Adapting the OECD to Asian-led globalisation

The past two decades have seen the OECD membership door becoming more and more open.  The weight of Asia in the global economy has grown exponentially.  At the same time, the weight of Asian countries in the OECD has fallen further and further backwards, and OECD membership appears a more difficult and less attractive proposition to large Asian economies.  How could the OECD as an organization adapt itself in response to Asian-led globalization?

(i)               The hurdle of OECD’s “values-based” membership criteria

The OECD remains in theory a values-based organization, even if those values have not be strictly applied to some new members.  This was reiterated by the OECD Council following the 2007 membership invitation to five countries.  It indicated that matters like democracy, rule of law, human rights, etc. “may be considered as particularly important parameters for judging whether a candidate country ultimately should be invited to join OECD in accordance with Article 16 of the Convention” (1).

While these OECD’s values are extremely laudable, and should be an aspiration for all countries, they pose several problems for the well functioning of the Organisation.  First, many observers raise questions about how rigorously the values test has been applied in practices, citing cases like the quality of Mexico’s democracy in 1994, Korea’s questionable respect for labour rights in 1996, the weakly developed market economies in Central Europe in the 1990s, and Israel’s questionable respect for human rights today. Second, these values are not very relevant to many of the global challenges like climate change and financial stability.

While OECD Secretary-General Angel Gurria stresses that “the OECD is helping governments chart a way through the crisis with a strategic response designed to create a stronger, cleaner and fairer global economy for the future” (2), at least one country (China), which is one of the very most relevant to creating a stronger, cleaner and fairer economy, is not presently eligible to become a member of the OECD because of its political system.  Third, countries like China can also wonder quite validly why such stringent conditions should apply to OECD membership, when it is already a member of the G20, WTO, IMF, World Bank and United Nations. Fourth, the global financial crisis and European sovereign debt crisis have cast a long shadow over the credibility of the application of North Atlantic values and notions of good governance.

The lasting impression that many non-OECD countries have is that the OECD remains a Western dominated organization, where Western countries can push their values on other countries, rather than jointly addressing common problems in a spirit of partnership.

The US position is clear when it says “Through its ground-breaking public policy research, ‘soft law,’ and effective peer reviews, the OECD is a dynamic international incubator for new ideas, providing the United States an unparalleled opportunity for influencing other countries. … Most importantly, the OECD’s far-reaching work continues to mirror the agenda of the United States, enabling the U.S. to influence both members and non-members alike” (3).  In the regard, on a January 2010 visit to Paris, US Secretary of State Hilary Clinton said that the OECD “is an international instrument that needs to be used even more” (4).

The OECD needs to give very strong consideration regarding the extent to which its strict its values-based approach to membership is credible and constrains its effectiveness in tackling global issues by implicitly excluding certain countries, like China and perhaps Singapore, from possible membership.

(ii)              The weight and complexity of the OECD accession process

The OECD membership examination process has become increasingly complex.  Over time, the OECD had accumulated a growing number of "policy standards", binding and non-binding, to which all new members have to subscribe, even though they took no part in the creation and elaboration of these instruments.  In this sense, the OECD is truly a club, with an immense weight of history.  And potential new members could validly wonder whether it was a club they wished to join since they have to align their national policies to a set of policy standards which have had no role in establishing!

To quote the OECD itself, “The accession procedure is complex and can be long, as it involves a series of examinations to assess a country’s ability to meet OECD standards in a wide range of policy areas. This makes it difficult to bring on board more than a small number of new members at the same time. …An “Accession Roadmap” is developed to detail the process of accession. This roadmap lists the reviews to be undertaken in various policy areas in order to assess the country’s position with respect to the relevant OECD instruments, standards and benchmarks and identifies the Committees and Working groups to be involved in such reviews". (5)

This refers to this as the concept of the OECD “acquis”, which must be accepted by all potential member countries, and has two principal elements. Firstly, it implies the acceptance of all of the internal rules of the Organisation. Secondly, it requires a positioning of the candidate country with respect to all existing OECD instruments.  The list of so-called instruments, standards and benchmarks is simply mammoth covering virtually all aspects of government policy.  It is not surprising that the OECD’s four new members, Chile, Estonia, Israel and Slovenia should still take about 3 years before passing all tests.

