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U.S. Ambassador to the OECD Kornbluh's Remarks on Addressing Twenty-First Century Economic Challenges

Speaker: Karen Kornbluh, Senior Fellow for Digital Policy
Published November 17, 2010

On November 17, 2010, U.S. Ambassador to the OECD Karen Kornbluh delivered this speech at Bucerius Law School in Hamburg, on "Addressing Twenty-First Century Economic Challenges - What the OECD Experience Can Teach Us."

First, a bit of history. The OECD was founded as the Organization for European Economic Cooperation after World War II because U.S. Secretary of State Cordell Hull believed that the fundamental causes of the two world wars lay in the protectionist policies of the European powers and America. And George Marshall and George F. Kennan realized that to build cooperation, they must offer not just economic aid but technical assistance. As a result, Marshall Plan aid was conditioned on participation in the OEEC.

The result was great success. By the end of 1950, 60% of private intra-European trade had been freed thanks to OEEC action, a percentage that rose to 84% in 1955 and 89% in 1959. By 1952 as the Marshall Plan funding ended, the economy of every participant state had surpassed pre-war levels.

In 1961, the OEEC became the new Organization for Economic Cooperation and Development and Canada, Japan, Australia and the U.S. joined. When President Kennedy ratified the convention establishing the new organization, he said, he expected it would "become one of the principal institutions through which we pursue the great aim of consolidating the Atlantic Community." The goal of the new organization was to spur growth and employment in member as well as non-member countries while maintaining financial stability. And to coordinate economic aid to developing countries. Later Korea, Mexico, Turkey, New Zealand joined as well.

After the Berlin Wall came down, the OECD worked with the countries of Eastern and Southern Europe to adopt market systems and then they too joined.

Soft law

Now, don't be embarrassed if you don't know much about the OECD. Many people don't. From the start, the new organization had far fewer tools with which it could force compliance from its member states. Instead it was forced to rely on "soft law" instruments - these are disciplines that contain neither binding rules nor sanctions to enforce compliance but instead must rely on what one scholar has called "good argument, socialization and persuasion." Soft law and networks are not the stuff of show-downs between heads of state and so it's no wonder the OECD is not often on the front pages.

But soft law is used to foster compromises. It does use a broad range of approaches to deepen international economic cooperation. And it is appropriate to our increasingly interdependent world.

OECD member countries have now adopted over 400 non-binding instruments that Member countries sign up to and agree to be scrutinized under. And although the OECD is a pioneer in soft law, the UN, the IMF and then the EU also rely on many soft law mechanisms.

A few examples of OECD instruments that we take for granted:

OECD export credits arrangements prevent countries from unfairly subsidizing national companies with below-market financing assistance.

Tax instruments, developed and implemented at the OECD, help protect businesses from inconsistent treatment and double taxation.

Approximately one-third of the OECD instruments are in the area of the environment - including acceptance of the key "polluter-pays" principle.

The OECD´s Guidelines for Multinational Enterprises lay out a consensus standard of what we expect from corporate behavior - and provides a way for civil society enforcement!

The signature OECD instrument is the Anti-Bribery Convention. U.S. companies had to comply with the U.S. Foreign Corrupt Practices Act but compete against foreign competitors who were free to bribe - in fact foreign bribes were tax deductible in many countries! So the U.S. went to the OECD and began with a study. Countries reported on their own activity. Eventually, member countries signed onto a binding treaty committing OECD countries to pass laws making it illegal for companies to bribe foreign officials. Today that Convention has 38 signatories. But even that does not contain the ability to impose sanctions for enforcement - the way violations of WTO agreements can be enforced.

Like most OECD instruments it relies on peer review, independent analysis, and "naming and shaming" for enforcement.

I've seen first-hand how powerful this "soft law" approach to enforcement can be. I personally participated in the Phase III review of the U.S. - and believe me it didn't feel too "soft"-the experts from the examining countries were thorough, the examination was public, and the results were not sugar-coated - although the U.S. is exceptionally strong on anti-bribery.

These soft law tools of the OECD's developed out of necessity but are remarkably well suited to today when it is often difficult to negotiate treaties and countries may be reluctant to impose sanctions.

And they can be effective because they are negotiated and "socialized" through networks of regulators, technical experts and increasingly industry leaders, trade unions, and civil society. This system is particularly well-suited to what Ann-Marie Slaughter, the Director of Policy Planning at the State Department has called "the emerging networked world of the 21st century," which "exists above the state, below the state, and through the state."

Now, networks are all around us. They can be powerful but they are not always positive. The OECD's mechanisms have promoted more sustainability, growth and inclusion for two reasons. One, they are based in those values and vision that have been at the heart of the Atlantic alliance. And two, the OECD keeps the players honest through its extensive data collection and analysis. This data is used by governments and organizations around the world. In December, U.S. Education Secretary Arne Duncan will release the OECD's education survey because we want to benchmark the progress of our education reform against other countries.

The result is a "race to the top" -- a level playing field for business - but at the greatest common denominator. This is especially relevant for countries like Germany and my own, given the significance of exports and relatively high wages in our economies.

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