Some 15 million people have joined the ranks of the unemployed in OECD countries since the end of 2007. Unemployment has already reached a record high of 8.5% as a result. Without the right policies and if the recovery fails to gain momentum, OECD unemployment could approach 10% next year. That would mean 57 million people out of work-roughly equivalent to the population of some G8 countries!

International trade fell off the charts in the fourth quarter of 2008 and showed only a modest easing in the rate of decline in the early months of 2009. Well-regulated open trade is essential for economic recovery and development, yet in times of crisis, protectionism may appear an attractive solution. It should be resisted.

A jolt of innovation can be a powerful antidote to recession. But innovation risks being hit hard by the economic crisis as the capital to finance research and develop new products grows scarce. The economic fallout could be serious, since innovation is a key driver of growth.

The current crisis is an opportunity to launch a new economic model, in which the environment, as a pillar of human welfare, must be central.

The main victims of severe economic downturns tend to be workers and their families, so governments are rightly stepping in to help job losers weather the storm. But while the severity of the unfolding jobs crisis may require extraordinary policy responses, how can governments avoid the wrong ones?

Where there's money, there's also time for relaxing.

Governments must put transparency and accountability at the heart of all rescue and reform measures if they are to regain public trust and investor confidence. Here is why.

Korea was one of the OECD countries most severely affected by the global crisis, even though its financial sector had been relatively healthy.

Charities have become the latest victims of abuse by tax fraudsters and money launderers. Can they be better protected?

The global economy today is facing difficulties like we have not seen for at least half a century.  

Angel Gurría, Secretary-General of the OECD

When leaders of government, international organisations and civil society from around the world gather for critical discussions at the OECD summit meetings in Paris this June, one question will dominate the agenda: Is enough being done to restore confidence and long-term growth, and break the grip of the worst global crisis of our times?

In February 2009, Singapore and Hong Kong, China, undertook to bring tax transparency up to international standards and relax bank secrecy laws for tax purposes. Hot on the heels of these announcements were others from the Cayman Islands, Jersey, Andorra and Liechtenstein, and more recently we have seen Austria, Belgium, Luxembourg and Switzerland signing up to the OECD standard on exchange of information.

Though OECD work on making international tax fairer began over 50 years ago, it was not until 1998 and a report on harmful tax competition that the OECD stepped up its work against tax evasion, tax havens and abuse.

Environmentally-friendly investments form part of many recently launched recovery programmes. With the right policies, they could achieve growth and a cleaner planet as well.

Record fall in GDP; Economy; Gender learning; Other news; Soundbites; Plus ça change...

The progress on offshore tax centres at the G20 in London in April has fuelled international momentum to develop common principles and standards on integrity, transparency and propriety for a whole range of global challenges, including investment, the environment, labour and health.

Did you know that the number of people living in high-growth economies or in countries with per capita incomes at OECD levels has increased fourfold over the last 30 years to 4 billion?

Crisis bites deeper  ; Economy; Jobs opportunity ; Green teens ?; Tax information-exchange agreements; Freedom of Investment initiative; Fighting Bid Rigging in Public Procurement ; Development aid; Soundbites; Plus ça change...

The financial and economic crisis has already put millions of people out of work in the OECD area alone, and the unemployment figures are going to get far worse. What can governments do to ease the suffering? 

The world economy remains gripped in the deepest and most widespread economic crisis in modern times. The latest update of the OECD Economic Outlook expects GDP to plummet by an average 4.3% in the OECD area in 2009, and world economic activity to shrink by 2.7%.

The financial crisis and economic downturn are likely to put upward pressure on government debt. The trouble is, according to OECD in Figures 2008, public debt (general government debt, which includes central and local government) had already risen quite sharply in the OECD as a whole since 1987, from 59% of GDP to 75% in 2007. Two decades ago, Belgium had the highest public debt, but today that position is filled by Japan, whose debt rose from below 60% to 170% of GDP. Italy’s debt has also shot above 100% of GDP in the past 20 years.

As every number cruncher knows, there is a plethora of statistics available in print or online. Very often, the trouble is not how to find the numbers you want, but what to choose and how to use them when you do? How can you be sure about the quality of statistics you find?

The crisis sweeping the world’s economy is reflected in the output results for the third quarter of 2008, when GDP of the OECD area fell by 0.1% compared with the previous quarter. This was the first decline since 2001.

The global economic crisis has focused minds on restoring growth. But does growth necessarily mean progress? What about factors which growth depends on, such as the environment or happiness? Measuring true progress demands new indicators and a major global project to develop them is now underway.

Can 2009 bring a ray of light to lift the gloom and end the severest financial and economic crisis in decades?

The OECD Economic Outlook issued end-2008 sees some 21 of 30 member countries already in or heading into a recession that could last a year. Business investment will contract by over 5%, and unemployment could rise by at least 8 million by 2010. This social crisis is affecting families and communities across the planet, with emerging and developing economies suffering too.

The OECD and IMF forecasts for 2009 suggest that for the first time since the 1930s GDP will fall in the industrialised economies that make up the OECD. Yet even these forecasts are based on relatively optimistic assumptions that the financial markets begin to stabilise in the months ahead and that there are not other major “shoes to drop” in terms of negative financial shocks.

The economic crisis has hit the entire world economy, with governments stepping in to rescue financial systems and kick-start economic growth. This adds up to a triumph for government fiscal policy, though fiscal policy must be used audaciously.

Did you know that, even before the current recession and despite the economic boom of recent years, the gap between rich and poor and the number of people below the poverty line have grown over the past two decades?

OECD will work with governments in a two-strand approach to develop policies for tighter financial market oversight and risk management, and for economic recovery, Secretary-General Angel Gurría has announced. The plan will form part of a comprehensive contribution to the G20’s Action Plan agreed in mid-November, he said.

Many OECD economies are in or are on the verge of a protracted recession of a magnitude not experienced since the early 1980s. As a result, the number of unemployed in the OECD area could rise by 8 million over the next two years. At the same time, inflation will abate in all OECD countries and some even face a risk, albeit small, of deflation.

The effect multinationals have on wages and working conditions can be positive, but there are conditions to bear in mind, not least for policymakers wishing to attract foreign direct investment.

The pharmaceutical industry’s important role in the OECD economy is reflected in expenditure, with a total of US$569 billion on pharmaceuticals (excluding pharmaceuticals for in-patients) in 2005.

Emerging markets such as China, India and Brazil are increasingly regarded as central rather than peripheral players in the global markets. Can this “rebalancing” continue through the current crisis?

Consumer price inflation has been rising in many countries for the first time in several years. Indeed, the consumer price index for energy tracked alongside prices for non-energy and non-food for most of the last two decades, but jumped to a far steeper trend from 2003, the latest OECD in Figures 2008 reports.

Can the OECD Model Tax Convention, which is 50 years old this year, continue to fulfill its role of helping to make international taxation fairer and more manageable? Probably yes, though there are challenges.

UK warned on corruption; Gender gap persists; Tax progress mixed; Economy; News shorts (healthcare, pollution, education, migration); Soundbites; Plus ça change…

The financial crisis sweeping world markets is the worst since the Great Depression. While the crisis is biting into the real economy, hard lessons are being learned. How should policymakers move forward, particularly as room for manoeuvre is being squeezed?

What are the main impacts of the financial crisis on the real economy, and what lessons might we draw from the crisis for the future? The next OECD Economic Outlook due on 25 November will provide some answers. We asked the new OECD Chief Economist Klaus Schmidt-Hebbel for some early insights.

