OECD warning over falling public investment

By on 20/07/2017
The OECD believes its members should increase investment in public projects such as London's Crossrail link (Image courtesy: Draceane).

The world’s leading developed countries should increase public investment in areas such as infrastructure and education after seven years of steady decline.

That is the central recommendation of the OECD’s 2017 Government at a Glance report, which compares the public sector performance of major economies during 2007-2016 – including the period after the 2008 global financial crisis.

Public investment by the members of the Organisation for Economic Cooperation and Development – 35 largely wealthy, democratic and free market countries – declined steadily from a peak of 9.3% of government spending in 2009 to 7.7% in 2015, the organisation’s fifth biennial study found.

The largest share of public investment among member countries – one third – now goes into areas like transport and energy, while 15% goes on defence.

“Countries should now seek to correct the steady decline in public investment since 2009,” the OECD said in a statement as it released the report last week. “Restoring public investment in areas like infrastructure, technology, green energy and education should have a positive impact on future employment and healthcare.”

Governments could generate further savings to channel into much-needed public investment by making further efficiency and productivity improvements and focusing on key areas such as public procurement in the health sector, the organisation said.

In other areas, governments have responded in a variety of ways to the new demands they have faced in the wake of the crisis, with many raising spending on social services, some cutting public sector employment and most stabilising running costs at a lower level, the study found.

Government spending averaged 40.9% of GDP across OECD countries in 2015 – up from 38.8% in 2007 – with France the biggest spender in 2016, at 56.5%, and Mexico the lowest in 2015 on 24.5%.

Government jobs as a share of total employment remained steady in the average figure for OECD countries, accounting for 17.9% in 2007 and 18.1% in 2015.  But the proportion fell by around 2.8 percentage points in the UK and Israel, while increasing by a similar amount in the Czech Republic, Estonia and Hungary.

Ageing populations and high unemployment drove social costs up from 37% of total spending in 2007 to 41% in 2015, but governments used cost-cutting and efficiency measures to reduce running costs from 39% to 37% over the same period.

Other key findings include:

  • The share of citizens voicing confidence in their governments across the group fell from 45% in 2007 to 42% in 2016. Chile, Finland, Greece and Slovenia faced the greatest loss of trust.
  • The use of spending reviews has jumped since the financial crisis, with 23 OECD countries using them in 2016 – up from 16 in 2011.
  • The use of digital government services has tripled in OECD countries since 2006, with around 36% of citizens submitting forms on-line in 2016.

“Economic growth is slowly picking up in the OECD area,” the report states. “But the backlash against globalisation is real and must be addressed by governments. Confidence in public institutions is low and the perception that public policies favour select interest groups has increased sharply.”

Strengthening integrity, establishing open and participative policy-making processes and boosting governments’ capacity to choose the most appropriate policies are the key to reconnecting them with their citizenry and fostering more inclusive and sustainable growth, it says.

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See also:

OECD warns of falling Dutch overseas aid

70 countries sign OECD tax evasion treaty

OECD chief calls for urgent measures to foster ‘inclusive’ globalisation

Falling commodity prices must prompt reforms in Latin America, says OECD executive

About Liz Heron

Liz Heron is a journalist based in London, who specialises in international news. She worked on daily newspapers for 16 years, reporting extensively on both general news and education. She was Education Editor of the South China Morning Post in Hong Kong and has contributed to a wide range of British media including The Independent, The Guardian and the BBC.

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