French employment T China's real economy Telecoms: After the bubble

Road to Cancun No. 238 -July 2003 www.oecdobserver.org

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Making them fitter

I I

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20 August 2003

Corrigendum

Re: OECD Observer No. 238, July 2003, Databank, p. 48, graph title: Development aid, Net ODA flows from DAC member countries

Dear OECD Observer subscriber

The graph on development aid (entitled "Net ODA flows from DAC member countries") in the OECD Observer No. 238, July 2003, Databank section, page 48 (last page) is incorrect.

We enclose a new page with a corrected graph (now called "Development aid") and would be grateful if you could insert this page into the magazine for reference. Also, the correct version can be requested at [email protected] and can be found at www.oecdobserver.org/aid72003

We apologise for any inconvenience this error may have caused.

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OECD in graphs

Aid on the rise Development aid Net ODA from DAC countries, $ billion, 2002

Donor countries in the OECD Development Assistance Committee (DAC) increased their official development assistance (ODA) by almost 5% in real terms in 2002 to US$57 billion, raising ODA to 0.23% of gross national income (GN1). This marked the beginning of a recovery from the all-time low of 0.22% of GN1 seen in each of the past three years. The rise included a 12% increase in US aid to n n n n n n n n h US$12.9 billion (0.12% of ils GNI), reflecting S . J <*> f additional and emergency funds in response to the J1 (p 1 1 September 2001 terrorist attacks and new Source: OECD initiatives in health and humanitarian aid. Aid from European Union countries rose 3% in real terms to US$29.1 billion, representing 0.34% of their combined GNI The broader outlook for aid is positive. Following commitments and including significant increases of 34% in Greece and 32% in Italy. from most donors at the International Conference on Financing for On the other hand, there were falls in Austria and Spain, both down Development at Monterrey, Mexico, in 2002, aid volume is expected to 16%, largely due to the fact that their 2001 figures had been boosted increase by about 30% in real terms by 2006. A meeting in late April by exceptional debt relief operations. of high-level officials from the OECD DAC countries, who, between Canada, meanwhile, increased its aid by 32%, including substantial them, account for about 95% of total ODA, welcomed this trend and debt forgiveness. Five countries - Denmark, Luxembourg, stressed the need to continue to improve aid effectiveness, so as to Netherlands, Norway and Sweden - met the UN target for ODA of speed progress towards the Millennium Development Goals. 0.7% of GNI. Three other countries have also announced their intention to meet the 0.7% target: Ireland by 2007, Belgium by 2010 For more on the work of the DAC, visit: www.oecd.org/dac and and France by 2012. www.oecd.org/development

World sugar prices Sugar lows Outlook for world prices to 2008

Index 1996 = 1.0 World sugar prices are likely to remain low over the next few 1.2 years due to increased exports from low-cost producers and continuing high support and protection in many OECD countries, the

latest issue of the OECD Agricultural Outlook found. Brazil, the leading 1.0 low-cost producer, has a competitive sugar industry that matches the total tonnage currently traded on world markets. Developing \ ! countries hold the key to consumption growth, and the potential in 0.8 the longer term to eat into the large stocks of sugar on the world Y /r^^^r market and improve the balance between supply and demand. The \±/ N \ Agricultural Outlook cites China as a country with apparent scope to 0.6 boost consumption and imports as incomes rise, but notes that other

factors, such as official import policies and the availability of artificial n a sweeteners, must also be taken into account. 1996 1998 2000 2002 2004 2006 2008 The latest Agricultural Outlook sees raw sugar prices improving slightly to US$191.8 per tonne in 2004/2005, up from US$172.0 in / White refined sugar / Raw sugar 2003/2004, but then falling in subsequent years to reach US$165.3 Source: OECD Agricultural Outlook per tonne in 2008/2009. World stocks will see little change, at 68.3 million tonnes in raw sugar equivalent in 2008/2009 compared with 67.5 million in 2003/2004. rice-based staple foods towards more processed food and higher World production of agricultural products in general is forecast to protein products such as meats. grow over the period to 2008, boosted by a revival of the world economy from 2004 onwards, with an increase in consumption OECD Agricultural Outlook 2003-2008 is available at of coarse grains and oilseeds and a shift away from wheat- and www.oecd.org/bookshop

48 Observer No. 238 July 2003 CONTENTS

Observer Contents No. 238 - JULY 2003

LETTERS TRADE & DEVELOPMENT

Multilater-ills; German business angst 24 A rough guide to great trade negotiating venues of the world

French employment, 30 New framework for managing conflict of Making SMEs smart, as well as beautiful page 9 interest; FATF steps up money laundering battle; Vanuatu removed from tax haven list; OECD.ORG Jobless rate higher; Investors get cold feet; Brazil, Chile and Peru students struggle; 32-34 OECD Forum and Ministerial 2003: GDP grows as leading indicator points up Selected images; Uncertain world. . .and dealing with it 35 Roundtables on boardrooms; EU prospects ECONOMY boost reform in south-east European; New

9 Frances employment challenge: Mobilising appointments; Do voluntary approaches to the environment work?; ECMT, 50 years of young and old Andrew Burns improving transport research Calendar 1 1 French pension pickle 13 After the télécoms bubble Telecoms outlook, page 13 Patrick Lenain and Sam Pallridge BOOKS

38 Can you understand Cancun?; All for one; SOCIETY Friendly subsidies?; Virtual revolution; Putting Chinese rail back on track 40 1 8 Health care: A quest for better value New publications 42 Order form Elizabeth Docteur and Howard Oxley 20 Weighty problem Gaétan Lafortune DATABANK 23 Get on your bike 45 Free speech?; Birth rights; Aid on the rise; Sugar lows

Health value, 46 Indicators page 18

Trade talks

page 24

^ I oecd Observer

www.oecdobserver.org OBSERVER

Letters

Multilater-ills War-type global politics based on and company insolvency despite fear and scepticism. It is much hard work. I read with interest secretary- paramount that organisations More than any other country, Observer general Donald Johnston's recent such as the OECD and the UN Germany's economic success is leader ("Multilateralism: Is there a continue to press the case for dependent on small and middle- www.oecdobserver.org © OECD 2003 choice?", OECD Observer multilateralism. Now is not the sized enterprises. Government No. 237, May 2003, also online). time for complacency. support programmes are too slow 2003 subscription rate: - US$50 - £31 - ¥5 900 His optimism is inspiring, but I Rupert Wright and only address part of the ISSN 0029-7054 wonder if it is not a bit excessive. Tel: 4-33(0) 1 45 24 82 00 Quest Media problem. Banking restrictions are Fax: +33(0) 1 45 24 82 10 Meeting Chinese economists who 34320 Gabian, France taking their toll on business. [email protected] speak English and French and Foreign investment needs to be Founded in 1962 know the geography of Canada German business boosted instead of having The magazine of the Organisation for Economic Co-operation and Development well is heartening, and yes, in the angst government offices abroad close past, political squabbles were OECD Publications down just when they are most 2 rue André-Pascal often more for show, but is this Your article on the German needed. Besides, Germany is the 75775 Paris cedex 16, France conclusive evidence that natural centre for euro-based [email protected] economy ("Germany: The case for www.oecd.org multilateralism is not now in reform", OECD Obsener No. 237, business. Insolvent companies trouble? Published in English and French May 2003, also online) depicts have learnt by their mistakes and by OECD and Financial Times Business Ltd, Multilateralism is not a modern only a small part of Germany's could get things moving again. Tabernacle Court, 16-28 Tabernacle Street, London EC2A 4DD. phenomenon. It was arguably problem. Foreign investment in German culture sees failure as Tel: +44 (0)20 7382 8586 greater during Roman times. Germany dropped in 2002 to something to be ashamed of.

EDITOR-IN-CHIEF: RoryJ. Clarke More recently, at the turn of the only one-eighth of what it had I have written about this in SENIOR EDITOR: Sue Kendall-Bilicki 20th century, trade and political been in 2001. Germany should German (www.changex.de, search STATISTICS EDITOR: Eileen Capponi EDITORIAL ASSISTANTS: co-operation was strong between implement reforms in Koark) to try to encourage Alison Benney, Rosemary Chas, Aidan Muller many pans of the globe, with bureaucracy and in the social entrepreneurs to get up and fight PHOTO RESEARCH: Silvia Thompson British banks busy lending - and state that could decrease costs for back. Germany still has a lot to PRODUCTION CO-ORDINATOR:

Nadine N'diaye- Robinson occasionally going bust in the employers. The strict labour laws offer foreign investors, and with WEB EDITION: RoryJ. Clarke process - in South America. mandate high severance packages the nght reforms and good MARKETING: Toby Green It does not take much for such and a strict social benefits plan for publicity, plus increased support PRODUCTION DIRECTOR (FTB): links to be severed. I met an Mhairi Swann the discharge of employees that for small businesses, Germany PRODUCTION (FTB): American couple in France do not take business requirements will bounce back. I, for one, Celine Bijleveld, Mellisa Atkins into consideration. Small COVER DESIGNER recently who felt they had intend to get into business again Nick Bartolucci endured the scorn of their businesses have no flexibility in with a project to help insolvent ASSOCIATE PUBLISHER (FTB): compatriots by coming to Europe difficult times. entrepreneurs find their way back Angus Cushley this year. "You will have rotten Foreign investors are deterred into business too. GLOBAL ADVERTISING MANAGER (FTB): tomatoes thrown at you," they by this and by the high labour Anne Koark Simon Blackmore, +44 (0)20 7382 8443 were warned. Instead, they were costs. Cost per employee is one of [email protected], Germany PRINTERS: St Ives welcomed with pastis and taught the highest in Europe. The Basel II

Applications for permission to reproduce or French boules. Still, many financial regulations to be On the cover translate all or parts of articles from the Americans argue that they don't implemented in January 2007, OECD Observer, should be addressed to: Making health need Europe and its old ideas, combined with tighter bank credit systems fitter The Editor, checks, have hit business hard. OECD Observer and ignore the viewpoints of 2 rue André-Pascal, other parts of the world. Insolvency hit an all-time peak in OECD countries have reined 75775 Paris, cedex 16, France. in their health care costs in Multilateralism can be 2002 which is expected to be All signed articles and letters express compared to marriage. For it to exceeded in 2003, and 600,000 the past ffTlfc the opinions of the authors and do not couple oi M '** TteSS necessarily represent the opinion of work, people need to have a jobs are expected to be lost this the OECD. decades, but HiR .**<*&' vested interest in its success. year. budget ^35r §È Reprinted and translated articles should carry Americas overwhelming military My company. Trust in Business pressures SâPr^W Hf the credit line 'Reprinted from the OECD (www.trustib.com), founded four continue M Observer', plus the date of issue. Signed articles and economic power means it can reprinted must bear the author's name. Two get its way on almost any issue, years ago, boomed until strong. JH K||[fjH| voucher copies should be sent to the Editor. regardless of what anyone else foreign investment dropped. reflecting Ma WpèJm All correspondence should be addressed to the technology **^Hfi8'[w Editor. The Organisation cannot be responsible thinks. And this includes the Simultaneously, many middle- for returning unsolicited manuscripts. and ageing. multilateral agencies it helped to sized corporations liquidated and Keeping build. In addition, a lack of small businesses struggled to pay, health spending under knowledge on all sides is bound as their own customers could not control will remain a FT Business to lead to uncertainty. The pay due to a lack of short-term challenge for years to come. consequences could be a Cold bank credits. The result: personal

Observer No. 238 July 2003 OBSERVER

Editorial

Making health systems fitter

he following is a government health warning: just when you solutions can only achieve so much and preventive action at the thought your health spending was under control, the cost root of some illnesses is required. Tpressures are likely to start rising again. Take obesity. Some call it the Western disease, conditioned largely by A bleak message, but like most health warnings, it should be taken a lifestyle of fast food and sedentary habits at work and play. And it seriously Health expenditure came to some 8.4% of GDP in the OECD is getting worse. Barely a day goes by without a newspaper story area in 2001, up more than a percentage point from a decade ago. US highlighting the problems. Some cases are hard to prevent or treat, spending led the field, with nearly 14% of GDP, with Switzerland and but much obesity is avoidable. How ironic that the developed world Germany not far behind, at nearly 11% each. Yet, it is not a given that should conquer so many illnesses, and let this one in the back door. these countries deliver better health services than their neighbours. France devotes less of its GDP to health than the biggest spenders, yet No one chooses to be ill. Yet, we could do more to minimise risk. enjoys a health status that is at least as good, or better. But French Education is vital, via both schools and the media. Such campaigns health budgets are also being stretched and reforms are in the pipeline. can work, as the sharp decline in smoking in many countries has In fact, policymakers across the OECD, however well their health shown. But are they enough? After all, many people still smoke, systems perform, are constantly being forced to look for ways to despite knowing the risks. And it is easier to attack smoking, which improve efficiency and value for money in their health systems. invades other people's personal space. It gets trickier with other personal habits, even if sooner or later, the public purse may have Not that OECD achievements in cost control have been modest, on to pay for the consequences. the contrary. Since the 1970s when spending spiralled upwards, governments have halved the rate of growth in health expenditure. Businesses are already sitting up. Some manufacturers are improving So why should this trend change? Two reasons stand out: the content in food, and corporate leaders are encouraging healthier technology and age. lifestyles among staff in a bid to save on their health bills. Legal cases are being fought, as are campaigns to have health warnings printed on Technology has become a pillar of our health services. Whether fast food wrappers. Governments could ask questions too. They may imaging systems, cardiovascular equipment or dialysis machines, all encourage healthy diets, but do they do enough to encourage physical affect the quality of care. Now, telemedicine is emerging, with activity, such as by planning sports grounds and cycle tracks in cities? reports of doctors using 3G mobile phones to transmit X-ray images for specialists to verify. New medicines and devices can certainly The OECD's health project is responding to such challenges facing improve care and resulting outcomes. The trouble is, such advances, developed countries. It was set up in 2001 with an ambitious three- along with developments in pharmacology and biotechnology, are year mandate to analyse health care systems so as to help improve expensive, increasing the pressure to spend more on health. their performances. Together with our unique health database, for which there is always strong demand, the project helps Ageing presents several challenges. Health care costs leap from the governments and other players understand the issues and map their age of 45, though they trail off again for the very old. Assuming way towards improved performance. today's cost patterns continue, our experts project that population ageing will cause total health care spending to increase by an We know that disease prevention measures can be acted upon, whether average of nearly 2% of GDP by 2050. dealing with weight, fitness or, indeed, tackling infectious diseases, as the SARS outbreak showed. But while they may help relieve some Merely finding savings is not the solution. If it were, then the case pressures on health care systems, controlling health expenditure growth would be closed. In fact, cost-cutting can go too far, undermining in light of advances in medical technologies and ageing brings several efficiency and hurting the capacity to deliver even essential services, challenges to the table: getting more value for money, while ensuring with extra funding, not less, then needed to improve effectiveness. timely and equitable access to essential health care services; ensuring Reforms, however necessary, can generate costs too, in management any reforms do not leave people behind; and tackling shortages of for instance, and running expenses can rise in the drive to treat doctors and nurses - to name but a few. Also, new provision issues are more patients. emerging, like cross-border co-operation and mobility in patient care, trends that respond to the adage that if the market cannot move to the The public sector accounts for the greatest part of health spending people, then people (along with the money) will move to the market. in al! but a few OECD countries, though even in these, the public purse takes much of the strain. Government spending action has The OECD can provide the intelligence, advice and frameworks, tried a mix of capping, regulation and, increasingly for but only governments and citizens can act. No one can say they pharmaceutical spending, cost-sharing, with individuals taking were not warned. more responsibility for their spending choices. But management ©OECD Observer

Observer No. 238 July 2003 Observer

New OECD framework for managing conflict of interest

OECD governments have agreed on the and as universal as it is old. Conflict of letter and the spirit of their organisation's first international reference framework for interest in its many forms now seems to conflict of interest standards. understanding conflict of interest feature, on an almost daily basis, in the questions. The OECD's new Guidelines for news worldwide. It was a major feature in Will the guidelines work? They are not Managing Conflict of Interest in the Public the recent auditing problems involving legally binding, and so may not add much in Service define just what is meant by a Enron, Arthur Andersen and WorldCom, as countries which already have legislation in "conflict of interest" for a public official, well as corrupted public procurement this area. But as an international standard, and offer standards for resolving cases and processes in Europe. The OECD initiative they provide a valuable reference point when preventing such conflicts from occurring. is part of a drive to prevent the problem setting up or reviewing national conflict of The OECD's aim is to help governments from growing. interest policies, reviewing existing ensure that, say, health officials do not management systems, assessing risk, or favour a particular supplier in the hope of The new guidelines urge governments to providing training. In fact, several countries obtaining a new job, or, in an era of new develop and implement comprehensive are already using the guidelines in this way. forms of public-private partnership, that strategies for promoting integrity, officials of regulatory agencies have not identifying actual cases and areas of risk, The OECD is also working on a "toolkit" of become too close to the business entities and dealing effectively with conflicts of practical measures to help governments they are supposed to supervise. interest as they arise. Active monitoring is and institutions with implementation. It required to ensure effectiveness, and expects to report on the implementation of Recent scandals involving conflict of appropriate sanctions, including dismissal, the guidelines in 2006. interests in government, the public sector must be available. The guidelines stress and the business world have focused fresh the need for officials to take personal For the full text of the new guidelines: interest on a problem which is as complex responsibility for complying with the www.oecd.org/gov

non-financial businesses and professions FATF steps up money laundering battle such as casinos, real estate agents, dealers in precious metals and stones, accountants, Admits Russia and South Africa lawyers, and trust and company service providers. The Financial "In updating its Forty Recommendations Action Task Force against money laundering, the FATF has The Russian Federation and South Africa

on money accomplished one of the most important were also admitted as full members of the laundering and tasks it has undertaken since its inception in FATF after a positive assessment of their combating terrorist 1989," outgoing FATF president Jochen systems for combating money laundering financing (FATF) Sanio said. and terrorist financing. issued a revised

version of its Forty Major changes to the recommendations Meanwhile, the FATF removed St Vincent Recommendations include extending many anti-money and the Grenadines from its list of Non- Jochen Sanio to combat money laundering requirements to cover terrorist Cooperative Countries and Territories laundering at the financing. The mandate of the FATF, which (NCCTs) and welcomed further progress by end of a plenary meeting in Berlin on is an independent 31 -member international some jurisdictions still on the list. 20 June 2003, the last of Germany's body whose secretariat is housed at the presidency of the FATE The release is OECD, was widened to include combating The current list of NCCTs is: Cook Islands, intended to tighten international standards in terrorist financing in the wake of the Egypt, Guatemala, Indonesia, Myanmar, the fight against money laundering and to 11 September 2001 terrorist attacks in the US. Nauru, Nigeria, Philippines and Ukraine. create a substantially stronger framework for The updated recommendations also extend Visit www.fatf-gafi.org combating terrorist financing. anti-money laundering measures to

Observer No. 238 July 2003 Public Sector Article No. I

Are governments recognizing and reacting to the new empowered citizen'?

By Joop de Vries effectively in quantitative models. performance ranking systems based A member of the European Advisory Board People see the world around them on a few simple yardsticks. Business of the Global Future Forum, Dr. Joop de increasingly in their own terms, not in systems can closely align employees Vries is Executive Director of Futures for terms of macro-statistics. Even when Sociovision. with shareholder value, but at the the facts seem to speak for them¬ expense of trust and social selves, people sense it is not that responsibility. A sales force cannot maximise the bottom line and, at the

same time, 'leave money on the table' for ethical reasons or to please "People see the world customers. Systems do not speak the around them increasingly same language as policy statements, in their own terms..." and, intuitively, people know it.