Denmark is confirmed as the OECD’s highest-tax country, followed by Sweden, while Mexico and Turkey remain the lowest-taxing countries, the latest 2008 edition of Revenue Statistics says. Denmark’s tax-to-GDP ratio stood at 48.9% in 2007, while Turkey’s was at 23.7% of GDP.

Deposit insurance limits

Amid the worst current financial crisis since the 1930s, some government leaders have pledged to protect savers’ deposits and others are considering this option. Already most OECD countries have explicit deposit insurance schemes for savings up to certain limits. In a number of countries these have now been raised temporarily. Until the latest statements suggesting unlimited guarantees in some countries, legal coverage was highest in Norway, France, Italy and Mexico (see graph). Click here for full story.

We welcome and support the adoption of the systemic rescue plan announced by the US government on 19-20 September , which will contribute to re-establish the normal operation of financial markets and preserve employment and economic activity.

Improving the diversity of biological habitats and ecosystems is a vital goal in itself, yet policies to encourage biodiversity, like most legislation, will have both supporters and naysayers. Limitations on land use to protect biodiversity can sometimes reduce income, but have broad benefits for the general public.

2008 will be a decisive year in the battle against climate change. Hopefully, it will see us forge an international consensus so an agreement can be reached in Copenhagen in 2009 that will allow us to build on the Kyoto Protocol.

Klaus Schmidt-Hebbel has been appointed chief economist of the OECD. A national of Germany and Chile, he joins the OECD after 12 years as chief of economic research at the Central Bank of Chile. From 1988 to 1996 he was successively economist, senior economist and principal economist at the World Bank.

International trade is very prominent right now. Can we start by looking at Switzerland's position?

As a very export orientated country, trade is extremely important to us. Switzerland has for years been open to trade deals, both as a member of the European Free Trade Association and through bilateral agreements, with 19 in all now.

We hear again and again that we must choose between having a stable climate and having a strong global economy. This is a false choice.

Harsh financial reality often rides roughshod over good intentions when it comes to corporate and national balance sheets. Climate change is no exception, for though it may rouse worldwide concern, it also makes people uneasy because of how much it might cost and who should pay.

Promoting effective competition in developing countries means getting tougher on cartels in the OECD area, and compensating customers internationally. Through a new competition fund, the OECD could play a lead role in making sure poorer countries get a fairer deal.

Financial market turmoil is at extreme levels and threatens economic growth in the OECD area and beyond. A near-term recession is likely in some countries, though the ultimate economic impact will depend on the ability of policymakers to soften the “credit crunch” now unfolding through the balance sheets of financial institutions.

The OECD’s campaign against harmful tax competition garnered a higher profile at the start of 2008 with disclosures concerning widespread tax evasion by Germans and others through Liechtenstein. The revelations drew wide media attention in Germany and beyond, and have prompted fresh resolve in many OECD countries to fight tax evasion via offshore havens. In fact, investigations have been launched in over a dozen countries since then, including Australia, Canada, France, Germany, Italy, New Zealand, Spain, Sweden, the UK and the US.

When Citigroup, a major US commercial bank, sold a large stake to an investor to offset subprime-related losses in late 2007, relief could be felt across the economy. But when people focused on the fact that the investor was Abu Dhabi Investment Authority, a wealth fund owned by a government in the Middle East, questions were raised.

Over the last two years, prices of agricultural commodities have risen spectacularly, and nominal prices for many crops and dairy products are at an all-time record high. This surge in prices is not unique, and when adjusted for inflation, the recent price spike is neither unique nor the biggest one to occur in the last three decades or so.

Economic forecasting is a worthy business. It helps governments, central bankers and companies take key day-to-day decisions about policies, investments, levels of spending, interest rates and so on. There is a rich and diverse supply to choose from, both in the public and private sectors. Whole businesses thrive on it and some major television networks have even turned watching the economy into a form of mass entertainment.

Until 2002, Japan was mired in a prolonged period of stagnation–the “lost decade”–which saw its per capita income drop from the fifth highest in the OECD area in 1992 to only 19th in 2002. The miracle economy that mesmerised the world in the 1980s looked decidedly weak. Now, thanks to exports and business investment, Japan has achieved the longest expansion in its post-war history.

Is the German Wirtschaftswunder back? The tide has obviously turned for the better in what for most of the post-war period was indeed Europe's “wonder economy”: after years of very slow growth at the beginning of the decade, the EU’s largest economy has been experiencing a strong upswing since 2005. The reforms of recent years, notably on the labour market, are showing positive results with the unemployment rate falling to a seven-year low of around 7.5%.

Internet 2011 alert; More oil investment; Financial reform needed; Economy; Germany signs tax convention; Pensions strength; Soundbites; Plus ça change…

With the world economy today experiencing turbulence on a number of diverse fronts, OECD countries are preoccupied with meeting these challenges.

It may be a truism among economists by now to state that more competition can improve a country’s economic performance by creating business opportunities, reducing costs of goods and services and boosting choice. But numerous laws and regulations still restrict competition in the marketplace.

Real estate is an important strategic sector in most economies–just think of the links to construction or the importance of property in the investment portfolios of pension funds. But it is also vulnerable to abuse for money laundering and tax fraud.

The gap in productivity and economic performance between the US and Europe has been a source of much debate in recent years, but many experts seem agreed on one point: that a lack of progress on reform in labour and product markets has not helped the European cause.

One of the main challenges for the future will undoubtedly be the migration of a highly skilled workforce from Asia (see for instance, “Globalisation and Labour Markets: Policy Issues Arising from the Emergence of China and India”, OECD Social, Employment and Migration Working Paper No 63, November 2007, www.oecd.org/migration).

The world economy faces challenges from the new powerhouses of China and India (see Nos 263 and 264/265, 2007). In order to compete, there is a case for closer co-operation between developed countries and, in particular, tighter integration in Europe.

Outlook deteriorates; Transport tackles CO2; Development setback; News shorts; Adult skills; Wikigender; Four new members; Pensions; Tax drag; Liechtenstein affair; Economy; Soundbites; Eastern promise; Brazil visit; Plus ça change…

Europeans, particularly women, generally work fewer hours than their US counterparts. How does this difference help explain the transatlantic gap in incomes?

How can governments promote higher living standards? A pertinent question for many countries in light of today’s rather unsettled economic picture. A basic step is to ensure good policies that support both productivity and labour market participation. Is this being done?

The Korean economic wave continues forward, with strong growth and low unemployment expected in 2008-2009. But the upsurge appears to have left some younger people behind. True, at 10%, Korean youth unemployment is below the OECD average of nearer 15%, and though the country has a lower employment rate, this reflects a much lower school drop-out rate and high participation in education.

With ageing and pressure on public finances, monitoring the pensions market has become an important task for policymakers. The market is vast: in 2006 the total OECD funded pensions market was valued at some $24.6 trillion, with a ratio of OECD pension fund assets to OECD GDP of nearly 73% in 2006, and above 100% in a few countries.

Innovation has played a modest role in explaining growth in both China and India in recent years, but both countries have work to do to sustain their promising growth paths. Moreover, there are important differences between the respective challenges that each country faces.

The OECD economic forecast for 2008-09 has been revised down. For the authors of the latest OECD Economic Outlook, policy settings should be adjusted accordingly. Several shocks have hit OECD economies recently: financial turmoil, cooling housing markets, and higher prices of energy and other commodities.

OECD Observer No 264/265, December 2007-January 2008

Strong economic growth has given India’s people much to smile about as their country celebrated its 60th anniversary of independence this year. They could achieve much more still, though changes would be needed.   

