OPENING ADDRESS TO THE

OECD FORUM 2000: PARTNERSHIPS IN THE NEW ECONOMY

“SHAPING GLOBALISATION TO BENEFIT ALL”

PARIS

MONDAY, 26 JUNE 2000
10.15 AM

Introduction

Baroness Williams, Secretary-General Johnston and Minister Huwart, ladies

and gentlemen, welcome to the OECD’s Forum 2000.

It is an honour for me, as Australian Treasurer and the Chair of the

2000 OECD Ministerial Council Meeting, to help open this important dialogue

with representatives of non-government organisations, representatives

of employees, businesses and universities. You represent an important

part of what has come to be called “civil society”: the voluntary

groupings of private citizens who advance particular interests, independent

of government.

It has been pleasing over recent years to see the OECD successfully drawing

on these groups to help address policy challenges. Good examples are the

work on corporate governance, corporate responsibility, anti-bribery and

ethical behaviour in business and government; as well as electronic commerce,

and Internet issues concerning consumer protection and privacy.

Running through the policy issues on the Forum 2000 agenda is the challenge

of globalisation for policy-makers.

Advances in communication, information technology and transport have

created international markets in goods and services. Trade and investment

flows across national boundaries mean that countries can no longer quarantine

themselves from international developments. The developments that are

creating global markets and reducing the effectiveness of national boundaries

are, in my view, unstoppable and quite likely to accelerate. Our choice

is not whether to stop them, but how to manage them for the benefit of

our citizens.

As an Australian, I have lived at close quarters with significant opening

up of our economy in recent years. The internationalisation of our economy

has not just resulted from trade and investment, technology and communication,

but also migration, education, travel and skills transfer. We enjoy a

stable, fast-growing economy that has weathered the storms of the Asian

economic crisis while continuing to reduce unemployment. We are convinced

that an open economy delivers big net gains, but it requires the right

policies and institutions to deliver its full potential.

Economic development and the international framework

In the 20^th century, the poorest quarter of the worlds population

became almost three times richer. The richest quarter became almost six

times richer. Notwithstanding this diversity of performance, economic

development lifted more people out of poverty than ever before and gave

them better health and education and better opportunities in life. Gains

of this magnitude are unprecedented in previous human history.

The great bulk of these economic gains were concentrated in the second

half of the 20^th century. During that period, the multilateral

framework was centred on the institutions designed at Bretton Woods in

1944, the International Monetary Fund and the World Bank. These institutions

were quite successful in bringing stability and growth to the post-war

order.

The OECD itself, born in 1948 as the Organisation for European Economic

Cooperation, illustrates what can be achieved through well designed policies

and institutions. Through increasingly free trade and investment flows

and improved policies and institutions, those founding member economies

of the OECD that had been devastated by war, rapidly converged from the

1950s to the 1980s on the living standards and the growth rate of the

most advanced economies.

A clear majority of those who were poor as recently as 1970 have got

richer, in both absolute and relative terms: over the last 30 years, about

70 per cent of the population of developing countries have experienced

sufficiently fast growth in real per capita GDP to converge towards rich

countries levels. Poverty has worsened in some nations, particularly

in Africa. But there are major developing countries, particularly in Asia,

with large populations that have been growing quite strongly and lifting

millions out of poverty.

In East Asia alone, the number living in extreme poverty was halved in

only 10 years. The recent Asian crisis temporarily undid some of those

gains, but East Asia and South Asia are again the fastest growing emerging

markets. Hopefully that growth is now better founded on more robust institutions

and more transparent policies than before the crisis.

Notwithstanding the overall improvement, about 30 per cent of the poor

have became relatively poorer over the last 30 years – and a third of

them even poorer in absolute terms. This, of course, is a matter of deep

concern and reminds us there is still such a lot of work to be done.

Those countries where poverty is worsening have been unable to participate

in globalisation. They face many obvious social, health and political

challenges. And their economic institutions are weak. Their share of global

trade has actually halved over the last 20 years. They are isolated from

global trade opportunities and in some cases isolated by protectionist

policies pursued in more developed countries.

