The competitive environment provides the framework under which labour, capital, and product markets operate. These rules and institutions are fundamental for productivity because they facilitate the efficient operation of markets. The conditions need to be transparent and comprehensible to ensure individuals and organisations recognise their rights and responsibilities.
There are a number of dimensions to the competitive environment:
- Competition – open and competitive markets encourage firms to innovate and strive for greater efficiency; providing incentives to reduce costs and prices. Competition can deliver real benefits for consumers.
- The labour market – dynamic, modern economies require flexible and efficient labour markets to respond to changing circumstance and to make the best of new opportunities. They also need to offer appropriate worker protection, in order to foster commitment and partnership in the workplace.
- Institutional and political environment – business confidence and the willingness to invest are affected by the institutional and legal framework, and the efficiency of the regulatory system. The latter is also particularly important for consumer confidence.