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by Angel Gurría, OECD Secretary-General
delivered at the Warsaw School of Economics,
Warsaw, Poland
24 November 2006
Dear Senators, Dear Ambassador, Dear Director, Ladies and gentlemen,
It is a great honour and a pleasure to be here today at the Warsaw School of Economics.
Poland has one of the world's finest academic and intellectual traditions. I understand that education was a priority in Poland as early as in the 12th century. Poland was a knowledge society long before the term was ever invented.
Today, I will speak to you about the challenges of globalisation and the role of the OECD. We live in a world of great paradoxes. Globalisation has been a powerful motor for prosperity and poverty reduction. As you are well placed to know, it has also been a positive force for countries making the transition from central planning to a market economy.
In Mexico, my home country, and in many other Latin American countries, the opening up of our economies to global markets has been a very positive force for social and economic change.
And yet, at the same time, we are experiencing great public concerns and anxieties about globalisation.
Globalisation and open markets
There is no one accepted definition of globalisation. This makes many debates rather confusing. At the OECD, we interpret economic globalisation as a process of closer economic integration of global markets: financial, product and labour.
Economies have been becoming more integrated for centuries. But in the past half century, the process has accelerated, first with the trade liberalisation that followed the Second World War and then, more recently, with the end of the Cold War, the rapid development of Asia and the opening up of China and many Latin American economies.
The acceleration in globalisation is reflected in rising flows of trade, finance and migration, driven not only by market opening, but also by rapid technological change. The share of trade in global GDP has tripled since 1950. The level of outward FDI relative to GDP among OECD countries has quadrupled since the early 1970s -- global FDI was about $610 billion in 2004. And the number of immigrants entering OECD countries on average each year has more than tripled over the past twenty years.
Poland has of course been a part of this trend, and is now an important destination for foreign investment and an increasingly dynamic trading nation. Following your membership of the EU, your fellow citizens have been able to explore other economic opportunities by migrating to some other EU countries.
Globalisation has been a powerful force for economic development and transformation. It has helped lift millions out of poverty. It has fostered and facilitated innovation, which has raised productivity and led to scientific discoveries which will help us lead longer and healthier lives.
But we should not take it for granted. It is particularly frustrating to see the stalling of the Doha Development Trade Talks, as this is an opportunity to re-balance trade rules in favor of developing countries. The present impasse is a lose-lose situation, in which all countries suffer but where the poorest will suffer most. According to our estimates, there are enormous gains in prosperity to be had from liberalisation for industrial and agricultural goods and services, as well as trade facilitation. More importantly, a failure of the Doha talks would risk undermining the multilateral trading system and unleashing a wave of protectionism that reasonable politicians will find hard to counter. I hope that discussions underway at the OECD and elsewhere will quickly revitalise the Doha talks.
Another area where I am greatly concerned about is the possible backtracking of open markets for foreign investment. In Europe, there has been some reticence about international mergers and acquisitions in sectors as diverse as steel, banking and energy. In the United States, concerns have been expressed about foreign investment in oil companies and port facilities. In March of this year, Chinese officials made warning statements about foreign involvement in strategic sectors of their economy. And, we have recently witnessed a resurgence of expropriation in some Latin American countries.
Governments obviously have the right to safeguard national security and other public interests. But, we need to be clear: protectionism is not the solution. It poses a serious threat to the good functioning of the world economy. The OECD has an important role to play in identifying the means to balance these different interests and objectives.
The third issue that I want to address is migration. As markets get more integrated, it becomes clear that the movement of people is one of the most difficult aspects to manage globally. Most governments control the entry of migrants into their countries. But today, most OECD countries are facing ageing populations and slowing or negative population growth. "Enlightened migration" can be a win-win for both sending and receiving countries. Indeed, experience shows many migrants return to their home when economic opportunities improve. Many of your compatriots who have recently left Poland may well become an important source of human and financial capital for the Polish economy in the future.
Reaping the full benefits of globalisation
As I have said, open markets are the key to globalisation. But reaping the full benefits of globalisation requires a lot more than that. The full range of sound macroeconomic and structural policies are necessary, such as sound monetary and fiscal policies, labour market policies that develop human skills and adaptability, economic policies that allow for firm creation and exit, an efficient regulatory framework, and good and effective corporate and public governance.
