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An innovative public sector?

22 November 2014

Click for details of the forum on public sector innovation

Today’s post is by Hannah Kitchen, Policy Analyst in the Observatory of Public Sector Innovation (OPSI), of the OECD Public Governance and Territorial Development Directorate.

Last week over three hundred people from the public, private and civil society sectors descended on the OECD in Paris. Why? To discuss an innovative public sector. For some of you that might sound like an oxymoron, but over two days stereotypes were left at the door as participants shared stories and learnt about innovation in the public sector.

The conference on Innovating the Public Sector: from Ideas to Impact showcased the public sector at its best. Innovators from around the world stood on stage to give short, dynamic talks about what they were doing at home. There were talks about evidence and innovation in the United States; about police using social media in Iceland; and one about reducing visa applications in Turkey to three minutes online.

Participants also rolled up their sleeves to experiment with innovative approaches for policy making. They tried out design for public services, by mapping their own journey to the OECD and considering how it could be improved. They heard from policy makers from Chile to the United Kingdom, who shared their stories about how they are using innovation labs to build experimental, practical spaces to trial new ways of working and share what works.

Despite all this enthusiasm, the overwhelming consensus was that innovation in the public sector is still no easy feat. It’s difficult to get support from above, it’s difficult to have the time and space to come up with innovative solutions, it’s difficult to find the resources for unproven approaches, and it’s difficult rally others.

Over the past couple of years the OECD has been working with countries to develop the Observatory of Public Sector Innovation, to help them make the most of innovation. The Observatory puts the experiences of innovators from across the world at everyone’s finger tips. Want to know how the Icelandic police actually made social media work for them; or a Finnish hospital used service design to develop a better, more user friendly hospital? The Observatory contains hundreds of examples from across the OECD about how public services are developing more effective, innovative services.

It shows how countries are innovating across the whole policy making process. They are opening up policy making, so that a broader range of actors can shape policies. One way that they are doing this is by making the most of technological developments. Austria for example, is designing new strategies by crowdsourcing comments, advice and ideas from the public demonstrating how governments can involve a wider range of perspectives to source innovative ideas.

The Observatory also demonstrates that innovation is as much about the journey as the results at the end. That means rethinking how to design new services and embracing experimental approaches, prototyping, and trial and error. Public organisations need more agility, more testing and more experimenting on a small scale before investing large sums to roll out a new policy or service. In the United Kingdom for example, the use of randomised control trials is providing real evidence on the results of policy interventions on a small scale, providing a clear evidence base for action. In Australia, the Concept Lab allows the government to trial and fully evaluate potential improvements to services for families, the unemployed, care givers and parents under actual workplace conditions prior to wider roll-out.

Perhaps most importantly, the Observatory also highlights how innovation is resulting in better solutions for citizens, by responding to citizens’ needs, moving the services to them. In France, unoccupied rooms in housing are being used so that the elderly can share flats with others, at once reducing their social isolation and making use of existing underexploited resources. In Sweden, parents can now access information about their child benefits directly from their phone through an app, which also includes up-to-date information for all citizens on their old age pensions.

The Observatory is also an innovation in itself. It was built with an agile, staged approach. Users in countries were involved throughout, testing and retesting prototypes to ensure that it delivers on user needs and to enhance the user experience. More importantly it is a direct interface with innovators themselves – from local schools and hospitals to central government offices – anyone working in the public sector with a story to tell about innovation can use the Observatory to reach an international audience. Through its interactive features users can make their views heard by voting in regular polls, discuss with other users to learn about their experiences, ask questions, and even create their own groups for collaborative projects.

It is just at the beginning of its story. Over the coming months and years we hope that many more people across the public service and beyond will use the Observatory to interact with others and share their examples of innovation.

Have a glimpse of Observatory by watching this video:

The Ripple Effect: Water-Energy-Food Nexus

21 November 2014
by Guest author
Click to find out more about the Global Forum on Environment

Click to find out more about the Global Forum on Environment

Today’s post is by Naazia Ebrahim of the OECD Environment Directorate

In Rule of Experts: Egypt, Techno-Politics, Modernity, Timothy Mitchell tells how in 1942, an epidemic of gambiae malaria in Egypt was caused by a perfect storm of interactions between rivers, dams, fertilisers, food webs, and the influences of World War II. It began with the building of the Aswan Dam and its storage reservoirs around the Nile, which provided the anopheles mosquito with new breeding spots. Thanks to the dams, basin irrigation was replaced by perennial irrigation, encouraging a denser population of humans who no longer needed to disperse to avoid flooding. Government protectionism on behalf of the sugarcane industry then helped it expand at the expense of food-growing lands, while new irrigation techniques led to reduced soil fertility. When ammonia was diverted from fertilizer to explosives manufacturing for World War II, the resulting malnourishment and closely populated settlements created an easy target for this particularly social mosquito.

