The Organisation for Economic Co-operation and Development (OECD)

Richard Woodward

• Publisher: Routledge
• Year: 2009
• ISBN:
  9781134194421
• Edition: 1
• Topic: Politics & International Relations
• Subtopic: Politics
• Index: Politics & International Relations

The Organisation for Economic Co-operation and Development (OECD) is one of the least written about and least understood of our major global institutions. This new book builds a well-rounded understanding of this crucial, though often neglected, institution, with a range of clearly written chapters that:

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• outline its origins and evolution, bringing its story fully up-to-date

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• present a clear framework for understanding the OECD

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• set the institution within the broader context of global governance

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• outline key criticisms and debates

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• evaluate its future prospects.

Given the immense challenges facing humanity at the start of the 21st century, the need for the OECD as a venue where the world's leading states can discuss, on an informal and ongoing basis, the conundrums of globalization has never been greater. The clarity and rigour of these chapters cut through the layers of misunderstanding and misconception that surround the OECD, often dismissed as a 'rich-man's club', 'a think-tank' and 'a consultative forum'. This new book dismantles these labels to provide a holistic understanding of the organization.

This concise and accessible introduction is essential reading for all students of international relations, politics and world history and affairs.

1 Origin and evolution

This chapter charts the antecedence and origins of the OECD, its evolution, and the organization’s triumphs and setbacks. In many respects, the OECD saga is about the organization and its members’ ongoing attempts to acclimatize to a world of their own making. Contiguous with other multilateral economic institutions, the OECD and its precursor, the OEEC, have constituted key nodes through which leading states hunted rules to advance globalization and govern the consequences. Strikingly, the concerns at the crux of the OECD have barely altered. The itinerary cited in the 2006 Ministerial Council Meeting (MCM) communiqué including “ensuring economic stability and improving economic performance,” “implementing economic reforms for growth and employment,” and a “programme to strengthen and modernize the multilateral (trading) system”¹ is redolent of the founding convention and the first MCM communiqué of 1961. Similarly, the tools supporting the OECD’s mission have throughout been peer review, surveillance and soft law.

The globalization of economic activity, however, engendered four subtle changes to the OECD’s role and remit. First, the OECD went from an exclusively transatlantic club to boasting members from all but the African continent. Second, the OECD went from an organization that talked about non-members to one that talked to them.² The unfettering of economic activity coupled the fortunes of OECD members to non-member states, especially the emerging economic superpowers of the global South. Despite expansion, only five contemporary OECD members hail from outside the transatlantic zone, forcing the OECD to incorporate more fully into its work those non-members averse or unready to assume membership. Third, the OECD expanded functionally. Lowering barriers to economic activity entailed a welter of issues that members illuminated through the OECD and it steadily accrued responsibilities in areas as diverse as corporate governance, the environment, genetics, computer security and financial crime. In time, the OECD also moved from examining issues in isolation to considering how different domains interact and synchronize. The final change involved the genre of cooperative ventures pursued at the OECD. Lately, the OECD served less as a venue for countries to coordinate policies internationally and more as an institution where they strive to uncover appropriate domestic policies to meet their common objectives.

The remainder of the chapter is partitioned into seven sections. The following two sections consider the origins and record of the OEEC, and the factors compelling its evolution into the OECD. The chapter pays particular attention to the hegemonic influence of the United States in the conception and infant development of these institutions. Sections three through six depict the OECD’s performance under its first four secretaries-general. This periodization is partly one of convenience, a means of dividing nearly 50 years of history into manageable chunks, but also reflects the OECD Convention, which gives the secretary-general some latitude to influence the organization’s trajectory and status. The third section examines the early years of the OECD under Thorkil Kristensen (1961–69). Despite being hemmed in by other major international institutions the OECD made a sound debut in the core areas of finance, trade, and development. The fourth section reflects upon the reign of Emile van Lennep (1969–84) and the OECD’s consolidation amidst the aftershocks of the economic earthquakes of the collapse of the Bretton Woods system of financial management in 1971 and the oil crisis in 1973. Although the OECD was a salve for the oil crises and negotiations to further liberalize trade, there were signs of disenchantment with the organization’s role and performance from amongst the membership. The fifth section describes how the OECD was overtaken by events under the leadership of Jean-Claude Paye (1984–96). The OECD’s contribution to the completion of the Uruguay Round trade talks and panache for structural issues were overshadowed by the fundamental redrawing of the international system signified by the collapse of the Berlin Wall. Those viewing the OECD as a Cold War combatant wondered what role the OECD could possibly play in the “new world order”³ proclaimed by President George Bush, Snr. The sixth section deals with the attempts under Donald Johnston (1996–2006) to rescue the OECD from oblivion by reforming the institution. The seventh section acts a conclusion. It précis the main achievements of the OECD and briefly introduces the present secretary-general, Angel Gurria and some of the key challenges he faces if the reforms of the organization are to be completed successfully.

