The World and the OECD. Looking ahead while learning from the past

Looking forward to an even larger membership I believe that Ambassadors and the Council will have to find creative mechanisms to maintain that strength of the OECD. I am not aware whether they have been explored, as of course I have not been present – says Donald JOHNSTON

Amb. Aleksander SURDEJ: – Your Excellence, as I have started to examine the evolution of the OECD, I have seen the great and at times transformative work of its leaders, its Secretaries-General. The Organization wants to appear as member-driven and consensus oriented. Yet, especially in turbulent times, we need a leader to guide us. You were the Secretary General of the OECD for 10 years, balancing sometimes contradictory expectations and it is important understand the role of the OECD’s leaders in the historical contexts of their leadership. Soon the Organization will have a new Secretary-General. I would like you to tell us how you see the future role of the OECD and its new Secretary-General in light of today’s challenges and the discouraging conditions faced by member states and the World at large. You reflected on some of these issues in your 2017 book entitled “Missing the Tide: Global Governments in Retreat”.

H.E. Donald JOHNSTON: – I will not comment on the internal processes now because I do not know what they all are. I am told that Angel Gurría has a different management style than mine and he used his deputies differently. That is normal. An incoming Secretary-General may have yet another managerial approach. The role of Ambassadors is to help the new Secretary-General to develop a management plan, which is satisfactory to the Ambassadors (the Council) and satisfactory to the Secretariat.

Having consulted outside experts, I created the position of Executive Director after I arrived because previously major administrative responsibilities were divided in separate areas of the Secretariat and under different deputies. While that seemed to have worked under my predecessor Jean Claude Paye, I was faced in the first year with a major budget constraint…on a huge scale. I had to implement 18% real budget cuts in my first year as Secretary-General. That meant changing existing structures to cut costs while delivering outputs satisfactory to the Council and member countries. It was very difficult for the staff of the Secretariat, but we succeeded.!

As regards other issues that you wish me to talk about, I believe that the OECD has an increasingly important role to play in the global public policy context. That role includes establishing practices and disciplines by consensus that are enforced by peer pressure. This is the area often referred to as “soft law” and I see it as increasingly important as the OECD expands its membership in the face of a world that is rapidly changing, economically and socially.

Let me refer to the number of the OECD members. By the time I left the OECD, there were 30 member states as I recall, including Poland and South Korea, both of which joined shortly after I arrived. I believe there are now 37 members. That number is more of a challenge for the OECD than the World Bank, the IMF or the UN and its agencies face with a much broader membership. Why?

Consider this. The OECD often holds Ministerial meetings on issues of great importance and all the countries at Ministerial level are around the table. Now with some 37 members constraining the time available, would a senior Minister of Finance travel to Paris to make a 5-minute intervention before colleagues?

37 interventions would take at least 3 hours, allowing for no debate. Of course, smaller specialized committees limited to interested experts from a limited number of countries could still work. So would Working Party 3 if it does not over expand. This is one of the major challenges that you and your colleagues will face going forward.
This problem does not face the IMF, for example, given its where countries represent constituencies, normally of smaller countries. I think of Canada which in my day represented a number of smaller countries, but the IMF was focused largely on macro-economic policies where a consensus (such as the Washington Consensus) could be made among this smaller number of representatives.

However, while the OECD looks at macro-economic issues in the Country Review process it is really the world’s leading think-tank amongst developed countries, tasked with addressing structural issues at the macro-economic level. There can of course be no uniform approach in education and training, health, labour markets, income support programs or the governance of regions and urban areas. But even small countries can offer larger ones in the OECD examples of best practices as well as mistakes from which useful lessons can be learned.

Looking forward to an even larger membership I believe that Ambassadors and the Council will have to find creative mechanisms to maintain that strength of the OECD. I am not aware whether they have been explored, as of course I have not been present.

