Widening Inequality Threatens U.S. Growth and Social Mobility

Tackling Inequality: Getting the Policy Challenges Right

Angel Gurria

Secretary-General, Organization for Economic Cooperation and Development

Mary Ellen Iskenderian

President and Chief Executive Officer, Women's World Banking


Inequality has been steadily rising in the United States since the 1970s, but the gap between rich and poor increased dramatically following the financial crisis of 2008. José Ángel Gurría of the Organization for Economic Cooperation and Development joins Mary Ellen Iskenderian of Women's World Banking to discuss the growing inequality problem and what steps can be taken to promote more inclusive growth going forward. Gurría highlights tax policy reform, the minimum wage, and increased governmental support for worker training as examples of policy options that can help the United States move toward greater equality of opportunity for all.


ISKENDERIAN: Good evening. Welcome to today's Council on Foreign Relations meeting with Jose Angel Gurria, secretary general of the OECD. Before joining the OECD in 2006, Secretary General Gurria had a distinguished career in the public sector, holding various ministerial posts in his home country of Mexico. During his tenure, he has presided over the expansion of the OECD and, throughout the global economic crisis and its aftermath, he has called attention to the growing inequality gap in the OECD countries.

Tonight, we'll hear from him about the importance of tackling inequality in the United States and the OECD's recommended policy approaches for promoting more inclusive growth. It is my pleasure to welcome Secretary General Gurria to the podium.


GURRIA: Thank you so much, and thank you for the invitation, the opportunity to share with you.

This is about one of the most pressing challenges of our times: rising inequalities. And thank you to many good friends and friends that have been sharing over the years in many struggles, so delighted that you're here, many classics now by now.

Now, the need to tackle inequalities have been at the top of the OECD's agenda for years now. In 2008, we launched a first wake-up call, a study called "Growing Unequal?" That had a question mark. Unfortunately, three years later, we eliminated the question mark, because it became obvious that the pattern was firming up, if anything, that inequalities were growing. And then we produced something called "Divided We Stand." And the subtitle was "Why Inequalities Keeps Rising." Unfortunately, as I said, the question mark was gone. It was confirmed.

And, you know, the evidence in these studies speaks for itself: Inequality had been rising in nearly all OECD countries during the last decades. And that's before the crisis. But nothing like a good crisis to exacerbate inequalities, and we've had as good as it gets when it comes to crisis. And therefore, the first three years of the crisis accelerated inequalities more than the 12 years before that.

So, clearly—and now we've only cut our evidence to 2011, is it, Stefano? Stefano is the one who directed these reports. So that means we're waiting to move our evidence to 2013, 2014, where we, unfortunately, are probably going to confirm that this keeps growing, that these distances become larger.

Now, we've been sounding this alarm in different fora, referring to inequality as the ultimate social time bomb. Now, all these concerns were confirmed by President Obama last December and then again in the State of the Union address in January 2014. Many institutions are now producing a plethora of studies and warnings. I'm being told that the latest one, that the IMF is now writing on inequalities, which is great, the fact that this has caught on, you know, that now everybody's focusing on this.

It's therefore a great opportunity for me to share with you today the OECD's views on the threat that inequality is posing to this great nation, not just overall, not just across the countries of the OECD itself, but basically to all the countries in the world, yes, but to this one, where people think that, you know, everything is growth and prosperity and the land of opportunity, et cetera. We'll talk about that.

This has always been the land of opportunity, the American dream, and the land where you could make it to the top, no matter who you were, no matter where you came from, the land where you could realize your dreams, and as long as you studied and/or worked hard enough, you could make it, the land where each generation could grow up being sure to have a better life than their parents, and that their children would have a better life than them.

Now, over the past decades, lower-wage workers in America have been working harder and harder. This is documented in the paper that you just got, the brochure you just got.

Now, normally, when you say work harder and longer, it means you get more remuneration, more income. This has not resulted in upward social mobility in the United States. And while average working hours increased by 20 percent, incomes actually fell. At the same time, the richest 1 percent of the Americans now earn 20 percent of the pre-tax national income. To put it differently, the U.S. average income grew at 1 percent per year from the mid-'70s to the late 2000s. OK? This is 35 years or something like that. But strip out the income growth that went to the top 1 percent. What is left is that, from the '70s to the 2000s, the income grew by about 0.6 percent. Very modestly.

And you will see then—this is maybe quite shocking, but that if you compare this to, let's say, the French rate of growth, that France grew more on that particular score than the United States, take away that 1 percent at the top, then the—for the 99 percent of the rest, the per capita income and the wealth of the French grew faster than that of the Americans, something which is quite counterintuitive.