The above developments are simple. For example, German accelerated by globalisation and unemployment in excess of 4 million démocratisation - pervasive forces

is far too high, but a black economy that cross demarcation lines and

equivalent to 7 million full-time jobs weaken hierarchies. Globalisation

is part of reality, too. Demographic and the inherent availability of The relationship between change in Europe's ageing societies information encourage people to see people, their leaders and requires massive immigration, but different perspectives and to look for institutions is undergoing a quiet people know that, in real life, this is the right questions before arriving at revolution. not how problems are going to be answers. Démocratisation encourages resolved. Society behaves increas¬ them - as citizens, consumers and In democratic countries, "the people" ingly as a living organism, rather than are now, more than ever before, employees - to impose their own a mechanical device. Solutions will society's driving force. Based on their criteria. It is essential to include these come from resilience, rather than interpretation of what they see and dimensions in the major decision¬ hear, people make their views known blueprints. These subtle changes making processes and systems for on an ongoing basis, often joining are a matter of perspective. Taken both government and business. forces across borders. They do so not together, they amount to a major Dialogue requires a combination of

just in elections but also through paradigm shift. "hard facts" and "soft facts". As

opinion polls and focus groups, in governments strive to employ new media and marketing, via email and In organisations, the determining systems and processes to educate, the Internet. In politics, they let their factor will be how effectively empower and communicate with their leaders know where they are prepared individual motivation can be mobil¬ citizens, they will need to strike a new to follow. In business, they expect ised. The business and management balance between facts and feelings, companies to be productive and systems that generated the economic between numbers and opinions, competitive, but also to pursue good successes of the 1990s are having between expertise and empathy, other¬ governance and ethical behaviour. difficulties dealing with personal wise they will not gain the trust and People collectively sense that the aspirations and principles. Organisa¬ world is changing and they are using confidence of the new empowered their new individual and combined tions are faced with growing citizen. dilemmas and inherent contradic¬ power to drive those changes. But are governments recognizing and tions. Sharply focused incentive To read more about these reacting to this quiet revolution? systems make people work harder but also promote the "games people trends and their implications

What matters most nowadays to play". In the public as well as the for the public sector visit individual people cannot be captured private sector, the same applies to www.thegff.com/oecdl

the global future forum the global future forum was envisaged by

The GFF is an independent partnership of futurists, academics and business from around the world, committed to helping organisations extend their strategic planning horizons and better prepare for the future. UNISYS Observer

Vanuatu removed from tax haven list

Vanuatu is the first country to have been of the OECD's Global Forum on Taxation taken off the OECD's list of uncooperative to discuss designing standards related to its tax havens, after pledging to make its tax commitment. and regulatory system more transparent. Vanuatu also said it would set up an effective In a letter to the OECD's secretary-general, exchange of information on tax matters with Donald Johnston, Vanuatu's finance OECD countries by the end of 2005. minister, Sela Molisa, said his government hoped that OECD countries and other A total of 32 countries outside the OECD international organisations would take have now committed to the principles of into account the adverse effect on revenue transparency and exchange of information of the small island economy of meeting for tax purposes. The OECD has said it these commitments when deciding hopes the six jurisdictions remaining on development assistance levels. the list of uncooperative tax havens published in April 2002 (Andorra, He also looked forward to receiving Liechtenstein, Liberia, Monaco, the technical assistance in meeting Vanuatu's Marshall Islands and Nauru) will make tax transparency commitments. similar commitments. For the full text see: www.oecd.org/pdf/ M00041000/M00041258.pdf Vanuatu will be invited to join OECD For more on harmful tax competition, members and other countries in meetings visit www.oecd.org/taxation Vanuatu prime minister, Edward Natapei

Jobless rate higher Investors get cold feet Unemployment in the OECD area rose to 7.2% in May from a revised 7.1% in April, and up from 6.9% a year earlier. The Foreign direct investment (FDI) in OECD up 3% or US$14 billion from the 2001 level. standardised unemployment rate for the countries fell 20% in 2002, following steep United States rose to 6.1%, up from 6.0% declines the previous year and the signs are in April and 5.8% a year earlier. for a further drop in 2003. That is the If the downward trend of mergers and message from a new OECD report, "Trends acquisitions in the first five months of the

Euro area unemployment was unchanged and Recent Developments in Foreign Direct year continues, OECD countries could be Investment". from the April level at 8.8%, but up from heading for a further fall of 25% to 30% in 8.3% a year earlier. The Japanese jobless FDI in 2003, the report says. rate held steady at 5.4%, the same as in The continued weakness of the global April and unchanged from May a year ago. economy, relatively flat stock markets, In contrast, investment flowing out of the 30 OECD member countries showed a The German jobless rate rose almost a full uncertainties over international security more modest decline. Outward FDI hit percentage point from a year earlier, at and heavy debt loads in sectors like telecommunications all contributed to the US$609 billion in 2002, down from 9.4% in May, up from 8.5% in May 2002, decline, which saw fixed investments into while the rate for the Group of Seven US$690 billion the previous year. OECD countries fall to US$490 billion in leading industrial nations was up to 6.8% Developing countries were major 2002, down from US$615 billion in 2001. beneficiaries of net outflows from OECD in May from 6.7% the previous month and This was about a third of the level in 2000, countries, and for the first time China 6.5% a year earlier. the report says. became the world's largest recipient of FDI

The only OECD countries to see their in 2002 with total inflows of US$53 billion, jobless rates fall in May from the previous The drop was concentrated mainly in the though in per head terms, this remains month were Australia, down from 6.1% to United States, where FDI plunged to relatively small (see article by Ken Davies). US$30 billion in 2002 from US$131 billion 6.0%, Poland, down from 20.2% to 20.1%, the Slovak Republic, down from in 2001, and the United Kingdom where it The report will be included as a chapter in fell to US$25 billion from US$62 billion. 16.8% to 16.6%, and Spain, down from the forthcoming annual publication, OECD FDI flows into other OECD countries 11.4% to 11.3%. International Investment Perspectives, as a whole actually rose slightly in 2002, expected in September.

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reading literacy, indicating that they have Brazil, Chile, Peru students struggle, serious difficulties in using reading as a tool to advance and extend their knowledge and says 0ECD/UNESC0 report skills in other areas. Brazil and Chile also recorded disappointing performances. Several Latin American countries lag knowledge societies, by administering tests seriously behind in reading, maths and and background questionnaires to between The study found that while higher average science, regardless of income levels, 4,500 and 10,000 students in each partic¬ spending per student tends to bring higher whereas Finland's 15-year-olds are among ipating country. The latest report compares average performance in reading, the world's best in terms of reading literacy, and analyses data collected in 2002 from 15 mathematic and scientific literacy, it does and students in Japan, Hong Kong-China mainly middle-income countries and not guarantee it. And differences in and Korea lead in mathematics and science. economies - Albania, Argentina, Brazil, performance related to social status also These are some of the key lessons from a Bulgaria, Chile, Hong Kong-China, varied widely between countries. The new survey of 15-year-olds in 43 countries, Indonesia, Israel, Latvia, Liechtenstein, FYR countries with the highest gap in reading Literacy Skills for the World of Tomorrow, Macedonia, Peru, Romania, the Russian skills between students from rich and poor published jointly by the OECD and Federation and Thailand - with data families included two OECD countries - UNESCO. The report is based on data collected in 2000 from 28 of the the United States and Mexico. The report gathered in the much-publicised OECD 30 member countries of the OECD. links these trends to the quality of national Programme for International Student Among the non-OECD economies, students education systems. Assessment (PISA). in Hong Kong-China emerge as star For a free electronic download of the full performers, but students in Latin America report or the executive summary, and for are well behind. Some 80% of Peru's 15- PISA measures how well 15-year-olds are more information on PISA, visit: prepared to meet the challenges of today's year-olds were at Level 1 and below in vAvw.pisa.oecd.org

Positive indications... The OECD CLIs are designed to provide early GDP growth signals of turning points (peaks and troughs) Things may be looking up for the OECD area in economic activity They are calculated by Quarter on quarter, as a whole, particularly in the US and the combining series that cover a wide range of seasonally adjusted euro area, but downward pressure is the key short-term economic indicators such as message for the Japanese economy, according opinions about economic activity, housing H H Australia 0.3 0.7 to the latest OECD composite leading permits granted, financial and monetary data, Austria 0.0 0.1 indicator (CLI). The CLI for the OECD area, labour market statistics, information on Belgium 0.3 0.2 which can provide advance signals of likely production, stocks and orders, foreign trade, Canada 0.4 0.6

turning points in the economy, showed a 1.0 etc. More information on OECD composite Czech Republic 0.5 0.6

point rise in May from the April level, while leading indicators can be found at Denmark (i.l 0.4

the six-month rate of change rose for the first www.oecd.org/statistics Finland 0.5 -1.3 time since May 2002. France -0,1 0.3 ...as real GDP firms up Germany 0.0 -0.2 The May figures suggest slow to moderate Italy 0.4 -0.1 0.4 0.1 growth ahead in the OECD area, the United Growth firmed up in several OECD countries Japan Korea 2.0 -0.4 States and the euro area, with a 1.6 point in the first quarter, including in the US Mexico 0.0 -0.5 rise in May in the US from the April level (0.4%), Canada (0.6%) and France (0.3%). Netherlands -0.1 -0.1 and a rise in the six-month rate of change Britain and Japan both grew by 0.1%. New Zealand 0.8 0.6 after three months of downward or Australia's economy grew by a seasonally Norway -0.2 0.3 unchanged showings. For the euro area, the adjusted 0.7% compared with the preceding Portugal -0. 5 0.1 six-month rate of change headed upward three month period, a percentage point faster Spain o.; 0.5 for the first time in a year. But Japan's CLI than New Zealand and the Czech Republic, Sweden 0.4 0.6 was still heading downward, continuing a while Spain's economy expanded by 0.5%. Switzerland -0.2 -0.3 trend on the six-month rate of change that Korea's economy contracted, by 0.4%, after United Kingdom 0.5 0.1 United States 0.3 0.4 goes back to December 2002. The UK growing by 2% in the fourth quarter of 2002. continued an upward trend in the The sharpest quarterly decline was recorded Based on 7 July update; . For more visit six-month rate of change which began in for Finland (-1.3%), with lesser falls recorded www.oecd.org/statistics April after showing a strong downward for Germany, Italy, the Netherlands and trend since June 2002. Switzerland.

8 Observer No. 238 July 2003 ECONOMY

France

France's employment challenge Mobilising young and old

Andrew Burns, OECD Economics Department

France's economy has been doing relatively well, but it could do a lot better if it made fuller use of young and old in the workforce. The challenge is, how?

After several years of strong growth step would be to raise the employment rate labour costs and the 35-hour workweek during which it outperformed much of youth and older workers which, despite legislation helped accelerate the of Europe, the French economy has good progress over the past decade, remains re-absorption of cyclical unemployment slowed. It is still expected to perform low by OECD standards. generated by the previous downturn. But somewhat better than the European average by 2001, corporate indebtedness, the stock this year and next, but now faces the The French economy performed well in the market decline, and the global downturn prospect of an ageing population that is late 1990s. Reforms, strong domestic slowed investment, pushing France into a already starting to place the budget under demand, tax cuts, the stock market bubble period of slower growth. increasing pressure. To avoid buckling under and more relaxed fiscal and monetary a pension and health care "time-bomb", conditions all played a role. Moreover, for a Since then, economic activity has been policymakers will have to act quickly, both to country used to relatively high slack, with (moderate) consumption buoying control spending in these areas and to unemployment, growth was much more the little growth there is. Continued increase France's potential output. One key job-rich than in the past, as reforms reduced weakness in world trade has not helped. On

Observer No. 238 July 2003 ECONOMY

France

the kind of fiscal room that would allow for Room for manoeuvre a reduction in tax rates, perhaps spurring Employment rates (%), by age, 2001 further growth. 100 100

The question is, how to get there? France's France 80 low rates of labour utilisation reflect three II EU II OECD phenomena: low rates of youth 60 employment; low rates of employment among older workers; and low average 40 hours worked. So, although employment rates of prime age workers (between 25 and 20 54) are equal to or above the OECD average, less than a quarter of French youth mi I ! d_j 0 work and only slightly more than a third of 15-19 20-24 25-29 30-34 35-39 55-59 60-64 65-69 65+ 55-64 year-olds have jobs. As for hours French employment rates are slightly above average for prime age workers from 25 to 54 years, but well below average for worked, the average French employee young and old workers Source: OECD worked only 1,532 hours in 2001, 14% less than the OECD average. the bright side, employment has resisted the rising pension and health care costs. An downturn, limiting the rise in joblessness, ageing population means this challenge Misspent youth which was nevertheless too high, at over cannot be shirked, since in the absence of France's youth employment was not always so 9% in May 2003. reform, these costs would increase by as low. It stood at 50% in 1970, declined much as 8-10% of GDP between now and gradually until the early 1990s, before picking Inflation, meanwhile, remains moderate. 2050. Worse, if measures are not taken to up somewhat. Currently, it stands at less than Despite a pick-up in early 2002 and public restrain deficits their accumulation over 25%, nearly half the OECD average of 45%. complaints that the introduction of the euro time could double public debt by 2030, Although the decline coincided with a 67% lifted prices, competitive pressures and threatening the economy's fiscal rise in educational enrolment rates among increasing slack saw inflationary pressures sustainability. This underlines the need for 15-24 year-olds, the causality is not clear. subside towards the end of 2002, allowing early action. Enrolment also rose in most other OECD headline inflation to ease to 1.8% (year on countries without anything like the associated year) by May 2003. Fortunately, France's policymakers are not decline in youth employment seen in France. sitting back. Reforms are under preparation Economic factors seem to be responsible. Fiscal policy relaxed massively in 2003, with or m place, that seek to increase the level the general government budget deficit and the rate of growth of potential output Until recently, the policy response to low reaching 3.1% of GDP - more than twice the by increasing labour supply, upping the rate youth participation rates per se has been 1.4% originally called for in budget of investment and raising the rate of growth relatively muted. Policymakers concentrated documents. Moreover, the 2003 budget of productivity The pension system is being on dealing with high youth unemployment introduced little in the way of measures to overhauled. Further reforms, aimed at (24% of the youth labour force in 2001) that reverse these overruns. As a result, the deficit slowing the pace of rising healthcare costs, afflicts the third of this age-group not in is now expected to reach about 3.5% of GDP are in the pipeline, as are decentralisation school but in the labour force, with a in 2003, which in contrast to 2002 is not projects, a move towards output-oriented particular focus on the 7.5% of youth who expected to provide a fiscal stimulus to budgeting and various regulatory reforms. leave school with no or low educational growth. This, plus a tightening in 2004, will A busy agenda indeed. qualifications. A wide range of programmes cause consumption demand to expand less has been put in place. quickly in the months to come. However, One area where change would help and firms may begin investing again in a less where France stands out among OECD On-the-job training programmes, like uncertain global environment, and this countries is its low labour utilisation rate, or apprenticeships, qualification contracts and should help economic activity pick up in the proportion of working age people in the orientation and adaptation contracts, are second half of 2003 and into 2004. Real GDP workforce. Yet raising employment would common. And there are programmes in is expected to rise by less than 1% in 2003 speed up productivity growth and raise partnership with both the business and before accelerating in 2004 to a rhythm of living standards, and underpin the long- public sectors aimed at assisting youth to around 2%. term viability of France's social welfare enter the labour market, with employment system. Moreover, increased employment subsidies or provision of personalised Social challenge would simultaneously raise taxable income job-search and training. Altogether, some The relaxation of fiscal policy comes at an and reduce government expenditures. Such 40% of all working youth are involved in one unfortunate juncture, with France already developments should open the way both to or another of these programmes. Overall, the facing a looming fiscal challenge from stabilising public finances and to creating authorities spend about 2% of GDP on

10 Observer No. 238 July 2003 ECONOMY

France

French pension pickle

esistance to currently levied on labour, and perhaps taxes because there are other provisions, such as pension on capital too. The disagreement in France disability benefits, that also encourage people R!reform has mainly been on which path to take: the to stop working early. marked the French government's reform plan puts the emphasis political scene in on extending working lives (which is one way What else is needed to make the May and June of this of raising employment), while some unions reforms work? year, as public have argued in favour of paying higher Older workers cannot be expected to hang sector unions contributions. on in the labour market if they can't find demonstrated work. Moreover, those jobs would have to be against proposed legislation. We asked What is your view on this debate? of high enough quality to encourage them to Martine Durand from the OECD France already has a high tax burden by stay on. This requires a real change in Employment, Labour and Social Affairs international standards. Raising taxes or social attitudes all round: governments must adapt Directorate to explain the basic reasons for contributions further would have a negative their employment policies; public the reforms and the protests. effect on job creation and growth, which in the employment services must meet the specific end would be unhelpful to solving the pension needs of older workers; measures that reduce OECD Observer: There seems to be problem. An overall strategy is needed to get benefit dependency and facilitate the agreement in France, even among the more people into work. France is rather integration of older workers in the labour unions, that pension reform is needed. unique in the OECD as it combines both very market should be taken. Employers, both Why is reform necessary and where do low youth and older worker employment private and public, must learn to view older the key differences lie? rates, with above average rates for prime age workers as a genuine asset. They will need to workers. Raising youth employment rates eliminate discrimination against them, invest Martine Durand: Like most other OECD would help relieve the pensions burden. But a in their training, and adapt working hours countries, France is facing rapid population longer working life must be part of the and conditions to fit their needs. But ageing because of low fertility and longer life solution. This means introducing both later workers must also understand that early expectancy This means the dependency ratio retirement and reducing early retirement. retirement is not a right, and that, unless of older people - those aged 65 and over as a they can afford otherwise, they must get proportion of those aged 20-64 - will rise Fortunately, there is room to manoeuvre on used to working a longer career. from 25% at present to 50% by 2050. In other both fronts. The current official retirement age words, there will be more older people, but is 60, which is one of the OECD's lowest, yet, But can people be realistically expected to fewer people of working age to support them. France also has one of the OECD's highest life change their attitudes in this way? expectancies. And at 36%, France's Yes, there are some interesting recent These demographic trends are putting employment rate for 55 to 64 year olds is also expenences out there. Finland's National tremendous pressure on the French pension one of the lowest in the OECD, whose average Programme for Ageing Workers is one system, which is based on what we call a is 48%. Abolishing financial disincentives attempt to improve the status of older Pay-As-You-Go (PAYG) distributive principle; towards retirement beyond the legal age, while workers, with encouraging early results. More people who are currently working pay the aligning the mandatory contribution periods of time will be needed to assess it properly, pensions of those in retirement. Everybody public servants to (the longer) private sector though. In the meantime, businesses are agrees that reform is necessary; if nothing is period, seems to me a sensible way of raising taking initiatives of their own, with companies done soon, public deficits could rise by some the employment rate of older workers. in Belgium, the Netherlands, Sweden and the 5% of GDP over the next 30 years. And UK starting to recruit and train older workers. public debt could more than double. So, The most urgent step is progressively to Even in France, a number of large firms have without reform now, our children and eliminate provisions that subsidise early introduced major changes in their production grandchildren will pay the price. withdrawal from active life - first and processes to adapt working conditions to the foremost, early retirement schemes. Too often particular needs of older people, making There are two ways to put the PAYG system in the past, these schemes have been used to production lines more ergonomie and so on. on a sounder financial footing. The first is to make people redundant, while at the same As it turns out, these workplace increase total contributions; the second is to time helping to reduce unemployment improvements have also made these jobs reduce pensions. Virtually no one in France figures. A number of OECD countries have more attractive to young people too. favours cuts, so we are left with raising already taken this step, but experience shows contributions. This in turn can be achieved in that it is not enough. In many cases, the For more on pensions and ageing, two ways: by increasing the number of people actual retirement age still remains two or visit: www.oecd.org/employment and at work or by raising the rate of contributions three years below the official retirement age, www. oecd . org/ageing

11 Observer No. 238 July 2003 ECONOMY

France

various training and subsidised employment Indeed, 75% of those with a fixed term job-search requirements. As of 2002, some programmes and a further 1% of GDP in the contract are employed a year later, in contrast 520,000 older workers benefited from some form of tax expenditures associated with the to the two-thirds of unemployed who remain sort of pre-retirement scheme, fully one third reduction of social charges. jobless. of all 55-60 year-olds. A first step towards reversing this trend was taken in December In general, the various apprenticeship and Making older work pay 2002, when the social partners tightened qualification programmes have been most Unlike youth employment, the cause of the both eligibility conditions and the duration successful in helping less skilled youth find a decline in the employment rate of older of its unemployment insurance schemes for long-term unaided job. The efficiency of workers is known, and reflects the older workers. other measures is less clear. The Youth introduction of a number of reforms that