The other challenge is the range of issues examined at the OECD and the fact that no single Ministry in member countries is its patron. The IMF and the World Bank “belong” to Departments of finance, while the OECD is relevant to and used by ALL Departments, and that’s quite a challenge. This challenge is compounded by the fact that OECD Ambassadors, depending on their backgrounds, often have different views on different issues and different priorities that they want the organization to pursue. Let me give you real life examples. I tried to introduce the subject of information and communication technology (ICT), but this was turned down by the Council. One Ambassador said this was just a “passing fancy”. We could not get agreement from the Council to include it on the work program. So we were forced to use our off-budget Futures Program (which was not under the control of the Council), with the support of the Finnish Government and held a major conference in Turku to look at the potential of these new technologies. The Finns wished to hold such a conference because their company Nokia was a global leader in the field. After the conference everyone became very enthusiastic and Canada hosted a major follow up conference the following year.

Another issue was the challenge of health programs. . When I suggested that we introduce health into the work programme, several ambassadors said that this was a topic for the World Health Organization (WHO), not for the OECD. I asked one of my deputies, Thorvald Moe, who had been a senior Norwegian finance official, to speak with Gro Harlem Brundtland who was heading the WHO in Geneva. She confirmed that the WHO has no experience in economic analysis which all countries needed. She came to Paris and made a presentation to the Council about the importance of the OECD work in this area, given this is one of the largest public expenditure areas of nearly all developed countries. The Ambassadors were appreciative and agreed that the OECD should undertake work in the area of health. So after three years of trying we finally managed to get health on the OECD work programme.
The Ambassadors due to their backgrounds have different areas of expertise and they may not know what is going on in another ministry of their country. Besides ICT and health issues, there were other examples as well.
How should such new areas be introduced to the Work Programme and to the Council? The committees are very important. They generate and undertake much of the work programme but the problem is they do not necessarily represent the whole of the government.

When we talk about the global situation, the role of the OECD is even more important. This is one of the things I learned from one of my predecessors from the Netherlands, Emil Van Lennep.
He said that some people scoffed at the OECD because the Organisation used a consensus mechanism, and peer pressure to make countries adhere to whatever had been decided. Well, the OECD does have some many legally binding instruments (such as the Anti-Bribery Convention) but consensus and peer pressure to make counties conform is much more powerful in many ways.

I think that in what is happening now, the OECD may be more important than it has been in the past because changes are coming about quickly and a respected international organization that establishes the rules by consensus (which may be later codified into the law) is needed. That organization is the OECD.

AS: Excellency, I do agree that broad ranges of issues covered is a curse and blessing for the OECD and that a good ambassador after 4 years at the OECD is fit to become a prime minister of a member state. But, in the end the OECD’s recommendations need to be translated into domestic policies. One of the issues is the quality of national delegates to the committees. A national delegate need not only to be an expert in the field, but also a person capable of attracting the attention of political leaders.

One of first discoveries for me as the ambassador was that there have been hundreds of Polish officials coming every year to the OECD. How can I be sure that they are contributing to the work of the Organization and that they are also learning policy lessons and transfer them to the public opinion and to the officials-makers in my country? Once you increase the size of your organization, you run the risk to have super competent and engaged officials from some countries, while the presence of other countries will be superficial. This might impact the way the OECD generates outcome for its member states.

DJ: You raise a very important issue, Ambassador. Are you familiar with the 2003 Peter Nicholson report? Mr. Nicholson made an analysis of the OECD committee structure in the context of the effectiveness of the Organisation’s work. He came to the conclusion the way to determine whether a committee is doing its work effectively on behalf of the government represented is to consider the seniority the level of the individuals who attend. If the seniority declines, it is a signal that the government is not much interested in that particular area. Nicholson placed great emphasis on the level of representation rather than on the subject. It was an important report! All ambassadors should read it!

I offer a concrete example: In Working Party 3 we had very senior people like Larry Summers, John Taylor, Mervyn King, Mario Draghi and others, but if the level of representation had dropped it would signal that the relevance of the work to governments had diminished.