I view this indicator of falling trade shares for the poorest countries

as not a sign they are exploited by globalisation, but rather an indicator

they are missing out on the great opportunities that can be created, with

the right policies and institutions, from increasing trade and investment

flows.

Many of the problems attributed to international trade rules or international

institutions (such as apparently intractable poverty in the poorest countries,

persistently high unemployment and resultant social exclusion among the

low skilled in higher-income countries, or public concerns about food

safety) are in fact failures of national polices and institutions. Failures

of national policy can only be corrected at home.

I want to return shortly to what we in the OECD can do to help the poorest

non-member countries. But first, I would like to touch briefly on the

contribution good national policies can bring to harness the benefits

of globalisation.

Building “new economies”

In an increasingly integrated world economy with vast cross-border capital

flows, poor national policies are penalised and good policies rewarded.

Global developments are likely to leverage the penalties or the rewards.

In the first report on the OECD Growth Project to this MCM which discusses

the idea of a “new economy”, the OECD identifies Australia as

one of only six OECD economies (together with the United States, Denmark,

Ireland, the Netherlands and Norway) to have raised its trend real per

capita growth rate in the 1990s. The OECD notes that all six also achieved

improved labour market outcomes and most lifted growth rates in total

factor productivity.

In contrast to the performance of these six, the OECD area as a whole

grew more slowly in the 1990s, and the economies which slowed the most

(including some large European economies) experienced higher unemployment

and lower labour force participation rates. Their measured labour productivity

growth was high, but this seemed to have been achieved largely by shedding

the low-skilled into unemployment.

It may surprise those who still think of Australia as an “old economy”

of mining and agriculture that we share many of the characteristics of

a so-called “new economy”, where productive use of information

and communications technology has helped lift productivity growth to around

US rates, and sustained real GDP growth at rates of over 4 per cent a

year for the last 12 quarters.

In OECD comparisons, Australia rates third in the number of secure Internet

servers per million inhabitants, and has amongst the highest percentages

of the total population with Internet access.

But I believe the key issue is not producing lots of computers. This

is not a question of manufacturing technology but of using technology

in manufacturing, or agriculture or mining or financial services. And

the key to finding productive uses for any technology is intense competition

and continuous structural reform to keep an economy open and receptive

to innovation in a sustainable macroeconomic environment. In this way,

new technologies permeate the entire “old economy”. In Australia,

we see information technology contributing to productivity gains in manufacturing,

agriculture and other sectors, not just in the information and communications

technology sector itself.

With fiscal and monetary probity and comprehensive structural reforms,

countries can lift their economic performance, create jobs and produce

social dividends.

In this way, national economic reform can become a key contributor to

social cohesion and progress. There is no better path to social inclusion

and individual advancement than expanding employment opportunities in

a flexible, dynamic and growing economy.

The Australian Government has implemented wide-ranging macroeconomic

reforms and a continuing program of structural reforms. We have undertaken

substantial regulatory reform and rejuvenated competition. We have eliminated

budget deficits and reduced government net debt to just over 8 per cent

of GDP.

These reforms have lowered unemployment to around the lowest levels in

a decade; raised the sustainable, non-inflationary growth potential to

around 3 to 4 per cent; and kept inflation at about 2 per cent. We are

now implementing thorough-going reforms of personal, indirect and business

taxes.

Five years ago, the Australian Government spent nearly as much on servicing

public net debt as it did on schools and hospitals. Now, spending on debt

service has been cut by about half, while public spending on schools and

hospitals has doubled. Taxes can be spent on the future, not the past.

Yet even with a strongly growing economy, governments have an important

role in sharing of the benefits of economic growth so that people are

not left behind.

A competitive, market-based economy and a compassionate society are mutually

reinforcing. Each needs the other to work best and to prove sustainable

into the new millennium, when ageing societies will pose new challenges

for economic and social policies.

