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Draft OECD Report on WSSD

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Draft OECD Report on WSSD

NOTE BY THE SECRETARIAT
At the OECD Ministerial Council Meeting in May 2001, Ministers asked the
Organisation to assist its Member countries to realise their sustainable development
objectives by undertaking a number of specific tasks. As part of the response to this
mandate, the OECD Council agreed that the Organisation would produce a report
highlighting the work of the OECD on sustainable development, to feed into the
preparation process for the World Summit on Sustainable Development (WSSD).
The report has been produced by an internal Task Force of representatives from
across OECD Directorates, with the Environment Directorate and the Development Co-
operation Directorate taking the lead in its drafting. The report will be published
under the authority of the Secretary General.
A conference call between members of the Bureau of the Ad Hoc Group on
Sustainable Development is being scheduled for mid-March 2002, to finalise any
outstanding issues regarding the report before its publication. Based on the written
comments received and the discussion of the Bureau, the draft will be revised and
submitted for publication on 1 April. If formatted for publication, the current draft
would be around 55-60 pages.
The final report will be available at the next OECD Ministerial Council Meeting
on 15-16 May 2002, and will be officially launched at the Fourth Preparatory Committee
Meeting for the World Summit on Sustainable Development, 27 May-7 June 2002.

ACTION REQUIRED:

Delegates are invited to provide comments on the draft report, and in
particular

· to reflect on whether the messages they would want the OECD to convey to the
WSSD are brought out clearly in the draft report; and

· to confirm that the country-specific references and data provided are
accurate.

Written comments should be submitted to the Secretariat or posted on the
Electronic
Discussion Group (EDG) of the Ad Hoc Group on Sustainable Development by 8
March 2002
at the latest.

DRAFT

15 February 2002

OECD Report to the World Summit on Sustainable Development

TABLE OF CONTENTS
NOTE BY THE SECRETARIAT 2
OECD REPORT TO THE WORLD SUMMIT ON SUSTAINABLE DEVELOPMENT EXECUTIVE SUMMARY 8
CHAPTER 1: INTRODUCTION 13
CHAPTER 2: OECD COUNTRIES AND SUSTAINABLE DEVELOPMENT: PROGRESS AND CHALLENGES 15
2.1 OECD countries experienced rises in material living standards during the
1990s 15
2.1.1 Accumulation of various forms of capital has contributed to economic growth but
natural
capital has declined 18
2.1.2 Increasing trade and foreign direct investment have contributed to economic
growth 19
2.2 Economic growth has led to an improved quality of life for most OECD citizens
but not for all 23
2.2.1 Population is growing slowly and gradually ageing 23
2.2.2 Life expectancy continues to climb 25
2.2.3 Educational attainment is rising 27
2.2.4 Poverty rates have fallen in some OECD countries, but not in others 29
2.2.5 OECD country ODA is supporting social development in non-OECD countries 30
2.3 OECD countries continue to put great pressure on the environment, despite
progress
in decoupling pollution and resource use from economic growth 30
2.3.1 Areas where progress is greatest for the environment 32
2.3.2 Environmental concerns requiring further attention 37
2.3.3 Environmental problems requiring urgent action 40
2.4 OECD countries are making progress in establishing institutions of good
governance 46
2.4.1 Integrity, transparency, and accountability are critical features of good
governance 46
2.4.2 Opportunities for citizen participation are expanding 47
2.4.3 New approaches to international governance are emerging 49
CHAPTER 3: OVERCOMING THE BARRIERS TO SUSTAINABLE DEVELOPMENT 50
3.1 Making markets work for sustainable development 50
3.1.1 Expanding the use of environmentally related taxes and charges 50
3.1.2 OECD countries are reforming subsidy schemes, but the pace is slow and uneven
52
3.1.3 Interest in the use of tradable permits is growing, but practical experience is
still limited 54
3.1.4 Voluntary approaches expanded rapidly during the 1990s 55
3.2 Strengthening the process of decision making for sustainable development 57
3.2.1 Improving coherence and integration of policies 57
3.2.2 Monitoring progress towards sustainable development 59
3.2.3 Ensuring long-term approaches to decision-making 60
3.3 Fostering sustainable development through science and technology 60
3.4 Overcoming obstacles to policy reform 61
3.4.1 Overcoming political obstacles 62
3.4.2 Filling knowledge and information gaps 63
CHAPTER 4: STRENGTHENING PARTNERSHIPS FOR SUSTAINABLE DEVELOPMENT IN AN INTERDEPENDENT
WORLD 65
4.1 Sustainable development: a shared agenda between developing and developed
countries 65
4.2 Market access is improving, but major barriers remain 67
4.3 The capacity to benefit from globalisation needs to be strengthened 69
4.4 ODA has declined, but remains very important for global sustainable development
71
ANNEX 1 OECD SUPPORT FOR SUSTAINABLE DEVELOPMENT 75
A.1 Analytical work and policy recommendations 75
A.2 Data and indicators 76
A.3 Peer review processes 77
A.4 OECD decisions, recommendations and other legal instruments 78
A.5 Dialogues with non-member countries 79
A.6 Dialogues with stakeholders 79
ANNEX 2 MILLENNIUM DEVELOPMENT GOALS 80
ACRONYMS AND ABBREVIATIONS 83