Employment programme (emplois jeunes), sought, among other things, to lower Nevertheless, the consequences of an which itself employed 213,000 youth (over a unemployment. Most visible of these reforms individual losing his job and moving into tenth of all jobs held by 15-24 year-olds) in was the 1982 decision to lower the official early retirement remain limited. Thus, a public-sector and non-profit sector jobs such retirement age from 65 to 60. This, and 56-year-old redundant worker can receive as schools, hospitals, and local governments associated reforms to the pension system, unemployment insurance benefits up to 75% failed to serve as an effective bridge towards had the effect of simultaneously reducing the of their salary for as many as three and a half long-term employment. number of years of service necessary to years, without any job-search requirement. collect a full pension and eliminating the Moreover, this period can be counted in Other programmes have suffered similar possibility of increasing one's pension rights calculating his or her pension. With these difficulties. The French National Auditor by continuing to work later on. Meanwhile, conditions, it is hardly surprising to see (Cour des Comptes) was especially critical of special unemployment benefits and early workers and firms apparently colluding to so-called consolidated employment contracts retirement schemes were extended to older lay off older workers when it comes to saving (Contrats d'emploi consolidé, CEC), whose age groups in an effort to promote money or making redundancies. beneficiaries were found to receive neither withdrawals from the labour force.

the training nor individualised assistance Steps to reduce early retirement need to be provided for in the legislation. Moreover, As a direct result, employment rates of greatly reinforced, so that state-subsidised only 6.6% of participants found work with a 60-64 year-olds dropped from 35% in 1980 early retirement becomes an exception rather permanent contract. In response, the to about 13% in 2001. For men, the decline than the rule. Indeed, as the population ages authorities have indicated their intention to was particularly fast, with 19% of all the issue will increasingly be not how to consolidate a number of aided employment employed 55-59 year-olds leaving work remove incentives to retire prematurely but programmes to improve performance. between 1980 and 1985 due to early- how to revise the tax and benefit system so retirement incentives (including extended that those individuals who wish to continue To improve prospects in the private sector, unemployment benefits). working can afford to do so. and reduce dependency on state-financed jobs, the authorities decided to cease issuing Not only did these labour force withdrawal One way is to adopt a more actuarially new emplois jeunes and push instead for more strategies fail to reduce unemployment, they neutral determination of pension benefits assistance to private-sector firms hiring have served to remove a large swathe of that reflects the period in which a person has (particularly lowly qualified) unemployed French society from productive life. The actually contributed. Under such a system, young people. These new Youth Contracts authorities are responding by putting in place individuals who, for instance, find their work (contrats jeunes) provide private-sector reforms that restore incentives enabling those difficult could choose to retire early, but with employers a complete exoneration from older workers that wish to continue working a reduced pension. Surveys suggest that social charges during two years and a 50% to do so. As a first step they have decided to workers would embrace such reforms and exemption in the third year for each rem in state-financed early retirement the recent government initiatives moves in qualifying youth they employ in a full-time programmes, by refusing new applicants to this direction. contract. The authorities signed some 44,000 various programmes. As a consequence of such contracts in 2002 and in 2003 and they such measures, the share of the 55-60 year- Finally, policy has to do a better job of hope to sign a further 120,000. olds enrolled in the various state-financed helping older workers who lose their jobs. early retirement schemes has fallen from 16% Improved training and requalification Fundamentally, however, no programme can to 10% between 1996 and 2002. programmes would help. Perhaps diminish the imperative of reducing rigidities policymakers might also consider subsidising in the French labour market, generally. In However, overall progress has been less good their employment, as they do for younger this regard, efforts over the last 10 years to because a large share of older workers workers. reduce impediments to temporary work and effectively on early retirement are not in a References fixed-term contracts have been useful, by state-financed programme, but are enrolled OECD (2003), Economic Survey of France, allowing young workers to gain experience in in one of the many programmes operated by Paris, available on the online bookshop at various jobs, while providing firms with the the social partners which offer extended www.oecd.org/bookshop opportunity of testing prospective employees. unemployment insurance benefits with no Visit www.oecd.org/eco

12 Observer No. 238 July 2003 ECONOMY

Telecommunications

After the télécoms bubble

Patrick Lenain, OECD Economics Department and Sam Paltridge, OECD Directorate for Science, Technology and Industry

Telecoms services companies have had a rough ride of late. Can they bounce back to the heady days of the late 1990s? Unlikely, but with restructuring under way and innovations still to come, the outlook is not dim, as long as governments continue their drive to keep markets open.

£ £ rThI ~>he road signs all indicate that, basically,b the sky is the limit for

communicationc companies" This was the prediction made in 1997 by William Moroney, president of a US-based group, the MultiMedia Telecommunications Association. It was a promise of a new era where telecommunications traffic would expand at double-digit rates every year, thanks to the Internet revolution, flourishing e-commerce and new wireless communications technology. Such a prospect fuelled expectations of rapid growth in revenues and earnings, causing stock values to spiral upwards in a euphoric global telecommunications bubble.

But, as we now know, this bubble burst and Back to basics ended in tears for many shareholders and investors. Many telecommunications and familiar names in one country emerged instance, fibre optic cables and new operators, including France Telecom, MCI, as new entrants in other countries. Suddenly, transmission software made it possible to Deutsche Telekom, KPN and BT are now consumers in most OECD countries had a increase the carrying capacity of telephone striving to rebuild shareholder value, choice, particularly for long-distance phone networks. Cellular phones became more consolidate their balance sheets and win back calls and mobile phone services and, affordable and reliable. The Internet emerged the confidence of financial markets. Others, increasingly, for local calls. In addition, from a network used by academics into a such as PSINet and Ebone, have disappeared state-owned carriers were privatised and a global infrastructure, all the while becoming altogether. number of other steps were taken to infuse faster and cheaper, and seamlessly linking all competition into the sector. kinds of information resources. There were The prospect of ever-expanding also hoards of investors ready to bet on the telecommunications revenue was not entirely But although vital, liberalisation is only part sector's future. And mobile telephony and the unfounded, though. Two decades of of the story. In order to expand, markets need Internet, in particular, struck a chord with increasingly dramatic changes radically other pre-conditions, too: products, consumers and their desire to stay in touch transformed the industry. The most significant producers and consumers are just for starters, and become more mobile. stemmed from a fundamental shift in and technologically-driven markets need regulatory policy as governments opened innovation, as well as investors willing to take Yet, after a few years of euphoria, the industry telecommunications services markets to the risk of financing sometimes large landed back to earth with a thud. What went competition, so compelling incumbent investments. Telecommunications had these wrong? Despite expectations, télécoms traffic monopolies to make room for new entrants. conditions in abundance. did not continue to increase at double-digit New télécoms service providers appeared, rates. Telecom operators that had banked such as MCI (formerly Worldcom), Level3, There was no shortage of technological their investments on a surge in traffic SFR, Vodaphone, Japan Telecom and Hanaro, innovation ready to reach the market. For demand, found that their transmission

13 Observer No. 238 July 2003 ECONOMY

Telecommunications

capacity was terribly underutilised. And telecom sector is about to become a "normal" though it is also where the difficult challenges during 1996-2001, while telecommunications industry that matures gradually, like for the télécoms industry come into view. revenue in the OECD area grew by an average electricity or railways have done. There are markets within markets, and, in truth, 7.2% annually, it slowed to 1.6% in 2001 Wired for wireless under the pressure of the economic telecommunications themselves have never downturn. Preliminary indications for the really stopped expanding, despite the bursting Cell phones are almost everywhere m OECD United States and France suggest revenues of the bubble. Consumer spending on countries these days, so much so that their may have been roughly flat in 2002. communications has been rising faster than presence makes it easy to forget just how other types of spending, such as on recreation, recent a phenomenon they actually are. But one of the pins that pricked the bubble education or even health (see Databank). Indeed, some 60% of users in 2001 had only was, arguably, the speed of innovation itself, Telecommunications will continue growing, been connected since 1999. By 2001, there as new, cheaper ways of improving since the climate of innovation and change, as were 612 million subscribers in the OECD communication emerged, like the extensive well as demand for certain services, remain area, which is half the population and coverage of second-generation wireless strong. While this growth is unlikely to repeat equivalent to 65% of all mobile phone users networks, putting pressure on costly, long- the upsurge in télécoms activity of the late worldwide. term investments, like global mobile satellite 1990s, the outlook is not dim. systems. Other innovations like digital Revenues for cellular mobile services reached subscriber lines (DSL) failed to come quickly For now, télécoms firms will continue to US$264.8 billion in 2001. This represented a enough to the market at the local level to operate by upgrading their networks for tenfold increase from a decade earlier and soak up the increase in capacity wrought by higher speed Internet and seeking new reflected something of a revolution in terms fibre optics at the backbone level. customers, conscious that these will always of access to wireless communications services. want to communicate more cheaply if new And it led to a bonanza from a business The wider economic impacts of the burst of technologies allow. For instance, wireless viewpoint, since by 2001 a third of the bubble were limited, mainly because access to fixed télécoms systems is emerging, telecommunications services revenue was telecommunications services were not an with innovations like WiFi (Wireless Fidelity), earned from mobile communications. enormous industry, valued at some 3.3% of whose impact on accessing fast Internet all OECD GDP Still, when a sector with services via local area networks could bring But although mobile telephony has grown, its annual revenues of nearly US$900 billion benefits to both residential and (particularly impact on overall télécoms growth has been runs into difficulties, the consequences can be small) business users, as well as those on the less than many investors expected. One serious. In particular, there was a wave of move. WiFi technology is having some reason is that, as prices fell, new mobile users, default on debt payments among telecom teething problems, which need to be resolved often using pre-paid cards, generated less carriers. Worldwide defaults on corporate if it is to be used for e-commerce, for average revenue than the early users. The fast bonds came to US$163 billion in 2002, of instance. Nevertheless, it is in these twin areas pace of innovation m the telecommunications which 56.4% were in telecommunications - of cellular mobile communications and sector has also meant that new services have the worst wave of bond defaults since the Internet that new potential appears to exist, substituted for some older ones. So, e-mail 1930s. According to Bankruptcycom, among the 15 largest public companies in the United Communicating more States that went bankrupt in 2002, no fewer Access growth in OECD area than eight were communications operators. In addition, there were economic effects Broadband Internet subscribers Hi Narrow-band Internet subscribers (fixed network) elsewhere, as slower growth hurt equipment Ceîlutar mobile subscribers H Fixed network channels suppliers and technology firms upstream, Millions of subscribers Millions of subscribers while cuts in R&D spending could slow innovation. 1 400

1 200 1 200 In short, the reasons why the bubble inflated and then burst were more to do with unduly 1 000 1 000

optimistic expectations, stock market 800 800 exuberance, over-investment in certain technologies, non-core investment by some 600 . - ^^ia^^SfilJ 600 companies and poor management. 400 400

So, what might the future be for the 200 200

telecommunications sector: prolonged decline 0 0 or renewed growth? All indications point to 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 the latter, though at a far calmer pace than Source: OECD before. It is too early to conclude that the

14 Observer No. 238 July 2003 ECONOMY

Telecommunications

frequently replaced fax, and some mobile calls substituted calls that would otherwise Going mobile have been made from the fixed network. Share of mobile revenue in public telecommunication revenue Moreover, the dizzy speed of innovation and % of mobile revenue in totat revenue 3 revenue in total revenue fast growth of some stocks led financial 70 70 investors to overestimate the take-up and use of some technologies, like fibre optics. They also underestimated some basic market fundamentals, such as the time it would take new service providers to establish a competitive presence in local markets. After all, it is one thing to lay cables, another to win customers. On the other hand, some operators underestimated the ease with which new entrants could enter backbone markets with their own infrastructure and drive up competition, while eroding the previous high levels of monopoly pricing.

><>> ^1? <3* Few episodes illustrate the predicaments s^ facing the industry better than the auction of Source: OECD UMTS (Universal Mobile Telephone Service) Spectrum. These so-called third generation Beyond 3G, the cellular mobile market is now in decline as users demand faster, (3G) mobile licenses were promised as a giant continues to grow and new innovations could better (and more secure) services that are step forward in the quest to unlock the full yet surprise the industry in the way short costly to provide. potential of wireless communications. messaging services (SMS) have done. Part of The UMTS auction in the United Kingdom the problem is that no-one knows what The main source of development in the years raised US$33 billion. This was followed by an innovation will come next, and investors are ahead for the Internet is likely to be its access auction for UMTS licences in Germany, which understandably cautious, with many focusing via broadband (high-speed) technology. For raised nearly US$47 billion. But market instead on expanding current markets, like users accessing Internet by phone, with all its sentiment changed and prices started to ease. winning new mobile phone subscribers and attendant frustrations of slow downloads, In Italy, UMTS licenses raised US$1 1 billion so on. But even this is a challenge. interruptions and above all, metered charges, in 2000 and US$2.5 billion in the broadband is already winning favour. In most countries, broadband is more expensive than Netherlands. The European Union had Internet world required in late 1998 that member states dial-up, but it offers faster, always-on allocate 3G licenses before end-2001. But as Mobile Internet access is one area for capabilities and enables transmission of larger attitudes towards the prospects of this promising potential, with the next several volumes of data, including video services. technology cooled over the auction penod, years likely to bnng better, cheaper delivery financial stringencies also affected the bidding of services. Until recently, cellular mobile Broadband's main quality is that it could power of télécoms after the bubble had burst. Internet services lagged the speeds available finally enable all those transformations to take 3G probably has a future in broadband and, over standard fixed lines, and this is reflected place that were previously promised but indeed, is being used in telemedicine. But in the relatively small number of subscribers impossible to deliver with older technologies. recouping the race for licensed radio in the OECD overall. There are exceptions, Some doctors in Australia are already using it spectrum has left many firms overstretched like Japan which had some 40 million mobile for telemedicine, including the transmission and facing a hard penod of adjustment, not Internet subscriptions by 2001, but to of X-rays. Meanwhile, fixed broadband to mention competition, as less expensive understand Internet trends to date, the networks and wireless extensions offer real access technologies come on stream. clearest information concerns fixed networks. hope for education and research, as well as electronic commerce and workplace Regulatory measures have been suggested to By 2002, the number of Internet subscribers organisation, including lelework. Small facilitate the financial viability of 3G and with access over a variety of platforms was enterprises should draw particular benefit accelerate the launching of services. A first more than 250 million and there were from having affordable, always-on, proposal is to allow the sharing of probably over half a billion users of these connections to the Internet. infrastructure, specifically antenna sites rather subscriptions. Moreover, the number of than switching or transmission facilities. subscribers to these services grew by 22% in The development of broadband access Another initiative under consideration would 2001 alone. The emergence of "free" Internet networks is now moving ahead rapidly in allow operators to resell their licenses through accounts, paid through telephone charges, many OECD countries. So rapidly, in fact, secondary market trading. helped spur this increase, though this model that more than 20 million broadband

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Telecommunications

less expensive there is agreement that there should be platforms such as increased access to local markets by WiFi mean that competitors, there is some disagreement on DSL and cable whether this should take the form of sharing modem may not existing connections or new infrastructure continue to be the investment by operators entering the market main drivers of with alternative platforms. broadband growth. Japan provides one example of rapid progress.

Government There, regulators, who required local loop role unbundling in March 2000, have resisted pressure from incumbent operators like Clearly, broadband, Nippon Telegraph and Telephone Corporation which is already one to keep prices high and competition access of the fastest growing down. New entrants were providing over 60% communication of the broadband lines in Japan by end-2002 services of all time, is and new services such as Internet telephony still at a very early were being rapidly adopted. stage of its development, and In the short term, restructuring in the opportunities for télécoms business will be tough. And as in subscribers were added in OECD countries growth exist. But will it help the télécoms other sectors where entrants fail, the during 2002, taking the total to 55 million by sector recover? telecommunications sector will consolidate as the end of 2002. firms go out of business or are acquired by This depends on whether new innovations others. This may reduce the number of In 2002 alone, the number of subscribers and expansion simply deflect demand away competitors and push up prices for a while. using DSL connections, that offer both speed from other markets. But it could spur a and high-volume transmission over existing steady recovery for those operators that Although the necessary restructuring now copper local loops, nearly doubled from clear their debt and restructure their firms, underway in the industry is painful, 16 million to 30 million. The number of in particular to become flexible towards governments and regulators should resist the subscribers using DSL surpassed the number new innovations. Meanwhile, not all temptation to provide relief to companies by of subscribers using cable modems in late markets have been fully tapped. And this is easing competition requirements or providing 2001. By the end of 2002, there were where government policy comes in. financial help. 23 million cable modem subscribers, up from 1 5 million a year earlier. Sure enough, governments achieved a lot in Our SMS message for governments is that the 1990s, as independent regulatory agencies demand for communications is set to grow Compare these trends to other broadband were established with a mandate to open further, albeit at a calmer rate than that access technologies, like two-way direct markets to competition, prevent incumbents expenenced during the latter half of the satellite, fibre-to-the-home, Ethernet local from abusing their dominant positions and 1990s. Even during the worst of the financial area networks (LANs), and fixed wireless avoid collusion between operators. In the downturn in the industry, the size of the networks. Some of these platforms offer context of market liberalisation, 1998 was the sector continued to grow and new the fastest broadband connections turning point when, for the first time, opportunities abound in the area of fixed and available, with some being more expensive countries with open entry into fixed markets wireless broadband access. The main and others less expensive than the leading and three or more mobile operators challenge for governments is to keep markets platforms. In Japan, for example, represented the majority of OECD countries. open for infrastructure and service providers, commercial fibre-to-thehome connections Since that time more than half a billion fixed while reducing the risk of corporate offer speeds up to 100 megabits per and mobile connections have been added to malpractice. The télécoms sector will take second, which is many times faster than a networks. Competition has increased too, care of the rest. typical DSL or cable connection in other even if privatisation has been slower than OECD countries today. But at end-2002, expected. And a majority of OECD countries References there were just 3 million subscribers using have no foreign ownership restrictions. OECD (2003), OECD Communications Outlook, Paris. these other platforms in the OECD area. However, progress in introducing local OECD (2003), OECD Economic Outlook, These technologies will continue to attract competition in some market segments has Paris. special uses, and some will appeal to been sluggish. Even in the United States, one Lenain, P and Sam Paltridge, "After the businesses and residential users in remoter of the most advanced markets, the dominance télécoms bubble", Working Paper No. 361, areas and outside the reach of terrestrial of local incumbents has persevered for some available under Documentation at broadband networks. On the other hand, services. In that country, and others, although www.oecd.org/eco

16 Observer No. 238 July 2003 FT IL- U

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Health

Health care

A quest for better value*

Elizabeth Docteur, OECD Directorate for Employment, Labour and Social Affairs and Howard Oxley, OECD Economies Department

OECD societies are healthier than ever, and yet spend more on health care. To some, this appears as a paradox, in that the fitter you become, the less you should need to invest in getting better. To others, we are healthier because we spend more. For policymakers, the question is simple: is the rise in costs affordable and are health care systems becoming more efficient, delivering more value for money?