Precursor: The Organisation for European Economic Cooperation (OEEC) (1948–58)

The OECD story begins in the wake of the Second World War. The ruinous effects of military conflict left European economies on their knees. The aerial bombardment of cities annihilated the housing, infrastructure and industrial capacity of European economies. The surviving industrial units remained on a war footing and the heavy casualties sustained during the war had depleted the workforce. Worse, the fortunes spent prosecuting the war had effectively bankrupted the treasuries of the major European powers, inhibiting the postwar reconstruction effort. In stark contrast, the U.S. industrial base was unscathed and, as a by-product of servicing the needs of its allies, the U.S. economy boomed during the war. The least heavily mobilized of the major combatants, the U.S. labor force retained the skills required to retool the industrial sector and to service the consumer goods market. Accounting for half the world’s industrial production, with surplus capital to invest, and the only country to possess atomic weaponry, the United States was the undisputed hegemon and had enormous power to shape the postwar order.

Anxious to avoid the mistakes made after the First World War and counterbalance the communist threat posed by the USSR, the administrations of Franklin Roosevelt and Harry Truman used this power to pursue, quite against the wishes of Congress and the American public, a more proactive foreign policy. Under their auspices, a rash of international institutions appeared to promote international cooperation and deter another military conflagration. Somewhat surprisingly, given the importance attached to European unity and prosperity by the United States, it did not envisage a specific institutional apparatus around which European countries could coalesce or which would supervise European recovery. Between 1945 and 1947, the United States spent $9 billion to aid European recovery. However, most of this money was of an ad hoc or bilateral nature. For the most part, European states were left to orchestrate their own reconstruction through funding from the International Monetary Fund (IMF) and World Bank.

By mid-1947 it was apparent that this approach was improvident and ineffective. Dwindling international liquidity had paralyzed intra-European trade, aggravating the scarcities of food, fuel, and raw materials resulting from the harsh winter of 1946 and drought-ridden summer of 1947. At this point, with several European economies on the brink of collapse, growing social unrest, and communist parties making strides in France and Italy, the United States intervened.

The Marshall Plan

In June 1947, Secretary of State George Marshall motioned the U.S.A.’s willingness to donate the financial aid needed to salvage Europe’s ailing economies through the European Recovery Program, known colloquially as the Marshall Plan. These arrangements were conditional upon European states multilaterally devising and implementing their own blueprint for reconstruction. In addition to the short-term humanitarian issue of preventing widespread starvation, from the point of view of the hegemon the Marshall Plan served three interrelated purposes. First, the U.S. required export markets if it was to sustain its economic prosperity. European recovery was essential if these states were to become robust trading partners and, in the interim, Marshall Plan funds could be used to purchase goods made in the United States. Second, it was envisaged that by forcing European countries to cooperate in drafting and executing a recovery plan they would boost European integration and avoid the regression into petty nationalism that had blighted the interwar period. Finally, the Marshall Plan was one of the first expressions of the “containment” doctrine of George Kennan, then U. S. ambassador to the Soviet Union, which held that U.S. “policy toward the Soviet Union must be that of a long-term, patient but firm and vigilant containment of Russian expansive tendencies.”⁴ A peaceful and prosperous Europe was vital to stop the spread of communism.

The inalienable logic of the Marshall Plan was not sufficient for the U.S. Congress which, fearing a loss of control or that the money might be squandered, insisted the Europeans instigate a continuing organization to oversee it. Having vacillated over whether or not to join the program, the Soviet Union decided not to participate and denied its satellites a similar right, and in July 1947, 16 countries (Austria, Belgium, Denmark, France, Greece, Iceland, the Republic of Ireland, Italy, Luxembourg, the Netherlands, Norway, Portugal, Sweden, Switzerland, Turkey, and the United Kingdom) convened a Conference on European Economic Cooperation in Paris. The meeting established a Committee of European Economic Cooperation (CEEC) and a coterie of technical groups to sketch the recovery program presented to the U.S. government in September 1947. Following U.S. backing for these proposals, the CEEC pondered the development of a permanent organization to administrate the Marshall Plan. The committee plumped for an institution betrothing members to promote trade liberalization, production, financial stability, and full employment.⁵ Attempts by the United States and France to imbue the organization with supranational authority were opposed by the United Kingdom, Sweden and Switzerland, who coveted intergovernmental arrangements. The intergovernmental view prevailed and, in April 1948, the aforementioned 16 states (with the United States and Canada as observers and later associate members) plus the Commanders of the French, and joint British and American zones of Occupation in Germany (West Germany assumed membership in 1949) signed the Convention establishing the OEEC. Secretary-General Robert Marjolin, a distinguished French economist, headed the organization.⁶

OEEC performance

Chroniclers of the period are ambivalent about the OEEC’s performance and contribution to Western Europe’s economic renaissance. Detractors point to the OEEC’s ineptitude in discharging its cardinal function, namely apportioning Marshall Plan aid. U.S. hopes that the process of disbursing aid would advance European integration were dashed as haggling over funds sharpened divisions between European countries. Allocating aid was such an ordeal for the OEEC that within three years it ceded responsibility to the Economic Cooperation Administration, a U.S. government agency.⁷ Aficionados, meanwhile, posit that the OEEC achieved astounding levels of cooperation given the precariousness of the situation, and praise its role in repairing Europe’s faltering trade and payments system. Between 1948 and 1956, intra-OEEC trade rose by 272 percent and was a key factor propelling European recovery.⁸ This spectacular expansion of trade owed much to two OEEC inspired initiatives, the European Payments Union (EPU) and the Code of Liberalization of Trade, both ratified in 1950.⁹