Now, inequality is a many-headed problem. When hard-working people cannot make ends meet, when the fruits of economic growth reach the pockets and tables of only a lucky few, when children start their lives in poverty but never grow out of it, inequality becomes a structural problem, which means it's not simply a result of other phenomenon, but basically a problem in and of itself. It locks in privilege, traps people in a vicious circle of exclusion and lack of opportunity from which it becomes very difficult to escape. And inequality of opportunity undermines growth. It prevents societies from making the best use of their resources and talent base.

This is why inclusive growth is the better alternative. Precisely tomorrow, we're going to be addressing this issue at a workshop the OECD is jointly organizing with the Ford Foundation, and it's called "Changing the Conversation on Growth: Going Inclusive." In this workshop, we'll discuss the multifaceted nature of inequality, which goes far beyond the distribution of income, and the policies that need to be put in place to improve the distribution of opportunities and the distribution of outcomes, not just of income.

Now, let's be clear: Equality of outcomes depends on the equality of opportunity. And this requires policy action. It doesn't happen spontaneously. America needs to become the land of equal opportunity again, not just the land of opportunity, but of equal opportunity. You need it for the sake and success of America itself. But also, the rest of the world needs it for the sake and success of the global economy and—of course, for the global economy, the economic health of the United States is quite essential.

The U.S. government is already taking decisive action on some of these areas. A number of an inclusive initiatives, like the Affordable Care Act, which has become so controversial, higher minimum wage, again, very controversial, a multi-stakeholder campaign to bring down child obesity, college opportunity summit to improve equal access to higher education, and other actions along those lines.

Today, we want to join this effort. In fact, I'm here to share with you the outlines of an action plan to tackle inequalities in America, a policy package that builds on the strengths of the American economy, on the hard work of the American people, and the many successful American policy experiences, plus the best international practices, which we bring to the table.

So it's not about telling the Americans what to do with the United States. They know this pretty well. The question is, also, what does the rest of the world do about these things? And how do we bring the best practices on these issues? Because the rest of the world is sharing these problems of growing inequality.

Now, the package that we are proposing provides some of—what the president of the United States termed the ladders of opportunity, and we intend to propose this package to the U.S. government to work together to promote more inclusive growth and reduce inequalities in the United States.

"[Inequality] locks in privilege, traps people in a vicious circle of exclusion and lack of opportunity from which it becomes very difficult to escape."

The plan includes things like, one, job opportunities through better education and skills. Now, again, it may be intuitive, but what we bring is also a very well-documented set of challenges. The first imperative to reduce inequalities is to empower the people through better education and better skills. It's not just education. The performance of American students in the latest PISA evaluation reflected, and I quote Secretary Duncan, "a picture of educational stagnation." And it means fundamentally that the scores have not moved in 10 years.

This needs—and also that you spend two to three times more per student and that you get the same scores as Slovakia. You know, nothing wrong with Slovakia, but if you spend two or three times more than them, you should do a little better.

The skills of our workforce is another key element, and they need to be upgraded throughout their working life. Our 2013 Survey of Adult Skills—it's not just about PISA. This is PISAs for the 15-year-olds. We're now talking about the survey of adult skills—found huge disparities in the literacy, the numeracy, the problem-solving competences of American workers.

So you have, let's say, average performance with the young people and then less than satisfactory performance with the workers and their skills in terms of the adequacy vis-a-vis how well they match the demands.

Second, design effective policies to boost job creation. That means returning to strong, sustainable growth means mobilizing all available talent, all-hands-on-deck, as you would say on a ship. Efforts to bring everyone back to work, especially the most vulnerable. Labor market participation is edging down towards 60 percent, compared to levels of 63 percent before the crisis. OECD countries spend four times as much on average—listen to this—OECD countries spend four times as much as the United States to get people back to work. Obviously, this is all proportional to each country's economy, not in absolute terms, but it means the effort in the average of the OECD is four times that of the United States, of getting people back to work. Countries like Australia and Denmark have very interesting experiences to share on getting people back to work.

Now, the third item is improve the tax and the benefits system. These are key tools to reduce inequality in advanced economies. Unfortunately, their effectiveness has eroded over time. When comparing market and disposable income, we see that on average taxes and transfers reduce income inequality among the working-age population in the OECD by about 26 percent, in France and Germany, by upwards of 30 percent, in the United States, it scratches the 20 percent level. That means, again, these are the traditional tools. They don't work as effectively in the U.S.

We're not advocating for higher taxes here. We are proposing to rationalize the tax system. The U.S. has increased efforts to improve tax compliance, and other measures should be taken to review the tax deductions which benefit primarily those that are better off.