LIST OF FIGURES
Figure 2.1 Trends in gross domestic products, OECD, 1970-2000 16
Figure 2.2 Gross domestic product per capita, 2000, 17
Figure 2.3 Trends in trade and foreign direct investment to gross domestic
product ratios, 1990-2000 20
Figure 2.4 OECD country trade by region, 1990 and 2000 21
Figure 2.5 Selected Long-term Flows From OECD1 to Developing Countries, 1980-99
22
Figure 2.6 Population growth rate in selected OECD countries, 1990-2000 23
Figure 2.7 Historical and projected population trends in OECD and non-OECD
countries, 1990-2020 24
Figure 2.8 Old age dependency ratio projected to 2030, selected OECD country
groups 25
Figure 2.9 Female and male life expectancy at birth, OECD countries, 1990 and 1998
26
Figure 2.10 Educational attainment of the population, by age group, OECD
countries, 1999 28
Figure 2.11 Proportion of people with low income, selected OECD countries, mid-
1980s and mid 1990s 29
Figure 2.12 Trends in CO2, NOx, SOx , total primary energy supply and road
traffic related to GDP 31
Figure 2.13a Change in total emission of nitrogen oxides since 1990, OECD countries
33
Figure 2.13b Total emission of sulphur oxides since 1990, OECD countries 34
Figure 2.14 Gross freshwater abstractions, OECD countries, late 1990s 36
Figure 2.15 Recent and projected changes in forest area by forest type, OECD,
1995 and 2020 37
Figure 2.16 Municipal waste generation, OECD countries, late 1990s 39
Figure 2.17 Carbon dioxide emissions, OECD countries 41
Figure 2.18 Carbon dioxide emissions, OECD share in world emissions, 1980 and 1990
Contribution of OECD countries to world emissions 42
Figure 2.19 Historical and projected trends in world fish production by region and
production type, 1950-2020 43
Figure 2.20 Protected areas 44
Figure 2.21 Nitrogen balances in agriculture, OECD countries 45
Figure 2.22 Decade when OECD countries first introduced legislation guaranteeing
access to information 48
Figure 3.1 Proportion of total revenues from environmentally related taxes 51
Figure 4.1 Indexed per capita income and per capita ODA 71

LIST OF TABLES
Table 2.1 OECD Trade By Partner Country, 2000 22
Table 3.1 Trends in subsidy levels in OECD countries 53

OECD REPORT TO THE WORLD SUMMIT ON SUSTAINABLE DEVELOPMENT

EXECUTIVE SUMMARY

Sustainable development presents both challenges and opportunities

Since Rio, progress has been made towards sustainable development … OECD countries
have made progress towards sustainable development since the Earth Summit in 1992,
experiencing stable economic growth, improving social conditions, and achieving
reductions in some environmental pressures. Some of their actions have also supported
sustainable development in non-OECD countries and globally, including efforts to remove
some of the barriers to trade and investment flows, and working together to tackle
certain global environmental problems.

…but much more needs to be done… However, many pressing challenges remain, both
within OECD countries and globally, and it will become more difficult to deal with them
if action does not start now. Within OECD countries, priority needs to be given to
improving access by all citizens to social services and opportunities, and to addressing
a range of environmental problems. While the necessary policies or commitments have often
been established, their implementation has been lagging.

…and OECD countries are committed to show leadership. Outside the OECD region, the
challenges are even more important. One in five people worldwide lives on less than US$ 1
per day, and one in seven suffers from chronic hunger. In the worst affected countries,
HIV-AIDs is undermining the very foundations of society. A number of global and regional
environmental problems – such as climate change, biodiversity loss, and overfishing –
need urgent attention.Many non-OECD countries are affected by policies of OECD countries–
sometimes positively, more often negatively. Access of developing country goods and
services to OECD markets is still limited, and the increasing trade and investment
liberalisation has not benefited many developing countries.

OECD countries bear special responsibility for leadership on sustainable
development, historically and because of the weight they continue to have in the global
economy and environment. Achieving the shared goal of sustainable development will
require, however, committed co-operation and partnership between OECD and developing
countries.

Despite sustained economic growth in OECD countries, pressing social and
environmental problems remain

Good economic performance in OECD countries has sustained improvements in social and
environmental conditions, but pressing problems persist and, … Per capita
income in OECD countries expanded at an average rate of almost 3% per year over the past
decade, sustained by investment in equipment and infrastructure, education and health
care, and research and development. Economic growth, in turn, has led to improved quality
of life for most citizens of OECD countries, who have enjoyed higher levels of life
expectancy and educational attainment. However, not all have benefited from economic
growth. While the number of people living in poverty has decreased in some OECD
countries, it has increased in others, with young adults and families with children
affected most.

… even when appropriate policies exist, their implementation has been limited.
Economic development in OECD countries continues to put great pressure on the
environment, despite some progress in decoupling pollution and resource use from economic
growth. Significant achievements have been made in reducing emissions of some air and
water pollutants, especially from point sources, and in managing use of some renewable
resources. However, more needs to be done to address a number of other environmental
problems, both domestically and globally. Within most OECD countries, some urban air
pollutants still exceed national health standards, while pollution from agriculture and
other sources affects water and soil quality. Persistent and toxic chemicals are
widespread and accumulating in the environment, and, even though more of it is being
recycled, waste production continues to increase. Implementation of policies to address
these pressures has been limited.

The challenge of achieving sustainable development at the global level

OECD countries should lead the way in promoting sustainable development world-wide …
While some of the policies and actions of OECD countries contribute to
sustainable development at the global level, many threats remain. While the proportion of
people living in poverty world-wide declined in the 1990s from 28% to 23%, the number of
poor people declined only slightly. Millions die each year from easily curable diseases.
Worldwide, international and civil conflict threatens the ability of people to rise out
of poverty, and poverty in turn feeds violent conflict.

… by expanding market access for those countries that have remained at the margin of
globalisation … The trade and investment liberalisation that sustained economic growth
in OECD countries also benefited a number of non-OECD countries, providing opportunities
to attract investment and expand exports. Other countries, however, have been left
behind, with the least developed countries in particular failing to take advantage of
market liberalisation and its benefits. The persistence in OECD countries of a number of
barriers to trade have contributed to this outcome: agricultural subsidies and market
protection in OECD countries are estimated to cause welfare losses in developing
countries of over US$ 11 billion per year. Reducing these subsidies and other barriers to
trade would also increase the welfare of OECD citizens by reducing consumer prices,
improving the allocation of resources and, in some cases, reducing pressures on the
environment.

… and by strengthening action to address global environmental threats. Many of the
greatest environmental challenges relate to the protection of global environmental
resources – biodiversity, the global atmosphere, world fishery resources, and others.
Biodiversity losses continue at an alarming pace, greenhouse gas emissions threaten the
world’s climate, and three-quarters of marine resources have been fished to their
maximum limits or beyond. OECD countries are the main historical contributors to climate
change, but developing countries will suffer the most from it, i.e. will bear the
greatest costs for adapting. Addressing these global problems will require greater co-
operation between OECD and non-OECD countries.

Obstacles to policy reform

Many efficient and cost-effective solutions have been identified, but major obstacles to
their use persist. While some policies or actions to tackle these problems have been
identified, major obstacles to their successful implementation remain. OECD countries
are increasingly relying on market instruments to address environmental externalities,
e.g. through reform of distorting subsidies and increased use of environmental taxes. But
progress in subsidy reform has been disappointingly slow, and significant exemptions to
environmental taxes – often to the most polluting and energy-intensive industries –
reduce their effectiveness.

