OECD Insights are a series of reader-friendly books that use OECD analysis and data to introduce some of today’s most pressing social and economic issues. They are written for the non-specialist reader, including interested laypeople, older high-school students and undergraduates. The books use straightforward language, avoid technical terms, and illustrate theory with real-world examples.

The 2015 meeting of the OECD Council at Ministerial Level explored the importance of investment in placing economies on sustainable growth paths while addressing inequalities, encouraging innovation, helping the transition towards low-carbon economies, and financing the UN’s Sustainable Development Goals (SDGs). As Dutch Prime Minister Mark Rutte put it, Our priorities are three “I”s: Investment, Investment and Investment!.

The greatest puzzle today is that since the global crisis financial markets see so little risk, with asset prices rising everywhere in response to zero interest rates and quantitative easing, while companies that invest in the real economy appear see so much more risk. What can be happening? The puzzle is even more perplexing when we see policy makers lamenting the lack of investment in advanced countries at a time when the world economy shows all of the characteristics of excess capacity: low inflation and falling general price levels in some advanced countries for the first time since the gold standard and despite six years of the easiest global monetary policy stance in history.

Of all the acronyms in existence, PFI has to be one of the most popular. For many people, it is the Private Finance Initiative but that is only one of at least 40 meanings of the PFI, including institutes devoted to everything from pet foods to pellet fuels. For us at the OECD and for the many emerging economies we have been working with, the PFI stands for the Policy Framework for Investment. Our PFI means exactly what it says: it is a policy framework to stimulate investment and to enhance the impact from that investment.

Conventional wisdom holds that countries with lower taxes attract higher levels of foreign direct investment (FDI). At first glance, this intuitive assumption seems to be supported by the evidence. Some tiny jurisdictions with low or no taxes on foreign investment do seem to attract more FDI than major economies, but investment is the wrong term for billions of dollars that flow in and out of these places as part of the strategies multinationals use to pay less tax.

In 2013, the Rana Plaza building in Bangladesh’s capital Dhaka collapsed, killing over 1 100 people and injuring another 2 500. The dead and injured were garment workers, ordered to go back to work even though shops and a bank in the same building had closed immediately the day before when cracks appeared. The garment factories were indirectly supplying international retailers, highlighting the debate on whether multinational enterprises (MNEs) can make the apparel supply chain safe and healthy. Ensuing recommendations to MNEs have often focused on MNEs strengthening existing compliance mechanisms with individual suppliers. However, to transform the sector, we need to question whether the current approach to supply chain due diligence is the right one to begin with.

Supply chains spanning dozens of countries are now a feature of businesses large and small. However, global regulatory frameworks have largely not kept pace with these trends. Rule of law remains weak in many developing countries and significant uncertainty and enforcement issues continue to exist in transnational litigation and arbitration. Some international instruments, such as the Guidelines for Multinational Enterprises (the Guidelines) and the UN Guiding Principles for Human Rights and Business (UNGPs) have been important tools for filling these regulatory gaps. For example, the Guidelines establish an expectation that businesses behave responsibly throughout their supply chains, not just within their direct operations, extending to activity in potentially institutionally weak contexts where international standards and domestic laws may not be adequately enforced.

Most businesses are good. They pay their taxes, they create employment, they abide by the laws, and they generally contribute to the societies in which they operate. But unfortunately, this isn’t always the case. And when businesses behave badly, the human consequences can be devastating: factories collapse killing thousands; workers, often children, are treated like slaves; rivers, lakes, and even seas are rendered lifeless, and entire species are threatened.

Two questions today: which fictional character helped bring down a colonial empire and gave his name to a food label? If you’re Dutch, you probably know the answer, if not, I’ll save you an Internet search by telling you: Max Havelaar, eponymous protagonist of Multatuli’s Max Havelaar, of de koffi-veilingen der Nederlandsche Handel-Maatschappy, translated into English as Max Havelaar: Or the Coffee Auctions of the Dutch Trading Company. In the middle of the nineteenth century, the Dutch government ordered farmers in its East Indies, modern-day Indonesia, to grow quotas of export crops rather than food. The Dutch also reformed the tax system, creating a public-private partnership that allowed tax commissioners to keep a share of what they collected. The result was the misery and starvation the book denounces. Max Havelaar helped change attitudes to colonial exploitation in the Netherlands and was even described as The book that killed colonialism by Indonesian novelist Pramoedya Ananta Toer in the New York Times Magazine.

At the start of the 2007 crisis, global foreign direct investment (FDI) stocks actually declined, and even today, global flows of FDI are still 40% below their pre-crisis peak. Generally, OECD countries were the sources of the biggest declines while many emerging economies experienced increases in FDI flows. Europe has been one of the worst affected regions. EU inflows are down 75% and outflows are down 80% from their pre-crisis levels.

The world of investment faces two major problems. Problem one is the scarcity – in large swathes of the developing world – of capital in general, and of money for infrastructure investments in particular. Poor infrastructure holds back development, reduces growth potential and imposes additional costs, in particular for the poor who lack access to energy, water, sanitation, and transport. Problem two is the sclerotic, even negative rate of return on listed bonds and equities in many OECD economies. The concentration of the portfolios of many long-term investors in such listed securities also exposes them to high levels of systemic – often hidden – risk.

