SOCIETAL COHESION AND THE GLOBALISING ECONOMY What Does the Future Hold? OECD SOCIETAL COHESION AND THE GLOBALISING ECONOMY WHAT DOES THE FUTURE HOLD? ORGANISATION FOR ECONOMIC CO-OPERATION AND DEVELOPMENT ORGANISATION FOR ECONOMIC CO-OPERATION AND DEVELOPMENT Pursuant to Article 1 of the Convention signed in Paris on 14th December 1960, and which came into force on 30th September 1961, the Organisation for Economic Co-operation and Development (OECD) shall promote policies designed: ± to achieve the highest sustainable economic growth and employment and a rising standard of living in Member countries, while maintaining ®nancial stability, and thus to contribute to the development of the world economy; ± to contribute to sound economic expansion in Member as well as non-member countries in the process of economic development; and ± to contribute to the expansion of world trade on a multilateral, non-discriminatory basis in accordance with international obligations. The original Member countries of the OECD are Austria, Belgium, Canada, Denmark, France, Germany, Greece, Iceland, Ireland, Italy, Luxembourg, the Netherlands, Norway, Portugal, Spain, Sweden, Switzerland, Turkey, the United Kingdom and the United States. The following countries became Members subsequently through accession at the dates indicated hereafter: Japan (28th April 1964), Finland (28th January 1969), Australia (7th June 1971), New Zealand (29th May 1973), Mexico (18th May 1994), the Czech Republic (21st December 1995), Hungary (7th May 1996), Poland (22nd November 1996) and the Republic of Korea (12th December 1996). The Commission of the European Communities takes part in the work of the OECD (Article 13 of the OECD Convention). PubliÂe en franËcais sous le titre : COHESIONÂ SOCIALE ET MONDIALISATION DE L'ECONOMIEÂ Ce que l'avenir nous rÂeserve OECD 1997 Permission to reproduce a portion of this work for non-commercial purposes or classroom use should be obtained through Centre FranËcais d'Exploitation du Droit de Copie (CFC), 20, rue des Grands Augustins, 75006 Paris, France, for every country except the United States. In the United States permission should be obtained through the Copyright Clearance Center, Inc. (CCC). All other applications for permission to reproduce or translate all or part of this book should be made to OECD Publications, 2, rue AndrÂe-Pascal, 75775 Paris Cedex 16, France. FOREWORD For over a decade, OECD countries have been committed to a cluster of economic policies aimed at encouraging macroeconomic stabilization, structural adjustment and the globalisation of production and distribution. Although these policies have been generally successful in supporting economic growth, combating in¯ation and reducing current-account imbalances, there is now pressure on many governments to take stock of the longer-term societal implications that are begin- ning to emerge. In part this is because of a growing political disenchantment arising from the increasing income polarisation, persistently high levels of unemployment, and widespread social exclusion that are manifesting themselves in varying ways across North America, Europe and OECD Paci®c. The diffusion of this malaise throughout society threatens to undermine both the drive towards greater eco- nomic ¯exibility and the policies that encourage strong competition, globalisation and technological innovation. With these concerns in mind, the OECD organised a Forum for the Future conference in December 1996. Its primary objective was to stimulate innovative thinking about ways to maintain future societal cohesion in the face of a dynamic economy that thrives on a high degree of ¯exibility. One of the main questions to be explored from the broad perspective of societal cohesion was, what kind of society and social systems will be able to cope with the exigencies of greater economic ¯exibility? How much and what kinds of adaptability will be required of individuals, ®rms, political parties, public administrations, voluntary organisations and other collective institutions? The discussion during the one-day conference was divided into two parts. The ®rst session dealt with the long-run implications of current economic and social policies. The second examined alternative scenarios for societal cohesion in the future. The meeting was chaired by Donald J. Johnston, Secretary-General of the OECD, and participants around the table were drawn from the highest ranks of government, business and the academic world. This publication brings together the papers presented at the meeting as well as an introductory contribution and summary of the main points of the discussions prepared by the Secretariat. The book is published on the responsibility of the Secretary-General of the OECD. 3 TABLE OF CONTENTS Economic Flexibility and Societal Cohesion in the Twenty-®rst Century: An Overview of the Issues and Key Points of the Discussion by Wolfgang Michalski, Riel Miller and Barrie Stevens ................ 