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The size of the reversal of the supercycle is bigger than you think: And too big to be dealt with by monetary policy in advanced economies

27 May 2016
by Guest author

2016-BFO-cover-350Adrian Blundell-Wignall, Director, OECD Directorate for Financial and Enterprise Affairs, Special Advisor to the Secretary-General on Financial Markets

The real economy will always seem to be disconnected from the financial economy during periods when the need for structural change is so overwhelming that it can hardly be otherwise. We have had the easiest monetary policy of any historical era outside of hyperinflations, and productivity fails to grow, economic activity is weak (particularly in Europe and China) and there is no sign of inflation. The 2016 edition of the OECD Business and Finance Outlook addresses the three main causes of this:

  1. The size and impact of the reversal of the supercycle centred on emerging economies.
  2. The problems with company productivity and growth in a global excess capacity situation.
  3. Forcing a zero time value for money onto investors distorts financial investment and works against long-term investment.

We focus on the first of these in this first taste of the 2016 Outlook to be released on 9 June 2016.

Many commentators simply do not seem to understand the sheer size of the supercycle now in reversal.

Two different economic systems butting are up against each other. The group of emerging economies, now comprising around half of the world economy, is not open and (via financial repression) has built up massive savings over a short period of time. These savings have been forced into investment with a heavy role of state industrial policy. Indeed, some very large economies are behaving as though they too can develop just like the small Asian Tigers in the post–1945 period. The other group of more open market based economies is responding to the reversal of the supercycle and other structural factors (such as the failure in some regions to deal with huge bank non-performing loan problems up front) mainly with monetary policy. But little is happening.

This is not so surprising. How big was this saving and investment rise? The sum of the world’s national saving (and investment) since the early 2000s has risen a startling 225%. Most of this occurred in a single country, China.

This investment in emerging market economies (EMEs) has created massive overcapacity in the supercyle sectors, like steel, aluminium, cement, energy (particularly fossil fuels), transport (especially shipping), utilities and similar.

How do we know this other than by industry anecdotes and anti-dumping duties being imposed on emerging country’s exports, such as steel and aluminium?

Well, let’s have a look at the return on equity (ROE) based on 11,000 non-financial companies versus their cost of equity (COE) and their cost of capital (COK):

Excess capacity: ROE-COE and ROE-COK in advanced and emerging economies.
Declining in advanced economies; out of control in emerging economies.

ABW-blog-Fig1Note: See Chapter 2 of the OECD Business and Finance Outlook 2016 for lists of advanced and emerging economies.
Source: OECD calculations, Bloomberg.

The ROE-COK is negative in EME companies, and spectacularly so versus the COE (which means managers can’t add value for shareholders). This is pulling down ROEs in advanced countries too.

Just how big is this supercycle investment? If only one point is to be taken from this year’s Outlook, let it be this: the size of investment related to the supercycle is much bigger than you think and its reversal is having an impact that monetary policy in advanced countries cannot hope to cope with.

Let’s look at the facts from the world’s largest companies. The figure below shows global capital expenditure by sector. The energy and materials sectors alone account for 40% of the total. This is now in decline with links to many other sectors.

ABW-blog-Fig2

Source: OECD calculations, Bloomberg.

The energy and materials sectors alone rose to 40% of capital spending of the 11,000 biggest global companies (shown in blue and grey). These are huge sectors. Energy consists of oil, gas, drilling, oil and gas equipment and services, exploration, refining, storage, transportation, coal and consumable fuels. Materials consists of chemicals, fertilisers, industrial gases, construction materials, metal and glass containers, paper packaging, aluminium, diversified materials and mining, gold, precious metals and minerals, forest products and paper products.

If industrials and utilities (for the energy to drive all this) are added, the numbers rise to 60%. The supercycle sectors have a huge derived demand for inputs and services from other sectors, so that the linkages go even further than this.