International investment treaties are in the spotlight as articles in the Financial Times and The Economist show. An ad hoc investment arbitration tribunal recently awarded USD 50 billion to shareholders in Yukos. EU consultations on proposed investment provisions in the Trans-Atlantic Trade and Investment Partnership (TTIP) with the United States generated a record 150 000 comments. There is intense public interest in treaty challenges to the regulation of tobacco marketing, nuclear power and health care.

In 2013, the United States and the European Union began talks on the Trans-Atlantic Trade and Investment Partnership (TTIP). The AFL-CIO and the European Trade Union Confederation (ETUC) believe that increasing trade ties could be beneficial for both American and European workers, but only if TTIP promotes a people-centered approach which considers the interests of the public and not just those of corporations. As with all other economic relationships, the rules of the TTIP will matter because TTIP is about much more than just trade. Its rules will make the difference between a Trans-Atlantic New Deal, which envisions an important role for democratic decision making, and a Trans-Atlantic corporate hegemony that privatizes the gains of trade while socialising the losses. Increasing trade between the US and the EU can only help create quality job growth with shared prosperity on both sides of the Atlantic if the project is approached and concluded in an open, democratic, and participatory fashion and with these goals in mind.

In 2013, Presidents Barroso and Obama launched negotiations for a Trans-Atlantic Trade and Investment Partnership, or TTIP. A deep and comprehensive free trade deal in generic terms, but much more than that from political, commercial, and civil perspectives. We have now held five formal negotiating rounds, and it’s time to re-state the importance of this deal not only to us in Europe and the US, but for people around the world.

We are living in interesting times for investment treaties, whether bilateral treaties or investment chapters in free trade agreements. Never before have they aroused such an interest from parliaments. People and politicians alike are concerned about their impact on international and domestic affairs. Their scope is expanding dramatically: just think of mega deals like the Trans-Pacific Partnership (TPP) or the Trans-Atlantic Trade and Investment Partnership (TTIP), and the rise of intra-regional investment agreements. Debates on investment agreements have intensified recently within the EU because of the European Commission’s newly-acquired exclusive powers in this arena.

A few years ago the IMF produced some (cautious) comments and studies arguing that currency management and capital controls were OK in some circumstances. Many emerging market countries took this as an endorsement of their approach to policy which has not been limited to temporary crisis measures. The Figure below shows the national investment-saving correlations for the OECD countries over 1982-2010 and for a group of emerging countries (China, Brazil, India, South Africa, Mexico and South Korea) in the manner of Martin Feldstein and Charles Horioka.

International capital flows have increased dramatically in the past decades. Gross cross-border capital flows rose from about 5% of world GDP in the mid-1990s to historical highs of about 20% in 2007. This growth was around three times stronger than growth in world trade flows. The contraction caused by the crisis affected mainly international banking flows among advanced economies and subsequently spread to other countries and assets. Capital flows have rebounded since the spring of 2009, driven by portfolio investment from advanced to emerging-market economies and increasingly among emerging-market economies themselves.

Most of us would agree that clean energy is a worthwhile goal, and the world has invested more than USD 2 trillion on renewable-energy plants in the past decade. In 2014, energy generators added more renewable capacity than even before. But are we doing enough? According to the IEA World Energy Investment Outlook 2014, cumulative investment in low-carbon energy supply and energy efficiency will need to reach USD 53 trillion by 2035 to keep global warming to 2°C. It sounds a lot, and it is, but it’s only 10% more than the USD 48 trillion that would likely need to be invested in any case in the energy sector if the economy continues to expand and demand for power continues to grow as it has been doing in recent decades.

Let’s start with a quiz. Which country is the second biggest direct investor in China? Who are the largest investors in India and Russia? You probably won’t believe it, but the answers are (a) British Virgin Islands, (b) Mauritius and (c) Cyprus. It’s not a sordid tale of hot money but rather a more mundane story of companies investing abroad through a holding company or affiliate located in a third country. They might be driven by the presence of a double taxation or bilateral investment treaty, or it might simply reflect corporate strategy to invest through an existing affiliate rather than by sending cash from the parent company.

William Topaz McGonagall is universally acknowledged as the worst poet who ever wrote in the English language, but that didn’t stop him having an intuitive grasp of the economics of infrastructure investment. As he argued in The Newport Railway published to celebrate the Tay Bridge and the trains it carried to Dundee, the thrifty housewives of Newport/To Dundee will often resort/Which will be to them profit and sport/By bringing cheap tea, bread, and jam/And also some of Lipton's ham/Which will make their hearts feel light and gay/And cause them to bless the opening day/Of the Newport Railway […] And if the people of Dundee/Should feel inclined to have a spree/I am sure 'twill fill their hearts with glee/By crossing o'er to Newport/And there they can have excellent sport.

Mounting fears of another slowdown in the global economy call for bolder policy responses. Trade and investment are a case in point.