These barriers can be overcome through co-ordinated actions,… The main obstacles to
reform are fears that their use will lead to a loss of competitiveness for the affected
sector, or that they may adversely affect those groups in society who can least afford
it. However, these obstacles can be overcome; for example, by co-ordinated international
actions to apply energy taxes or remove environmentally-damaging subsidies.

… measures to encourage the development and dissemination of appropriate science and
technology,… Fostering science and technology for sustainable development is also
important, e.g. through the development of affordable drugs to combat common diseases,
alternatives to and more efficient use of fossil fuels, accessible water purification
systems, better understanding of ecosystem functioning, etc. Enhanced and more co-
ordinated efforts are needed to overcome the information gaps and market barriers which
limit the development and dissemination of such technologies. This includes a capacity of
government to foster a broad and well informed debate on critical issues and manage
scientific knowledge with a long-term view.

… and measures to improve policy coherence for sustainable development. Finally,
because of the multi-dimensional nature of sustainable development, OECD countries need
to strengthen the process of decision making through increased coherence and integration
of policies across sectors and ministries. Monitoring progress made towards sustainable
development is important for this process, as is increased transparency and participation
by affected citizens, business and civil society. Most OECD countries are still
developing effective communication and consultation processes.

Global partnerships for sustainable development

Building a better, more sustainable world for all requires increased partnerships between
OECD and non-OECD countries. The growing economic importance of non-OECD
countries has increased their role in ensuring the integrity of global economic,
environmental and social systems. With increasing globalisation of both economic forces
and environmental problems, co-operation and partnerships become essential to forge paths
towards sustainable development at least cost. Partnerships between OECD and non-OECD
countries can also generate economic opportunities for developing countries, as well as
contribute to reducing poverty worldwide. They can help to address issues of global
importance. Further strengthening of the institutions for international and global
decision-making is an important step towards achieving these objectives.

While each country is responsible for creating the right domestic conditions for
sustainable development … While each country bears primary responsibility for creating
the conditions that generate sustainable growth within its borders, industrialised
countries can do much to support developing countries in their efforts. They can work
together to achieve common goals, expand market access to goods and services of non-
member countries, provide the right frameworks to encourage foreign direct investment in
support of sustainable development, and increase the level and effectiveness of official
development assistance.

… OECD countries can support developing countries in their efforts by expanding market
access for their goods,… A positive step by OECD countries would be the removal of the
significant trade barriers they erect to the import goods and services from non-OECD
countries, especially of manufactured and agricultural products. Non-OECD countries,
particularly the poorest, produce and export a far smaller variety of goods and services
than do OECD countries. Limiting market access for these goods and services is seriously
constraining the opportunities of non-OECD countries to grow.

… providing the right frameworks for private financial flows, and increasing the level
and effectiveness of ODA. OECD countries can also support developing countries in their
efforts towards sustainable development by stimulating increased and better directed
technology co-operation, know-how, and financial resources. Official development
assistance (ODA) as a proportion of OECD countries’, gross domestic product (GDP) has
been declining for the past ten years. Increasing the level and effectiveness of total
ODA can help non-OECD countries to develop the human capacities, institutions, and
systems of governance that will enable them to take advantage of the opportunities
offered by globalisation. The international architecture to encourage other forms of
financing – such as foreign direct investment (FDI), portfolio flows, and financial
support from international financing institutions – is currently being created, as well
as mechanisms to encourage environmentally and socially responsible investment.

How OECD as an organisation can contribute

The OECD supports its members in their efforts towards sustainable development through
identification of emerging issues, policy advice, international agreements, and co-
ordinated policies. The OECD brings together 30 countries sharing a commitment to
democratic government and market forces. The global reach of its activities is secured by
active relationships with some 70 non-OECD countries, non-governmental organisation and
civil society. The Organisation provides governments with a setting in which to identify
emerging issues and analyse, discuss and develop a range of public policies. Member
countries compare experiences, seek answers to common problems and work to co-ordinate
domestic and international policies. The Organisation is interdisciplinary in nature. It
covers economic, social, environmental and agricultural policies, as well as development
co-operation, trade, fiscal, public management, science, and other sectoral policies.
Because of its interdisciplinary nature, it is well placed to support governments in
their efforts to increase policy coherence and integration in pursuit of sustainable
development.

Regular reviews of performance and peer pressure help countries to monitor their progress
in a consistent and comparable manner. Accountability is a key pre-requisite for
achieving sustainable development. Peer reviews of country performance help to monitor
implementation of the policy recommendations and follow progress, using data and
indicators. In addition, the peer review process stimulates countries to challenge one
another on the implementation of their policies. New work is focussing on the development
of indicators of sustainable development – including indicators of the decoupling of
environmental pressures from economic growth – and using them in OECD peer review
processes, so as to help countries to monitor their progress towards national sustainable
development in a consistent manner.