Has monetary union helped structural reform in Europe? The 2007 Economic Survey of the Euro area attempts an answer. On the one hand, well-functioning markets and stronger supply incentives would offer scope to better exploit the benefits of the euro, by taking advantage of more price transparency and lower international transaction costs.

As the 8th annual OECD Forum in May showed, everyone agrees that innovation is important, but not everyone agrees on the reasons why.

Fake goods are not cheap. In fact, they exact a heavy cost on industry, governments and the general public. There is a strong case for public action across OECD countries against counterfeiting. The question is how to make progress? Want to buy an expensive Swiss watch? Not everyone can afford a real one–a Patek Philippe timepiece can be worth many thousands of dollars, and some very exclusive makes, such as a Vacheron Constantin, can cost over a million!

 Economic prospects in the US, Europe and Japan have become less buoyant and more uncertain, OECD chief economist Jean-Philippe Cotis said today, Wednesday 5 September. Economic prospects were losing buoyancy, while the risks are becoming more ominous, he said. 

Are you confused about the state of your country and where it is going? Do you sometimes feel overwhelmed by the plethora of information–often contradictory–about the health of your economy, society or the environment? Governments should be judged on the effectiveness of their policies and projects, but against which benchmarks? And how can citizens take part in honest democratic debate about policy alternatives if they do not know what is really going on in their own country or region?

Announcements about enlarging the OECD’s membership and strengthening co-operation with other countries took much of the limelight at this year’s annual ministerial meeting. Below is an extract on enlargement from the Chair’s summary, followed by some selected highlights of the meeting.

OECD Observer No 262, July 2007

Property prices have been soaring for several years now in many OECD cities. A few markets, in UK and US cities for instance, have seen some cooling.

Dublin’s high property prices belie the city’s relatively small population–just over 1.1 million within the county. This pales compared with the 22 million inhabitants recorded for the metropolitan region of New York, which has the largest population of all OECD urban regions, and accounts for about 8% of the total population of the US.

Globalisation may have accelerated, but how big is international trade in a country’s income? For some major countries, the answer is not much bigger than before.

Should the US current account imbalance still cause global concern? The question is never far from the headlines in any major business newspaper or television channel.

The world economy seems to have entered a rebalancing phase, with Europe in particular showing signs of firmer growth just as the US economy is decelerating. This would seem to make it as good a time for reform as ever, and several large and small OECD countries are in fact moving ahead. While all countries should continually adjust to new global circumstances, for some the need to reform is particularly pressing. The road ahead will be challenging, but there may be lessons for policymakers to help them smooth over some of the bumps.

Remember manufacturing? For some policymakers with an eye on the future, it may be easy to forget. After all, manufacturing is on the decline in the OECD area in terms of GDP and employment. But according to “The Changing Nature of Manufacturing in OECD Economies”, an OECD working paper, there are many reasons to take manufacturing seriously, not least because of its role in technological innovation.

The global economy is into its fifth year of growth. The expansion enjoyed in the OECD area has benefited from the dynamism of large non-member economies, especially in Asia. Globalisation has helped these countries raise living standards and reduce poverty. Indeed, the participation of China, India and other non-OECD nations in global economic flows has been increasing at a remarkable pace, now representing around half of total world GDP (measured by purchasing power parities), about 40% of world exports and nearly half of the world’s energy consumption. They have become massive outward investors, too.

With some of the world’s G7 economies finally shaking off the sluggish economic growth of recent years, what are the priorities for reform? “Beware of reform complacency” is a common warning issued by economists during times of economic buoyancy.

Death and taxation may be certain, but what about the tax level? The answer to that depends more on social status and where you work.

Ever wonder what marriage and cooks have to do with economic growth? The OECD has the answer. The organisation’s publications are stocked in university libraries around the world, but it has rarely produced a textbook. Yet, questions are often asked about how national accounts are calculated.

Until recently, the OECD area was enjoying a prolonged period of non-inflationary growth despite rising oil and commodity prices. Underlying these favourable trends, persistent wage moderation provided for both price stability and strongly rising profits as well as vigorous job creation in the main OECD regions.

Russia needs to do more to attract foreign direct investment, in the wake of its move in early July to make the rouble fully convertible. This would strengthen its economy and reduce its reliance on oil and gas revenues, OECD experts say.

Dynamic countries tend to have a fast-growing and competitive city at their hub, even if cities accumulate social and economic disorders as well. San Francisco is the wealthiest in a new OECD ranking of 78 metropolitan regions, with income of $62,350 per head, adjusted for purchasing power parity.

A decade ago, used tyres ended up mostly in stockpiles, as an eyesore for landfill. Some 62% of old tyres went that way in 1994. Today, more are recycled for use in adhesives, insulation, brake linings, and conveyor belts, for instance.

Poland has just marked 10 years as a member of the OECD. It has made considerable progress, but more is needed to speed up convergence with the most advanced European economies.

If ever you are unsure about the advantages of open trade, why not take a lead from students in economics and consider the story of Robinson Crusoe. Generations of students have discovered how Crusoe, shipwrecked on a desert island and cut off from the outside world, improved his welfare as he became economically re-integrated into the wider world.

Are house prices peaking? They have certainly risen strongly, even in real terms – that is, when adjusted for inflation – since the mid-1990s in most OECD countries and, as the latest OECD Economic Outlook reports, their current upswing is the longest of its kind since the 1970s.

China has dominated policy and business thinking since the start of the century. Much has been written about its economic transformation and governance, about its huge business potential, and more recently about its influence as a major player in the wider world economy. But what is it actually like to do business there? Joerg Wuttke is vice-president of the European Chamber of Commerce in China and has been doing business there for 16 years, formerly with ABB China and now with BASF China. We asked Mr Wuttke for some personal insights.

Few economic questions in recent times have challenged policymakers and economists the world over quite as much as the US current account deficit. Some worry that it is a global economic time bomb. More recently, a contrasting argument has emerged that dismisses the deficit as little more than a harmless mirage. But most serious experts simply agree that the present situation is unsustainable. What has caused the deficit? Why is it a problem and how should it be dealt with?

OECD governments have been more effective at bringing in reforms to raise labour productivity than at helping increase the number of people in work, according to this progress report on action taken over the past year to enhance economic growth in each of the 30 OECD member countries.

Mexico’s economic performance has improved, but not by enough, according to the OECD Economic Survey of Mexico released late last year. Since the 1995 financial crisis, Mexico has made progress in terms of economic stability, and the economy is far more open, too. But while poverty has fallen, it remains widespread.

The Irish economy has transformed in recent years. It grew by 5.1% in 2005, half a percentage point faster than in 2004, driven by strong domestic demand and positive net exports. This continued the remarkable performance of the past decade, during which Irish incomes per capita have caught up with the OECD average. The forecast is for more strong growth in 2006-2007, with unemployment (4.2%) to remain relatively low.

A dangerous new trend is emerging in many industrialised countries. Widespread pockets of anti-globalisation sentiment, furthered by alleged national security concerns and a perceived need to protect “strategic” sectors have led to a resurgence of protectionism. Even in countries that have long promoted and benefited from global markets, politically-motivated barriers are being resurrected. These winds have temporarily chilled economic progress.

Home ownership, rather than rented accommodation, has become the norm in most OECD countries over the last 20 years. In fact, Germany is the only OECD country where the owner occupation rate is well below 50% of the total.

The picture of the German economy seems brighter than for quite some years. Should we feel confident?