Splitting technological, agricultural, epidemiological, and geopolitical considerations into separate boxes led at least in part to the epidemic. The engineers building the dam could never have imagined the ripple effects their work created. But today, we know better (well, somewhat at least: it’s worth noting that deforestation has been strongly linked to the Ebola epidemic). And, with studies estimating that the global demand for water, energy, and food will increase by 55%, 80%, and 60% respectively by 2050, those ripple effects are going to be all the more critical – especially between these three areas .

Risks in one sector often correlate with risks in the others – but equally often, decreasing the risk in one sector causes it to increase dramatically in others. Figuring out how to provide enough water for wheat farming, hydropower generation, and maintaining local ecosystems, while still decreasing carbon emissions, is not an easy task.

The world is facing unprecedented stresses, and we are going to need an unprecedented response. We’re doing our best to help create that response at the OECD. Next week we’re hosting a forum on the nexus between water, energy and food. We’re looking forward to discussing (with senior private sector leaders, policy experts and government officials) ways to manage these trade-offs, co-ordinate planning across sectors, anticipate unexpected developments, engage business, and minimise risks across all three sectors. If we get it right, there’s potential for huge collaborative gains.

During all this work, it’s worth remembering that the malaria epidemic was often framed as one of intelligence versus nature. But intelligence and technological advancement were not created through externally imposed “solutions”. Rather, they were developed iteratively by engaging and interacting with the challenges. We have no doubt that the same will be true here.

Useful links

OECD work on Biodiversity, water and natural resource management

Export restrictions: facts, fallacies and shovels

20 November 2014

export restrictionsFollowing the twin discovery that governments were composed of politicians and that politicians mostly don’t look much beyond the next election, the OECD created the International Futures Programme (IFP) to encourage long-term thinking. A few years later, the UK government decided to set up a foresight unit, and in 2004 I went as IFP representative to a meeting in London where holders of stakes in different industries discussed what strategic thinking meant to them. It was much as you’d expect, with the oil industry explaining that they worked on a 50-year horizon, the pensions industry even longer, the finance industry losing interest after two seconds and going to look for something more exciting… The one surprise was the chief economist of a big mining company. “We don’t bother with strategic planning” he explained. “We get all we need from geological surveys and the market. So if the price of copper, say, is going up, we dig till there’s none left then move elsewhere. If it’s going down, we lean on our shovels until it goes back up again”.

I’d like to say they went bankrupt shortly after, but looking at the company’s performance, this charmingly down to earth approach seems to work well. At least if you already own a big enough share of the things your business depends on and everybody else needs them. That is practically never the case though for any firm, or even for a country. So as a new OECD report on export restrictions points out, since “no country is self-sufficient in every raw material, it follows that virtually all countries are vulnerable to any attempt to restrict the export of at least some commodities.”

And yet, the use of export restrictions seems to have increased over the past decade. The OECD Inventory of Restrictions on Trade in Raw Materials lists over a dozen ways this can be done, but the three most common are making exporters apply for a permit, putting a tax on exports, and restricting the quantity of a product that can be exported. All raw materials sectors are affected, from minerals and metals to forestry and agriculture products.

Emerging and developing countries use export restrictions most, although they’re not the only ones. But their citizens can suffer the most. Oxfam puts it like this: “you might think that governments would take urgent action to address fragility in the food system. But […] Governments often exacerbate volatility through their responses to higher food prices. In 2008 the global food system teetered on the edge of the abyss as, one after the other, more than 30 countries slapped export restrictions on their agricultural sectors in a giddying downward spiral of collapsing confidence”.