CHAPTER 1: INTRODUCTION
1. Sustainable development remains a global challenge. Progress has been
realised in the ten years since the 1992 Earth Summit, but many challenges remain. OECD
countries have enjoyed sustained economic growth in recent years, and have realised
improvements in some social conditions and reductions in some environmental pressures.
Some of their actions have also supported moves towards sustainable development in non-
OECD countries and globally, including removing some barriers to investment and trade,
and working together to tackle some global environmental problems. However, many pressing
issues remain, and will be more difficult to tackle in the future if action does not
start now.
2. Within OECD countries, priorities for action include improving access
by all citizens to social services and opportunities, overcoming the gap in the
implementation of environmental policies, and better integrating the three pillars of
sustainable development in policy-making. Outside the OECD region, the challenges are
even more pressing, and many of them are affected – sometimes positively, more often
negatively – by OECD country policies. Access of developing country goods to OECD
markets is still limited, and increasing trade and investment liberalisation has not
benefited many developing countries. One in five people world-wide lives in poverty, and
a number of global and regional environmental problems (e.g. climate change, biodiversity
loss, and overfishing) need urgent attention.
3. When OECD Ministers of Finance and Environment first met together at
the OECD in May 200, they recognised sustainable development as an overarching goal of
OECD governments and the Organisation. They emphasised that OECD countries bear a special
responsibility for leadership on sustainable development worldwide, historically and
because of the weight they continue to have in the global economy and environment.
Endorsing the key policy recommendations from a three-year organisation-wide project on
sustainable development, they recognised the difficulties inherent in implementing these
policies and the gaps in analytical and scientific understanding in the area of
sustainable development. To help to address these, they asked the OECD to continue to
assist them in formulating and implementing policies to achieve sustainable development,
in particular to: develop agreed indicators that measure progress across all three
dimensions of sustainable development with a view to incorporating these into OECD’s
peer review processes; identify how obstacles to policy reforms ― in particular to the
better use of market-based instruments, and to the reduction of environmentally harmful
subsidies ― can be overcome; analyse further the social aspects of sustainable
development; and provide guidance for achieving improved economic, environmental and
social policy coherence and integration . Ministers asked the OECD to report to them on
progress achieved on these issues at their 2002 Ministerial Council Meeting, with a view
to contributing to the forthcoming World Summit on Sustainable Development (WSSD) to be
held in Johannesburg, South Africa, in September 2002.
4. The WSSD provides an opportunity for countries to assess their
progress towards sustainable development in the decade since the Earth Summit, and to
develop new plans and commitments to address the outstanding issues. This report provides
a critical review of the contributions of OECD country actions and policies to
sustainable development both within their own borders and internationally, including how
OECD country policies impact on developing country progress towards sustainable
development. It brings together the lessons learned through OECD country experience and
analysis of the conditions needed to achieve sustainable development, indicates some of
the barriers to their implementation, and some of the available options for overcoming
these barriers.
5. The report provides a brief overview of the key messages emerging from
a three-year horizontal work programme on sustainable development at the OECD that was
completed in 2001, and the initial findings of new work started in response to the
request by Ministers at their May 2001 meeting. Chapter 2 of the report provides a brief
review of the progress that OECD countries have made in contributing to sustainable
development both within their own boundaries and globally. It provides a factual review
of the effectiveness of current OECD country policies in the achievement of sustainable
development and already agreed commitments. Chapter 3 reviews progress in the development
and implementation of policies in OECD countries to achieve more sustainable development,
and the associated changes in consumption and production patterns that result. It also
identifies the barriers to policy reform, and highlights some successful approaches that
can help to overcome these barriers. Chapter 4 outlines the approaches OECD countries are
taking which support or hinder more sustainable development in non-OECD countries and
globally. It identifies the issues for which co-operation between OECD and non-OECD
countries will be needed to further progress.
CHAPTER 2: OECD COUNTRIES AND SUSTAINABLE DEVELOPMENT: PROGRESS AND CHALLENGES
6. Sustainable development is a process of providing for the needs of the present
generation without compromising the ability of future generations to meet their own
needs. It involves three principal dimensions – economic, social, and environmental –
each of which is linked to the others. Achieving sustainable development means
maintaining or increasing human well-being overall, including not only the satisfaction
of economic needs, but also aspirations for a clean and healthy environment and
preferences in terms of social development.
7. A key element of sustainable development is maintaining the right levels and
balance between the different stocks of capital – man-made, natural, human and social
capital. It is these stocks of capital that are one of the main connections between the
present and future generations – as the stocks of future generations are influenced by
current investment decisions. The different types of capital can to some extent be
substituted for each other, but this is not always possible. They are also often inter-
dependent. Thus, sustaining economic growth requires adequate levels of investment in
augmenting human capital and in preserving natural capital, because of the economic
services that both provide.
8. Economic growth has led to improved quality of life for most citizens of OECD
countries, who have enjoyed rising levels of life expectancy and educational attainment.
However, not all have benefited from economic growth. While the number of people living
in poverty has decreased in some OECD countries, it has increased in others, affecting
families with children and young adults the most. Economic development in OECD countries
also continues to put great pressure on the environment despite some progress in
decoupling pollution and resource use from economic growth.
2.1 OECD countries experienced rises in material living standards during the 1990s
9. The countries of the OECD have enjoyed strong economic growth during the past
thirty years (Figure 2.1), with per capita income nearly tripling for the 26 OECD
countries for which data are available, although gross domestic product (GDP) growth
varied significantly from country to country (Figure 2.2).

Figure 2.1: Trends in gross domestic products, OECD, 1970-2000

Notes: At the price levels and exchange rates of 1995. Data exclude Czech Republic,
Hungary, Poland and Slovak Republic.
Source: OECD, National Accounts database.

Figure 2.2: Gross domestic product per capita, 2000,

US$ using current purchasing power parities (PPPs)

Source: OECD, National Accounts database.
10. While OECD economies grew steadily during the ten years to 1999, non-OECD
economies in aggregate grew slightly faster, at an average rate of about 3.3% per year.
There was thus little change in the share of world output accounted for by OECD countries
(World Bank, 2000a). However, population growth has been more rapid in most non-OECD
countries so that the gap in per capita GDP between OECD and non-OECD countries widened
appreciably.
2.1.1 Accumulation of various forms of capital has contributed to economic growth but
natural capital has declined
11. Accumulation of various forms of capital is important for economic growth. So
it is not surprising to find that GDP growth in OECD countries during the 1980s and 1990s
was accompanied by steady shares of GDP devoted to investment in plant and equipment and
infrastructure (physical capital); education and health care (human capital); and
research and development (intellectual capital). The share of GDP of OECD countries
invested in physical capital fell in the first part of the decade, but recovered during
the second half, mainly due to significant spending on information technology.
12. Over the same period, the share of GDP devoted to education and training
remained stable at about 6%, while the share targeted to health care rose from 7% in 1980
to over 8% in 1998. Finally, the share going for research and development (R&D) remained
steady at over 2% of GDP, but the share of R&D financed by industry rose steadily
reaching about two-thirds of the total by the end of the decade. Investments in education
and health care lead to higher levels of educational attainment and to improved health
status, which increases people’s productivity. Investment in R&D generates new
technologies and leads to ways of using existing resources more efficiently.
13. While it is clear that accumulation of capital is important for growth, the
impact of investment in the different forms of capital is less obvious. An empirical
analysis undertaken to illuminate the impact of policies and institutions on output
growth in OECD countries suggested that an increase of 1 percentage point in the business
sector investment rate may increase the long-run level of output per capita by 1.3–1.5%.
It also concluded that an increase of one additional year in the average number of years
of school completed by the working age population contributes between 3.8–6.8% to the
long-run level of output per person. Finally, the research found that a 10% increase in
the proportion of GDP dedicated to business R&D may in the long run boost output per
person by 1.2% (these results are much stronger for R&D performed by business than by
other institutions, such as government or research laboratories). While regression
analyses, such as this, cannot reveal with any precision the complex linkages underlying
the results, they can shed light on the impact and relative importance of the various
factors contributing to growth (OECD, 2000a).
14. Policies and institutions can influence the rate of capital accumulation and
growth, according to the study. Macroeconomic policy geared towards stable, low inflation
and sound public finances contributes to growth by creating incentives to save and invest
and to invest in projects with higher returns. Policies and institutions that encourage
innovations and entrepreneurial activity also contribute to investment and growth.
Especially significant are laws that protect investors, policies that provide adequate
returns to owners of intellectual property, and administrative procedures for new
businesses that are straightforward and low cost. An example of property rights reform is
Mexico’s programme to define Ejido land rights which is described in Box 2.1. A well-
developed and flexible financial system that mobilises capital for investment in new
ventures is also important.

