Keynote: Conference on the Future of Inclusive Economies

Keynote delivered at the Houses of Parliament of the United Kingdom on the occasion of the Conference on the Future of Inclusive Economies organized by APPG Inclusive Growth.

Excellencies, Ladies and Gentlemen,

I am glad to be with the All Party Parliamentary Group for Inclusive Growth, along with the Club de Madrid. I commend the work you are doing on inclusive growth.

This session is righly called “changing paradigms”. This is exactly what we need. Changing a growth model that did not deliver for people, for the planet or for social cohesion. Bad economics is bringing bad politics. Brexit is the perfect example.

Inequalities of income and opportunity are fracturing communities, undermining prosperity and eroding trust – little over 40% of people in OECD countries trust their governments.

The top 10% now earn almost ten times more than the bottom 10% across OECD countries, up from seven times 25 years ago.

When it comes to wealth, the top 10% hold more than half of the total net wealth (52%).

These economic divides do not only have an impact on the lives of those “left behind” today, they have a long-lasting effect on their children too. Educational disadvantage typically means not only smaller salaries tomorrow, but, most alarming of all, shorter lives.

A 25 year-old university-educated man can expect to live almost eight years longer than his lower-educated peer on average across OECD countries; the difference is around 5 years for women.

But the more we dig into this, the more worrisome the picture looks.  Let me highlight a few findings from recent OECD reports on social mobility and on the squeezed middle class.

Currently, it would take a child born into a low-income family about 5 generations – or up to 150 years – to reach the average level of income across OECD countries.

Another trend that we are seeing is that on average across OECD countries, the share of people in middle-income households is falling. We have found that 70% of baby boomers were part of the middle class in their twenties, compared with 60% of millennials.

While wages have stagnated, house prices have been growing three times faster than household median income over the last two decades, and the cost of healthcare and education has been rising above inflation. This is happening in the context of rising job insecurity, and a radical technological transformation, with it’s “Winner takes all” dynamics.

We estimate that around 14% of jobs are at high risk of automation and another 32% will change significantly. The low skilled will be most affected, and yet these workers are 40 percentage points less likely than high-skilled adults to participate in training.

The way we work is already changing too: almost 1 in 3 workers has a non-standard job, with great variance in terms of pay, job security, access to social protection, and collective bargaining coverage.

If the trend during globalization meant the decrease in unionization, with the digital revolution, health, unemployment and other risks are transferred to the digital workers, who are wrongly called “self- employed”.

Workers linked to these jobs are up to 50% less likely to get income support when out of work, making their situation even more precarious. This is why we are calling for a new way of developing social dialogue and collective bargaining for the future of work

One important dynamic in digitalisation is the fact that women are also being left behind. 250 million fewer women are connected to internet; 10 percent of start ups are headed by a woman, and 80% of downloads and software developments are done by male only teams. They are underrepresented in the STEM fields, and in ITC. No wonder that the biases and the content that is being produced and disseminated in social networks is having a clear impact on the mental health of girls.

So we have the facts and we should wonder how did we get here so that we can correct the course.

First,  we made choices and priviledged the efficiency of markets over equity considerations. Our metrics failed us too, as we relied on averages and material well-being as a proxy for success.  GDP became an end in itself instead of a means to an end.

The mantra that we should grow first and distribute later (which is still present nowadays), prevented us from imagining  a different  roadmap.

This is why the OECD developed the Productivity-Inclusiveness Nexus, which shows that more egalitarian societies have more solid and cohesive growth outcomes.

We confirmed that inequality hinders growth. And this is straightforward as there is a talent pool that is not tapped when we do not invest in quality education for all; or when SMEs cannot access the technology or financial schemes to succeed.  It also hinders growth because inequality in terms of health, crime, or dependency has a high fiscal cost.

So we also suggest to broaden the definition of economic success and look not only at material income, but also at all other aspects that matter for people’s well being. We launched a Framework for Policy action that calls to include equity considerations in the economic policies.

And we developed a dashboard of 24 indicators (including educational attainment of the bottom of the income distribution; or the ratio between the top to the bottom incomes, and the inclusiveness of the labor market). This dashboard builds on a decade of OECD work on measuring well-being beyond GDP, with extensive research on multidimensional indices such as the one that is launched today and that we welcome.

Taking forward the measurement agenda, our Framework  for Action provides a tangible roadmap for governments that focuses on three key areas: investing in people and places left behind; making the labour market more inclusive while supporting business dynamism; and improving the efficiency and responsiveness of governments.

But to achieve this, we should prioritize those policies that will improve the conditions of the bottom of the income distribution. 

We should create the support systems to level the playing fields, including affordable and high quality early childhood education, and quality jobs. At the OECD we also developed a framework on quality jobs that looks at level of remuneration, working conditions and job security.

To achieve this agenda, we should ensure that governments have the means to re-balance the outcomes. We should ensure progressive tax systems and this is also an agenda that the OECD has developed, fighting tax evasion and erosion, ensuring that multinational companies pay their fare share, and advancing a solution for the taxing of the digital economy, that we just presented at the G20 Ministerial Meeting in Fukuoka.

Beyond governments, inclusive growth agendas need to be run through a broad coalition of actors. The corporate sector has a key role.

The OECD Business for Inclusive Growth Initiative (B4IG), launched just a few months ago, is catalyzing the efforts of governments and companies to promote equality of opportunities (such as training and upskilling programmes for disadvantaged groups); provide “good work” opportunities; eliminate gender inequality, promoting diversity and inclusion;  and finally, reducing territorial inequalities through generating economic opportunities in remote areas. This initiative may deliver in Biarritz a strong business pledge for action on inclusive growth.   

The G7 has remained a strong promoter of Inclusive Growth: from the Italian Presidency two years ago with the Bari Agenda to the Canadian Presidency last year that focused on Growth that Works for all.

As for the G20, the most important contribution to inclusive growth is the tax and the gender agenda. The figth against tax evasion and erosion has delivered 93 billion euros in additional revenues. This is money that can be invested in people and places left behind.

On gender, in 2014, at the Australian G20 Summit in Brisbane, the OECD brought the economic case to tackle gender inequality to G20 leaders. This was how we got leaders to agree to reduce the gender gap in labour market participation rates by 25% by 2025, through the integration of 100 million women into the labour force.  Since then all G20 countries have experienced an increase in labour force participation, with particularly large reductions in the gap in Japan, Argentina, Brazil and Korea.

Building on this, inclusive growth goals have been advanced in all the Presidencies. In Argentina, the focus was to support those more affected, or less prepared in the future of work.

This year, to support the objectives of the Japanese G20 Presidency, the OECD is contributing to a number of relevant workstreams particularly on ageing. Turkey  has put an emphasis on refugees and the challenge of migration.

But the approach has been peacemeal, and what is required is to launch the multilateral discussion about the new growth paradigm. And yet, just when we need it most, multilateralism is being questioned, and the willingness to co-operate is low for many countries.

The last time we had a major social and systemic crisis the welfare state was created. This time, we have not been able to advance a coherent response. But we need to thrive to develop an empowering state, that invests in people and regions, particularly those left behind.

And definitely, we need to change the metrics and the mindset, to develop a more compassionate growth model. Kailash Satyarty, the nobel prize winner that is rescuing children from slavery has said that the international economy has globalized everything, capital flows, technology, digitalization. It is time to globalize compassion. For this to happen, please count on the OECD. With our evidence, but also with our commitment, we will be proud to contribute.

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