:^-No.Ija5/^QVEMBER"1983 OECDI OBSERVER
Total Page:16
File Type:pdf, Size:1020Kb
»:" Ik M-m it * S ; :^-No.ija5/^QVEMBER"1983 OECDI OBSERVER No. 125 November 1983 PUBLISHED bi-monthly in English and French by THE ORGANISATION FOR ECONOMIC CO-OPERATION AND DEVELOPMENT EDITORIAL OFFICES Contents OECD Information Service, Château de la Muette, 2, rue André-Pascal, F 75775 PARIS, CEDEX 16. RECOVERY ALONE IS NOT ENOUGH Individual articles not copyrighted may be by Emile van Lennep, OECD Secretary General 3 reprinted providing the credit line reads "Reprinted from the OECD Observer" plus date of issue, and two voucher copies TOWARDS MORE EFFECTIVE CAMPAIGNS AGAINST POVERTY are sent to the Editor. Signed articles by Rutherford M. Poats, Chairman of OECD's reprinted must bear author's name. Development Assistance Committee 5 The Organisation cannot be responsible for returning unsolicited manuscripts. Signed articles express the opinions of the AID TO FOOD AND AGRICULTURE: A PERMANENT CHALLENGE 12 authors and do not necessarily represent the opinion of OECD Annual Subscription Rates: SUPPORT FOR THIRD-WORLD ENERGY 17 £4.80 US$11.00 F48.00 Single copies: £0.90 US$2.00 F9.00 The OECD OBSERVER is produced in microform EXPORT CREDITS: REVISED GUIDELINES 19 (microfilm and/or microfiche) by: (1) University Micro¬ films (Xerox), Ann Arbor, Michigan 48100, USA; (2) NCR Microcard Edition, Indian Head, Inc., Ill West 40th Street, New York, USA; (3) Bell and Howell Co., INTERNATIONAL BANKING: CONTROLLING THE RISKS Old Mansfield Road. Wooster, Ohio 44691, USA. by Rinaldo Pecchioli 20 EDITOR: JaneBussière Associate Editor: THE PROSPECTS FOR SOVIET AGRICULTURE 22 Ulla Ranhall-Jeanneney Art, Production and Layout: Marc Delemme THE GREEK ENVIRONMENT: THE NEED FOR ACTION 27 ASSISTANTS: Rina Maiden, NEW OECD PUBLICATIONS 34 Gerald Tingaud Photo Research: Silvia Thompson Lépot All correspondence should be addressed to the Editor PHOTOS: Cover: Alain Nogues - Sigma; page 8 ftopj: COI, London; fbottomj: F. Mat- tioli - WFP/FAO; page 9 (topj: UNIDO; (bottom): Paul Rimmerfors; page 15 (topj: ILO; (bottomj: Bundesbildstelle, Bonn; pa¬ ges 18-19: Alain Nogues - Sigma; page 21: COI, London; page 26 (top to bottom, left to rightj: B. Kavachkine - APN; Malkhaz Dati- kashvili - TASS; Adyp Idrisov - TASS; B. Typouh- TASS; page 28: Wilhelm Braga; page 29: Henri Smets - OECD; page 30: Kiriazis; page 32: Jean Mohr; page 33: Wil¬ helm Braga. Recovery Alone is Not Enough by Emile van Lennep, OECD Secretary General The conditions for recovery in the Since there is substantial unused capac¬ system, the degree of flexibility has been OECD area are more favourable ity, employment growth can be accelerated roughly similar. today than for several years. But, for a time by a more intensive utilization of There is clearly a trade-off. The more present economic performance and the existing capacity, rather than new invest¬ labour markets can be made flexible and outlook for the months ahead are still not ment. However, after a decade of lagging responsive, the less daunting the invest¬ entirely reassuring. In particular, the ina¬ investment, prolonged recession and im¬ ment requirements. In realistic terms, both bility to provide employment opportunities portant shifts in relative prices and costs, flexibility and stronger investment are for millions of people who would like to there is considerable uncertainty about necessary in all countries. Investment work is unacceptable on economic, political how much economically viable excess without flexibility would create "jobless and moral grounds. capacity now exists in our economies. growth". Even if flexible labour markets can High unemployment is partly related to Additional investment is needed not just create jobs, this would entail inadequate the cyclical developments of the last few to create jobs, but also to promote more productivity and stagnating standards of years. To that extent, the problem may rapid structural adjustment to changing living if investment failed to keep pace. ease as recovery strengthens and spreads. patterns of comparative advantage among Moreover, higher investment and But this is not enough. It is clear that, for economic activities in OECD countries, and greater flexibility are complementary objec¬ Europe in particular, unemployment is between the industrial economies and the tives. Flexibility promotes investment by increasingly a structural problem reflecting newly-industrializing ones. Investment is removing the rigidities that impede the flow inadequate rates of job creation, and also required to take advantage of of resources to their most valued uses. recovery alone will not provide the solu¬ emerging technological opportunities. Conversely, new investment can make tion. The need is to focus on restoring Such investment, of course, need not be both markets and production more flexible durable conditions of higher employment inconsistent with creating additional net and adaptive by embodying technologies throughout the OECD area and in the employment. better suited to the rapidly changing eco¬ European economies in particular. nomic