The Organisation for the Economic Cooperation and Development, a think tank for developed economies, used its annual Going for Growth report, to urge governments to shun protectionism and embrace policies that will deliver growth both in the current crisis and for longer term sustainable development.
It said that the current crisis offered governments the opportunity of combining emergency action with the important structural reforms needed to improve long-term growth and resilience in their economies.

OECD Chief Economist Klaus Schmidt-Hebbel said that because crises can unmask weaknesses in existing policies, there are periods when important reforms are often initiated. But he warned that when politicians are under pressure to act quickly, they risk implementing policies that are ultimately bad for growth.

In the past, the erection of import barriers in the 1930s helped to transform a downturn into the Great Depression, and responses to the crisis in the 1970s that were intended to reduce unemployment with early retirement schemes damaged European growth, he said. ‘Under no circumstances should mistakes from previous crises be repeated,’ warns Mr Schmidt-Hebbel.

He said governments should distinguish between systemically important industries such as banks — whose failure would devastate vast swathes of the economy — and big industries such as automakers.

Support for the financial sector is 'justified' Schmidt-Hebbel said, but he cautioned about extending such aid to other sectors because that can act like protectionism and provoke retaliation.

On the positive side it said that a number of policies, if carefully implemented, could both boost demand in the short term to soften the impact of the recession, and also raise economic growth over the long term.

It said this ‘double dividend’ could be achieved by pursuing policies in a number of areas. They include:

• Introducing infrastructure projects that can be brought on stream quickly or improve the quality of existing facilities, particularly in education.
• Boosting spending on training programmes to give workers skills that will be needed as the labour market recovers.
• Cutting taxes on labour income, particularly for those with low wages. This will help boost consumption and improve long-term job prospects.
• Reform anti-competitive regulations in product markets. Obstacles to businesses entering new markets should be reduced to stimulate the creation of new products and businesses, so boosting demand. Over the long-term stronger competition will help raise productivity and living standards.