Delivered 29-05-2018, OECD Forum, Paris
Distinguished guests, ladies and gentlemen,
I am delighted to open this session on the “Empowering State”, a concept that the OECD developed in the context of the NAEC and the Inclusive Growth Initiatives.
The Empowering State sets a vision for the Future of governments’ intervention in the face of the current and forthcoming challenges that our economies and societies face.
To help governments move towards Empowering States, we are launching today a Framework for Action on Inclusive Growth.
This is much needed in a context where inequalities continue to be the defining challenges of our lifetimes.
Low- and middle-classes are being left out of the equation. The wages of the top 1% earners are now 50% higher than they were twenty years ago, as opposed to only 15% for median earners [First panel]. The current upswing in the global economy, while welcome, will simply not be enough to turn the tide on rising inequality which is in the meantime has already compounded through wealth: in the OECD the top 10% own 70% of financial assets and the top 1% more than 40%. And in several countries the poorest households are heavily indebted, with little or no collateral wealth [Second chart].
Despite progress on labour market participation, gender gaps remain pervasive. For example, gender pay gap in Japan (at 26%) is among the highest in OECD, even though women are more educated than men. More needs to be done to help women take leadership roles in society, starting by strengthening the parental leave system.
We are going one step further here and show evidence that inequalities are increasing from one generation to another. Income inequality for those born in the 1980s is much higher than among their parents at the same age, which in turn was higher than for their parents.
For example, between the 1950s and 1980s birth cohorts, Gini at the same age increased by 1.5% points across OECD, 8% points in Slovakia, 6% points in the US; but decreased by 8% points in Switzerland and remained constant at 0.25 in Slovenia – the lowest in OECD.
So, it can be done!
How to explain these trends? Globalisation, financialisation and technological change curbed economic dynamism at the bottom of global, national and local value chains and played in favour of super star-firms and super-star workers at the top of the chain.
In Japan, the number of SMEs has dropped by 21%, from 4.8 million to 3.8 million between 1999 and 2014. Labour productivity in small firms is much lower than in big firms in Japan – about half for firms with less than 50 employees.
In France self-employment rate of about 11% is below the EU average (14%); even though, the crisis pushed about 15% people ‘out of necessity’ to create their own business.
So there is clear scope for policy action – which French 2017 ordonnances ought to steer, for example, through more effective firm-level negotiations, secured economic dismissals, and reflecting better smaller firms in branch-level agreements.
Economic growth is also held back by lagging productivity growth and income disparities in regions. For example, in the US, Italy, Turkey, Spain or Mexico, disposable household incomes in the richest region are between 30 and 50% higher than in the respective country’s poorest region.
Citizens in regions with the highest life expectancy live two and a half years longer than citizens in regions with the lowest life expectancy.
But, it can be done. The 50 members of the OECD Champion Mayors for Inclusive Growth initiative committed to take concrete actions to tackle the gap between the rich and poor and today we are proud of supporting these commitments [Refer to Anne Hildalgo, in the Forum opening]
SLIDE 5 – show IG dashboard scheme
Evidence is key to understand what needs to be done. This is why today we release a new Inclusive Growth Dashboard.
It tells us:
- How strong is growth but also how equitably its benefits are shared.
- If marketplaces are Inclusive and well-functioning markets.
- If we are investing sufficiently in foundations of future prosperity by providing equal opportunities to all people and places.
- And finally how holistically and coherently we are acting on this agenda as governments.
SLIDE 6 – show example of OECD poverty rate and Canada median income
The dashboard will allow countries track progress over time over the several outcomes and drivers of inclusive growth. For example you can see that the relative poverty has increased across the OECD group [First panel].
But behind these average trends, countries need to take a look at their strengths and weaknesses. Canada, for instance, does well in terms of median household income as compared to its G7 peers [Second panel]; income inequality is around G7 average and wealth inequality at the top has declined recently. But more needs to be done on gender: the wage gap is almost 19%, higher than the OECD, and only 26% of members of parliament being women. For other countries, the lack of inclusive growth manifests itself as limited social mobility (Germany for instance) or with low percentages of resilient students (Italy).
While the roadmap may change, all countries need to make it future-proof. With this spirit and in connection with the dashboard that I just presented to you, the new OECD Framework for Policy Action on IG provides concrete solutions along three lines:
- Investing in people and places left behind, while providing equal opportunities.
- Support business dynamism and inclusive labour markets.
- Build efficient and responsive governments.
The first point is about preparing people and places for the future – this requires deep and targeted interventions on skilling and reskilling, as well as a focused attention to equitable access to quality housing and infrastructures, aspects that we have long neglected but that increasingly predict resilience.
The second point is about sustaining broad-based innovation and sharing productivity gains. It is also about creating better jobs and markets and firms that, while adapting to the new digital economy, are also secure from workers’ standpoint.
This leads me to my third point: how we rethink government as a strategic actor that anticipates and prepares for change, which is the gist of an Empowering State. At the Social Policy Ministerial that we held just two weeks ago we learned that many countries are experimenting new promising approaches of social support – for instance the individual activity accounts and the life-cycle training accounts in France, or the portable pension accounts in Denmark; or finally universal approaches to social benefits emphasising collective rather than individual solutions.
To conclude, if we want inclusive growth, we need to move away from a “grow first, redistribute later” model, we need fair rules and we need to put our people first.