The OECD’s capacity for change, inspired more by professional pathfinding than by politics, has transformed it into a multi-disciplinary policy innovator that can continue to build signposts for the future.
A decade ago, the OECD coined a triangular OECD policy paradigm, involving the reconciliation of economic growth, environmental protection and social progress. Today this is reflected in a new policy objective of a “stronger, cleaner and fairer world”, where cleaner refers both to the environment and governance. This goal appears in other various guises: the “green” growth strategy, sustainable development, the innovation strategy and indicators of social progress are just some recent examples.
This OECD paradigm, which is rooted in analytical work and policy propositions of intergovernmental committees and experts, has given new clout to the OECD in the post-crisis world, not only for its present membership, but also for emerging economies such as China, India and Brazil. The days are gone where one could stand on the principle that the market economy would in and of itself lead to the rational use of natural capital and to the good society.
What is it that brought the OECD’s experts to this latest paradigm? The idea is not as new as people might think.
After the Second World War economics emerged as a dominant policy science, and the OECD was destined to become one of its citadels, trade and market-driven in the main. Whereas during the war the empirical scientific “method” had been widely used to influence strategic decisions, like operational research in the UK and the US, the policy impact of economics was mainly through theory, principally that of Keynes, who cast the focus on how governments can influence demand, and later, Friedman, who promoted the unfettered free markets. One cannot understand the professional culture of the OECD without coming to grips with the direct influence of such theories on policy, whereby one could be a university professor, a central banker or an official of the OECD as if in the same professional world. The fact that the organisation’s members were classed as “countries” and not “states” in the OECD Convention helped ensure recruitment from different professional cultures. This interaction between the economic knowledge-base and policy has always been the organisation’s strong card. A striking recognition of this strength is the work on tax havens where, as Eva Joly, a left-leaning European, has recorded in her recent book, Les Héros Ordinaires, the relevant OECD officials stuck to their professional guns against all the odds. That work enabled progress at the G20 in 2009 in breaking down bank secrecy, for instance.
The only serious challenge to the hegemony of economics in the OECD came from the natural sciences in the form of “systems analysis” based on long-term technological forecasting. In the 1960s, when science policy was close to government leaders, the natural scientists got closer to political decision-making. In the OECD, the newly formed Directorate for Scientific Affairs was a major factor in this movement, leading to the creation of the Club of Rome and an influential report, Limits to Growth. Though too hot to handle within the OECD, the organisation nonetheless established the Interfutures Programme, which thrives today in a new guise (see article by Barrie Stevens <>).
The systems analysts within natural sciences were probably the first to ring the ecological warning bell. The Bellagio Declaration on Planning (1968), a resolution by a group of futurologists convened by the OECD, set the stage for a debate on the “problems of contemporary society”. As a result, an environmental committee was budded off from the science policy sector, and is now the OECD’s guardian of “green growth”.
Although the OECD economic establishment was at first hostile to the Malthusian implications of Limits to Growth, a reconciliation between the ecologists and the economists emerged in the form of concepts such as the “polluter pays” principle in the 1970s, which recently found new use in the BP oil rig disaster in the Gulf of Mexico in 2010. Today, a similar professional reconciliation among economists and ecologists seems to be taking place in relation to climate change and biodiversity.
Likewise the professional culture of the OECD opened up the road to “human capital”, becoming a cornerstone of economic and social advancement. The space race and the Russian sputnik provoked a western response which resulted in the OECD setting up the Office for Scientific and Technical Personnel in 1956. This office developed the argument that economic growth depended on the generation of human capital, so that expenditures on education should be considered as investment rather than consumption. After a debate with leading economic theorists, the turning point was the OECD Policy Conference on Economic Growth and Investment in Education convened by the Kennedy administration in Washington DC in 1961.
But the cold notion of human capital has its limits–as demonstrated by the student revolts of 1968, when the OECD Centre for Educational Research and Innovation organised a dialogue with OECD student groups. The message that emerged is still relevant today: education, and in particular universities, have a creative role to play in rapidly changing democratic societies, as well as providing human capital for the economy. Education would from then on be about producing, as much as acquiring, knowledge.
This creative role of human capital is continuously stressed in the recently issued report, OECD Innovation Strategy, which is rightly seen as a key stage of recovery from the contemporary crisis.
This broad, systematic view of innovation first appeared on the OECD agenda during the political controversy concerning technological gaps between Europe and the US. Experts had reached the broad conclusion that it was the management of the innovation process, rather than technology as such, that explained the gaps. Equally important, technologies were rapidly spreading through international trade and investment. Such global technological interdependence is crucial today, with the emerging economies taking the path Japan took in the 1960s and 1970s and Korea in the 1990s.
Subsequently, the Directorate for Scientific Affairs went further in exploring the long-term economic and social impacts of the new, pervasive technologies, bringing Nikolai Kondratiev–long-term waves of change–and Joseph Schumpeter–entrepreneurship and innovation–into OECD analysis. The current Innovation Strategy goes further by looking not only at long-term economic growth and entrepreneurship, but also at how innovation can help meet social challenges such as climate change, health and poverty. The strategy also calls for the “empowerment” of individuals to innovate, and includes “bottom up”–regional and local–territorial policies to build more creative societies.
