Global Leaders Angel Gurria

Ángel Gurría has served as Secretary-General of the Organisation for Economic Co-operation and Development (OECD) since June 2006. Previously, he served as Mexican Secretary of Foreign Affairs and Secretary of Finance and Public Credit. In this in-depth interview with former CNN news anchor Todd Benjamin, he shares his thoughts on the emerging economies, global inequality, anti-corruption, and the ongoing relevance of the OECD in a world of shifting economic power.

Todd Benjamin: I want to start with the global economy because it’s a very uneven recovery. The OECD came out with new forecasts, and you’ve actually downgraded both those forecasts. Why have you had to reconsider?

Ángel Gurría: Well, the legacy of the crisis is very heavy and it’s in four different areas. We have very low growth worldwide, very high unemployment and growing inequalities. The fourth is a great loss in the trust people have in institutions. What we also have today is that we are typically not firing on all four cylinders. The growth of trade is about half what it should be. Investment is growing at about 1.7 per cent in the OECD, the lowest in many years. Credit in the OECD region is flat. And last but not least, who has been supporting the very little growth we’ve had? The emerging economies. Well, they are slowing down. China has kind of recovered its footing, but the rest of the larger emerging economies are slowing down. So the four cylinders are in first gear and we can’t get them off that.

TB: Why can’t we get them off first gear? Is it a failing of policy?

ÁG: It is both a combination of policy and political reasons. In the US you have a vibrant recovery, but we still leave about one to 1.5 per cent growth in the ink pot because of the so-called ‘sequestration’. Now, what is at stake in the US? Well, it’s governance, it’s the polarisation of politics. And the result is that they had a big budget issue, they pushed it three months down the line. This is a non-economic example of why that has an effect of uncertainty on economics itself. There is a tapering of the Fed, which is also causing a lot of ripples around the world, and there are issues in Europe, which have to do with governance and leadership.

TB: You mentioned growing inequality, and this is not only an issue in developing countries, but a growing issue in the eurozone. Do you see any remedies?

ÁG: This was a problem before the crisis, but there’s nothing like a good crisis to make it worse. When you have 15 million more unemployed in the OECD area alone than before the crisis, you have all the elements that are going to make those inequality numbers worse. There is also the almost proverbial ‘one per cent’ of the people in the financial area who are making a lot of money, whereas the bottom ten or 20 per cent are losing ground. And there’s also the result of hundreds of millions coming into the labour market, from India and China and so on, depressing real wages throughout the world. We need to address this in a targeted way, with the availability of services, of education, of health services, of financial services, and also with training.

TB: Ángel, these are all well-known things, but many of these things cost money and we live in an age of austerity. Also, we live in an age where there’s a lack of trust, as you pointed out, in public institutions. How can we narrow this trust gap and how can we bring about meaningful change?

ÁG: The problem, is no matter how tight your budget is, you can’t say I’m going to forget about the most vulnerable people in my midst. For the first time, we’re seeing youth unemployment skyrocket and long-term unemployment increase. We have never seen something like that in the US. We risk losing a whole generation. So no matter how tight the budgets, keep those elements that will allow for activation policies, for taxation incentives, for retraining incentives, and keep the dialogue between the private sector, the unions and the government.

TB: But as you’re aware, the great debate in this post-financial crisis has been those between who believe that governments have cut too much in terms of austerity and those who believe they shouldn’t have cut back as much. When Mexico was going through its troubles in the 90s, you were the architect of Mexico’s economic stabilisation plan – which included cuts in government spending. So are you a proponent of austerity or do you think it’s gone too far?

ÁG: I had to cut the budget four times in one year because the oil went down to $10 when we were depending 40 per cent on the oil.  But we ended at seven per cent because we created an element of confidence. And what is missing here is we are dealing with short-term issues, but we are not creating the medium-term context. In the case of the US, we may get the debt situation resolved, but if it is not in the context of a medium and long-term plan, including reduction of the debt, there’s no credibility. And the same thing is happening in Europe.

TB: Isn’t the reality that we’re going to have several more years of austerity and trying to get back on track, with a real lack of leadership in terms of creative programmes to try to mitigate some of those impacts?

ÁG: But why is it that some countries are doing better than others? Why is it that Germany has less unemployment than it had before the crisis and their public finances are in relatively good shape?

TB: Because they took the pain much earlier.

ÁG: Because they took the pain much earlier; and the Swedes also took the pain much earlier; and the Mexicans took the pain much earlier, because we had our own debt problems in the ‘80s and ‘90s. But there was some pain to take and there was some adjustment to take. Let me tell you what has happened with unit labour costs: for the last 12–13 years in Europe, most of the countries have been increasing wages higher than productivity. Germany increased wages below the level of productivity. What happened? There was a 25 to 30 per cent gap in competitiveness, and remember they have the same currency and trade rules so they cannot devalue. It’s a hard-won edge in productivity. And what have the others done? Spain, Italy, Ireland, Portugal, Greece; all are converging now and practically all of those countries now are in a current account surplus or in balance. So it’s not that countries are not taking the necessary actions, it is that these actions take time to show a result.