Now, capital spending in all of these sectors and their demand for goods and services from other sectors is in decline. Chinese growth collapsed in 2014-2015, and, from late 2015, it is repeating the mistakes of 2009; it is embarking on a new real estate shantytown rebuild funded by state-owned enterprise bank credit.

What does this do? Once more it raises demand in the supercycle sectors and delays the much needed creative destruction phase. Local government steel, cement, aluminium and other factories in each province (all too big to fail) have no incentive to exit.

The reversal of the supercycle and the sheer size of what is happening is such a massive headwind that it is overpowering easy monetary policy.

Monetary policy has nothing to say about the sectoral misallocation of resources and excess capacity in the global industrial sectors; and certainly not in countries largely cut off from the discipline of openness and market forces.

The Outlook analyses this in some detail and then delves into the problems with company productivity in the excess capacity world since the crisis. It looks at what the companies that adjusted to the shock of the crisis did in terms of key corporate finance decisions, which helped them to negotiate this difficult post-crisis world. These companies are compared to those that didn’t adjust and are now part of the problem. It then looks at the portfolio consequences of setting a zero time value for money.

Watch out for the next blogs on these topics, but above all come and discuss the full publication being launched on the 9th of June.

Useful links

Business-Finance-Outlook-20126-callout-350The launch of the 2016 OECD Business and Finance Outlook takes place at 9.30am CET on 9 June 2016. Register to participate or watch the live webcast www.oecd.org/daf/oecd-business-finance-outlook.htm

 

 

The 2016 OECD Forum on 31 May – 1 June, is entitled “Productive economies, Inclusive societies”. The Forum is organised around the three cross-cutting themes of OECD Week: inclusive growth and productivity, innovation and the digital economy, and international collaboration for implementing international agreements and standards.

OECD Compendium of Productivity Indicators 2016: How far that little candle throws his beams

26 May 2016
by Guest author

OECD Statistics Directorate

Productivity, productivity, wherefore art thou?  (Romeo and Juliet: Act 2, Scene 2)

Four hundred years after the death of Shakespeare there remain many misconceptions about what he wrote. Perhaps the most common concerns the adulterated quote above, which is actually a reference to why Romeo was a Montague rather than where Romeo was. In the same spirit of confusion, recent years have seen considerable debate about the causes of the productivity slowdown seen across OECD countries.

This year’s OECD Productivity Compendium includes a special chapter that casts a spotlight on some of the potential villains stalking the stage, together with insights from the OECD Productivity Database, and frames the discussion under the umbrella of the Productivity Paradox: a reference to the fact that productivity has slowed during a period of significant technological change, increasing participation of firms and countries in global value chains and rising education levels in the labour force.  Indeed, the advent of digital innovations such as Big Data was expected to have sparked off a new wave of productivity growth, similar to those seen in the past, for example, as a result of electrification in the early 1900s and the ICT wave in the 1990s.

However, this has not yet materialised, raising a number of still largely open questions, ranging from potential lagged effects of these new technologies, a thinning out of new ideas (Gordon, 2012) to a breakdown of the ‘diffusion’ machine (OECD, 2015), right through to measurement.  Indeed, against a backdrop of increases in income and wealth inequalities, concerns have emerged that this may reflect a structural, and not a cyclical, slowdown, with consequential impacts on well-being and long-term growth; hence the theme for this year’s OECD Ministerial meeting and OECD Forum : “Enhancing Productivity for Inclusive Growth” www.oecd.org/forum.

Double, double toil and trouble (Macbeth: Act 4, Scene 1)

But whilst all of these actors may in part explain the recent post-crisis productivity slowdown, often overlooked in the debate is that the slowdown in productivity is not a recent affair, a fact that even Macbeth’s witches may have struggled to foresee. The OECD Compendium of Productivity Indicators 2016 reveals that productivity growth began to slow well before the crisis; trending down since the early 2000s in Canada, the United Kingdom and the United States and since the 1970s in France, Germany, Italy and Japan (Figure 1).