Box 2.1. Mexico’s programme to define land rights
There are three forms of land ownership recognised by the Mexican Constitution: small
private ownership with well-defined size limits, community land and Ejidos. These two
latter forms of social ownership were promoted during several decades of land
redistribution from 1917 to 1992. Currently Communities and Ejidos cover an area of 103
million hectares, which is about half the area of the country.
The reform of Article 27 of the Mexican Constitution in 1992 and the subsequent Agrarian
Law opened the possibility of defining individual property rights on land held under the
Ejido or Communal property system. The definition and effective protection of these
rights requires the following steps, all of them needing the express approval of a two-
thirds majority of the Ejido Assembly.
· Drawing a map and measuring the size of the land and the limits of the Ejido.
· Deciding the use of the land in each Ejido, including residential land, common
land and plots.
· Registering the limits and uses of the land in the National Agrarian Registry.
When this process finishes in an Ejido, the ejidatarios receive a certificate with a map
defining the limits of their plots, and their rights to residential and common land. The
voluntary, free programme PROCEDE was launched in 1993 with the objective of implementing
these steps with all the guarantees. 30,000 assemblies with more than three million
ejidatarios needed to agree on a land use in their Ejidos, and over five million secure
certificates needed to be produced. By October 2000, 72% of the Ejidos and Communities in
Mexico had already been certified under the PROCEDE programme. The certification process
is a significant step in the direction of defining land rights inside the Ejidos. The
land in the Ejidos has always been rented informally. Now this may be done in the
certified plots with more guarantees.
(Source: OECD 1997a)
2.1.2 Increasing trade and foreign direct investment have contributed to economic
growth
15. Among the most important factors sustaining economic growth in OECD countries
is openness to trade and foreign direct investment (FDI). Trade and investment promote
growth by improving resource allocation, exposing producers to competition, and diffusing
technology and knowledge. During the past few decades, OECD countries have increasingly
reduced their tariffs and non-tariff barriers to trade and investment. This process was
particularly pronounced during the 1990s, when new regional trading arrangements were
forged (especially in the Asia-Pacific, Europe, and North America), the World Trade
Organisation (WTO) Agreements were concluded, and many countries unilaterally reduced
their trade barriers.
16. As a result, trade and FDI in relation to GDP grew strongly during the past two
decades. Trade (measured as the sum of imports and exports) in proportion to GDP grew
from 14% of GDP in 1980 to 25% in 2000. FDI grew from 1% of GDP in 1991 to 2.6% of GDP in
1998. Growth in trade and FDI in the OECD countries mirrors that in the world as a whole.
(Figure 2.3).

Figure 2.3: Trends in trade and foreign direct investment to gross domestic product
ratios, 1990-2000

Notes: Statistical definitions for world FDI data differ from the ones applied by the
OECD International Direct Investment Statistics, therefore the time series may not be
directly comparable.
Source: OECD, (2000p); UNCTAD, (2000); World Bank, (2000a).

17. OECD countries trade and invest primarily with each other. In 2000 about 73% of
OECD country exports went to other OECD countries and 79% of imports came from other OECD
countries (Figures 2.4). But these shares are lower than they were in 1990, when intra-
OECD country trade accounted for 78% of exports and 80% of imports. In 1999 about 85% of
FDI originating in OECD countries went to other OECD countries. While the share of FDI
from OECD going to non-OECD countries has not increased, the total amount has grown
significantly: from US$ 19 billion in 1995 to US$ 125 billion in 1999 (OECD, 2000b).

Figure 2.4: OECD country trade by region, 1990 and 2000

Source: OECD, National Accounts Database

18. Only a few developing countries have benefited from increased trade and
investment between OECD and non-OECD countries. In 2000 43% of exports from OECD
countries to non-OECD countries went to just five countries, and 45% of imports from non-
OECD to OECD countries came from five countries (Table 2.1). As for FDI, in 1999 over 50%
of FDI originating within OECD countries was invested in ten countries, with nearly 40%
invested in Argentina, Brazil, China, and Chile (OECD, 2000b).

Table 2.1: OECD Trade By Partner Country, 2000

Source: OECD
19. While FDI from OECD countries to developing and transition countries still
comprises a relatively small proportion of their total capital outflows, they are
increasingly important for recipient countries. This is because while outward FDI has
been rising, official development assistance (ODA) has been stable of falling. Since
1995, the value of FDI to non-OECD countries has exceeded the value of official
development assistance (ODA). In 2000 the share of FDI stood at 55% of the total capital
inflows of developing and transition countries (excluding bank lending, bonds, and
equities (Figure 2.5).
Figure 2.5: Selected Long-term Flows From OECD1 to Developing Countries, 1980-99

Notes: The data in this figure represent flows from DAC countries to developing countries
and not all aid recipients.
Source: OECD, DAC statistics.