TB: Let’s talk about Russia for a moment because it is in the process of accession to the OECD and there’s been a lot of criticism about its human rights records and corruption. It’s a signatory to the Anti-bribery Convention, which has been hailed as the gold standard in terms of monitoring corruption, and yet you are allowing this country to potentially become a member of the OECD. Doesn’t that undermine your credibility?

ÁG: First of all, it is the whole membership of the OECD that decided that Russia was a country with which they’d rather engage. The last chapter of Russia’s accession to the OECD is the political dialogue and that will be held with the Russian authorities and with the membership, no longer with the secretariat, no longer with our committees or experts.

TB: From where it stands now, do you think they should become a member of the OECD?

ÁG: I think the transformational power of the process of joining the OECD is one of the most important elements of the accession process: the capacity of countries to use the accession process to produce changes with legislation and regulations etc, but also cultural changes. Things like corporate governance are being addressed by 22 different committees, each one of them in their own specialty. And six or seven of them have already said we’re satisfied that the Russians are in the process of getting in good shape. Now, the other 15 still have to declare that, so we expect to use the better part of 2014, perhaps even part of 2015, to do just that.

TB: You say that this process can be a great facilitator in terms of bringing about change, and yet look at the death of lawyer Sergei Magnitsky. He’s believed to have been tortured in prison before he died after uncovering a massive corruption scandal at the heart of the Russian government. Doesn’t this make something of a mockery of the OECD’s Anti-bribery Convention?

ÁG: First of all, they’re not related. The question that you mention is one being dealt with by a number of countries. The Anti-bribery Convention is fairly straightforward. It’s a question of the Russian government committing to check on Russian companies that they are not trying to bribe officials in third-party countries in the pursuit of business. Now, what happens is in exchange for Russia committing to that, the British are committing to that in Russia and the Spanish are committing to that in Turkey and so on. So you create a network of commitments.

TB: This question is from Swaziland: ‘Since the failed OECD attempts at establishing a multilateral agreement on investment decades ago, what specific efforts is the OECD making to bring about a similar instrument since BITs and regional investment protection agreements seem to have taken over?’

ÁG: What happens is that we have a standard. This standard, to avoid double taxation and to protect investments, is a standard that is now being used in 4,000 to 5,000 different bilateral and regional agreements. Now, we always aspire to move towards a multilateral investment agreement. We have all these multilateral agreements on the governance of multinational companies, we have all the national contact points where we check on the ethics, the transparency and even the human rights. After Rana Plaza [factory building collapse] in Bangladesh, all these were strengthened. We had a big conference here. Part of the result is that a number of companies got together to make sure that the standards for the buildings in which these people work in Bangladesh and other countries are improved.

TB: [On the subject of transparency and ethics], a recent global financial integrity report estimated that developing countries lost $5.86tr to illicit financial flows from 2001 to 2010, and that corporate tax abuses account for 80 per cent of those outflows. If those flows could be stymied, this would solve the debt crisis of these countries in one fell swoop. Why is this proving so hard to achieve?

ÁG: Well we’ve made a lot of progress. There are 120 countries today exchanging information. And this is because the OECD standard is information on request. We are now migrating from that to a more ambitious standard, which is automatic exchange of information on taxes. Do you know how many of those agreements we had in 2008? We had 40 and none of them worked. Now we have 1,200 that are working.

TB: Let me read to you something from a Yale professor, Thomas Pogge, Chair of the IBA Task Force on Illicit Financial Flows, Poverty and Human Rights: ‘The fact that sophisticated tax planning strategies are technically legal is no longer a justification for their use. The impact of tax abuses facilitated by secrecy jurisdictions on global poverty is tremendous. The international community has not only a legal obligation but also a moral duty to ensure that states use the maximum resources available to fulfil the civil, political, economic and social rights of citizens.’ I would assume you agree with him.

ÁG: Totally. But I would also underline one word he said and that is that today it is legal for those companies not to pay taxes. The problem with multinational companies is that since the League of Nations we’ve been so worried about avoiding double taxation that we created double non-taxation. Because nobody pays anywhere: they don’t pay in the place of residence of the company and they don’t pay where they operate. We have to fix this. We have to change the laws.

