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The Treasury has a small off-shore presence to provide a New Zealand voice in global economic fora and to keep an eye on emerging trends overseas. In this edition of Staff Insights our OECD Economic Counsellor based in Paris discusses recent OECD work, including on the economics of wellbeing.
It is an interesting time to be an economist working at the New Zealand delegation to the OECD.
It is not everyday that an economist can describe their work as interesting and it is fair to say that most non-economists I talk to are most interested in what my favourite boulangerie, fromagerie or wines are in Paris. Yet despite economics’ reputation, some of the recent debate around wellbeing, inclusive growth and new approaches to economic challenges at the OECD has been fascinating to observe.
As an economist, perhaps not surprisingly my belief is that economic policy making is a critical institution. I chose economics as my occupation during the early 1990s. Unemployment was high and rising, incomes for many poor and middle income families were stagnant or falling, and government budget decisions were having to be made between very difficult alternatives, including cutting benefit levels.
One of my reasons for being an economist was to be a voice for taking social concerns into account in economic policy. In particular, I have an interest in labour market policy and an approach to the business cycle that avoids unemployment. Also, that we support broad good government decision-making around spending, tax and debt choices, particularly around the social safety net.
Of course, much has changed since the debates of the early 1990s. Yet the starting point for the current debate, that economics puts too much weight on the idea of a $ is a $ in the economy, aligns with my motivation of bringing a voice for social wellbeing into economic decision-making. The Treasury position on the debate is not to discard economics, but to weave traditional economics into a broader policy making approach (see for example: Intergenerational Wellbeing: Weaving the Living Standards Framework into Public Policy).
The OECD has been developing measures of economic and social progress (see OECD measuring wellbeing) to respond to this criticism. As the OECD notes: addressing these perceptions is of crucial importance for the credibility of public policies. The OECD notes that assessing national progress requires looking not only at the functioning of the economic system but particularly on the wellbeing of people. The OECD Framework for Measuring Well-Being and Progress is built around three distinct domains: material conditions, quality of life and sustainability, each with their relevant dimensions (see below).
Source: OECD, 2017
Of course, there are challenges in how we implement and apply the broader wellbeing approach in economics below the headline. The first group of challenges can be thought of as conceptual. These include questions like:
- How do we capture what people care about and what role does government play?
- How do we compare diverse outcomes and make value judgements as transparent and open as possible?
- Do we lose focus if our perspective is too broad and so we miss opportunities to improve our fiscal policy or our business environment?
- How do we attribute the impact of policy on all of these outcomes?
A second group of challenges can be thought of as organisational or communication based. To start with, multi-dimensional measures are often more complex, because they are more comprehensive, and so the communication needs to be clear and succinct. Secondly, as wellbeing cuts across traditional organisational structures, the risks of inconsistency and multiple perspectives on the same issue are high. Within the OECD for example, I see different perspectives on an issue depending on whether it is being led through the Secretary General’s office, the Economics Department, or the Statistics Directorate.
Issues like these are being grappled with directly both at the OECD and in Wellington. Progress is being made fastest when it is being made incrementally. The Treasury is currently consulting on approaches to a dashboard on living standards and wellbeing: Living standards. At the OECD there are some interesting trends emerging too. One example is the broadening of traditional economic growth publications to include social and environmental outcomes, for instance in the OECD’s Opportunities for All publication. A second is reviewing countries experiences with applying wellbeing metrics (available here: Global happiness report).
While broadening the way that economic policy making is done is a focus, long-term challenges also loom large for policy makers and advisors here. One example is the future of work.
The long term outlook for employment, skills and wages is a major discussion area – particularly how should government respond to changing global trading patterns, technological change and the increased risk of polarisation. There continues to be a focus on the mega trends around digitisation and technological change, combined with emerging labour market issues – such as how should regulatory regimes respond to the risk of platform work and dependent self-employment, and whether individual activity accounts support life-long learning.
Jobs at high risk of automation (%)
Source: OECD (2017); "High level policy forum on the new OECD Jobs Strategy: Issues Paper"
The flagship OECD Jobs Strategy has been refreshed to address some of those challenges. It has a focus on introducing more measures of the quality of employment; focusing on the long-term outlook for employment and wages, and promoting more resilient labour markets (OECD Jobs Strategy ).
The OECD also has a mission to monitor economic developments and to support cooperation for long term growth. The latest OECD Economic Outlook highlights the good news that the short term global economic outlook is positive with investment and trade rebounding. Global growth is the strongest it has been for a decade. Yet, challenges remain to boost long term inclusive growth, particularly around improving the skills of our populations.
The OECD is also continuing to focus on understanding productivity growth. The Global Forum on Productivity held its annual conference in Ottowa on 28-29 June 2018. The key points of discussion at the conference were around how Global Value Chains (GVCs) are transforming, how they affect productivity and for whom, and how policy can help countries derive the potential productivity benefits from participation in GVCs.
Of course, the OECD does not have all the answers. The OECD is primarily focused on its members, and so there is less focus on China and other countries in the Asia-Pacific. New Zealand also needs to make sure it is getting a strong, small country perspective, by taking lessons from Ireland, Finland, Singapore and others. Finally, the OECD is strongest when analysing international trends and is weaker on providing policy advice on New Zealand specific issues.
Having said all that, it is an interesting time to be an economist working at the OECD in Paris.
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