2.2 Economic growth has led to an improved quality of life for most OECD citizens
but not for all
20. With rising levels of wealth, OECD countries have undergone significant
demographic and social changes during the past fifty years. Most have passed through the
demographic transition that many developing countries are still facing. Moreover, most
have successfully addressed some of the pressing social and human development issues that
developing countries are still dealing with, such as reducing high rates of communicable
diseases, ensuring an adequate food supply, supplying clean water and sanitation, and
providing universal primary education. The challenges that most OECD countries are now
facing relate to mental illness and diseases of old age, such as cancer and heart
disease; finding approaches to education that allow people throughout their lives to
learn new skills and perform new jobs; and adapting social safety nets to the challenges
of ageing populations and shifts in family composition.
2.2.1 Population is growing slowly and gradually ageing
21. In most OECD countries population growth has slowed dramatically during the
past few decades, linked, among other things, to rising female participation in the
workforce. In 1999 the population growth rate stood at 0.5 percent, compared with 0.8% in
1990 (Figure 2.6).
Figure 2.6: Population growth rate in selected OECD countries, 1990-2000

Source: UN, (2001)
22. Looking to the future, population is projected to grow much more slowly in OECD
countries than in non-OECD countries for the next fifty years, when world population is
expected to stabilise. As a result, population of OECD countries as a share of the world
total is projected to shrink from about 18% today to 15% in 2020 (Figure 2.7).

Figure 2.7: Historical and projected population trends in OECD and non-OECD countries,
1990-2020

Source: UN, (2001)

23. The slowdown in population growth rates have led to shifts in population
structure. The proportion of people over 65 years compared with the share that is working
age (16–64) – known as the dependency ratio – is growing particularly fast. Old age
dependency ratios are projected to increase from 20% in 2000 to 35% in 2030 (Figure
2.8).

Figure 2.8: Old age dependency ratio projected to 2030, selected OECD country groups

Source: OECD, (2001a).
24. The rising dependency ratio in many countries is forcing governments to develop
strategies for mobilising the resources they will need to finance the pensions and health
care for the elderly. Successfully dealing with this issue will require that governments
increasingly take a longer-term perspective.
2.2.2 Life expectancy continues to climb
25. Life expectancy at birth is commonly regarded as an important broad measure of
welfare. Life expectancy at birth has continued to grow in nearly all OECD countries
during the past ten years. These gains have been made possible through the rising share
of national resources dedicated to health care, generally rising standards of living,
public health interventions, and higher levels of education. Improvements in life
expectancy at birth reflect a decline in mortality rates at all ages, including a sharp
reduction in infant mortality rates and higher survival rates at older ages. (Figure
2.9). Although the gains in life expectancy have not been uniform across countries, life
spans in all OECD countries are generally converging towards the levels of countries with
the longest life expectancy.
26. On the other hand, life expectancy in some central and eastern European OECD
countries, such as Hungary and Slovakia, has grown much more slowly than the OECD
average, especially for men. Unhealthy lifestyles, such as diets heavy in fat, and high
consumption of alcohol and tobacco appear at least partly responsible for the lack of
increase in men’s life expectancy in these countries (OECD, 1999a).

Figure 2.9: Female and male life expectancy at birth, OECD countries, 1990 and 1998

* Weighted OECD average.
Source: OECD, (2001b)
2.2.3 Educational attainment is rising
27. A well-educated population is critical for the current and future economic and
social development of a society. Education plays a key role in providing individuals with
the knowledge, skills, and competencies to participate effectively in society. OECD
countries have been devoting an increasing share of their GDP to education and training
during the past twenty years. As a result, educational attainment – measured as the
average number of years of school completed by the working age population – has been
rising steadily in all OECD countries. The increases are particularly pronounced in
countries where older adults have a lower level of attainment, such as Korea, Mexico,
Greece, Spain, and Turkey.
28. As with the secondary school education, enrolment in tertiary education grew
strongly in most OECD countries between 1980 and 1999. Again, the greatest gains have
been made in countries where adults have relatively low levels of education (Figure
2.10). As a result, differences in the level of educational attainment between countries
are shrinking.

Figure 2.10: Educational attainment of the population, by age group,
OECD countries, 1999

Countries are ranked in descending order of the percentage of the population 25 to 54
years of age who have completed at least upper secondary education.

Notes: 1. Year of reference 1998.
2.Not all ISCED 3 programmes meet minimum requirements for ISCED 3C long
programmes.
For detailed notes see Annex 3 of the OECD publication.

Source: OECD, (2001c)
29. In today’s rapidly changing world, people are more likely than ever before to
participate in education and training programs over their lifetimes. More than one-third
of all people aged 25 to 44 now participate in some continuing education and training in
ten out of eighteen OECD countries for which data are available. Adults in these
countries can now expect to participate in the equivalent of 0.7 to 3.2 years of full-
time training between ages 20 and 65.
2.2.4 Poverty rates have fallen in some OECD countries, but not in others
30. While growth of national output during the past twenty years has translated
into higher standards of living for most citizens of OECD countries, not all have
benefited. Surprisingly, there is no common trend across OECD countries during the ten
years from the mid-1980s to the mid-1990s in the proportion of people living in relative
poverty. The share of people living in relative poverty rose in some countries but fell
in others (Figure 2.11).
Figure 2.11 Proportion of people with low income, selected OECD countries,
mid-1980s and mid 1990s

Notes: Data for Mexico for the mid-1980s correspond to 1989.
Source: OECD, (2001a)

31. Low income is closely associated with the level and structure of employment in
countries, and with the nature of social safety nets. Because most countries have
strengthened social security systems for the elderly while reducing benefits for younger
people able to work, the risk of being poor is now higher among families with children
and among young adults than among the elderly. However, there is evidence in some
countries of a concentration of male unemployment in households where no man has been
employed for two or even three successive generations. While the proportion of people
living in poverty is stubbornly high, the data show that relatively few people remain in
poverty over long periods of time.
2.2.5 OECD country ODA is supporting social development in non-OECD countries
32. OECD countries increasingly recognise the importance of investing in health
services and education to promote human welfare. But these priorities are scarcely
reflected in the shares of ODA from OECD countries targeted to health care and education.
As with overall levels of ODA, the absolute levels of ODA for health care and education
have been declining. Currently health and education account for just over 13% of total
ODA, compared with 14% in the early 1990s. However, for recipient countries, ODA provides
an important share of total resources available for health care and education. It is
likely to remain important in the future. The rise in FDI flows will not change this,
because most FDI is targeted to productive activities, such as extraction of oil and gas
and manufacturing. Very little FDI goes to provide basic social services
2.3 OECD countries continue to put great pressure on the environment, despite
progress in decoupling pollution and resource use from economic growth
33. OECD countries put considerable pressure on their own and the global
environment through rising levels of production and consumption, despite progress in
decoupling pollution and resource use from continued economic growth. Currently, with
only 18% of the world’s population but with about 80% of world GDP, OECD countries
consume about 50% of its energy supplies and are responsible for most emissions of global
and transboundary pollutants.
34. In many OECD countries emissions and discharges of pollutants are growing more
slowly than GDP or are even declining. The use of energy and other natural resources is
also growing at a slower rate than GDP (Figure 2.12).

