Bridging the Gap: OECD Inclusive Growth Report and Initiative from Gabriela Ramos
Ministers, Esteemed Colleagues, Ladies and Gentlemen,
I’m very pleased to be here to present you with an update of our inclusive growth initiative and the report Bridging the Gap.
This initiative was launched in 2014, but the work to document the increased inequalities of income and opportunities at the OECD started more than a decade ago.
Beyond this, the inclusive growth, along with our New Approaches to Economic Challenges is an effort to re-think the growth model that we have been following and get better results.
Why, before this growth model failed us three times. First by not avoiding the financial crisis. Second by not avoiding the increased inequalities, and third because of its impact in the environment.
So it is time to re-think, and move from growth first redistribute or clean later, to include equity considerations in our economic policies. It is also about to put people at the center, and not to rely on aggregate outcomes.
And why is it so urgent to do it now?
Because on top of the economic and social challenges, we are seeing a decrease in trust in governments, which is the glue that keep our societies together. Indeed, last year trust in governments in the OECD stood at just 42% and – as you can see from this chart – public confidence is even lower.
This is what is created the backlash against globalization in Advance economies, as 40% of the population has not seen their standards of living improved.
What do we know: In terms of income, as you can see from this chart, the top 10% of have captured the bulk of the gains from growth in recent years, leaving everyone else floundering in their wake. Today in the OECD, this group take home around 10 times the income of the bottom 10% up from just 7 times 30 years ago.
The squeezed middle class have lost out comparatively to the richer peers, as you can see from this chart.
The picture is even more troubling in terms of wealth. The richest 10% in the OECD come to own around half of all household assets, whilst the bottom 40% owns barely 3%. At the very top of the distribution, the Top 1%, holds a staggering 19% of total wealth! And this is the OECD average! Wealth concentration is much larger is some countries.
As we note in the report that we are releasing today “Bridging the Gap”: income inequality produce inequality of opportunities and inequality of outcomes.
Inequalities stand in a symbiotic relationship with the intangible social trappings of success, such as cultural capital and access to parental networks, dragging down on social mobility and impairing opportunities of the neediest individuals.
In some countries, this means 40% of the population.
Nowhere is this clearer than with education.
Children born into poorer families find difficult to overcome their socio-economic background, which is reflected in their learning outcomes as shown in this graph. In very unequal countries this impact can be double on that of children in low income households.
Besides, in the OECD, children whose parents did not attain upper secondary education have just a 15% chance of making it into tertiary education – against a 60% chance for those with at least one parent who went to university. This also impacts social mobility that is the next frontier in our analysis.
This is feeding social discontent. But it also harms growth as low income families do not invest enough in the skills of their children.
This may have also an impact on productivity that follows the same pattern between highly productive frontier firms and the rest that face stagnant growth of productivity.
Our ongoing work on the Productivity-Inclusiveness Nexus underlined that when the poorest are unable to fulfil their potential, we all lose out on the visionary leaders, the innovators, and the economic growth that could have come to pass.
On the other hand, frontier firms accumulate advantages, some sorting out.
So, we need to put people first.
The OECD’s work on Inclusive Growth aims to do just that.
Our latest report “Bridging the Gap”, sets out to promote a new socio-economic model that puts people at its centre.
It highlights that the overarching goal of policy making must be to furnish people with capacity enhancing assets that they can draw on throughout their lives. It also underlines the essential role of the State in enabling individuals, firms and regions to flourish by doing the right investments, prioritising and targeting the needs of low income groups and getting the framework right to level the playing field. reducing excessive concentrations of income, wealth and productive capacity. It is not only about redistribution, but should be about opportunities and investments. It is about ensuring that people succeed by their own merits and not by their initial endowments.
Increasing progressvity of tax system is an area we should look at. Capital and income taxes need to become more progressive, for instance through accrued taxes on inheritance and gift or on residential property.
Tax transparency, and broadening the tax base provide other oportunity. Tax systems for gender is also important, and for low income individuals.
But we also need targeted investments in people, firms and regions, s that offer the biggest “bang for the buck” in terms of inclusive growth.
From this perspective, one of the most effective interventions is early childhood education and care for children from low income families, and more specifically support to foster socio-emotional skills of their children.
The report also recognises that the success of our societies rests, in part, on the success of business.
It emphasises that the State has a role to play to ‘crowd in’ financing in young and innovative sectors and in investing in basic R&D that will see positive spill-overs into countless other domains, particularly to support young and small-medium enterprises that constitute the large majority of firms in most OECD countries and the largest source of job creation.
The report also stresses the importance of ensuring a level playing field for incumbents and challenger firms, that fights against market concentration and ensures that small companies can harvest the opportunities of digitalisation and the next production revolution.
The advent of new technologies, platform economies and non-standard jobs raise a number of challenges for workers as well. This is another area wake-up call to governments and the business sector to ensure that technological disruptions help bridge economic and social divides rather than the opposite.
Ladies and Gentlemen,
Seizing this moment will not be straightforward. Vested interests and the push to go business as usual will be strong.
But continuing on our current trajectory is not an option, if we want to ensure a sustainable future.
At the beginning of this session we asked you whether the Nordic model was a key way to ensure growth benefits all, rather than the few?
Doubtless the Nordic model has very been successful, and it relies on the nexus of the ex-ante equity considerations I mentioned, but also in efforts to ensuring a thriving business environment.
The Nordic Model is a role model for economic opportunity and equality as well as of social cohesion: it has the strongest social mobility in the OECD area and breeds a record-high level of trust in institutions. It is the living proof that inclusive growth is key to underpin vibrant societies and successful economies. Of course it has high taxes as well, but citizens actually find a lot of value in paying those taxes.
All of us can learn from this model in our efforts to promote inclusive growth.