OECD: Free-Market Reforms Would Boost GDP

A working paper sponsored by the Organisation for Economic Co-operation and Development brings good news to proponents of market liberalization:

OECD Champions Free Market Recipe (FT)

Workers in advanced economies could gain the equivalent of a full year’s income over their working lives if countries increased competition in their domestic economies and reduced trade barriers, the Organisation for Economic Co-operation and Development said on Tuesday.

The international body charged with improving the economic performance of its 30 member countries came down firmly on the side of market liberals after examining the effects of restricting competition.

“At a time when Europe may be losing momentum in its drive to open product and services markets, the study shows that the economic rationale for such liberalisation remains very strong,†said Jean-Phillippe Cotis, the organisation’s chief economist.

According to the study, we can expect to see the following increases in “GDP per head” if recommended reforms are implemented:

  • 2 to 3 1/2 per cent in the European Union.
  • 1 1/4 to 3 per cent in the OECD area as a whole.
  • 1 to 3 per cent in the United States.
  • 1/2 to 1 1/2 per cent in the OECD area outside the United States and the European Union.
  • The country breakdown tells the same story in greater depth:

    What’s most intriguing about these findings is that gains can be realized even with relatively modest policy changes. Though the Financial Times headline may alarm committed statists, Cotis offers them some comforting notes on page 5:

    […T]he scope of liberalisation illustrated in this exercise focused only on barriers that inhibited economic performance but not those like environmental or safety regulations aimed at non-economic objectives. The study also left aside most public interventions in agriculture, all of labour market and financial market regulations, and the distortions induced by welfare systems. This exercise is thus about quantifying the consequences of a set of regulatory reforms that is deep but not very broad in scope.

    Such a remark may leave free-market hawks yearning for more. But, as far as I’m concerned, it means that reform may actually be feasible if advocated in the proper fashion.

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    Robert Garcia Tagorda
    About Robert Garcia Tagorda
    Robert blogged prolifically at OTB from November 2004 to August 2005, when career demands took him in a different direction. He graduated summa cum laude from Claremont McKenna College with a Bachelor of Arts in Philosophy, Politics, and Economics and earned his Master in Public Policy from Harvard's Kennedy School of Government.