The Organization for Economic Cooperation and Development is a Paris-based international bureaucracy that is infamous for its efforts to hinder tax competition.
The bureaucrats basically want to export the anti-competitive fiscal policies of the European welfare states that dominate its membership.
But that doesn’t mean everything the OECD does is bad. Indeed the bureaucracy has an economics department that often publishes useful studies in support of free markets. Heck, it sometimes even publishes good studies on fiscal issues (which apparently have no impact on the political types who run the organization).
Today, we’re going to look at a good study dealing with regulation. And we’ll start with something very positive. Here’s a chart showing there has been significant deregulation in the energy, transport, and communications sectors over the past five decades.
It’s good to see that the United States was a leader in the shift to deregulation. And this was a bipartisan success with Jimmy Carter, Ronald Reagan, and Bill Clinton all playing important roles.
But today’s column isn’t about American regulatory policy. Instead, it’s about the positive economic impact of deregulation in OECD nations.
So let’s take a look at the study, which was authored by Dan Andrews, Balázs Égert, Cassie Castle, and Christine de La Maisonneuve. Here are some key excerpts.
…we provide fresh evidence on the impacts of product market regulation on economic growth using cross-country industry-level data. …we find that anticompetitive regulations in upstream sectors – particularly barriers to entry – curbs long-run economic performance in downstream sectors. On average across the OECD, network sector deregulation between 1980 and 2023 boosted economy-wide labour productivity by an around 5 percent in cumulative terms, underpinned by material gains to value added (~6 percent), employment (~2 percent) and capital stock (~4 percent). …
While rapid network sector deregulation contributed around 0.25 percentage points to annual labour productivity growth during the 1995-2005 boom, its subsequent slowdown could account for up to one-sixth of the post2005 productivity slowdown.
Looking forward, reloading network sector deregulation could yield smaller, yet still material, productivity gains. …we estimate that aggregate labour productivity could rise by up to 1.7% on average across the OECD if countries with more regulated network sectors converged toward the least regulated settings. And it is likely that the productivity gains from market reforms in professional services3 – which remains sheltered from competition in many OECD countries – would be even larger. …
The country-specific results highlight large potential for lagging countries: for example, eight OECD countries stand to gain around 1%, while Mexico and Korea could achieve gains of 1.7% in productivity if they were to fully align with the regulatory frontier.
Regarding the gains mentioned above, Figure 7 of the report shows how deregulation could boost economic performance in different OECD nations.
The U.S. could benefit from about a 1-percentage point increase in productivity and value added. Mexico and Korea would be the biggest winners.
I’ll close by noting that OECD economists did similar research on the country-specific benefits of spending reduction and lower tax rates.
Sadly, I’m very confident that those studies had zero impact on the pro-statism mindset of the political hacks who run the OECD.
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