markets, and high rates of firm entry and exit, canada appears to have all the ingredients needed to be an innovation leader. however, it is only 16th among the oecd countries in the intensity of business research and development. 9 our dismal multifactor productivity growth indicates that canadian firms do not effectively use the capital that they purchase. 10 some possible explanations for why we both under - invest and appear to use capital so poorly include : the wrong skills mix : canada has a well - educated labour force but, perhaps as the structure of the economy shifts, not in the areas required ; small firms : compared with the united states, canada has proportionately more small firms that are significantly less productive than large firms ; 11 and in particular, inadequate competition in some sectors, especially network industries that have spillovers throughout the economy, including telecommunications, electricity, and retail. 12 whatever the combination of reasons behind canada ’ s poor productivity record, there are several avenues available to policy - makers to encourage sustainable longer - run growth. it is important to acknowledge that successive governments have taken many steps in the right direction. canadian businesses benefit from a sound macro - policy environment, including sustainable fiscal policy and credible monetary policy, which delivers low, stable, and predictable inflation. corporate tax competitiveness – particularly for new investment – has improved markedly over the past decade and is now among the most attractive in the industrialised world. canada has also actively pursued trade openness through new agreements and unilateral tariff reductions. 13 staying the course in these regards is likely the single most important contribution of the public sector. this is not related to industrial structure – it is found in most industries. see a. sharpe, “ what explains the canada - us ict investment gap? ” research report 2005 – 2006, centre for the study of living standards ( csls ), december 2005. a recent report concluded that “ too many businesses in canada are technology followers, not leaders ” and stressed the need for “ innovation - based business strategies. ” see p. nicholson, “ innovation and business strategy : why canada falls short, ” international productivity monitor, no. 18 ( spring 2009 ) : 51 – 71. available at : http : / / www. csls. ca / ipm / 18 / ipm - 18 - nicholson. pdf. using a growth - accounting framework, baldwin and gu show that multi - factor productivity ( mfp ) is the main culprit in canada ’ s lagging productivity performance

i believe there is scope for greater regional dialogue and greater policy convergence, at all relevant areas of public policy and private sector development. second, i believe there is more to be done in order to finish the job of regional integration. in particular, standards on products and services should be agreed upon. third, beyond the convergence of financial development policies, i remain convinced we should explore the idea of joint financial development projects. although fraught with difficulties, a regional stock exchange is a meaningful potential project. fourth, i believe the region should strive towards establishing the lowest acceptable common denominator in terms of tax, labour market, financial sector, and environment regulation. ‘ beggar - thy - neighbour ’ policies through constantly undercutting each other in any of these areas are only damaging the region in the long term. fifth, the regional infrastructure remains rather fragmented. this refers not merely to the transport infrastructure, but also the electricity and it network. honourable participants, some of the issues i professed here might seem utopian or unrealistic. however, i remain convinced that through an honest common endeavour, such ideas might, someday, in the nottoo - distant future, become reality. thank you! 3 / 3 bis central bankers'speeches