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Speaker 1: Bloomberg Audio Studios, podcasts, radio news.

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Speaker 2: This is Wall Street Week. I'm David Weston, bringing you

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Speaker 2: stories of capitalism. Last week, the US Army announced plans

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Speaker 2: to transform itself for a new world and a new

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Speaker 2: way of fighting wars. We talked with the Secretary of

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Speaker 2: the Army, Dan Driscoll about what of the old has

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Speaker 2: to go out to make room for the new to

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Speaker 2: come in. Plus, we traveled to Stockholm to see how

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Speaker 2: the rest of Europe could follow Sweden's lead in building

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Speaker 2: an innovation ecosystem on the back of capital markets with

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Speaker 2: just about everyone owning a piece. But we start with

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Speaker 2: China and a story about the two biggest economies in

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Speaker 2: the world trying to come to trade terms. Who has

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Speaker 2: the upper hand and is it possible for both to win.

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Speaker 3: President Trump wants to rebalance the American economy back to

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Speaker 3: a manufacturing economy with high precision manufacturing. I think everyone agrees,

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Speaker 3: including Chinese leadership, that they need to rebalance towards more

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Speaker 3: of a consumption and consumer economy. And the dream scenario

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Speaker 3: would be if somehow we could do that together.

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Speaker 2: Turning first to our special contributor, Larry Summers of Harvard,

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Speaker 2: So Larry. This week we heard about the tentative agreement

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Speaker 2: for ninety days at least between the United States and

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Speaker 2: China dialing back on the tariffs. Was this a step

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Speaker 2: forward for the Trump administration?

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Speaker 4: I salute Secretary Bessant. The avoidance of value subtracted is

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Speaker 4: value added, and by that standard, we added value. The

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Speaker 4: United States backed off of what we are extremely imprudent

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Speaker 4: and potentially economically very damaging prohibitive tariffs to the point

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Speaker 4: of embargo on China. That was a good thing for

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Speaker 4: the US economy, and as a consequence, the US stock

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Speaker 4: market rose substantially in recognition of that. It was not

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Speaker 4: an increase due to Chinese concessions. You could see that

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Speaker 4: from the internals of the market. Companies like toy companies

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Speaker 4: that were dependent on imports retailers performed particularly well. But look,

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Speaker 4: when you make a mistake, when you've done something imprudent,

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Speaker 4: it's a good idea to salvage what pride you can

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Speaker 4: and to retreat. And that's what the Trump administration did,

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Speaker 4: and I salute Secretary Vessant for his leadership in doing that.

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Speaker 2: Part of any high stakes negotiation is trying to assess

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Speaker 2: the pressure points on the two sides, and one of

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Speaker 2: the things we've heard from President Trump is he believes

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Speaker 2: there's a lot of pressure on China right now because

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Speaker 2: it is a manufacturing economy and as he says, a

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Speaker 2: lot of factories have gone quiet. Is he right? Is

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Speaker 2: there a lot of pressure on China right now to

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Speaker 2: come to terms.

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Speaker 4: I think there's some pressure on China, but I think

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Speaker 4: there's more pressure on us because we're the one that's

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Speaker 4: a democratic country that's responsive to our people. We're the

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Speaker 4: one that has a highly inflation conscious population and prohibitive

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Speaker 4: tariffs raise price levels. We're the one that's the active

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Speaker 4: player here. So I think there was a lot of

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Speaker 4: pressure on us, to which we responded. I think it's

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Speaker 4: a very important part of governing to be willing to

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Speaker 4: recognize when you push things too far and to pull back.

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Speaker 4: But let's not be confused about what the path eater was.

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Speaker 4: It was an overly aggressive, overly truculent, erroneous approach from

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Speaker 4: which there has been a significant but still not total retreat.

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Speaker 2: Larry Ticket step back from the particulars of balance of

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Speaker 2: trade and fairness and trade. As a macroeconomist, we do

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Speaker 2: have the second largest economy in the world by most measures,

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Speaker 2: by some even the largest economy in the world that

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Speaker 2: is not market driven fundamentally, it is centrally planned and

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Speaker 2: they've built up a huge productive capacity. How does one

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Speaker 2: deal with that? I don't think we ever had to

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Speaker 2: do that in the past. How do you deal with

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Speaker 2: that in terms of trade terms and making sure that

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Speaker 2: it doesn't distort things in our country?

