Governments must push through more fundamental reforms to boost growth, cut inequality and protect workers from rapid changes in technology if they are to win back the trust of voters, the west’s leading thinktank has warned.
The Organisation for Economic Cooperation and Development says stagnating living standards in many countries have left people disenchanted and unwilling to support more changes by their governments in areas such as jobs markets.
In its annual check on the pace of such reforms, the OECD says progress has slowed over the past five years and it warns governments to change tack or risk another protracted period of sluggish economic growth and damaging inequality.
“Governments cannot afford to let up on reform if they want to escape the low-growth trap many of them are facing and to ensure that the gains of economic growth benefit the vast majority of citizens,” the Going for Growth report says.
It draws a strong link between that slow growth and lack of progress on reforms, noting that over the past two years, global growth has remained flat at about 3%, below the average growth rate of nearly 4% over the previous 10 years.
The report, presented by OECD secretary general Angel Gurria at a meeting of finance ministers from the G20 group of nations in Germany calls on governments to take a long-term view of jobs and skills, infrastructure spending and innovation.
It also calls for more focus on tackling inequality to win back public support for reforms. The group, which covers 35 mainly rich countries including the UK, notes that on average only 40% of OECD citizens trust their governments.
“Achieving greater inclusiveness and reducing inequalities of income and opportunities as well as poverty are important objectives for the well-being of citizens and winning back their trust. They are necessary for safeguarding social cohesion and sustaining growth in the longer run,” said the report.
The OECD’s chief economist Catherine Mann said there had been some progress in recent years and governments had listened to her organisation’s recommendations, notably with reforms that give young people and women more access to decent jobs.
“The less good news is that progress on reforms related to longer term productivity growth, reforms in that area have slowed down,” she continued.
“That’s bad news because ultimately productivity growth is the wherewithal by which we have higher living standards in the longer term.”
Mann said one factor slowing the pace of reform was slow economic growth itself.
“There has been a bit of a hunkering down by labour, you can understand that. ‘I don’t want to change my job because I dont see any other ones out there.’ You’ve got businesses saying ‘Why should I change what I am doing, I don’t see a lot of sales happening’.”
The OECD’s flgaship annual report is designed to help policymakers come up with effective reform packages to boost economic growth. This year, for the first time, it has added “inclusive growth” as a goal. Mann said that decision preceded the votes for Brexit in the UK and Donald Trump in the US presidential race, interpreted by many commentators as electorates voicing their frustration at inequality.
“It was January and February 2016 when we committed to broadening the scope of growth to productivity, employment and inclusivity,” she said.
“So we were in advance of Brexit, we were in advance of the Trump vote. But we understood at the time that there were these growing concerns about the distribution of growth and that we had to take that on full force.”
The report’s recommendations on cutting inequality include telling governments to ensure people get the training they need and are able to move into jobs that match their skills. Amid fears that many jobs are at risk of being replaced by computers and robots, the OECD also said that workers, business managers and governments needed better skills and knowledge to keep pace with innovation.
For the UK, the OECD recommends greater spending on education and training to raise skills and boost productivity, which would in turn help raise wages. Better housing supply would improve labour mobility and reduce skill mismatches, resulting in additional income gains, it added.