environment. Any estimate of investment require¬ ments embodies an implicit judgment Investment and Flexibility: about how flexible labour and output mar¬ Generating the Links kets can be made, and in this respect Higher Investment economies differ widely. The importance of Two key interrelated elements must be this point is perhaps most clearly brought Generating higher rates of investment is addressed if the strong economic perfor¬ out by recalling the striking fact that, with not a simple task. It requires, on the one mance required for job creation over the roughly similar investment trends in North hand, an economic environment in which rest of the decade is to be delivered: higher America and Europe during the past the demand for investment is strengthened rates of investment and greater economic decade, employment growth in North and, on the other, an adequate supply of flexibility. America was more than ten times as great. savings to finance it. Quantification of the capital formation Even when aggregate investment was not All would agree that, to some extent, required to create new jobs is difficult, as particularly high, greater labour mobility, investment decisions by firms are taken on there is no simple relation either between more flexible real and relative wages, and the basis of the confidence which prevails the growth of capital and the growth of perhaps other factors related to the in the business community. The risk-premia output, or between the growth of capital freedom for entrepreneurial initiative in required to support new investment have and job creation. Nonetheless, there can be small or new enterprises led to the rapid risen in the past decade as a result of no doubt that a sustained increase in the creation of new jobs. In Japan, because of greater instability and uncertainties in the rate of growth of employment requires a the capacity of the service sector to absorb overall economic environment. From this substantial shift in the share of GNP allo¬ or shed workers and the wage flexibility perspective, a key role for policy in pro¬ cated to investment. provided to larger enterprises by the bonus moting investment is to create a climate of confidence and reduced uncertainty. This relative both to other production costs and current account deficit in the balance of suggests the need for pursuing stable to output prices to sustain adequate payments. For the OECD as a whole, policies in a medium-term framework and employment and investment. Hence, con¬ however, this is not the case. The longer- making it clear that the structural imbal¬ tinued efforts to bring down labour costs term pattern has been for the OECD region ances in the current situation will be dealt relative to productivity growth, and relative to be a capital exporter to less-developed with. It also argues for stable growth of to the cost of capital, are essential in these regions. This pattern must be re-esta¬ monetary aggregates at rates consistent countries if investment is to strengthen, blished. It follows that the call on private with the gradual elimination from the and if the investment that takes place is to savings by the public sector in the OECD system of inflation and inflationary expec¬ be of the sort that promotes creation of economies must be sufficiently low or tations. new jobs rather than further rationalisation negative to permit not only the higher Economic theory is clear on the impor¬ of labour use. domestic investment that is sought, but tance of profitability. Businesses undertake Some enouraging developments have also the continuing transfer of resources to investments to the extent that the return to taken place as of late. In a number of OECD the developing countries. this investment exceeds the return that countries, social partners, sometimes in Although there was little evidence of a could be achieved by alternative uses of concert with governments, have suc¬ strong relationship between budget defi¬ funds for example, holding financial ceeded in moderating the growth of real cits and real interest rates during the past assets. From this perspective, the steady wages relative to productivity trends. Var¬ decade, recent high real interest rates decline in profitability over the past 1 5- ious changes in collective bargaining pro¬ suggest that this is no longer the case. 20 years (as measured by realised rates of cesses have also contributed to improved During the 1970s, world savings were returns to fixed capital) is an important cost-price relationship: for example, sharply increased in the wake of the two oil impediment to stronger investment com¬ greater decentralisation of wage negotia¬ shocks, which transferred large amounts of pounded, in current circumstances, by high tions in some countries; a general weak¬ incomes to countries which, at least tem¬ rates of interest on financial assets that ening of wage indexation processes; new porarily, were not able to spend it. At the make investment in physical capital appear approaches to salary determination in the same time, in the OECD area, household less attractive than financial investment.