Though legend has it that the ancient Olympic Games were founded by Heracles, a son of Zeus, the very first Olympics of the modern era took place in Athens, in 1896. The government at the time was unable to fund construction of a stadium, so a wealthy architect donated a million drachmas (over $100,000) to restore and use the Panathenaic Stadium, originally built in 330 BC.

The euro area has recorded a disappointing economic performance over recent years. Its per capita income grew on average by 1.3% between 2000 and 2005, compared to 1.9% in the US over the same period.

“The hills are high and the emperor is far away” is an old Chinese dictum that rapid growth is now putting to a severe test. Some consequences of rapid expansion, such as spending imbalances and regional lags, are probably inevitable in a country as large and varied as China, with its 1.3 billion people, multiple spoken languages and dialects, a score of provinces and five autonomous regions. But if they are not addressed, these problems could worsen, to the detriment of the economy.

Chile has elected its first female president, in Michelle Bachelet. As head of the left-leaning coalition which has led Chile since the country’s return to democracy in 1990, the new leader has promised continuity, though with a promise of more jobs and social justice. Tackling these issues could indeed make a difference, even if the economy has fared relatively well, as our OECD experts explain.

The pace of economic change in China has been extremely rapid since the start of economic reforms just over 25 years ago. According to official statistics, economic growth has averaged 9.5% over the past two decades and seems likely to continue at that pace for some time. National income has been doubling every eight years. Such an increase in output represents one of the most sustained and rapid economic transformations seen in the world economy in the past 50 years.

World steel production has grown at just under 2% per year–more than twice the rate of growth for the OECD as a whole–from 1990 to 2003. Experience within the OECD has been mixed with falling production in several countries, especially the Czech Republic, Poland and the UK, and strong growth in Korea, Mexico and Turkey and, from a low base, in Austria and Finland.

Insurance policies, whether covering travel, housing or business, increasingly carry fine print that carefully spells out whether or not they cover or exclude losses due to terrorism. Acts of “mega” terrorism, like the 9/11 attacks, or the bombings in Bali or Madrid, have overwhelmed insurance companies with claims, and insurers have since waived sole responsibility.

The Russian economy has now entered its seventh year of expansion, confounding almost everyone with an average real GDP growth of just under 6.8% per annum during 1999-2004. But the economy has come to depend heavily on the performance of a small number of natural resource sectors, above all oil. The trouble is, oil-sector growth has been slowing of late, despite record-high prices. Add to this a number of persistent institutional weaknesses, and doubts start to creep in about Russia’s capacity to sustain high growth over the longer term.

No-one knows exactly what the economic consequences of the Katrina hurricane in the United States will be, but the OECD can offer some key observations, said Jean-Philippe Cotis, the OECD's chief economist, as he opened this media briefing held on 6 September to outline the OECD's 2nd interim economic assessment of the year, two months before the next OECD Economic Outlook.

The outlook for OECD economy has recently become more downbeat. Six months ago, cautious optimism seemed warranted, with enough signs to suggest that the OECD-wide economy was regaining momentum. But these have faded somewhat.

Spain’s economy has been performing well, but more needs to be done to foster continuing convergence within the euro area, the latest Spain economic survey warns.

Disappointment about persistent economic underperformance is now widespread in several major OECD countries, particularly in the EU and Japan. At the same time though, governments accept that restoring growth is key to preserving standards of living, particularly at this time of rapidly ageing societies. Achieving this will be hard.

The Brazilian economy is bouncing back, but is the recovery here to stay? Brazil’s economic recovery is now well under way. Following a few years of unimpressive growth, the economy has bounced back more strongly than anticipated, with GDP growth of more than 5% in 2004, the fastest expansion in 10 years.

Services already make a substantial contribution to OECD economies, but they could contribute so much more. They need to become more competitive, for a start.

Why is it that US consumers are willing to spend more of their higher incomes on buying imports than is the case for foreigners on US exports?

Japan’s overall growth rate in 2004 had raised hopes of a full recovery from the stagnation of the 1990s. But output suddenly sagged again, as new data showed three straight quarters of decline. But the economy can get back on track in 2005.

If you are about to buy a house or rent space in the heady property markets of London, New York or Paris, then you may be bewildered by the consistent decline in property prices in Japan in recent years.

The adverse effects of the oil price shock are currently working their way through. But will prices settle back, or are higher oil prices now a fact of life?

Though the global recovery has been marking time, the conditions are in place for the global recovery to pick up momentum.

Since the 2001 slowdown, the world economy has moved in fits and starts. Economists as well as the general public are now longing for a smooth and sustained recovery, undisturbed by chronic geopolitical risks or abrupt gyrations in oil prices and financial markets.

The German economy is at last emerging from a three-year period of near stagnation. Domestic demand had been shrinking over the last couple of years, as a poor labour market performance weighed down on consumer and business confidence. But, as the latest OECD Economic Survey of Germany points out, a strong and competitive export industry is helping the OECD’s third largest economy recover its strength as world trade growth expands more rapidly.

Though I am a political rather than economic journalist, I grapple with economic realities in my work. Frankly, I find it hard to trust the experts – even those at the OECD! (Maybe my scepticism is typically French, but I’ll get to that in a minute.)

Since the 2001 slowdown, the world economy has moved in fits and starts and economists as well as the general public are now longing for a smooth and sustained recovery, undisturbed by chronic geopolitical risks or abrupt gyrations in oil prices and financial markets.

Luxembourg had the highest GDP per head in 2003, at over $50,000, above the US, Norway and Ireland, according to the recently published annual pocket data book, OECD in Figures 2004.

The momentum of the recovery projected in our Economic Outlook last spring has been only marginally dented so far by higher oil prices. By and large, the recovery continues to unfold as forecast at that time, with real GDP set to expand by around 3.5% in 2004 in the six largest OECD economies as a group.

“The end of World War II marked the beginning of a long period of prosperity in most countries now members of the OECD… and in many countries per capita incomes tended to catch up with American levels,” OECD Chief Economist Jean-Philippe Cotis observes in his foreword to Understanding Economic Growth.

Why is broad-based economic reform so difficult? And, even more fundamentally, what is economic reform anyway? A clear understanding of the problem offers the best hope of doing better in the future.

How far has the OECD economy travelled in the last two hundred years? According to economic historian, Angus Maddison, GDP per capita worldwide has risen more than eightfold since 1820, compared with a fivefold increase in population, though the rate of growth has been uneven by time and by country.

The revision of the OECD’s corporate governance principles provides a good example of how a more open and dialogue-oriented approach can ensure the global relevance of such instruments. The review involved not only consultation with civil society, labour and business in OECD countries, but was based on five years of policy dialogue in regions around the world, as well as putting the Principles to the test.

The newly revised OECD Principles of Corporate Governance were released on 22 April. The result is a stronger OECD instrument to help improve boardroom behaviour globally. And that means better business and stronger markets for everyone.

World production of crude steel rose by 6.1% in 2002 to total 902.2 million tonnes, with the OECD accounting for more than half of the total. But the OECD’s 53.3% share was lower than its 55.2% showing in 2001, with output rising by 2.5%.

University funding is hitting the headlines across Europe. In January the UK government only narrowly won a parliamentary vote to reform funding of higher education, after the prime minister, Tony Blair, put his “authority on the line”. Other European leaders will have been watching closely, as they also plan to revamp their higher education systems.

After a drawn-out period of fits and starts, a palpable recovery has finally taken hold across the OECD. Yet, the persistence of very large current account imbalances at this early stage of the recovery may complicate the encouraging outlook.