Four, provide more efficient and accessible public services. U.S. spending on public social services is at the OECD average, about 13 percent of GDP. So—you know, but since spending on cash benefits is much lower in the U.S. than across the OECD, it's particularly important for Americans to have equal access to good health, family care, and other social services. You know, public policies should focus on equipping people with the tools they need to fight exclusion.

And this is—in the European context, for example, people don't make that much money, but they get, you know, health, education, some public transportation, et cetera. Those issues are solved for them. So we're talking about public services to level the playing field.

Now, the experiences of different OECD countries reveal that combined action on these four tracks can boost our efforts to promote inclusiveness and reduce inequalities of outcomes. Of course, these are just a few brushstrokes of a much broader and more complex program. The OECD stands ready to work with the U.S. government to make these things happen.

Now, friends, America has been engaged in a constant and exemplary struggle for equality. This is part of the DNA of what has made this country great. And this is the foundation of the great things this nation has achieved, the belief, the certainty that in this country the dreams of any citizen can be realized and that everyone, for the simple reason of living in this land, as I said before, if they work and study hard enough, will have a fair chance to flourish and to thrive.

But the numbers are telling us that this is no longer the case, that the system—this system which you have built over the years is actually in jeopardy. The evidence tells us that the levels of inequality are becoming an impediment for further progress in the United States and that action is needed in many fronts to make America once more this land I insist of equal opportunities.

Inequality, friends, is a multidimensional challenge. It goes beyond income. It affects the well-being of people. And therefore, it needs a multidisciplinary policy response. This is what we're talking about when we're looking at this Inclusive Growth Initiative, and this is what we are addressing when we analyze the question of inequality.

The crisis left us with very heavy legacies—slow growth, high unemployment, growing inequalities—and all of the above producing a growing—well, in some cases, deterioration and, in some cases, outright destruction of trust, of the things we've built over the last 50 to 100 years.

And, therefore, it is something we have to fight. It is something we have to address. And it's something we're trying to do at the OECD. It was not so sexy. It was not so attractive. It was not so obvious when we started working on that.

I think now we got it right a few years ago when we started harping on this. Now it has become mainstream. We're happy that that is happening. And we're happy to share this with you. Actually, this is a first time—this is the first time ever we rolled this out. Nobody's seen this before you've seen it here. So, thank you very much.


ISKENDERIAN: Secretary General, thank you so much for harping on this issue as you have over the last several years and, really, for sounding this alarm. But I wonder if we could just maybe play out a scenario, not as pleasant a scenario.

If we don't heed this alarm, what does the United States look like down the road? Do we look like India, with a few vastly wealthy people and millions of people living in poverty? What is the—what is the picture?

GURRIA: No, you won't look like India. I think what you will have is growing pockets of very dissatisfied people. And the problem with inequality is that it breeds a cynicism, it breeds, you know, thick skin, where people don't believe that—they don't believe in anything the president, the ministers, the political parties, they don't believe in multinationals, they don't believe in the banking system, they don't believe in the Congress, they don't believe in – you know, in anything.

And then it becomes much more difficult to make things happen through legislation, regulation, codes, et cetera, because people have to adapt and adopt and own these changes. And if they are so cynical and so aloof and removed, everybody is kind of, you know, fighting for their own, and they don't have any sense of community, this is one very bad consequence.

The other bad consequence is that, if you look at some of the reasons for this cynicism, or this inequality, you know, in some cases, you have corruption, in some cases, you have the fact that no level playing field in terms of taxes, for example, who pays the taxes. Well, the middle class pay the taxes. Small and medium enterprise pay the taxes. Multinationals don't pay the taxes.

We're now embarked in a large campaign at the OECD—I just came back from Sydney the day before yesterday where the G-20 confirmed the mandate we have to look hard at individual taxation obligations, kind of nowhere to hide type of mandate, you know, but also that—to change that—that's enforcing the law on individuals and—but on multinationals, actually changing the laws, so that multinationals can actually pay. Right now they don't pay, but it's legal not to.

But when the head of Google or the head of IBM or the head of Apple or the head of Starbucks goes and testifies in the parliament or, you know, in Congress here and says, I understand my duty as head of this multinational company as paying as little taxes as I can and ideally no taxes, if I can. And then people who are making, you know, very difficult to make ends meet with growing unemployment, and suddenly they hear this, again, you get this frustration.

So it is about a growing disaffected class, millions and millions becoming completely, you know, adrift, and then you will get, of course, more and more resistance, more reactions, and—no, it's not going to look like India, but you are going to find more and more that people are going to be using their own means to defend themselves against what they see as a system that does not take care of them.