This accession process raises many fundamental issues.  As the OECD puts it rather diplomatically, “The accession process serves as a tool to increase the policy convergence of the country considered for membership with existing OECD members” (6).  In other words, potential new members are, for the price of OECD membership, pressured into swallowing the rules of the organization.  The membership test puts potential new members in the situation of “rule takers”, which leaves them subject to the rules, monitoring and enforcement determined by the existing club members.  Some observers have argued that certain large OECD member countries take much more interest in new members in the context of the accession process – a moment when they can extract policy concessions -- than when the countries actually join the organization.  In other words, for some large OECD countries, the greatest value in the OECD seems to be concessions that can be negotiated during the accession process, not the work of the Organisation itself!

This approach was very much discredited when countries like Mexico and Korea experienced financial crises in the year following their membership of the OECD.  While it is debatable whether the OECD membership conditions were indeed responsible, it seems clear that certain large OECD member countries, through their bilateral relations, may have pushed for the capital account liberalization and other policy measures that contributed to these crises.

In this way, the OECD remains very much an organization of the Cold War, a period time when North Atlantic countries established the global rules of the game, and others were expected to follow.  As evidenced in the Doha trade talks at the World Trade Organisation, large emerging economies now want to participate in global decision-making on an equal basis.

It is not surprising therefore that the countries most interested in OECD membership are smaller countries, especially from Europe (which may have already passed through similar hoops to join the European Union), and for which the prestige of OECD membership means something.  Smaller countries may also have most to gain in adopting OECD’s best practices policies, as they may not have sufficient resources to undertake independently the necessary policy analysis.

Similarly, it is not surprising that large countries from Asia may not wish to pass through such a process, when the ultimate benefits of OECD membership seem less than compelling (Nobel-prize winning economist Paul Krugman (7) recently referred to the OECD as “Conventional Wisdom Central”!).  The OECD needs to consider very seriously whether its present very onerous accession process discourages large Asian countries from wishing to join the organization and is therefore a barrier to the Orgnisation’s effectiveness as an international organization.

(iii) The composition of OECD’s membership

International co-operation is focusing increasingly on the world’s systemically important economies.  This notion came to the fore with the creation, following the Asian financial crisis, of the Group of Twenty (G-20) Finance Ministers and Central Bank Governors in 1999.  This group claims “to bring together systemically important industrialized and developing economies to discuss key issues in the global economy” (8), and includes 5 countries from Asia, namely China, India, Indonesia, Japan and Korea (9).  There are also five European members of the G20, when the European Commission’s separate seat is included. The G20 has also never pretended to be a values-based organization -- pluralist democracy and respect for human rights never came into the choice of membership.

The political humiliation of the global financial crisis for the United States and of the sovereign debt crisis for Europe forced Western countries to recognize that large emerging economies, especially from Asia, deserve an equal seat at the table.  The West also now needs such emerging economies, particularly those with deep pockets, in order to govern the world economy. And so they turned to the G20 model for leaders’ meetings, three of which have so far taken place (Washington DC November 2008, London April 2009, and Pittsburgh September 2009).  These meetings have now gone beyond financial crisis issues, and have now dealt with a broad array of issues like climate change and energy.  And what’s more, the leaders “designated the G-20 to be the premier forum for our international economic cooperation” (10), presumably superseding the G7/G8.

But what is most striking in today’s membership of the OECD is that a good number of systemically important economies (ie, G20 countries) are not members of the OECD, namely, Argentina, Brazil, China, India, Indonesia, Russia, Saudi Arabia, and South Africa.  And further, about two-thirds of the OECD’s members are not systemically important (that is, Austria, Belgium, Chile, Czech Republic, Denmark, Finland, Greece, Hungary, Iceland, Ireland, Luxembourg, Netherlands, New Zealand, Norway, Poland, Portugal, Slovak Republic, Spain, Sweden and Switzerland).

