Firms and their workers need to be able to respond quickly to technological advances and to shocks that require changes in the way they conduct business, the kinds of goods and services they produce, and the markets they choose to develop. A well-functioning marketbased economy that sends clear relative price signals is critical in this context.
At the same time, policy-makers need to be wary of barriers to adjustment, such as labour regulations that inhibit the movement of workers from one type of job, or from one sector or region, to another. To enhance flexibility, to raise the growth potential of the economy, and to increase its resilience to shocks, we need policies that encourage structural reforms.