Marco Buti - Productivity and digitalisation - GFP Conference, Venice, 8th July 2021

OECD Global Productivity Forum

Productivity and Digitalisation 9 July 2021

Outline 1. Productivity: Pandemic effects adding to an already long-lasting challenge 2. Digitalisation: A challenge to policymakers

3. Policies enhancing productivity and digitalisation 4. What role for international cooperation and the G20?

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1. Pandemic effects on productivity growth Channels Hysteresis and human capital

Within-firm reallocation

Reallocation across firms

Increase in digital take-up by individuals; incentive to training from reduced working hours

Potential negative drivers Labour hoarding; erosion in firm-specific human capital; deterioration of workers' skills in case of slow reallocation; disruptions to schooling and training; missing positive spillovers in the workplace.

Investment

Falling investment due negative macroeconomic prospects

Business-specific intangible assets

Business closures destroy e.g. buyer-supplier trust, employer-employee relations, organisational effectiveness

Digitalisation, e-commerce, egovernment and e-health, new Innovation and digitalisation business models, higher automation, teleworking diffusing at large scale

Distraction, addiction and other negative effects of digitalisation

Frictions in global value chains

Higher transaction costs; repatriation of activities might reduce efficiency, curtailed cross-country labour mobility.

Macroeconomic burden

Fiscal/monetary consolidation in the medium term

Firm size

Composition effect (exit of smaller, less productive firms)

Firm churning

Higher firm churning as low-productive Higher concentration/lower competition, decline in earlyfirms exit the market and more stage venture capital reduces innovative start-ups, sizeable productive firms enter or expand. public support might go to "zombie" firms

Financial constraints Reallocation across sectors Changes in sectors’ shares 3

Potential positive drivers

Credit crunch risk, viable illiquid firms becoming insolvent Cross-sector reallocation of economic activity as some sectors shrink and others expand. The sign is difficult to predict due to differences across sectors and countries.

Investment in the G20 Change in investment at the global financial crisis and the COVID-19 crisis across the G20 (2009 vs. 2020)

Change in investment (%)

20

10 0 -10 -20 -30

-40

2009 4 Source: IMF, WEO October 2020

2020 (f)

2. Digitalisation: A challenge to policymakers Historical evidence: Productivity paradox Inequalities

Pandemic experience: Main way to keep economies rolling

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Agglomeration effects Market concentration Possible zero-sum game across and within sectors

It us up to policymakers to ensure that the positive effects predominate

3. Policies enhancing productivity and digitalisation Enhancing competitive environment and ensuring better data access

Investment in innovation, intangible capital and infrastructure

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Ensuring supportive environment and quality institutions

4. What role for international cooperation?

Digitalisation as a global common:  We were lucky, in a sense….  Digitalisation knows no borders, response should be international  Recognising specific country circumstances and internalising spillover effects Toolkit for action:  Soft mechanisms: exchange of best practices, ensure transparency, agree on action principles, negotiate non-mandatory rules, outcome evaluation, devise contingency measures  Cooperation between independent national agencies endowed with similar mandates: eg. competition authorities, data protection agencies

 Common efforts of “clubs” of countries: participation of a critical mass of committed countries leading to an agreement 7

What role for the G20?

• Start thinking and discussing a post-pandemic recovery strategy focused on structural reform, investment and productivity; strengthen macroeconomic policy coordination and agree on exit timing and sequencing • Build on lessons learned, ensure continuity of objectives among G20 Presidencies: Digitalisation and productivity should be added to the multiannual G20 work programme • Support fair and transparent distribution of wealth: international taxation

• Work hand in hand with different government sectors, business, civil society, listen to International Organisations’ advice

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Thank you

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9 xx: element concerned, source: e.g. Fotolia.com; Slide xx: element concerned, source: e.g. iStock.com Slide

Uneven impact across sectors - stronger rebound in manufacturing EU weighted average of observed turnover (solid) and predicted turnover (dash) indexed at 100 in January 2020

120

120

100

100

80

80

60

60

40

40

20

20

10 Source: European Commission calculations

Wholesale & retail (G) Transport (H) Accommodation & food services (I) Information & communication (J)

Dec-21

Oct-21

Aug-21

Jun-21

Apr-21

Feb-21

Dec-20

Oct-20

Aug-20

Jun-20

Apr-20

Dec-21

Oct-21

Aug-21

Jun-21

Apr-21

Feb-21

Dec-20

Oct-20

Aug-20

Jun-20

Apr-20

Feb-20

Manufacturing of food (C10-C12)

Feb-20

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