Phoenix Rising? A decade of reform at the Organisation for Economic Cooperation and Development

November 10, 2015
Phoenix Rising? A decade of reform at the Organisation for Economic Cooperation and Development
Richard Woodward
Richard Woodward Non-Resident Fellow - International Economics

In May 2015, the Organisation for Economic Cooperation and Development’s (OECD’s) member countries renewed Angel Gurria’s mandate as Secretary-General of the organisation until 2021. When Gurria assumed the helm in 2006 the OECD seemed to be drifting into obscurity with some commentators recommending that the organisation be scrapped. Thanks to an aggressive reform programme encompassing an expanded membership and reaching out to non-members, under his leadership the OECD’s fortunes have undergone a renaissance. Far from being defunct, the OECD arguably now occupies a position of importance in the architecture of global governance that it last enjoyed in the 1970s. Gurria’s reappointment reflects the members’ enthusiasm for his reforming zeal, but the Secretary-General will need to tread delicately to manage some of the tensions lurking within his ongoing reform programme.

The OECD is routinely bracketed with the International Monetary Fund (IMF), World Bank and World Trade Organisation (WTO) as one of a quadrumvirate of institutions that spearhead the management of the global economy. Unlike its counterparts however who pursue well defined mandates backed by significant operational resources (for instance the ability to lend money or enforce trade rules) the OECD’s Convention bestows upon the organisation an imprecise mission and only modest legal or financial instruments with which to advance it. Instead the OECD performs functions that facilitate international cooperation or assist states to find appropriate solutions to common policy dilemmas.

At the most general level, the OECD has been the guardian and advocate of democratic and market oriented modes of governance. Pivoting around its 250 strong labyrinth of committees and working groups, the OECD has developed a reputation as a custodian of authoritative policy knowledge across a spectrum of economic matters. A brief glance at the OECD website reveals that the organisation’s expertise permeates almost all significant areas of economic policymaking. Through the collection, exchange and analysis of information supplied by countries involved in its work the OECD has distilled a plethora of concepts, norms, and principles that resonate in global economic policy making debates. The OECD pioneered much of today’s conventional wisdom such as the ‘polluter pays’ principle, the notion of ‘trade in services’ and the Millennium Development Goals. Mostly the OECD is a deliberative rather than decision making body; a forum to flesh out ideas and elaborate lines of action. Only occasionally does the organisation codify these norms into legal texts. When it does so, they predominantly take the form of ‘soft law’ whose implementation depends on peer pressure arising from ongoing OECD surveillance, most notably periodic peer reviews. The OECD also lubricates the wider processes of global governance. The OECD possesses the largest Secretariat of any international organisation outside the UN system and it is habitually called upon to lend its analytical muscle and expertise to the work of other international institutions. As discussed in further detail below, this is most pronounced in its relationship with the ‘gaggle of G’s’ (the Group of 7/8 (G7/8) and Group of 20 (G20)) but the OECD maintains relationships with over 100 international organisations. Moreover, whereas most international organisations have a singular focus and structure that replicates domestic policy silos, the breadth of the OECD’s acumen combined with its facility for interdisciplinary work has made it a sanctuary for the kinds of complex and interlocking issues that characterise contemporary global governance. Indeed academic assessments of the OECD now suggest that the organisation is not merely a weathervane buffeted around by the prevailing sentiments of leading states but it is a weather maker capable of playing an active role in identifying and shaping the interests of states in addressing particular issues. In short, the OECD can claim to exert a modest and sometimes profound, if frequently unspoken, impact on global agendas.

Despite all this OECD is an organisation whose future has been in perennial doubt. Partly this reflects the elusiveness of the OECD’s Convention which, by not conferring an exclusive remit over a distinct policy domain, has left the organisation vulnerable to institutional competitors (such as rival international organisations) and imitators (for example, the proliferation of think-tanks). The OECD has made a virtue this using the ambiguity of the Convention as a pretext to justify its infiltration of new areas in response to the whims of members or in anticipation of developments in the global economy. This perpetual retooling and ability to carve out new niches kept the OECD afloat but in the 1990s and 2000s geo-political upheavals, especially the rising powers of the Global South, sapped its authority. Much of the OECD’s influence rested on the membership’s economic heft, which has been eroding at an accelerating pace. In 2010 the organisation’s members share of global GDP dipped beneath 50% (in PPP terms) for the first time and, although OECD countries will continue to weigh heavily in the global economy, by 2030 the OECD’s own estimates suggest that non-members will possess the lion’s share across a range of economic indices. Increasingly the interlocutors relevant to a host of key debates on the global economy lie outside the OECD’s membership thus eviscerating the organisation’s claims to be a sensible and legitimate location in which to discuss and forge feasible solutions to the conundrums of global economic governance.

Angel Gurria’s anointment as Secretary-General, the first from outside the organisation’s founding ‘Northern’ core, was a tacit acknowledgement of the need to change. Gurria’s roadmap chimed with the member’s desire to restore the OECD’s authority by being more assertive and relevant. Where his predecessors tended to await developments from the cloistered surroundings of their Parisian citadel, Gurria has been an energetic evangelist for the OECD shuttling between national capitals to ask policymakers about their priorities and problems and advertising the organisation as a pent up repository of answers. Maintaining the OECD’s relevance has rested on transforming it into a larger, more outward-oriented institution to become what Gurria has described as a ‘hub of globalisation’ or ‘a global policy network’.

