This year's OECD Ministerial Council Meeting, which we are honoured to chair, will address the issue of investment. The timing could not be better. Growth prospects have improved, but there is still a lot of work to be done. Investment has been hit especially hard since the crisis started and has yet to recover. At the same time, the need for investment has never been greater, since we are facing serious challenges on issues like climate, infrastructure, water, the digital economy and human capital. Luckily, the circumstances are quite favourable to investment. We need a common effort from all players, public and private, to unlock investment for sustainable growth and jobs. The OECD Forum, which precedes the ministerial meeting, provides a perfect opportunity to initiate this approach.
In advanced economies, private-sector investment has declined by 25% on average compared with pre-crisis forecasts. And in some of the countries hit worst by the crisis, it has declined by as much as 40%. These are serious falls. Moreover, investment remains weak, and is only slowly beginning to pick up.
One reason is that companies are not investing because they think the economic outlook is bleak. Another factor is more structural: OECD economies are increasingly producing services instead of goods, and this may be less capital intensive. We see more digital services, more companies increasingly dependent on research and development or their brand name for their competitiveness, and promising start-ups offering "the next big thing." Their value is harder to measure, but it is investment all the same.
Investment will recover when the economy recovers, but we should set the bar higher and support the recovery more actively by making structural changes. We can do that by ensuring that the public and private sectors work together, with the private sector mobilising the necessary investment, while the public sector assures the right enabling environment.
Governments should provide smart, not overly burdensome regulation and a stable regulatory environment, as well as guarantee the rule of law and a level playing field. As the OECD's work has shown, there is plenty we can do to improve our policies, whether they concern the transition to a digital economy and clean energy, or assuring free trade and investment. The OECD calculates that its member countries could expand by up to 10% on average if they undertook a wide range of reforms, so the potential gains are significant. Once there is a stable policy environment, the private sector can pitch in while we make sure everybody contributes to public goals.
The good news is that the conditions for investment are actually quite favourable. Interest rates are at record lows in most countries, which is a boon to investment. OECD research shows that the severest problems in financial markets have mostly abated, though some small and medium-sized enterprises still face difficulties. Larger companies are becoming more profitable and are holding large amounts of cash, so finance is no longer the constraint it was at the height of the crisis. In addition, companies increasingly see the business case for sustainability. Nowadays, responsible business conduct must be front and center if companies are to turn a profit. More and more business leaders are adopting this strategy.
Above all, the need for investment has never been greater. There are several challenges, such as climate, energy, innovation, water and development. Where will our energy come from in 2050? How will we deal with the impacts of climate change? How can we ensure enough safe food for the world's growing population?
We should not promote investment just for the sake of it; investment serves specific and important goals. In the short term, investment is needed to create growth and jobs, and in the longer term it will allow us to reap major benefits.
Take climate, for example. Worldwide investment in prevention and adaptation runs into trillions. As a country locked in a never-ending struggle with the sea, we in the Netherlands know what we're talking about. The International Energy Agency estimates that energy investment in excess of US$50 trillion will be needed by 2035 if we are to prevent more than 2°C of warming.
Investment in innovation is urgently needed. With aging populations, a rise in productivity is required to maintain growth and guarantee the sustainability of pensions, health care and other public services. Furthermore, innovation requires investment in human capital -- also crucial yet hard to measure.
We must make sure that everyone who wishes to help address these challenges is able to do so. This is why we must work together. In the Netherlands, this has been our approach to energy, for which, after concerted dialogue with all the stakeholders involved, we drew up a long-term plan. It is too early to predict the plan's outcome, though encouragingly, the OECD has given it a positive assessment in its valuable peer reviews. I'm confident that agreements like this are the future for solving global challenges. It is one of the best practices we would like to share at the OECD, so that everybody can benefit from our experience.
At a global level, the OECD Ministerial Council Meeting provides an excellent opportunity to take the first steps toward international agreements and to exchange best practices in a range of policy areas. This is one of the OECD's greatest strengths, as it provides the knowledge and the forum for fact-based discussions on the best policy response to global challenges.
It's my ambition to invest in the future. Together, we can unlock investment for sustainable growth and jobs.
This blog post is part of a series produced by the Organisation for Economic Co-operation and Development (OECD), in conjunction with the OECD Forum 2015. The Forum takes place alongside the main annual OECD Ministerial Meeting (June 3-4, 2015) and provides the possibility for all stakeholders within society to discuss policies and ideas with Ministers from governments worldwide, and with each other. For more information about the OECD Forum 2015, read here.
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