Vladimír Dlouhý: “The OECD has to adapt to new challenges”

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The Czech Republic has nominated its Chamber of Commerce president, Vladimír Dlouhý, for the position of OECD secretary general. The former industry and trade minister, who led the country’s transition to a market economy in the 1990s and considered running for the office of Czech president in 2023, spoke to Radio Prague International ahead of his official nomination on Thursday. We began by asking him why he chose to run for the position.

“Because I was offered this candidacy. It did not come out of my head. I was offered this around a year ago by the Foreign Ministry. Later there was a mutual agreement, which I made with President Zeman and Prime Minister Babiš and the minister of foreign affairs, and after some deliberation, when I was offered support from all necessary political positions in the country, I decided to accept the offer at the end of last year.

“As a matter of fact I’m proud of it, it is a challenge, it would be a good achievement for the Czech Republic if a Czech were to become secretary general [of the OECD], so I believe it is a challenge worth trying.”

Foreign Minister Petříček said about your candidacy that: “The aim of the Czech Republic is to bring into the OECD structure an expert from transforming countries” and that “the Czech Republic’s theme was how to support production with a high added value”. What do you think he meant by that?

“It would be a good achievement for the Czech Republic if a Czech were to become secretary general [of the OECD], so I believe it is a challenge worth trying.”

“The first thing obviously has to do with the OECD. Like all international institutions the OECD is at a certain crossroads, because the whole world is at a crossroads after this pandemic. Even before the pandemic there was an agreement that a whole new trend in economics will require transformations and new business models will be adapted by SMEs and large multinational companies too.

"That creates new challenges in economic policy making, in the education of people, so that the young generation is prepared for a completely new business model, in the adaption of proper infrastructure, not just the traditional infrastructure of highways and high speed trains, but also digital infrastructure, AI and robotics support, all of the new trends that the world is facing.

“The OECD also has to adapt to this and build upon its past achievements and successes. By this I mean its tradition of crafting excellent analyses based on evidence and statistics, such as the famous outlooks and policy advice.

OECD Conference Centre in Paris, photo: Nick-D, CC BY-SA 3.0

“I believe the OECD is well prepared for this, but at the same time I think that even an institution which is in good shape will have to adapt and transform to face the new challenges in the future economic trends.”

Foreign Minister Petříček has said that the Ministry of Foreign Affairs will do everything to help you get elected. What is your campaign strategy and how can they help?

“I am not here to speak for the members of my government. I highly appreciate the support from the foreign minister, prime minister and the president of the republic. That is one part of it.

“The second part is that, as a matter of fact, those things we have spoken about thus far should signify that not just myself but also the Czech Republic as a firm, experienced OECD member has a clear vision how the organisation should transform and further develop.

“I believe that we should go back a bit to the members led institution within the OECD to avoid perhaps too much vertical management from the secretary.”

“I would like to underline one point and that is that the OECD has always been seen as a members-led institution, so the members and the view of member states on how the OECD should proceed, what points of interest and areas of interest the OECD should cover, that is a crucial point in my candidacy. I believe that we should go back a bit to the members led institution within the OECD to avoid perhaps too much vertical management from the secretary. That is clear.

“There are also other things that have to do with the budget for the next two years, a crucial issue, which has to do with internal management, the pension systems within the OECD, etc. All of this is based around one point - compromise. If I am going to say that this should be a members-led institution, then it is obvious that with 37 countries you have a diversity of opinions, so one of the abilities of the future secretary general should be to reach compromise.”

I heard that they’re trying to secure support for your candidacy from the Visegrad Four states. Do you know anything about that?

Vladimír Dlouhý, Tom McEnchroe, photo: archive of Czech Foreign Ministry

“I do not want to speculate in particular about the V4 support. All of these countries traditionally have their own views and own policies, obviously. I would like to be seen as an old Central European in the good old tradition of Central Europe, which sometimes has a different view on a couple of issues.

“But still, let me reiterate once again that to achieve the position of secretary general I need to have a much broader support then just the V4 and at the same time I need to prove that I am going to support a member states led approach. To that I would like to say that my past experience, both managerial and political, would make me a good secretary general in respect of being capable of reaching good compromises.”

We are living in a time when the current market focused economic systems predominant in the West and the wider world as well are coming into question. With some major economists saying that we have been focusing too much on worshiping the market leading to rises in inequality and the weakening of social support in states. Since you are a macroeconomist and we are facing an economic crisis, my question is: Where do you stand on this topic?

“It is not only about whether more or less of the market, it is also about the new business model.”

“Indeed, I am a macroeconomist, but, before I answer your question specifically, I’d like to say that when I was trade and industry minister I was overseeing hundreds, perhaps thousands of privatisation projects. That sometimes led me to learn very painfully the experiences of microeconomic management and, let me reiterate, sometimes it was a painful but also very useful experience.

“I am not saying that I am more of a micro than macroeconomist. The latter is what I teach at universities after all. However, at the same time I believe I have decent experience from the management of firms, managerial economics and everything to do with the everyday microeconomic approach.

“Now to your question. As someone who was at the helm of the transformation from plan to market in the 1990s, you cannot expect me to say that I would like to abandon the market and go back to a planned economy or that I would be a supporter of a huge, indeed decisive role of the state in economic policy making and daily economic life. However, having said that, we have witnessed that globalisation has brought immense progress over the past 20 years, especially to the less developed countries. It has brought millions of people out of poverty, but at the same time generated new challenges which probably neither the founding fathers of globalisation like Ronald Reagan, Margaret Thatcher and others, nor the economic founding fathers, the macroeconomists of the 80s and 90s. None of these people, indeed any of us, could have expected these negative consequences, such as income inequality in the first place, that is why I have mentioned it as a point that the OECD should focus on.