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Speaker 4: Well, I think what you do is you focus on

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Speaker 4: your own economic interests and if others want to subsidize

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Speaker 4: your consumers, if others want to subsidize your producers, that

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Speaker 4: can very easily be a good thing. And so you

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Speaker 4: try to define what your core interests are. We have

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Speaker 4: a core interest in national security. In everything that's national

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Speaker 4: security sensitive. We need to be trying to pivot away

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Speaker 4: from China. We need to be very attentive to the

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Speaker 4: security risks of Chinese presence in the United States. That's

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Speaker 4: issues like TikTok. We need to be very focused on

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Speaker 4: preventing China from getting access to intellectual property and ways

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Speaker 4: that's going to enable them to surpass us. But you

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Speaker 4: have to focus on your core interests, and when you're

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Speaker 4: worried about the export of Barbie dolls. You're not focusing

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Speaker 4: on your core interests when you're worried about trying to

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Speaker 4: get jobs here, putting together other the different components of

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Speaker 4: an iPhone, you're not worried about your core interests. So, yeah,

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Speaker 4: we do need a strategy with respect to China, a

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Speaker 4: strategy directed getting them to follow rules of the road

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Speaker 4: where that's important for our core national security interests. But

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Speaker 4: this kind of broad, indiscriminate attack that has been launched

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Speaker 4: that mostly serves to cause Americans to feel poorer, mostly

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Speaker 4: serves to increase our inflation. That's not the right way forward.

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Speaker 4: So I'm glad to see the adjustments that the Trump

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Speaker 4: administration has entered into.

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Speaker 2: The tentative agreement reached in Geneva was just that tentative,

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Speaker 2: leaving a lot of work to be done before the

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Speaker 2: United States and China can reach a long term solution

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Speaker 2: to their trade conflicts. Elizabeth Economy is a China expert

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Speaker 2: at the Hoover Institution who keeps careful track of the

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Speaker 2: relative strengths and weaknesses of the world's two largest economies.

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Speaker 5: I think both countries have economic vulnerabilities. I think the

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Speaker 5: assessment on the part of the Trump administration was that

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Speaker 5: China was more vulnerable because it exports much more to

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Speaker 5: the United States than the US does to China. Its

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Speaker 5: economy has also been struggling. It's been in a prolonged

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Speaker 5: economic slowdown for at least three years now. But I

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Speaker 5: think there was a fundamental miscalculation on the part of

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Speaker 5: the administration. They didn't appreciate that we have a much

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Speaker 5: greater soul or near soul source reliance on a number

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Speaker 5: of critical products from China, critical minerals, rare earth elements,

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Speaker 5: active pharmaceutical ingredients. These are all things that are essential

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Speaker 5: for our economic security, our national security, our human security,

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Speaker 5: and will devastate quite frankly, our pharmaceutical industries and our

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Speaker 5: defense and technology industries. So there's a balance, I think

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Speaker 5: between the Chinese vulnerabilities and the US vulnerabilities. Both of us,

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Speaker 5: I think, have vulnerabilities to in the space of this

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Speaker 5: tariff war.

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Speaker 2: Does the rest of the world give one side between

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Speaker 2: I say, some China advantage over the other. I mean

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Speaker 2: both sides historically have tried to recruit the rest.

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Speaker 4: Of the world.

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Speaker 5: I think for the advanced market democracies, what we've seen

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Speaker 5: has been in some respects somewhat surprising. I think there

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Speaker 5: was a belief on the part of the Chinese government

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Speaker 5: that given this tariff for this global tariff war that

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Speaker 5: President Trump has launched, that it would be easy pickings

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Speaker 5: that China would walk in and basically say, we are

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Speaker 5: a stabilizing force in the global economy, We're a stabilizing

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Speaker 5: force in the international system. And they've gone around saying,

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Speaker 5: let's join hands and work together to push back against

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Speaker 5: President Trump and this tariff war. I think what they've

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Speaker 5: found is that really nobody's that interested in buying what

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Speaker 5: they're selling. There's an entire world now emerging that is

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Speaker 5: set to support the current rules based order that doesn't

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Speaker 5: include the United States, but also doesn't include China.

