Steve Keen – The Cormann Conundrum: Is the new OECD Secretary-General a friend or a foe of environmental action?

Mathias Corman with an atrocious climate change record seemed the worst possible candidate as leader of the OECD. Now he has been appointed to the position.

Steve Keen is a Distinguished Research Fellow, Institute for Strategy, Resilience & Security, UCL

Cross-posted from Steve’s website

File:OECD Logo complete.svg - Wikimedia Commons

Against the odds, Australia’s ex-Finance Minister Mathias Cormann has been elected Secretary-General of the Organization for Economic Cooperation and Development(the OECD). This was an unlikely victory, not only because of the preponderance of European countries in the OECD itself (24 of its 37 member countries) when the other candidate in the final round was a European, but also because Cormann, like the Australian political party to which he belongs—the misleadingly named Australian Liberal Party, which is actually Australia’s equivalent of the UK’s Conservative Party and the USA’s Republican Party—has a history of antipathy towards taking action to limit climate change.

This history was so stark that numerous environmental groups lobbied against his campaign to lead the OECD. Less than 2 weeks ago, 29 leaders of environmental groups—including Greenpeace and the Australian Conservation Foundation—wrote to the chair of the OECD’s selection panel urging a vote against Cormann. The letter concluded that:

On the basis of Mr Cormann’s public record of participation in thwarting effective climate action, we do not believe he is a suitable candidate for Secretary-General of the OECD and urge you to not select him for this critically important position.

Cormann sought to allay these fears with, amongst other initiatives, a LinkedIn post entitled “On pandemic, climate & trade – global cooperation more important than ever”, which stated in part that:

Climate change is impacting everyone. Accelerating wildfires, more frequent dangerous weather events and rising sea levels…

On the critical issue of taking ambitious and effective action on climate change, it is essential that the OECD provide global leadership.

Achieving global net-zero emissions by 2050 requires an urgent and major international effort. In this regard, the decision by the Biden Administration to ensure the US re-joins the Paris Agreement is crucial…

the OECD must continue to shape policies that support individual freedom, market economies, and reward for effort, while protecting labour and environment standards, strong social safety nets and better social mobility. Our priority should be more opportunity, a better quality of life and higher living standards for all.

Cormann’s victory, despite his Australian home base, and despite opposition from environmental groups, was a triumph of the numbers game of politics, as is well explained in this article by Bevan Shields. But it now puts the environmental movement in a quandary: do they abandon their opposition to Cormann now that he has won, and hope his actions as OECD Secretary-General will live up to his recent words? Or do they continue to oppose him, and therefore also oppose the OECD on climate change? Can they trust him to “do the right thing”, now that he is head of the OECD rather than an Australian politician, or can they not?

I have a simple litmus test on this Cormann conundrum: it’s what he does to an existing OECD body called NAEC: New Approaches to Economic Challenges.

NAEC was established by Cormann’s predecessor, Angel Gurria, in the aftermath to the failure of mainstream economics to anticipate the Global Financial Crisis of 2007. Here the OECD itself was an exemplar of that failure. Its June 2007 OECD Economic Outlook—released just two months before the greatest economic crisis since the Great Depression began—opened with the declaration that, in the coming year, “sustained growth in OECD economies would be underpinned by strong job creation and falling unemployment”:

In its Economic Outlook last Autumn, the OECD took the view that the US slowdown was not heralding a period of worldwide economic weakness, unlike, for instance, in 2001. Rather, a “smooth” rebalancing was to be expected, with Europe taking over the baton from the United States in driving OECD growth.

Recent developments have broadly confirmed this prognosis. Indeed, the current economic situation is in many ways better than what we have experienced in years. Against that background, we have stuck to the rebalancing scenario. Our central forecast remains indeed quite benign: a soft landing in the United States, a strong and sustained recovery in Europe, a solid trajectory in Japan and buoyant activity in China and India. In line with recent trends, sustained growth in OECD economies would be underpinned by strong job creation and falling unemployment. (“Achieving Further Rebalancing?” By Jean-Philippe Cotis, Chief Economist)

This prognosis, based on the OECD’s consultations with its member countries’ Treasuries, and its own state-of-the-art mainstream “Dynamic Stochastic General Equilibrium” (DSGE) model, could not have been more wrong. To his credit, then Secretary-General Gurria argued that the OECD needed to be informed by thinking that was not mainstream but was still scientific, and NAEC was born to be the channel through which alternative voices were heard within the OECD.

Its remit is a typical piece of bureaucratic-speak, which might be underwhelming to those who, as I have myself, have experienced far too many well-meaning bureaucratic initiatives that go nowhere and do nothing:

The New Approaches to Economic Challenges (NAEC) initiative develops a systemic perspective on interconnected challenges with strategic partners, identifies the analytical and policy tools needed to understand them, and crafts the narratives best able to convey them to policymakers.

But my personal experience has been quite different. NAEC has lived up to its name of promoting “New Approaches to Economic Challenges”, which it has defined broadly to include the challenge of sustaining the planet’s ecosphere as well as its economy.

The OECD, for obvious reasons, has been dominated by mainstream economic thinking, and has applied this to virtually all issues—including climate change. But there are few areas where mainstream economics is less trustworthy than climate change: as I detail in my paper “The appallingly bad neoclassical economics of climate change” (Keen 2020), the Neoclassical mainstream here is so bad that even Neoclassical economists should disown it. William Nordhaus, who was awarded the Nobel Prize in Economics in 2018 “for integrating climate change into long-run macroeconomic analysis”, literally assumed that 87% of the economy would be “negligibly affected by climate change” (Nordhaus 1991, p. 930), simply because it is not exposed to the weather. The section of the 2014 IPCC Report written by economists (Arent, Tol et al. 2014, p. 688), made the same absurd claim:

FAQ 10.3 | Are other economic sectors vulnerable toclimate change too? Economic activities such as agriculture, forestry, fisheries, and mining are  exposed to the weather and thus vulnerable to climate change. Other economic activities, such as manufacturing and services, largely take place in controlled environments and are not really exposed to climate change.

NAEC gave me the opportunity to point out, to the OECD, how unreliable mainstream economic research was on this topic, in its conference on “Averting Systemic Collapse”. Without NAEC, the OECD might well have only heard from mainstream economists like William Nordhaus himself on this issue.

So, if NAEC continues to exist under Cormann as OECD Secretary-General, and continues to bring non-mainstream thought before this body, then I will trust Cormann’s bona fides on climate change. But if NAEC disappears, or is seriously hobbled in its activities, I will regard Cormann as an impediment to serious action on climate change.

I suggest that environmental groups use this same litmus test.

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