Boosting economic and social

resilience and the governance of

critical risks

Stephane JACOBZONE

Public Governance and Territorial Development

OECD NAEC Seminar 29 September 2014

A new context: Governments are facing

novel risks in a complex landscape

• Increased major shock events – Large-scale, novelty, complexity, trans-boundary

and cascading effects

• Increased vulnerabilities of modern societies – Mobility, interdependency, interconnectedness,

climate change, concentration, urban & coastal development

• Reduced capacities of national governments, new stakeholders, increased citizen’s expectations

• Past decade: USD 1.5 trillion in economic damages from man-made disasters (industrial accidents, terrorist attacks) and natural disasters (primarily storms and floods)

Why boosting resilience matters

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1980 1982 1984 1986 1988 1990 1992 1994 1996 1998 2000 2002 2004 2006 2008 2010 2012

Ann

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Source: EM-DAT: The OFDA/CRED International Disaster Database, Université catholique de Louvain, Brussels, Belgium, www.emdat.be (accessed 14 November 2013).

Economic losses due to disasters in OECD and BRIC countries, 1980-2012 (USD Billion)

Resilience is…

… the capacity of a system to absorb disturbance and reorganise while undergoing change so as to still retain essentially the same

function, structure, identity, and feedbacks.

Source: OECD (2014). Boosting Resilience through Innovative Risk Governance. OECD Publishing, Paris.

Resilience is…

… the capacity to adapt to changing conditions without catastrophic loss of form or function

….A dynamic perspective: an emergent property of what a system does, rather than a static property that the system has: it

is an outcome of a recursive process that includes: sensing, anticipation, learning and adaptation.

This applies to SOCIAL AND ECONOMIC SYSTEMS

Source: OECD (2014). Boosting Resilience through Innovative Risk Governance. OECD Publishing, Paris.

An economic analysis of resilience:

Minimising welfare losses

Source: OECD (2009), OECD Factbook 2009: Economic, Environmental and Social Statistics. Source: Mirdoudot, S. and K. De Backer (2012), “Mapping Global Value Chains”.

Trend GDP

Major shock :- Economic crisis- Disaster

Time

GDP

Severity of impact

Duration

Shaded area corresponds to the welfare loss GDP

An economic and welfare analysis of

resilience

Source: OECD (2009), OECD Factbook 2009: Economic, Environmental and Social Statistics. Source: Mirdoudot, S. and K. De Backer (2012), “Mapping Global Value Chains”.

• An economic challenge : case fatality reduced in OECD economies, but economic impacts have increased

• An argument for economic competitiveness

• Requires a 360 degree approach to understand the economic vulnerability and impacts: o Macroeconomic shocks are not the only ones

o Disaster impacts, local impacts but also macroeconomic propagation

o Impacts on government revenues, stock markets

o Some hypothesis may not always hold

o Need to rethink government strategies integrating a risk dimension into long term and national security planning

• Some disasters caused economic losses in excess of 20% of GDP (Chile, NZ), with local economies especially affected

• Shocks propagate across economic sectors and geographic boundaries through interconnected economies

• Considerable uncertainty challenges good policy making for resilience

The dynamics of shocks

-10%

-5%

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15%

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012

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The impact of disasters on local economies

Abruzzo Queensland New York

9/11 Attacks L‘Aquila Earthquake 6/4/2009

Queensland Flooding 2010/11

Source: OECD (2012), Large regions, TL2: Demographic statistics, OECD Regional Statistics (database), accessed on 14 November 2013, doi: 10.1787/data-00520-en

Multiple economic effects: Japan

• In the aftermath of the earthquake in 2011– Japanese economy contracted by 0.7% in real GDP and fiscal deficit increased to 9.5% as a result of the disaster in 2011

• Industrial production fell by 15 % compared to previous month,

• Impacts of power supply, corporate earnings,

• Less impacts in terms of employment, prices remained stable,

• Local effects: exodus of younger generations in the affected areas exacerbating aging

• Past earthquakes did boost public fixed capital formation and government final consumption expenditure, implications for public debt.

Source: Higuchi et al, ESRI discussion paper 2012,

Cabinet Office, annual report on the Japanese economy, July 2011

Multiple economic effects: New Zealand

• Stimulus peak from the rebuild 2 %of GDP.2011

• Resilient economy: GDP rose by 0.9 %

• Higher damage estimates: continuing after shock. Huge impact on public debt: 20 points of GDP,

• Huge impact on public debt: 20 points of GDP,

• Current account widening,

• Ex post estimates of the costs have risen significantly,

Boosting Resilience

• Multiple layers of resilience

• Systems’ approach to strengthening resilience through risk governance

• Implementing OECD Recommendation on the governance of critical risks

• Integrating interconnectedness, policy implications and policy trade offs

• Analysing the vulnerabilities to a wide range of shocks, including disasters and man made threats

• Promoting an integrated understanding of resilience and of its risk implications

Addressing resilience gaps : A NAEC

approach through the High Level Risk Forum

Objective: Ensure that governments develop

robust frameworks for the governance of critical

risks and their resilience to major shocks

Adopted by the OECD Ministers in May 2014

Close cooperation with the UN and the revision of the HFA

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The OECD Recommendation on the

governance of critical risks

1. A holistic approach to risk management

2. Risk assessment, foresight, financing framework

3. Whole-of-society approach to prevention

4. Strategic crisis management

5. Transparency, accountability, improvement

Source: OECD (2014), Recommendation of the Council on the Governance of Critical Risks

B

• Importance of ensuring decision making under uncertainty

• Building multiple layers of resilience

• Maximising the benefits of working together at community level, at national level and through international cooperation

• Building Trust is essential

CONCLUSION

Contact:

Stéphane Jacobzone

Jack Radisch

OECD High Level Risk Forum

Stephane.jacobzone@oecd.org

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THANK YOU