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Speaker 2: One destination of Chinese goods that otherwise might be expert

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Speaker 2: would be domestically increased domestic consumption, which has been talked

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Speaker 2: about for years now. What are the prospects In fact,

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Speaker 2: Xi Jinping might say, Okay, we're going to stimulate the consumer.

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Speaker 5: I mean, Chinese economists have been saying for years now

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Speaker 5: that the government needs to do more to support the

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Speaker 5: consumer economy, and part of that would be, you know,

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Speaker 5: investing more in the healthcare system, the education system, the

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Speaker 5: pension system, giving the Chinese people a sense that they

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Speaker 5: don't need to continue to save in the case of

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Speaker 5: an emergency. But Chijinping is allergic to what he calls

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Speaker 5: social welfare ism. He doesn't want to give the Chinese

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Speaker 5: people any incentive not to work, at least that's how

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Speaker 5: he looks at it. So again we've seen President she

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Speaker 5: over the course of this taraf war take a few steps,

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Speaker 5: you know, in the form of raising wages for civil servants,

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Speaker 5: notwithstanding the fact that a year ago or a year

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Speaker 5: and a half ago he actually cut those same wages.

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Speaker 5: So I don't know whether this is actually increase or

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Speaker 5: just taking them back to where they were. And also

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Speaker 5: again having this massive goods trade in program. But mostly

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Speaker 5: what he's done I think is, you know, encourage banks

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Speaker 5: to loan to small and medium sized enterprises. You've seen

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Speaker 5: Ali Baba, for example, reduce the cost of companies putting

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Speaker 5: their goods on its platform, to encourage small and medium

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Speaker 5: sized enterprises to be able to export. So there are

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Speaker 5: steps that are being taken, but there's nothing in the

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Speaker 5: way of sort of a massive boost to the consumer

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Speaker 5: economy that I think Chinese economists would.

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Speaker 6: Like to see.

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Speaker 2: Coming next the story of Nasdaq in Europe and how

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Speaker 2: Sweden's deep and robust capital markets connection to tech startups

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Speaker 2: could give the rest of Europe an example to follow.

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Speaker 2: Six fam today two and this is a story about

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Speaker 2: attracting bees with honey, specifically the honey of rich capital markets,

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Speaker 2: attracting the bees of tech entrepreneurs, something that has helped

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Speaker 2: drive US economic growth, but that has largely been lacking

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Speaker 2: in Europe, except in one particular corner.

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Speaker 7: About thirty nine percent of household assets in the United

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Speaker 7: States are invested in equities, which is the highest in

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Speaker 7: the world. But here in Sweden it's thirty six percent.

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Speaker 2: And it's not just how much, it's how broad.

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Speaker 8: About ninety percent of the sweet savings are in some

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Speaker 8: financial assets, which makes us the most investing country, at

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Speaker 8: least in Europe.

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Speaker 9: We're blessed to have a broad equity participation, so lots

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Speaker 9: of people who own stocks directly. What that does is,

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Speaker 9: of course, it creates this economic alignment, etc.

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Speaker 2: We've come to expect robust capital markets supported by retail

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Speaker 2: investment in the United States, but not necessarily in Sweden,

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Speaker 2: a Nordic country with a population of just a little

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Speaker 2: more than ten million people that punches above its weight

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Speaker 2: in the depth of its capital markets and is home

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Speaker 2: to Nasdaq's European headquarters.

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Speaker 7: We operate our markets here and also in the Nordics.

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Speaker 7: We own and operate almost all the markets in the Nordics.

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Speaker 2: We spoke to Nasdaq CEO Adina Friedman in New York

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Speaker 2: in April, not long after President Trump had roiled the

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Speaker 2: markets with his sweeping tariff announcements.

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Speaker 7: So on options in twenty twenty four, we had an

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Speaker 7: average of about twenty four million contracts traded a day.

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Speaker 7: On Friday, we had ninety four million contracts traded. Now,

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Speaker 7: what generally said that what's really really interesting is options

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Speaker 7: markets are extremely data heavy.

