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OECD's message for Canada on 'inclusive growth': Lots of room to do better

In an exclusive interview with The Globe and Mail, Gabriela Ramos, chief of staff of the OECD. discussed the challenges of pursuing an inclusive growth model in the fast-evolving global economy.

Michael Dean/Globe and Mail Update

The Organization for Economic Co-operation and Development's No. 2 official has a message for Canada's economic policy makers: We're doing a decent job in including a broad range of Canadians in the fruits of our economic recovery, but there's still lots of room to do better.

Gabriela Ramos, chief of staff of the OECD, made that case in a paper she presented last week to the Conférence de Montréal, a major international economic forum. The paper examines Canada's successes and failures in "inclusive growth" – a key focus for the global economic advisory body for the past five years, as it looks beyond traditional economic growth metrics to try to encourage its member countries, including Canada, to pursue prosperity that is more fairly shared across their societies.

Canada ranks fifth out of 38 countries on the OECD's "Better Life Index," which attempts to gauge how a country's economic growth translates to the well-being of its citizens. Canada has also enjoyed better-than-average improvement among OECD countries in the past 20 years in standard of living, as measured across a broad range of indicators including longevity, income, employment and equality in addition to economic growth.

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Still, there's work to be done. For example, Canada's share of children covered by child-care services is far below the OECD average. Women are both underpaid and under-represented in the labour force relative to men. And the country's Indigenous peoples are not participating anywhere near fully in the country's economic success.

In an exclusive interview with The Globe and Mail, Ms. Ramos discussed the challenges of pursuing an inclusive growth model in the fast-evolving global economy. Here are some highlights of that conversation.

On whether economic policy can maximize growth and maximize inclusiveness at the same time:

"That's exactly what we are trying to encourage our countries to do. Not to go for this opposite view [that] either you're inclusive or you go productive. We call it 'the Nexus'… how to become more productive by being more inclusive. How do you prioritize your investments in the most vulnerable groups? Not just to help them live in general, the moral responsibility that we all have not to just leave these people home. But to enhance their own capacities to contribute to the more dynamic economy.

"But to do that, our economic models and our economic metrics may need to change. You would need to think of an inclusive growth test … See how much a specific policy is going to have distributional impact. Which is something that we never do. Now at the OECD, we are trying to target measures to look at how they impact the bottom 10 per cent, the bottom 20 per cent, the bottom 30 per cent – and whether there are unintended consequences of policies that look very positive from the productive point of view, from the competitive point of view.

"It means putting people at the centre of policy making. That's what we don't have. We have production. We have GDP per capita. We have consumption. We don't have people."

On re-thinking the welfare state:

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"We need to change the growth model, and think about investment in those areas and assets that are wasted, to ensure that they fulfill their full potential. … Government investments, the public budget, should be more strategically applied, to enhance the capacities of regions, of firms and of people that are lagging behind. You really need to change the axiom of 'I grow, and I re-distribute' … That's why I was thinking on this question of early-childhood education. If you recommend something that will really level the playing field for families that are facing socioeconomic disadvantage … These kids usually would not have as embracing environment at home as more wealthy children, so the more you invest in those groups of people, in their skills when they are very young, the better. We are calling this 'the empowering state' … This is a different way of framing the policies and framing the actions. It's inclusiveness, but also contributing to competitiveness at the very same time."

On the challenges posed by the increasingly technology-driven services economy:

"In the context of the next production revolution and the emergence of all these technologies that are changing the way we produce and the way we connect and the way we network, there are some winner-takes-all kind of dynamics, because of the nature of the business. We were taught before that in any market, the more [competitors] you have, the better. But if you have Airbnb or you have Facebook or one of these big platforms, that does not apply. You cannot have the 'more,' because you really need to have the critical mass to make them profitable. Therefore, then, you have this concentration of a lot of economic power in certain big technology firms.

"Frontier firms, those that are technologically advanced, continue to enjoy productivity growth rates of 3 to 5 per cent, while the rates of the small and medium-sized firms in our economy are just stagnant … If the destruction is because they have a massive presence in the economy and a massive control of their own technologies, [which] prevents others from participating in that market, then the outcome is not as positive for the economy.

"We know now at the OECD that around 9 per cent of jobs will disappear because of technological progress, and another 20 per cent are going to be transforming. Of course, there will be other jobs that will be created. But in the meantime, the transition is very hard."

On what that technology revolution suggests for policy makers:

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"You should not protect jobs; you should protect people, investing in their skills and looking at ways that they could make the transition. It's easier said than done. It's very complicated. I don't think that employment services in any of the OECD economies are really on top of this issue. They're trying, and there are some very good experiments. But it's complicated."

On what Canada's aging demographics mean for pursuing inclusive growth:

"The fact is that [populations] are going to age very rapidly. And therefore you have to enhance your labour force participation. One way is extending the work life of people; because of [increased] longevity, I think that's feasible … of course, that requires also to keep on investing in the skills of the older population, and to look at the kinds of jobs they can do.

"Second, I think there's one area in which Canada has invested a lot, and probably we can learn from your own experience, is in integrating migrants, trying to do a good skills recognition of migrants and match them with the demands in the labour market. It's not easy, it's quite complicated …[but] that will help a lot with the decreased labour force participation of the aging population.

On the participation of women in Canada's labour force:

"In terms of labour force participation of women, Canada is one of the top countries in the OECD, with seven percentage points' difference between female and male [versus the OECD average of 16 points] and 74-per-cent participation of women [versus the OECD average of 64 per cent]. But still, you have seven points. And still, women's representation in the leadership in the private sector is low. And you still have a wage gap of 18 per cent between men and women. That means you create incentives to women not to get a great attachment to the labour market."

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About the Author
Economics Reporter

David Parkinson has been covering business and financial markets since 1990, and has been with The Globe and Mail since 2000. A Calgary native, he received a Southam Fellowship from the University of Toronto in 1999-2000, studying international political economics. More

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