david dodge : improving canada ’ s productivity remarks by mr david dodge, governor of the bank of canada, to the canadian council for public private partnerships, toronto, 28 november 2005. * * * investing in productivity today i want to discuss the importance of efficiency in canada's economy. specifically, i'll focus on some of the elements that contribute to productivity growth in canada — a subject that i've addressed before and that you've been hearing a lot about lately. let me start by explaining what we mean when we talk about productivity. measures of productivity tell us how much output we produce from the use of tangible inputs — such as skilled workers and capital equipment — and intangible inputs — such as technological advances and managerial and entrepreneurial know - how. productivity rises over time as we boost output by finding new and more efficient ways to use these inputs. when measuring productivity, economists often prefer to use a measure called total factor productivity, which includes all these inputs — capital, labour, innovation, and know - how. in practice, however, it is very difficult to measure total factor productivity. that's why analysts usually focus on the more commonly used and better - understood measure, labour productivity. this measure tells us how much output is produced per worker or per hour worked. labour productivity has the added advantage of being closer to measures of standards of living and more directly comparable across countries. of course, labour productivity is affected by experience and education, by the amount of capital equipment ( notably machinery and equipment ) that is available to workers, and by innovation and know - how. we care about productivity because it is critical to our national standard of living. there are other factors that affect our living standards — changes in our terms of trade and in employment - topopulation ratios, for instance — but productivity growth is the main contributor to sustained improvements in real incomes and rising standards of living over the long term. but productivity growth in canada, measured as real gross domestic product per hour worked, has averaged less than 1 per cent per year so far in this century. frankly, we must do better. the components of productivity but what does " doing better " actually mean? first, it means increasing the amount and the quality of physical capital per worker — giving employees better tools to work with. it also means allocating resources more efficiently and being more innovative. in my remarks today, i'm going to focus on the two latter elements — efficient allocation and innovation. i'll start

proved most relevant for the success of emu in europe : through the irrevocable fixing of exchange rates countries are no longer exposed to harmful intra - european exchange rate tensions and are also better protected from negative external shocks. indeed, major global developments in recent years, like the bursting of the equity bubble, the repercussions of the terrorist attacks and the substantial depreciation of the u. s. dollar might otherwise have led to phases of instability within the european economy. yet emu provided a stable framework for weathering these turbulences. upon entering the european union, the ten new member states also become members of the economic and monetary union. while they will not yet take part in emu to the full extent, as they cannot adopt the euro immediately, they are already required to observe a number of obligations embodied in the stability architecture of emu : they generally have to bring into line their economic and monetary policies with the overall goals of emu. their central banks will be represented in the general council of the ecb, which supports the ecb in its advisory and coordinating functions. the new member states will participate in the coordination of economic and monetary policies and in the multilateral fiscal surveillance. moreover, they shall treat exchange rate policies as a matter of common interest, as the functioning of the single market must not be weakened by real exchange rate misalignments or excessive nominal exchange rate fluctuations. from the point of view of a country that already enjoys the benefits of the common currency, it is essential that the next step of european integration, the adoption of the euro in the acceding countries, is as well prepared as all past integration steps. i am convinced that each of the new eu member states is a good potential candidate for the single monetary policy as defined by the economic theory on optimal currency areas : they can all be characterized as open economies with strong economic linkages with the euro area, a steadily increasing degree of business cycle synchronization with the euro area and a high level of flexibility to adjust to new economic circumstances. while in general most of the advantages of monetary integration will increase with the scale of the euro area, it is crucial that countries are sufficiently prepared for this intensified integration before they adopt the euro. the treaty with its convergence criteria provides the appropriate framework to assess whether a country shows a record of stability - oriented monetary and fiscal policy and therefore can be regarded as ready for monetary integration. let me at this point recall some of the convergence criteria to evaluate