Japan’s economic recovery has been the highlight of 2003, with strong growth particularly in the second quarter. But as Randall Jones of the OECD’s Economics Department explains, challenges remain.

Reforms that instil greater coherence in social and economic policies would help Chile build on its successes and get the economy back on to a stronger growth path.

It is easy to knock globalisation, but it is all too easy to forget the benefits globalisation has brought too. Slipping back into protectionism is not the way forward.

Tax revenues fell slightly across much of the OECD area for the second year in a row, the latest edition of the OECD Revenue Statistics shows. Tax revenues (including revenues from compulsory social security contributions) as a percentage of GDP declined in 16 of the 27 OECD countries which reported data, with EU countries showing most of the drop.

Improving productivity is a goal in any business or economy, but a real difference in performance comes from the increase in productivity that comes from combining labour and capital. This relationship came into focus during the new economy boom as economists tried to explain how new technology and human capital worked together to lift growth potential to higher levels.

The main lessons of the years since the end of the Second World War are for me economic. They emerge from some remarkable developments which neither I nor anyone else foresaw. Both the speed and the extent of economic progress have exceeded what past experience would have suggested as likely or even possible.

Full convergence with international accounting and audit standards, better protection of minority investors, stronger enforcement of existing laws and regulations, and improved bank governance: these are some of the key recommendations in the white paper on corporate governance in Asia, published by the OECD in Tokyo in June.

Telecommunications costs – phone installation and the cost of time spent on calls – have fallen sharply in recent years, so why is it that OECD households are devoting an ever larger share of their income to communications?

Small may well be beautiful in the business world, but being small can also be tough going, in good as well as turbulent times. Red tape, taxes and other charges, capital costs, employment regulations, legal costs: issues such as these absorb a lot of small-company time and money, and can, in the end, become a barrier to either going into business, or surviving in it. Still, small and medium-sized enterprises (SMEs) account for over 95% of all firms and for 60%-70% of employment in the OECD area.

Your article on the German economy (“Germany: The case for reform”, OECD Observer No. 237, May 2003, also online) depicts only a small part of Germany’s problem. Foreign investment in Germany dropped in 2002 to only one-eighth of what it had been in 2001. Germany should implement reforms in bureaucracy and in the social state that could decrease costs for employers. The strict labour laws mandate high severance packages and a strict social benefits plan for the discharge of employees that do not take business requirements into consideration.

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.

The US recovery is, by and large, unfolding as projected in the OECD Economic Outlook published last April. In Japan, growth has surprised on the upside. In the euro area, the expected recovery has not yet materialised.

GDP grows as leading indicator points up; New framework for managing conflict of interest; FATF steps up money laundering battle; Vanuatu removed from tax haven list; Jobless rate higher; Investors get cold feet; Brazil, Chile and Peru students struggle

Is there light glimmering on the economic horizon? Phil Swan, chief economist at IBM and prominent member of the Business and Industry Advisory Committee of the OECD, searches for what he sees as being the tenets of global growth and prosperity. And that includes making Doha work.

Food security seems to have improved on average, over the past four decades, with food availability in terms of daily calories and protein per capita rising some 30% in developing countries between the 1960s and the 1990s. The number of malnourished children under five fell by about 37 million between the 1970s and the mid-1990s, and the incidence of malnutrition dropped from 47% to 31%.

Your article “Ukraine : A miracle in waiting?” is a very thorough, well-documented and fair analysis of the economic evolution in Ukraine.

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?

Resistance to pension reform marked the French political scene in May and June of this year, as public sector unions demonstrated against proposed legislation. We asked Martine Durand from the OECD Employment, Labour and Social Affairs Directorate to explain the basic reasons for the reforms and the protests.

African Economic Outlook: Regional conflicts, the global slowdown and the crisis in the Middle East are taking their toll on the African economy, even if there may be short-term gains: Cameroon and Ghana may be reaping the benefits of higher cocoa prices due to the civil war in Côte d’Ivoire.

Ukraine is a large country of some 50 million people that shares a border with OECD member, Poland. It was also the Soviet Union’s second largest republic after Russia. Like Russia, it has been rather slow since the Union’s dissolution in undertaking decisive economic reforms. The economy is improving, though there is much to be done before Ukraine can fulfil its undoubted economic potential.

Is the world heading on a path of diverging economic destinies? Could these developments undermine global security and stability? How should we respond to such dangers? These were just some of the issues debated by the more than 1,000 people gathered at the fourth edition of the OECD Forum, on the theme “Grow, develop and prosper”, and as ever held in conjunction with the OECD Ministerial Council.

Corporate governance in Asia; Russian progress on reform; Private investment in Africa; Economic indicator points down; Unemployment slightly up

The IMF and the OECD both emerged from a common postwar vision of the future of the international economy. Both have grappled with difficult issues, adapting themselves to face the enormous changes in the world economy since their creation. Both will surely need to grapple with enormous changes still to come. Kenneth Rogoff, Economic Counsellor and Director of the Research Department, International Monetary Fund, offers some thoughts on four issues of mutual interest that just might fill the pages of OECD Observer over its next 40 years.

Globalisation has made the world a smaller place and has changed the way of doing business in OECD countries. But did you know that a significant part of global integration reflects trade within transnational firms and industries?

What would your reaction have been if you had read the following sentence in a 1995 newspaper article: “Every year since 1950, the number of American children gunned down has doubled”? You probably would have been shocked, but would you have spent that much time thinking about the reliability of such an impressive “statistic”? For if you had believed it, as one often does when reading such headlines, you would have been making a big mistake. Suppose that in 1950 only one child in America was shot dead, then doubling this number 45 times, you would reach a number of 35 trillion children gunned down in 1995.

Korea’s economic recovery in 2002 – with GDP growth of 6% despite a sluggish world economy – reflects the success of its economic restructuring programme and the underlying dynamism of the economy. But this should not lead to complacency about resolving remaining structural weaknesses and addressing emerging imbalances, the latest OECD Economic Survey of Korea says.

Your article, “Ukraine: A miracle in waiting?” (OECD Observer No. 234, October 2002) identifies the problems preventing Ukraine from realising its considerable potential. It also notes the positive changes introduced by the reformist government appointed three years ago and maintained – at least in part – by that government’s successor.

Since we published our previous OECD Economic Outlook, six months ago, growth in the OECD has proved disappointing. The US recovery is still fragile and somewhat weaker than expected, while economies in the euro area have undershot an already modest forecast by a wide margin.

When the Berlin Wall came down in 1989, so too, it seemed, did the barriers to a new phase of Germany’s already formidable economic success. In the 1980s, growth of real GDP per capita in Germany and the other EU countries was roughly the same as in the United States, at around 2% per year. Sure enough, between 1990 and 1991, German growth steeply accelerated when incomes in the newly liberated East rapidly expanded, while growth elsewhere in the EU had sagged, having already peaked in 1988.

In 2001 an OECD ministerial report, The New Economy: Beyond the Hype, concluded that information and communications technology (ICT, or IT as it is also known) was an important technology that had the potential to contribute to more rapid growth and productivity gains in OECD economies in the years to come.

Jerez, an historic town in Andalucia, Spain, is the home of sherry. In 1991, it had one of the highest levels of unemployment in Europe. Around 19,000 people – some 42% of the active population – were in search of work. But by 1998, the number of unemployed had fallen to 11,000. For a town undergoing major structural change, with severe downsizing in the wine industry, this was an impressive performance. Contributing to Jerez’s progress was a range of local government measures to stimulate entrepreneurial activity.

