priority areas. Healthcare would be near the top of most lists, although within this the main priority may be HIV/AIDS, malaria or maternal and child health depending on the criteria retained. Education would figure prominently too. The OECD would include “aid for trade” – help to develop export expertise and capacity. Problems that are much talked about in the media would also figure prominently, for example global warming or refugee crises.

What do you see as the priorities for aid, and how would you go about financing them?

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Before the crisis, the OECD area had the lowest unemployment rate since 1980 and the highest share of the working-age population in a job, partly thanks to several decades of “structural adjustment”.

The increase in temporary contracts and lower numbers of young people entering the labour market helped too.

Reforms included measures to deter the unemployed from staying on benefit and encourage them to look for work. For instance, to get benefit, you had to prove you were actively looking for work, while weaker job protection made it easier for employers to hire and fire.

These structural reforms contributed to the improved situation. But in a crisis, there may be tradeoffs between policies best suited to cope with the surge in unemployment, and policies designed to shorten the length of the downturn.

For example, stronger employment protection may reduce the immediate impact of a shock, but if it makes employers wary of hiring, it could make the shock last longer. In his presentation, OECD’s John Martin pointed out that it took the US job market four to seven years to recover from previous recessions, and it took Finland 18 years, despite strong growth.

Overall, it doesn’t seem that structural reforms made OECD economies more resilient to shocks, as the rapid rise in unemployment shows. The hope is that the reforms help economies to recover more quickly and prevent unemployment staying at a high level for long.

How about workers facing the risk of unemployment? It’s a mixed picture regarding their capacity to cope with the recession. The expansion in employment before the crisis meant that there was more than one adult working in two-thirds of OECD households, and they didn’t all lose their jobs.

That said, the number of one-adult households has increased over the past two decades, so the share of the entire working-age population living in dual-earner households only increased from 54% in the mid 1990s to 55% a decade later.

Moreover, many of the “second” wage earners may be in vulnerable categories such as temporary or part-time work and have little or no right to unemployment benefits.

So there are advantages and disadvantages to structural adjustment policies and the other changes of recent years, but no strong proof that they have made workers better (or less) able to cope with the recession.

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Panel:  The Economics of Health

http://www.oecd.org/document/31/0,3343,en_21571361_41723666_42559967_1_1_1_1,00.html

 

Health economics is the most important session at the OECD Forum, joked speaker Anders Olauson, "Our lives depend on it".  But he was only half-joking.  Finding ways to provide adequate health care for their citizens is a major challenge for governments across OECD countries and the rest of the world.  The financial crisis has only accentuated the problems that have been at the forefront of health care debates for some time now:  How much should healthcare cost? Who should pay? How do governments, industry and patients share the responsibility of keeping society healthy, especially when resources are already stretched?

Some of the big issues discussed at today’s panel:

 

Living longer, or the ageing of society...

Advances in medicine have lengthened life spans...but longer lives means more need for health care and higher costs.  This is a problem for all countries, no matter their level of economic development...As one panelist put it, “China might get old before it gets rich.”

 

The short term v the long term

How we understand time affects how we make decisions.  Is it imperative to save money now to make up for a budget shortfall?  Ensure high quality primary care to save on more expensive treatment for diseases that could have been prevented? Invest in innovations that improve existing therapies and allow us to manage chronic disease?  For governments, policy makers, health care managers and patients, the question of choices and use of resources now and later is critical to making priorities and investment decisions.

 

What are our expectations about being healthy?  About living well and about dying?

End of life health care interventions tend to be very costly and do not necessarily improve a patient's well being. But are we ready as a society to re-evaluate our attitudes on end of life care?  Panelists suggest that such major cultural shifts as this one could open up avenues to care that is better for the patient and more cost-effective.

 

Which tools will allow us to make progress?

Technological advances have been critical to improving health and lengthening life expectancy.   Developments in pharmaceuticals and medical devices have allowed us to manage diseases that before were fatal.  Information technology opens up many possibilities for handling the data necessary to a better understanding of a patient’s health history, and of helping physicians and health systems evaluate the evidence supporting one therapy over another.  It also has the potential to give us much greater access to health resources, including 24/7 access to health information and even tele-medicine.   But new equipment and new processes always involve some change and expense in the short term.  Will health providers adapt well to new ways of handling patient information?  Will hospitals, governments and other organisations invest in the IT tools that will make health data electronically accessible to both providers and patients?