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Speaker 2: Friedman and her Nasdaq team have plenty to handle with

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Speaker 2: US markets, but they also run European operations almost as large,

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Speaker 2: in what they call Nasdaq Nordic, which became part of

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Speaker 2: the group in two thousand and eight. We accompanied Friedman

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Speaker 2: on a trip to the European headquarters in Stockholm.

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Speaker 7: Well, Stockholm is one of the great markets that we

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Speaker 7: own and operate here in the Nordics, but it also

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Speaker 7: is the headquarters to our market technology business where we

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Speaker 7: serve one hundred and thirty markets with our technology that

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Speaker 7: helps them power all the market those markets around the

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Speaker 7: world as well.

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Speaker 2: How much of nasac's overall operation is represented in Stockholm, Well.

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Speaker 7: We have about eight hundred employees here in Stockholm, slightly

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Speaker 7: smaller than New York, where we have about one thousand

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Speaker 7: employees in our New York office. So it kind of

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Speaker 7: gives you a sense that this really is our second

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Speaker 7: headquarters in the world. It's one of the special places

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Speaker 7: that I get the benefit of being able to come

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Speaker 7: to as we engage with the markets here in Sweden.

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Speaker 7: One of the things that I find interesting is how

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Speaker 7: similar it is here in Sweden versus New York. So

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Speaker 7: the markets in Sweden have a lot of characteristics to

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Speaker 7: the markets in the US, which is different than the

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Speaker 7: rest of Europe. So when we look at it, we

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Speaker 7: look at how liquid are the markets, how many new

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Speaker 7: companies come and list here in any given year, how

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Speaker 7: active are the markets in terms of having retail ownership

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Speaker 7: of equities, and in many many cases those are very

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Speaker 7: similar to the US. So we have twelve hundred companies

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Speaker 7: that are listed in the Nordics and in any given year,

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Speaker 7: we'll have dozens of companies list here, both small companies

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Speaker 7: on our SME market which is called First North, and

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Speaker 7: on the main market. So we're really really proud of

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Speaker 7: the fact that the markets here are very vibrant and

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Speaker 7: have a lot of similarities to what we see in

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Speaker 7: the US. But sitting here in Europe, almost.

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Speaker 2: One sign of its strong capital markets is Sweden's IPO pace.

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Speaker 2: Between twenty thirteen and twenty twenty four, there were more

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Speaker 2: IPOs in Sweden than in Italy, France or Germany, second

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Speaker 2: in Europe only to the UK.

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Speaker 7: The US markets are the largest, deepest, most liquid markets

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Speaker 7: in the world, but when you look at how that's

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Speaker 7: translated into the markets here in the Nordics, it actually

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Speaker 7: has a lot of a lot of the commonalities of

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Speaker 7: the market cap. The listed companies here in the Nordics

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Speaker 7: are about two trillion versus of course, we have about

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Speaker 7: thirty trillion in the United States just on Nasdaq. However,

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Speaker 7: you know, the liquidity that underpins that market cap here

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Speaker 7: in the Nordics is quite vibrant, very active.

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Speaker 8: We have lots of IPOs in Sweden, we have more

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Speaker 8: IPOs than any European countries together, and I would say

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Speaker 8: that is one important source.

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Speaker 2: Sweden's vibrant IPO market is no accident. It results in

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Speaker 2: part from government policies that encourage household participation in the markets.

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Speaker 2: Starting with taxes. Nicholas Wickman is Sweden's Minister for Financial Markets.

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Speaker 8: First of all, for the smallest entrepreneurs and new entrepreneurs

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Speaker 8: closely held corporations as they are called, they have strong

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Speaker 8: tax incentives because there's a twenty percent tax on dividends

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Speaker 8: within the rate of return. Allow it's quite complicated, but

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Speaker 8: it's also quite strong incentives to do business. And then

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Speaker 8: we have the isk system that takes down the cost

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Speaker 8: of capital, so to say, it provides at least more

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Speaker 8: capital into the system because you have a low effective

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Speaker 8: taxation on your invested savings. So I would say those

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Speaker 8: are two important aspects, one for the entrepreneurs and one

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Speaker 8: for the providers of capital. We have strong incentives to

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Speaker 8: stay in business for a long period of time. We

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Speaker 8: don't have any inheritance tax, we don't have gift tax,

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Speaker 8: we don't have tax on accumulated wealth or wealth tax

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Speaker 8: as you normally say. So I would say there's strong

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Speaker 8: incentives to provide capital in the system. They are strong

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Speaker 8: incentives to do something good with it, and it's strong

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Speaker 8: incentives for active owners to remain active and perhaps to

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Speaker 8: have all their families and keep their businesses over generations.