Searching for the sources of growth is a never-ending activity. But it has recently gained a lot more importance for policymakers across the OECD. We are now at the end of a long and exuberant business cycle. The dust is settling. And many Europeans are now coming to the full realisation that, yes, economically speaking, North America and continental Europe may be growing apart. For large European countries, GDP per capita stopped converging to US levels in the 1980s. And it probably backtracked during the 1990s. The same conclusions apply for Japan (see graph).

The Composite Leading Indicator (CLI) for OECD countries published in April showed a drop of half a percentage point in February 2003, to 120.4 from 120.9 in January, a six-month rate of change that continued the downward trend first started in May 2002. Still, the CLI varied from country to country, though nearly all OECD countries, except for Italy and Japan, experienced declines.

Russia has “already travelled a great part of the road towards economic reform,” thanks in part to co-operation with the OECD, said Alexei Kudrin, Russia’s deputy prime minister and minister of finance, at a meeting of the OECD-Russia Liaison Committee held in Paris on 28 March.

The Asian Roundtable on Corporate Governance, organised by the OECD in partnership with the World Bank, met in Kuala Lumpur, Malaysia, in March to establish regional reform priorities and to develop a White Paper on Corporate Governance in Asia. Scheduled for release in Tokyo on 11 June 2003, the White Paper will set forth a common policy agenda for corporate-governance reform in the Asian region.

The taxman is taking a smaller bite out of pay cheques in many OECD countries, but married couples with children are still often given substantially bigger breaks than their single or childless counterparts, the latest issue of Taxing Wages found. The OECD report compares what workers are paid with what actually ends up in their pockets, taking into account personal income tax, employee social security contributions and any family-related cash benefits from the government.

Your article on “The global financial architecture in transition”, by Flemming Larsen, the director of the IMF office in Europe, says:

Israel has signed up to the OECD Declaration on International Investment and Multinational Enterprises, which calls for foreign investors to be treated no less favourably than domestic enterprises. The declaration also promotes voluntary standards of business conduct through the OECD Guidelines for Multinational Enterprises. Adherence to the declaration will enable Israel to share experiences with the 30 OECD members and other non-OECD signatories, including Argentina, Brazil, Chile, Estonia, Lithuania and Slovenia.

Do not underestimate some of the economic and political achievements of the last few decades. And do not overestimate some of the present transformations either. In the search for stability and prosperity, there is much to learn and no country has all the answers.

What have been the most important transformations of the last 40 years? An obvious answer, one might say, is the new wave of globalisation, accompanied by major demographic changes and the overwhelming success of the market economy. This answer should, however, be qualified, as it is rather the nature of the process towards closer integration of markets that has really changed.

International financial crises have been an on-and-off feature of the global economy in the past 40 years. Understanding how the international monetary arrangements came into play can point to ways of establishing a greater degree of control in future, argues Professor Mundell.

The introduction of the cash euro on 1 January 2002 has changed the lives of more than 300 million people. The second OECD Economic Survey of the euro area looks at budgetary policies and pressures in member countries, the prospects for economic recovery in the currency zone and the performance of the European Central Bank. But it also takes a special look at whether, with a single currency available across 12 countries, switching your bank account or mortgage to another euro area country is now an option or still a daunting task.

Private capital flows to developing countries were about US$2.2 billion in 1962, about a third of official aid flows. By the 1980s they were generally larger than the aid flow, and they rocketed upwards in the 1990s, peaking around US$300 billion in 1997. The most useful from the viewpoint of development was direct investment which was drawn particularly to Asia by the dynamism of its growth, and the availability of skilled labour at much lower wages than in the West.

The economy of the Federal Republic of Yugoslavia was devastated during the 1990s, but according to the latest OECD economic survey of the country, reform since the end of 2000 has marked a sea change in policy that has already had a number of positive effects. Difficult decisions have been taken to implement some structural reforms, and the economy has been substantially liberalised and stabilised. Inevitably there are risks to the hitherto positive macroeconomic developments, especially in Montenegro that has relied heavily on foreign aid. Export-led growth may suffer from the economic slowdown in Europe, Yugoslavia’s largest market.

Regulatory reform, like housework, is usually only noticed when left undone. However, the OECD recently gave the UK government a glowing report on its orderly house.* According to the report, the UK’s economic turnaround of the last two decades is owed at least in part to its pioneering regulatory reforms, especially those changes that increased competition and strengthened the business sector. The result is today’s flexible labour market with unemployment that is among the lowest in the OECD, a world-class financial services sector, and investment flows that are among the highest in the world.

The OECD composite leading indicators (CLIs) are designed to provide early signals of turning points (peaks and troughs) between expansions and slowdowns of economic activity. CLIs are calculated by combining together component series that cover a wide range of key short-term economic indicators. These include observations or opinions about economic activity, housing permits granted, financial and monetary data, labour market statistics, information on production, stocks and orders, foreign trade, etc.

Family-run firms tend to believe that principles of good corporate governance do not really concern them. This is a mistaken view. The question is how to convince them.

A new government has been formed in Turkey. The economy has been in some difficulty. How have the markets responded to this new government?

This Outlook is published at a time when the world recovery appears more hesitant and less widespread than expected. Activity bounced back early in 2002 but then lost momentum, in a context of weakening consumer and business confidence. This pattern of fits and starts is not unusual in the initial stages of a recovery but it has been associated with a further deterioration of equity and financial markets, which marks a clear departure from past business cycle experience.

Globalisation has given rise to a kind of economic “culture shock” and international business is one of the principal sufferers. Tens of thousands of companies are trying to conduct business in a global mosaic of legal, regulatory, business and social environments. Operating in all of these environments and responding to their diverse expectations of corporate behaviour is a formidable challenge, in particular as public (and market) pressure becomes more intense.

The recent spate of US corporate failures and breakdowns in truthful accounting has undermined people’s faith in financial reporting, corporate leadership, and the integrity of markets the world over. The fact that the wave of scandals has come hot on the heels of a collapse in the high-tech bubble has a sharp ironic flavour.

The current crisis in confidence over corporate financial reports raises questions that go well beyond a company’s financial sustainability. Business failures provide a vivid reminder of how fundamental corporate activity is to the lives and livelihoods of people and communities worldwide. As shareholders, institutional investors, trades unions, and policymakers take stock of the social repercussions of the Enron and WorldCom affairs, and with the UN World Summit on Sustainable Development (WSSD) still fresh in our minds, it is time for governments to address the limits of financial reporting.

A medium-term economic fallout of 11 September is the effect on commerce, in particular, transportation. During the “new economy” boom it was perhaps forgotten that we live not in cyberspace but in a physical world where even goods ordered online still have to be packaged with real paper, processed and sent to their final destination. All of this means transport. But following the 11 September terrorist attacks, the air transportation system was shut off for four days and the Port Authority of New York and New Jersey closed its operations for two days. The entire US transportation system was subject to severe disruptions that reverberated throughout the world.

The losses from the September terrorist attacks for the insurance industry (including reinsurance) are estimated at US$30-$58 billion. There is some uncertainty about payments on liability insurance, but even if the final cost is close to the lower estimate, insured losses in 2001 are likely to have been the highest ever, even outstripping the US$21 billion incurred when Hurricane Andrew hit Florida in 1992. The 1992 Los Angeles riots were the most expensive man-induced disaster to date, with claims of US$0.8 billion, almost entirely for property claims. In contrast, the 11 September attacks have led to claims on a variety of types of policies: life, property, auto, airplane, workers compensation and business interruption insurance.

