a step in this direction. 3 here, the challenge is to get the balance right between funding innovation and protecting investors. most of the areas, though, that affect the flexibility of the economy lie beyond the world of central banks and finance. i would like briefly to mention four of these. the first is the competitive environment in which firms operate. where competition is robust and entry to markets is easy, businesses have a stronger incentive to find better ways of doing things. they also have a stronger incentive to move quickly, lest a competitor seize an opportunity before they do. i think it is fair to say that few businesses really like competition, but, often, it is competition that drives them to do better and respond to new opportunities. and competition benefits us all as consumers, bringing new and lower - cost goods and services to market. so, we need a regulatory environment that is conducive to new entry, including by those who are able to harness new technologies to reinvent how things are done. a second area is the nature of the incentives to innovate and to start new businesses. these incentives are affected by the tax system and the regulatory and legal systems. they are also affected by the general community attitude to risk taking. we will be better placed to take advantage of the opportunities made possible by our strong fundamentals if our culture is one that accepts risk and appropriately rewards risk taking. a third area is the operation of the labour market. from a macroeconomic point of view, australia ’ s labour market arrangements have worked well over recent times. during the global downturn, flexibility in hours worked helped limit the rise in unemployment. then, during the years of the resources boom, very large wage increases were mainly confined to the areas where skills were in the shortest supply and they did not spread across the economy as a whole. and more recently, the slowing in aggregate wage growth has helped employment to grow reasonably strongly despite below - average growth in the overall economy ( graph 6 ). so, from a cyclical perspective, the labour market has proved to be quite flexible and things have worked reasonably well. a more open question is the degree of flexibility in dealing with structural change. again, we are more likely to be able to capitalise on our strong fundamentals if our system of workplace relations helps businesses and their employees respond quickly and effectively to new opportunities. this is especially so when business models and the preferred working patterns of australians are changing. as the productivity commission ’ s recent draft report

difficult to achieve at the level of the system as a whole, because the available incentives do not necessarily support coordinated action. consistent with the wallis vision, the psb has been active in promoting coordinated industry solutions where that was in the public interest. an early example was in encouraging faster cheque clearing – an obvious improvement in system efficiency but one that couldn ’ t have been achieved without effective coordination. on a larger scale, the psb more recently undertook its strategic review of innovation in the payments system, the results of which were published in 2012. 2 that review was conducted over a two year period and involved extensive consultations with both the payments industry and with users of payments services. it found a number of areas where there was scope for system improvements that could be achieved through coordinated action. the key areas were : • same - day settlement of direct entry transactions ; • faster payments and out - of - hours payments to be made generally available ; • capacity for richer information with payments ; and • an easy addressing solution for electronic payments. the first one of these was delivered at the end of 2013 and essentially involved an acceleration of existing direct entry processes. the remaining three form a more ambitious agenda and are together being taken up as part of the industry ’ s new payments platform ( the npp project ). the npp is a successful example of what can be done through collaboration between the industry and its regulator. it is also a good example of the catalyst role for the psb in promoting system innovation that was envisaged by wallis. while it is an industry - led project, it is strongly supported by the psb, and the board continues to encourage commitment to the project and to its timely completion. the project was launched in early 2013 and is now well advanced. on current scheduling the npp will deliver a fast payments service with rich information and addressing capabilities in the second half of 2017. it will be linked to a fast settlement service provided by the reserve bank, which will allow transactions to be cleared and settled 24 / 7 in close to real time. all of this will amount to a world - class payments infrastructure. it will also be a platform for further innovation. one of the key decisions made at an early stage of the project was to separate the basic clearing and settlement infrastructure from the commercially based overlay services that would use it. the industry is committed to an initial overlay that is intended to provide an attractive service and drive early volume growth. but it is important to note that access