So why do they do it? The idea is that by restricting exports, more of the product is available on the home market, making it cheaper than it would be otherwise for local firms, thereby helping them to grow and compete on world markets. (Except for the producer of the restricted commodity). This probably works wonderfully well in countries with large reserves of iron ore whose principal activity is manufacturing lumps of iron in home-made forges for the weightlifting trade. And on the assumption that all its trading partners let it do this and don’t put up the price of anything in retaliation.

Because once you start getting into more sophisticated products, the advantages of export restrictions disappear. These days, final products rely heavily on the so-called “intermediate products” used to make them, sourced from the world’s global value chains. They can be high-tech items such as computer chips or very low tech, like wood planks, but more often than not they’re imported. The new OECD report describes an analysis of the impact in a number of sectors of what would happen if export taxes were simultaneously removed on steel and steelmaking raw materials. It finds that “When regions that apply export taxes remove these in coordination with similar action by trading partners, their downstream industries actually benefit.”

In their report mentioned above, among the solutions Oxfam proposes in relation to food, are “increasing transparency in commodities markets, setting rules on export restrictions” (they also call for “an end to trade-distorting agricultural subsidies”). This sounds very similar to the OECD report’s call for “better control, and more transparent use, of export restrictions”. The OECD report goes further though and looks at what alternatives are available to countries thinking of applying (or lifting) export restrictions. Chile for example, rather than concentrating on downstream processing, promotes a range of less capital-intensive and less energy-intensive intermediate goods and services industries linked to mining operations, as do a number of other successful minerals-rich countries.

Finally, this just in. Since I started writing today’s post, I’ve learned that my intro about the different sectors is sooo 2004 and the miner and the trader can be friends. A bipartisan report is to be presented to the US Senate today and tomorrow on Wall Street bank involvement with physical commodities. I feel like quoting whole pages of it in full, but in essence: “Since 2008, Goldman Sachs, JPMorgan Chase, and Morgan Stanley have engaged in many billions of dollars of risky physical commodity activities, owning or controlling, not only vast inventories of physical commodities … but also related businesses, including power plants, coal mines, natural gas facilities, and oil and gas pipelines.”.

I used the copper example, and so do Senators Levin and McCain and their colleagues: “JPMorgan built a copper inventory that peaked at $2.7 billion, and, at one point, included at least 213,000 metric tons of copper, comprising nearly 60% of the available physical copper on the world’s premier copper trading exchange, the London Metal Exchange (LME).” I quoted the homely image of a man and his shovel, and the Senators quote how even these days, market making isn’t all laser beams to transfer data and fancy algorithms to do high frequency trades: “Goldman approved “merry-go-round” transactions in which warehouse clients were paid cash incentives to load aluminum from one Metro warehouse into another, essentially blocking the warehouse exits”. But where we talk abstractly about risk, our men on the Hill cite “injuries, an international incident, or worse”.

That’s the world some policy makers think they can manipulate with export restrictions.

Useful links

OECD work on international trade

International trade: free, fair and open? (OECD Insights)

Dial D for Development

19 November 2014

Development aid?

Not much good has come from the Ebola crisis, save this: It has raised awareness of the fact that we already have a weapon in our hands that could help fight such epidemics – our mobile phones.

There’s already evidence to show that the idea can work. Following the earthquake and cholera outbreak in Haiti in 2010, for example, “call-data records” from mobile phones were used to track people’s movements, so allowing experts to “infer, with empirical data and in real-time, where people are, and how many, and where they are probably headed,” according to The Economist. That’s vital information in health crises, where epidemiologists need to know if people are moving into or out of highly infected areas.

The technique has been also been used to follow people’s movements in the wake of natural catastrophes, for example after the 2011 earthquake in Japan. And there’s growing interest in seeing how it could be used to track survivors of extreme weather events, such as Typhoon Haiyan in the Philippines, especially as climate change threatens to raise the frequency of such disasters.

But there’s a problem. Even if such tracking methods don’t involve eavesdropping on callers’ conversations, they do involve a breach of their privacy. And in the case of the Ebola outbreak, that seems to have been a major obstacle in preventing mobile operators from releasing their phone records.

There’s also the problem that for everyone involved – mobile operators, government regulators and researchers – this is still somewhat uncharted territory. There’s a general recognition that call-data records have potential to ease suffering during epidemics and after calamities but, as The Economist again notes, “the data are unlikely to be released without stronger leadership that brings together operators, regulators and researchers”.