In 2001, health expenditure represented country. The next highest-spending nations, biggest spenders, yet achieves at least as an average of 8.4% of GDP in the Switzerland and Germany, came in at good, if not better, results than most other OECD area, up more than a full 10.9% and 10.7% respectively. Yet, these health systems. percentage point since 1990. The United countries do not necessarily deliver better States, spending 13.9% of GDP on health health services than other countries. France Health care is costly for several basic in 2001, devotes a greater share of is just one example of a country that reasons. It deploys expensive technology; resources to health than any other OECD devotes less of its GDP to health than the indeed, the more advanced a system is in

18 Observer No. 238 July 2003 SOCIETY

Health

terms of early adoption and quick diffusion reflect policy decisions to control health spending, and with some effect. In fact, the of new innovations, the higher the costs spending, as well as preferences for health rate of growth in health expenditures has tend to be. And with ongoing developments care relative to other goods and services. halved across OECD countries over the past in areas like imaging, pharmacology and With some exceptions, countries that three decades, from an average annual rale biotechnology, pressures to spend more are finance and deliver health services through of 6.2% in the 1970s, to 3.1% in the 1980s likely to continue. the public sector tend to have had an easier and 3.3% in the 1990s. Cost-containment time controlling the rate of growth in costs. efforts have coincided with this slower rate Health care is also labour intensive, meaning In insurance-based systems, countries of spending growth. large costs for highly-trained doctors, nurses, where governments are the only source of support staff and, increasingly, management basic coverage tend to spend less than Three types of policies have helped: first, and administration. These labour costs tend those with multiple insurers. controls on prices, wages, and inputs to to rise with GDP. health care services, such as numbers of Public problem hospital beds and the size of the health care Although its role has been fairly modest Governments worry about health spending workforce; second, caps on health spending, until now, population ageing is set to increases because of the pressure such across the board and by service sector; and play an important role in driving future growth places on their budgets. The third, shifting costs to the private sector, health spending growth. Health care costs public sector accounts for the greatest part particularly to the patients who use health tend to increase sharply from age 45, of health spending in all but three OECD care services through cost-sharing falling off again for the oldest of the old. countries, given the prevalence of publicly arrangements. Assuming that today's age-related cost funded health insurance and direct public patterns and influences hold over time, financing of health care. Even in the Most countries regulate health-sector the OECD projects that population United States, where public spending prices and service volumes in one way or ageing will cause total health care represents just under half of total health another. Government regulators may spending to increase by an average of expenditure, spending growth is an issue, impose wage controls, as is common in nearly 2% of GDP by 2050. as only a few other countries (Iceland, systems where most of the health care Luxembourg, and Norway) have higher workers are public-sector employees, like In general, OECD countries with higher per per capita public spending on health care. the Nordic countries, Greece, Italy, and capita GDP tend to spend more per capita Portugal. In other systems, prices lor on health, though there is significant For several years governments have been medical services, supplies and institutional variation across countries. These may partly stepping up their efforts to limit health care are usually set administratively, or with

Healthy growth Real annual per capita % growth rates, 1990-2001

GDP

Health spending

<&; $ & *P ^ / cP t& cP ,-£> *b ft^#V*, or # c# 6 a^ c9 rf

Source: OECD Health Data 2003

19I Observer No. 238 July 2003 SOCIETY

Health

government oversight, when prices are are no price controls, something that has hospital sector, which is the most costly agreed between health care purchasers and occurred in some countries where public pillar of the health system. They were providers. Most countries take measures to and private programmes operate side-by- subsequently extended to other providers influence the system's capacity to furnish side, as in Ireland. And patients may be and suppliers, so that now spending services by controlling medical school up-coded to higher level payment controls often include global budgets admissions and the provision of equipment classifications, where such differentiation is spanning all components of public for high-tech care, and so on. built into payment systems, such as for spending on health and supplementary increased severity of illness or length of visit. spending caps on ambulatory care and While such controls can curb spending In other words, the effectiveness of price pharmaceuticals. growth, the responses of health care controls as a cost-containment tool depends providers can confound some initiatives. on the extent to which loopholes can be Capping budgets appears to have been most Practitioners may try to compensate for price found and payment systems manipulated. successful in countries where health care limitations by increasing the volume of Administrative costs associated with this delivery is mainly a public-sector services they provide, say, by taking on more approach can be high loo. responsibility, as in Denmark, Ireland and patients or providing more services to New Zealand, and in single-payer countries, existing patients, or by changing the mix of Budgetary caps and controls have become like Canada. However, capping may fail to services to include more consultations paid a widely used instrument for containing provide health care providers with the at a higher rate. Some services may even be overall public expenditure on health. incentives they need to improve efficiency shifted into sectors or systems where there Initially, spending caps were directed at the and productivity. Rather, providers tend to

in the two countries. More than 20% of the adult population in Australia and the United Weighty problem Kingdom are now defined as obese, the same rate as in the United States ten years ago. By contrast, the obesity rates in Denmark, Gaétan Lafortune, OECD Health Policy Unit Sweden and Norway, as well as France, Italy, the Netherlands and Switzerland remain in the 10% area, according to self-reported data, though obesity rates in these countries have begun to nse.

Obesity is a known risk factor for several disorders, such as diabetes, hypertension, cardiovascular diseases, respiratory problems (asthma) and musculoskeletal diseases (arthritis). It has several causes, too, including excessive calorie consumption, lack of physical activity, genetic predisposition and disorders of the endocrine system of glands that produces the hormones necessary for normal bodily functions, like metabolism and growth. Obesity is a interview surveys show a lower US figure, growing problem in OECD though still at 22% in 1999. Similarly, for Culture and environment also influence countries, OECD Health Data 2003 Australia, the obesity rate based on health obesity, like dietary customs or the working shows. Its prevalence varies from examinations conducted in 1999 was 21%, environment. A recent study by Lawrence country to country, from a low of 3% of the but 18% based on self-reported survey data Frank, associate professor of urban planning population in Korea and Japan in 2001, to a in 2001. at the University of British Columbia, even high of 31% in the United States in 1999. suggests urban sprawl as being a possible Still, the outcomes point to a pressing factor, as in the suburbs, people tend to The US estimate is based on actual health problem. In Australia, obesity has more than drive more and walk less. examinations, while data from most other doubled and in the United Kingdom the rate countries are from self-reporting health has tripled over the last 20 years, based The economic and non-economic surveys. Comparable data from health consistently on health examination measures consequences of obesity are vast. In the

20 Observer No. 238 July 2003 SOCIETY

Health

spend up to their given ceiling. And setting without proven therapeutic value. The the 1980s, and between 1990 and 2000, the budgets based on historical costs may degree of cost-sharing or partial average share of total health spending favour inefficient providers and penalise reimbursement has been stepped up for represented by the public sector actually efficient ones. Downsides like these have many others. In a number of cases, flat-rate declined, from 74% to 72%. This may be a prompted OECD countries to combine payments per prescription are now the small decline, though it halted the large budget caps with measures that take norm. So-called reference price systems increases relating to the expansion of public account of output performance and relative have also been introduced in a number of health insurance programmes that marked efficiency across hospitals. countries, whereby patients are less the 1970s. generously covered for using pricier drug Shifting costs to patients - sometimes brands and are encouraged to use less Towards cost-efficiency referred to as cost-sharing - has increased costly generic drugs. Despite these curbs and controls, health to varying degrees in OECD countries since spending growth, while slower than before, the 1980s. Cost-sharing is most commonly Although their impact is limited by still outstrips overall economic growth in used in the case of pharmaceuticals, where protection for the poor and high users of many OECD countries. This is not prices influence patient choices, rather than health services, cost-sharing measures necessarily problematic from a policy for hospital care, for instance, which is appear to have had a modest impact on the perspective. After all, people's welfare may much more driven by doctors1 decisions. share of public spending in total spending. well be improved by increased government Some drugs are no longer reimbursed - In fact, the increase in the public share of spending on health, particularly if the cost mainly "comfort" drugs or medicines total health spending slowed markedly in of technology and other inputs is

One worrying feature for places like Rising obesity Australia and the UK, where obesity has Obesity rates among the adult population in OECD countries risen since 1980, is that there is a time lag between the onset of obesity and related disorders, suggesting that health problems (and costs) are being stored for the future.

Diet changes and physical exercise can help tackle obesity, although this is easier said than done, particularly as behavioural and environmental barriers are at play. Apart from promoting a healthy lifestyle, preventing obesity in childhood is perhaps a more effective approach in the long term. Effective family-based and school-based <§>- & # ,#- & #- ^>^ *vl°^ programmes can help. So might the law, with several legal battles now being waged ry+sss/yss*ss/fyr$ci" ir «j* ^V against manufacturers and distributors of ti> ^ foods that are accused of contributing to obesity. Other food companies are taking Note : For Australia, UK and US figures are based on health examination surveys, rather than health interview surveys. Source: OECD Health Data 2003 initiatives themselves, with food giant Kraft announcing at the start of July its plan to United States, a recent study by Roland associated with an even higher average health cut fat and sugar content in its foods.

Sturm looked at the consequences of cost increase per year than costs related to References obesity on medical problems such as smoking. So much so, in fact, that in the US a Ebbeling, C. et al (2002), "Childhood obesity: diabetes and asthma and related costs, group of large employers, headed by Ford Public-health crisis, common sense cure", The and compared them with other risk Motor, Honeywell, General Mills and PepsiCo, Lancet, Vol. 360, Issue 9331, 10 August 2002. Seelye, K. (2003), "Cities Made for Walking factors, like smoking and alcohol announced a campaign this June to encourage May Be Fat Burners", The New York Times, consumption (see references). The study overweight workers to slim down as a way to 21 June 2003. improve both their personal health and the found that obesity has the same Sturm, R. (2002), "The Effects of Obesity, association with chronic health conditions corporate bottom line. Dr Vince Kerr, director Smoking, and Drinking on Medical Problems as does 20 years of ageing, greatly of health care management at Ford, says and Costs", Health Affairs, Volume 21, exceeding the association of smoking or weight-related costs are adding US$12 billion Number 2, March/April 2002. excessive drinking for those conditions per year to costs of employers across the WHO (1997), Obesity: Preventing and Managing the Global Epidemic, Geneva. studied. It was estimated that obesity is United States.

21 Observer No. 238 July 2003 SOCIETY

Health

outweighed by improvements in the quality modifying hospital payment arrangements characterised by public financing and of care and resulting outcomes. However, so as to reflect activity and volume of delivery of health care, for example, there is budget realities have forced governments to services. Instead of these payments being now often a greater separation of hospital assess whether equivalent, if not better, set solely according to incurred costs, functions so as to infuse a more business¬ health outcomes can be attained at lower under this new approach, hospitals are paid like approach in management, with greater cost. A few, following a period of successful fixed amounts per admission, which are use of internal markets and accounting cost control, now ask whether increased adjusted to take account of the type of between units for instance. spending in the health sector is necessary to boost results. Health spending growth, while slower than before, still outstrips Although the efficiency of health care economic growth in many OECD countries. This is not necessarily systems is very hard to measure with problematic from a policy perspective. today's data and indicators, there appear to be large differences across the OECD area in what is produced, the way it is produced, and the resulting impacts on health outcomes. The level of capital and diagnosis, treatment and so on. Such Experience with efforts to increase human resources employed in the health systems reward efficiency and have competition among insurers, the most sector varies widely, for a start. In addition, contributed greatly to the reduction in the salient feature of reforms in multiple- there are as many different combinations of average length of hospital stays throughout payer systems, has been mixed. In the few spending on ambulatory and inpatient care the OECD. It is a system that has to be countries where such reforms have been as there are countries, and there are also monitored and audited, however, which introduced - Belgium, the Czech very different levels of specialist care and can lead to management and administration Republic, the Netherlands, and Germany use of pharmaceuticals. For any given costs. Also, rewarding productivity in the - there is some evidence that increased health condition, important differences various activities a hospital is engaged in insurance market competition may have also exist in the treatment and in the can put upward pressure on costs, as narrowed the premia across insurers, intensity of care, with practice patterns hospitals seek more admissions, more encouraging better service and instituting varying both within and between volume and so, higher costs. incentives for cost cutting in countries. administration. However, as the There have also been increased efforts to experience of the United States shows, So governments strive to ensure their introduce more of the characteristics of market segmentation by risk can be a system achieves the best possible results for normal markets, such as competition among problem, especially where insurers can the amount spent. Perhaps the most clearly health care providers and greater use of benefit financially from enrolling healthier successful reforms to date have focused on price signals. In many countries people because of payment methods that fail to adjust adequately for differences in underlying health risks.

Wealth and health On the other hand, experience in the Health expenditure and GDP per capita, PPP*, 2001 United States also suggests that managed- Per capita health expenditure (US$) care arrangements, under which patients 5,000 accept some limitations on choice of 4,500 providers and services, may help to raise

4,000 efficiency by constraining costs without harming health outcomes. However, such 3,500

Switzerland approaches have not been adopted by 3,000 Germany Canada Norway private insurers in other countries, where Iceland^. Netherlands Luxembourg 2,500 France^» Denmark governments often greatly limit their scope ^Australia Sweden ftely» to contract selectively and influence health 2,000 Japan UK - New Zealand _. , Ireland care delivery. And following a backlash in * "V , Finland 1,500 Greece» Portugal Spam the late 1990s, insurers in the United States

Czech Republic 1,000 have begun to increase, rather than Hungary» «Korea Mexico» Republic decrease, patient choice of provider and 500 Poland treatment.

0 0 5,000 10,000 15,000 20,000 25,000 30,000 35,000 40.000 45,000 50,000 Per capita GDP (US$) When it comes to controlling health care

*PPP = Purchasing Power Parities. These eliminate price level differences between countries for better comparability. costs and pursuing better value for Source: OECD money, there is no one-size-fits-all

22 Observer No. 238 July 2003 SOCIETY

Health

solution. There are trade-offs at several levels, as priorities such as improving Get on your bike health system responsiveness, promoting As the Tour de France celebrates its adequate and equitable access, and 100th anniversary, it seems an ensuring safe and effective care, also opportune time to praise the healthy come into play. virtues of cycling. In many countries, cycling is firmly established as a Improving the value of health spending may standard way of getting around. In also require additional investments, at least Nordic countries, as well as in some in the short term. The United Kingdom, British and German towns, cycle lanes are increasingly commonplace, which has long been successful at cost sometimes as part of an integrated control, has found that a renewed increase park-and-ride scheme with rail or in funding will be necessary to improve bus. And, of course, bicycles have the health system's effectiveness and long been supreme in the productivity. Across the OECD, a big part of Netherlands. the way forward is to build better health But in general, promoting cycling as a information systems and develop improved practical form of physical activity has measures of health system performance so been largely ignored, even in these that we know when we are on the right countries. A 2002 World Health track. Organization (WHO) report points out there is good evidence that regular No single health system has fully met its physical activity has a protective effect against several chronic conditions, performance goals and all face challenges, including coronary heart disease, whether in cost overruns, access, or hypertension, obesity, diabetes, deepening deficits. But one objective osteoporosis, colon cancer, depression remains the same for all: how to deliver the and anxiety, and it highlights cycling Bon anniversaire! health services that the public needs and as one form of physical activity that wants, efficiently and in economically meets the metabolic criteria for affordable ways. It is a challenge that is achieving health benefits. And reports on China have noticed a relationship, but in the opposite direction : that obesity and related likely to grow, rather than subside, in the disorders have risen as urban populations abandoned cycling (and walking) in favour of years ahead. motorised transport.

As work being carried out by experts at the European Conference of Ministers of Transport (ECMT) points out, while as many as half of all trips in some cities are made by bicycle, such References mobility is almost non-existent in others. Yet, in EU countries, 30% of motorised trips are shorter OECD (2003), OECD Health Data 2003, than 2 km and 50% are shorter than 5 km. Cycling even these distances can be beneficial: CD-ROM. according to the WHO, two normal 15-minute cycling trips a day (say, to and from work) would OECD (2003), A Disease-Based Comparison of be enough to provide marked health benefits. Health Systems: What is Best and at What Cost?, Paris. Apart from these health advantages, there are others, including cleanliness and cost-effectiveness. OECD (2002), Measuring Up: Improving the Moreover, bike-friendly policies are not that hard to introduce, once the political willpower is Performance of Health Systems in OECD there. Most pro-cycling initiatives have tended to be driven by planning objectives, like improving Countries, Pans. safety, traffic control and landscaping, but health issues are quickly rising up the policy agenda. Visit vvww.oecd.org/health for additional Now, new (and, some say, controversial) cycle lanes are being laid in the heart of major cities like information. London and Paris.

There are policy challenges. Cycle lanes are not cost-free and require detailed traffic planning. Also, the more people cycle, the more cyclists get hurt. In fact, in the Netherlands about a fifth of all *This article is based on "Health Care road deaths are cyclists, though overall, Dutch road fatalities are relatively low. Safer facilities could reduce road fatalities for all road users, including for cyclists, with some governments promoting Systems: Lessons from the Reform the wearing of helmets, for instance. Indeed, helmets are now mandatory for the first time in the Experience", a forthcoming OECD Tour de France. Economics Department Working Paper by Elizabeth Docteur and Howard Oxley It is Unfortunately, the credibility of the world's greatest cycle race as an ambassador of good health has an adapted extract from the written been dented in recent years by drug scandals; on the other hand, the exploits of defending testimony of John Martm, OECD Director champion Lance Armstrong and his triumphant battle against cancer seem to send a simple, more for Employment, Labour and Social Affairs positive, message: get on your bike. RJC to the Joint Economic Committee of the US For information on ECMT's work on cycling, [email protected] Congress at a hearing held on April 1 0, Visit www.who.org 2003.

23 Observer No. 238 July 2003 TRADE & DEVELOPMENT

Trade talks

A rough guide to great trade negotiating venues of the world

Julia Nielson and Daria Taglioni, OECD Trade Directorate

Remember Seattle? Or was it

Geneva? WTO ministerial meetings are now a regular feature of the global political calendar - they are in some ways the policy equivalent of the soccer World Cup in terms of intensity, media attention, sometimes disappointing finals, even crowd trouble. The next stop is the WTO Ministerial Conference in Canctin, Mexico, in September, again with a heavy agenda amid great expectations. In the run-up to these talks we thought it might be worth retracing the road to Canctin.

From the GATT... with non-tariff issues affecting trade in ministers adopt a work programme, goods, like standards and technical including agriculture and services, as a In 1947, the rules-based multilateral trading specifications. It is "GATT à la carte" with starting point for negotiations. system was officially born with the signing the proliferation of plurilateral agreements of the General Agreement on Tariffs and in areas like subsidies, customs valuation Punta del Este - September 1986 and trade Trade (GATT). The GATT laid down non¬ and import licensing that apply only to ministers formally launch the Uruguay discrimination as a governing principle of those (chiefly OECD countries) who sign up Round of multilateral trade negotiations. It world trade in goods and, through to them. Developing countries negotiate for is the biggest negotiating mandate on trade successive rounds of negotiations into the - and get - a legal basis for receiving ever agreed and, in addition to "traditional" 1970s, cut the high tariff walls which had preferential treatment. market access (tariffs on goods), will cover: plagued world trade since the 1930s. We strengthening the rules of the trading pick up the story several years later, in Japan Geneva - November 1982 and the basic system, including improving ways to and the build-up to the Uruguay Round. principles of the Uruguay Round are laid address non-tariff measures; fully bringing down. Two issues block consensus: trade in agricultural products, textiles and clothing Tokyo - April 1979 and the trading system agriculture and whether to include services under the multilateral trade rules for the deals, for the first time comprehensively, in multilateral trade rules. Despite this, first time; and addressing new issues like

24 Observer No. 238 July 2003 TRADE & DEVELOPMENT

Trade talks

trade in services and protection of date of the WTO's founding, with Doha - November 2001 and the fourth intellectual property rights. Though Mr Sutherland seeing in the institution as its WTO ministerial conference manages to originally foreseen to be completed in first director-general, before handing over to launch a new round of negotiations under four years, the Uruguay Round is destined Renato Ruggiero in May 1995. In the first of the Doha Development Agenda (DDA). to become the longest negotiating round the "trade and. . ." issues, a committee on Joining agriculture and services on the to date. trade and environment is established. agenda are a large number of other issues, like industrial tariffs, rules on subsidies and Montreal - December 1988 and the next Singapore - December 1996 and the first anti-dumping, and environmental questions. stage of the Uruguay Round begins after a WTO ministerial conference sees the ranks so-called mid-term review. Frameworks for of WTO membership swelling to over 120, Particular attention is on key development completing the negotiations are agreed in with others in line to join. Taking their cue concerns such as how to implement 1 1 out of the 15 negotiating areas - but not from the Uruguay Round's "built-in-agenda" Uruguay Round agreements and special and those for some of the really hard issues: - a requirement that negotiations on differential treatment, as well as on possible agriculture, intellectual property rights, agriculture and services resume within live modifications to the dispute settlement textiles and safeguards against imports years - some WTO members start talking system, protection of geographical causing unforeseen injury to the domestic about planning for a "millennium round". indications and - subject to modalities to be industry. Some "early harvests" are agreed, With some controversy, and without agreed at the next ministerial conference - though, including some market access for prejudice to the question of negotiations, the Singapore issues of investment, tropical products; a new, streamlined working groups are established on what are competition policy, trade facilitation and dispute settlement system; and the Trade to become known as the "Singapore issues": transparency in government procurement. Policy Review Mechanism. trade and investment; trade and competition China and Chinese Taipei join the WTO as policy; trade facilitation; and transparency its 143rd and 144th members. Agreement is Brussels - December 1990 and the in government procurement. also reached on a Declaration on TRIPs Uruguay Round should be coming to a (Trade-Related Aspects of Intellectual close, but disagreements over agriculture Geneva - May 1998 and the ministerial Property Rights) and Public Health to and the embryonic stage of discussions on celebrates 50 years of the multilateral address poor countries' access to medicines services and textiles bring the meeting to a trading system in the presence of, among under patent protection. halt. Negotiations are extended, but it will others, Nelson Mandela, Fidel Castro and be almost another four years before the Bill Clinton. The meeting reviews the What next? Round is concluded. operation of the Uruguay Round Agreements, but a number of members are Canctin - September 2003 and the fifth looking increasingly towards a possible WTO ministerial conference will be held in ...to the WTO millennium round. Major outcomes are the Canctin, Mexico from 10-14 September, Marrakesh - April 1994 and ministers sign extension of the mandates of the working under its fourth director-general, Supachai the results of the seven and a half years of groups on the Singapore issues and the Panitchpakdi. The conference is expected to trade negotiations - about 60 agreements adoption of a decision on keeping electronic review progress to date on the Doha and decisions totalling around 550 pages - commerce duty free (at least until the next Development Agenda, and will be looking as the Uruguay Round is formally WTO ministerial). to make headway on agriculture and concluded. industrial goods; the launch of negotiations Seattle - December 1999 and the streets on the Singapore issues; and resolution of GATT chief Peter Sutherland has been overflow with angry anti-globalisation the issue of how to make operational the pushing for a new institution to replace the protestors in what became known as the agreement on TRIPs and access to GATT, and the World Trade Organization Battle of Seattle. It is a tough test for new medicines, as well as agreement on the (WTO) is created, with headquarters in director-general Mike Moore, who finds that disciplines of special and differential Geneva. The new WTO will oversee new things are little better inside the negotiating treatment due to developing countries. It's agreements on agriculture, services, trade- rooms, with major differences dividing another big agenda and avoiding extra time related intellectual property rights, technical WTO members over the shape and size of a will be a challenge. barriers to trade, sanitary and phytosanitary new millennium round: should it focus on References measures and the phasing out of quotas for market access in agriculture, services and Nielson, J., "At your service: Trade in the textiles and clothing. industrials (with a few extras) or should it global economy", in OECD Observer No. 229, be a comprehensive round, addressing new November 2001. With the WTO, all agreements are rules, including the Singapore issues? The Nielson, J. and R. Morris, "E-commerce and brought under one umbrella (the "single meeting ends in failure. Talks are suspended trade: Resolving dilemmas", in OECD Observer undertaking" to which all members adhere) with no clear map of where to go next. No. 224, January 2001. and are subject to a new dispute settlement Nevertheless, talks on agriculture and These articles can be found at www.oecdobserver.org system with real teeth. The agreements enter services begin on 1 January 2000 under the Visit www.oecd.org/trade into force on 1 January 1995, the official built-in agenda, but progress is slow.

