National Press Club

OECD report urges US action on income inequality and innovation

June 26, 2012 | By Lorna Aldrich | lorna2@verizon.net

It is important for the United States to reduce its income inequality and increase its innovation, said Richard Boucher, secretary-general of the Organization for Economic Cooperation and Development (OECD) in introducing the organization's biennial survey of the U.S. economy at a National Press Club Newsmaker June 26

Boucher, former U.S. secretary of state for central and south Asia, displayed a chart revealing that approximately half of Americans stay in the same income bracket as their parents, a higher proportion than in many European countries. He said, “A poor boy can become president, but most poor boys are going to stay poor.”

With respect to innovation, he presented another chart showing that the U.S. devoted a constant percentage of its gross domestic product to research and development spending over the past decade, but that other countries, including Japan and Korea, now spend higher percentages.

OECD conducts biennial surveys for each of its 34-member nations as well as some other countries, Boucher explained. The surveys contain both overviews of the nations' economies and areas for special emphasis.

Boucher identified education as the key to addressing both inequality and innovation. Inequality is perpetuated by local financing of education, he said, with the result that “poor kids get poor education.” The U.S. is one of only three OECD countries that spend less on education of disadvantaged students than on other students, he said.

Post-secondary educational attainment is the same among 25-34 year-old Americans as among 55-64 year-olds, he observed, while most other countries show rising levels of post-secondary education among younger people.

While the U.S. is still one of the most innovative countries, there are signs that “it is not pushing the frontier anymore,” he said. To address the most critical needs for the nation, he called for more students in the areas of science, technology, engineering and math; patent reform; and a national innovation strategy.

He acknowledged that there is “not much that is dramatically new” in the report, but that by comparing what the U.S. is doing with what others are doing, it shows that “we’re keeping the pace and others are running faster.”

On the general economy, Boucher underlined the report’s recommendation that the U.S. reduce its budget deficit gradually, aiming for a “medium term fiscal balance” and using a “scalpel not a meat axe.”

As potential areas in which the nation can increase revenues and reduce expenditures, he recommended the use of "tax expenditures" (tax deductions and credits) and reform of transfer programs "that are not well targeted [and] do not focus on the really poor."

Karen Kornbluh, U.S. ambassador to the OECD, said that the Paris-based organization, started as part of the Marshall Plan after World War II, is a source of credible cross-country standards. She termed the non-political nature of the report a reason to pay attention to it, observing that the report recommends policies the Obama administration is “already proposing or is pursuing.”

Boucher added that all OECD reports are consensus reports, reflecting reviews by, and consultation among, the 34 member nations.