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Speaker 2: Another big driver of retail participation is an investment account

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Speaker 2: known as an ISSK, a government program under which two

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Speaker 2: point five percent of every employee's wages are put into

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Speaker 2: an account in their name, which they can allocate among

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Speaker 2: a range of funds. These funds are not subject to

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Speaker 2: capital gains tax. Instead, they are taxed one percent each

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Speaker 2: year on the value in the account.

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Speaker 7: One of the great examples of where regulation has played

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Speaker 7: a really key role in driving liquidity in the markets

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Speaker 7: has been that ISK program where they started in twenty

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Speaker 7: twelve and they said every citizen should be investing in

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Speaker 7: the markets. So therefore they said, okay, well we'll create

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Speaker 7: a tax account where your only tax about one percent

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Speaker 7: of your total assets every year, no cap gains tax.

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Speaker 7: So it means that investors can really bring their money

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Speaker 7: into the markets. Their only obligation is to invest in

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Speaker 7: the public markets anywhere, and it allows investors to have

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Speaker 7: a great engagement with the economy.

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Speaker 2: Christian cedar Home is the CEO of Investor AB, a

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Speaker 2: company which serves as the investment arm of the Wallenberg family,

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Speaker 2: one of the most prominent families in the country. In

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Speaker 2: the nineteen seventies, Wallenberg family businesses employed forty percent of

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Speaker 2: Sweden's industrial workforce and accounted for forty percent of the

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Speaker 2: total worth of the Stockholm stock market.

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Speaker 9: This has created this sort of positive flywheel effect where

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Speaker 9: owning stocks in a company, you may even work for

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Speaker 9: that same company. By the way, and we're blessed to

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Speaker 9: have a great number of even just going in looking

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Speaker 9: in Sweden, great number of high quality companies, so you

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Speaker 9: may work for them, you may be invested in them,

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Speaker 9: and of course that creates this this engagement around business

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Speaker 9: as part of a society.

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Speaker 2: You mentioned the breadth of ownership with equities in Sweden,

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Speaker 2: as I understand that there are ten million people roughly

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Speaker 2: in Sweden, you have six hundred and fifty thousand shareholders

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Speaker 2: yourself investor AB. How do you explain that bread How

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Speaker 2: does that happen?

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Speaker 9: Well, I mean, first of all, we're really thankful for

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Speaker 9: the trust that the people put in our work, and

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Speaker 9: you know that they appreciate what we're doing, so we're

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Speaker 9: quite humbled to that and the way I look at investor,

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Speaker 9: what you get is you get engaged ownership and active

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Speaker 9: investment in a portfolio of about twenty five really good

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Speaker 9: companies or high quality companies and at the relatively sleam

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Speaker 9: costs as well. And then of course over time it

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Speaker 9: helps that we have created a strong total shareholder return

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Speaker 9: over most sort of longer time periods at least, so

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Speaker 9: something seems to be working with them Orther and I.

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Speaker 8: Think it serves two purposes. First of all, it's about

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Speaker 8: social coherence. You have your job, you have your salary,

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Speaker 8: but you also have a share of the most productive

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Speaker 8: part of the economy that belongs to you because of

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Speaker 8: your savings. And it's about then, of course economic efficiency.

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Speaker 8: It provides capital for inventors and entrepreneurs. So's I would

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Speaker 8: say both about social coherence and economic efficients in a

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Speaker 8: very nice combination. Our social security system is important. It

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Speaker 8: makes it possible to take risks both with your savings

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Speaker 8: of course, but also in your work life as a whole.

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Speaker 8: When you have some basic, trustworthy welfare system, you know

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Speaker 8: that you could have a bit more risk of course

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Speaker 8: in the rest of the economy. So I think that

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Speaker 8: is one important one important topic. But of course also

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Speaker 8: the culture doesn't come from one source. The welfare system

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Speaker 8: could be one such source, education system could could be another.