Fig1-Productivity-G7.fw

Download graphs and data in Excel

Part of this downward trend in labour productivity can be explained by slower growth in multi-factor productivity (MFP), lending some weight to the arguments that technological spill-overs and diffusions from ICT and other new technologies may be lower than from earlier technology breakthroughs. But lower MFP growth is not the only source.  In many countries the contribution of capital deepening has also declined significantly, particularly in recent years.

Nothing will come of nothing (King Lear: Act 1, Scene 1)

Although King Lear uttered the words above to his daughter Cordelia to solicit overt affection, his words are now typically used to illustrate that without investment, neither growth, nor indeed productivity, will follow. The Compendium shows, for example, that the direct contribution of information and communication technology (ICT) capital goods to productivity reached its peak in the late 1990s and has gradually waned since then, significantly so in most countries (Figure 2).

Fig2-contribution-ICT-capital.fw

Download graph and data in Excel

And although the shares of ICT investment have held up reasonably well compared with other forms of investment, ICT investment as a share of GDP also remains below previous highs in many countries (Figure 3). Moreover, when measured and included, although knowledge based capital has held up better, it too has slowed in recent years and makes little change to the overall picture.

Fig3a-3b-ICT-investment.fw

Download graphs and data in Excel

Truth is truth, to the end of reckoning (Measure for measure: Act V, Scene 1)

One suspect behind the slowdown, well versed in having to deal with the ‘slings and arrows of outrageous fortune’ is measurement.  Indeed so prevalent is the view that measurement is at fault, particularly relating to the measurement of new disruptive (digital) technologies, such as Big Data,  and business models, such as AirBnB and UberPop, it has been given its own acronym, MMH, the Mis-Measurement Hypothesis.  The spread of digitalised applications has brought with it the provision of free services such as internet search capacity and media content and new business models, many of which are dependent on greater participation (i.e. labour input) by consumers.  But the consumer’s activity remains (by and large) outside of the GDP production boundary, and the free services received are not captured as household consumption, raising questions about a missing ‘consumer surplus’ from GDP.

However, whilst it is clear that digitalisation may have compounded long standing measurement issues, in particular the measurement of price change and so, in turn, volume measures used in productivity measurement, and where efforts to improve measurement continue, the evidence increasingly suggests that the MMH is, at best, only partially true.  Syverson (2016) for example shows that US GDP would have been around 15% higher in the third quarter of 2015 if the recent slowdown (post 2004) hadn’t occurred, swamping any potential unmeasured productivity growth and estimates of the consumer surplus, while Byrne, Fernald, and Reinsdorf (2016) show similar results.  Ahmad and Schreyer (2016)[1] further demonstrate that the GDP accounting framework is ‘up to the challenges posed by digitalisation’ and reinforce the distinction that needs to be made between GDP and welfare and indeed consumer surplus.

This is the short and the long of it (The Merry Wives of Windsor: Act 2, Scene 2)

In summary therefore the evidence suggests that the productivity slowdown is real and not a statistical phenomenon.  True as this may be, it is also true that attempts to identify the causes of the slowdown can be greatly facilitated by improved availability or use of firm-level statistics in analyses, in particular on intra-firm transactions, and improved data on investment by type of asset, occupations, and skills. So, although statistics are not at fault they continue to provide the best route for a solution to the paradox and the key for policies that can restart the productivity engine.

Useful links    

The OECD Productivity Database
The OECD Productivity Database contains a consistent set of internationally comparable data on levels and growth rates of labour productivity, hours worked, employment, capital services, multifactor productivity and unit labour costs for OECD countries and Key Partners. It also includes growth measures of labour productivity, hours worked, employment and unit labour costs by main economic activity. These series, available from 1970 onwards for some countries, are updated on a daily basis. Get real-time data at OECD Productivity Statistics (Database)

The 2016 OECD Forum on 31 May – 1 June, is entitled “Productive economies, Inclusive societies”. The Forum is organised around the three cross-cutting themes of OECD Week: inclusive growth and productivity, innovation and the digital economy, and international collaboration for implementing international agreements and standards. Register now, it’s free!