I would like to highlight just a few of these issues. One key element for effective open markets is a regulatory framework which does not make it difficult to do business and which facilitates innovation. This issue has been the subject of an OECD survey of the Polish economy. As noted in our most recent report, much has been done to reduce the costs of setting up businesses. But in our assessment, it is necessary to further reduce regulatory and administrative barriers. This would provide a stimulus to domestic entrepreneurship and innovation, as well as making Poland more attractive to foreign investors and helping your trade performance.
Human capital development is an area which is essential if Poland is to reap the full benefits of globalisation. Foreign investors are obviously more attracted to countries with well-qualified and healthy workforces. And countries with high levels of human capital are much more able produce exportable products for global markets, and climb the value chain as new products are launched. I understand that important reforms have been made to decentralise primary and secondary education in the late 1990s. In the area of education, you may have heard of the OECD's Programme for International Student Assessment, better known as PISA. This programme has developed a set of reliable and comparable international indicators on student performance for 15 year olds.
Your government has invested heavily on education in recent years, and Poland's performance improved greatly between the 2000 and 2003. The tertiary sector has seen a four-fold expansion in 15 years. However, participation in adult training is low and seems to be concentrated among already relatively highly-educated groups. As a result, it does not seem to be having much impact on improving the human capital of older and less skilled groups.
Tackling the other side of globalisation
As I have mentioned, open markets and rapid technological change have clearly been a motor for prosperity and poverty reduction. However, they may also have facilitated the expansion and globalisation of a wide range of illicit activities, such as bribery and corruption, tax evasion, money laundering, counterfeiting and piracy, and human trafficking.
It is important to address these problems. The OECD is at the forefront of many initiatives to tackle this negative side of globalisation. OECD countries and six non-member countries have signed a far-reaching “Convention on Combating Bribery of Foreign Public Officials in International Business Transactions”. Its effect has been to make bribery illegal in many countries that had previously condoned it as a practice, even to the extent of allowing bribes to be tax-deductible.
We are also carrying out a major project, for which we recently received a mandate from the G8 in Saint Petersburg, to strengthen the international legal framework to combat counterfeiting and piracy. Our work shows that the production of counterfeit and pirated goods has become more sophisticated. The high returns on counterfeit and pirated goods are fanning corruption and criminal activity. Links to organised crime and terrorist groups seem to have been established.
At present the outlook is not promising. While most countries appear to have adequate legal and administrative mechanisms for combating counterfeiting and piracy, enforcement actions have not been sufficient. The first phase of our project should be completed by the end of the year.
As you can see, global problems need global solutions, and the OECD stands ready to contribute.
Role of the OECD
This takes me to the role of the OECD. The Organisation I head has a key role to play in managing globalisation – understanding it, explaining it, analysing its effects, and making policy recommendations to maximise its benefits and to tackle its challenges.
We do this through many means: peer reviews and surveillance, like our country studies; benchmaking, like the PISA study; and by the negotiation of instruments, like the Anti-Bribery Convention.
To be successful, we need to have all the countries that matter around the table. Another key aspect of the OECD today is the globalisation of our own activities, as we work with some 70 non-member economies in particular the so-called BRICS -- Brazil, Russia, India, China and South Africa.
The last aspect that I would like to mention today is importance of communications. I mentioned that one of our roles is to explain globalisation. As we see increased public concern about the process, and as we also experience the negative side of globalisation, it is important to have a well informed view on these issues and to communicate them properly to the public.
Globalisation has also been signaled as the cause of higher income disparities. It is true that in more competitive markets, the less prepared individuals and regions will suffer. But avoiding the process is not the answer. It is necessary to equip these people and regions with the instruments to make the best out of it. It is also necessary for economies to keep the pace of economic reform.
One of the great challenges for the policy agenda for reaping the full benefits of globalisation is the so-called political economy of reform. How can governments implement the necessary reforms? In many countries, well-designed reforms have failed to be implemented or sustained due to the near-term political costs that they entail, and the fact that opponents are vocal and well-organised while benefits tend to be more diffuse and delayed. Too often we have to wait for a crisis before reforms get launched – but with greater pain for all concerned.
This points to the need to inform and convince the broader public regarding the benefits of such reforms -- or the costs of the absence of reform. In this endeavour, the OECD can offer a wealth of information and analysis, based on the experience members have shared over the decades under its auspices, drawing on the expertise of its committees and staff.
In this context, I personally greatly value contact with students and youth like yourselves. You are the leaders of tomorrow. You will make the world of tomorrow. And establishing dialogue and relationships with you is of critical importance.
Thank you very much for your attention. I look forward to your questions and comments.
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