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Speaker 8: And also of course that we provide financial stability, that

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Speaker 8: we safegoud our financial system.

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Speaker 2: What does all this mean for Sweden's economy as a whole.

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Speaker 2: It's GDP is projected to grow two point three percent

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Speaker 2: in twenty twenty five, compared to just one point seven

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Speaker 2: percent for the United States. Perhaps as important is Sweden's

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Speaker 2: level of productivity, which drives future growth.

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Speaker 8: Recent years, we have had the same problem as most

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Speaker 8: of the Western world, or especially the the Europe as large.

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Speaker 8: We have a productivity problem. But if you extend the

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Speaker 8: time period a bit, you can see that Sweden is

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Speaker 8: exceptionally productive.

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Speaker 2: Sweden's approach to encouraging broad and deep capital markets comes

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Speaker 2: in sharp contrast to some of the rest of Europe.

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Speaker 2: In his report on European Competitiveness, former ECB President Mario

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Speaker 2: Draghi pointed to the lack of sufficient capital support as

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Speaker 2: one reason why Europe has lagged behind the United States

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Speaker 2: in the growth of tech giants. Henry McVay is the

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Speaker 2: head of the Global Macro and Asset Allocation Team at KKR,

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Speaker 2: and we spoke to him after he returned from a

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Speaker 2: trip to Europe.

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Speaker 10: When you look at as a percentage of GDP, it's

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Speaker 10: about a third of the US. And so there's clearly

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Speaker 10: been a differential over the last ten and twenty years

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Speaker 10: on that's on the equity side. On the credit side,

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Speaker 10: what I think Europe has missed is it's really been

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Speaker 10: so bank controlled that you've missed the real growth in

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Speaker 10: the securitization market. So if you think about the US,

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Speaker 10: what we securitize everything guys into the capital markets.

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Speaker 2: The Drug Report talking about that, well that shift capital markets?

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Speaker 2: Do you think in Europe?

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Speaker 9: Well, it's it's certainly been a big wake up call

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Speaker 9: first of all. And if I take my positive had

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Speaker 9: on what I say is that hopefully now what what

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Speaker 9: you can read in the Drug Report, etc. Is turned

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Speaker 9: into really concrete actions as well, so that Europe can

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Speaker 9: leverage all the advantages it has. I mean it's a

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Speaker 9: large market, stable institutions, whatnot so and and high high

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Speaker 9: equity participation in some parts of Europe as well. And

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Speaker 9: then where do it shift? I mean, it's it seems

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Speaker 9: to just looking at where evaluations have gone recently, some

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Speaker 9: of the shifts you describe seem to you know, be

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Speaker 9: in the making where that goes long term, Probably others

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Speaker 9: are better position to tell.

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Speaker 2: Right, If capital markets are key to innovation in tech,

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Speaker 2: what has the Swedish approach to retail equity investing meant

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Speaker 2: for its startup record? That's where we turn next. After

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Speaker 2: a short break for coffee and Fica, the pastry that

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Speaker 2: sweeze enjoy during their workday afternoons.

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Speaker 7: We're in Sweden, so we have to we have to

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Speaker 7: we have to have fica so well, Fica's Queen's cake. Yes,

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Speaker 7: Feica is cake with coffee, so yes, exactly. So we're

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Speaker 7: going to have a pika leaders that tradition, right, It

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Speaker 7: is actually every Wednesday normally we have a Pica celebration

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Speaker 7: where we just get everyone together. So the whole purpose

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Speaker 7: is not to talk about work, is to talk about

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Speaker 7: each other and to create that sense of community. So

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Speaker 7: I love it. But it's a huge tradition here and

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Speaker 7: now we've brought it everywhere. Don't toast in Sweden? Do

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Speaker 7: you want to learn how to toast?

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Speaker 4: Well?

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Speaker 7: You toast? You say skulls? Don't you don't clean? You

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Speaker 7: look at each other in the eye, you drink and

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Speaker 7: you look at each other again. It's an old Viking tradition,

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Speaker 7: like the idea was that if I had poisoned you

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Speaker 7: would I wouldn't be able to look in the I.