Australias social safety nets are well-targeted to provide adequate

benefits to those in real need. But we want to make further improvements.

Like other OECD members, we are trying to reduce work disincentives from

the interaction of the tax and benefit systems, and focussing on assisting

long term benefit recipients back into employment.

Governments do not have all the answers to these problems. Centralised

solutions are not always appropriate; nor can governments alone implement

solutions.

So in Australia, we have sought to develop a social coalition to tap

the insights of charitable organisations and churches, voluntary groups,

businesses, communities, families, individuals and all levels of government.

We are applying the principle of mutual obligation, whereby those who

benefit from government support have an obligation to give something back

to the community in return.

We have worked to ensure accessible, better quality, relevant education

and training to allow better employment opportunities.

A key element of Australian education and training policy has been to

ensure that the sector is accessible in rural and regional areas and for

disadvantaged groups – a task that can be made easier by the use of the

Internet. Similarly other essential areas of community support such as

health, welfare, and family and community services have all been upgraded,

with a view to improving the delivery of these services to remote locations.

Building better national institutions

Robust domestic economic institutions are necessary to maximise the benefits

from trade and investment and withstand the rigours of globalisation.

Markets only work efficiently and stably with a robust rule of law, an

independent judiciary, good insolvency regimes, sound financial institutions,

good prudential supervision, sustainable fiscal and monetary policies,

good corporate governance and low corruption.

Experience has shown this in three ways.

First, the Asian crisis showed that when the storms of economic crisis

hit, institutions matter. They count in preserving confidence.

Second, the formerly centrally-planned economies have shown that building

sound market institutions takes time, and that without them instability

and poor growth will persist.

Third, the persistent difficulties of the very poorest countries show

that neither domestic markets nor participation in international markets

can develop very far without building better economic institutions.

It is one of the strengths of the OECD that it has been particularly

active in drawing out the best of its members’ institutional designs and

supervisory practices, such as in its analysis of corporate governance

and regulatory reform, and its achievements in improved anti-corruption

and anti money-laundering measures.

In the task of building good institutions and regulatory practices, enhancing

transparency, and in the conduct of fiscal and monetary policies, newly

developed international standards and codes can be of considerable help.

Key work is being done in the IMF, the World Bank, the OECD, the Financial

Stability Forum, the G-20 and APEC.

Interestingly, some key codes such as those on accounting, auditing,

and corporate governance have been as much or more the products of robust

civil society, as of governments. This reflects the reality that laws

can only achieve so much at the frontiers of rapidly emerging issues,

good conduct is often a matter of community standards, of business ethics,

and of peer standards in key professions within civil society, such as

accountants, auditors, and company directors.

The OECD can play a valuable role in encouraging the implementation of

international standards and codes among its own members, and indeed more

broadly, and to assist those who want to move towards best practice.

We should strive to maintain the momentum of these reforms internationally,

through this period of strong growth. We should be reinforcing the architecture

of our national institutions and supervisory practices now, to meet the

challenges of tomorrow.

Building better international institutions

In a similar vein, we need to persist in continuously reforming international

institutions to cope with global developments in which private capital

flows are larger and official capital flows less important than in the

past.

We should seek to ensure each of the major international institutions

is focused on the objectives it is best able to implement. If we can achieve

that, the operations of the institutions will be mutually supporting.

One can see this principle usefully applied in the recent debate about

sharpening the respective roles of the IMF and the World Bank.

The same approach would serve us well in considering the roles of the

other international institutions. For example, the Australian Government

believes the WTO ought to focus on trade liberalisation supported by effective

rules, the ILO on labour standards, and the relevant UN agencies on specific

environmental and human rights issues. To try to achieve every objective

in every institution is likely to lead to poorer performance in all institutions

at all objectives.

Trade, agriculture, debt and extreme poverty

A significant part of the problem of disengagement of the extremely poor

from the benefits of globalisation is attributable to selective protectionism

in developed economies.

As the poorest economies enter the world of international trade, some

of their earliest export opportunities are likely to be in agricultural

products and simple manufactures like textiles, clothing and footwear.

