The OECD countries experienced a major financial crisis that led to the deepest recession since the Great Depression. Governments and central banks swiftly took unprecedented steps to save the financial system, and a wide range of policy measures were undertaken that overall seem to have set the stage for a gradual recovery.
As the recovery takes hold, the swift actions that were taken in response to the crisis will need to be reassessed as to whether they help support sustainable growth going forward. In last year’s report, principles were enounced for policies that could support demand in the short term, while at the same time help to ensure robust long-term growth. The lead chapter (“Responding to the Crisis”, Chapter 1) examines in detail the actual policy responses in all OECD countries. Three main conclusions stand out:
● OECD countries have so far avoided the major structural policy mistakes of some past crises, such as imposing severe protectionist measures or highly damaging labour market policies like early retirement schemes. Other measures were taken that will help to contain the long-term damage of the crisis for material living standards and welfare, such as in the areas of R&D, infrastructure, labour taxes and active labour market policies.
● Going forward, significant risks remain, however. With unemployment likely to remain high for some time, governments will face pressures to maintain or introduce labour market measures which, if entrenched, coulddurably reduce labour utilisation. Likewise, depending on the magnitude and composition of adjustment in taxes and spending, the much-needed consolidation of public finances could affect long-term income levels.
● The urgency of structural reform has in general been reinforced by the crisis. This especially holds for the need to revamp financial regulation. Reforms are also needed in other areas, such as labour and product markets, where they could speed up the recovery, help consolidate public finances in a way that protects long-term growth and, in some cases, contribute to reducing current account imbalances.
Against the background of a strong need for reform in the wake of the crisis, the overview of reforms (Chapter 2) assesses the progress that each country has made over the past five years in a broad range of structural policy areas where government action could boost long-term growth. The country notes (Chapter 3) in this year’s edition also highlight those priorities that seem most urgent to address during the recovery. Despite the depth and extended nature of the crisis, differences in per capita GDP have not changed much, and can to a large extent be explained by structural policy factors that are the basis on which structural policy priorities are identified in Going for Growth. The main reformpatterns that emerge from the stocktaking exercise carried out over the period 2005-2009 are the following :
● OECD countries have followed up on Going for Growth policy priorities since 2005. Two-thirds of them took some legislative action in at least one of their priority areas each year.
● At the same time, reforms have been typically incremental rather than radical in nature, and most have not been ambitious enough to warrant a removal of corresponding Going for Growth priorities. Furthermore, the pace of structural reform seems to have slowed recently.
● There is broad variation among the countries that have been most active in structural reform since 2005 in terms of geography, size and income levels, although a majority are small OECD economies.
● Experience with past reforms reviewed in this chapter confirms that they are easier to undertake where they entail only benefits and little or no short-term cost, and harder to carry out where they may hurt the short-term interests of specific groups, such as incumbent investors, farmers or labour market “insiders”.
This issue of Going for Growth also contains special topical chapters on intergenerational social mobility, prudential regulation and competition in banking, as well as an application of the Going for Growth methodology to Brazil, China, India, Indonesia and South Africa.