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Speaker 2: The Dragi report on the Future of European competitiveness called

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Speaker 2: for Europe to develop a deeper pool of angel investors

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Speaker 2: and increase European IPOs to fund high growth companies. So

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Speaker 2: has Sweden's commitment to these sources of capital resulted in

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Speaker 2: a more robust startup culture. Sweden has produced more tech

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Speaker 2: unicorns per capita than any other country in Europe after Estonia,

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Speaker 2: and according to the World Intellectual Property Organization, Sweden ranked

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Speaker 2: second in global innovation among fifty one high income countries,

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Speaker 2: second to Switzerland and just ahead of the United States.

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Speaker 11: Swedeness has some well known brands going to iq H

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Speaker 11: and m Ericsson or more recently Spotify in Klana. So

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Speaker 11: it's a strong culture entrepreneurship which has fostered in a

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Speaker 11: way innovation of course, but also investments in the community

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Speaker 11: large and from a capital market perspective. So in Stockholm

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Speaker 11: in particular, I think it's a small city, but investors

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Speaker 11: are ever far away.

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Speaker 2: Ali Landin is the CEO and one of the co

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Speaker 2: founders of Froda, a tech startup that provides small and

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Speaker 2: medium sized enterprises with access to financing.

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Speaker 11: We start the company back in twenty fifteen. We came

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Speaker 11: across the idea when we're sitting at Stock and School

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Speaker 11: Economics have an incubator called Stock School Economics Business Lab,

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Speaker 11: and we realize at the point in time that all

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Speaker 11: these entrepreneurs who were sitting at that incubator starting their

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Speaker 11: businesses were struggling to get access to external financing. And

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Speaker 11: we realize that this is a huge problem and it's

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Speaker 11: really hampering innovation and growth and competitiveness all across Europe.

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Speaker 2: Even Sweden's retail banks work to bring their customers into

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Speaker 2: the world of investing.

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Speaker 12: One of our things to do is to help people

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Speaker 12: to educate get them in financial literacy. So that means

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Speaker 12: that in the old days, the savings banks gave like

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Speaker 12: a few kroner two when you were new born and

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Speaker 12: you could save it. And what we do is we

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Speaker 12: talk with youngsters who educate them on financial literacy. We

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Speaker 12: give them easy ways to invest in equities, to put

439
00:26:21,000 --> 00:26:24,880
Speaker 12: their money into pensions and things like that, so we

440
00:26:25,640 --> 00:26:29,479
Speaker 12: help people through that journey to make sure that in

441
00:26:29,520 --> 00:26:31,200
Speaker 12: the end they have good financial health.

442
00:26:31,840 --> 00:26:34,840
Speaker 2: Jens Hendrickson is the CEO of Sweatbank, one of the

443
00:26:34,920 --> 00:26:38,480
Speaker 2: largest Nordic banks, with around seventy five percent of its

444
00:26:38,520 --> 00:26:40,120
Speaker 2: revenue coming from Sweden.

445
00:26:40,600 --> 00:26:44,720
Speaker 12: Were nation of engineers, and we're small and open economy,

446
00:26:44,800 --> 00:26:48,119
Speaker 12: and sometimes people that are you not afraid that the

447
00:26:49,320 --> 00:26:53,800
Speaker 12: new technology will will sort of make you lose your job?

448
00:26:53,880 --> 00:26:57,240
Speaker 12: And people say, no, we're afraid of the old technology

449
00:26:57,400 --> 00:27:00,800
Speaker 12: because the old technology might hurt them, might sort of

450
00:27:00,880 --> 00:27:04,920
Speaker 12: make us weaker. We need new technology develop going forward,

451
00:27:05,720 --> 00:27:11,160
Speaker 12: increased growth and make Sweden welfare and a better society

452
00:27:11,200 --> 00:27:11,720
Speaker 12: to live.

453
00:27:11,560 --> 00:27:15,679
Speaker 2: In Sweden, support for innovation goes back decades.