The 11 September terrorist attacks in the United States inflicted casualties and material damage on a far greater scale than any terrorist aggression in recent history. The first and foremost cost was in human lives: over 3,000 people were killed, including office workers, aircraft passengers and hundreds of rescue personnel. Then, there was the destruction of physical assets: this was estimated in the national accounts to amount to US$14 billion for private businesses, US$1.5 billion for state and local government enterprises and $0.7 billion for federal government. Rescue, cleanup and related costs have been estimated to amount to at least US$11 billion. Lower Manhattan lost approximately 30% of its office space and scores of businesses disappeared. Close to 200,000 jobs were destroyed or relocated out of New York City, at least temporarily.

When Denmark pushed up a tax on very toxic nickel-cadmium rechargeable batteries, cynics might have quipped that it was just an attempt to raise more tax revenue. In fact, quite the opposite has occurred: a fall in revenue from the tax has been reported. The reason is that consumers finally switched to other less toxic alternatives, causing sales to drop. While this shows that taxes can help the environment, successful environmentally-related taxes can actually erode their own tax base.

Not long ago, transfer pricing was a subject for tax administrators and one or two other specialists. But recently, politicians, economists and businesspeople, as well as NGOs, have been waking up to the importance of who pays tax on what in international business transactions between different arms of the same corporation. Globalisation is one reason for this interest, the rise of the multinational corporation is another. Once you take on board the fact that more than 60% of world trade takes place within multinational enterprises, the importance of transfer pricing becomes clear.

“What goes up must come down” may not be among the most sophisticated theories of economics, but the dot.com boom of 1996-2000 – and its subsequent crash – is a reminder that certainty in business remains a chimera. The hype is over. How many PowerPoint presentations did we sit through being told that an Internet year was equivalent to four months? Well, when it came to the downturn those presentations were proved right, as the speed of the crash showed. But while large numbers of over-hyped dot.coms have gone to the great recycle bin in the sky, the technology remains.

Who would have thought it? After two decades during which government economic activity has been under attack, even on the retreat, there is a renewed and vigorous interest in fiscal policy in the United States. This is partly because of the serious events of 2001 that reminded us of the value of government, but it is also due to the recession, which has highlighted government’s role in stabilising market economies.

Only a few OECD countries have a lower ratio of tax revenue to GDP than the United States, and the programme of medium-term tax cuts introduced last year will lower taxation even further. Nonetheless, there exist several areas where reforms are desirable: first, the income tax system is very complex; second, incentives to work, save and create new businesses may still be harmed; and third, the higher proportion of revenues that comes from taxes on income rather than on consumption may be inefficient in the long run.

For some people, any tax may be a disincentive to work, but as a rule, the main tax disincentive comes from what is known as the “tax wedge” on labour. This is the difference between what employers pay out in wages and social security charges and what employees take home after tax, social security deductions and cash benefits have been taken into account. So, if your wage packet says 12 000, but your employer pays 16 000 to hire you, then the wedge is 4 000, or 25% of your cost to your employer. The size of this wedge varies, but there are signs that they are being reduced.

Regardless of the overall level of taxation and public spending, public social expenditures constitute over half of all public spending in most OECD countries. But while media reports often suggest great gaps between one country’s public social expenditure relative to its GDP and another’s, a closer look at how tax and benefit systems interact reveals that the differences between countries are narrower than they seem.

Tax burdens may soon start to ease in OECD countries. Certainly the political pendulum of the last two decades has been in favour of reducing taxes in proportion to the size of the economy. But while recent evidence may point downwards for some countries at least, since 1965 there has been a persistent and largely unbroken upward trend in the ratio of tax to GDP across most of the OECD area. Moreover, the OECD average rose further in 1999 and, according to provisional figures, in 2000.

Tax systems, and particularly international taxation arrangements, can struggle to keep pace with globalisation and market liberalisation. Most of today’s tax arrangements were developed in an era when tax authorities could rely upon exchange controls, highly regulated capital markets and technological constraints to protect them from the negative fiscal effects of global activities. These barriers to cross-border activities protected tax authorities from the full implications of the interaction between national tax systems. While corporations globalised, tax authorities remained constrained by national frontiers.

During the past quarter-century, economic and financial liberalisation across the world has led to the new, market-based financial economy in which we live. This transformation of the financial system has brought considerable benefits. But as the recent episode in Argentina reminds us, it has also been accompanied by too many financial crises, especially affecting emerging market countries.

After years of preparation and debate, the euro banknotes and coins have finally arrived. Since 1 January cash dispensers in the 12 member countries of the euro zone have provided crisp euro banknotes instead of national currencies, and all payments by credit card, cheque or transfer have had to be made in euros. Any national currency banknotes and coins left could be spent in parallel before losing their status as legal tender, generally by the end of February 2002.

Newness in politics has a long and eventful history. Globalisation and the battle for and against are no exception, as the events of the late 18th century show.

Although I tend to agree with several points in the article by Joaquim Oliveira and Tristan Price (“Brazil: More Than Just Potential”, OECD Observer No. 228, September 2001), I fear the authors are too optimistic. The long-term view for Brazil has indeed improved over the past 10 years or so. But, unfortunately, we must cross endless short-term bridges to get there. There are various traps along the way, as well as several challenges.

The OECD’s Brazil economic survey comes with a long echo. As a young reporter, I attended a 1980s news conference in Rio de Janeiro at which Brazil was presented as having “excellent long-term prospects”. It made me think of Harry Hopkins’ famous comment during the Great Depression: “People don’t eat in the long run.” Brazil has been the country of the future at least since I got here in 1977. The problem with this long tomorrow is that it never quite comes. There’s always a temporary obstacle in its way. In the late 1970s, Brazil was stymied by the energy crisis but “long-term prospects” were good.

Globalisation means many things to many people, but in essence it is actually quite a simple idea. Some of the accusations levelled against it appear to be without substance.

World trade and globalisation depend on responsible business practices, if they are to win public confidence and deliver global prosperity. That is where codes of conduct come in, whether towards the environment, labour or other ethical rules. Almost all of the world’s 100 largest multinational enterprises have issued environmental codes or policy statements on health and safety. The majority of them have also issued statements addressing labour practices. But do these codes work?

Taxing times

Understanding global public

At the end of 2000, Brazil – one of the world’s largest countries – was finally benefiting from a virtuous economic cycle of falling inflation and buoyant growth. Following a large exchange rate fall in early 1999 after the peg to the US dollar was broken, growth – initially export-led – gradually became broader-based, reaching a healthy 4.5% for 2000 (see chart). This in turn led to higher tax revenues, helping fiscal adjustment. Inflation and the currency, the real, remained stable, while interest rates progressively fell, supporting both investment and a reduction in public debt.

The OECD's chief economist, Ignazio Visco, gives his views on the outlook of the world economy in an interview with the OECD Observer.

E-businesses are not in decline, rather they are growing up. Governments should take note. With astonishing speed, the mood on e-business has swung from hysteria to hangover. Pick up a newspaper these days, and you get a distinct sense that there is almost a gloating about the gloom.

In 1930 – a period of numerous technical innovations – John Maynard Keynes wrote a thoughtful essay imagining the economy 100 years hence. He predicted substantial improvements in living standards stemming from capital accumulation and technical change. And he even concluded that mankind’s adjustment to productivity increases will ultimately imply a need to work only a 15-hour week in order to meet economic needs!

National borders are routinely breached by diseases, pollutants, cyber viruses, subversive ideas and terrorists. In recent years there has been an increase in such activities, known as transnational or global public goods.