Figure 2.12: Trends in CO2, NOx, SOx , total primary energy supply and road traffic
related to GDP

Index 1990 = 100

* Australia, Mexico and Turkey are not included.
Source: OECD, (forthcoming 2002a)

35. There are two main reasons why environmental degradation is becoming detached
from economic growth. The first is the increasing demand for improved environmental
conditions (and hence for environmental policies) which has accompanied higher incomes
and the greater availability of resources needed to generate and adopt less-polluting
technologies. The second is that the economies of the OECD countries are undergoing
structural shifts as they grow, with polluting industries contributing less to overall
national output than in earlier decades and knowledge-intensive services contributing
more. The challenge for the future will be to continue to increase efficiency of resource
use and reduce the pollution intensity of consumption and production without incurring
unacceptably large economic and social costs both in OECD and non-OECD countries, and to
tackle the problems that show few signs of becoming decoupled from economic growth.
36. The greatest achievements in decoupling economic growth from environmental
degradation have been made in reducing emissions of some air and water pollutants,
especially from point sources, and in stabilising use of some renewable natural
resources, such as water (at the national level), and forests. These positive trends are
expected to continue as OECD countries carry through with implementing measures to meet
agreed targets.
37. The OECD (OECD, 2001d) identifies a number of areas where progress has been
made (green lights), some areas which require further attention (yellow lights), and some
areas which require urgent action (red lights).
2.3.1 Areas where progress is greatest for the environment
38. Emissions and concentrations of some air pollutants are declining. Good air
quality is necessary for the health and well-being of people and ecosystems. Among the
pollutants with the greatest impact on human health are lead, fine particulate matter,
and ground-level ozone. The contaminants threatening ecosystems come primarily from
pollutants that cause acidification (sulphur oxides or SOx, nitrogen oxides or NOx, and
ammonia), and those affecting the climate (carbon dioxide and methane). Four of these
pollutants, lead, SOx, NOx, and carbon dioxide come from direct emissions into the air
from a variety of sources. Particulate matter can come from direct emissions also, but is
commonly formed when emissions of NOx, SOx, ammonia, and other gases react in the
atmosphere. Ground level ozone is formed when NOx and volatile organic compounds react in
the presence of sunlight.
39. OECD countries are making progress in reducing emissions of many air
pollutants. Since 1990 OECD countries have cut their emissions of SOx by 40% and of NOx
by 4% (Figure 2.13a and 2.13b). Most countries have also cut their emissions of
particulate matter, and most have nearly eliminated emissions of lead. During the same
time period, OECD country GDP increased by 60 percent, fossil fuel consumption rose by 16
percent, and vehicle kilometres travelled grew by 30%

Figure 2.13a: Change in total emission of nitrogen oxides since 1990, OECD countries
.

Source: OECD, (2001e)

Figure 2.13b: Total emission of sulphur oxides since 1990, OECD countries

Source: OECD,( 2001e)

40. The reductions in emissions of these air pollutants have led to improved urban
air quality in most cities of OECD countries. Ambient concentrations of SOx, NOx,
particulate matter, and lead fell during the 1990s, with the declines being especially
substantial for lead and SOx. Concentrations of SOx and lead in most cities now meet the
national standards set to protect human health and the environment.
41. Emissions and ambient concentrations of these air pollutants have fallen for a
variety of reasons. Lead pollution has been cut primarily because of regulations in most
countries requiring the phase-out of leaded gasoline. Reductions in emissions and
concentrations of SOx, NOx and particulate matter are due largely to regulations that
require coal-fired power plants to reduce emissions, and to economic factors that have
encouraged many households and power plants to switch from coal and heavy oil towards
natural gas and other clean fuels. NOx emissions have also declined due to the
introduction of catalytic converters for cars.
42. Although local air quality has generally improved over the past 10 years, many
challenges remain in protecting public health and the environment. Levels of fine
particulate matter and ground level ozone still exceed national standards in most OECD
countries causing them to increasingly focus their efforts on monitoring and controlling
these two pollutants.
43. Water consumption has stabilised at the national level, but some regions
experience water stress. Freshwater is essential to sustain life and well-being, promote
economic development, and maintain ecosystems. Freshwater resources also provide
important recreational and aesthetic benefits. While water is abundant on a global scale,
available freshwater resources can decline as rivers and lakes become contaminated and
water is withdrawn from underground aquifers faster than it can be replenished.
44. Most OECD countries are well endowed with freshwater resources viewed at the
national level. However, the availability of good quality water varies significantly
between countries and between different regions in the same country. Some countries, such
as Belgium and Spain, are using a significant proportion of their water resources. And
even where national water demand is in balance with supply, water stress may be occurring
in some regions. Moreover, conflicts over the allocation of water for agriculture,
industry and cities, and maintaining the health of key ecosystems are often severe in
some countries.
45. Per capita water consumption in OECD countries declined by 6% since 1980. The
decrease is due primarily to the spread of water pricing systems that encouraged users,
especially firms, and households, to use water more efficiently as well as to the spread
of water-saving technologies. Declines in water intensive industries, such as mining and
steel manufacturing, have also played a role. Despite the overall trend, in some OECD
countries per capita water consumption rose during the 1990s, especially in countries
experiencing fast economic growth (Figure 2.14).

