Transcript Who, what and why is the OECD?

Who, what and why
is the OECD?
Economics of OECD Countries
Introductory Lecture
Mark Robson LMH
25 April 2005
Who, what and why is the OECD?
• Purpose of this lecture
• To set the scene for all those to follow
(Martin Rebick on Friday)
• To put the economies in context
• To explain how the OECD came into being
and what it does
• Not examinable!
What is the key question?
• Why did the USA so strongly want Mexico
to become a member of the OECD in 1993
and was it the right decision?
• Or similarly
– Japan and Korea
– Germany and Czech Republic/Poland/Hungary
• Compare with
– UK and Australia/New Zealand
Supranational Organisations
• United Nations (1945 - now 191 members)
– Some linked but independent organisations (like the
three Bretton Woods institutions):
• International Monetary Fund
• International Bank for Reconstruction and
Development (“The World Bank”)
• World Trade Organisation
– Similarly WHO, ICAO, ILO, UPU, 7 others
– Also offices (UNESCO) and programmes such as
UNHCR, UNDP, UNICEF
OECD is different
• Minority sport with only 30 countries
– but now genuinely global, not regional such as
ASEAN, APEC, NAFTA, MERCOSUR, EU
• Exclusive, by invitation only
– regional groupings usually wish all neighbours
to join but this is deliberately selective
• European Commission has special status
– on account of its role at eg WTO as negotiator
for the EU/Turkey Customs Union
Theory
• “An Economic Theory of Clubs” (1965)
– James M Buchanan (Nobel Prizewinner 1986)
Economica 32:125, pp 1-14.
– Inventor of Public Choice Theory
– You can download it from JSTOR
– Bear in mind his context
• “Racial discrimination was regulated by the so-called Jim
Crow laws from the Civil War, primarily (although not
exclusively) in the U.S. Southern States. Such legal
segregation lasted up to the 1960s.”
(from www.nationmaster.com)
How did it start?
With a speech
by this man
on 5 June 1947:
How did it start?
With a speech
by this man
on 5 June 1947
George C Marshall,
US Secretary of
State, given at
Harvard University
The Marshall Plan
• “In considering the requirements for the
rehabilitation of Europe, the physical loss of
life, the visible destruction of cities,
factories, mines and railroads was correctly
estimated but it has become obvious during
recent months that this visible destruction
was probably less serious than the
dislocation of the entire fabric of European
economy.”
The Marshall Plan
• “The truth of the matter is that Europe's
requirements for the next three or four years
of foreign food and other essential products
- principally from America - are so much
greater than her present ability to pay that
she must have substantial additional help or
face economic, social, and political
deterioration of a very grave character.”
The Marshall Plan
• “The remedy lies in breaking the vicious
circle and restoring the confidence of the
European people in the economic future of
their own countries and of Europe as a
whole. The manufacturer and the farmer
throughout wide areas must be able and
willing to exchange their products for
currencies the continuing value of which is
not open to question.”
The Marshall Plan
• “It would be neither fitting nor efficacious
for this Government to undertake to draw
up unilaterally a program designed to place
Europe on its feet economically. This is the
business of the Europeans. The initiative, I
think, must come from Europe.”
The Marshall Plan
• “The role of this country should consist of
friendly aid in the drafting of a European
program and of later support of such a
program so far as it may be practical for us
to do so. The program should be a joint one,
agreed to by a number, if not all European
nations.”
Conference for European Economic Co-operation
• Led to creation of the Organisation for
European Economic Co-operation (OEEC)
• Based in Paris
• Which dragged out the post-war
reconstruction until 1960
• When the countries were all doing very
nicely again and their diplomats and
secretariat looking to justify their existence
OECD (1960)
• Dropped the “European” and added the
“Development”
• Initial members (ie. ratifying in 1961/2):
– Belgium, France, Germany, Italy, Luxembourg,
Netherlands (the original EC members)
– Austria, Denmark, Greece, Ireland, Portugal,
Spain, Sweden, UK (later EC members)
– Canada, United States, Iceland, Norway,
Switzerland, Turkey
New roles
• Many of the “homeless” functions from the
defunct (1919 - 1946) League of Nations
had been temporarily assumed by the UN,
which acquired all its assets
• such as
– international standardisation
– frameworks to facilitate bilateral treaties
following an agreed model
League of Nations
• later United Nations in Geneva (Palais
Wilson)
• Charter being Articles 1-26 of the Treaty of
Versailles
• Best material in the world (probably) is in
Sandiego
– with John D Rockefeller money
– http://history.acusd.edu/gen/WW2Timeline/1919League2.html
– http://history.sandiego.edu/gen/text/versaillestreaty/league-images1.html
BUT
• The UN framework did not permit more
developed countries to maintain their
dominance over less developed countries
• Perfect case study: international tax policy
and treaties to avoid double taxation
– see the brilliant Sol Picciotto, International
Business Taxation (Law in Context), London:
Weidenfeld and Nicolson, 1992
The double taxation problem
• Which nation has primacy to tax profits?