Still, even if the Ebola crisis has highlighted what remains to be done, it’s impressive to see the ways in which mobiles are already being used to collect data in developing countries. Perhaps that shouldn’t be a surprise. After all, according to the International Telecommunications Union, mobile-phone penetration now approaches 90% in developing countries (and 69% in Africa). This doesn’t mean that nine out of ten people have handsets. But even setting aside all those people and businesses with second or third phones, it’s clear that unprecedented numbers of people now have a device in their pocket that’s not just a phone but also a powerful little computer.

That’s potentially important for developing countries, many of which lack the infrastructure and personnel to compile adequate statistics. As the World Bank’s Shanta Devarajan has noted, widely cited poverty data for Africa for 2005 relies on robust statistics from just 39 of the continent’s countries, with only 11 able to supply comparable data for the same year.

These data holes make it difficult to measure progress and to identify priorities for development. In response, there have been growing calls for a “data revolution”, which would require action on a range of fronts, including greater investment in government statistical offices in developing countries and making better use of “Big Data” and innovative technologies, like mobile phones.

Encouragingly, there are signs that some of this is already happening. For example, an SMS-based survey in Tunisia investigated remittances, an area where hard facts are notoriously scarce and where estimates of how money migrants are sending back home are just that – estimates. It found that more than a quarter of remittances are sent back by hand, more than the total sent via Western Union. Insights like that could help to provide more accurate data on what is an important source of income in many developing countries.

Mobile phones are also being used to “crowd source” data on price changes, which, as Gillian Jones reports, can be used to “compile near real-time consumer price inflation data”. Local residents take photos of price tags in shops and markets and send them to a central data store. There, they are analysed to provide data on price changes as well as scarcities. Field agents are paid a few cents for each photo they send, but that can add up to an income of as much as $25 a month. And how are they paid? Over their phones, of course.

Useful links

Global Call for Innovations: The Partnership in Statistics for Development in the 21st Century (PARIS21) has launched a global call for innovations to highlight organizational approaches and new technologies to help realise the data revolution. It is seeking case studies in crowd sourcing; data management; monitoring and reporting; open data; real-time data; remote sensing; research standards; visualization; skills development; and technical infrastructure.

Informing a Data Revolution and the Innovations Inventory – PARIS21

Clean water, cold vaccines, cell phones = a simple way to save lives (OECD Insights blog)

OECD Insights: From Aid to Development – The Global Fight against Poverty


International investment in Europe: A canary in the coal mine?

17 November 2014
Brussels, we have a problem

Brussels, we have a problem

In today’s post, Michael Gestrin of the OECD Directorate for Financial and Enterprise Affairs looks at whether declines in the EU’s flows of foreign direct investment (FDI) simply reflect a particularly severe FDI cycle or whether there might also be structural factors involved.

At the start of the 2007 crisis, global foreign direct investment (FDI) stocks actually declined, and even today, global flows of FDI are still 40% below their pre-crisis peak. Generally, OECD countries were the sources of the biggest declines while many emerging economies experienced increases in FDI flows. Europe has been one of the worst affected regions. EU inflows are down 75% and outflows are down 80% from their pre-crisis levels.

Inflows into the EU are currently around $200 billion, down from $800 billion at the peak of the global FDI cycle in 2007 (see figures). Outflows are also currently around $200 billion, down from $1.2 trillion in 2007. For the rest of the world, a global economy “without” the EU is doing quite well. In this global economy, inflows recovered strongly starting in 2010 and reached new record heights in 2011, at just over $1.2 trillion. With respect to outflows, the FDI crisis was limited to a one-year decline of 20% in 2009. Although world-minus-EU outflows have not grown over the past three years, they have been at record levels.

Part of the strong performance of the world-minus-EU can be explained by the growing importance of the emerging markets, in particular China, as sources and recipients of FDI. In 2012, emerging markets received over 50% of global FDI flows for the first time, and China is now consistently among the world’s top three sources of FDI.

The crisis initially gave rise to a significant gap between the non-EU OECD countries and the rest of world with respect to both inflows and outflows, just as it did for the EU (see figures). A big difference, however, is that for the non-EU OECD countries the gap closed after only two years. While the EU and the world-minus-EU group have been going in different directions ever since the start of the crisis, the non-EU OECD group and its rest-of-world counterpart appear to have returned to a similar cycle after parting ways for a much shorter period during 2008-9.