Now that the notion that the market economy could of itself lead to the good society is no longer credible, various societal concepts are being put forward by the politicians of OECD countries, such as the “Big Society” of the UK and the “Caring Society” of Japan. Both go beyond the welfare state as a distributor of cash benefits by national bureaucracies, involve the civil society and local communities in the delivery of welfare, and lean on ideas such as an active society, or active labour market programmes of the kind promoted by the OECD.
The OECD has long pursued the objective of open and fair societies. The fundamental reason for this is that, in democracies, differences in income and wealth, without which a capitalis market economy cannot function, are legitimised politically by the redistribution of income and equality of opportunity, in education, redistribution through taxation and social policies, gender equality, intergenerational social mobility, and so on.
But the new creative society adds to this by promoting not only an entrepreneurial culture but individual responsibility too. In reality, job destruction and job creation are increasingly dependent on new enterprises, both in the private sector and in the social or non-profit sector. The creation of the OECD Centre for Entrepreneurship, SMEs and Local Development responds to this need, and the trend is also present in emerging and developing economies, for example in micro-finance. These developments in the “social economy” have become indispensable buffers to cushion the shock of a much faster job-destruction/job-creation process propelled by globalisation, and are complementary to the state and the private sector in delivering new social services and driving progress (Reconciling Economy and Society-Towards a Plural Economy, OECD, 1996).
Now, as university tuition fees are being re-introduced in some countries, education is again being classified by some governments as consumption, and being pedalled as part of individual responsibility, which arguably backtracks on government’s societal achievements.
Growth and progress The rise and fall of civilisations is, of course, an historical reality. Yet the Enlightenment, with the advent of triumphant science, ushered in the conviction of the inevitability of progress, at least in the Western world. On the contemporary scene, amid the rubble of the Berlin Wall, Francis Fukuyama hypothesised about the “end of history”–that is to say, the final and irreversible triumph of liberal capitalism. The recent crisis has put paid to that, and the issue of human progress is back on the geo-political table.
We now appear to be in a world in which China, India, Brazil, the Islamic world and the West are now not only in geo-political competition, but in a race to find a balance in the economic, ecological and social paradigm. According to Samuel Huntington, this may lead to a “clash of civilisations”. All the more reason for the OECD and other groupings, particularly the G20, to bolster co-operation as a bulwark against that risk.
Two things follow. First, while the ecological issue is central, a slow or negative growth path is not politically viable. But nor is headlong growth that depletes natural capital and erodes society. The only option is an innovative pattern of balanced growth. Toynbee, in his final, monumental analysis of world progress (Mankind and Mother Earth, 1976) foresees this challenge. He goes so far as to assert that neglect of the environmental and societal dimensions will lead to decline.
The OECD’s response to the present crisis shows how much the organisation has changed since the oil-shock recessions of the 1970s. Whereas the well-known McCracken report (Towards Full Employment and Price Stability, 1977) proposed a strictly macroeconomic strategy to remove obstacles to growth, the response to the 2008 crisis includes structural policies covering innovation, jobs and green growth too. And the OECDdriven Global Project on Measuring the Progress of Societies is preparing new sets of indicators to provide a more holistic picture of human progress (Stiglitz, Joseph, OECD Observer, N°. 272, April 2009).
But the biggest challenge is not so much the numbers as the analytical techniques needed to make sense of them for policymaking. The contemporary crisis has once again demonstrated the policy pertinence of macroeconomics, including the “return” of Keynes, while not abandoning Friedman. Nevertheless, the systemic complexity of problems such as energy, water, demography, climate and biodiversity–not to mention governance and money!–is also reviving the policy role of systems analysis.
As the OECD celebrates its 50th anniversary, its professionalism is challenged by the systemic complexity that globalisation has brought with it. A balance between the three legs of the triangular paradigm cannot be achieved without fundamental policy trade-offs. The goal of economic growth may be a sine qua non, but is not an “open sesame”, to human progress. Again, the OECD lifted the organisation out of the European framework with authority to contribute to the economic expansion of other countries. Fifty years on, countries like China, India and Brazil– with others on the road–have become the engines of growth in the global economy, yet for them too the environmental and social problems are already formidable. There is no escaping the complex reconciliation of the economy, nature and society. The OECD, with its uniquely professional, multidisciplinary culture, has a good chance of setting up the relevant policy signposts.
*Ron Gass joined the organisation in 1958. He originally worked in scientific affairs and became director of Social Affairs, Manpower and Education in 1974, where he pioneered work on lifelong learning and innovation. Ron Gass retired from the organisation in 1988, and currently consults for various organisations.
Recommended links and references
Henderson, David (1986), Innocence and Design: The Influence of Economic Ideas on Policy, Blackwell.
King, Alexander (2006), Let the Cat Turn Around, CPTM, London. OECD (1964), The Residual Factor and Economic Growth, Paris.
Freeman, Christopher (1988), Technical Change and Economic Theory, Columbia University Press, New York; an attempt to challenge classical economic theory, with contributions from OECD experts.
Mitchell, Sandra (2009), Unsimple Truths: Science, Complexity and Policy, University of Chicago Press
http://oecdobserver.org/news/fullstory.php/aid/3419/50_years_of_reconciling_the_economy,_nature_and_society.html