OECD and Asia: III

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OECD and Asia: III

Wednesday, 30 March 2011 05:01

Asia and the Evolving Logic of OECD Membership

Although most of the OECD’s activities are “economic”, and the “E” in OECD refers to “economic”, membership of the OECD has always been fundamentally a political issue. The politics of membership have evolved over the past half century which means that there is not one coherent logic for the choice of OECD's members. But one clear thread runs through this evolving logic, and this is the OECD’s “North Atlantic” (rather than global) character. This has persisted into the post Cold War era when the OECD’s leading members have often used the Organisation as an instrument of cultural hegemony to project and spread North Atlantic values, even though the world’s leading economies are characterized by a variety of value systems.

(i) OEEC period -- 1948 to 1960

The Organisation for European Economic Co-operation (OEEC), the OECD’s precursor, was created to administer the Marshall Plan after World War 2. The Marshall Plan can be seen as part of the actions of the US hegemon to create an international system to promote peace, prosperity, stability and security (1).

The OEEC and the Marshall Plan were very much "North Atlantic" in character, not global. They were financed by the US and Canada, with the recipients being European countries. The Marshall Plan not only provided money to countries of Western Europe, but it obliged Europe's former warring nations to work together. This laid the foundation for what is now called the European Union and other co-operation.

Importantly, there was no values-based conditionality of democracy, human rights and market economy for OEEC membership. The Marshall Plan also had one characteristic which has remained with the OECD. That is, while its function was economic, its ultimate goal was political stability and security. The opening clause of the OECD’s Convention states that “economic strength and prosperity are essential for the attainment of the purposes of the United Nations, the preservation of individual liberty and the increase of general well-being” (2).

The Marshall Plan was never destined for countries outside of Europe. Around the time, Japan was occupied by the American victors of World War 2, and the Korean peninsula was at war. The Chinese Communist Party had just won the country's civil war. Much of the rest of Asia was beginning decolonization, and relationships with Western countries mainly focused on official development assistance from previous colonial masters. Following the post-war occupation, the US established separate economic and security arrangements with Japan, as it did for Korea after the end of war on the peninsula. Many other events were to follow like the Vietnam war, the creation of Association of Southeast Asian Nations (ASEAN) and the playing out of the Cold War in Asia. But the main point is that the US launched separate economic and security systems for Europe and Asia. This was the basis of the Cold War hegemonic new order centered around the US.

In summary, the initial logic of the OECD (through its predecessor, the OEEC) was to help the reconstruction of the countries from a war ravaged Europe, which then faced the threat of communist USSR. As is usual with all clubs, all the initial members are still members over 60 years after the creation of the OEEC. This organizational “stickiness” means that an evolving organization, as the OECD has been, will never maintain a coherent organizational logic, and will probably always struggle to evolve. But the sign of Asia was on the horizon, as Japan joined the OEEC’s Development Assistance Group is the last moments of the OEEC.

(ii) Cold War OECD

When the OEEC was transformed into the OECD in 1960, the world had moved on, and clear blocs of countries had emerged. The OECD’s founding members were all North Atlantic countries, that is, from Europe or North America, and 16 of the founding 20 members were not surprisingly also members of NATO. The OECD group of countries could be seen as the "West" vis-a-vis the communist "East", and the "North" vis-a-vis the developing "South". There was no founding OECD member from Asia, although Japan was hovering in the background.

In the Cold War context, Japan quickly became part of the West benefiting from an American security umbrella, aid and open markets, with democratic politics and market economics imposed on it. Thanks to this, as well as its own dirigiste industrial policies which were to prove very effective for a number of decades, Japan made very rapid economic progress. Japan’s GDP per capita recovered to pre-war levels by the early 1950s. Its rapid economic growth would continue through the 1960s, with it surpassing West Germany to become the world second largest economy by 1968.

It was against this background that Japan was invited to become a member of the OECD in 1964. Despite many thousands of miles, Japan was de facto a North Atlantic country. This history still haunts Japan today as it struggles to find its place in a resurgent Asia. Japan’s membership of the OECD was very much symbolic of its successful post-war recovery. In the very same year, Japan hosted the Olympic Games (a first for Asia), and witnessed the first bullet train.

But while Japan immediately had an equal seat at the OECD table with other members, it would be a “quiet participant” for many years. Japan did not have a position in the OECD’s senior management until 1990 (3), some 22 years after it became the world’s second biggest economy. It was neither very assertive nor did it have many senior level staff members. Even today, despite its many calls for Asia to play a more active role in global governance, Japan has the OECD’s second lowest (after Switzerland) percentage of OECD officials in comparison to OECD budget contribution. Japanese nationals represent only 5% of OECD Secretariat staff compared with a budget contribution of 14% (4) notwithstanding massive searches undertaken by the OECD Human Resources Service.