25 Observer No. 238 July 2003 TRADE & DEVELOPMENT

China

These achievements are laudable, especially when contrasted with China's previous China's economy economic history or the record of other developing countries of comparable size and stage of development. However, the euphoric Still some way to go claims in recent years that China is becoming an "economic superpower" are premature.

For a start, the pace of China's economic Ken Davies, OECD Directorate for Financial, Fiscal and Enterprise Affairs growth in recent years, while undoubtedly fast, may well have been exaggerated by the official figures. Eagle-eyed economists have, The Chinese economy has come a long way in the past for instance, noted continued discrepancies 25 years. Yet more needs to be done to ensure the between the growth rate of industrial output and the much lower growth rates of energy continuation of rapid growth, including further measures consumption and freight tonnage. On the to provide a suitable climate for foreign investment. other hand, growth rates of some items, particularly in the informal economy, may be understated because they are not fully countable. China is widely - and correctly - regarded as were officially regarded with suspicion and one of the great economic success stories of hostility Multinationals tended to shun China's National Bureau of Statistics (NBS) the past two decades. The country has China for this reason, but also because of the has adjusted the real national GDP growth moved from an economic system lack of a sound legal basis to support foreign rate downwards because it is aware that characterised by autarchy and central investment, not to mention the provincial governments have too frequently planning to an increasingly market economy underdeveloped state of the domestic exaggerated regional performances. Indeed, open to international trade and investment, market. Then, incomes were low and 80% of in some years the resulting national rate all this while retaining one-party rule. the population lived in rural communes, failed to reflect economic reality - notably Economic growth has accelerated, and China where income was received largely in kind. in 1998, when the NBS reported the has become both an important global trading economy to be growing at nearly 8% even force, ranking sixth worldwide in total trade But under the "open door" policy though anecdotal evidence suggests that it (exports and imports combined) and one of introduced in 1978, China has welcomed was slowing markedly. the world's largest recipients of foreign direct foreign investors in ever increasing investment (FDI). Living standards have numbers, attracting them by providing With the help of the OECD, the NBS is now improved to the extent that consumer goods physical and institutional infrastructure, as working to improve its methodology, for familiar in OECD countries are now also well as fiscal incentives. And of course there example, by gradually supplementing or common in China's towns and cities. is the lure of a potentially huge emerging replacing its laborious and error-prone market. practice of total counting with more efficient So impressive has the country's performance sample surveys like those used in OECD been in a range of areas - absolute size of Foreign investment policy and legislation are countries, which provide a more accurate GDP, real GDP growth rate, export gradually being liberalised. The most recent picture of what is going on in the whole performance, accumulation of foreign- batch of liberalisation measures resulted from economy. exchange reserves, poverty reduction - that Chinas accession to the World Trade several economists have gone so far as to Organization (WTO) at the end of 2001, Needless to say, working methods adopted forecast that China may soon become the which, among other things, are scheduled to during decades of central planning will take world's largest economy. But the real result in the opening up of major services time to disappear. Already, efforts to translate achievement is the economic transformation sectors to foreign investment. existing GDP statistics into reasonably of a country that only a generation ago was accurate estimates of per capita income that among the world's poorest, as well as the FDI inflows rose from US$916 million per can be compared with other countries have most isolated. year in terms of actually realised investment floundered on the lack of sufficient in 1983 to $3,487 million in 1990. They information, particularly about price levels, There can be little doubt that FDI has played then accelerated rapidly in the mid-1990s needed to construct a reliable exchange rate an important role in this transformation. before stabilising by 2000. In fact, China on a purchasing power parity (PPP) basis - Before 1978, foreign investment had been became the world's largest recipient of FDI in other words, comparing like with like by unwelcome, albeit with a few exceptions, in 2002, receiving nearly US$53 billion (see using a currency rate that eliminates the such as those accompanying Soviet News briefs and OECD Observer No. 237, differences in price levels between countries. assistance in the 1950s. Foreign investors May 2003). Also, World Bank estimates of China's gross

26 Observer No. 238 July 2003 TRADE & DEVELOPMENT

China

national income (GNI) per capita have China's FDI fluctuated sharply and some experts consider them to be overestimates. Even so, current Inflows of FDI per capita, China, selected countries and OECD, 2000 World Bank figures show China as ranking

only 127th out of 208 economies worldwide 10,000 in terms of per capita GNI in PPP terms.

8,000 Similarly, forecasts that the Chinese economy will be the world's largest have generally 6,000 been based on unreliable PPP exchange rate estimates. A more realistic assessment is

provided by the country's sixth place 4,000 ranking in terms of export-import trade, as this is measured in current US dollars, so 2,000 eliminating exchange rate problems.

China's official FDI statistics are generally taken at face value by the rest of the world, but here, too, there are grounds for re¬ examination. As pointed out in a new OECD investment report, Investment Policy Review of Source: OECD. t OECD countries * Consists mostly of rerouted FDI China: Progress and Reform Challenges, these statistics are not yet calculated and reported according to the standard procedures all OECD countries, much smaller than in food production. Also, authorities should recommended by the OECD and the IMF the larger Latin American economies, and open China's capital markets more fully to One indication that the official statistics may even below some of the developing foreign investors, for example, by allowing overstate China's FDI absorption is the large countries in south-east Asia, like Malaysia more foreign-invested enterprises to list on gap between FDI flows from OECD member and Thailand, although these are currently Chinese stock exchanges and allowing such countries into China as reported by China complaining of a diversion of FDI to China. enterprises to issue corporate bonds, while (US$77 billion) and by the OECD countries China now wants to attract more FDI, rendering taxation legislation and regulations themselves (US$39.3 billion). especially m the kind of services and high- more transparent. Competition policy would have to be enhanced, in particular by ensuring level playing fields for businesses. The euphoric claims in recent years that China is becoming an "economic superpower" are premature. The pace of China's Another key area for improvement is the economic growth in recent years, while undoubtedly fast, may well legal system. Current efforts to improve its have been exaggerated by the official figures. functioning and independence have to be intensified. In particular, the Chinese government is to be encouraged in its efforts to improve the effectiveness and An unknown, but undoubtedly significant, technology manufacturing sectors in which independence of China's law courts. And proportion of FDI inflows emanates from multinationals in OECD countries are property rights, including for intellectual China itself in the form of what is known as internationally dominant, rather than in the property, would have to be strengthened. "round tripping" investment that is routed relatively labour-intensive, short-term via Hong Kong, China or other putative projects that have flourished in the past. Co-operation with China in the investment sources, like offshore tax havens, to take and other fields is designed to assist the advantage of incentive measures such as tax To help them achieve this, China: Progress and country in remedying these problems and holidays. Flows from Hong Kong, China Reform Challenges presents a number of consolidating progress towards an open, still count as an investment inflow, but in policy options that China's policymakers may equitable and sustainable economy. wish to consider. These include items like practice, such investment is effectively References domestically generated and should be eliminating remaining elements of local OECD (2003), Investment Policy Review of deducted from the FDI total. protectionism; streamlining the still China: Progress and Reform Challenges, Paris. cumbersome foreign investment project Ôgûtçû, M. and Taube, M. (2002), "Getting China's regions moving", in OECD Observer Moreover, China's FDI-attraction record is approval process; and reconsidering No. 231/232, May 2002. also much less impressive if population size remaining foreign ownership restrictions that For more articles on China, go to is taken into account. Inflows of FDI per complicate foreign business activity in sectors www.oecdobserver.org/china and to capita are far lower in China than in almost as wide-ranging as mining, chemicals and www.oecd.org/ccnm

271 Observer No. 238 July 2003 TRADE & DEVELOPMENT

Business view

Business lessons in development Sustainability and profit

Noah Beckwith, Economics and Development Affairs, Aureos Advisers, UK*

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Socially responsible Private equity funds for investment in investment community: does the pursuit of small and medium-sized enterprises in development objectives - also known as development is becoming a developing countries are starting to "non-financials" or "intangibles" - buzzword among private flourish. In fact, according to the Social compromise the commercial viability of an equity funds. But can this Investment Forum of the US, socially investment by clouding the risk-reward responsible mutual funds saw net inflows of nexus, or does it in fact improve the prospects business community over US$185 million in the first quarter of for good returns? reconcile commercial and 2003. But in this era of sustainable developmental objectives in development and corporate responsibility The growing interest in the social, their proliferation poses questions which have environmental and economic dimensions of investment? Yes, though long troubled what might be referred to investment in developed markets has not there are certain conditions. collectively as the socially responsible been accompanied by a clear articulation of

28 Observer No. 238 July 2003 TRADE & DEVELOPMENT

Business view

the trade-off deemed acceptable (if any) world have weathered recent market objectives. Although 97% of investors in between commercial and other non-financial turbulence better than ordinary ones. In fact, Aureos funds are so-called "soft" institutions - objectives. In the developing world, the term companies on the new FTSE4Good Index development finance institutions, multilateral "sustainability" - a sometimes nebulous idea and the Dow Jones Sustainability Index development banks, regional development which seemingly uses high socio-economic- consistently performed above average in organisations, local financial institutions and benefits as an apology to explain recent financial market downturns. the like - this does not diminish the disappointing returns - has added an extra commercial imperative of its activities. On the dimension to the discussion. In neither Nonetheless, the case against SRI is also contrary, such institutions feel keenly that the context, however, is the investment persuasive, though just as hypothetical, for viability of private equity funds in the community entirely comfortable with the instance, in the key contention that once the developing world, the participation of the relationship between the financial and the risk-return imperative is combined with non- private sector in such funds, and the intangible. financial considerations, it distorts resource augmentation of investment flows of this type allocation and becomes a cost to the investor. to developing markets, particularly to Sub- The problem partly lies in the current Saharan Africa, is predicated on the parameters of the debate. At best, Critics of SRI also argue that company achievement of commercial returns. developmental objectives are presented as structures inherently make intangibles extraneous and secondary to commercial difficult to achieve. After all, shareholders At the same time, given the nature of these ones, but increasingly deserving of attention; retain the services of management to investors, commercial objectives cannot be at worst, the commercial and development maximise profits, and incentive arrangements pursued to the exclusion of development goals are seen as dichotomous, with the latter usually reflect this priority. Consequently, considerations. Indeed, the mandate is forced onto the agenda for political reasons allocating resources to perceived "non-core" simultaneously to maximise commercial and and detracting from the profit-making motive. areas in SRI fashion can have personal and developmental benefits. Is this feasible? But there is an alternative perspective - that commercial consequences for management. until development objectives are treated as The answer is "yes" and the solution lies in a means to enhancing commercial outcomes broadened definition of sustainability, which rather than ends in themselves, development Company value is a multi- encompasses both commercial viability and and commercial goals will remain faceted concept which embodies development durability, and illuminates points uncomfortable bedfellows. where these converge. Sustainable far more than the strictly development is frequently defined as a financial dimensions of business. The case for socially responsible investment, development path that meets the needs of the or SRI for short, is compelling and the Profit, in turn, is a function of present without endangering subsequent needs benefits espoused by its practitioners are company value, which goes and aspirations of future generations, allowing considerable: consumer loyalty, enhanced beyond the balance sheet. for the conservation of nature to be part of this brand and reputation, improved access to path. Although a useful starting point, this capital, product and service innovation, definition is cast in terms of minimising increased ability to attract and retain staff, and negative outcomes, such as environmental so on. Business enlightenment is the leitmotiv Of course, there is the cynical view that SRI is degradation and threats to future livelihoods. It - the company becomes aware that achieving little more than a public relations exercise seems there is much to be gained from satisfactory returns for shareholders in the that lacks a coherent set of values and is often building into sustainability the concept of long term depends on the sanctioning of the reactive and ill-conceived. Experiences like means and ends. This wider notion of company and its products by a range of those of Union Carbide in Bhopal, India, and sustainability sees developmental objectives or stakeholders: employees, consumers, Shell in Ogoni, Nigeria, in the 1980s simply intangibles - improved management capacity suppliers, competitors, communities, local spawned lip service to issues like and sound corporate governance, training and authorities, governments, and others. The environmental degradation, human rights, staff development, environmental best practice, idea is that there is a homologous relationship poverty alleviation and so on, in part to pre¬ and so on - as integral components of business between producer/stakeholder and empt litigation, but also because of the strategy (means) aimed at maximising value, as consumer/stakeholder, and incorporating this growing prominence of non-core issues on opposed to incidentals (ends) to be pursued interface into the business strategy will help the global agenda and in the media. often half-heartedly alongside returns. This the company to harmonise its commercial way, sustainability not only diminishes the gap objectives with socio-economic and Like other private equity investors in between commercial and development environmental considerations. developing countries, our firm, Aureos objectives, but also presents them as mutually Capital - which is a joint venture between the reinforcing dynamics, not mutually exclusive But does this approach show up in generating Norwegian Fund for Developing Countries ones. returns? The SRI community concedes that it (Norfund) and CDC Capital Partners is too early to draw firm conclusions. There (formerly the Commonwealth Development In other words, commercial objectives are is, however, compelling evidence that some Corporation) - must strike a delicate balance best conceived as one of several building SRI funds and projects in the developed between commercial and development blocks on the trajectory of sustainability And

291 Obsaver No. 238 July 2003 TRADE & DEVELOPMENT

Business view

Smart, as well as beautiful

The Bologna Process Promoting entrepreneurship and innovative SMEs in a global economy

Small may well be beautiful in the business strengths, while capturing the benefits of entrepreneurial agenda and SME competitiveness world, but being small can also be tough globalisation. at the global level; to provide guidance to going, in good as well as turbulent times. governments that will help entrepreneurs and Red tape, taxes and other charges, capital A key outcome of the conference was the SMEs worldwide reap the benefits of costs, employment regulations, legal costs: adoption of the Bologna Charter on SME globalisation; and to further deepen and improve issues such as these absorb a lot of small- Policies by the governments of almost the high-level dialogue on SME policies among company time and money, and can, in the 50 countries, including all the OECD countries, policymakers, business, national and end, become a barrier to either going into plus several large developing countries like international organisations and other institutions. business, or surviving in it. Still, small and Brazil, China and South Africa, as well as medium-sized enterprises (SMEs) account smaller ones like Costa Rica and Uzbekistan. A second major OECD ministerial for over 95% of all firms and for 60%-70% The Bologna Charter provides a frame of conference on SMEs will be held in Turkey of employment in the OECD area. They are reference for countries concerned with on 3-5 June 2004 on the theme of key drivers of the economy, combining improving the efficiency of policies directed at "Promoting Entrepreneurship and Innovative capital, innovation and skills, while serving fostering entrepreneurship and assisting the SMEs in a Global Economy". It will provide consumers and channelling their capital and development and competitiveness of smaller another much-needed opportunity for expertise into larger enterprises, in many firms at the local, national and international policymakers to take the kind of action that cases internationally. So, if only levels. It calls for policy dialogue and co¬ can help SMEs stay smart in today's world. policymakers could do a little more to help operation between international organisations After all, healthy, thriving SMEs are in them out. and institutions, and recommends such everyone's best interest. concrete initiatives as helping SMEs gain access Such was the objective in Bologna, Italy, in to national and global innovation networks and OECD (2002), OECD Small and Medium June 2000 when the OECD organised the to public R&D programmes and procurement Enterprise Outlook, Paris. first-ever major international ministerial contracts, for instance. Visit the OECD site on SMEs at: conference on SMEs. Under the theme www.oecd.org/sti/smes "Enhancing the Competitiveness of SMEs in The conference gave rise to the Bologna Process, For more on the Bologna conference and the Global Economy: Strategies and by which the OECD brings together over 70 the charter: Policies", it was a rare opportunity to countries and more than 50 international http://www.conferenzabologna.ipi.it identify public and private sector action that organisations, institutions and NGOs. The The International Network for SMEs: might help SMEs develop their local objectives are threefold: to foster an www.insme.info

they should not be downplayed. On the process geared to generating company value. value, which goes beyond the balance sheet contrary, for private equity investors like to the socio-economic and environmental Aureos, investing without attaching serious This is where the SRI debate is particularly capital which underpins a given business. commercial terms would be nonsense. instructive and where an enhanced And good public relations are no substitute Indeed, such investments would be little definition of sustainability sheds light on for proper management. more than thinly veiled subsidies which, once reconciling commercial and developmental withdrawn, would likely cause investee objectives. It is clear even from a cursory The challenge for private equity funds like companies to collapse or stagnate. Moreover, glance at the SRI literature that both the Aureos in developing countries is to better financial viability is vital to an investee "pro" and the "ami" camps locus on the understand and illuminate the synergies company's ability to withstand external relationship between SRI and profits and between the development and commercial shocks like price declines, as well as ad-hoc that sustainability is seldom mentioned. SRI dimensions of investment, and the way in policy reversals that are commonplace in is invoked almost as an ideology that has which the former reinforce the latter. The developing countries. Commercial pressures resource implications which either increase broadest possible definition of sustainability is also help to professionalise investee or jeopardise profits, depending on one's a crucial step on this path. By highlighting the companies and to ensure that appropriate attitude to SRI. The focus implied by SRI is primacy of value over profit, sustainability financial architecture is put in place. usually on the relationship between helps companies realise a range of beneficial intangibles and profits, whereas it should be outcomes, of which profit is but one. The critical point, however, is that on intangibles and company value. As recent intangibles must also be integrated into corporate collapses in OECD countries have *Aureos is an emerging markets private equity fund manager. company strategy as basic building blocks of shown, company value is a multi-faceted sustainability, so that the interplay between concept which embodies far more than the the financial and the non-financial is viewed strictly financial dimensions of business. References Visit www.aureos.com as a complementary and fundamental Profit, in turn, is a function of company

30 Observer No. 238 July 2003 OECD ((Q OCDE www.oecd.org/forum2003 FORUM 2003

GROW, DEVELOP AND PROSPER

HELP BUILD A BÊTTER WORLD

Speakers who appeared at OECD FORUM E003 included:

Helen Clark, Gareth Evans, Prime Minister of New Zealand; President and CEO, Francis Mer, International Crisis Group; Minister of Finance, France; Thierry Desmarest, Supachai Panitchpakdi, Chairman and CEO, TotalFinaElf; Director General, WTO; Luis Ernesto Derbez, Heizo Takenaka, Minister of Foreign Affairs, Mexico; Minister for Economic and Fiscal Policy, John J. Sweeney, Japan; President, AFL-CIO, United States.