Between 1961 and 2000, the OECD acquired ten new members bringing the total to 30. During Gurria’s tenure OECD enlargement has continued but following proposals introduced by his predecessor, in a more structured and strategic fashion. The OECD’s General Procedure for Future Accessions published in 2007 prescribes a much more detailed and arduous accession process compared to the informal and ad hoc approach of the past. Prospective members are required to submit their economies to rigorous evaluations by OECD committees who gauge their willingness and ability to adhere to established OECD instruments and best practices. Chile, Estonia, Israel and Slovenia successfully completed this exercise and joined the OECD in 2010. In 2013, the OECD Council opened accession discussions with Colombia and Latvia and in 2015 extended these to Costa Rica and Lithuania.

Unfortunately these accessions do not address a fundamental problem facing the OECD, namely the absence of several major economic players from the organisation’s membership. To be eligible for membership, the OECD demands that countries are both ‘likeminded’ (i.e. possess a demonstrable commitment to markets and democracy) and ‘significant players’ (a much more elastic and imprecisely defined criterion). The dilemma for the OECD is twofold. First, likeminded countries tend not to be significant players. Amongst the crop of recent and prospective accessions only Columbia (31st), Chile (43rd), and Israel (54th) feature amongst the world’s sixty biggest economies measured by PPP. The remainder, ranked between 86th (Lithuania) and 109th (Estonia), are economic minnows. Second, the significant players are insufficiently likeminded. The case of Russia, whose accession to the OECD was suspended in March 2014 following its aggression in Ukraine, exemplifies the issue. Fearing that they will be inveigled into a system whose rules they have had no say in designing and that joining what is widely (if inaccurately) portrayed as the ‘rich countries club’ will damage their relations with other developing nations, other systemically important economies have accorded a low priority to OECD membership, and hence the reforms necessary to become likeminded. In short, the OECD needs the significant players more than they need the OECD.

Faced with this uncomfortable truth, the OECD has introduced innovations designed to enhance the engagement of significant players with the organisation but which stop short of full membership. For example, the ‘Key Partners’ programme with Brazil, China India, Indonesia and South Africa immerses these states in a regimen of OECD committees, legal instruments, statistical reporting and peer review processes. Vitally the nature of these programmes is agreed by mutual consent. Each of the partners is able to select the breadth and intensity of their interactions with the OECD. This variable geometry approach gives significant non-members a voice in those OECD’s enterprises where they have a mutual interest without bringing stasis to those were their interests are opposed. Combined with a host of regional and country specific programs under the auspices of Global Relations Programme, these initiatives are critical means through which the OECD is reconciling the tensions between the desire to be more inclusive and legitimate whilst remaining flexible and effective.

The OECD’s burgeoning relationship with the G20 is another way in which it is cultivating its rapport with significant players. Prior to the advent of the G20, the OECD played a crucial supporting role to the G7/8 system. Lacking a secretariat, the credibility and implementation of G7/8 pronouncements came progressively to rely on the OECD’s statistical wherewithal and technical expertise. For this reason Nicholas Bayne, a former British ambassador to the OECD, fittingly dubbed it “the Cinderella amongst international organisations… does not always go to the balls like its grander sister organisations, though it often runs up their dresses and sometimes clears up the mess after the party”. Whereas the OECD-G7 relationship emerged as an almost accidental side-effect of their overlapping membership, the genesis of the OECD-G20 liaison reflected a shrewd piece of entrepreneurship by Angel Gurria. Exploiting the fact that the youthful G20 needed a coherent and speedy response to the financial crisis to bolster its legitimacy, Gurria dropped into their lap an already fully formed OECD project to reduce tax avoidance and evasion by promoting international tax transparency.

This programmes adoption was the springboard for the rapid institutionalisation and intensification of OECD-G20 relations. Compared with the G7/8 there is a much more synchronised approach to G20 relations within the OECD. For instance, OECD inputs to the G20 are prepared by a devoted team overseen by a Chief of Staff who doubles as the OECD’s Sherpa to the G20. The scope of the OECD’s engagement with G20 is also unprecedented. Between 2009 and 2013, G20 communiqués made over 200 references to the work of the OECD, endorsing or exhorting it to greater effort on over 140 occasions. Consequently, the OECD is today involved with almost every facet of G20 work warranting a thirty-page brochure detailing the organisation’s contribution.

Consorting with the G20 is not without its hazards, however. History shows that relations between the OECD and the G’s can sour, especially if a gulf opens up between the leading states and the analysis of the OECD Secretariat. Compared with the G7, the diversity of the G20 exacerbates these risks. The OECD Secretariat possesses an unsurpassed knowledge of Western economies but whether, as it is presently constituted, it has the experience, language and cultural capabilities to offer policy advice to countries so unlike its members is doubtful. The OECD’s newfound intimacy with the G20 is also a source of friction with the organisation. Smaller members fret that the eight large G20 countries that do not belong to the OECD are marginalising their voice, and that the OECD’s agenda is becoming skewed accordingly.

During the last decade, the OECD has reclaimed its position at the top table of global economic governance. Much of the credit for this goes to the politically astute Secretary-General, who has seized every opportunity to put the organisation in the shop window and reposition it as a venue in which the embrace between the dominant powers of the twentieth century and those that seem set to dominate the twenty-first can be consummated. Equally the OECD cannot be complacent. Assuming the present round of accessions goes ahead, the OECD will have 38 members, almost twice the number at its inception. Alongside the greater role for significant non-member players, OECD activities are characterised by an increasingly eclectic range of participants. Care needs to be taken to ensure that such heterogeneity does not manifest itself in the grandstanding that impedes progress in more universal international organisations. Gurria will need to summon all his powers of persuasion and leadership or midnight will once again loom large for this Cinderella institution.