“At the same time, when I am saying that globalisation helped to take millions out of poverty in India, China and elsewhere, the famous ‘Mittlestand’ (middle classes), the people from the small and medium-sized enterprises both in Europe and especially in the United States did not see their standard of living increase over the past couple of decades. On the contrary they have seen the removal of their jobs to underdeveloped countries and probably globalisation has brought problems linked to climate change and other issues.

“So yes, indeed, the market approach should remain the core of our approach to economic policy thinking. At the same time, we should face the new trends and challenges. It is not only about whether more or less of the market, it is also about the new business model that I have mentioned. Let’s face it maybe digitisation, robotics and all of these things might shift the question whether more or less of the market. We may be facing completely different issues in 10 years’ time.”

Just last week an OECD report indicated its members experienced the steepest drop in GDP ever recorded – 9.8 percent. That is significantly larger than the 2.3% decline in the first quarter of 2009, at the height of the financial crisis. The OECD is an organisation set up to stimulate economic progress and world trade, so what would you have it do under your leadership to help get its member state economies back on track?

“Now the time has arrived for economic policies which will help restart the global economy either completely without subsidies, or by phasing them out.”

“First, I would build on one of the most precious things that the OECD has –the excellent analytical capabilities of its economic analysts, and macroeconomists, but also excellent knowledge within different sectoral issues within the global economy, so there is something to work with in the first place.

“Second, there are excellent analyses of the OECD made since March until now on the situation. As you did, many people like to compare the problems now with the recession of the crisis of 2008 and 2009, but this is different.

“First, the slump was much deeper as you said, but also the core, the source of the problem was completely different. I would even claim that despite the much larger short term negative slump in economic growth, the perils which were behind the economic crisis of 2008/9 may have been more dangerous, because they threatened the very basis of the financial banking system. This is not the case today. The slump is due to the fact that the pandemic forced governments to close the businesses. What is important now to OECD policymaking is first to evaluate the policies so far. Here, I am saying that it is true that all of those support measures that led to increased government debt were necessary and worked, whether it is furlough schemes, government credit, etc.

Vladimír Dlouhý, photo: archive of Czech Foreign Ministry

“That is a commonly used practice which all governments applied more or less the same, some a bit better, some a bit worse, but formally all of the governments did the same thing in that respect. However, my opinion, which does not necessarily reflect what I would do as secretary general if I found out something different next year, is that we are approaching the end of the period when companies in large firms, but also people in the society at large, can benefit from the huge subsidies of what was basically taxpayer’s money.

“Now the time has arrived for economic policies which will help restart the global economy either completely without subsidies, or by phasing them out.”

So you think we are headed for a quick recovery?

“It is a coincidence, because we are speaking on the day [Tuesday, September 1] when the Czech Statistics Office posted data on the second quarter of 2020 in the Czech economy which are nothing special, but over the past two days I have read different opinions in the Czech and European analytical press and in reports.

“In my Central European region people are starting to believe more in the V-shaped recovery. In some other parts of the world it might be more the shape of a U-type recovery and some are even afraid of an L-type recovery which would mean that the recession would be prolonged.”

Let’s get back to the OECD. Several country leaders have highlighted the need to focus more on developing their own strategic resource reserves. We saw how this can be important on the example of the lack of PPE in the initial stages of the pandemic. At the same time, some economists are saying that businesses will need to focus on making their supply chains less extended and more reliable. How do you think this will impact world trade, something the OECD was formed to stimulate?

“Of course, both parts of your question are right. The governments will have to develop their own policies to build up necessary reserves of all the necessary equipment starting from hygienic equipment, but going beyond that to formulating plans on how to react if the crisis hits again.

“I may be old-fashioned. I may be conservative. I may be the man from the 1990s, but I believe very strongly in multilateralism in global trade.”

“However, I strongly agree with the fact that it is now up to the companies, the firms, to develop new strategies on how to adjust to the new situation. Whether you like it or not, despite the fact that many companies or governments will now promote some kind of a self-reliance on domestic reserves production for the future crisis period, I am strongly convinced that at the same time the OECD should support a multilateral approach to global trade, because even before the start of this crisis we saw tendencies in different parts of the world to raise protectionist barriers.

“I may be old-fashioned. I may be conservative. I may be the man from the 1990s, but I believe very strongly in multilateralism in global trade and if I was to become secretary general this is the approach that I would try to push as much as possible.

My last question is: Sweden just announced that it has nominated former European Trade Commissioner Cecilia Malmström to be secretary general. She finished her commissioner term just last year and is known for her efforts to reach landmark trade agreements with Canada, Japan and the Mercosur trading bloc. It sounds like it will be a high-quality contest. What do you think are your chances of winning?

“Mrs Malmström is not the only candidate. We know about five or six and I am one of them. It is after all a high-level contest. When I introduced the market economy in the 1990s one of the slogans was ‘competition is healthy’. So yes, competition is healthy and I am not afraid of competition here.”

Vladimír Dlouhý’s life summary

-       Born in Prague in 1953

-       Led Czech transition from planned economy to market economy as Minister of Industry from June 1990 to July 1992 and later as Minister of Industry and Trade from July 1992 to June 1997

-       Was minister when Czech Republic joined the OECD

-       His advisory company worked with international clients such as Goldman Sachs, Rolls Royce, ABB

-       Lecturer at Charles University and was on the board of overseers at the Illinois Institute of Technology, Chicago

-       Speaks five languages