Inclusive Growth in a Globalized World: T20 Summit

Remarks delivered 29-05-2017, Paris 

I am delighted to be here today in the T20 addressing inclusive growth in the G20 economies. I commend the T20 for having included this important topic, in which the OECD has been working for decades.  My message today is that the goal is not only about addressing inequalities. It is about changing a growth model that has failed us on three counts.

First by not preventing the crisis. Second by not preventing the increased inequalities of income and opportunities, and third by not addressing fully the impact of our actions in the environment.

Indeed, in the OECD income of the bottom 40% has been stagnated in the last decade, and the richest 10% of the population earn 10 times more than the poorest 10%. 30 years ago, it was 7 times. In developing economies, even though there may be progress, they still suffer from high level of poverty and informality, and the income distribution is even worst.

Inequality is not just about income. Wealth is much more highly concentrated than income. The richest 10% in the OECD possess half of total wealth, while the bottom 40% own little over 3%.[1]  

The problem here is that income inequality produces inequality of opportunities, and inequalities of outcomes. Low income groups accumulate disadvantages in terms of low quality education, lower life expectancy, and less access to quality jobs.   

The digital revolution may bring additional challenges, with a fast pace of change, and demanding high level skills and investments.  In fact, at the OECD we have documented that, in the age of technology, there is a wide dispersion of productivity growth, with the frontier firms growing at 3 or 5 percent, while the rest seeing their productivity stagnant.  We call it the break- up of the diffusion machine.  Productivity dispersion brings wage dispersion, and increased gaps between people, firms and regions.  

This without considering the fears that automation and redundancy. On average across OECD countries since 9% of jobs are at high risk of automation, and another 25% will likely experience a major retooling because of automation. The ownership and management of big data is also another source of concern in terms of concentration of market power.

Inequalities also hinder growth. We call the “nexus” productivity and inclusiveness.

For instance, more unequal countries show larger skills mismatches than more cohesive ones, with significant negative effects on productivity. Large inequalities jeopardise future growth and productivity potential through low labour force participation, low employability and marginal attachment to the labour market.  But it also prevents investment in human capital of low income groups.

No wonder about the backlash against globalization and technological progress, which are closely interlinked, are blamed for all the ills of our economies and societies and for leaving many behind.

People’s trust in governments has declined markedly across the OECD, hitting the lowest record of just 42% in 2016[2], thus making it more difficult for governments to pursue and sustain the reforms required to make society and economy inclusive.  

What are the policy priorities in this context?

We need to change the growth model I referred before. Get away from the mantra of growing first and distributing later,  to include the equality considerations ex- ante. We should avoid informing our policies just by looking at aggregate figures, and look at the distributional impact of the policies we take.

We need a multi-dimentional approach of well being to avoid the silo approach, to develop comprehensive policy packages.

Given that 40 percent of the population  is being left behind, the goal is to “level the playing field” for the bottom deciles so they can fulfil their full potential.

Education is key, but we need to go granular, and not only ensure quality provision of education, but to target low income groups needs. We need to break the link between socio-economic background and school attainment and performance.

If you are born in a family whose parents do not have high school diploma, you have only 15% chances to make it to that level, compare with 63% of the children with parents with higher education. Early childhood education and care is key in this domain.

For this, we need to strengthen the overall progressivity of the tax structure, broadening tax bases, and lowering taxes for low-skilled workers (for example). We have made progress with AEOI and BEPS, but more need to be done regarding tax on wealth.

On the spending side, the OECD identifies a series of innovative interventions – on social protection, education, preventive health, active labour market policies, etc. – that offer the biggest “bang for the buck” in terms of growth and inclusiveness.

Another key component of inclusive growth is women’s empowerment. 

G20 countries’ progress in closing the gender gap in labour force participation is still very slow: on average, the gap has only narrowed from 20.3% in 2012 down to 19.6% in 2015, notewitstanding the fact that 130 million more women could join the labour force across G20 countries, with an expected increase of annual growth by 0.68 % point in a number of countries.[3] Here again, tax system could play an important role.

Getting women and girls into STEM will also prevent opening another door for a digital divide. (through initiatives just like the one I launched with Mexico, matchmaking female STEM-related professionals and aspiring female students).

Have countries made any significant action to make growth more inclusive?

I must say we had too many talks and probably to focused on reignited growth as we know it. Now, we need action for real inclusive growth! The OECD will develop a Framework for Policy Action to help guide the G20 on the available options.

I hope this discussion will continue in this year’s OECD MCM under the theme of “Making Globalisation Work: Better Lives for All”.

 

[1] OECD Statistical Database

[2] Percentage of the population reporting confidence in the national government, 2006-2016, Gallup World Poll (2017)

[3] Women at Work

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