Figure 2.14: Gross freshwater abstractions, OECD countries, late 1990s

Source: OECD, (2001e)
46. Forest cover is increasing. Forests provide a range of services to people,
including wood products, recreational opportunities, and ecosystem services. In OECD
countries, approximately 82% of wood is used for building materials, paper products, and
the like. The remaining 18% is used for fuelwood. Wood is taken from pristine forests,
semi-natural forests that are managed for timber production, and full plantation forests
that are deliberately planted and managed for timber products. In addition to providing
products for people, forests provide vital environmental services, purifying water,
sequestering carbon, and sheltering wildlife. While all forests supply these services,
the extent to which they do so depends on their size, structure, density, and
management.
47. Overall, the area under forest cover has been gradually increasing in OECD
countries since the 1970s, and this trend continued during the 1990s. Forest cover is
projected to remain at current levels through 2020, is in contrast to forest cover in non-
OECD countries, which is expected to fall (Figure 2.15). The primary reason why wooded
areas are expanding in OECD countries is because agriculture has become more efficient,
and land less suited to farming is being abandoned and reverting to wooded land. Demand
for wood products has also stabilised in OECD countries, reducing pressure to harvest
trees.
Figure 2.15: Recent and projected changes in forest area by forest type,
OECD, 1995 and 2020

Source: OECD, (2001d)

2.3.2 Environmental concerns requiring further attention
48. OECD countries have made less progress in improving quality of river and lake
water. The volume of solid waste generated is still rising, although a larger share of
solid waste is being recycled, a trend expected to continue in the future and there is a
large backlog of polluted industrial and landfill sites awaiting remediation . Measures
to reduce mercury pollution and to phase out persistent organic pollutants need to be
intensified. As mentioned earlier, more also needs to be done to reduce concentrations of
some air pollutants that are damaging to human health (fine particulate matter and ground-
level ozone), and, in some regions, using water resources sustainably. In some countries
the productivity of agricultural soil continues to be degraded by salinisation and heavy
metal contamination.
49. Quality of surface water has improved in some places, but not in others. While
quality of water in many surface water bodies has improved dramatically during the past
ten years, progress in cleaning others has been slower. Indeed, few OECD countries meet
their basic standards for surface water quality. Moreover, groundwater is increasingly
under threat from contamination and withdrawals that exceed the capacity of aquifers to
recharge.
50. The main pollution problem affecting rivers, lakes, and underground aquifers
arises from excessive levels of nutrients, especially phosphorus and nitrates. Nutrients
stimulate growth of algae blooms, which rob the water of oxygen, killing fish and other
aquatic life. Sources of organic pollutants include discharges of inadequately treated
sewage from municipal treatment plants and household septic systems, runoff of
fertilisers and animal waste from farms, and deposition of air pollutants.
51. Most OECD countries have invested heavily during the past couple of decades to
build sewage and industrial wastewater treatment facilities. These actions have helped to
mute the impact of economic growth and land-use changes on the quality of river and lake
water. Unfortunately, they have not led to substantial improvements in the water quality.
The problem is that while discharges from point sources of pollution have diminished,
flows from diffuse sources, such as vehicles, urban storm-water run-off, and farms,
continue to rise.
52. Quantity of solid waste is still growing. Waste is produced at all stages of
the production and consumption cycle. Currently, in OECD countries, about 25% of waste
comes from manufacturing, 21% comes from agriculture and forestry, 24% is produced by
mining and quarrying, 14% results from construction and demolition, 14% is from municipal
sources, and the remainder comes from other sources. The quantities of waste produced
depend on how efficiently resources are used in production processes and the quantities
of materials produced and consumed. The collection and final disposal of waste is a
serious matter for local governments in OECD countries; local governments now spend about
one-third of total resources for pollution abatement and control on the management of
solid waste.
53. There has been no overall decline in the quantities of waste produced in OECD
countries, although the amount produced per unit of private final consumption decreased
during the 1990s (Figure 2.16). On average, municipal waste streams grew at about 1% per
year in OECD countries during the 1990s, a much slower rate than the 3% per year recorded
in the 1980s. Because of rising populations, increasing affluence, and changing
lifestyles (such as a shift towards smaller households), the annual volume of solid waste
generated in OECD countries is projected to grow by 40% between 1995 and 2020, to 770
million tons, or 640 kilograms per person per year (OECD, 2001d). This is somewhat slower
than the projected increase in GDP over the same period. It is projected that a steadily
rising share of municipal waste will be recycled, to reach 33% by 2020 compared with 18%
currently (64% of municipal waste is currently destined for landfills and another 18% is
incinerated; and environmental standards for both have been improved in most OECD
countries).

Figure 2.16: Municipal waste generation, OECD countries, late 1990s

* Private final consumption expenditure calculated at 1995 prices and PPPs.
Source: OECD, (2001e)
2.3.3 Environmental problems requiring urgent action
54. Still less headway has been made in dealing with some issues of global
importance, such as reducing greenhouse gases; managing fisheries sustainably, reversing
losses and fragmentation of critical ecosystems and further declines in the biodiversity
which they support; and slowing the loss of green space caused by urban sprawl. There is
also growing concern about the widespread presence of chemicals in the environment (Box
2.1).
Box 2.1 Chemicals in the Environment
In OECD countries the production, consumption and trade of chemicals and chemical
products has grown steadily and is projected to continue to grow through 2020 roughly at
the same rate as GDP. However, production in OECD is expected to shift from high volume
basic chemicals to speciality chemicals and products derived from the life sciences.
Production in non-OECD countries will grow faster than in OECD countries; the main reason
is that much of the production of basic chemicals will shift to these countries. The
chemicals industry in OECD countries has made significant progress in reducing the
release of pollutants to the environment during the manufacturing process. Pollutant
Release and Transfer Registers have been an innovative instrument in achieving this in
addition to regulation.
Major concerns exist about the impact on the environment and human health of substances
produced by the chemicals industry, which are found in virtually every man-made product.
Many are being detected in the environment, where particular problems can be caused by
persistent, bioaccumulative and toxic chemicals. Concern is growing, for example, about
chemicals which can lead to endocrine disruption and which persist in the environment.
Priority is given to filling the immense knowledge gap about chemicals on the market. A
scientific, rules-based approach requires information on the effects of chemicals and
chemical exposure as the basis for risk management decisions. A variety of instruments
including economic incentives, voluntary approaches, and regulations can be used to
encourage the development of better chemicals information. Where such information is not
available, more and more countries will take a precautionary approach. In addition,
governments encourage industry to make also safety, and not only efficacy, an important
factor in the design of chemicals, so that “sustainable chemistry” can be achieved.
Source: OECD, (2001f)
55. Emissions of greenhouse gases continue to grow. Global warming is a reality,
according to most scientific evidence. Scientists believe that global warming is a result
of human activities, particularly the burning of fossil fuels, but also from converting
forestland to othe

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