Angel Gurría and Lilianne Ploumen :
This week Heads of State and Ministers from over 40 developed and major emerging economies will convene in Paris at the headquarters of the Organisation of Economic Co-operation and Development (OECD). The focus of discussions will be on getting the global economy back onto a strong, sustainable, and inclusive growth path. We have seen some signs of recovery in recent years, but not robust enough to ensure such a growth path.
An important reason for this economic weakness has been the lack of business investment. Cross-border investment in particular has been badly affected. Global flows of foreign direct investment remain 40% below-pre-crisis levels and in 2014 they fell by 2%, a disappointing end to the year and definitely not the direction we want to be going in.
When political and economic leaders meet at the OECD one of their main objectives will be to deliver solutions to this global challenge.
Governments have taken extraordinary steps to stave off economic catastrophe since the start of the financial crisis in 2008, including fiscal stimulus in the early part of the crisis and so-called quantitative easing programmes. In many respects, these assertive government responses have achieved their main objective, namely to avoid a repeat of the Great Depression-this time on a global scale. But avoiding catastrophe is not the same thing as achieving success.
Certainly, businesses are spending money again, lots of it in fact. Unfortunately, a lot of this spending is not generating as many new jobs or boosting productivity as much as we would like. Rather, many businesses today are taking a cautious approach when it comes to expansion, focussing more on restructuring in the wake of the financial crisis and in response to major changes in the global economy. Furthermore, faced with significant economic uncertainty, some businesses have chosen to use their money to boost short-term shareholder value (for example through share buy-back schemes) rather than investing in new capacity.
In some ways this is understandable; businesses are collectively responding to the current economic circumstances in ways that they consider beneficial. However, as policymakers we need to recognise two things. First, when businesses focus more on restructuring and share prices than on long-term profitability and productivity, societies don’t do as well as they could. Second, a lack of liquidity is clearly not what is holding back business investment. We need to address the structural issues that are holding business back from transforming liquidity into jobs and sustainable economic growth and development.
At the domestic level, businesses still have to deal with red tape, burdensome regulations, and even corruption. At the international level, businesses are also often confronted with restrictions, particularly in the services sector, and a dizzying patchwork of literally thousands of different investment agreements, no two exactly alike. And for some issues that have become largely cross-border in nature, policy-makers continue to focus on national self-interest. The review of cross-border mergers and acquisitions is a perfect example. In an inter-connected global economy, governments will increasingly need to formulate policy through international co-operation.
We clearly need to increase international cooperation in the area of international investment. What is needed is a joint effort to share knowledge and best practices, to work together to address the concerns raised in the public debate about investment disputes or the foreign investment activities of state-owned companies. This is the only way to establish a transparent and level playing field that instils a sense of certainty, confidence and transparency among businesses and the public alike.
The current situation is hardly conducive to promoting private investment in support of jobs and sustainable development. But we think that we can do better. Virtually all modern governments today support the principles of openness, transparency, and the rule of law. This week in Paris, we will discuss ways of working together to get investment going with these principles as our starting point.
The OECD Ministerial Meeting taking place this week represents a first step towards getting investment going again by putting in place investment policies that are fit for the 21st century. The policy challenges we face – climate change, economic development, rising levels of inequality-are too great and require everyone’s engagement. We cannot afford to leave the private sector sitting on the sidelines.
(Angel Gurría is the Secretary-General, OECD and Lilianne Ploumen, Minister for Foreign Trade and Development Cooperation, The Netherlands. EurActiv is a Media Partner of this week’s OECD Forum 2015.)
This week Heads of State and Ministers from over 40 developed and major emerging economies will convene in Paris at the headquarters of the Organisation of Economic Co-operation and Development (OECD). The focus of discussions will be on getting the global economy back onto a strong, sustainable, and inclusive growth path. We have seen some signs of recovery in recent years, but not robust enough to ensure such a growth path.
An important reason for this economic weakness has been the lack of business investment. Cross-border investment in particular has been badly affected. Global flows of foreign direct investment remain 40% below-pre-crisis levels and in 2014 they fell by 2%, a disappointing end to the year and definitely not the direction we want to be going in.
When political and economic leaders meet at the OECD one of their main objectives will be to deliver solutions to this global challenge.
Governments have taken extraordinary steps to stave off economic catastrophe since the start of the financial crisis in 2008, including fiscal stimulus in the early part of the crisis and so-called quantitative easing programmes. In many respects, these assertive government responses have achieved their main objective, namely to avoid a repeat of the Great Depression-this time on a global scale. But avoiding catastrophe is not the same thing as achieving success.
Certainly, businesses are spending money again, lots of it in fact. Unfortunately, a lot of this spending is not generating as many new jobs or boosting productivity as much as we would like. Rather, many businesses today are taking a cautious approach when it comes to expansion, focussing more on restructuring in the wake of the financial crisis and in response to major changes in the global economy. Furthermore, faced with significant economic uncertainty, some businesses have chosen to use their money to boost short-term shareholder value (for example through share buy-back schemes) rather than investing in new capacity.
In some ways this is understandable; businesses are collectively responding to the current economic circumstances in ways that they consider beneficial. However, as policymakers we need to recognise two things. First, when businesses focus more on restructuring and share prices than on long-term profitability and productivity, societies don’t do as well as they could. Second, a lack of liquidity is clearly not what is holding back business investment. We need to address the structural issues that are holding business back from transforming liquidity into jobs and sustainable economic growth and development.
At the domestic level, businesses still have to deal with red tape, burdensome regulations, and even corruption. At the international level, businesses are also often confronted with restrictions, particularly in the services sector, and a dizzying patchwork of literally thousands of different investment agreements, no two exactly alike. And for some issues that have become largely cross-border in nature, policy-makers continue to focus on national self-interest. The review of cross-border mergers and acquisitions is a perfect example. In an inter-connected global economy, governments will increasingly need to formulate policy through international co-operation.
We clearly need to increase international cooperation in the area of international investment. What is needed is a joint effort to share knowledge and best practices, to work together to address the concerns raised in the public debate about investment disputes or the foreign investment activities of state-owned companies. This is the only way to establish a transparent and level playing field that instils a sense of certainty, confidence and transparency among businesses and the public alike.
The current situation is hardly conducive to promoting private investment in support of jobs and sustainable development. But we think that we can do better. Virtually all modern governments today support the principles of openness, transparency, and the rule of law. This week in Paris, we will discuss ways of working together to get investment going with these principles as our starting point.
The OECD Ministerial Meeting taking place this week represents a first step towards getting investment going again by putting in place investment policies that are fit for the 21st century. The policy challenges we face – climate change, economic development, rising levels of inequality-are too great and require everyone’s engagement. We cannot afford to leave the private sector sitting on the sidelines.
(Angel Gurría is the Secretary-General, OECD and Lilianne Ploumen, Minister for Foreign Trade and Development Cooperation, The Netherlands. EurActiv is a Media Partner of this week’s OECD Forum 2015.)