The private sector is a vital component of sustainable economic growth in a global economy. But the freedom multinational corporations have to operate internationally carries with it a responsibility to help ensure that the social and environmental costs of their business activities do not outweigh the benefits.

Economic growth in the OECD area has been weakening since the autumn of 2000, but the outlook could improve. Growth is now projected to drop to 2% in 2001, half last year’s rate, before recovering next year to 2.5-3%. At the same time, OECD-wide unemployment is projected to stop falling. Slower growth and a fall in oil prices will help to keep inflation low.

The euro makes its second grand entrance on January 1, 2002, when it physically replaces the currencies of 12 European countries. One of the puzzles during its “virtual” existence so far, however, has been its anaemic performance on the foreign exchange market.

Eight rounds of global trade talks have still not reduced trade barriers enough. Developing countries’ concerns about access to industrial markets must be met before a new round can even be launched, let alone succeed.

Since their creation in 1976, the OECD Declaration on International Investment and Guidelines for Multinational Enterprises have reflected the expectations of signatory countries and their citizens as to how international companies should operate and relate to governments. The OECD Declaration, of which the Guidelines are an integral part, aims to improve the climate for foreign direct investment. At the same time it seeks to encourage good conduct and the positive contribution that multinational enterprises can make to economic, social and environmental areas in the countries where they operate.

The review of the OECD Guidelines for Multinational Enterprises concluded in 2000 was two years in the making. It was a difficult challenge, but a nonetheless successful one. There are several reasons for this.

Another exchange rate-based stabilisation has been tried and failed in Turkey. Just 14 months into a three-year programme to end decades of high inflation, the government was forced in February to abandon the currency peg that had been the anchor of its strategy, sparking an immediate devaluation of its currency, the lira, by around 30%. The programme had started out with unprecedented political backing, achieved impressive initial results and was widely believed to have a far better chance of success than many previous internationally supported programmes for Turkey. So what went wrong?

Multilateral trade agreements have helped e-commerce get ahead in many direct and indirect ways. Two notable contributions include:

OBSERVER: Why is taxing e-commerce such a controversial issue?

E-commerce has only just begun and already everyone is talking about m-commerce. What is it exactly? And who can benefit?

To understand the changes being driven by the new economy, policymakers will need to look at the big picture.

Electronic commerce has been a much used and abused term. A lot of hopes have been placed in it, a lot of promises made of it, and yet its precise meaning has not always been easy to pin down. One thing is clear: in terms of transactions e-commerce is large – equivalent to the total value of industries such as pharmaceuticals and computer hardware – and growing.

French citizens have believed for some time that their health care system, while perhaps costly, is among the best in the world. But when the World Health Organisation (WHO) released its official rankings in June, the French found out just how privileged they are.

Only bearded men in mountain cabins want government to disappear. The rest of the population understands that yielding a certain amount of personal “sovereignty” is a fair trade for a few curbs on the effects of human frailty.

This is the third economic revolution France is undergoing in less than fifty years. The first one took place in the Fifties and the Sixties, and was about modernisation. Admittedly, France had been a very rich and innovating industrial country, second only to the United Kingdom, since the very beginning of the 19th century. But then, during the first half of the 20th century, it had been bypassed by newcomers like the United States, Germany and even Italy, Russia and Japan – a factor that, along with a weak demography, contributed in no small measure to the ignominious defeat of 1940. Post-War France made economic recovery and reindustrialisation a top priority – and succeeded in an amazing way.

Most of us, when we hear corporate governance, tend to think of codes, like the well-known Cadbury Code, that have emerged over the past few years. These governance codes usually recommend that companies change their board structures and procedures to make the company more accountable to shareholders. Often they suggest increasing the number of independent directors on boards, separating the position of chairman and chief executive officer, introducing new board committees – such as the audit committee – and so on.

The key note speaker at this session, Bernard Vergnes, Chairman of Microsoft Europe, Middle East and South Africa, delivered a message of enthusiasm about the new economy. He described Microsoft’s vision, as well as its contribution to overcoming the digital divide, within and without developed countries.

The US economy has been growing at a staggering pace for almost a decade, outstripping all expectations, to produce the longest expansion in a century. But could it have been forecast?

Letter to the editor: Sir, The received wisdom that the euro zone remains an unreformed economy doomed to high unemployment and low growth rates fails to satisfy on two counts. Firstly, it makes the mistake of treating all euro zone countries as homogeneous examples of the European “social model”, ignoring the wide diversity of actual practice.

Letter to the editor: Sir, Vincent Koen pronounces the euro to be a success, and argues that economic fundamentals suggest that the euro will appreciate against the US dollar over the longer term. I believe that such an assessment is premature: while the euro may appreciate in the medium term, its longer-term prospects look less robust.

In a 1995 study of investment and loan risk data for 52 countries, Alberto Ades and Rafael Di Tella found that an increase of US$4,400 in per capita income would improve a country’s ranking on a corruption index (0 for total corruption, 10 for total integrity) by two points. An increase in exposure to competition would also lead to an improved ranking. Such findings not only show the links between underdevelopment and corruption (see article by Irène Hors), but they underline the extent to which corruption has a strong economic dimension.

The biggest business news in Japan in 1999 was the merger between Nissan and Renault. Nissan Motor, which ranks second after Toyota in Japan, had been ailing financially during the 1990s and its rating had slid into the “speculative” category. The company had been looking for a partner to salvage it from its ever-deteriorating financial condition. But in March 1999, after a number of speculative rumours, the news was confirmed that the French automotive firm, Renault, would acquire 36% of Nissan stock and would send Carlos Ghosn as Chief Operating Officer to replace the bureaucratic and slow-moving management in Nissan. Since then, there is no doubt that this Brazilian-born 45 year-old is by far the most frequently interviewed and most often quoted businessman in Japan.

Massive job cuts like those announced in October at the Japanese automotive firm, Nissan Motor – some 21,000 worldwide – always make hard early morning reading. This must be particularly true for the Japanese, who are traditionally cautious about foreign participation in their firms and for whom mergers are relatively new. Other large OECD countries are more used to the topsy-turvy world of mergers and acquisitions. Some seem frankly unconcerned about who owns their firms, as long as those firms are well managed and deliver the goods, so to speak. And in the globalised market that sentiment is likely to become more widespread.

The rise in temporary employment and job mobility in OECD countries is mirrored in the rapid growth of personnel supply services. This sector provides staff on a short- or long-term basis to other sectors of the economy, mainly to deal with temporary staffing shortages. Traditionally, the sector concentrated on the supply of office and administrative staff, but nowadays, a wide range of highly skilled personnel are supplied, even company directors.

What have the following activities got in common: computer software and information processing services; R&D and technical testing services; marketing services; business organisation services; and human resource development services? The first answer is that they all fall into broadly the same category of “strategic business services”, that is to say, they might not be core parts of a traditional manufacturing firm’s business, but they are important complements to it. This point explains a second common characteristic: these strategic services are increasingly outsourced in OECD countries, rather than handled from within a firm’s own resources.

Focusing on “headline” rates of tax can easily generate misleading conclusions about how much marginal income tax people pay and about the effect taxes can have on earner behaviour. In the second of their two-part series on income taxes, Flid de Kam and Chiara Bronchi explain why.

When comparing different tax systems, most people tend to look at top rates of personal income taxes imposed by central government. However, concentrating on these ‘headline’ rates can be misleading. In the first of a two part series, Flip de Kam and Chiara Bronchi explain why.