It is not surprising that the subsequent new members from the Cold War period were also members of the Western alliance -- Finland (1967), Australia (1971) and New Zealand (1973). Though part of the Asia-Pacific region, these latter two countries were much more European than they are today. It is interesting to note that around the year 1980, deep in the Cold War period, a number of Asian economies had GDPs per capita of an “OECD-level”, and were arguably “economically qualified” for OECD membership. The GDPs per capita of Hong Kong and Singapore were around the same level as Greece, Ireland, Portugal and Spain, while Korea, Malaysia and Taiwan were in the same ballpark as Turkey (5). There was, however, no suggestion at the time of these “developing countries” being considered for OECD membership.

One aspect of the OECD’s democratic credentials is that it has always had relations with non-governmental stakeholders. From its very early days, the OECD cooperated with the business sector through the Business and Industry Advisory Committee (BIAC) and trade unions through the Trade Union Advisory Committee (TUAC), and in subsequent years it would establish very substantial dialogue with civil society organizations. In sharp contrast, the Asia-Pacific Economic Cooperation group (APEC) works closely with the business sector through the APEC Business Advisory Council, but does not have any cooperative relations with trade unions or civil society organizations.

In conclusion, the OECD was very much a North Atlantic bloc of countries during the Cold War period, as distinct from developing countries and the communist countries. Although democratic values were not yet mentioned, it was part of the culture of the organization. It was after all a bastion against communism. Apart from Japan, a staunch ally of the West, other Asian countries simply did not fit into the OECD mould.

(iii) Post-Cold War opening of OECD

The end of the Cold War in 1989, and the rapid industrialization and development of what came to be known as emerging economies led to a crisis of identity for the OECD. What was the relevance of a fundamentally Cold War organization in a new post-Cold War world?

It was around that time that OECD ministers agreed that the OECD membership shared certain values. At their annual meeting in May 1990, OECD Ministers welcomed “the historic changes taking place in Europe, particularly in Germany. These developments, together with the recent evolution of a number of the developing countries, represent a movement towards the basic values which are common to the OECD countries: pluralistic democracy, respect for human rights, and a competitive market economy. They improve the prospect of a truly integrated global economic system” (6). In reality, this was a case of mid-life identity construction that was to become the philosophical basis of invitations to new members. It also meant that as we were moving into the “post North Atlantic era” of globalization, the OECD would remain a bastion of North Atlantic values, even if it did not always strictly apply those principles.

Thus, the OECD was seen to be a values-based organization, even if not all of its existing members adhered perfectly to those values – and even though this important decision was never incorporated in the OECD Convention. Therefore, implicitly, the OECD was open to membership by countries that were willing and able to abide by these values.

Importantly, by defining itself as a values-based organization, rather than an organization that brought together the world’s major and most dynamic economies, it committed itself to the destiny of declining global economic significance, and basically excluded some of Asia’s most important economies. It also meant that the price of OECD membership was adopting North Atlantic values.

With the definition of such values being rather subjective, the next wave of opening to new members involved inevitable political horse-trading. Mexico was the first country to join in 1994, against the background of the NAFTA negotiations and the major policy reforms undertaken by the Salinas government, and despite its questionable democratic credentials. The Institutional Revolutionary Party (Spanish: Partido Revolucionario Institucional or PRI) had held power in the country for about 70 years. At the 1993 OECD Ministerial Council Meeting, four American cabinet secretaries banged the table “Mexico, Mexico, Mexico, Mexico” (7). With one year, Mexico became an OECD member and was present at the 1994 Ministerial Council Meeting.

In exchange, European OECD members extracted a soft mandate for eventual membership at 1993 Ministerial meeting by the Czechoslovakia (which would subsequently split in the Czech and Slovak Republics), Hungary and Poland – even though these countries still had a long way to go in establishing a full-fledged market economy and democracy. The Czech Republic would become a member in 1995, and Hungary and Poland in 1996, both ahead of Korea which joined at the very end of 1996 (the Slovak Republic’s troubled politics would stop it from becoming a member until 2000).

At the time of the 1993 Ministerial Council Meeting, Korea’s GDP per capita was 60% higher than Mexico’s, and similarly higher than the central European countries. Nevertheless, OECD ministers were much more cautious as they welcomed “the positive evolution of Korea s involvement in OECD activities, which enhances mutual understanding and also paves the way for early membership”. Korea would not become a member until 12 December 1996.

Ultimately Korea would have to fight tough political battles to make it through the OECD accession process to membership despite widespread support especially from Australia and Japan. A major issue was its alleged harsh treatment of trade unionists, a violation of the OECD’s philosophical value of respect for human rights (8). When the OECD invited Korea to join the OECD, it welcomed the commitments made by the Korean authorities “to reform existing laws on industrial relations in line with internationally-accepted standards, including those concerning basic rights such as freedom of association and collective bargaining”. The Council also instructed the OECD’s Employment, Labour and Social Affairs Committee “to monitor closely the progress made on labour law reforms in the light of that commitment”.

