Unions criticize biased OECD research for services liberalisation
The OECD published a study which argues that all barriers to trade and competition should be abolished. Trade unions point out the false premises on which it is based. The study argues that removal of product market regulation and abolishing public ownership will add to economic growth and workers would gain additional income. It is similar to studies published by the European Commission (Copenhagen Economics) , and the same logic underpins the Services Directive and the negotiations for a GATS.
Read the OECD Statement "Unionsquestion validity of OECD deregulation study
Cutting barriers to competition, investment and trade in US and EU would boost GDP - OECD study
TUAC, the trade union advisory committee of the OECD argues that the OECD analysis does not cover possible positive effects of regulation on growth. Regulation assists in reaching other social goals and has thus socially desirable effects. Secondly, the alleged benefits are hypothetical and based on econometric simulations. Past liberalisation efforts have been preceded by similar studies claiming positive effects from reforms but sobering is that, during this period, productivity in the European Union has fallen by half. And at sectoral level results are mixed. Our experience with the results o electricity and gas liberalisation is living testimony to it. Thirdly, the dimensions of the envisaged reforms must be made apparent: because the ’benchmark’ country is different for each regulation, the result would be an OECD area in which every single country is far more deregulated than any one OECD country is at present. Given the massive scale of such reforms, the postulated benefits are very limited, even if they were to materialise.
Unions question validity of OECD deregulation study
The OECD issued on 7 June a study claiming that removal of product market regulation (PMR) - specifically state ownership and regulation of enterprises, barriers to competition, barriers to FDI and tariff and non-tariff trade barriers - would permanently raise output in the OECD by between 1 1/4 and 3%. These results are calculated in a simulation exercise in which all forms of regulation in these areas are reduced to the minimum level prevailing in the least-regulated OECD country. The OECD claims that workers would gain a full year’s income over their working lives if barriers were reduced. Few workers would turn down such an offer if it were true. The question is: is it true?
Three key points need to be made regarding this study.
First, the OECD analysis does not cover possible positive effects of regulation. While no-one would deny that certain regulations distort competition, is it really the case that each and every government regulation in the areas listed merely imposes costs on economic growth? Have OECD governments in the past really been so stupid? Even if these regulations really do impose costs on growth, is it not far more likely that they also have other socially desirable effects that would also be lost if they were abolished? A balanced assessment of such a study would require that an attempt be made to describe the nature and size of these effects. Policy-makers would then be able to weigh the costs and benefits of regulatory reform.
Secondly, the alleged benefits are hypothetical. They are calculations based on econometric simulations. Policymakers would be well-advised, especially given the scale of the reforms, to require detailed study of the assumptions and methodology used to generate such results. Such caution is especially warranted given the fact that, as the OECD itself notes, member countries have in recent years already initiated a large-scale programme of liberalisation and deregulation. Past liberalisation efforts have been preceded by similar studies claiming positive effects from reforms. Particularly sobering is that, during this period, productivity in the European Union has fallen by half, whereas rising productivity is key to reaping the promised output increases. At the sectoral level, the impact of privatisation and liberalisation has been mixed, at best. In the light of such evidence it is surprising that the OECD expresses such confidence in its predictions: a more in-depth assessment of the impact of past liberalisations is an urgent requirement.
Thirdly, the dimensions of the envisaged reforms must be made apparent: because the ’benchmark’ country is different for each regulation, the result would be an OECD area in which every single country is far more deregulated than any one OECD country is at present. Given the massive scale of such reforms, the postulated benefits are very limited, even if they were to materialise.
At a time when the OECD has taken a strong position on the need for a more expansionary macroeconomic policy, especially in Europe, and has increasingly taken a more nuanced view on the costs and benefits of labour market regulations, it is disappointing that the Secretariat has published a study that appears to reflect a simplistic view of the virtues of ’markets’ and ’competition’. The trade union movement is not opposed to reforms of product markets. It recognises that there is scope to remove inefficiencies and distortions. However, it rejects a blanket attempt, as in this study, to suggest to policymakers that the abolition of all forms of product market regulation constitutes a viable path forward for higher growth.