But developed countries impose high tariffs on exactly these products,

and compound the damage with heavy use of trade distorting production

and export subsidies. So poor countries cant get market access to the

richest consumer markets in the world.

An OECD study to be released at this Ministerial meeting shows that the

cost of agricultural support and protection in the OECD area increased

again last year, for the third year in a row, to about USD360 billion.

Support levels in 1999 have again approached the record levels of the

mid-1980s.

Australia, with the second-lowest agricultural protection level in the

OECD after New Zealand, was one of only two OECD members not to increase

overall levels of support and protection in 1999.

To put these figures into perspective: farm protection in the OECD area

is about seven times as high as its members total Official Development

Assistance, and almost 13 times as high as the net present value of estimated

total debt forgiveness to the heavily indebted poor countries under the

enhanced HIPC initiative.

A similar situation applies to textiles and clothing, where a number

of developed countries have negotiated the WTO Agreement on Textiles and

Clothing to enable them to regulate the trade in these products. Quota

arrangements established under the auspices of that agreement will be

in force until 1 January 2005. Australia has chosen not to use the provisions

of this agreement and has fully implemented its Uruguay Round commitment

to tariff reductions on textiles and clothing on 1 January 2000.

We should remember that we do not lower trade barriers as charity. Lowering

trade barriers and allocating resources efficiently benefits the countries

which do it.

But is also helps the poorer countries with market access. This is another

reason why a new WTO round should go ahead. The extremely poor can achieve

little by trade liberalisation among themselves. The WTO is the poor countries

best chance for improving market access for their exports.

This was recognised at the meeting of APEC Ministers Responsible for

Trade hosted by Australia in May. This diverse group of developed and

developing economies reaffirmed strong commitment to the launch of a new

round of multilateral trade negotiations in the WTO at the earliest opportunity

and called for renewed efforts to build the necessary global consensus.

Food safety and biotechnology

Food safety has become a highly controversial subject over recent years

due to a number of high profile food safety scares from “old technologies”

and the advent of new and novel foods, including those produced using

biotechnology.

When it comes to food safety, all countries share a common objective

– we want to protect our consumers and ensure their access to good, safe

nutritious and affordable food.

We need to ensure that food regulators maintain and strengthen public

confidence in national and international food safety policy and regulatory

frameworks built on the foundation of scientific, factual and internationally

acceptable evidence. Those frameworks must operate transparently, objectively,

accountably and without political interference.

Australia believes the same principles that guide international regulatory

best practice in trade and protection of human health and plant and animal

life apply equally well to the regulatory challenges posed by biotechnology.

Biotechnology offers the prospect for greater food production to help

feed the additional 3 billion people projected by the mid 21^st

century, with less reliance on pesticides and the undesirable fertiliser

and feed practices that have already caused health and environmental concerns.

But governments, working with scientists, industry and public interest

groups, must do better in explaining this new technology to the public.

We must listen to public concerns about biotechnology and food safety

and respond effectively to those concerns.

Sustainable development

The OECD is doing valuable work on sustainable development, and a progress

report will be released at this Ministerial. We see that the concept of

sustainable development is becoming more significant for resources such

as fisheries, tropical forests and fresh water, all of which are coming

under heavy pressure. The final outcomes will be a major report for the

2001 Ministerial.

Conclusion

I know I speak for all of my OECD ministerial colleagues when I assure

you we are keen to incorporate the insights from the Forum 2000 dialogue

into the OECDs work.

I have asked to be kept informed of the Forum 2000 discussions as I chair

the Ministerial Council Meeting over the next two days.

Your views have the capacity to improve the performance of all member

governments in delivering the benefits of globalisation to all, both within

OECD members communities and in the broader global community.

May I wish you well in your work. I hope that Forum 2000 will be merely

the first in a series of working arrangements that will enrich the OECDs

work, improve its relevance, increase the influence of the OECDs findings,

and enrich the lives of all our citizens.