The challenges faced by OECD

OECD is an organization that concern on the communication and cooperation between the governments and the organization itself in order to share experiences and to come out with a solution for every crisis. Usually, the solution of the discussion between the organization and government will become policies which they will promote around the world. There are a lot of challenges faced by OECD in order to achieve their mission to create a stronger, cleaner and fairer world economy.

The members of OECD are the largest oil consumer accounting for 59% in year 2002 and will decrease to 47% in year 2030. Figure 1 shows the oil import dependence of OECD countries according to regions. OECD has done the economic analysis and has observed the decrease in oil consumed by the OECD countries during these last decades. Based on the figure 1, this situation occurs mainly because of the emerging of the other countries such as China and India. The oil demand from China and India are increasing throughout the last decades in order to accommodate with their fast growing countries.

Figure 1 Oil Import Dependence (Source: IEA / OECD)

Although there are a few of OECD countries that can produce their own oil, it is still not enough to accommodate their needs because of the shortage of reservoirs. Half of the combined world proven oil and gas reserves are located in the Middle East that contributes 70% of the total increase in production of oil. The shortage of reservoirs can cause the production of oil in OECD countries drop that leads to higher dependence on the OPEC countries for the oil supply.

The overly dependence on the oil produced countries is the biggest challenge faced by OECD countries. The economics of OECD countries is greatly depends on the world oil market, for example, if the OPEC countries decided to lower the production of oil, the price of oil will directly increase because of the high demand. This situation will certainly affect the economics of OECD countries where they need to spend a large sum of money to buy the oil in order to fulfil their need.

OECD has taken this problem into account where they finally had come out with many solutions that can be applied by the countries. There are many solutions and suggestions recommended by OECD such as to seek for diversity of oil import origin in order to reduce the dependency on the individual oil exporting countries. OECD also recommended their countries to import oil from the countries that are easily accessible in order to reduce the transport cost, time and improving supply security.

Besides the challenges on the oil and gas industry, OECD also faced other challenges that are related with economic of OECD countries. Firstly, an unacceptably high unemployment rate happened to be a crisis in OECD countries. In order to overcome this crisis, OECD ministers have endorsed the Job Strategy recommendations. The OECD Job Study that is published in 1994 developed a wide-ranging strategy for reducing high and persistent unemployment and increasing living standard that can be applied by countries around the world.

The second challenge that is related with economic of OECD countries is to sustain the economic growth. Due to the financial crisis faced by the world, there are risks such as stagnation that might occur because of the persistent deterioration of the structural and business environment. Thus, OECD countries need to unleash new sources of growth and new policies to prevent economic depletion from happen. The new policies also should contribute to making the economy greener.

The third challenge is to improve the fiscal consolidation. Fiscal consolidation is a policy used to reduce deficits and the accumulation of debt where it is refer to a government economic policy. OECD has observed that the government debt is set to rise to above 100% of GDP in OECD countries. In order to prevent this from happen, OECD countries need to make a progress in fiscal consolidation to stabilize high government debt. Fiscal consolidation also can be improved by structural reform, for example, the increase in employment rate through structural reform could improve government budget balances.

The next challenge is that OECD countries need to deal with global imbalance. The imbalances is widening as the global economy recover but the composition of the imbalance is always changing. For example, China possesses a current account surplus that is well below pre-crisis peaks due to adverse trade movement and poor export performance while the current account surplus for oil producing countries is rising due to high oil price.

For the past few years, OECD countries are concentrating on research and development to improve the economic performance where they have spent a lot of money to invest in this field. There are also a lot of challenges on the research and development field. The first challenge is to drive the innovation in the service sector such as transport and communication, insurance, real estate and health care, etc. Through the innovation of the service sector, it will create more jobs compared to manufacturing industries.

However, the innovation in the service sector is less than manufacturing and due to this situation, OECD has recommended their countries to strengthen the link between service firms and public research institute to come out with a solution. The second challenge is to reform public research system. The function of public research system is to make it easier for them to work more closely with industry. OECD recommends the government to increase the public/private partnership and supplies of skilled scientists and engineers.

The last challenge is to utilize the expanding potential of multinational enterprises. The multinational enterprises play a great role in the economics of OECD countries such as the sharing of manufacturing output and employment in foreign affiliates. OECD recommended that government should take action to benefit from globalization such as strengthening links with R&D institution in other countries.

As a conclusion, OECD has faced many challenges on many sectors in order to improve the economic performance of their country members. As discussed above, there are a lot of challenges based on each of the sectors and the sectors are oil and gas industry, economics and research and development field. OECD countries have also applied the methods to overcome the challenges that are recommended to them.