At the outset, currency inconvertibility and the tendency of countries to hoard their meager foreign exchange reserves inhibited intra-OEEC trade. Each country sought to maximize the export of goods and services that were not essential to reconstruction and to extract payment in convertible currencies (dollars or gold) to purchase essential materials on world markets. Sadly, the OEEC countries’ fervor for remuneration in convertible currencies was not matched by a predisposition to make similar payments themselves. Bilateral trade and payment agreements provided an interim solution but foundered because they prevented countries from using surpluses with one partner to offset deficits with third parties. In contrast, the EPU was a central clearing house. Each month the deficits and surpluses accumulated through bilateral trade were computed and communicated to the Bank for International Settlements (BIS) which offset them to leave each country with a single debt or claim against the EPU. The EPU enabled states to trade by obviating the need for swift bilateral payments. The Code of Liberalization of Trade complemented the overhaul of the payments system. Under the Code’s patronage, the percentage of private intra-OEEC trade covered by quantitative restrictions fell from 44 percent in 1950 to 6 percent in 1961.¹⁰ The boom in European trade lessened the need to import goods from the U.S., allowing OEEC countries to accumulate dollar reserves and consolidate their financial position to the extent that by 1958 all EPU members had restored currency convertibility.

Judging the OEEC solely by tangible commodities belittles its significance because it overlooks the organization’s methodological and ideational legacy. The dilemmas encountered during the Marshall Plan forced the OEEC to adopt embryonic versions of working routines, such as peer review, that endure in the modern OECD’s surveillance practices. Initial dispersals of Marshall Plan aid were not as generous as the OEEC had hoped. European pleas for more money fell on deaf ears, leaving the OEEC to cope with the shortfalls. The OEEC beckoned members to submit economic programs detailing their external funding requirements. The OEEC secretariat then prepared analyses of national programs before they were “exhaustively and critically examined, in the various committees of the organization, by representatives from all other member countries.”¹¹ Peer scrutiny had positive secondary effects, assembling enormous quantities of information and educating officials about the problems and priorities facing their contemporaries abroad. Officials were inculcated with the “habit of cooperation,”¹² unthinkingly taking the interests of others into consideration when they returned to make policy in national capitals. Lastly, the OEEC was a concrete expression of a community predicated on capitalism and democracy.¹³

From OEEC to OECD (1958–61)

In 1955, Rene Sergent succeeded Marjolin as Secretary-General. Sergent, a senior French bureaucrat and Marjolin’s erstwhile deputy, inherited an organization robbed of its earlier zest by virtue of its own success. The restoration of currency convertibility and the rejuvenation of the European economy vanquished the predicament prescribing the OEEC’s conception. Although the U.S.A. was still the undisputed hegemon, relative U.S. decline, together with quarrels about European political integration, elicited a reappraisal of the transatlantic settlement and the OEEC’s metamorphosis into the OECD.

Powerful arguments lingered for conserving institutionalized transatlantic economic cooperation but the United States, in particular, felt the OEEC unbefitting for the task. First, the degree of cooperation realized under the OEEC’s stewardship buoyed the transatlantic community. With OEEC committees encompassing energy, agriculture, industry, transport, labor, and tourism, the scope of economic cooperation looked potentially boundless.¹⁴ Furthermore, an institutional apparatus was vital to handle the transatlantic interdependence fomented at the OEEC. The trouble was that changing economic circumstances violated the donor–recipient model upon which the OEEC was premised. Originally, the United States supplied aid and tolerated trade discrimination against their products because the political remuneration from European rebuilding and integration exceeded the economic cost. By the late 1950s, Western Europe’s recuperation and the tribulations afflicting the American economy precipitated a recalculation of this position. The United States argued for a new organization where Western European and North American states could meet on an equal footing and which would distribute the burdens of economic adjustment more fairly.¹⁵

Second, Cold War enmities had intensified and the specter of communism loomed. In 1953, the USSR detonated its first hydrogen bomb and four years later flaunted possession of intercontinental ballistic missile technology by launching the earth orbiting satellite, Sputnik. The promulgation of the Warsaw Pact (a communist military alliance) in 1955 and the brutal suppression of uprisings in Poland and Hungary in 1956 reiterated Soviet command over Central and Eastern Europe. Concurrently the Western military alliance, the North Atlantic Treaty Organization (NATO), was in disarray after U.S. ...

Table of contents

• Cover Page
• Title Page
• Copyright Page
• List of Illustrations
• Foreword
• Acknowledgements
• List of Abbreviations
• Introduction
• 1. Origin and Evolution
• 2. Organization and Functioning
• 3. A Framework for Understanding
• 4. Current Issues
• 5. OECD Reform
• 6. The Future of the OECD
• Notes
• Select Bibliography and Electronic Resources