The OECD Survey process

The OECD’s biennial report on the New Zealand economy was out yesterday.

I noticed that Treasury has put out a blog post on the late phases of the process, in which New Zealand officials go to Paris to engage with other countries’ representatives on the analysis and recommendations, and to haggle over the numerous differences the authorities and staff will have.

I participated in this phase of the process on perhaps half a dozen occasions over almost 25 years.  In anticipation of the 2015 survey, I wrote a post along similar lines.

Being public servants, who have to keeping dealing with the OECD, the Treasury piece errs occasionally on the side of gush.

Every two years the Treasury assists some of the world’s best economists and policy analysts from the OECD with their study of New Zealand.

I, being of a more sceptical, perhaps contrarian disposition, and not any longer being a public servant, emphasised some questions.

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.

Read together they’ll probably give you a reasonable sense of how these things come together.   I do hope the New Zealand Ambassador still offers as fine a lunch as ever.

5 thoughts on “The OECD Survey process

  1. It is an inherently more political process than, say, the IMF reviews. That said, I wouldn’t want to overdo the point, especially in a country like NZ. It usually isn’t hard to get words out that bother the govt of the day (eg “bold experiments” just as the Dec 1990 mini-budget was about to be brought down), but the overall thrust of the recommendations is not really that subject to domestic political influence. I recall haggling some specific recs out of various draft reports, but they were typically third order issues. More often, we’d get some balancing words added, or the tone of relevant sentences modified.

    Remember that the OECD is a club of countries (and hence their governments). They have a technical staff, who can play a useful role, but ultimately it is one country’s government agreeing to be reviewed by its peers – not, formally, by the expert staff.

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  2. We continually see this (i.e. a wilful refusal to face up to the obvious question) in surveys of the NZ economy, whether internal, external, political or technocratic. I can understand why a smart person may not subscribe to the Reddell policy prescription, and different smart people might come up with sets of solutions that look a bit like Singapore, or Sweden, or pre-New Deal USA, to cite a few examples that have worked in the past. Or perhaps you believe the current trajectory of endlessly falling relative living standards is somehow the best of all possible worlds. But if you have no idea, why bother flapping your gums at all?

    I actually have no idea whether the OECD economists are stupid (young and stupid?), politically constrained, or really believe that there is no major underlying problem. As I get older, the less I understand about political economy.

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    • I think that, in fairnes to the OECD, they recognise the problem – lack of productivity – but really have no idea of a compelling NZ story (explanation or answers) so are flailing. They have had some pretty able people working on NZ at times, and some of the senior people have been quite engaged, but….they have a global playbook, and if a small country doesn’t easily fit the global playbook it does seem a case of “push ahead anyway, and so much the worse for the small country.

      Their mindset/model is, in many areas, probably quite good for your typical north atlantic/european country. I’m not sure if has much to offer NZ (or really Australia for that matter), sensible as some of the individual detailed suggestions sometimes are.

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      • I put the blame squarely on overly aggressive and hawkish interest rate policies by the RBNZ over the decades which puts our cost of funding higher than our trading partners and therefore our products uncompetitive and margin erosion from a NZD that is higher than it needs to be that encourages the use of imports.

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