Capital
Capital
importer
Capital
exporter
Profits - taxed by
country providing capital
or country adding value?
Mexico and London drafts
• League Fiscal Committee
– based at Princeton during WWII
• 1943 Mexico City draft
– dominated by Latin Americans and Canada (all
capital importers
• Primacy of right to tax business income at
source
– “only in the State where the business or activity
is carried out”
Residence vs source
• Interest, dividends and royalties taxed at
source
• Country of residence may tax but must give
full credit
• 1946 London draft
– dominated by capital exporters
– limitation of tax at source to income produced
by a “permanent establishment”
Post war creation of UN
• Economic and Social Council
– 1946/7 Financial and Fiscal Commission
• But international finances now for IMF and
IBRD (World Bank)
– Commission collapsed
• UN efforts concentrated on technical tax
assistance to less developed countries
– Model tax treaty work abandoned until taken up
in 1955 by OEEC (led by Switzerland)
Becoming a OECD member
• In contrast to many other international
organisations, becoming a member of the OECD
is not an automatic process. The Member
countries of the Organisation, meeting in its
governing body (the Council), decide whether a
country should be invited to join the OECD and
on what conditions. This decision is taken at the
end of what might be called "the accession
process".
(from www.oecd.org)
Becoming a member
• The Council determines the procedure to be
followed and asks the appropriate Committees to
examine the country's policies and regulations to
ensure that it is ready to assume the
responsibilities of OECD membership. Each
country must have demonstrated its attachment to
the basic values shared by all OECD members: an
open market economy, democratic pluralism and
respect for human rights. (from www.oecd.org)
Becoming a member
• Has any country failed in its application for
membership? No. It is unlikely that the Council
would begin an accession procedure unless there
were a good chance of success. To date countries
which have received such an invitation have had
substantial links with the OECD.
(from www.oecd.org)
Later joiners
• 1964 - Japan
– Michio Morishima, Why Has Japan "Succeeded"?:
Western Technology and the Japanese Ethos,
Cambridge: CUP 1984
• 1969 - Finland
• 1971 - Australia
• 1973 - New Zealand
– but then no more until
• 1994 - Mexico
• 1995 - Czech Republic
• 1996 - Hungary, Poland, Korea
Current Member countries
How do they rank in the world?
• IMF Advanced Economies GDP 2003 $bn
–
–
–
–
–
–
–
–
–
–
United States 10985
Japan
4302
Germany
2409
United Kingdom 1799
France
1754
Italy
1471
Canada
867
Spain
840
Korea
605
Netherlands
513
(G4)
(G7)
(10)
How do they rank in the world?
• IMF Advanced Economies GDP 2003 $bn
–
–
–
–
–
–
–
–
–
–
Australia
Switzerland
Belgium
Sweden
Taiwan
Austria
Norway
Denmark
Greece
Finland
508
309
303
302
286
254
221
211
174
162
(15)
How do they rank in the world?
• IMF Advanced Economies GDP 2003 $bn
–
–
–
–
–
–
–
–
–
Hong Kong
Ireland
Portugal
Israel
Singapore
New Zealand
Luxembourg
Cyprus
Iceland
159
149
147
109
91
77
26
13
11
(29)
• omitting Mexico, Turkey, Poland, Czech, Hungary, Slovak
So who’s missing?