[1] Ahmad, N and P. Schreyer (2016), “Measuring GDP in a Digitalised Economy”, OECD Statistics Directorate Working Paper, forthcoming.

What do we know about how social protection systems can respond to needs during a crisis?

24 May 2016
by Guest author

WHSGabrielle Smith, Oxford Policy Management

In his report to the UN World Humanitarian Summit taking place this week in Istanbul, UN Secretary-general Ban Ki-moon writes that during crises: “social protection mechanisms and infrastructure may be unavailable or overwhelmed by the volume of demand. Those displaced in camps often survive on inadequate humanitarian assistance”. Unfortunately, the frequency, severity and length of humanitarian crises has increased over recent years. We have also seen increased levels of forced displacement. The rising cost of international assistance is widening the gap between humanitarian needs and international resources, bringing questions about aid effectiveness and critical appraisals of the humanitarian system to the fore. There is a growing realisation of the need for new approaches to humanitarian assistance.

Shock-responsive social protection systems are one such approach. Interest has been growing amongst practitioners and policymakers in the potential for a system that allows irregular humanitarian needs to be built into and addressed as part of longer-term development programming, through longer-term predictable funding sources and with greater engagement of governments.  The most effective ways of developing and implementing such a system for different contexts, and the implications for the humanitarian sector and national governments, remain unclear.

We have therefore conducted a thorough literature review, commissioned by DFID, the UK Department for International Development, to improve understanding of the interaction between social protection, humanitarian and disaster risk management systems, and to identify ways in which long-term social protection can be effectively scaled up to provide support in humanitarian emergencies.

This literature review of over 400 documents (scientific and grey literature) has consolidated current thinking and emerging evidence. Evidence comes from several countries such as Brazil, Vietnam and Indonesia, where social protection schemes were scaled up to support households affected by the food, fuel and financial crisis, as well as national social protection programmes that were scaled up to respond to needs caused by disasters such as droughts and typhoons – including in Kenya, Ethiopia, Malawi and the Philippines.

Social protection makes use of a number of different instruments: social transfers, subsidies, fee waivers, public works programmes, social insurance, active labour market policies and social care services. This review identifies the most natural overlap between social protection and humanitarian assistance as being social transfers provided as cash (and food). Cash assistance in emergencies is growing and cash transfers are a core building block of all emerging social protection systems. Emergency and social protection cash transfers have similar administration requirements, making transition from one to another relatively straightforward. The limited coverage of other policy instruments in low- and even middle-income countries limits their use as alternative responses to a shock. Key differences between emergency and social protection cash transfers, such as their objectives, underlying principles and assistance durations will, however, have a bearing on the ease and effectiveness with which social protection programmes can be scaled up to meet the needs of people affected by a crisis.

So far, government social transfer programmes have been scaled up during emergencies in three main ways. They have been expanded ‘vertically’ – increasing the benefit value or duration of assistance to existing beneficiaries – as well as ‘horizontally’, by adding new beneficiaries to an existing programme.  Vertical expansion has been easier to implement than horizontal expansion. In some cases, new social protection programmes have been introduced to meet needs that no existing programme could cater for. For an elaboration of these options and to learn more about a further two added by the research team, the concept note is available here.

The review finds clear evidence that scaling up national cash transfer programmes in emergencies can both improve the timeliness of assistance and provide cost efficiencies.

Some key challenges to scaling up social transfers identified by the literature include: Ensuring coverage of geographical areas that were not covered by the administrative system of the original long-term programme; how to avoid over-burdening the administrative capacity of existing staff and systems; ascertaining the best way to scale down again post-crisis; how to reach the worst affected groups using existing targeting mechanisms; and how to meet the needs of informal sector workers if they are excluded from social insurance and from most social assistance.

