the market. competition will also tend to result in the failure of unproductive businesses and facilitate the entry and success of more innovative ones. in addition, more heavily - regulated firms may be less motivated to choose an efficient technology. in recent years, industries such as telecommunications, transportation, electricity and banking have undergone privatization, deregulation and increased competition in a number of countries. in many cases, these reforms were in fact prompted by technological change which reduced large fixed costs and thus the scope for natural monopolies. furthermore, in some of these industries, there is evidence that the move towards a more liberalized regulatory regime induced further innovation. a good example is the telecommunications industry. evidence on patents ( one measure of innovation ) and measures of productivity suggests that those countries that have extensively liberalized ( such as japan, the united kingdom, finland and the united states ) have experienced greater innovation and larger gains in efficiency. evidence from the telecommunications industry also suggests that the technological diffusion rate is faster under a more competitive regulatory regime. for instance, both growth in cellular phone usage and the penetration rate for internet hosts is much higher in more competitive market structures. this is not to suggest that regulation is necessarily a bad thing. regulations that protect intellectual property rights reward those with creative ideas and therefore can act to stimulate cost - reducing innovations. from a broader perspective, productivity growth is obviously not society ’ s only priority – worker health and safety, pollution control and other societal values are important as well. although it has been argued that regulations requiring mandated approaches to pollution reduction or worker safety tend to divert managerial energies from pursuing cost - reducing innovations, studies have shown that some regulatory changes can in fact enhance productivity by forcing a firm to develop new and more - efficient production techniques. for example, the cotton dust standard mandated by osha is claimed to have led to the adoption of new and more cost - effective technologies utilized by the textile industry. what i think this suggests is the need, as with so much in economics, to recognize trade - offs. we should recognize the broad range of society ’ s interests and continue to seek balance by striving for regulation that serves well - defined purposes with minimal burden. other institutional features other institutional features are also important to the climate for innovation. for instance, entrepreneurship is fostered by access of small firms to capital markets. a lack of breadth and depth of financial institutions and markets can inhibit the financing of innovative projects by small firms. again, the united states appears to have an

advantage in this regard relative to europe and japan. in particular, venture capital markets here are both more developed and more geared to financing higher - risk projects, mainly in technology - based sectors by start - ups with prospects of rapid growth. furthermore, the range of investors is wide and includes pension funds, insurance companies and even private individuals. in contrast, in europe, venture capital is geared towards more mainstream projects and banks dominate lending. in japan, a venture capitalist is typically a subsidiary of a large financial institution and invests mainly in established firms. conclusion obviously, the united states does not have a monopoly on technological advance. we should not be smug nor complacent because certainly the us experience will be adopted and adapted by other countries. although the united states arguably has led the way into the information technology revolution, there is evidence that others are following. scandinavia in particular appears to be embracing computer - based technology ; sweden has begun to market itself as europe ’ s “ silicon valley. ” adoption of new technologies in the united states may also have been spurred in recent years by the cyclical strength of the economy in combination with strong domestic and international competitive pressures. with new workers increasingly difficult to hire in a tight labor market, firms have an increased incentive to find new and more - efficient ways to use existing labor resources. i might add that the current low inflation environment also helps this process. in the presence of subdued inflation expectations, the first inclination of firms in the face of rising demand for their output, thus far at least, appears not to have been to raise prices but rather to find ways to expand output via more efficient means of production. it is clear that other countries, many of which are less far along in reaping the benefits associated with the revolution in information technology, have the potential to gain more over the period ahead. the extent to which they do realize these gains will depend on how successful they are in adapting to their unique circumstances policies that foster efficiency and competition in labor and product markets. i wish them well.