For further information regarding the full conference programme, summaries of the discussions, and future announcements regarding the next OECD Forum: Visit http://www.oecd.org/forum2003/ or email: [email protected] oecd.org People in focus

Selected images from the OECD Forum and Ministerial 2003

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1. View from the floor 7. Down time for the chairs 13. French finance minister Francis Mer 2. Opening panel: from back, Anatole Kaletsky, 8. US trade representative Robert Zoellick at (right) Gareth Evans, Motoshige Itoh, and OECD the ministerial press conference 14. Kumi Naidoo secretary-general Donald Johnston 9. Anju Sharma For more on these participants and events, 3. WTO chief Supachai Panitchpakdi 10. José Angel Gurria visitwww.oecd.org/forum2003 and 4. Viewpoint from the floor 11. Professor Jagdish Bhagwati 5. Vivian Lowery Derryck 12. Jean-Philippe Courtois speaks, Jean-Marc www.oecd.org/subject/mcm/2003/ 6. PM Helen Clark on the move Vittori listens Photographs © OECD/Hervé Bacquer except where indicated

32 Observer No. 238 July 2003 oecd.org

Bloomberg Forum 2003

Uncertain world... mfiBB

OECD Forum 2003, Paris, 28-29 April

Is the world heading on a path of diverging Mind the gaps economic destinies? Could these Basic challenges remained between rich and developments undermine global security and poor in many areas; the first is the digital stability? How should we respond to such divide, though for Jean-Philippe Courtois, dangers? These were just some of the issues CEO of Microsoft Europe, Middle East and debated by the more than 1,000 people Africa, the information technology economy gathered at the fourth edition of the OECD is still growing, despite the collapse of the Forum, on the theme "Grow, develop and dot.com bubble, and the best is yet to come. Making sense prosper", and as ever held in conjunction But for François Roussely, Chairman and with the OECD Ministerial Council. CEO of EDF, the main gap was the "electricity means that we are still working on it and divide". And for W. Brian Healy of Merck, that we have to redouble our efforts." One key concern throughout was whether the "gap in health" would have to be closed. the US economy can be relied on to power New Zealand's prime minister, Helen Clark, future growth for the rest of the world. The Japan's minister of economic and fiscal said OECD countries have benefited greatly answer from Clyde Prestowitz, author and policy, Heizo Takenaka, said that in the case from international trade, and must open president of the US-based Economic of his country, there would be no growth their markets to freer trade in agriculture to Strategic Institute, was definitely not. The without reform. But achieving more open allow the developing world to enjoy these US is a "spend and borrow" economy and competitive markets may be more same benefits. For Chilean finance minister whose expenditure has got out of hand, difficult in the context of ageing populations, Nicolas Eyzaguirre, the issues were Mr Prestowitz said. With the current- argued Anatole Kaletsky from The Times. As straightforward: "The world pays US$300 account deficit at US$500 billion, the the electorate ages, it is becoming more billion in agricultural subsidies, and this is question is will the rest of the world be cautious about change, he said. And Hamish five times the amount spent in development willing to lend to the US indefinitely, and McRae, an economic commentator at assistance. Any progress on multilateral continue to allow Americans to live beyond another British newspaper, The Independent, trade and investment must involve their means. pointed out that political divisions "may no immediate reforms in agriculture". longer be between left and right, but Francis Mer, French minister for the between young and old. The latter will want But reforms should not drive away farmers, economy, finance and industry, emphasised to protect their pensions, and the young "because then we would have to recruit the importance of education for economic might find that a burden, and leave." officials to maintain the landscape," said growth. To encourage individuals and Hervé Gaymard, France's minister of businesses to see education as a form of In any case, governments should not be agriculture, food, fisheries and rural investment, we have to introduce under the illusion that democracy should be development. incentives, such as tax schemes, he said. equated with elections, said Kumi Naidoo, Even then, there are no guarantees they CEO of CMcus. Political parties are Against this background, OECD secretary- will work. becoming closed to the average person and general, Donald Johnston, reminded access to the political process is becoming participants that trade and investment, Restoring confidence in markets and increasingly dependent on wealth, he said. together with good governance frameworks, governments in the wake of recent scandals have been the basis of prosperity and social was rarely far from the centre of debate. Most participants, including NGOs, agreed progress in OECD countries. Thierry Desmarest, chairman and CEO of that successful completion of the WTO TotalFinaElf, argued that bribery is bad for negotiations is critical, and that failure Gareth Evans, president and CEO of the business anywhere, while transparency and could give rise to real dangers to the International Crisis Group, was worried integrity enhance competition and help multilateral system. about a growing disregard for create a stable path to economic growth. multilateralism, particularly in the US, Christian Schricke, secretary-general of WTO director-general Supachai though he felt that multilateral co¬ the Société Générale Group, said corporate Panitchpakdi argued that any multilateral operation had to be the way forward: "For scandals had forced business to reappraise process is "an unwieldy, messy and all the frustrations of working together, it objectives in a bid to regain public frustrating business". But missing a beats living in a world where there are no confidence. deadline "doesn't in fact mean failure. It rules, and might is always right."

33 Observer No. 238 July 2003 oecd.org Ministerial Council 2003

Promoting growth and investment in ...and dealing with it developing countries: Invited ministers from developing countries took part in these discussions. Ministers agreed there was OECD Ministerial Council 2003, Paris, 29-30 April scope to do more to help developing countries, particularly in Africa, to gain from globalisation. There was wide support for the OECD Council to look at a proposal "Agenda for growth and development" was from Japan for additional work on a strategy the theme of this year's annual OECD to promote investment in developing Ministerial Council. The meeting was countries. chaired by New Zealand's prime minister, Helen Clark. Here are some key points from Ministers stressed that access to markets and the chair's summary, issued after the technology is an essential ingredient for meeting. growth. OECD members' policies are important to this end, particularly in the Economic outlook: Expectations overall are way those policies impact on developing of modest growth this year, picking up countries' export prospects. somewhat next year. While geopolitical uncertainty over recent years has not been Business must also be partners in the helpful to recovery, pre-existing development process. The OECD macroeconomic imbalances and deep-seated Guidelines for Multinational Enterprises structural problems have played a large part have encouraged businesses to take into in producing the current economic account the development, social and downturn. Short-term and long-term issues New Zealand Prime Minister environmental implications of their need to be addressed, but the best short- Helen Clark undertakings. term policies are also good long-term policies. in work were identified as common policy International trade: Ministers are prescriptions. In labour market reform, the committed to making the WTO (trade) Policies to maintain confidence and right balance must be struck between negotiations successful. There was frank enhance growth: Under current policies, removing rigidities, protecting vulnerable acknowledgment that important deadlines the divergence of growth rates in the OECD workers, making work financially have been missed. And there remain real during the 1990s looks set to continue. At a worthwhile and providing an adequate level divergences of views. But there was a minimum, this means lost opportunities, of social security. willingness to tackle them and to get the job lower world growth and lower wellbeing done by January 2005, while achieving a than could otherwise be the case. It could Many ministers noted that demographic balanced outcome for all, with development also impact on the relationships between changes were bringing into question the being central to the negotiations. our economies. sustainability of existing state pension

regimes. There is no great mystery about the sorts of Many ministers spoke of the need to decisions needed now - on access issues reinforce multilateral co-operation on Ministers underscored the need for like agriculture, industrial products and economic and trade issues, to bolster governments to translate the political will to services - so that substantive negotiations confidence and help support growth, and to tackle the issue of confidence and trust in beyond Canctin can commence. help redress this divergence. The OECD can institutions of governance and the play a strong role. marketplace into concrete action. Ministers emphasised the analytical capacity of the OECD to support negotiations. Its There was a large measure of agreement on Ministers also received a report from the intellectual and practical capacity is needed the nature of the challenges to maintaining dialogue with BIAC (Business and Industry on such issues. and enhancing growth in the longer run, Advisory Committee to the OECD) and including the impact of demographic TUAC (Trade Union Advisory Committee to OECD reform: Ministers were pleased to change, increasing productivity and the OECD) which had stressed the note the secretary-general's report on achieving appropriate labour market importance of good corporate governance. progress in reforming the OECD, and the flexibility. The chair indicated that further road map for further measures recently Education and training, the removal of consideration should be given to allowing adopted by the Council. Ministers will look barriers to entry into the workforce, and BIAC and TUAC observer status at future to making decisions on key reform issues at measures to encourage older people to stay ministerial meetings. their 2004 meeting.

34 Observer No. 238 July 2003 oecd.org

Roundtables on boardrooms EU prospects boost reform in Full convergence with international The Latin American and Asian white- accounting and audit standards, better papers, as well as similar roundtables for protection of minority investors, stronger Eurasia, Russia and south-eastern Europe, south-east Europe enforcement of existing laws and build on the OECD's own principles of regulations, and improved bank corporate governance (which are governance: these are some of the key themselves now under review) while taking The prospect of joining the EU is acting as a recommendations in the white paper on into account each region's legal, cultural powerful catalyst for improving the corporate governance in Asia, published by and economic diversity. They are the result investment climate in south-east Europe, the OECD in Tokyo in June. of regional roundtables organised by the but a number of countries need to make OECD and the World Bank, grouping faster progress on economic reform. The recommendations come just a month policymakers, regulators, business leaders after an OECD-led roundtable on corporate and experts, which have taken place since This recommendation from the latest governance for Latin America finalised a 1999. The aim is for white papers to kick- Investment Compact Monitoring Report was similar white paper, identifying priorities start a process that will allow each presented at a meeting of the Project Team for reform and putting forward a concrete roundtable to focus on implementation and of the Investment Compact for South-East action plan for improving corporate enforcement issues. Europe, a key component of the Stability governance in the region. Pact, held at OECD headquarters in Paris in For more on the corporate governance May 2003. roundtables : www. oecd . org/corporate Discussions covered areas including See also Spotlight on corporate shareholder rights, boards of directors, Bulgaria and Romania have already met governance (OECD Observer No. 234) policy targets ahead of schedule, and all and enforcing laws and regulations on and www.oecdobserver.org/ under corporate governance. "Governance". other countries are making progress, the monitoring report found, with Albania and Montenegro showing a significantly secretary for development co-operation, improved performance. However, further New Swedish migration and asylum policy, a post she efforts are needed across the region, ambassador held until her appointment at the OECD. particularly in the areas of competition, Ambassador Gun-Britt Andersson became corporate governance and reducing permanent representative of Sweden to the ...and deputy secretary-general administrative barriers affecting investment OECD on 11 June 2003. She succeeds Senior Japanese diplomat Kiyotaka Akasaka and business operations. Anders Ferm, who had been Sweden's has been appointed deputy secretary- ambassador to the OECD since general of the OECD. Mr Akasaka, 54, has In 2002, the inflow of foreign direct December 1995. been Japan's consul-general in Sao Paulo, investment (FDI) to the region totalled Brazil, since November 2001. He will take around billion, a 10% drop from the Mrs Andersson has spent most of her up his post at the OECD in August 2003. peak reached in 2001, but a good career working in the area of development performance considering the amplitude ol co-operation. She was head of the Swedish Mr Akasaka has been involved with the the global downturn in FDI. International Development Co-operation work of multilateral organisations Agency's office in Tanzania, and later as throughout his career. As deputy director- A project team, co-chaired by Austria, director of the personnel division of the general in the Japanese foreign ministry's Romania and the OECD, is charged with agency she was responsible for its Multilateral Co-operation Department identifying key priorities for policy reform reorganisation. Mrs Andersson became from 1 997 to 2000, he was one of his as well as concrete actions to boost private assistant under-secretary in the Ministry of country's top negotiators in the Kyoto sector investment and improve the Foreign Affairs where she was in charge of conference on climate change in business environment for investors in the policy planning and budgeting of the December 1997 and in various follow-on Investment Compact countries. Ministers department for international development conferences. He was Japan's ambassador to from south-east Europe will meet to discuss these issues in Vienna on 10-11 co-operation. the UN in 2000-2001, and he has held posts at the General Agreement on Tariffs July 2003. After working as director of the United and Trade (GATT), the precursor of the Nations Relief and Works Agency for World Trade Organization, from 1988 to For more on the OECD's work with the Palestine Refugees, she became state 1991, and the World Health Organization Investment Compact: secretary for social security and then state from 1993 to 1997. www. oecd . org/ccn m/see

35 Observer No. 238 July 2003 oecd.org

Do voluntary approaches to the environment work?

Voluntary approaches in environmental Voluntary approaches include agreements The report shows that various types of policy are increasingly popular in a on environmental performance negotiated administrative and transaction costs vary number of countries, but a new OECD with industry and public programmes in greatly between different voluntary report, Voluntary Approaches for which firms can volunteer to participate. approaches. However, if too few Environmental Policy: Effectiveness, Efficiency They are increasingly supplementing or resources are spent in their preparation, and Usage in Policy Mixes, questions their replacing other environmental policy negotiation and enforcement, their environmental effectiveness and economic instruments such as regulations, taxes and environmental impacts are likely to be efficiency. The report notes that there are tradable permits. very modest. few cases where such approaches have improved the environment beyond a This report provides an in-depth The study of policy mixes indicates that business-as-usual baseline. It also raises assessment of the use of voluntary combining a voluntary approach with a tax doubts about their economic efficiency approaches, building on a number of or a tradable permit system can trigger because the cost of achieving additional new case studies and an extensive search quite significant additional administrative environmental improvements differs of the available literature. The focus of costs. In addition, the environmental considerably between polluters, in part the analysis is both on voluntary impacts of the other instrument can be because the environmental targets are set approaches used in isolation and on weakened. for individual firms or sectors, rather than such approaches used as part of policy at a national level. mixes. Visit www.oecd.org/environment

50 years of improving transport research The challenges for policy

Transport is safer today - road deaths have One of the ECMT's achievements over the But while greater competition and been halved since the early 1970s. years has been to persuade its members that deregulation could help the railways, Transport is also faster and more reliable - increased mobility carries costs which must stricter environmental measures can just think of high-speed trains and the be controlled. Transport consumes such reduce pollution at source. The example growing availability of low-cost air travel. resources as energy through use of fuel, of the congestion charge to limit through- Mobility has increased substantially in all space through infrastructure and time traffic flows in London shows what areas of the transport sector. Despite these through traffic and simply getting from A innovative measures can achieve in improvements, however, the transport to B. It also has other impacts, such as the urban areas. sector is in crisis. Congestion is omnipresent damage to the environment, wear and tear in urban areas. Pollution, largely from on road surfaces, as well as the severance All transport users must be offered high- vehicle emissions, causes premature deaths. effects of road-building. These costs are only quality services whose cost is commensurate What can be done? partially taken into account by end-users. with the resources consumed. But raising Motorists have seen no increase in fuel costs the taxes on transport is only acceptable if It is precisely questions like this one that in constant terms and public transport users the revenue is reinvested in transport the European Conference of Ministers of remain unaware of the subsidies that systems. Driving through messages like Transport (ECMT) will consider when it governments pay to cover investment and these and helping to put transport on a celebrates its 50th anniversary at its 16th even the operating costs of their services. more economically rational footing will international symposium on Theory and Deregulation of road freight has made continue to be the ECMT's aim in the next Practice in Transport Economics, in haulage activities cheaper and more 50 years. Budapest on 29-31 October 2003. The efficient. In contrast, the railways, which theme of the symposium is "50 years of have not emulated this trend, have For further information on the Symposium, transport research: experience gained and experienced comparatively little growth in see: http ://www. cemt-symp . hu/english/ Visit: www.oecd.org/transport major challenges ahead". productivity.

36 Observer No. 238 July 2003 oecd.org Calendar

Calendar of forthcoming events

Please note that many of the meetings mentioned are not open to the public or the media and are listed as a guide only. All meetings are in Paris unless otherwise stated. For further information, consult the OECD website at www.oecd.org, under "key upcoming events", which is updated weekly

JULY 22-24 Gfobalisation and National Environmental Policy, conference organised by Tilburg University. Tilburg, 10-11 Gender and Post-Conflict Reconstruction, meeting of the Netherlands. the Development Assistance Committee (DAC) Network 23-24 IMF/World Bank annual meeting. Dubai, UAE. on Gender Equality and the UN Interagency Network on 29-30 Employment and labour Ministerial meeting, Women and Gender Equality. "Towards More and Better Jobs", organised by ELS and 10-11 Attracting Investment to South-East Europe: Removing chaired by François Fillon, French minister of Social Obstacles, ministerial conference. Vienna, Austria. Affairs, Labour and Solidarity. 28-30 Water Management workshop, organised by the

Directorate for Science, Technology and Industry (STI) OCTOBER and the Mexican government. Cuernavaca, Mexico. 5-9 World Forum on Energy Regulation, organised by the

AUGUST Italian Regulatory Authority for Electricity and Gas. Rome, Italy. 10-16 Stockholm Water Symposium, organised by the Stockholm 6-7 Conflict, Peace and Development Co-operation, International Water Institute. Stockholm, Sweden. network meeting organised by DAC. 28-29 Intellectual Property Rights, Innovation and Economic 14-15 The Economics of Waste, workshop organised by ENV. Performance, meeting organised by STI. 14-17 World Knowledge Forum, "Creating a New World 28-30 Monetary Policy and Uncertainty: Adapting to a Order and Economy". Seoul, Korea. Changing Economy, 27th Economic Policy Symposium, 20 Trade dialogue between civil society organisations and organised by the Federal Reserve Bank of Kansas City. the OECD Trade Committee. Jackson Hole, Wyoming, US. 20-24 Taxation of Electronic Commerce, seminar organised by the Directorate for Financial, Fiscal and Enterprise

SEPTEMBER Affairs (DAF). Vienna, Austria. 28 Development Assistance Committee (DAC) aid peer

4-5 APEC Finance Ministers meeting. Phuket, Thailand. review of Ireland. 8-10 Entrepreneurship and SME development, 29-31 50 Years of Transport Research, symposium organised workshop organised by the Directorate for Employment, by the European Conference of Ministers of Transport Labour and Social Affairs (ELS) and hosted by the (ECMT). Budapest, Hungary. (See oecd.org) Hungarian government. Budapest, Hungary.

10-14 World Trade Organization, 5th ministerial conference. NOVEMBER

Canctin, Mexico.

11-12 Evafuation of Environmental Health Risks for 3-4 Trade in Educational Services, forum organised by the Children, workshop organised by the Environment Education Directorate. Directorate (ENV). 17-18 OECD-World Bank Services Experts meeting, bringing

18-19 Innovation in Tourism and Growth, conference together trade negotiators, migration specialists, organised jointly by STI and the Swiss Authorities. academics and - for the first time - regulators from both Lugano, Switzerland. OECD and non-OECD countries to debate the General 21 Meeting of the Heads of Multilateral Financial Agreement on Trade in Services (GATS). Institutions, organised by the Islamic Development 26 OECD Economic Outlook No. 74, published. Bank. Dubai, UAE. 26-27 Trade Capacity Building and Private Sector 21-28 World Forestry Congress, 12th annual forum. Québec, Development in Asia, workshop sponsored by DAC.

Canada. Phnom Penh, Cambodia.