7 Current Economic Policies: Social Implications over the Longer Term by Robert Z. Lawrence ......................................... 27 Challenges to Social Cohesion and Approaches to Policy Reform by Dennis J. Snower ........................................... 39 A Liberal Socio-economic Scenario for the Early Twenty-®rst Century by Henri Lepage .............................................. 61 Towards a New Equilibrium of Citizens' Rights and Economic Resources? by Claus Offe ................................................ 81 Annex: List of Participants ....................................... 109 5 1 ECONOMIC FLEXIBILITY AND SOCIETAL COHESION IN THE TWENTY-FIRST CENTURY: AN OVERVIEW OF THE ISSUES AND KEY POINTS OF THE DISCUSSION by Wolfgang Michalski, Riel Miller and Barrie Stevens OECD Secretariat, Advisory Unit to the Secretary-General Turbulence ± economic, social, technological ± is a long-standing attribute of human society, as is the capacity to survive it. Indeed, the century now drawing to a close provides ample evidence of how people can adapt and even thrive in a world of rapid and pervasive change. However, profound and unanticipated transforma- tions are not a virtue per se. Nor are tests of human adaptability. Rather, it is safe to assume that most people prefer a world where life is characterised by stability, continuity, predictability, and secure access to material well-being. Societies with these attributes garner more easily the commitment and adher- ence that sustain societal cohesion over time. Yet, many of the economic policies pursued for some years now by OECD Member countries encourage the productive turmoil of relentlessly competitive markets ± a constant process of creation and destruction that politicians and electorates seem to have almost universally embraced, showing a strong willingness to forgo tranquillity for the sake of greater prosperity. At the same time, there are signs of growing strains on the fabric of OECD societies, in the form of stubbornly high levels of unemployment, widening income disparities, persistent poverty, and social exclusion. Of course, competition and structural change are not fundamentally incompati- ble with societal cohesion. On the contrary, they are a motor of the economic growth and prosperity on which cohesion can thrive. Reciprocally, a strong social fabric provides a secure basis for the ¯exibility and risk-taking which are the life- blood of vibrant economic activity and wealth creation. Striking a sustainable bal- ance between dynamism and security constitutes one of the primary missions of the political processes. The capacity to ®nd the appropriate balance, thereby avoiding 7 SOCIETAL COHESION AND THE GLOBALISING ECONOMY both stagnation and social fragmentation, is one of the key strengths of OECD democracies ± a strength that will probably be put to the test over the next two decades. I.LONG-RUN IMPLICATIONS OF CURRENT ECONOMIC AND SOCIAL POLICIES Since the early 1980s, OECD Member countries have pursued a basically simi- lar set of economic policies, including: macroeconomic policies that target low in¯ation and sound ®scal balances; structural adjustment measures aimed at improving the functioning of product, capital and labour markets; and the liberalisa- tion of trade, investment and technology ¯ows to enhance global economic ef®- ciency. These policies are considered to have contributed to bringing about a number of signi®cant improvements. In¯ation in most of the OECD area has fallen sharply from its peak in 1980, when consumer prices increased by over 13 per cent, to its current level of 2-3 per cent. The deterioration in cyclically adjusted govern- ment balances (i.e. structural budget de®cits) observed throughout the OECD area in the late 1980s/early 1990s has been reversed or halted in almost all cases. Regulatory reform and privatisation, prominent features of the US economy in the late 1970s/early 1980s, spread in varying intensities to parts of Europe and OECD Paci®c, and international trade bene®ted signi®cantly from a lowering of import tariffs. At the same time, however, there is a strong sense of worsening social circum- stances for large segments of OECD populations. Continental Europe now lives with double-digit unemployment rates and increasing concerns that many individuals are being marginalised from mainstream economic life. In the United States, aver- age wage growth has been slow (indeed, negative for less-skilled workers), inequal- ity has been rising, and poverty has been growing both in general and