bargaining system does not take into account the large differences in individual firms ’ specific situations, so it is not the most suitable one to prevent the bout of weak demand from generating a sharp fall in employment. further, the predominance of indexation clauses in collective labour agreements is a problem that becomes particularly harmful when, as in the current circumstances, inflation has risen due to an external shock, like oil prices, at a time of cyclical weakness. it is naive to believe that automatic wage adjustment to reflect past consumer price increases provides any protection to household disposable income. on the contrary, these clauses ( which have now been done away with in most european countries ) lessen the ability of firms to compete and keep creating jobs, generate inflation ( which affects those not protected by similar provisions ) and, in short, hinder adaptation to the external shock. in general, these characteristics of the spanish labour market have meant that employment has so far been the economy ’ s main adjustment variable in periods of crisis, since it is the quantities ( i. e. the number of workers ) that change given the impossibility of adjusting prices, i. e. wages. thus it is not surprising that in the past year the unemployment rate in spain has risen by 2. 4 percentage points to 10. 4 % in 2008 q2, while in the same period the euro area unemployment rate has remained relatively steady at a little above 7 %. the fact that spain has the highest unemployment rate of the oecd countries should lead us to reform our labour market institutions and improve this lamentable ranking. many of my talks in recent months have referred to the activity of spanish financial institutions. these played an essential role in the fourteen years of expansion and, thanks to their capable management, were in a sound position at the beginning of the international financial crisis. but it cannot be denied that spanish institutions face difficult challenges : first, as noted above, although they were not agents of the crisis, they are being affected by the standstill on the international financial markets ; second, balance - sheet building by firms and households, which i mentioned earlier, will lead to a substantial moderation of borrowing by these sectors and hence to a reduction in the business of credit institutions ; finally, the phase of real - estate adjustment and, in general, of economic slowdown, is already being reflected in increased doubtful assets, although this was to be expected and is still far from reaching alarming levels. for all these

. the quality of management also matters, and in this regard i have no doubt that the opening up of the new zealand economy during the last decade or so has been a catalyst for improved business management in new zealand. certainly poor management is no longer sheltered by regulations and tariffs which keep competitors at bay. similarly, economies that grow strongly typically have good industrial relations. here too we have made progress in recent years. the less centralised structures we now have for negotiating pay and conditions have been beneficial from the standpoint of encouraging both employers and employees to focus on their mutual stake in staying up with, if not ahead of, the competition. at the very least, nobody seems to want to go back to the very highly centralised industrial relations structures we had in the seventies and eighties. and the number of ‘ days lost ’ as the result of strikes is well down on what used to be regarded as normal. these things are all helping our growth performance. lessons for new zealand : policies which distort investment decisions damage our growth prospects additional investment, so that each person employed is teamed with a greater amount of physical capital, is also crucial to our growth performance. but in some ways the quality of additional investment is even more important than its quantity. when we look at new zealand ’ s slow growth period - - through the seventies and eighties - - we find that the ratio of investment to gdp was quite respectable by comparison with other developed countries. what was impeding growth was not so much an inadequate level of investment as a persistent tendency to direct capital into low - yielding activities. perhaps the best - known examples of low - yielding investment were the ‘ think big ’ projects of the late seventies and early eighties, but a great many could also be found in the private sector. partly because of the distortions caused by inflation, much investment was channelled into real estate investment, sometimes well ahead of demand. partly because of subsidies, capital was invested in the production of sheepmeat for which there was no market. largely because of quantitative import restrictions and high tariffs, a great deal of capital was invested in activities which, while profitable to the investors, added little or nothing to output valued at international prices. worse, in some highly protected industries, when measured at international prices the value of output was actually negative. in other words, the cost of inputs, at world prices, exceeded the value of outputs at world prices. it is with those considerations in mind that countries seeking to boost their growth performance look to