Comparing the EU and non-EU-OECD shares of world inflows and outflows highlights the extent to which the positions of these two groups have reversed in recent years (see figures). At the turn of this century the EU accounted for over 50% of global inflows and 70% of global outflows. By 2013 both shares were down to 20%. Conversely, the non-EU-OECD countries have seen their shares of global FDI inflows and outflows recover to pre-crisis levels. This group overtook the EU in 2010 in terms of its share of both inflows and outflows, thus reversing the historical relationship.

Why? The greatest declines in inward FDI in the EU have been from within Europe itself (see figures). Before the crisis around 70-80% of the region’s inward FDI consisted of intra-EU investment. Today only 30% of inward FDI is intra-EU. This sharp decline in the share of FDI that EU countries receive from their EU neighbours also helps to explain the decline in outward EU FDI.

The decline in the share of intra-EU in total EU inward FDI would seem to suggest a lack of confidence on the part of EU investors in their own regional market. One tempting explanation for this is that these declines have been concentrated in a sub-set of EU countries that have experienced particularly difficult economic conditions (such as Greece, Ireland, Portugal, and Spain) during the crisis.

This has not been the case. The FDI crisis in Europe has been broad-based, with the bulk of the declines in FDI flows concentrated in the largest economies. France, Germany, and the UK accounted for 50% of the $600 billion decline in FDI inflows between 2007 and 2013. Over the same period, Greece, Ireland, Portugal, and Spain accounted for only $14 billion, or 2%, of the inflow decline. With respect to outflows, France, Germany, and the UK accounted for 59% of the $1 trillion decline between 2007 and 2013. Over the same period, Greece, Ireland, Portugal, and Spain accounted for 12% of this decline.

Part of the explanation for the decline in investment in Europe is linked to an increasing share of international divestment relative to international mergers and acquisitions (M&A, see figures). While pre-crisis levels averaged around 35%, they reached almost 60% in 2010-11 and now stand at around 50%. In other words, for every dollar invested, 50 cents is divested. Consequently, net international M&A investment in Europe is currently at its lowest levels in a decade, at around $100 billion.

The clear “leader” in this regard is the consumer products segment, with a divestment/investment ratio of 148%. This means that for every dollar invested in consumer products over the past six years, around one and a half dollars was divested. This is an example of investment de-globalisation. Domestic and international M&A in Europe have generally followed the same pattern: both are on track to reach their lowest levels in a decade (see figures). Conditions that are holding back international investment in Europe would seem to be discouraging domestic investment as well.

From a policy perspective, the challenges of breaking out of this regional investment slump are daunting but urgent. A useful starting point is the recognition that a supportive environment for productive international investment needs to reflect the evolving needs of international investors. Such a supportive environment has three dimensions.

First, investors generally favour predictable, open, transparent, rules-based regulatory environments, much along the lines put forward by the OECD’s Policy Framework for Investment. Where impediments to investment have not been addressed by governments this often has more to do with implementation challenges rather than disagreement over principles. For example, it is widely accepted that excessive ‘red tape’ is an obstacle to investment but in many countries this is still often cited by business as being one of the most important impediments to doing business. In Europe, many such impediments represent relatively easy opportunities for improving the regional investment climate.

The second dimension concerns important changes in the structures and patterns of global investment flows as well as in the way MNEs are organising their international operations. This is reflected in investment de-globalisation and “vertical disintegration” which has seen MNEs become more focused on their core lines of business over time and more reliant upon international contractual relationships for organizing their global value chains.

Finally, Europe would seem to be confronting a competitiveness puzzle in which declining competitiveness is discouraging investment, and declining investment is in turn undermining competitiveness. A few years ago, OECD Secretary General Angel Gurría outlined six policy recommendations for getting Europe back on a sustainable growth path that also hold for investment:

  1. Further develop the Single Market.
  2. Ease excessive product market regulation;
  3. Invest more in R&D and step up innovation.
  4. Make sure that education and training institutions deliver highly sought after skills.
  5. Increase the number of workers participating in labour markets and make markets more inclusive to address social inequalities.
  6. Reform the tax system, including by reducing the tax wedges on labour.

Useful links

Foreign Direct Investment (FDI) Statistics – OECD Data, Analysis and Forecasts


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