, far smaller than in the other major european countries, went to start - ups. investment in high - technology sectors is minimal. a good part of the capital is of foreign origin ; the domestic component comes largely from banks, while the role of other investors, especially pension funds, is scant. as a rule, small firms with highly innovative projects are unable to raise funds directly in the capital market, nor can ordinary bank lending suffice. even medium - sized companies with opportunities for growth are often incapable of attaining stock exchange listing. there is a need for intermediaries that are able to select risky but promising projects in which to invest, with the ultimate aim of placing the equity on the market. more generally, private equity is also helpful in other corporate transitions, such as generational change, management buy - outs, crises and restructuring. the expansion of the stock exchange and of specialized intermediaries can also be fostered by an enhanced presence of institutional investors, pension funds above all. in the countries where pension funds play a significant role, even relatively small firms tend to seek stock exchange listing. institutional investors play an active role as minority shareholders, monitoring management ’ s performance. they reduce informational asymmetries and increase the volume of resources available on the market to finance enterprises. they are among the leading sources of venture capital and, more generally, of funds for intermediaries specialized in supplying risk capital to firms. the spread of private pension funds in italy is essential to the equilibrium and the equity of the pension system. the rules governing the allocation of workers ’ accruing severance pay entitlements will play a key role in shaping the funds ’ development. while the amounts accumulated must be earmarked for retirement purposes, workers must be given full freedom of choice : free and fair competition between classes of asset managers and types of retirement scheme, at low cost to the saver, constitutes a guarantee for the robust, competitive development of the sector. workers must be provided with clear and complete information on their pension situation and the alternatives available if they are to be in a position to make informed choices. the finance bill ’ s provision for the partial transfer to the social security administration of resources now going to firms ’ severance pay funds must not conflict with the objective of developing supplementary pensions. 3. 2 the shape of the banking system banks were once virtually the sole agents for collecting savings in italy and channelling these resources to firms. overseeing their stability was tantamount

the government took steps to open up further the market for private services. various measures to revive the productive system are now set out in bills recently passed by the council of ministers. it is to be hoped that progress in this direction will continue, without deviating from the objective of improving competitiveness and efficiency at every point of the productive system. as far as incentives are concerned, automatic facilities for firms appear preferable as being less costly and distorting than discretionary measures, which rely on the public bodies concerned to select the sectors for promotion and choosing between different technologies and projects. such a model requires a remarkable capacity for strategic evaluation. if that is lacking, there is a serious risk of scarce resources not being optimally allocated. to promote growth, improving the environment in which the productive system operates is more important than augmenting or refining the incentives offered to firms. the areas needing action are many and well known. they include simplifying the regulatory and tax system, introducing rewards for merit and mechanisms of competition within the educational and training system, reducing the cost and enhancing the effectiveness of business services and local public services, promoting competition in the production and distribution of those services everywhere possible, and acting to ensure that the legal order and governmental authorities are guided by the values of the market and efficiency rather than the deleterious standards of legal formality and bureaucratic power. 3. the financial system ’ s contribution to growth 3. 1 the stock market and institutional investors structural reform must also extend to the financial industry. the possibility of direct or indirect recourse to the capital market plays an essential role in facilitating the expansion of firms that have growth potential. market access is assisted by the presence of a large stock exchange, a good number of institutional investors and a web of specialized intermediaries. progress on all these fronts is needed. as we know, the italian share market is smaller than those of the other advanced countries. both the number of companies listed and the ratio of their total capitalization to gdp are not only far lower than in the united states and the united kingdom but also below the euro - area average. as for specialized intermediaries, in 2005 total private - equity investment in italy was half the european average in proportion to gdp. the resources invested in italy go largely to buyouts. only 15 per cent of italian private - equity investment in 2005 went to venture - capital operations, compared with a european average of 27 per cent. and even of that, only a marginal portion