Cutting barriers to competition, investment and trade in US and EU would boost GDP - OECD study
07/06/2005 - Boosting market liberalisation by reducing trade, investment and competition barriers to "best practice" levels could significantly raise GDP per head in the European Union and the United States, according to a new OECD working paper.
The paper estimates that reducing such barriers could increase GDP per head over the medium term by the following amounts:
2 to 3½ per cent in the European Union.
1¼ to 3 per cent in the OECD area as a whole.
1 to 3 per cent in the United States.
½ to 1½ per cent in the OECD area outside the United States and the European Union.
These higher levels of GDP, once in place, would have a cumulative effect on earnings. The study estimates that the benefit to workers in OECD countries could amount to the equivalent of a full year’s income across a working lifetime.
The study establishes benchmarks of best practice against which other OECD countries can be measured. Australia, for instance, has the least restrictive level of State control of business, it says, while Denmark and Ireland impose the lightest administrative procedures for start-ups. Ireland, alongside the UK, scores well in openness to competition while Canada has the clearest business regulations. Matching the best practice benchmarks across a range of competition and trade regulations would require major reform efforts in all OECD countries. However, the need to ease competition restrictions is greater in the EU than in the US. Consequently, the economic benefits of reform would be greater in Europe, the paper adds. In most EU countries competition-restraining regulations need to be reformed in particular in the domestic air, rail and road transport and in the gas and electricity sectors. The US too needs to concentrate reform on its electricity and rail transport sectors.
The paper argues that reforming regulations restraining competition, especially in services, would contribute more to raising GDP than reducing barriers to trade and foreign direct investment.
Commenting on the study, OECD Secretary-General Donald Johnston said: "I welcome this invaluable and timely contribution to the growing body of evidence which shows that more open product markets create higher productivity. Here, as in other areas of the Organisation’s work, OECD analysis has a key role to play not just in undertaking research on closer economic integration, but also in providing concrete, policy-focused results."
The OECD working paper, The benefits of liberalising product markets and reducing barriers to international trade and investment: the case of the US and the EU is available at: http://www.olis.oecd.org/olis/2005doc.nsf/linkto/ECO-WKP(2005)19.
French version
Une réduction des barrières à la concurrence, à l’investissement et aux échanges aux Etats-Unis et dans l’Union Européenne permettrait une élévation du PIB, selon une étude de l’OCDE
Read the OECD Statement "Unionsquestion validity of OECD deregulation study
Cutting barriers to competition, investment and trade in US and EU would boost GDP - OECD study
TUAC, the trade union advisory committee of the OECD argues that the OECD analysis does not cover possible positive effects of regulation on growth. Regulation assists in reaching other social goals and has thus socially desirable effects. Secondly, the alleged benefits are hypothetical and based on econometric simulations. Past liberalisation efforts have been preceded by similar studies claiming positive effects from reforms but sobering is that, during this period, productivity in the European Union has fallen by half. And at sectoral level results are mixed. Our experience with the results o electricity and gas liberalisation is living testimony to it. Thirdly, the dimensions of the envisaged reforms must be made apparent: because the ’benchmark’ country is different for each regulation, the result would be an OECD area in which every single country is far more deregulated than any one OECD country is at present. Given the massive scale of such reforms, the postulated benefits are very limited, even if they were to materialise.
The OECD issued on 7 June a study claiming that removal of product market regulation (PMR) - specifically state ownership and regulation of enterprises, barriers to competition, barriers to FDI and tariff and non-tariff trade barriers - would permanently raise output in the OECD by between 1 1/4 and 3%. These results are calculated in a simulation exercise in which all forms of regulation in these areas are reduced to the minimum level prevailing in the least-regulated OECD country. The OECD claims that workers would gain a full year’s income over their working lives if barriers were reduced. Few workers would turn down such an offer if it were true. The question is: is it true?
Three key points need to be made regarding this study.
First, the OECD analysis does not cover possible positive effects of regulation. While no-one would deny that certain regulations distort competition, is it really the case that each and every government regulation in the areas listed merely imposes costs on economic growth? Have OECD governments in the past really been so stupid? Even if these regulations really do impose costs on growth, is it not far more likely that they also have other socially desirable effects that would also be lost if they were abolished? A balanced assessment of such a study would require that an attempt be made to describe the nature and size of these effects. Policy-makers would then be able to weigh the costs and benefits of regulatory reform.