A number of important determinants of effectiveness emerge from the literature, including: links to an established early warning system, timely and accurate data on needs and vulnerability, well-developed systems for targeting, verification and disbursement of funds, institutional capacity to manage the increase, coordination through a single central agency, guaranteed financing to enable governments to invest and build systems and deliver a rapid response, and innovative partnership arrangements with public, private and non-state actors.

Useful links

lit reviewThe full literature review is available for download here from Oxford Policy Management’s website.

If you have any questions or would like to discuss this research with a member of the team, please contact Jenny Congrave at jenny.congrave@opml.co.uk.

The OECD Development Centre’s work on social protection systems
The European Union Social Protection Systems Programme (EU-SPS)  is a new European Union action co-financed by the OECD and the Government of Finland. The OECD’s Development Centre and the Government of Finland’s National Institute for Health and Welfare (THL) manage its implementation. The EU-SPS supports low- and middle-income countries in building sustainable and inclusive social protection systems. The programme will be implemented from 2015 to 2018 in partnership with national and regional social protection authorities, think-tanks and expert institutions in ten countries.

OECD work on humanitarian assistance

The crisis and its aftermath: A stress test for societies and for social policies from Society at a Glance 2014: OECD Social Indicators

Transferring transfer prices

23 May 2016
by Guest author

transfer pricingMelinda Brown, OECD Centre for Tax Policy and Administration and Ian Cremer, World Customs Organization (WCO)

International trade is one of the pillars of globalisation and one of the jobs of customs officers is to help trade contribute to socio-economic development by making sure that goods flow efficiently across borders. Ensuring that customs duties are collected in a fair, effective, and efficient manner is a major part of this task. But it is one that is complicated by certain trends shaping the international economy, including the emergence of global value chains (GVC) and the fact that a significant amount of the movement along GVC is intra-firm trade between the different parts of multinational enterprises.

It’s hard to say precisely how much of world trade occurs within multinational enterprises, since apart from the United States, countries do not collect the data needed to measure it precisely. Figures for the United States put intra-firm trade at nearly half of goods imports and nearly a third of goods exports. Partial data for 9 countries analysed in an OECD paper suggest that intra-firm exports of foreign affiliates represent 16% of total exports. Adding the exports of parent companies to their affiliates abroad suggests a figure of one third, as measured in US trade statistics.

When a firm is in effect selling something to itself, the price is called a “transfer price”. The transfer price used will have the effect of allocating profits among the different parts of the company, which in turn will determine how much tax the multinational pays and in which country. Most countries require that the transfer price is calculated based on “the arm’s-length principle”.  Broadly, this means that operations should be priced by comparing them with similar operations carried out on a commercial basis at market prices, as if the parties were independent entities – at arm’s length from one another.

This can be a lot more complicated than it sounds, and the OECD has produced Transfer Pricing Guidelines for Multinational Enterprises and Tax Administrations on the application of the arm’s length principle. Customs officials are also interested in the price of goods sold across international borders within MNEs, and the World Trade Organization’s Valuation Agreement sets out the methodology for establishing the customs value used to calculate customs duties. The Agreement provides tests for ensuring that the price is set as if the parties were not related and had been negotiated under normal business conditions.  So, while there are differences between the rules for customs valuation and transfer pricing, both aim at essentially the same goal, and therefore the information found in the transfer pricing documentation supplied by companies to tax authorities could also be useful for the customs authorities. Similarly, customs valuation information could be useful for tax authorities.

At the end of April, the World Customs Organization (WCO) announced a new instrument adopted by the Technical Committee on Customs Valuation (TCCV) that will help customs officials take into account transfer pricing information in the course of verifying that the tests set out in the WTO Valuation Agreement are met. This also helps a firm where they have already calculated the transfer price for the tax authorities, and the information provided may be helpful in demonstrating that the declared import price of a related-party transaction is not influenced by that relationship.