There's this growing perception that all these institutions—we've produced over 100 years, including our democracy—don't work for us, are not capable of addressing my problems, and this is—again, this will erode all the things that we built and we believe.

ISKENDERIAN: A very eloquent picture of what unchecked inequality would have as an impact domestically, but the U.S. has such a tremendous role as a key driver of the global economy. What's the impact on the global economy of this growing inequality gap here in the U.S.?

GURRIA: Well, first of all, let's look at the broader, you know, picture. This translates into the increased polarization that you're seeing in the politics, on the political process. In here, in the United States, you know, traditionally very vibrant, very flexible economy, very open, you know, but what is happening? Well, you can't agree on the time of the day.

You know, fortunately we've already gotten through with the debt ceiling this time around, with not—you know, the same rather difficult—you know, almost unimaginable discussion that we had the first time around or the first and second time around, or first, second and third...

ISKENDERIAN: Third time.


GURRIA: ... et cetera. But now I think what there is, is a very increased polarization because you really are looking at, you know, increasingly haves and have-nots. And the numbers are brutal about (inaudible) but the—in the last—what is it, in 30 years, Stefano—10 percent, the lower 10 percent has dropped their revenue, their real income by about 15 percent or thereabouts in that period, 10 percent to 15 percent. The 1 percent at the top has accumulated about one in 47 percent of this—the increase in income.

So what has happened? Well, obviously, you know, the distances are getting much larger (inaudible) and this is reflected in the type of discussions that you have in Congress, the type of discussions that you have everywhere in—when you have these public debates, and, of course, it is not leading to consensus.

Basically, you haven't had a lot of progress on practically any substantive legislation that would improve the situation here, whether it's migration, whether it's health care, whether it is climate change, you know, it's just—these things don't move, because there is this polarization.

Now, if the United States cannot agree on some of the fundamentals, the problem is, the impact is felt all over the world. There's—the uncertainty is felt all over the world, because of—not only of the size of the U.S. economy, but also of the traditional leadership which the United States has had over events in the world.

ISKENDERIAN: So I would be remiss as the CEO of Women's World Banking not to ask this question, so I'm curious. Is there a gender dimension to the inequality gap? And do any of the policy approaches that the OECD recommends have a gender aspect to it?

GURRIA: We just launched a gender initiative, and it was called the 3 E's, you know, employment, education—or rather, education, employment, entrepreneurship, the three E's, and basically with differences, depending on the countries, we find—now, women are the most underutilized economic asset that we have, and that applies both in the OECD countries, as well as in developing countries.

So for those of you who are in the trenches, you know, helping to reduce these gaps, this is critical. And this is—this is a moral issue. This is an ethical issue, but it's a very, very important economic issue. Women are more and more given the chance to be educated. They do the same or better than the boys and the men in their performance. They are cut off from opportunities, especially when they have children. There's a very high cost that we—that, you know, we impose on them to return to the jobs, the markets—we don't give them credit for the—for the time that they spent having their children and raising their children. And last but not least, the pay gap.

And you're talking here—I mean, it's not just about, you know, some country in Asia or some country in Latin America or whatever. You're talking here about, you know, vibrant economies, like Japan or like Korea, or, you know, unfortunately, increasingly, in countries—mainstream OECD countries, like Europe or even the United States.

So—and that breeds inequality. And that breeds inequality of opportunities, also, not just a question of inequalities in terms of income, but inequalities of opportunities, which as I mentioned, the land of opportunity—no, that's not enough. It's not good enough. It has to be the land of equal opportunities, so that outputs cannot be the same, outcomes cannot be the same. Some people work harder than others. Some people are smarter than others. But everybody has to have the same chance. And that includes every woman. And that is not the case yet. So we have to keep at it.

ISKENDERIAN: We will. We will. I just—I want to get back to something you said in your remarks about the traditional tax policies not always working here in the United States. But the OECD has noted that the Earned Income Tax Credit has worked particularly well. Can you just say a few words about why that's worked so well? And what does it tell us about other policy approaches that we might look at?

GURRIA: Well, first of all, right now, there's a discussion that is parallel. And I think you should put the two together. That is, increasing the minimum wage and then the Earned Income Tax Credit. If you increase the minimum wage, then it makes sense to increase the Earned Income Tax Credit, because then the benefit will accrue to the worker. If you do not increase the minimum wage, then part of the benefit of the Earned Income Tax Credit will accrue to the employer. And the power of the employer vis-a-vis the employee will be much greater. And then, of course, they'll have to share it somehow.

