OECD’s Gurría calls for overhaul of economic thinking to address global challenges

gurria.jpgThis article is brought to you in association with OECD.

The challenges we face in our era of rapid, disruptive change are daunting, but we are starting to develop the tools, techniques and concepts to meet them, OECD Secretary-General Angel Gurría said.

Speaking at a NAEC conference on Averting Systemic Collapse, he said: “Our economic systems should change, as they are destroying our environment, threatening life on earth. They are also creating huge social challenges, and the high level of inequalities is impacting social cohesion and trust.

“We need to completely overhaul our economic thinking and the policy advice that flows from it.”

He added: “Safeguarding our common future requires a coherent, systemic approach based on putting people at the centre of climate policy; pursuing environmental justice within and between countries; and ensuring long-term prospects for future generations. We need an economy that puts the well-being of people and the planet at the centre”.

The OECD’s New Approaches to Economic Challenges (NAEC) initiative brings together leading authorities and research institutions to challenge traditional thinking. OECD Chief of staff and G20 Sherpa Gabriela Ramos, who leads the initiative, said NAEC findings confirm the need for economic policy to give equal importance to equity and environmental sustainability as to efficiency objectives – and that they need to be integrated from the outset.

“NAEC,” she said, “is not an academic exercise. It is about how do we help produce better policy answers.”

At the two-day conference, economists and other experts from leading institutions and disciplines ranging from climatology to palaeontology agreed that fundamental shifts in current policy approaches and ways of thinking would be needed to address the increasingly complex, interconnected and dynamic nature of global problems. Without an understanding of how our strained social, environmental and economic systems interact, the risks of a systemic collapse will increase.

Central to the discussions was the concept of systemic thinking. According to a draft report on Systemic Thinking for Policy Making, presented to the conference by the OECD and the International Institute for Applied Systems Analysis (IIASA), a systems approach can help us understand critical linkages, synergies and trade-offs between issues generally treated separately, and thus reduce unintended consequences. It also helps us understand feedback loops and tipping points that traditional economic frameworks fail to capture.

Closer trade cooperation combined with robust land use strategies could, for instance, increase the resilience of global food markets to the impacts of climate change. Similarly, managing water, energy and land in a more integrated way – giving equal weight to each sector – would provide experts and policy-makers with a more precise understanding of the benefits and difficulties of meeting future demand for resources in a sustainable way.

Linking education and demographic change is cited in the report as another example of how research and policy can be guided by viewing issues holistically. Lifelong education strategies, starting from early childhood, can promote productive working lives and healthy ageing.

Michael Jacobs, Professorial Fellow at the University of Sheffield, said incremental changes to existing economic modelling and thinking are insufficient to tackle the deep challenges our economies now face. “We can’t anymore simply do supply-side reforms which make labour markets and planning systems more efficient and then a bit of ameliorative social and environmental policy after the event,” he said. “We have to build these objectives into the structure of the economy.”

In discussing how to build safeguards to economic, social and environmental shocks, the conference heard that resilience strategies could address systemic risk in more useful ways than traditional approaches based on risk management, which attempts to anticipate crises. Resilience strategies are concerned with how systems behave after disruption has hit and are based on the assumption that systems are complex and constantly evolving. To be effective such strategies have to encompass four functions – planning, absorption, recovery and adaptation.

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