This report was produced by an Advisory Group on a New Growth Narrative that we brought together on behalf of the Secretary-General of the OECD in 2018. Experts drawn from a diverse range of fields with whom we have worked in different instances, the members of the group brought together various threads of new thinking on economics in order to weave a new narrative on economic growth.
Prior to the Global Financial Crisis, there were already cogent critiques on dominant economic analyses. This intensified sharply in the wake of the crisis and the protracted recovery that followed. It became increasingly clear that conventional economic theories and policies had been found wanting. Many OECD economies were, to varying degrees, beset by rising inequalities, slower productivity growth, increasing corporate concentration, a ratcheting-up of debt levels, environmental degradation (notably via climate change) and financial instability. These issues connected to a prevailing narrative based on the primacy of growth and stressed market liberalisation and deregulation together with fiscal discipline and low tax rates and curbing social welfare benefits. That narrative not only abetted the failure to address acute social and environmental challenges, but also failed on its own terms: the growth of productivity and per capita incomes has been increasingly anaemic in recent decades.
This report points to a new narrative, one based on a broader conception of economic progress, richer frameworks for economic, social and environmental analysis and a wider set of policy objectives. It confirms the need for a people-centred narrative, which the OECD has been proposing for some years now.
As regards the objectives of economic policy, it urges a move away from the traditional emphasis on GDP growth to a multi-dimensional conception of economic progress comprising environmental sustainability, rising human well-being, falling inequality and system resilience. The prioritisation of efficiency objectives may have undermined the resilience of societies by overlooking equity and sustainability objectives. The emergence of the Covid-19 pandemic exacerbated previous trends, with clear asymmetric impacts among different income groups. Embracing a multi-dimensional set of objectives, as advocated by this report, and promoted by the OECD, would enable assessment of trade-offs, and complementarities, as well as identification of unintended consequences, to better guide policy choices and decision making.
In terms of how we think about economies, it calls for moving away from simplistic assumptions such as homogeneous, rational, utility-maximising agents interacting in timeless self-equilibrating markets. It instead suggests further engagement and experimentation with complexity, path-dependence, bounded rationality, economic power, multiple equilibria and non-equilibrium outcomes. It encourages us to see modern economies as complex adaptive systems, constantly evolving and reorganising rather than a series of deviations from a stable equilibrium with the ability to self-stabilise when hit by shocks.
I personally support these key messages. What is more, during my time at the OECD, we took the lead in putting these ideas into practice through three major initiatives: New Approaches to Economic Challenges (NAEC), the Better Life, and Inclusive Growth Initiatives. The Organisation has made progress in advancing a new approach like the one proposed in this report, one organised around well-being and reflecting the goals of environmental sustainability, social equality and system resilience. Such an approach requires an understanding of how the economy works, and breaking out of the silos that contributed to the perilous situation in which we find ourselves today.
The report was largely written before the Covid-19 outbreak, but its key lessons are sharpened and amplified by the pandemic and the economic and social crisis it precipitated. This systemic crisis, like the previous one, has revealed key fragilities in our economies and societies. On the health front, major vulnerabilities were exposed, reflecting both market failures (e.g. weak incentives to discover and produce vaccines) and government failures (e.g. underfunded health systems in many countries, lack of universal access to health care in some and gaps in social protection systems). “Just in time” production systems compounded these vulnerabilities. In many places, public investment and social safety nets had been eroded by years of fiscal austerity after the last crisis, and in some countries, there had already long been a dominant ethos of curbing the size of government and cutting taxes.
The new growth narrative heralded in this report is useful not only to understand this latest crisis, but also to think about how to emerge from it and “build back better”. We must avoid the mistakes of the past. In particular, we have to do a better job of confronting a series of converging planetary emergencies linked to the environment, the economy, and our social and political systems. We have to operationalise the insights coming out of NAEC about feedback loops between different systems and the consequent need to enhance resilience. In order to deal with future shocks, whether another financial crisis, the climate emergency, or societal fragmentation, our analysis should rely on solid, integrated analytical frameworks based on multi-disciplinarity.
The current crisis, while calamitous in many respects, may provoke a much-needed wholesale rethink. The crisis has demonstrated that business-as-usual approaches can be disrupted, even radically, when there is a necessity to do so. It has starkly illustrated the interaction of complex systems and the possibility of cascading failures. It has provided a reminder of the benefits of resilience, for example via the maintenance of spare capacity and margins for error, and underlined the vital importance of public services, particularly health and social care. Not least, it has provided examples of solidarity, public spirit, self-sacrifice and a renewed requirement for multilateralism to solve global problems. While the road out of the current crisis is bound to be long and difficult, the prospects for achieving a new narrative is a source of hope.
There is still a long way to go, however, both within the OECD and beyond. Notably, there is further need to develop and apply models that can better reflect reality emphasised in this report, that modern economies are emergent complex systems, indeed part of a “system of systems”, which are not well characterised by the concept of equilibrium. This might help us better balance just-in-time considerations with just-in-case ones, something the current crisis suggests is necessary. Achieving this shift will not be easy: the task is beset by difficulties of both a technical and political economy nature. Abandoning the many simplifying assumptions made in standard economic theory can quickly make models intractable and/or hard to explain. And the simple fact is that those with economic and political power have a vested interest in preserving the approaches that have served them, though not most others, well.
The members of the Advisory Group, highly respected experts from outside the Organisation, have contributed their proposals on what needs to change in economics, analysis and policymaking. They have succeeded admirably, and I would like to thank them for being so generous in accepting Secretary General Gurría’s invitation, and so inspiring in the insights they have offered. In particular, I would like to thank Michael Jacobs for taking the lead in producing this report, skilfully weaving together the rich and varied ideas coming from the whole group and contributing his own expertise and proposals. My appreciation goes also to William Hynes and the NAEC team at the OECD, for their efforts and strong commitment to advance this transformative agenda.
Gabriela Ramos
Assistant Director-General for Social and Human Sciences
UNESCO