Now, I also have to say that $10.10 or what is it—the proposed minimum wage, $10.10, is among the lowest in the OECD anyway and, second, that it is not necessarily very meaningful in terms of the number of people, but it's a unit. You know, it's a unit that is in sort of—two minimum wages, two-and-a-half, three minimum wages. It becomes like a metric. But it is important, because for practical purposes, the combination of these two things—so you have to have some room to get the Earned Income Tax Credit enough.

Now, it is one measure—one way of doing it. It is—it is—it is a tested—let's say tested way of doing it. But the others—let's say, throw the whole thing at it, which is, what do you do with activation policies? Here this is the land of the pink slip, OK? It was famous for the flexibility in the labor markets, which means you get fired today, you're no longer, you know, on the job tomorrow, and that's it. Now, unemployment benefits have grown here from three, six months. Now in some cases we go to two years or we went to two years...

ISKENDERIAN: We went to two years.

GURRIA: ... because it was necessary. In Denmark, they've gone from four years to two. So, you know, slowly, too much is not good. Too little is not good. There's a certain convergence here. So best practices are coming together, but it took the worst crisis in our lifetimes to become aware of this.

Why does the pink slip work here? Or why not, for example, say, cutting the hours that you work, instead of firing the people, and then using the hours where you're not working to retrain, to re-skill, to up-skill the workers so that when the order book starts filling up again, you have a very—in fact, better skilled workforce and, at the same time, you keep the loyalty of the workers to the company, the company invests in their skills. They stay—it's kind of a win-win proposition.

Now, this is not theoretical. This is not a Pollyannaish desire. It works in other countries. But here, the culture was the pink slip, and that is, you know, being looked at hard, whether it is really the better way. And as I sad, the moderation of the welfare state in some European countries, why? In order to keep the welfare state, you need to change it, you need to adapt it, you need to adopt it, make it less expensive, because the aging phenomenon is weighing very heavily.

"If you increase the minimum wage, then it makes sense to increase the Earned Income Tax Credit, because then the benefit will accrue to the worker."

So it's not just the taxes. The tax breaks that you get—who—it's about—Stefano, about half of the benefits of tax breaks of what you call tax expenditures goes to the top 10 percent, OK? Again, who takes advantage of the tax breaks in the tax code? The better off, OK? Now, and it's enormously costly to the—to the taxpayers to the United States.

So, again, you know, we have to go back and take a hard look at these issues, so—but it's not just the tax code. It's the education system. It's the innovation system. It's a competition system. And it is also, as you suggested with the women, but it's also about the elderly or the young. This crisis has been about young male, low-skilled, mostly, that have been very, very hard hit. The elderly have performed better. And the women, that depends on the countries.

But you need all-hands-on-deck. Why? Because the combination of keeping up the growth in the productivity and, at the same time, pushing back the aging requires that if we're going to work longer, that we—you know, if we were going to live longer, that we work longer, otherwise it doesn't—it doesn't add up. The numbers don't add up.

And this is why I was saying it's not just a question about income. Public services, for example—yes, everybody has access to the school, but do you have the same access to the same quality, to the same extent, with 15,000 school districts in the United States, very decentralized? No. The answer is no. So, again, you have to take a hard look at that.

"Why does the pink slip work here? Why not, for example, cut the hours that you work, instead of firing the people, and then using the hours where you're not working to retrain, to re-skill, to up-skill the workers."

When we first launched—we first rolled out—I quoted Secretary Duncan about saying that this is stagnation. But before that, the president of the United States, when we saw the first results, said this is a Sputnik moment. And Secretary Duncan first time said it's a massive wake-up call. So, again, these are very important issues to fight inequality. So it's a collection of policies rather than simply the tax.

ISKENDERIAN: Thank you. Let's invite the members to join the conversation. Just a couple of reminders. This is a conversation on-the-record. And if you could wait for the microphone stand and give us your name and your affiliation.

GURRIA: Or violent objections or...


QUESTION: Elizabeth Bramwell. I'm a retired fund manager. My question is how important private saving is to the overall economy. And with these low interest rates, it's very hard for people to save. Generally I think people think saving is a good idea, but it's very hard to save to start a business, create something in your garage, and the people who have benefited from these low rates have really been people who've been big enough, you know, to arbitrage currencies and so forth. I don't think it's trickled down to the general public.

GURRIA: Yes, I would—I would agree. I think the trickle down is not obvious and not clear. I think, however, that the fact that you have low interest rates does have the effect of helping anybody who's trying to look at a—the decision of either starting up or growing their business or, you know, growing—growing larger.

It helps to have the Fed now signaling ahead a couple of years, saying rates are going to be—still going to be low. And the problem is that, for a few years now since the crisis, and this is now being overcome in the United States to a greater degree than in other areas of the world (inaudible) credit was flat in the OECD countries in 2013. In Europe, it was negative. It was slightly positive in the United States, in Japan. In Europe, it was negative.