• Top 10 “Other” Economies GDP 2003 $bn
–
–
–
–
–
–
–
–
–
–
China
Mexico
India
Brazil
Russia
Turkey
Saudi Arabia
Poland
Indonesia
South Africa
1410
626
575
498
434
240
211
210
208
164
(France is next bigger)
(Finland is next smaller)
What are the main conditions?
• “The Committee on Capital Movements and
Invisible Transactions and the Committee on
International Investment and Multinational
Enterprises jointly examine how the reviewed
country would implement
– the Code of Liberalisation of Capital Movements
– the Code of Liberalisation of Current Invisible
Operations
were it to become a member of the Organisation.”
What are the main conditions?
• “The Codes are legally binding instruments. The
core principles underlying the Codes are equality
of treatment and non-discrimination. This means
that a country may not privilege its nationals in
comparison to those from other Member countries,
nor may it favour one Member country over
another.”
• There are also 160+ other legal instruments
– but these two are the key ones
– many of the others concern standards/data disclosure
The subject areas
• Agriculture, Capital Movements, Competition
Law and Policy, Consumer Policy, Current
Invisible Operations, Development Assistance,
Education, Employment, Labour and Social
Affairs, Energy, Environment, Financial Markets,
Fiscal Affairs, Information Computer and
Communications Policy, Insurance, International
Investment and Multinational Enterprises, Nuclear
Energy, Public Management, Scientific and
Technological Policy, Shipbuilding and Maritime
Transport, Steel, Tourism, Trade
The (informal) theory of clubs
•
•
•
•
•
Whom you keep out is more important than
Whom you let in
There is a high joining fee
New members have to be “sponsored”
And the existing members all persuaded
Curiosities of governance
• Unlike Bretton Woods, controlled by
Finance Ministries…
• …OECD is controlled by Foreign Affairs
Ministries/State Departments
• Ambassadors are appointed to the
governing Council
– where all countries are treated completely
equally and all decisions must be unanimous!
• It is temporary, with only one year budgets
How did Mexico join?
• The OECD official languages had always
been English and French
• The headquarters had always been in Paris
• With the collapse of the Soviet bloc, the
Germans saw a great opportunity in 1993
• To shift the focus east, move HQ to Bonn,
introducing German as an official language,
and open up the western borders
Diplomatic character
• No-one else wanted to move to Bonn or
speak German (understandably)
• BUT the principle of desirable expansion
into new markets was accepted
– the target countries were not ready yet
• The US and Canada had introduced Mexico
to NAFTA (Dec 1992, in force Jan 1994)
– So it was already committed to REGIONAL
openness by then
National (self) interest
• English, French and Spanish speaking
countries were all happy with the languages
• Northern American focus now distracted
attention from German eastern ambitions
• The precedent (the first new member since
1973) opened up possibilities for Japan in
respect of South East Asia
• For everyone else, in South America
– and crucially, the Germans could hardly object!
What happened next?
• Catastrophe in 1994 (very many studies)!
– Not today’s subject but why not take a look at
Marco Espinosa and Steven Russell, The Mexican
economic crisis: alternative views, Economic Review of
the Federal Reserve Bank of Atlanta, 1996
– Download http://www.frbatlanta.org/frbatlanta/filelegacydocs/Espin811.pdf
• “The Mexican financial crisis was an expectationsdriven liquidity crisis that shares many similarities
with the financial panics that afflicted the U.S.
economy during the late nineteenth century. The
immediate cause was political turmoil.”
Samuel Goldberg and Schmuyle
Paintings by Victor Hartmann (d 1873)
• From “Pictures at an Exhibition” as set to music
by Modest Mussorgsky
– “Samuel Goldberg is richly dressed, and Schmuyle is in
rags. Mussorgsky combines the two paintings into one
piece of music where he depicts a conversation between
the two. The rich Jew (the supposed debtor) is
represented by a heavy pompous theme, the poor man
(the creditor) by a high-pitched bleating theme. As time
goes on, the rich man's voice drowns out the other's, as
the themes merge.”
• Who is doing whom the favour?
For (a lot) more on the OECD
• You can spend hours at www.oecd.org
• Plenty of interesting comparative data,
research studies and analysis
• But don’t believe all the propaganda
• Key points
– access to new markets
– geographic/language/cultural associations
provide comparative advantage for current
members
Any questions?
• [email protected]