AS: I would like to ask you, Excellency, about another issue. As I am chairing the informal reflection group on South Africa, I think about the responsibility of the OECD towards broader world, especially for the global development in various dimensions. The OECD is not like the World Food Organization or the WFP (the World Food Programme) of the FAO. It is to serve with the policy advice, not with specific outputs. Many times least developed countries seem not to be ready to absorb the OECD advice for their domestic policies.

It might seem that the OECD produces policy reviews or recommendations which are far beyond the sophistication of the recipient countries’ administration. How the OECD can play a more effective role in supporting the development of the least developed countries?

DJ: During my time as Secretary-General. We really began to reach out to developing countries in earnest. In addition to the continuing work of the long-standing Development Assistance Committee (DAC) to improve aid effectiveness, we strengthened the Development Centre to become a major contributor to cutting edge thinking about development issues. And we also instituted a number of Global Forums, that included developing and emerging economies in our policy discussions about some of the most important global issues, including taxation and corporate governance. Your question is also relevant for the roles of other organizations, the IMF in particular. The World Bank deals mostly with policies for developing countries, while the OECD for developed one. But both Organizations address structural issues to a degree but the OECD in particular. I sense that has changed at the IMF since the late 1990s.

Let me illustrate. South Korea serves as an example. Just after having joined the OECD in 1997, South Korea asked the OECD along with the IMF to support the economic policy of that country to bring it out of the Asian financial crisis. The IMF gave to Korea very high rating grades in macroeconomic dimension in its annual reviews, while the OECD was focusing on the structural level , especially the management of major corporate groups (Chaebols) For many the debt equity ratios were much to high to be sustainable, , there liquidity and governance problems, including conflicts of interests through interlocking directorates.

The head of the IMF at the time, Michel Camdessus, called me to thank the OECD for the excellent analysis of these structural challenges. The IMF had not done any work on this area, focusing on the balance of payments, fiscal deficits etc. I think that the IMF has since improved its strengths in terms of work on structural issues. This demonstrates how it is very important that the OECD coordinates and communicates with other organizations. I also signed agreements with James Wolfensohn and Paul Wolfowitz from the World Bank. We worked very closely with the IMF and the Bank, especially on corporate governance. I believe that the Council should encourage the new Secretary General to work very closely with these other organizations because they are complementary. It is important to exercise influence behind the scenes and bring those parties together, including the NGOs. We tried to introduce the Multilateral Agreement on Investments ( MAI), but it was shot down effectively by NGOs. Basically they saw the agreement as leading to surrender sovereignty by tyin the hands of government. They protested and eventually the French government killed the agreement. We decided at that point what we had to focus more onh the NGOs and that was why we added a complementary meeting of interested NGOs to the the annual Ministerial meeting. And it has been continuing since 2000 in this way as far as I know. When we had the issues that were of interest to civil society, we had the opportunity to bring the heads of these NGOs to Paris to be able to meet and discuss these issues directly with senior ministers from governments.

AS: I agree that the process of transferring knowledge and diffusing recommendations should be at the heart of the OECD Secretariat actions: the Organization needs to have and attract people that generate a policy impact. In this regard I would like to ask you about your perception of the right mix of competences of OECD experts because, in my views, effective policy advice requires not only statisticians with a Ph.D. degree or people who are knowledgeable with recent economic theories, but also persons that have strong experience in managing public organizations and implementing public policy reforms. Should not the OECD people attract more people in their in mid-career phases and for a long-life job since discussing with young who might not be convincing to policymakers. How do you see the problem of the right mix of skills/experiences for the OECD?

DJ: Firstly, I would note that during my period as Secretary-General, we had a very healthy mix of first-rate statisticians and economists, but also seasoned and experienced professionals who, for many years had managed at senior levels within their own governments and implemented policy reforms. With respect to the “younger” intake, there is one programme I have not referred to. This is the young apprentice program which was at the OECD but I am not sure of its current status. It is important to have the perspectives of these young scholars. Often they also bring expertise. You need to encourage the Secretary-General and his deputies to use such a programme.

The ambassadors themselves should help to make sure that their countries get the right people at the committee meetings. That’s very important as indicated above and something Ambassadors can encourage back in capitals. Ambassadors should also monitor the work of these many committees where much of the important work is going on, sometimes not even known to the Secretary General or the Deputies.