TB: We’ve got more questions here and this one is from Michael Thompson from the UN Office for the Coordination of Humanitarian Affairs.  He says, ‘Following the Philippines typhoon, two major challenges for business will be: one, the relative scarcity of cash because of global finance markets and the relatively low insurance penetration in the Philippines; and two, the traditional culture of corruption that taints the Philippines.’ His question is this: ‘What sort of advice can public sector relief organisations and private sector businesses provide as they try to make the most of the investment and redevelopment opportunities in the Philippines, and has the OECD ever addressed these types of issues before?’

ÁG: Yes, and we don’t have to wait for a typhoon to deal with corruption or the penetration of insurance products. We have a big initiative on financial education. We have a big initiative on financial consumer protection. And, of course, the first thing that you have to advise on is the protection of the public assets: schools, roads, hospitals. When they’re not insured, the countries sometimes take years to rebuild.

TB: There’s a lot of debate over who should pay for these tragedies, what’s been known as ‘climate injustice’. Should rich countries be responsible for paying for the clean-up and redevelopment of areas hit by climate change?

ÁG: Well first of all, the more prepared you are, the less the cost will be. Second, the more insured you are, the less discussion there will be about who pays for what. And last but not least, in a situation like the Philippines, I would call on everybody’s support in order to help a country that is too poor to sustain these huge costs.

TB: Earlier you were talking about emerging markets and the US and Europe. We didn’t talk at all about the Middle East. First of all, there are currently no members from the Middle East except Israel in the OECD. Is this something that urgently needs to be addressed?

ÁG: We have been working very actively for about ten years in the so-called OECD MENA programme on investment issues [MENA-OECD Investment Programme], on development issues and on governance issues. We’re working with Morocco, Jordan and Tunisia, we’re working with Egypt and Libya, we’re even working with Yemen on things from education all the way to governance and anti-corruption.

TB: What impact has the Arab Spring had on your work in the region?

ÁG: We’ve moved from what was a more systematic medium and long-term horizon to trying to address some of the shorter-term issues, such as capacity building. But mostly trying to prepare those countries for things like governance items: education, health policies, the transition from school to work, anti-corruption, public procurement – things that they have to do regardless of which government is in charge.

TB: Two years ago, in an interview with the IBA, Nicola Bonucci, the head of your legal affairs, talked about engaging with Egypt and signing it up to the Anti-bribery Convention. Considering recent events, what is the OECD’s position with regards to Egypt now?

ÁG: They may not be concerned about signing the Anti-bribery Convention in the short-term because they are otherwise engaged. We can understand that. But we are continuing to work with Egypt on small and medium enterprises, on education policies and anti-corruption policies. We are there to work with them but also to work for them. This is the most important thing, to use all the expertise and all the experience that we have, and say what can you use and can we help you put it in place?

TB: The OECD does not yet have legal instruments in human rights. Is this something that you’re going to address?

ÁG: I think the members chose to have the issues of human rights dealt with by other institutions. I would say that this is very typically a UN type of issue, but also the Council of Europe sees human rights as one of the most important issues that they work with. So far the membership of the OECD has asked us to deal with economic and social issues of practically every type, and then third on environmental issues, and I would say the fourth is very much on governance issues.

TB: You mentioned the UN just a moment ago and of course the OECD is tracking the UN’s Millennium Development Goals (MDGs). What do you think the chances are of reaching them by 2015?

ÁG: It is not widely known, but the MDGs were born here in the OECD, as we were discussing whether and how we could quantify the medium and long-term goals of the world in terms of development. And appropriately, I think, the UN took over. We play the supporting cast. But there are two issues now. First, we still have until 2015 to continue to deliver on the MDGs. We shouldn’t give up. Second, we have to decide whether we want to have the same kind of simplicity. The MDGs were easily understood, the targets were simple. Now we have to move to a more complex set of goals.

TB: I know you believe passionately in the work the OECD is doing, but it’s not without its critics. Some people call it a toothless organisation because your recommendations aren’t binding. Others point to the fact that the developed countries dominate the OECD, and how can your organisation be relevant when you don’t have China or India or Brazil as members? Can you address these issues?

ÁG: In terms of developing versus developed countries, I think the fact that there’s a Mexican leading the organisation speaks for itself. We’re not a think-tank, we’re a ‘do-tank’. We deal in policies. So when a country enters into a dialogue with the OECD, whether it’s a member or not,  and the only thing lost is opportunities. I think those countries that have come to the OECD have adopted best practices and have done well.

We work very closely with our key partners, meaning Brazil, China, India, Indonesia, South Africa, and we mentioned Russia now wanting to join. We have Colombia. We have Costa Rica joining the organisation in the next two to three years, plus other European countries that are already developed, like Latvia and Lithuania. We have a Southeast Asia programme. We’re going to open an office in Indonesia and we work closely with the other large emerging economies. So membership is not an obstacle for us cooperating with these countries. What is important is that we set the standards.