In short, it could be argued that the OECD Council had “gone soft” on Mexico and the Central European countries, and “gone tough” on Korea by imposing post-membership policy monitoring. Korea had become an economic miracle, with a relatively unique model of development, similar to the case of Japan. OECD membership provided another means of exerting policy pressure on Korea. This is probably the key to the OECD’s interest in Korea’s membership. Like Japan, Korea was very pleased to join the OECD in part because of the prestigious recognition of its miracle development. There may be very few other developed countries as status conscious as Japan or Korea. Even today, the visit of the OECD Secretary-General to Korea is treated like a state visit, whereas in many other countries the Secretary-General can struggle to get a brief meeting with a Minister.

Even though the OECD had developed programs of cooperation and dialogue with Asia’s dynamic economies, it seemed to struggle to convince them of the benefits of membership. And while Japan and Korea, perhaps by virtue of their special security relations with the US, were happy enough to wear the North Atlantic badge of OECD membership, other countries in Asia were keen to keep their developing country political identity, even if it no longer fitted in economic terms. The OECD brand was also not helped by the fact that both Mexico and Korea had financial crises about a year after they joined the Organisation. Many questions were raised about the validity of the policy adjustments that were demanded as part of the price of OECD membership, most notably with regard to the OECD’s Code of Liberalisation of Capital Movements.

This wave of new members was significant in many ways. First, politics more than economics was behind the new membership decisions, especially in the case of the central European members, but also Mexico. Second, although Asia had already become the most dynamic part of the world economy, only one of the six new members came from Asia. Third, despite the onward march of Asian-led globalization, OECD was arguably becoming even more "North Atlantic" and “euro-centric”, with 22 of its 30 members coming from Europe.

(iv) 2007 membership opening

Although the membership question was always on the table, the OECD took more than ten years following the previous wave of new members before it invited any more countries to start membership discussions. It digested its new members, made some internal governance changes and undertook reflections on the membership question. While the OECD was deep in reflection about which countries to invite to join the Organisation, the “Western brand” (which the OECD represents) received a sharp jolt during the 1997 Asian financial crisis. In particular, the International Monetary Fund was perceived to have greatly mishandled the crisis management to such a point that many of Asia’s leading policy makers and academics still talk of the “IMF Stigma” which holds Asian countries back from borrowing from the IMF to this very day (9).

Emerging Asia brilliantly navigated its way through the 1997 Asian financial crisis, and then China celebrated its 2001 membership of the World Trade Organisation by embarking on its fastest decade of economic growth. Already in 2000, the GDP per capita of both Hong Kong, Macao and Singapore exceeded that of most advanced OECD countries, including Canada, France and Germany. By this time, Taiwan had surpassed Greece, Portugal and Spain, while Malaysia and Thailand had reached the same broad level as Hungary, Mexico, Poland and Turkey.

By 2007 OECD ministers decided to invite five countries to start membership negotiations, viz, Chile, Estonia, Israel, Russia and Slovenia. This decision represented a continuation of previous trends. Apart from Russia (whose membership is probably still a long way off), the selected countries are rather small. There was also a European bias, and no Asian country was included. Many saw the invitation to Israel as a confirmation of the OECD’s North Atlantic bias and “flexible” application of its values, because of perceptions of its disrespect for human rights. Once again, clearly politics was driving the decision-making as much as economics. All of these countries except for Russia have since become OECD Members, although none of them are members of the G20.

It seems clear that OECD membership is most attractive for smaller countries which have most to gain in terms of the prestige of membership, and the access to information, advice and policy networks. As OECD Secretary-General Angel Gurria once said “At the OECD, we pay great attention to the lessons that can be learned from the experiences of some of our smallest members: from Finland on education, for example, from Denmark on social welfare and labour policies, or from Ireland on fiscal policy and entrepreneurship” (10).

In conclusion, the criteria and logic for OECD membership have never made it an attractive organization for possible Asian membership It is difficult to escape the conclusion that the OECD remains and ironically has become more and more of a North Atlantic club in tandem with the advance of Asian-led globalization. Its large number of European members have given rise to accusations of “eurocentricity”, and this eurocentricity has also probably intensified over the past two decades. The fact that 75% of OECD Secretariat staff are European11, while Europe’s share of OECD is less than 40%, would not help foster an Asian sensitivity.

Notes:

1. OECD. The Marshall Plan: Lessons Learned for the 21st Century

http://www.oecd.org/document/63/0,3343,en_21571361_38695295_41320319_1_1_1_1,00.html

2. OECD, Convention on the Organisation for Economic Cooperation and Development, Paris, 14th December 1960.

www.oecd.org .

3. A Deputy Secretary-General position was created for Japan in 1989. It was initially occupied in 1990, and exists to this day.

4. OECD. OECD Staff Profile Statistics 2009. C(2010)30

5. Maddison, Angus, ibid.

6. OECD, Meeting of the Council at Ministerial Level in May 1990, Communique

http://www.g7.utoronto.ca/oecd/oecd90.htm

7. OECD, Meeting of the Council at Ministerial Level in June 1993 Communiqué

http://www.g8.utoronto.ca/oecd/oecd93.htm