Let me give you one example. There was a G7 meeting in Germany. I received a call from Alan Larson who was then an undersecretary in the US State department. He informed me about the contentious issue of genetically modified organisms (GMOs) and genetically modified food. This became a contentious trade issue between the United States and the EU. He asked me if the OECD did any work in the area. I said I did not know but that I would find out. It turned out that this matter was being examined by experts in one of the committees. So that’s what I mean about the OECD. It’s a rich resource where you will discover more and more, day by day. It is critical for you as ambassadors to be close to your own governments and understand the policies and priorities in such areas.

AS: There is a long list of candidates for the job of the Secretary-General. It seems that the Secretary-General of the OECD is an attractive job. But, to those that have not heard about the winner’s curse, one should send a warning that it is not an easy job, and if one bids too high, one might struggle and regret. Do you have any suggestions as regards the type of personal competences and experiences, energy and capacity to resist emotional pressure that such a new leader should demonstrate? Should the new Secretary General be more a political person or more an expert person as we need an optimal leader for these unusually complicated times?

DJ: This is a very good question. What kind of personal characteristics? I personally had a mixed experience of law, politics and teaching. My interests, knowledge and curiosity were broad, but deep in only a few areas.

But for a leader like a Secretary-General, it is also very important what kind of people she/he is going to hire as Deputies, directors and key advisers. A test for a leader is to hire people who are smarter than you. If you believe like some leaders that nobody is smarter than you, you have a serious problem.

We must also build upon the work of our predecessors. My immediate predecessor was Jean-Claude Paye – a first class expert with many skills. He introduced an approach that can be called an examination of cross-cutting issues. My experiences in government taught me that few policy choices are only relevant to one department. It is said that one must break through departmental silos. In many governments, including that of Canada, Government departments did not always work together effectively. This was true for the OECD as well.

Jean-Claude Paye tackled that issue in a comprehensive job study before my arrival, supervising it himself. In this approach the OECD brought together various directorates to examine how recommendations on job creation are taken into account and what synergies should exists among different Government departments.

I tried to continue this approach in different areas. I would encourage the OECD to do it because it is one of the few organisations which has important expertise on many issues. The new Secretary-General should think about this. It would be a great success to have as an OECD leader an expert who has the knowledge on all fields of the work of the Organization; however, this is not possible. But one needs someone who is open-minded to new ideas, something that isn’t always true of many specialized economists. It is a wonderful job for someone who loves public policy issues across societies..

AS: Mass media are abusing the terms and concepts of geo-politics and geo-economics. Often they are confusing them. Things are changing, especially regarding the weight of various regions and countries in the world economy. In the period of transformatory turbulences will the OECD be a part of conflict or solution to the problems of the world? How to make the OECD a part of solution?

DJ: The OECD must be a part of solution. As an organization with significant European presence, the OECD needs to unify EU as a counterweight to the growing polarization of the World. We need countries that promote efforts to design and implement multilateral solutions, while others withdraw.
The OECD has a chance to play a very important role, but it is complicated. The OECD is a great place for significant networking. I think this is also a great value. It is important that the leader of the OECD gets strong support from the Council. This can sometimes be a challenge.

AS: Poland is grateful to you, Secretary General, for bringing my country to the OECD. What memories do you have from this period of late 1996?

DJ: Despite the fact that Poland started to transform its economy from the communist model of central planning and dominant state ownership in 1989 – just 7 years before joining the OECD – I never had a doubt that its membership would be a success story. It is worth adding that in the case of Poland, accession to the OECD preceded and served to prepare the country for EU membership that took place in 2004 – the accession process initiated a truly transformational evolution.

.In the period of accession I worked intensively with deputy prime minister prof. Grzegorz Kolodko, whom I remember with pleasure, but, much before and privately, I had many Polish ties and especially with the family of Tadeusz Romer, a heroic Polish diplomat who helped to save many human lives during the Second World War and later settled in Canada where he sadly passed away.