Why is it flat or slightly negative or maybe mildly positive? Mostly because small and medium enterprises have not had access. It's becoming more difficult. We're trying to do too many things with the banks at the same time. We're trying to recapitalize them. We're trying to make them more prudent. We're trying to make them more resilient. And at the same time, we're trying to say, but they should lend more and they should be more active and they should—so I think this is natural. The banking system was the source of the great crisis.

But at the same time, we should make clear what it is that we want from them. In the United States, there is a unique situation where you have these angel investors, these venture capitalists, and you also still have or used to have at least—not so long ago—the corner bank, the bank in the corner where the manager would still be able to lend you $3,000, $5,000, $10,000, et cetera. This is something that doesn't exist. You take it for granted, because you lived through it. We grew up with it in the United States. But it doesn't exist in the rest of the world.

And it makes the United States really—it made the United States what it is, which is—the start-up nation, you know, is not Israel in the last 20 years. It was the United States. The start-up nation has always been the United States. And by the way, new companies are the ones that create all the jobs in the last 10 to 20 years, not all—not big companies, small companies, or whatever companies. It's new, not the size, but the new.

And it's—you have these venture capitalist funds, and you're a fund manager yourself. That's rather unique here in the United States. And it is being eroded to some extent. And it is also—this discourages people from saving, if—if the returns are very low.

On the other hand, it's also a question of culture. Returns will improve. They're already improving. And at the same time, you do need to—to save for a rainy day. The level of consumption vis-a-vis the level of savings has always been one of the, I'd say, structurally weak points of the United States vis-a-vis other countries.

QUESTION: Thank you very much (inaudible) very nice to see you, Angel. My question is a political one. You know, the focus on inequality seems to me is a reaction to the disaster we had, the financial crisis, where many things went wrong and a lot of blame was put on those who had made it and had—could have done a little bit better than they did.

But there was a theory that the magic of the marketplace, to use a phrase that was used in the past, that this creates wealth, it creates income, and it then distributes. So in order to create change through the gridlock we have, there are people who believe this still. What is the case to be made that a shift to distribution or to greater attention to inequality will not sacrifice the goose that laid the golden egg?

GURRIA: I think it was always the case that markets create opportunities, and it continues to be the case that markets create opportunities. The only question is, you got to give the markets a bit of a hand, because there are a number of citizens in our midst that—because of their background, because they did not have the same opportunities—are more vulnerable.

And it is part of the mandate, of the implicit mandate of any democracy that, first and foremost, it has to take care of those, because they are not able to take care of themselves to the same extent as the better off. So it is in the design of any policy, of capitalism, you want to call it—I'd call it market economy—fine. Open markets, open investment regimes, you know, floating exchange rates, independent central banks, let's fight protectionism with all we've got, and all kinds of protectionism, trade protectionism, investment protectionism, foreign exchange protectionism, new types of protectionism, you know?

But—and go structural, OK? You run out of room on the monetary policy side, interest rates that are at zero everywhere, you know? You can't go lower than that. You run out of room on the fiscal policy side, because after all, we're now reducing the deficits. We're now consolidating, it's called—economists call it fiscal consolidation, which means you're bringing down the deficits and you're bringing down the accumulated debt—but the problem is, no matter how tight your budget is, you also have to be very, very aware that there is a big overhang, that there are millions and millions of victims of the crisis itself.

Today in the OECD—and I say the OECD, because these are the better-off countries in the world—there are 15 million more unemployed than before the crisis, OK? This is the United States, the whole of Europe, Japan, and some emerging economies like Mexico or Chile or whatever, 15 million more, just in those countries.

So what about those 15 million more? What about those in the United States? Well, eventually you started extending the benefits. So it's not about saying, again, the outcomes are different. The opportunities, however, have to be more equal, and at the same time, you have to administer and you have to provide for those that are more vulnerable.

We say in the OECD, after you've exhausted most of the monetary policy and the fiscal policy room, we say go structural, which means, you know, good, old-fashioned education, innovation, competition, taxes, dealing with infrastructure, flexible labor market, flexible product markets, what have you.

But you also say go social, precisely to deal with the impact of the crisis on the most vulnerable. We also say go green, and we say go green, because we are on a collision course with nature, and we have to change course, if we want to avoid this collision. This is – a intergenerational responsibility we have to face. And we also say go institutional, because the crisis changed many things. One of them is that we have to take a very hard look at the institutions we built in the quote-unquote normality, you know?