 

Health literacy

Ultimately the public health experts, patient and industry representatives present at this panel agree on at least one thing: a better informed public that can participate in decisions about health care, and who can help shape society’s attitudes and priorities about health and quality of life is key to building health systems that work.

Useful links

Life expectancy

Health expenditure

 

 

 

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Name an Indian car. If you answered Nano, well done, you’ve obviously been following the news.

Name a British car. If you answered Jaguar, shame on you, you’ve been obviously not been following the news. It’s Indian too. So is Land Rover. How about something posher, a Bentley say? Sorry, it’s a VW now. The iconic MG? Chinese. Well, there’s nothing more British than a Rolls, unless it’s a Mini. Good point, but they’re owned by BMW.

The auto industry is one illustration of what a globalised economy means. The labour, parts and finance needed to make a “British” or any other car come from dozens of countries.

And it’s the same for practically everything you own. It has either been made abroad or needed components and services from foreign countries. In fact, today, the most traded manufactured goods are not final products, but the intermediate components they’re assembled from.

This possibility to tap into global value chains has helped to drive down prices and increase choice.

Yet with the crisis, there are calls to “protect” national economies. Not of course in the sense that governments should let car makers go bankrupt rather than be bought by foreign companies. Rather, there is a feeling that if domestic producers and workers were given priority, firms and jobs would be saved.

Some might be, at least in the very short term. But what would happen when other countries decided to apply the same policy and started penalising or even blocking your exports? And once the stock of components dried up, would “protection” against cheap foreign imports seem so attractive?

This session’s panel members, including WTO Director-General Pascal Lamy, should provide interesting analyses of the challenges facing international markets, and the difficulties in meeting them.  

You can see an interview with Ken Ash, Director of the OECD Trade and Agriculture Directorate here

 

The OECD Insights Series book International Trade: Free, Fair and Open? provides an introduction to the theory and issues of international trade. You can find a summary and other information about the book, and the other Insights titles, here   http://www.oecd.org/insights

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The new old

Posted by Patrick LOVE Jun 23, 2009

The financial crisis was a near-fatal shock to some pension systems, and it revealed a number of trends affecting even the most financially solid schemes.

Much of the debate in the session about pensions concerned the merits and demerits of different types of scheme – defined contribution, pay as you go, etc, as well as regulation of pension funds.

But there was also an interesting point about whether old age would continue to be synonymous with retirement.

Population ageing is a fact in developing and developed countries alike (and it’s happening much more quickly in developing countries than it did in the countries that industrialised earlier).

Yet today we still define “elderly” as 60 or 65 years old although life expectancy at birth is 70 globally, and over 77 in OECD countries (over 80 in a few).

In the future, the equivalent of today's elderly may be the very old (80+). The 60 to 80 age-group will generally be in good health, have decades experience using the Internet and other ICT, have lower expectations of public welfare, and (a point stressed by several speakers), may want to, or have to, continue working beyond the present retirement age.

This means that old age may have to be redefined for a number of purposes, including welfare systems. Marketing has done so already, not least because the "old" have money and when asked about themselves, very few people define old age in terms of chronology, preferring qualitative criteria such as the decline in physical or mental ability.

For governments, the main debate concerns increasing the effective age of retirement. This has tended to fall in some OECD countries despite people living longer and staying healthy longer.

Before the crisis, on average in OECD countries, fewer than 60% of people aged 50-64 had a job, compared with 75% of people in the 25-49 age group. If current trends continue, the ratio of older inactive persons per worker will almost double in the OECD area over the next decades.

Assuming average OECD mortality rates and a retirement age of 65 for both men and women, each additional year of work after 65 without drawing a pension reduces the cost of a government’s pension obligations by more than 3%. Such increases could both reduce benefit expenditures and increase tax and contribution revenues.

However, many countries continue to subsidise early retirement even for healthy people through pension systems and other schemes. Several panellists insisted this was a poor long-term strategy, however attractive as a short-term response to the crisis.

Some economists are worried that if nothing changes, GDP growth per capita in the OECD area could shrink to around 1.7 per cent per year over the next three decades, about 30 per cent below the average annual rates witnessed between 1970 and 2000.

Would you be prepared to work beyong your country's present retirment age?

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