Secondly, the alleged benefits are hypothetical. They are calculations based on econometric simulations. Policymakers would be well-advised, especially given the scale of the reforms, to require detailed study of the assumptions and methodology used to generate such results. Such caution is especially warranted given the fact that, as the OECD itself notes, member countries have in recent years already initiated a large-scale programme of liberalisation and deregulation. Past liberalisation efforts have been preceded by similar studies claiming positive effects from reforms. Particularly sobering is that, during this period, productivity in the European Union has fallen by half, whereas rising productivity is key to reaping the promised output increases. At the sectoral level, the impact of privatisation and liberalisation has been mixed, at best. In the light of such evidence it is surprising that the OECD expresses such confidence in its predictions: a more in-depth assessment of the impact of past liberalisations is an urgent requirement.
Thirdly, the dimensions of the envisaged reforms must be made apparent: because the ’benchmark’ country is different for each regulation, the result would be an OECD area in which every single country is far more deregulated than any one OECD country is at present. Given the massive scale of such reforms, the postulated benefits are very limited, even if they were to materialise.
At a time when the OECD has taken a strong position on the need for a more expansionary macroeconomic policy, especially in Europe, and has increasingly taken a more nuanced view on the costs and benefits of labour market regulations, it is disappointing that the Secretariat has published a study that appears to reflect a simplistic view of the virtues of ’markets’ and ’competition’. The trade union movement is not opposed to reforms of product markets. It recognises that there is scope to remove inefficiencies and distortions. However, it rejects a blanket attempt, as in this study, to suggest to policymakers that the abolition of all forms of product market regulation constitutes a viable path forward for higher growth.
07/06/2005 - Boosting market liberalisation by reducing trade, investment and competition barriers to "best practice" levels could significantly raise GDP per head in the European Union and the United States, according to a new OECD working paper.
The paper estimates that reducing such barriers could increase GDP per head over the medium term by the following amounts:
2 to 3½ per cent in the European Union.
1¼ to 3 per cent in the OECD area as a whole.
1 to 3 per cent in the United States.
½ to 1½ per cent in the OECD area outside the United States and the European Union.
These higher levels of GDP, once in place, would have a cumulative effect on earnings. The study estimates that the benefit to workers in OECD countries could amount to the equivalent of a full year’s income across a working lifetime.
The study establishes benchmarks of best practice against which other OECD countries can be measured. Australia, for instance, has the least restrictive level of State control of business, it says, while Denmark and Ireland impose the lightest administrative procedures for start-ups. Ireland, alongside the UK, scores well in openness to competition while Canada has the clearest business regulations. Matching the best practice benchmarks across a range of competition and trade regulations would require major reform efforts in all OECD countries. However, the need to ease competition restrictions is greater in the EU than in the US. Consequently, the economic benefits of reform would be greater in Europe, the paper adds. In most EU countries competition-restraining regulations need to be reformed in particular in the domestic air, rail and road transport and in the gas and electricity sectors. The US too needs to concentrate reform on its electricity and rail transport sectors.
The paper argues that reforming regulations restraining competition, especially in services, would contribute more to raising GDP than reducing barriers to trade and foreign direct investment.
Commenting on the study, OECD Secretary-General Donald Johnston said: "I welcome this invaluable and timely contribution to the growing body of evidence which shows that more open product markets create higher productivity. Here, as in other areas of the Organisation’s work, OECD analysis has a key role to play not just in undertaking research on closer economic integration, but also in providing concrete, policy-focused results."
The OECD working paper, The benefits of liberalising product markets and reducing barriers to international trade and investment: the case of the US and the EU is available at: http://www.olis.oecd.org/olis/2005doc.nsf/linkto/ECO-WKP(2005)19.
French version
Une réduction des barrières à la concurrence, à l’investissement et aux échanges aux Etats-Unis et dans l’Union Européenne permettrait une élévation du PIB, selon une étude de l’OCDE
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