GMF - The German Marshall Fund of the United States - Strengthening Transatlantic Cooperation

PARIS — “Death is the inevitable fate of human beings, but it need not be the fate of organizations,” observed Flint Cahan, deputy secretary general of the Organization for Economic Cooperation and Development, the industrial-nation think tank based here, when it was created a half-century ago. “Provided,” he added, “they are sufficiently adept at adapting themselves to changed circumstances.”

Less than a decade ago, institutions such as the OECD, the International Monetary Fund, and the World Bank looked like they had outlived their usefulness. Financial markets, and their market-driven analysis, seemed to have supplanted post-World War II organizations that by their very existence embodied a role for public institutions in economic affairs. The IMF in Washington reduced staff. The OECD’s advice seemed out of tune.

The IMF is now at the center of efforts to revive the world economy and avoid a double-dip recession. And the OECD’s evidence-based public policy analysis from a global perspective has become the gold standard for governments, including Washington, striving to reform their education, labor market, tax, and other policies to improve competitiveness in light of the global economic crisis.

The payoff is already demonstrable. In 2009, when the G-20 group of nations decided something had to be done to police tax havens that had aided and abetted the financial crisis, they turned to the OECD. And the OECD export credit agreement negotiated years ago limited export subsidies that governments have used to dump excess production abroad during past downturns.

Such work has policy traction. The organization’s Program for International Student Assessment has become the standard measurement for the educational preparedness of 15-year-olds in major economies. The fourth such study, released last December, made headlines when it showed that American teenagers trailed students in 16 other major countries in reading, 29 nations in math, and 22 in science.  

Education Secretary Arne Duncan called the results a “massive wake-up call” and is using the study as a way to prod states and Congress to pursue educational reform. This is a lesson the OECD has learned over the years: Its comparative analysis of policies and outcomes is unlikely to convince governments to do things they do not want to do, but in a crisis, or when governments seek to reform for their own reasons, the OECD can help them sort through the effective options.

The organization is now working with the IMF and the G-20 as they develop commonly agreed-upon economic indicators to nudge governments toward better and more prudential economic behavior. Such efforts risk impinging on sovereignty, as past OECD discussions on investment and taxes demonstrated to the organization’s chagrin. But the organization’s leadership thinks its members’ crisis-driven needs will trump sovereignty inhibitions this time around.

“In this very delicate moment of uneven recovery, with unexpected upheavals, the need for policy coherence and consistency is stronger than ever,” said Angel Gurria, the OECD secretary general and former Mexican finance minister and minister of foreign affairs. “Cooperation is becoming increasingly complex, but there is no other road to prosperity.”

“The OECD has no ‘sticks’ to enforce implementation,” admitted Gurria. “Countries are induced to do so by the subtle discipline of peer pressure. And more often than not, it works.”

Even as the OECD plays a pivotal role advising countries on future economic restructuring, its insights on immediate global challenges are sought after by member states.

The OECD is bullish on global recovery. “We are beginning to see a self-sustained recovery,” said Pier Carlo Padoan, the organization’s chief economist.

At the same time, there is widespread worry in the press that the Japanese earthquake, tsunami, and nuclear reactor disaster could trigger a sharp downturn in the world’s third-largest economy. Morgan Stanley predicts that the Japanese economy could shrink by 1-3 percent this year.

The OECD disagrees. “My impression is that recovery will be faster than originally feared,” said Gurria. “The Japanese are enormously resilient. They have a political and social structure of great solidarity. They will find a way.”

Gurria similarly discounts concern that the interruption of global supply chains could pull down growth outside Japan. “There is enormous flexibility to change suppliers,” he said. “I do not think it will be enormously disruptive.”

If it is, the OECD, which this year celebrates its 50th anniversary, will be there to help member states sort through the consequences. And, in so doing, it will be living up to Cahan’s maxim that to survive, institutions need to constantly adapt to changing needs. It’s a lesson the U.S. Congress, beset by partisanship that is making it dysfunctional, might take to heart.