Paris - Governments should resist the temptation to shield their economies from competition during the global financial crisis as such policies will only worsen conditions, the Organisation for Economic Cooperation and Development said on Tuesday.
In advice to its 30 member countries, the Paris-based international economic body said states can support their economies now and increase long-term growth potential by increasing spending on infrastructure and training, and by lowering income taxes - particularly for low-skilled workers.
But governments under pressure to "do something" should beware of protectionist measures that could spark retaliatory moves in other countries and intensify the crisis, the OECD said.
Classic mistakes of the past include erecting import barriers, which in the 1930s helped turn an economic downturn into the Great Depression, and the introduction of early retirement schemes in Europe in the 1970s, it said.
"Under no circumstances should mistakes from previous crises be repeated," OECD chief economist Klaus Schmidt-Hebbel said. "Keeping markets open and avoiding new protectionism is key to strengthen prosperity throughout the world."
Subsidies to struggling industries, such as auto makers, "can act like protectionist measures, and may provoke retaliation," the OECD said.
The crisis has uncovered failings in the functioning and regulation of financial markets, forcing governments to stabilise markets by guaranteeing deposits and bank lending and injecting money into banks in return for an equity stake. The OECD said these emergency measures should be scaled back once the system is working normally again.
- AP