37 Observer No. 238 July 2003 1 BOOKS 1 IU ' B Can you fic^i All for one understand llBt Cancûn? gsm

Trade and Competition: From country put into practice Regionalism and the ^"*~4 Doha to Cancûn "transparent" policies without Multilateral Trading System sufficient resources, and what A cry for transparency always would "fair and equitable Hammering out the accompanies any WTO trade procedures" mean i f applied to multilateral negotiations at competition, as round, and Doha is no trade between small, local Cancûn in September will take being a recipe for confusion. exception. Yet trade talks enterprises and multinationals. the present WTO trade round What emerges from this study remain clogged with terms of Then there are issues of only halfway to its January is a more nuanced picture. reference, jargon and discrimination between, for 2005 deadline. Meanwhile, the RTAs may detract from ambiguities. Trade and instance, two countries that percentage of world trade multilateral efforts by Competition: From Doha to have built up special co accounted for by preferentiaf stretching scarce negotiating Cancûn tries to respond to this operative relationships, or regional trade agreements resources and political capital, problem, coming as it does out between regions that disagree (RTAs) is expected to grow or can cause friction between of a meeting of trade and on international sales of sped lie from 43% at present to 55% systems generating potentially competition experts from commodities. According to by 2005 if all expected RTAs incompatible rules and developed and developing Trade and Competition: From are realised. The EU, NAFTA, standards between different countries who met to explore Doha to Cancûn, the relevant APEC and MERCOSUR are all RTAs and the multilateral rules and clarify some key themes in issue is not whether exclusions examples of regional initiatives. and disciplines of the WTO. the Doha Declaration. and exemptions are beneficial Is smaller better? Regionalism Yet regional trade agreements It starts by addressing the or harmful from the and the Multilateral Trading foster a culture of market core principles of non competition policy standpoint, System makes the case that opening and structural reform, discrimination, transparency but whether those that do exist regional trade agreements are and frequently go beyond the and procedural fairness. The discriminate against foreign rather a complement to, not a WTO by either containing fundamental raison d'être for enterprises. substitute for, a multilateral provisions that are more far-

the trade agreement calls for Other sticky issues addressed system. reaching, or by engaging non-discrimination on both a here include the pros and cons In fact, many consequences countries outside of the WTO. national level, in which of voluntary co-operation as of regional trade agreement But in some particularly members agree to accord all opposed to binding activity bolster the case for a sensitive areas, like agriculture other member nations identical commitments; the identification strengthened multilateral and textiles, regional initiatives trade conditions, and on a and categorisation of hardcore framework. Through an have been no more successful - "most favoured nation" level, cartels, as distinct from examination of 10 key areas, and in some cases less which states that any advantage export cartels and state-owned from services and labour successful - than activity at the given to one member country is cartels, plus effectiveness of mobility to intellectual multilateral level. Furthermore, automatically conferred on the enforcement (i.e. tools to property rights and all RTAs are driven in large other members. identify, investigate and environment, Regionalism and measure by geopolitical But, acknowledging sanction cartels); it asks the Multilateral Trading System considerations. The EU has imbalances in trade between why the capacity building shows how RTAs may both helped Europe unite, for developed and developing and technical assistance of help and hinder multilateral instance, and through NAFTA countries, exceptions, the last 30 years has not trade liberalisation. the United States has exclusions and exemptions been successful; plus, it takes At Doha, former WTO consolidated its relations with have crept in, and the devil is a look at the competition director general, Mike Moore, Mexico. But their role in in the details. What does policy peer reviews in the referred to the risk of an à la building a global free trading "timely" mean in the context of OECD's regulatory reform carte approach in RTAs, in system is by definition much micro-chip exports, how does a programme. areas such as investment and more limited.

1 38 Observer No 238 Jnlv ?003 BOOKS

Reviews

Friendly Virtual revolution subsidies?

The e-Government Imperative

Can technology bring better government? Education, Overcoming Obstacles to Policy Reform: Work on Environmentally healthcare and employment Harmful Subsidies take precedence for most citizens over the simple While bemoaning the global one of the "pillars" of question of whether they can impact of rich countries' sustainable development. email their senator or member processing of education subsidies on poorer economies, Water logging and salinisation of parliament. But government loans repayments introduced environmentalists are taking a from subsidised irrigation websites have changed from by the government brought closer look at how the water; excessive air pollution simply being static showcases million in savings in the elimination of some subsidies and greenhouse gas emissions to providing a virtual kiosk of first year of operations. may be detrimental to the due to transport fuel and essential government services. The e-Government Imperative environment. stationary energy subsidisation; While a huge part of what encourages the use of the The economic sectors with and over-fishing due to support governments are expected to Internet as an instrument to the largest share of global of fishing fleets, are some well- post is simple information - improve government structures subsidies - agriculture/fisheries, known examples. Yet short- who, what, where and how - and processes and to foster the transport and energy, term subsidies for farm posting election and tax culture and values of public accounting for 81% of world equipment like trailers or information, health alerts, even administrations. As for the subsidies - are also those most earth-movers, for instance, can traffic ticketing, can open submission of forms implicated in greenhouse gas facilitate the purchase and use bureaucratic doors to more containing sensitive emissions, air pollution and of newer, "cleaner" direct participation. For information, progress is under water pollution. Yet one of the technologies. example, the audiovisual way: as of 2002, 26 of the authors in this compilation of However, only recently has system introduced by the Swiss 30 OECD countries had passed reports argues that it is not the link been made between Parliament has increased legislation recognising digital sufficient to simply cite the subsidies, environmental public access to political signatures. While some worry numbers and list resultant damage and loss of human debates, while providing up- that the technology may erode environmental damages. In the capital, versus natural capital. to-date online interactive privacy, others point out the interest of sustainable For instance, the global burden information and data. challenge of keeping up with development, social and of disease and accidents, which According to The quick-changing technology. economic effects must also be government support can help e-Government Imperative, The decisions taken today gauged and figured into any to combat, has recently been policymakers need to respond commit administrations negotiations on agricultural calculated for environmentally to citizens' demands for more to a future that may be subsidies. induced health problems transparency, easier handling unpredictable. Errors are costly According to Work on arising from inadequate water of red tape and actually both on a financial level, and Environmentally Harmful supply and sanitation, indoor conducting business on-line, in terms of losing the trust of Subsidies, there is a prima facie and outdoor air pollution, and whether it be receiving citizens and businesses, The case for supposing that agro-industrial wastes and legislative updates, filing tax e-Government Imperative warns. subsidies which encourage pollutants. One estimate states returns or applying for a Still, as the title suggests, more production will be a global loss of value in human business license. Besides, it can governments can no longer environmentally harmful. Price capital of US$1.75 trillion for save them money. An shirk the demand for guarantees encourage over¬ 2000. While this loss cannot be e-procurement system adopted transparency, and will have production and hence blamed solely on subsidies, it in 2000 by the Italian to manage change responsibly, environmental damage. argues for further research so government led to a 30% while maintaining that Also, many subsidies directly as to complete the picture of reduction in the total cost of public confidence. More or indirectly contribute to the the impact of agricultural procured goods and services. e-government can help them depletion of natural capital, support. In Germany, the electronic to achieve this.

391 Observer No. 238 July 2003 New publications, June - August 2003

All publications available in paper and electronic book format. This is a selected list. For more titles, please consult www.oecd.org/bookshop.

Asia and Europe: Services Euro Area For profit $325 £218 ¥41,500 AGRICULTURE AND FOOD Liberalisation ISBN 9264103929 Not for profit $225 £150 ¥28,750 ISBN 9264103384 115p, 38 tables, 42 graphics OECD Agricultural Outlook: 233p, 53 tables Special feature: Product market Ageing and Employment: 2003/2008 $58 £34 ¥6,400 MXN580 competition. Sweden ISBN 9264103023 ISBN 9264199969 150p, 44 tables, 53 graphics Globalisation, Poverty Italy J 120p, 18 tables, 26 graphics $46 £27 ¥5,100 MXN465 and Inequality ISBN 9264104224 $24 £15 ¥2,950 MXN250 Analyses how global and domestic forces ISBN 926410187X 190p, 36 tables, 45 graphics are shaping agricultural markets over the 134p Special feature: Product market medium term. What is the role of ENERGY $37 £21 ¥4,100 MXN370 competition. government policies and how are they influencing farmers' decisions? What are Oil Information: 2003 Edition the likely market effects of the United ECONOMICS EDUCATION ISBN 9264102213 States' Farm Act? What will be the 700p market impact of an enlarged EU-25? OECD Economic Outlook No. 73 New Challenges for $150 £101 ¥19,200 MXN1.740 How important are developments in ISBN 9264100571 Educational Research Ukraine's agriculture for world markets? 250p, 120 tables, 160 graphics ISBN 926410030X Energy Balances of OECD $61 £39 ¥7,500 MXN630 104p Countries: 2000/2001 Agricultural Policies in OECD After the post-bubble difficulties $21 £13 ¥2,550 MXN215 ISBN 9264102132 Countries: Monitoring and experienced by telecommunications Evaluation 2003 Q companies, is the sector on the path Literacy Skills for the World $110 £74 ¥14,000 MXN1.280 ISBN 9264102299 towards recovery? How do structural ol Tomorrow: Further Results 260p, 72 tables, 23 graphics policies influence the performance of from PISA 2000 Energy Policies: Ireland $69 £43 ¥8,200 MXN740 labour and product markets? What have ISBN 9264102868 ISBN 9264014721 See review. been the recent developments in foreign 385p, 83 tables, 94 graphics 120p direct investment? What has been the Free publication. $75 £50 ¥9,550 MXN870 Review of Fisheries in OECD role of foreign affiliates in employment Joint UNESCO/OECD publication. Are Countries: Policies and Summary and activity in different industries? How students well prepared to meet the Nuclear Energy Today Q Statistics 2002 Q would further trade and regulatory challenges of the future? Are they able to ISBN 9264103287 ISBN 9264101403 policy reforms affect foreign direct analyse, reason and communicate their 114p, 12 tables, 40 graphics 395p, 70 tables investment flows and economic ideas effectively? Do they have the $24 £14 ¥2,700 MXN245 $75 £48 ¥9,200 MXN770 integration among OECD countries? capacity to continue learning through¬ How safe is nuclear energy? Is nuclear out life? The OECD Programme for energy economically competitive? What Agriculture and Biodiversity: The World Economy: Historical International Student Assessment (PISA) role can nuclear energy play in meeting Developing Indicators for Policy Statistics Q provides some answers. greenhouse gas reduction targets? What Analysis ISBN 9264104127 can be done with the radioactive waste it ISBN 9264199209 275p, 168 tables Students with Disabilities, generates? Does its use increase the risk 278p, 116 tables, 90 graphics Prices forthcoming. Difficulties and Disadvantages: of proliferation of nuclear weapons? Are $60 £38 ¥7,000 MXN550 Statistics and Indicators for there sufficient and secure resources to OECD ECONOMIC SURVEYS Curriculum Access and Equity permit its prolonged exploitation? The Future of Rural Policy: From Each survey: $35 £22 ¥4,300 MXN360 ISBN 9264103686 Sectoral to Place-Based Policies in 200p, 17 tables, 116 graphics The Regulatory Challenges of Dec¬ Rural Areas Ireland Prices forthcoming. ommissioning Nuclear Reactors ISBN 9264100830 ISBN 9264102973 ISBN 9264103473 226p, 20 graphics 104p, 19 tables, 16 graphics Learners for Life: Students PDF formal $45 £28 ¥5,250 MXN415 Special feature: Public expenditure reform. Approaches to Learning 32p, free publication. The "Celtic tiger" has slowed down, so ISBN 9264103902 Available at www.nea.fr what are the policy challenges for Ireland 120p, 44 tables, 23 graphics DEVELOPMENT AND AID in a slower growth environment? What is Prices forthcoming. ENVIRONMENT the scope for enhancing the efficiency of Attracting International Investment public spending? How can cost for Development EMPLOYMENT AND SOCIAL Financing Strategies for Water and competitiveness be safeguarded? ISBN 9264101934 ISSUES Environmental Infrastructure

ISBN 9264102760 200p Denmark $35 £22 ¥4,300 MXN360 ISBN 9264103147 OECD Employment Outlook: 1 16p What lessons can be drawn from world¬ 2003 Edition Q $25 £16 ¥3,100 MXN260 85p, 38 tables, 40 graphics wide experiences for attracting FDI, ISBN 926410061X Special feature: Migration. including strategies based on tax and 340p, 90 tables OECD Guiding Principles for other incentives? How can multinationals France Prices fonhcoming. Chemical Accident Prevention, contribute to promoting the developmen¬ ISBN 9264014853 Preparedness and Response tal benefits of FDI? How can FDI and OECD Health Data 2003 ISBN 9264101810 141p, 20 tables, 25 graphics portfolio investments best complement ISBN 9264101268 212p Special feature: Public expenditure each other in support of development? CD-ROM $35 £22 ¥4,300 MXN360 management.

40 Observer No. 238 July 2003 BOOKS Just published

OECD Environmental Performance Private Finance and Economic laid to rest several of the myths increased welfare gains and economic Reviews Development: City and Regional surrounding ICT: the business cycle is growth? How can modelling frameworks Investment not dead, stock market valuations must be improved to increase their relevance Poland ISBN 9264101993 be backed by profits, and the ICT sector for negotiators and trade policymakers? ISBN 9264100954 205p, 6 tables is not immune to downturns. This Trade Policies in Russia: The Role of 216p, 32 tables, 70 graphics $30 £20 ¥3,800 MXN350 report examines the impacts of ICT on $37 £24 ¥4,550 MXN380 business performance and the policies Local and Regional Governments Though Poland has significantly reduced OECD Reviews o/ Regulatory Reform that can help seize its beneiits. ISBN 9264102019 emissions of air pollutants, with sulphur 11 Op, 11 graphics dioxide and nitrous oxide emissions Norway: Preparing for the Future OECD Telecommunications $21 £14 ¥2,700 MXN240 Now U falling by 53 and 35% respectively, there Database 2003 is much room for further progress. ISBN 9264103104 ISBN 9264101489 TRANSPORT Emission intensities of major air pollu¬ 122p, 10 tables CD-ROM tants per unit of GDP are amongst the $46 £27 ¥5,100 MXN465 $225 £151 ¥28,750 MXN2.600 Delivering the Goods: 21st Century highest in the OECD due to the use of Finland: A New Consensus for Challenges to Urban Goods subsidised coal and a doubling of vehicu¬ STATISTICS Transport lar traffic over the past decade. This Change ISBN 9264102809 review makes 46 recommendations, ISBN 9264102671 Measuring Knowledge Management 144p, 36 tables, 13 graphics including those that encourage the inte¬ U9p, 12 tables in the Business Sector: First Steps $38 £22 ¥4,200 MXN380 gration of environmental concerns into $46 £27 ¥5,100 MXN465 ISBN 9264100261 The presence and operations of goods economic policies (e.g. improving price OECD Territorial Reviews 270p, 40 tables, 30 graphics transport vehicles in urban areas are often signals, removing subsidies, fiscal $40 £26 ¥4,900 MXN410 regarded more as a nuisance than an reforms) and progress towards its interna¬ Co-published with Statistics Canada. essential service. What can governments tional environmental commitments. Metropolitan Melbourne ISBN 9264101594 do to facilitate the essential flows of goods Statistics on International Trade in urban areas and to reduce the adverse Netherlands 277p, 44 tables, 30 graphics Prices forthcoming. in Services: 1992-2001 impacts of urban goods transport on the ISBN 9264f0f004 Melbourne, Australia's second largest ISBN 9264100857 communities being served? 180p, 29 tables, 24 graphics city, most important container port, and 403p, 212 tables $37 £24 ¥4,550 MXN380 leading cultural and educational centre, $95 £61 ¥11,650 MXN980 Vandalism, Terrorism and Security is poised for a major phase in its growth. in Urban Public Passenger Water Management: Performance and How can it improve the productivity of Transport: N° 123 Challenges in OECD Countries SUSTAINABLE local firms, and their capacity to grow? ISBN 9282103013 ISBN 9264101322 DEVELOPMENT What are the best ways to enhance the 160p 80p attractiveness of the city for investment $35 £22 ¥4,200 MXN350 Implementing Sustainable Urban and knowledge-based development? See review. Travel Policies: National Reviews How to accommodate the housing needs ISBN 9282103056 FINANCIAL AND FISCAL of thousands of newcomers and still Railway Reform in China 300p, 52 tables, 33 graphics AFFAIRS improve the quality of the environment? ISBN 9264103589 $75 £44 ¥8,300 MXN755 70p, 5 graphics Privatising State-Owned Enterprises Urban Renaissance: Berlin: Prices forthcoming Overcoming Obstacles to Policy in the OECD Area: An Overview of Towards an Integrated Strategy for See review. Reform: Work on Environmentally Policies and Practices 3 Social Cohesion and Economic Harmful Subsidies ISBN 9264104089 Development ISBN 9264101039 11 Op, 12 graphics ISBN 9264101462 180p, 15 tables Prices forthcoming. 212p, 18 tables Latest OECD Prices forthcoming. $43 £29 ¥5 500 MXN500 See review. OECD Investment Policy Reviews L) Policy Briefs China: Progress and Reform Challenges INDUSTRY, SCIENCE AND ISBN 9264101950 TRADE INNOVATION Free online at www.oecd.org 163p, 45 tables $34 £22 ¥4,200 MXN350 Click Documentation (top of OECD Communications Outlook: Regionalism and the Multilateral screen) 2003 Edition Trading System Assessing Insurance Company ISBN 9264101365 ISBN 9264199845 Solvency 167p The OECD Guidelines for ISBN 9264101896 290p, 102 tables, 66 graphics $38 £23 ¥4,500 MXN400 $75 £48 ¥9,200 MXN775 Multinational Enterprises: A 113p See review. Key Corporate Responsibility $32 £19 ¥3,600 MXN325 Guidelines for Protecting Instrument An in-depth analysis on the assessment Consumers from Fraudulent and Trade and Competition: and the management of the major From Doha to Canctin Q Deceptive Commercial Practices -J Economic Briefs on Surveys of technical and financial risks insurance ISBN 9264102787 Across Borders Ireland and Denmark companies have to face. It addresses the ISBN 9264103562 95p ever increasing risk exposure of $29 £16 ¥3,100 MXN260 l_l Feasible Financing Strategies 27p, free publication. insurance companies that could See review. See www.oecd.org/sti/crpssborderfraud for Environmentally Related endanger their financial health. Infrastructure

ICT and Economic Growth: Quantifying the Benefits of Liberalising Trade in Services l_J Agricultural Policies in OECD GOVERNANCE Evidence from OECD countries, ISBN 9264100423 industries and firms Countries: A Positive Reform 172p The E-Government Imperative ISBN 9264101284 Agenda $40 £26 ¥4,900 MXN410 ISBN 9264101179 99p, 30 graphics What are the major barriers to services LI Public-Private Partnerships in 131p, 34 graphics $21 £14 ¥2,700 MXN240 trade? To what extent would further the Urban Water Sector $40 £22 ¥4,300 MXN360 The recent slowdown in information liberalisation of trade in services result in See review. and communications technology has

41 Observer No. 238 July 2003 BOOKS

Reviews

perfectly match consumer demand. Back on track Problems include slow travelling speeds, ^StS&'^rn, poor frequency of trains, and overcrowding, which drives away some Raihvay Reform in China consumers. The government uses an elementary system for regulating prices, How do you manage transport in a rapidly growing country of based on passenger kilometres, varying over 1 billion people? Developing the railways may be the according to the hardness of the seat (or simple answer. Increasing demands are being placed on bed) and the speed of the train. There is no Chinas transport infrastructure, and the OECD's Railway difference made according to peak or off- Reform in China suggests that the development of an efficient, peak periods. Yet demand for rail transport, innovative and market-oriented rail network would facilitate though not growing at the rate of the investment and modernisation, alleviate the growing income gap economy overall, is still rising. and spread the benefits of economic reform more widely. China's Development Research Center (DRC) Rail still carries the bulk of transport in China. The figures have identifies four goals for rail reform in China, including a separation decreased somewhat from J980, when rail transport accounted for between government functions and enterprise management, with an 48% of the freight transport market (now 31%) and 61% of the independent regulation/supervision body, promotion of competition passenger market (now 37%). However, more freight and people within the rail sector, and the creation of market incentives based have to be transported than 20 years ago, and the density of traffic on a sounder regulatory framework. Some separation of the on the Chinese railway is the highest in the world, 10 times highei different roles the state plays in running the railway may be than for rail systems in Europe. So, today's rail usage figures are sti required, along with the flexibility to set prices and services. significant when compared to western Europe, where rail carries Successful rail reform takes time; if the Chinese economy is to 14% of the freight and less than 7% of passengers. have an effective rail sector by the year 2010, according to the DRC, As with other state-owned railways in OECD countries, Chinese the government should start now to determine the reform path for railways have relatively low labour productivity, and do not Chinese railways in the future.