The TCCV instrument, which is based on a case study, can be downloaded on line. In the study, XCO, a manufacturer in country X, sells relays to its wholly-owned subsidiary, ICO, a distributor in country I. ICO imports the relays and does not purchase any products from sellers unrelated to its parent company. Likewise, XCO does not sell relays or similar goods to unrelated buyers. So how do you work out whether ICO and XCO were buying and selling at a “real” price and not one influenced by the fact that XCO and ICO are related? In the case study, the answer is found by using the company’s transfer pricing study, based on the Transactional Net Margin Method. What that means here is comparing ICO’s operating margin with those of similar, but unrelated companies doing similar business in the country.

In the case study, ICO’s operating profit margin fell within the range of those earned by the eight comparable unrelated distributors used in the transfer pricing study. ICO’s operating expenses were judged to be acceptable too, since they were paid to unrelated companies. The case study concludes then that “the relationship between the parties did not influence the price”. The conclusion notes that the use of a transfer pricing study for examining the circumstances surrounding the sale must be considered on a case-by-case basis.  The case will be published in the WCO Valuation Compendium, subject to approval by the WCO Council in July 2016.

Mr. Kunio Mikuriya, WCO Secretary-General, has congratulated the Technical Committee on the work achieved: “This new instrument is an important step for the WCO and demonstrates its relevance by providing guidance on the management of Customs valuation in an increasingly complex trade landscape, whilst maintaining consistency and strengthening co-operation with tax authorities.”

The OECD provided input to the TCCV discussions and like the WCO, is encouraging closer co-operation between customs and tax authorities. “ This will be increasingly important in a global environment” said Pascal Saint-Amans, Director of the OECD Centre for Tax Policy and Administration. “As a result of the OECD’s Base Erosion and Profit Shifting (BEPS) project, more and more countries are applying transfer pricing rules, and those rules are becoming stronger and more sophisticated, in particular with regards to the treatment of risks and intangibles, rather than just tangible goods”.

Companies, customs, and tax authorities all stand to gain from this in making a system that is fairer, more predictable, and more efficient.

Useful links

WCO Guide to Customs Valuation and Transfer Pricing

OECD work on transfer pricing

Customs Environment Scan Tadashi Yasui, WCO Research Paper 31, 2014

 

What does mainstreaming biodiversity mean?

22 May 2016
by Patrick Love

IDB-2016-logo-En Before there was the Insights blog, there were the Insights books. One of the first, on sustainable development, mentioned “a magical place, seemingly untouched for thousands of years”, on the Poland-Belarus border. Well, this “last remaining fragment of a primeval forest”, Białowieża National Park, is about to be touched, by loggers. The decision has sparked an impassioned debate, in Poland and far beyond. Forests seem to be anchored deep in the psyches of many peoples. There is even a theory that the story of the Garden of Eden refers to deforestation in the Middle East 10,000 years ago, and three millennia later, The Epic of Gilgamesh would describe how the gods curse Sumeria because the hero cut down the sacred forests.

The OECD is as Jungian as the next intergovernmental organisation, but on International Day for Biological Diversity we’re angsty about the loss of forests and other forms of life for material as well as subjective reasons. Biodiversity worldwide is in decline as the pursuit of economic growth and development leads to the conversion, and in many cases over-exploitation, of natural resources for inputs to production and consumption.

The theme of Biodiversity Day this year is “Mainstreaming biodiversity; sustaining people and their livelihoods”. According to World Bank figures, “natural capital accounts for an estimated 30% of total wealth in low income countries compared to only 2% in OECD countries”. They could learn a few (negative) lessons from what happened to the developed countries on their way to OECD status. The European Potato Famine of the 19th century killed in more or less direct proportion to the lack of diversity in the poor’s diet, with a million victims in Ireland where a third of the population relied almost exclusively on potatoes for food. The Dust Bowl that devastated the North American prairies in the 1930s was in large part due to farmers destroying the grass that held the topsoil in place.

If biodiversity is so important, and neglecting or damaging it so harmful, why don’t countries “mainstream” it?  For a start, although preserving as many species as possible goes back as far as Noah’s Ark (based on Gilgamesh), biodiversity as a scientific concept is recent, dating from a 1985 US National Research Council/National Academy of Sciences forum on biological diversity, while the term “biological diversity” itself first appeared in Raymond F. Dasmann’s 1968 book A Different Kind of Country.