These things have changed, and we have to face a new normal and fight the new normal. We have projected now (inaudible) for example, that we are going to have a very mediocre, undesirable growth pattern in the OECD for the next 10, 20, 30 years. It's not for the next 18 months.

If we do not inject hard and heavy structural change measures, and actually we just came back, as I told you a moment ago, just came back from Sydney, where the G-20 decided that they were going to go for a 2 percent accumulated growth, additional growth over the baseline scenarios of each country, just 2 percent over the next 5 years. That means 0.3 percent, 0.4 percent more per year, OK, on average, accumulated. By virtue of doing what? Education, innovation, you know, labor markets, et cetera. Why? Because they all ran out of room for the others, the other instruments.

So I don't—I don't think that it's a question of saying everything has to be—everybody has to be equal, everybody—but it is—it is a question that you can't close your eyes to the fact that results have not been very good, but also the crisis, as I said before, exacerbated the inequality, and it accelerated it to something we had not imagined.

And therefore, it is one of the results of the crisis. We have to address inequality. You're saying, well, this is a result of the crisis. Yes. Not inequality because it didn't exist, but the awareness of inequality because it got so big. We have to address it now as a specific problem, rather than a bystander, you know, or that it's going to get solved by the recovery of growth, for example.

We have had jobless recoveries in the past. And now, of course, we have to avoid that.


QUESTION: Thanks. Rachel Robbins, most recently with IFC, which does recognize the importance of inclusive growth and equality of opportunity. My question is, you talked about the importance not just of education, but of skills training that leads to employment, and you also talked about the low-skilled, and they're not going to be innovating so much. And with a decline in manufacturing and technology reducing a lot of low-skilled opportunities, what are the skills and what are the jobs that will—that—and what are the policy implications to address—that the U.S. should be addressing to take care of these low-skilled people, whether they're the young or aging, out of manufacturing?

GURRIA: Well, first of all, what you have is a very dramatic change in your—I mean, we—when I say we, I mean people of—not you, but people of my generation—we grew up waiting for the moment where we run out of fossil fuel energy and we were accelerating every single alternative, including nuclear, in order to wait for the moment when we run out of oil, run out of gas, run—now we have—you know, I'm talking about the United States in particular, but the world—which is a relative abundance of energy.

We have an outlook which is—in the Middle East, OK, Israel now, the potential becoming an exporter of energy, certainly self-sufficient in energy because of the gas. Iraq being able to perhaps become the new Saudi Arabia, with—Venezuela, you know, eventually things calming down and getting better organized, but an enormous amount of—so what you have now is, you know, Mexico itself, new discoveries, Brazil, whatever. What you have now is a very great abundance of fossil fuels, a great availability.

The type of industries, the type of manufacturing, in particular, are always going to be related to the cost of the inputs, and now you have a very cheap competitive input. A lot of the input of manufacturing is going to come back to the United States because of that availability vis-a-vis Europe or vis-a-vis Asia, even.

Second, when you require talent and skills, this is a challenge, because in our skills analysis, you come out pretty flat, in terms of how much your skills have improved in order to match the demand in the market in—between the cohorts that are leaving the markets today and the cohorts that are joining the markets today, the—the 16- to 24-year-olds that are joining the markets, and the, you know, 64 or 65 that are leaving the markets, that means a 40-year difference, more or less, some countries, like Korea, let's say, the worst cohorts leaving the markets, in terms of how prepared they were for the demands, the best in the world coming in, the United States, U.K., pretty flat, in terms of, you know, 40 years.

So the adequacy of the literacy, the numeracy requirements vis-a-vis what is demanded has not changed very much. Again, these are, yes, massive wake-up calls. I use Secretary Duncan's comments, because if you are, as is the case, condemned to become more and more a knowledge society, and to be more knowledge-based in terms of your infrastructure or productive infrastructure, if you're going to be adding more and more value-added, rather than necessarily, you know, labor, you need to improve on these—on these inputs into the process here, because if you don't, other people will be taking the value-added.

So I think, you know, the United States has something which is an advantage, though. Even though it may not have the most skilled labor, the system here gets the best out of people or the most out of people, in terms of—even if you're not very skilled, but you really put it all on the line, you know, it's a very competitive system, in other countries, like Japan or like Korea, et cetera, it's more regimented, and therefore—and it's more—supposed to be a team spirit and a team—here you reward initiative, you reward, you know, individual departures from the norm.

And that is something which—even though the skills may not have improved very much over time—still keeps producing, but—but there's a limit to that, because the skills really have to be upgraded and updated. You have the best university system, but—and it's not just—you know, for example, you would be surprised to know that, for example, Germany has one of the lowest levels of people with university diplomas or tertiary education, but they are a powerhouse of exports and productivity in terms of manufacturers.