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42 Observer No. 238 July 2003 Take a 1hea

OECD Health Data 2003

A CQMPAHATtVC ANALYSiS OF 30 COUNTRIES

Eco-Santé OCDE 2003

ANALYSE COMPARATIVE DE 30 PAYS

OECD Gesundheitsdaten 2003

WERGLEICMEMOE ANALYSE: VON 30 lANDEHN

Eco-Salud OCDE 2003 ANÂUSIS COMPARATWO DE 30 PAÏSES NEW

for 2003

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PARIS21

If you can't measure it, then you can't manage it

f you can't measure it, then you can't national, international and regional bodies in manage it." As South African minister of Africa to promote country- owned strategies for "I finance, the Hon Trevor Manuel, said at the more effective use of information and an April 2002 workshop in Cape Town, statistics in the development process. South African stakeholders are striving to Hosted by the OECD's Development Co¬ agree on common indicators of progress operation Directorate, PAR1S21 acts as a catalyst towards development. Yet for much of the %RIs|l for promoting a culture of evidence-based developing world, the capabilities for producing policymaking and monitoring. We focus on the statistics required to monitor progress have promoting high-quality statistics, making these stagnated or have been largely ad-hoc. %«Ml^ data meaningful and designing sound poverty- For the development partners struggling with reduction policies. Our role in PARIS21 is to the challenge of ensuring that their resources foster more effective dialogue among those who are optimally spent in the world's poorest for development, and statistics are now being produce development statistics and those who countries, the focus is now on aid effectiveness. used in calibrating governance indicators. use them, through facilitating international Convincing supporting evidence to assess the Statistics are themselves part of good events, supporting country- based activities, performance of development efforts comes governance. While the major users of statistics organising regional workshops, and convening largely from statistical systems. Without gauging are governments themselves, statistics must also subject matter task teams. PARIS21 actively the extent to which efforts to reduce poverty are be made available to the general public and to promotes southsouth co-operation and lesson effective, those efforts proceed in the dark. civil society to hold their governments to learning between countries in the region, Statistics shed the light necessary to see the path account. Statistics are vital to the democratic reinforcing NEPAD's peer review approach. to sustainability process; they ensure transparency and Initiatives such as NEPAD are echoing the call accountability and provide the background for dialogue on how to provide information and Statistics information against which private investors statistics in developing countries. This demand Unfortunately, statistics are perceived as dull, make their decisions. It is for this reason that must be met with a change of culture and with which has hampered investment in statistical support to statistical offices in developing professionals communicating between countries governance. Very little public acclaim is earned from an investment in statistics, compared with investments in health, agriculture, and Statistics are vital to the democratic process; nutrition. Yet without statistics to measure the benefits of investments in social programmes, they ensure transparency and accountability who can say that the money was well spent? To achieve our common goals of development including the millennium development goals countries for sustaining the design and and across their areas of specialisation to (MDGs) agreed in the 2000 millennium implementation of poverty reduction policies accelerate the change process. declaration - development practitioners on all and monitoring their impact is crucial. PARIS21 exists to facilitate this levels must work hand in hand. And if communication, and we therefore feel a kinship measuring the progress of development is not Partnerships with the OECD Observer's mission, as we both treated as one of the costs of meeting the MDGs, The New Partnership for Africa's Development serve as a forum for dialogue on issues related to then we, globally, are unable to hold all the (NEPAD) promotes principles of country policy development. PARIS21 congratulates the signatories accountable. ownership, transparency, good governance and Observer for its 40 years of dedicated service to Data on a country's progress must originate the fight against poverty. These principles are the OECD and the wider community of policy from within the country. Statisticians are now complemented by those of the Partnership in experts. We applaud your work in opening being asked to meet new challenges, good Statistics for Development in the 21st Century discussions on important themes and wish you governance is widely regarded as a prerequisite (PARIS21) in its collaborative action with continued success.

PARIS21, OECD/DCD, Office no. 1642, 2 rue André Pascal, 75775 Paris Cedex 16

email: [email protected] web: http://www.paris21.org DATABANK

OECD in graphs

Higher communication spending Free speech? Changes in the proportion of communication and other spending in disposable household income

Index 1990 = 100

Telecommunications costs - phone 160 r installation and the cost of lime spent on calls - have fallen sharply in recent years, so 140 why is it that OECD households are devoting an ever larger share of their income to 120 h communications? Food, clothing and household equipment are all taking up a 100 smaller share of the family budget than a decade ago, and while services such as health, 80 education and water have increased their share, none has boosted its part of household 60 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 spending as significantly as communications. -Communications* Health - - Education One reason, of course, is the advent of the Water, electricity and gas Recreation and culture Transport Internet and the mobile phone, which helps Restaurants and hotels Alcohol, tobacco and narcotics Household equipment explain the acceleration of the growth in -Clothing and footwear Food communications spending from 1995, the * Communications includes telecommunication equipment and services, and postal services. latest edition of the OECD Communications Note: Hungary, Norway, Slovak Republic, Switzerland and Turkey are not Included in this index. Source: OECD, SNA database Outlook shows (see article by Sam Paltridge et al). But it is also true that cheaper calls have encouraged people to spend more time talking mobile phones, with the number of users services, with 8% for télécoms equipment, on the phone - and at greater distances - than increasing from 15 million to 600 million and the remaining 2% being spent on good before, ultimately putting more cash in the during the decade. Dunng the same period, old-fashioned postal services. The average telecommunications companies' coffers. spending on food and non-alcoholic drinks fell monthly spending on communications in Households devoted about 1.6% of their from 13.4% of the total to 10.7%, while OECD countries is around US$62.50, consumer spending to communications in spending on clothing and footwear fell from although the level varies between countries 1991, but this had risen to 2.3% by 2000, or 6.9% to 5.7%. from about US$40 to US$106. As much as 90% of communications an extra US$399 per person per year. A OECD Communications Outlook 2003 is sizeable proportion of that money went on spending goes on telecommunications available at www.oecd.org/bookshop

Maternity stays Birth rights Average length of hospital stays for normal delivery, 2000

Canada 2ft) New Zealand 2.0 Hospital stays are getting shorter, and concerns are being raised in United States 2.0 Korea 2.2 some OECD countries that mothers are being sent home too Netherlands 2.7 Sweden soon after giving birth, the latest OECD Health Data shows. In 2000, Australia 2.9 Portugal 2.9 the average length of stay in OECD hospitals for a normal delivery Spain Denmark was four days. But there were striking variations between countries in Iceland 3.6 Finland 3.7 the amount of time spent in hospital. Women in Canada, New Ireland 3.9 Italy 3.9 Zealand and the United States spend two days in maternity care, Greece 4.0 Norway 4.0 while in Poland and Austria new mothers stay in hospital on average Germany France for almost six days. Belgium Luxembourg Poland The number of women dying when giving birth has also fallen in Austria the past decade, with the average number of maternal deaths per Days 100,000 live births falling from 14.2 in 1990 to 10.1 in 2000. Infant Source: OECD Health Data 2003 mortality rates have also fallen, from 11.1 deaths per 100,000 live births in 1990 to 7. 1 m 2000. In Poland, infant mortality fell from 19.4 per 100,000 live births m 1990 to 8.1 m 2000, while in Canada efforts to control costs. The average length of stay for acute hospital care it fell from 6.8 to 5.3 and in the United States from 9.2 to 6.9. m OECD countnes fell to 7.0 days in 2000 from 8.8 days in 1990. Birth is not the only area for which hospital stays are shorter. The average length of stay in hospital for other reasons is also falling in OECD Health Data 2003 is available as a quadrilingual CD-ROM with free Internet updates from the OECD online bookshop at: OECD countries, as a result of less invasive surgical treatment and www. oecd.org/bookshop

45 Observer No. 238 July 2003 DATABANK

Indicators

% change from:

previous previous current same period period year period last year

Australia Gross domestic product Ql 03 0.7 2.9 Current balance Ql 03 -5.99 -2.91

Leading indicator May 03 0.0 1.5 Unemployment rate May 03 6.0 6.2

Consumer price index Ql 03 1.3 3.4 Interest rate May 03 4.78 4.84

Austria Gross domestic product Ql 03 0.1 0.4 Current balance Q4 02 1.90 -0.18

0.0 2.7 4.3 4.3 i Leading indicator May 03 Unemployment rate May 03

* Consumer price index May 03 0.0 1.1 Interest rate May 03 A

Belgium Gross domestic product Ql 03 0.2 1.4 Current balance Ql 03 2.30 2.82

Leading indicator May 03 -0.5 -5.7 Unemployment rate May 03 7.9 7.3

Consumer price index Jun. 03 0.3 1.6 Interest rate * *

Canada Gross domestic product Ql 03 0.6 2.6 Current balance Ql 03 5.33 4.25 14*1 Leading indicator May 03 2.0 0.0 Unemployment rate May 03 7.8 7.7 B t Consumer price index May 03 0.1 2.9 Interest rate May 03 3.32 2.59

Czech Republ c Gross domestic product Ql 03 -2.2 2.2 Current balance Ql 03 -0.93 -1.02

Leading indicator Unemployment rate May 03 7.0 7.3

Consumer price index May 03 0.0 0.0 Interest rate May 03 2.45 3.81

Denmark Gross domestic product Ql 03 0.4 1.4 Current balance Ql 03 1.56 1.11

Leading indicator May 03 0.1 2.6 Unemployment rate May 03 5.2 4.4

^ Consumer price index May 03 -0.2 2.2 Interest rate May 03 2.49 3.66

i nland Gross domestic product Ql 03 -1.3 1.2 Current balance Apr. 03 0.52 0.52 -I Leading indicator Apr. 03 1.0 -6.6 Unemployment rate May 03 9.0 9.1 Consumer price index May 03 -0.1 0.7 Interest rate * *

France Gross domestic product Q] 03 0.3 1.1 Current balance Apr. 03 -2.32 1.68 l Leading indicator May 03 0.6 -1.9 Unemployment rate May 03 9.1 8.7 Consumer price index May 03 -0.1 1.8 Interest rate A *

Germany Gross domestic product Ql 03 -0.2 0.2 Current balance Ql 03 11.82 10.28

Leading indicator May 03 0.3 0.9 Unemployment rate May 03 9.4 8.5

Consumer price index May 03 -0.2 0.7 Interest rate * *

G reece Gross domestic product 2001 4.1 Current balance Apr. 03 -1.15 -0.96

Leading indicator May 03 0.4 0.9 Unemployment rate Dec. 02 9.6 10.6

Consumer price index May 03 0.4 3.9 Interest rate

Hungary Gross domestic product Q4 02 2.3 3.7 Current balance Apr. 03 -0.63 -0.23

Leading indicator Unemployment rate May 03 5.9 5.5

Consumer price index May 03 0.3 3.6 Interest rate Apr. 03 6.40 8.41

Iceland Gross domestic product Ql 03 -4.8 3.3 Current balance Q4 02 -0.02 0.06

Leading indicator Unemployment rate May 03 3.4 2.3

l^ Consumer price index Jun. 03 0.0 1.8 Interest rate May 03 4.78 8.70

Ireland Gross domestic product Q4 02 2.5 6.4 Current balance Ql 03 -1.12 -0.18

Leading indicator May 03 0.3 8.7 Unemployment rate May 03 4.6 4.3

^ Consumer price index May 03 -0.1 3.7 Interest rate * *

Italy Gross domestic product Ql 03 -0.1 0.8 Current balance Jan. 03 -2.01 -0.06

Leading indicator May 03 0.4 -1.1 Unemployment rate Apr. 03 8.7 9.0

_ Consumer price index May 03 0.2 2.7 Interest rate * * la san Gross domestic product Ql 03 0.1 2.5 Current balance Apr. 03 10.07 8.72

-0.1 -1.0 m Leading indicator May 03 Unemployment rate May 03 5.4 5.4 Consumer price index May 03 0.2 -0.2 Interest rate May 03 0.03 0.05

Korea Gross domestic product Ql 03 -0.4 4.0 Current balance May 03 0.23 0.58

Leading indicator Unemployment rate May 03 3.4 3.1

Consumer price index Jun. 03 -0.3 3.0 Interest rate May 03 4.40 4.80

46 Observer No. 238 July 2003 DATABANK

Indicators

% change From:

previous previous current ime period

period year period last year

Luxembourg Gross domestic product 2001 1.0 Current balance Q4 02 0.14 0.63

Leading indicator May 03 -0.3 6.2 Unemployment rate May 03 3.6 2.7

* * Consumer price index May 03 0.0 1.9 Interest rate

Mexico Gross domestic product Ql 03 -0.5 0.8 Current balance Ql 03 -2.29 -3.42

Leading indicator May 03 3.7 9.5 Unemployment rate Apr. 03 2.8 2.7

Consumer price index May 03 -0.3 4.7 Interest rate Apr. 03 8.00 6.40

Netherlands Gross domestic product Ql 03 -0.3 -0.1 Current balance Ql 03 0.64 2.76

Leading indicator May 03 0.1 -0.9 Unemployment rate Apr. 03 3.9 2.6

Consumer price index May 03 -0.1 2.3 Interest rate * *

New Zealand Gross domestic product Ql 03 0.8 3.6 Current balance Ql 03 -0.50 -0.27

Leading indicator Unemployment rate Ql 03 5.0 5.3

Consumer price index Ql 03 0.4 2.5 Interest rate Jun. 03 5.23 5.96

Norway Gross domestic product Ql 03 0.3 0.6 Current balance Ql 03 7.51 6.04

Leading indicator Apr. 03 0.3 -0.9 Unemployment rate Apr. 03 4.5 3.8

Consumer price index May 03 -0.5 2.1 Interest rate May 03 4.92 6.90

Poland Gross domestic product Q2 02 6.1 1.0 Current balance Dec. 02 -0.29 -0.40

Leading indicator Unemployment rate May 03 20.1 19.7

Consumer price index May 03 0.0 0.3 Interest rate Apr. 03 5.70 9.59

Portugal Gross domestic product Ql 03 0.1 -1.2 Current balance Ql 03 -1.62 -2.40

Leading indicator May 03 0.1 -5.2 Unemployment rate May 03 7.5 4.7

Consumer price index May 03 0.6 3.7 Interest rate * *

Slovak Republic Gross domestic product Ql 03 -4.8 4.1 Current balance Ql 03 -0.14 -0.36

Leading indicator Unemployment rate May 03 16.6 18.9

Consumer price index May 03 0.1 7.6 Interest rate May 03 8.00 8.82

Spain Gross domestic product Ql 03 0.5 2.1 Current balance Feb. 03 -1.56 -0.57

Leading indicator May 03 1.7 9.1 Unemployment rale May 03 11.3 11.3

Consumer price index May 03 -0.1 2.7 Interest rate * *

Sweden Gross domestic product Ql 03 0.6 2.0 Current balance Dec. 02 0.0 0.85 Leading indicator Mar. 03 0.4 5.7 Unemployment rate May 03 5.4 4.8

Consumer price index May 03 -0.1 1.8 Interest rate Jun. 03 2.81 4.28

Switzerland Gross domestic product Ql 03 -0.3 0.0 Current balance Q4 02 8.35 6.93

Leading indicator May 03 0.1 3.0 Unemployment rate May 03 3.7 2.4

Consumer price index Jun. 03 0.0 0.5 Interest rate May 03 0.18 1.14

Furkey Gross domestic product Q4 02 -22.2 11.4 Current balance Q) 03 -2.34 -0.32

Leading indicator May 03 2.4 0.8 Unemployment rate Q4 02 11.4 10.6

Consumer price index May 03 1.4 30.7 Interest rate May 03 41.00 48.00

United Kingdom Gross domestic product Ql 03 0.1 2.1 Current balance Ql 03 3.91 -4.51

Leading indicator May 03 0.6 -3.0 Unemployment rate Mar. 03 5.0 5.1

Consumer price index May 03 0.2 3.0 Interest rate May 03 3.57 4.08

United States Gross domestic product Ql 03 0.4 2.0 Current balance Ql 03 -136.11 -106.73

Leading Indicator May 03 1.2 0.0 Unemployment rate May 03 6.1 5.8

Consumer price index May 03 -0.2 2.1 Interest rate May 03 1.22 1.82

Luro area Gross domestic product Ql 03 0.0 0.9 Current balance Apr. 03 -1.09 0.27

Leading indicator Apr. 03 0.1 0.5 Unemployment rate May 03 8.3

Consumer price index May 03 -0.1 1.9 Interest rate May 03 2.41 3.47

Definitions and notes Gross Domestic Produit: Volume scries; seasonally adjusted except for Czech Republic, Hungary, Iceland, of goods and services; Current Balance: SUS billion; seasonally adjusted except for Greece and Ireland; Ireland, Poland, Slovak Republic and Turkey; Leading Indicators: A composite indicator based on other Unemployment Rate: % of civilian labour force - standardised unemployment rate; national definitions indicators of economic activity (qualitative opinions on production or employment, housing permits, for Iceland, Korea, Mexico, Switzerland and Turkey; seasonally adjusted apart from Turkey; Interest Rate: financial or monetary series, etc.), which signals cyclical movements in industrial production from six to Three months, except for Turkey (overnighi interbank rate). * refer to Euro zone. ..=not available. nine monlhs in advance; Consumer Price Index: Measures changes in average retail prices of a fixed basket Source: Main Economic Indicators, July 2003.

471 Observer No. 238 July 2003 DATABANK

OECD in graphs

Aid on the rise Net ODA flows from DAC member countries Net ODA in 2002, US$ billion

Donor countries in the OECD Development Assistance Committee (DAC) increased their official development assistance (ODA) by almost 5% in real terms in 2002 to US$57 billion, raising ODA to 0.23% of gross national income (GNI). This marked the beginning of a recovery from the all-time low of 0.22% of GNI seen in each of the past three years. The rise included a 12% increase in US aid to US$1 2.9 billion (0.12% of its GNI), reflecting additional and emergency funds in response to the 11 September 2001 terrorist attacks and new initiatives in health and humanitarian aid. Source: OECD Aid from European Union countries rose 3% in real terms to US$29.1 billion, representing 0.34% of their combined GNI The broader outlook for aid is positive. Following commitments and including significant increases of 34% in Greece and 32% in Italy. from most donors at the International Conference on Financing for On the other hand, there were falls in Austria and Spain, both down Development at Monterrey, Mexico, in 2002, aid volume is expected to 16%, largely due to the fact that their 2001 figures had been boosted increase by about 30% in real terms by 2006. A meeting in late April by exceptional debt relief operations. of high-level officials from the OECD DAC countries, who, between Canada, meanwhile, increased its aid by 32%, including substantial them, account for about 95% of total ODA, welcomed this trend and debt forgiveness. Five countries - Denmark, Luxembourg, stressed the need to continue to improve aid effectiveness, so as to Netherlands, Norway and Sweden - met the UN target for ODA of speed progress towards the Millennium Development Goals. 0.7% of GNI. Three other countries have also announced their intention to meet the 0.7% target: Ireland by 2007, Belgium by 2010 For more on the work of the DAC, visit: www.oecd.org/dac and and France by 2012. www.oecd.org/development

Sugar lows World sugar prices Outlook for world prices to 2008

World sugar prices are likely to remain low over the next few years due to increased exports from low-cost producers and continuing high support and protection in many OECD countries, the latest issue of the OECD Agricultural Outlook found. Brazil, the leading low-cost producer, has a competitive sugar industry that matches the total tonnage currently traded on world markets. Developing countries hold the key to consumption growth, and the potential in the longer term to eat into the large stocks of sugar on the world market and improve the balance between supply and demand. The Agricultural Outlook cites China as a country with apparent scope to boost consumption and imports as incomes rise, but notes that other factors, such as official import policies and the availability of artificial sweeteners, must also be taken into account. 1996 1998 2000 2002 2004 2006 2008 The latest Agricultural Outlook sees raw sugar prices improving slightly to US$191.8 per tonne in 2004/2005, up from US$172.0 in / White refined sugar Raw sugar 2003/2004, but then falling in subsequent years to reach US$165.3 Source: OECD Agricultural Outlook per tonne in 2008/2009. World stocks will see little change, at 68.3 million tonnes in raw sugar equivalent in 2008/2009 compared with 67.5 million in 2003/2004. rice-based staple foods towards more processed food and higher World production of agricultural products in general is forecast to protein products such as meats. grow over the period to 2008, boosted by a revival of the world economy from 2004 onwards, with an increase in consumption OECD Agricultural Outlook 2003-2008 is available at of coarse grains and oilseeds and a shift away from wheat- and www. oecd . org/bookshop

48 Observer No. 238 July 2003 IN ASSOCIATION WITH The Banker awards 2003 THE MOST PRESTIGIOUS EVENT IN ^*S

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