OECD calls on members to speed up reforms, focus on innovation

In its annual growth report, the OECD painted a gloomy picture: rising inequalities, slowing growth and strong headwinds for the global market economy, notably because of trade wars. EURACTIV Germany summarised the OECD’s recommendations for Europe.

It is high time for “inclusive, sustainable growth”, Angel Gurría, secretary-general of the Organisation for Economic Cooperation and Development, said at the presentation of the report “Going for Growth 2019: The time for reform is now”.

The organisation wants its member states to implement its proposals for reform quickly, especially as these states have lost motivation to reform in recent years. The reasons for this ‘reform slump’ are the easing economic pressure after the financial crisis subsided and the increasing uncertainties on the world political stage.

The annual report Going for Growth 2019 gives potential answers to the issues that preoccupy the 36 OECD countries, which include globalisation, digitisation, ageing societies and environmental destruction. The organisation calls on its members to adopt comprehensive structural reforms.

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All-day schools as a recipe against demographic change

The report’s authors consider education to be in the greatest need of reform in all OECD countries because it is the only way to ensure people have access to quality jobs.

The report also stressed the need to improve the conditions for women, migrants, minorities and older people on the labour market.

Earlier reports, such as “Demographic Scenarios for the EU” by the European Commission, the Wittgenstein Centre and IIASA, had recommended that simply promoting inclusion was crucial to cushioning demographic change. The latter is probably the most significant challenge for the next decade, Clemens Fuest, president of the Ifo institute, told EURACTIV.

With predictions that the labour supply will see a significant drop, the OECD recommends opening up the labour market.

In Germany, the OECD would like to see the expansion of all-day schools. Not only would this allow parents to choose their working hours better, but it would also incentivise fathers to take parental leave for more than two months.

For France, the report recommends reducing the size of school classes and offering more attractive salaries for teachers in disadvantaged schools, in which there is a need to increase the quality of teaching. To improve labour market opportunities for the young, the OECD stresses the importance of reducing the “excessive use of short-term contracts”.

In Italy, the focus should be placed on lifelong learning – for example, by developing lifelong learning providers, such as the Instituti Tecnici Superiori (ITS).

For the Czech Republic, the OECD recommends financial incentives for employers to participate more in vocational training, mainly by offering apprenticeships.

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More money for innovation, less for agriculture

The report also called on the EU to restructure its multiannual financial framework (MFF)’s expenditure, saying more needs to be invested in areas that promise long-term growth, including research, education and mobility.

“Erasmus is one of the EU’s most successful programmes that should be further developed so that people from disadvantaged backgrounds can also benefit,” said Jan Strasky, OECD’s expert on the EU economy.

In general, more funds need to go towards research and innovation programmes and much less towards agricultural projects, the OECD recommended.

“For the Juncker Plan, money was taken out of the Horizon2020 fund – and money flowed from one meaningful area to another meaningful one. It would be better to set to one side the funds from agricultural subsidies,” Strasky told EURACTIV.

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Standardising insolvency proceedings

The OECD’s recipes for a better diffusion of digital technologies include the further opening of markets, increased competition and foreign trade, about which the OECD uncomfortably observed the increasing global tensions.

A recurring proposal is to remove barriers that prevent start-ups from entering the market by reducing bureaucratic hurdles and lowering taxes. Such reforms are particularly necessary for Poland, but also other European countries.

At the EU level, OECD analysts recommend making changes to insolvency proceedings.

“For lenders, it is a big problem that insolvency regulations are so different between EU countries. EU harmonisation could create greater security and make it easier for entrepreneurs to make money,” said Strasky.

The OECD also recommends re-visiting the banking Union.

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Environmental taxes

This year’s report also focuses on reforms related to environmental sustainability. To this end, the report recommends placing greater emphasis on environmental taxes, reducing agricultural subsidies and abolishing tax concessions that harm the environment. The OECD also calls for more investments in environmentally-friendly public transport.

In Poland, for example, there is still plenty of room to boost investment in sustainable projects, including those that deal with supplying energy. The report’s authors recommend harmonising EU climate protection policy to reduce uncertainties about investments in ‘green’ innovations.

France should increase environmental and property taxes while reducing taxes on labour. Environmentally harmful substitutions should be phased out as soon as possible.

When it comes to Germany, the authors recommend “making environmental pollution more expensive”, decreasing VAT reductions and lowering social security contributions for low-income earners.

The EU should especially bring its emissions trading system (EU ETS) into shape, as it is an essential factor to achieve the Paris climate targets. The report stated that “if the current rules continue to operate as they do today, the EU will fall short of its 2030 climate targets.”

[Edited by Zoran Radosavljevic]

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