The OECD reviews New Zealand today

This morning in Paris, in one of the many well-equipped but characterless conference rooms, that seem to host dozens of international meetings each week, members of the OECD’s Economic and Development Review Committee (EDRC) will sit down to consider New Zealand.

The Committee’s role is “to examine economic trends and policies in individual OECD … countries, assess the broad performance of each economy and make policy recommendations”.   Every two years each of the 34 OECD member countries’ economies are reviewed. The work of the EDRC is outlined more fully here.

The committee comprises representatives of each member country (and the European Commission) – usually mid-level officials from national finance ministries serving with their country’s permanent delegation to the OECD.  In New Zealand’s case, Treasury seconds one of their more well-regarded staff to our delegation (based at our embassy in Paris).  For some years in the 1980s, Graeme Wheeler held the role.

OECD staff visit member countries (twice in New Zealand’s case) and prepare a draft of what becomes the published Economic Survey.   The draft is circulated a few weeks in advance.   But the centrepiece is the EDRC discussion, a (not overly long) day’s meeting chaired by the very stimulating and somewhat iconoclastic Bill White, former chief economist of the Bank for International Settlements (BIS).   The country being examined will typically send a delegation from home – in New Zealand case, usually two or three people from Treasury, led by a Deputy Secretary, and one person from the Reserve Bank – supported by the (small) team at the permanent delegation.  The New Zealand Ambassador usually hosts a thoroughly excellent lunch.

To assist the examination, two member countries are designated as lead examiners, and often they too will send people from national capitals.  Chile and Korea are the examiners for New Zealand (New Zealand has often been one of the examiners for the US).

These days the Surveys review recent economic developments and have, typically, two special chapters.  Topics are negotiated with the authorities, but also reflect the OECD’s own agendas and wider work programmes. This year, for New Zealand, the topics are “managing the next upswing” and “making growth more inclusive” –  the first has the feel of something New Zealand specific, and the second looks more OECD-wide (see the topics for forthcoming surveys).

The draft Surveys often have errors – simple factual ones or points of misunderstanding.  Those are usually rectified easily enough. But what gets much more interesting are the differences of emphasis – about proposed policy, or about narrative (how the story of, say, New Zealand is told).  I was first involved in one of these examinations in Paris in December 1990 – at that time, one of our top priorities was to get all references to “experiments” (and especially “bold experiments”) out of the document.

Sometimes the discussion can raise interesting issues, and sometimes there can be a rather desultory feel to it.  The national authorities have their agenda of things they want changed in the report –  some of them points of material analytical disagreement, but sometimes more along the lines of “it would not assist the policy process and debate –  or the political position of the government –  in New Zealand to make this point at this time”.  Some other delegations will have favourite issues they raise in EDRC discussions of other countries.  Sometimes those points will be relevant to New Zealand, sometimes not.

The point of the day is to influence the chair’s summing up, because although the EDRC discussion is the higher profile centrepiece, the real action takes place the next day (or days, in the case of some countries).

The draft report is 100 or more pages long.   The national delegation and the staff team work through it line by, often painstaking, line.   However, the focus is on the one page Executive Summary, and the 20 or so pages of Assessment and Recommendations.  Only specialists read much beyond that point, and in any case the remainder of the text has to be consistent with the Assessment and Recommendations.  The chair’s summing up from the previous day provides guidance and constraints – staff have to walk away from a point if the chair has given clear guidance that the sense of the committee is not to make a particular point or recommendation.  On the other hand, the national delegation has little chance of making material change on important points if there was no mention in the previous day’s summation.  But the devil is still in the detail – emphases can be shifted, or balanced, with small wording changes, or complementary clarifying sentences.  New people in the process were often optimistic that the drafting session would be all done in a few hours, but it always took all day – sometimes well into the evening.  And New Zealand wasn’t especially argumentative – I’ve heard stories of some countries who sat negotiating wording for days, and then sometimes invoked their own finance ministers to put additional pressure on staff.

The staff team directly involved in putting these reports together, from the OECD’s Country Studies Division of the Economics Department, is quite small –  again some mid-level and junior economists..  At present, New Zealand is bracketed with Canada –  over two years, the team does reports on both countries.  There is plenty of leeway for those staff to put their own emphases on the report –  for good and ill –  but there is a moderation process and involvement from the senior management of the Division.  Indeed, sometimes the head or deputy head of the Division will participate in one of the missions to New Zealand.

It is a peer review process.  In the end, as the OECD notes, the Surveys are signed off by all 34 countries.  The final report is not that of the Staff, but it is something to which all 34 countries –  including the country being reviewed –  have assented.  The reviewed country won’t agree to everything in the Survey, but will probably have got the things it really both strongly disagrees with, and cares strongly about, either removed or hedged around with numerous qualifications and caveats.  It is a club, and there is a degree of reciprocity –  balancing analytical integrity with not making too much difficulty for each other.

It is, in other words, quite a political process. And that, of course, is also how these OECD Surveys are used.  Opposition parties have liked calls for, say, capital gains taxes.  The Reserve Bank likes references to overvalued exchange rates.  The government likes positive comments on fiscal consolidation.  And so on.  The Reserve Bank doesn’t much like references to leverage ratios, or the Treasury references to fiscal councils, but then no one much cares either.

What is the quality of the Surveys like?  I’m somewhat sceptical.  The OECD does have some fairly unparalleled databases, and quite a knack for compiling and presenting interesting charts.  I’m a data junkie, and I find those cross-country data comparisons fascinating, and labour-saving.  But the quality of the policy analysis and recommendations is rather more questionable.  I’ve looked at draft reports for New Zealand and for other countries over the years, and often found the argumentation quite unpersuasive, even in areas where I lay no claim to being a specialist or an expert.  These days there is a strong tendency to favour what I’d call “smart active government” solutions, and a disinclination to put much weight on markets and market processes.  That isn’t the image the OECD has often had in New Zealand – the late Roger Kerr often used to cite “OECD orthodoxy” to back his own arguments about what should be done in New Zealand.  But a few years back, I pointed out to the head of the Country Studies Division that the OECD could probably be best characterised as the technocratic wing of the more market-oriented strands of European social democratic movement.   He looked askance, and then somewhat reluctantly acknowledged my point.    Reasonable people will differ on how to read the evidence on the appropriate role of government, but OECD papers aren’t inclined to put much weight on questions of why governments fail so often and how policy should be shaped in the light of that.

All of which is by way of saying that no one should put too much weight on anything in any particular OECD survey.  Sometimes they will be right on the mark –  out of interest I went back last night and read the 1983 Survey and thought that they had done a very good job of highlighting the microeconomic and macroeconomic challenges then facing New Zealand, without any sense of imminent crisis.  At other times, they will be missing the mark, or adopting a particular recommendation based on not much more than institutional priors and the preferences of a few staffers.  As the OECD acknowledges, they have consistently failed to come to grips with why the New Zealand economy has not performed better over the last 25 years.  Without a good story about that it is hard to nest their individual recommendations in an overall narrative of what needs to be done.

It will be interesting to see the final version of the Survey being discussed in Paris today.  On normal timing, it should be out in late May or June.  The topic “managing the next upswing” does sound a little ominous, since the optimists still think the current upswing –  now four or five years old –  is still gathering pace.  But when you hear one or other side of the New Zealand political/commentator debate asserting that “the OECD says x or y” just remember the process.

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