A harsh interpretation would suggest that the OECD has quite simply the wrong membership to be the “hub of globalization” and to be attractive to large Asian countries.  Indeed, there are signs that the shape of the OECD’s current membership make it less and less attractive to some of its own systemically important members.  At the same time, the enthusiasm of small countries for OECD membership shows that small countries benefit the most from membership.  It provides them with access to information and policy makers that they may otherwise have difficulty in getting.  But while small countries from Europe and Latin America have been interested in OECD membership, no small countries from Asia have been so interested.

The creation of the G20 leaders’ process reflects the almost insurmountable challenges of radically reforming the many post-war international organizations.  Networks like the G20 have many advantages over formal institutions like the IMF or OECD, in that they can be flexibly created and changed (11).  At the same time, being without a formal secretariat, they need to call on other organizations for the implementation of their mandates.

Cold war organizations like the OECD, IMF and the World Bank are in desperate need of major reform.  In addition to ensuring that Asia is properly represented, the OECD needs to give strong consideration to reducing the weight of non-systemically important countries, such as via constituency system, in order to make the OECD more attractive to large Asia countries, and even to its own larger members.

1.  OECD, A General Procedure for Future Accessions (adopted by the Council at its 1155th session of 10-13 May 2007), C(2007)31/FINAL

www.oecd.org – accessed 8 January 2010.

2.  Angel Gurria, Message to OECD Forum 2009

www.oecdforum.org – accessed 8 January 2010.

3.  US Mission to the OECD.

www.usoecd.org – accessed 9 January 2010.

4.  Secretary Clinton Meets with Embassy Staff and their Families

Hillary Rodham Clinton, Secretary of State, Ambassador's Residence

Paris, France, January 29, 2010.

5.  OECD webpage “OECD enlargement and engagement with non-members”.

www.oecd.org -- accessed 8 January 2010.

6.  OECD, “OECD enlargement and engagement with non-members”.

www.oecd.org – accessed 8 January 2010.

7.  Paul Krugman’s New York Times blog, 10 September 2010.

http://krugman.blogs.nytimes.com/2010/09/10/oops-at-the-oecd/

8.  G20 website – www.g20.org – accessed 9 January 2010.

9.  The following are members of the G20 -- Argentina, Australia, Brazil, Canada, China, France, Germany, India, Indonesia, Italy, Japan, Mexico, Russia, Saudi Arabia, South Africa, Republic of Korea, Turkey, United Kingdom, United States of America, European Union.

10.  G20 website – www.g20.org – accessed 9 January 2010.

11.  Martinez-Diaz, Leonardo and Ngaire Woods, “The G20 – the perils and opportunities of network governance for developing countries.  Briefing Paper.  Global Economic Governance Programme.  November 2009

www.globaleconomicgovernance.org

Complete Series of Articles

OECD and Asia:I -- World’s Apart in Today’s Globalization

http://www.mrglobalization.com/governing-globalisation/306-oecd-and-asiai

OECD and Asia: Introduction

http://www.mrglobalization.com/governing-globalisation/305-oecd-and-asiaii

Asia and the Evolving Logic of OECD Membership

http://www.mrglobalization.com/governing-globalisation/304-oecd-and-asia-iii

Non-member partnerships with Asia

http://www.mrglobalization.com/governing-globalisation/303-oecd-and-asia-iv

Why Asia Matters to the OECD

http://www.mrglobalization.com/governing-globalisation/302-oecd-and-asia-v

Adapting the OECD to Asian-led globalisation

http://www.mrglobalization.com/governing-globalisation/301-oecd-and-asia-vi

Asia in the OECD

http://www.mrglobalization.com/governing-globalisation/300-oecd-and-asia-vii

Concluding Comments

http://www.mrglobalization.com/governing-globalisation/299-oecd-and-asia-viii