Would you be surprised to know that Germany itself has a very, very low productivity in the services? What happens when you inevitably migrate towards more services and more knowledge-based economy, well, if you do not have the same competitiveness and productivity in your services as you have in your manufacturing, you're going to lose. So now that was a big wake-up call for them, and now they're worried about that, and they're upgrading their skills on that. The same—I mean, I use that as an example for the case of the United States.

And it is not something that you build overnight. You build it over, you know, a generation. So—and because it takes a generation, then we should start as soon as possible.

ISKENDERIAN: I think we have time for one more question. Yes, and then we'll have to conclude.

QUESTION: Thank you. Ronnie Goldberg with the U.S. Council for International Business. Mr. Secretary General, you've touched on this implicitly in several of your responses, but I wonder if you could talk explicitly and reflect on the role of technology in growing inequality and also in the pros and cons, the disappearance of many jobs that have traditionally been associated with the middle class and the potential for new jobs or new careers or new middle class and what we need to do in order to harness that technology.

GURRIA: I think that it's not a question of, you know, adopting technology or not. It's like saying, do I adopt globalization or not? You can't—you know, do I adopt the Internet? You might—you might live without it, but you're going to live a pretty isolated existence.

The question of what you would call the job destruction part of technology I'd say is part of the secular trend, where businesses and jobs are destroyed, literally, by scientific and technological evolution and which has happened—which happens every day, all the time. It's happened for hundreds of years.

It is being more apparent, and it's accelerating, and that is perhaps why we're more aware of it and, second, because it's catching us at a moment when we are still destroying jobs. In the euro area, unemployment is still growing. In the United States, you're already, you know, coming down to 6.6 or whatever, but among other things, participation is lower, and therefore, sometimes the numbers are a little difficult to—to translate.

But you can't stop the progress of technology. It's going to happen. And, therefore, the question is, how do you best use it? And the key to that is, to what extent can you today educate, re-educate, as I said, re-skill, up-skill, whatever, the people who are already on the job? Well, to some extent.

But clearly, the focus has to be on the people who are coming in. And that starts in the schools. And, you know, in pre-school and school, secondary, high school, tertiary education, et cetera, the pertinence, the relevance of what you are taught is of absolutely critical importance, because you have many, many countries where you have a lot of graduates, and they can only use their titles, you know, to cover themselves from the rain. And it's not very—you know, it leads to a very great frustration, because, of course, you were offered that if you went to the university one, two, three years more, you'd get a better break.

Now, so this is a very—this is a very difficult question, because what the secret or the—really, the way to face it is not by denying it or by resisting it. It's by embracing it enthusiastically and then using it in order to create the new skills and make jobs more portable, increase the employability of your labor force, not the number of jobs, necessarily, and also wait for growth to pick up.

I have to say, if you—the situation today has been very, very difficult. We liberalized the jobs market at a time when there was a big recession, and therefore unemployment grew, which was an outcome we were not seeking. But it is perhaps one of the most—one of the most difficult challenges, this one, about technology.

But I'd say that the only thing we know is that you just embrace it, take it. It's inevitable, and go for it based precisely on technology itself. Technology also opens opportunities. Technology will bring new possibilities that today perhaps we're not fully aware of.

ISKENDERIAN: At least that feels like a hopeful moment to conclude this evening on. Secretary General, thank you so much for being with us, and thank you all for coming.


GURRIA: Thank you.

"When hard-working people cannot make ends meet, when the fruits of economic growth reach the pockets and tables of only a lucky few, when children start their lives in poverty but never grow out of it, inequality becomes a structural problem, which means it's not simply a result of other phenomenon, but basically a problem in and of itself. It locks in privilege, traps people in a vicious circle of exclusion and lack of opportunity from which it becomes very difficult to escape."
- José Ángel Gurría
"If you increase the minimum wage, then it makes sense to increase the Earned Income Tax Credit, because then the benefit will accrue to the worker. If you do not increase the minimum wage, then part of the benefit of the Earned Income Tax Credit will accrue to the employer. And the power of the employer vis-a-vis the employee will be much greater."
- José Ángel Gurría
"Why does the pink slip work here? Or why not, for example, say, cut the hours that you work, instead of firing the people, and then using the hours where you're not working to retrain, to re-skill, to up-skill the workers so that when the order book starts filling up again, you have a very—in fact, better skilled workforce and, at the same time, you keep the loyalty of the workers to the company, the company invests in their skills. They stay—it's kind of a win-win proposition. Now, this is not theoretical. This is not a Pollyanna-ish desire. It works in other countries."
- José Ángel Gurría
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