Even so, most of us probably have a pretty good idea of what biodiversity means, but what about “mainstreaming”? Outside the OECD and like-minded institutions, it now has a faintly negative connotation – mainstream media, mainstream tastes for instance. There are various definitions, but they all give the idea that it involves integrating biodiversity into growth and development processes and in sector policies in a systematic way (notably in agriculture, forestry and fisheries, amongst others).

This is going to be extremely difficult in practice, whatever the rhetoric. One of the main reasons biodiversity isn’t adequately mainstreamed is that it has to compete with other (often more visible) national priorities for growth and development, so there is insufficient political recognition of biodiversity and the underlying ecosystem services it provides. Hopefully, the new Sustainable Development Goals (SDGs) will help to change this and raise the profile of biodiversity to a higher political level. Two of the 17 SDGs focus on biodiversity (terrestrial and marine).

The way in which the political will for change comes about reminds me of one of the grim conclusions of another Insights book, on fisheries. Fishing is a good illustration of how the unsustainable exploitation of natural resources poses a problem of political economy. The impetus for change is often a major catastrophe, such as the collapse of the industry when the fish stocks suddenly disappear. However, doing what is sustainable may mean a sudden, visible, loss for a small group of people who can organise to block change, while the benefit is much more long-term, less visible and less important on an individual basis, so there is less political pressure to implement what would be the best, long-term solution overall. An OECD contribution raised a similar point at a Convention on Biological Diversity (CBD) event in Montreal earlier this month, citing “Long timeframes for mainstreaming results to occur” as one of the challenges that also arises in the context of mainstreaming biodiversity in development co-operation.

Another lesson from fisheries is that biological systems do not behave in a linear fashion. You may think a slow decline in fish numbers gives you time to find a solution, or that stocks may recover as they did sometimes in the past, but when an ecosystem reaches a tipping point, change can then become sudden and catastrophic. And usually, that tipping point is only identifiable afterwards, it can’t be forecasted.

That’s why the CBD, the organisers of today’s campaign, are so worried about the interactions of a number of complex systems. Take what they say about fishing, to stick to that example. Overfishing, pollution and unsustainable coastal development are contributing to irreversible damage to habitats, ecological functions and biodiversity, going on to say that “Climate change and ocean acidification are compounding such impacts at a time when the rising global population requires more fish as food, and as coastal areas are becoming home to a growing percentage of the world’s population”.

With respected bodies like the Paleontological Research Institute at Cornell University estimating that because of human actions, current extinction rates are up to 100 times greater than they would have been otherwise, it’s getting urgent not just to act efficiently. Clunky administrative procedures in international and national programmes are a problem, as is the fact that typical projects have a 4 or 5-year cycle rather than the 10-15 years needed to make a difference. As well as that, monitoring and evaluation of mainstreaming efforts have to be more robust than at present to allow you to know what works and what doesn’t.

The SDGs’ targets for life below water and life on land are ambitious but achievable, and they’re certainly far more attractive than the alternative presented in Gilgamesh, where the Annunaki, the seven judges of hell, raise their torches, lighting the land with their livid flame. Don’t say you weren’t warned.

Useful links

The CBD, like the UN climate change convention, has a Conference of the Parties, COP. CBD’s COP 13 in Cancun, Mexico in December this year, will also be focusing on mainstreaming biodiversity as its overarching theme.

OECD work on mainstreaming biodiversity and development

Summary Record of the OECD workshop on Biodiversity and Development: Mainstreaming and Managing for Results, 18 February, 2015

Excerpts from the mainstreaming sections in ‘biodiversity’ chapters of the OECD Environmental Performance Reviews.

Biodiversity and development co-operation OECD Development Co-operation Working Papers

Economics and policies for biodiversity: OECD’s response

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