Economic Policy Reforms 2018

OECD

• Publisher: OECD
• Year: 2018
• eBook ISBN: 9789264298651
• Topic: Social Sciences
• Subtopic: Sociology
• Index: Social Sciences

Chapter 1. Overview of structural reforms actions in 2017

This chapter reviews the main growth challenges faced by advanced and emerging economies and takes stock of the progress made in 2017 in the adoption and implementation of structural policy reforms to address these challenges. Progress is assessed on the basis of actions taken in response to Going for Growth policy recommendations formulated in the previous edition.

The statistical data for Israel are supplied by and under the responsibility of the relevant Israeli authorities. The use of such data by the OECD is without prejudice to the status of the Golan Heights, East Jerusalem and Israeli settlements in the West Bank under the terms of international law.

Main Findings

• A robust and widespread pick-up in activity creates favourable conditions for the successful implementation of structural reforms, which are necessary for the current upswing to be turned into stronger and sustainable long-term growth for all.
• Yet, this opportunity risks being wasted. In 2017, the pace of reforms has, on average across countries, remained similar to the relatively slow pace observed in the last two years. In both advanced and emerging economies, there are little signs of a return to the higher pace observed a few years back.
  • In 2017, policy actions across advanced economies have been implemented in just over one tenth of the 2017 Going for Growth priority areas, while reforms are underway in about one third of them.
  • In emerging-market economies, even fewer concrete actions have been fully implemented. Further reforms are in the process of implementation, covering one quarter of Going for Growth priority areas.
• Notwithstanding the subdued reform pace, some bold actions have been taken – over one third of actions implemented in 2017 can be viewed as “major steps”.
  • For example, Greece and Italy implemented major programmes to strengthen social protection, while France passed a long-overdue reform to improve the functioning of its labour market. Japan launched a new plan to significantly increase childcare capacity. Argentina passed a comprehensive tax reform.
• The intensity of reforms has also varied across policy areas:
  • Among reforms to boost skills acquisition and innovative capacity, actions taken to increase the size and efficiency of R&D support have been particularly widespread.
  • The bulk of actions taken to promote business dynamism and knowledge diffusion have focused on strengthening physical and legal infrastructure as well as on making product market regulation more competition-friendly.
  • A particularly high number of significant actions have been taken in the area of social benefits, which is important for social cohesion. To further help workers to cope with potentially rapid changes in jobs and tasks, more reforms are needed in complementary areas, such as improving active labour market and housing market policies to facilitate the job-market transition and mobility.
• A coherent reform strategy is crucial to reap synergies, manage trade-offs and ensure that the benefits are broadly shared over time.

1.1. Introduction

Global growth is on a broadly-based upturn. Advanced economies1 are benefiting from rising investment and job creation, with unemployment already at pre-crisis levels in many countries and edging down in others. Emerging economies have seen their prospects improving with a rebound in some commodity markets and increases in public infrastructure investment. While encouraging, this short-term momentum should not obfuscate the longer-term challenges that need to be addressed in order to sustain improvements in living standards for all. Indeed, productivity growth – the main driver of long-term growth - continues to be weak in advanced economies and has slowed in many emerging-market economies. Business investment has increased in advanced economies, but still remains weaker than the average of past recoveries, implying that productive capital may not be growing fast enough. In emerging economies, enhanced capital deepening and productivity gains are necessary to escape the middle-income trap, to continue lifting millions out of poverty and to overcome demographic pressures.

Growth is still supported by favourable monetary conditions while in many countries private debt levels have remained elevated or further risen, which is not without risks to the outlook. An expanding majority of advanced economies have also finally closed the massive jobs gap that opened during the great recession, but not all segments of society are benefitting from the labour market recovery, with many youth and low-skilled workers still facing bleak job and career prospects. And despite rising employment, wages have largely failed to follow. In particular, real income growth has been weak at the bottom of the distribution, where the ground lost by the bottom 10% during the recession has still not been fully recovered (OECD, 2016a). Hence, translating the short-term recovery into strong and resilient long-term growth for all cannot be taken for granted.

Against this background, there is a strong case for ambitious structural reforms to move to robust and sustainable growth paths, with the gains shared by all. This chapter builds on the regular 2017 issue of Going for Growth, where priorities were set with a view to improving material living standards in an inclusive way through stronger employment and productivity gains. In essence, recommendations have been formulated with a view to pursuing three intertwined objectives:

Unlocking skills development and innovation capacity: Achieving stronger growth and reduced inequality requires action to better ensure that all individuals have the skills to obtain rewarding and productive employment and that these skills are put to their best use. Advances in digital technologies and the growing importance of knowledge-based capital underscore the need for reforms in education to ensure that young people are prepared for the dynamic labour market of the future and have the right cognitive and non-cognitive skills to cope with technological change. More efficient and effective policies to support innovation will help ensure these skills are turned into higher productivity growth.

Boosting business dynamism and diffusion of knowledge: To seek innovation and make the most of new technologies and workers’ skills, firms must be given incentives to make the necessary investment in research and development (R&D), new digital equipment and organisational know-how. Strong product market competition and robust business dynamics – entry and growth, but also the exit of unproductive firms – are key for the diffusion of innovation and the allocation of resources to their best use. Businesses have a crucial role to play in fostering a good matching of skills and tasks by providing employment opportunities, contributing to skills development and knowledge diffusion.

Preserving social cohesion and helping workers make the most out of a dynamic labour market: Dealing with a rapid turnover of firms, jobs and tasks requires that workers facing a job loss be rapidly given new employment opportunities or a chance to up-grade skills, with adequate income support and job-search assistance during the transition. A well-functioning labour market, without unduly restrictive labour market regulation, and with appropriately designed unemployment benefits combined with comprehensive activation policies, will ensure that everyone can have access to jobs and labour market security. Such a job market will also be capable of better including population groups with thus far lower labour participation rates.

This chapter reviews the main growth...

Table of contents

• Title page
• Legal and rights
• Introduction
• Editorial: An opportunity that governments should not miss
• ISO Codes
• Executive Summary
• Chapter 1. Overview of structural reforms actions in 2017
• Chapter 2. Going for green(er) growth - what can indicators tell us?
• Chapter 3. Policies for productivity: the design of insolvency regimes across countries
• About the OECD