454
00:27:16,720 --> 00:27:20,680
Speaker 11: I remember back in the early or mid nineties there

455
00:27:20,760 --> 00:27:24,840
Speaker 11: was sort of an initiative called bring a Computer into

456
00:27:24,840 --> 00:27:28,720
Speaker 11: Every Home, which was launched by the government and essentially

457
00:27:28,760 --> 00:27:32,080
Speaker 11: meant that each and every household in Sweden could get

458
00:27:32,119 --> 00:27:34,960
Speaker 11: a computer for almost no money at all. I think,

459
00:27:34,960 --> 00:27:37,240
Speaker 11: but we don't have to the same extent as for instance,

460
00:27:37,240 --> 00:27:40,080
Speaker 11: the US. You have the the pockets of Silicon Valley,

461
00:27:40,160 --> 00:27:44,480
Speaker 11: those huge funds that can invest billions and billions of dollars.

462
00:27:44,680 --> 00:27:47,280
Speaker 11: We don't have that, So I think what that means

463
00:27:47,359 --> 00:27:51,960
Speaker 11: is Swedish tech companies or startups need to show profits

464
00:27:52,119 --> 00:27:55,840
Speaker 11: earlier in their journey compared to for their US counterparts. Also,

465
00:27:55,880 --> 00:27:58,480
Speaker 11: it's it's kind of a small market. You need to

466
00:27:58,520 --> 00:28:01,639
Speaker 11: demonstrate scalability to be able to show that this is

467
00:28:01,640 --> 00:28:05,440
Speaker 11: an idea that's not only sustainable in this tiny sort

468
00:28:05,440 --> 00:28:07,919
Speaker 11: of Nordic market, but this is an idea that you

469
00:28:07,960 --> 00:28:11,920
Speaker 11: can actually export across the globe. So as a requirement

470
00:28:12,080 --> 00:28:15,120
Speaker 11: that you need the people to show how this works

471
00:28:15,119 --> 00:28:17,760
Speaker 11: across the globe or at least in a lot large market.

472
00:28:17,840 --> 00:28:18,640
Speaker 11: Not only Sweden.

473
00:28:19,760 --> 00:28:23,639
Speaker 2: Sweden innovation ecosystem is supported by more than it's tech

474
00:28:23,760 --> 00:28:27,800
Speaker 2: or tax and savings policies. Today, the country's social welfare

475
00:28:27,800 --> 00:28:31,359
Speaker 2: policies also have expanded to support the risk taking needed

476
00:28:31,560 --> 00:28:33,119
Speaker 2: to foster entrepreneurship.

477
00:28:33,440 --> 00:28:36,199
Speaker 7: It is a very vibrant innovation ecosystem. I think that

478
00:28:36,240 --> 00:28:39,160
Speaker 7: the government has done a lot of work intentionally to

479
00:28:39,240 --> 00:28:42,720
Speaker 7: make sure that they allow companies to take risk, allow

480
00:28:42,800 --> 00:28:46,400
Speaker 7: companies to grow and expand become global players, and then

481
00:28:46,440 --> 00:28:49,960
Speaker 7: they have a great system that also encourages citizens to

482
00:28:50,080 --> 00:28:51,480
Speaker 7: invest in these innovators.

483
00:28:51,840 --> 00:28:56,760
Speaker 8: Our social security system is important. It makes it possible

484
00:28:56,800 --> 00:28:59,360
Speaker 8: to take risks both with your savings of course, but

485
00:28:59,480 --> 00:29:02,720
Speaker 8: also in your work life as a whole. When you

486
00:29:02,760 --> 00:29:08,560
Speaker 8: have some basic, trustworthy welfare system, you know that you

487
00:29:08,560 --> 00:29:10,720
Speaker 8: can have a bit more risk of course in the

488
00:29:10,760 --> 00:29:12,680
Speaker 8: rest of the economy. So I think that is one

489
00:29:12,720 --> 00:29:17,680
Speaker 8: important topic. But of course, also the culture doesn't come

490
00:29:17,680 --> 00:29:22,440
Speaker 8: from one source. The welfare system could be one such source,

491
00:29:22,600 --> 00:29:26,680
Speaker 8: education system could be another. And also of course that

492
00:29:26,760 --> 00:29:33,560
Speaker 8: we provide financial stability, that we safegout our financial system

493
00:29:34,440 --> 00:29:38,280
Speaker 8: make it in the long term high functioning, well functioning.

494
00:29:39,720 --> 00:29:42,640
Speaker 9: We don't do a lot of call it early venture

495
00:29:42,680 --> 00:29:46,120
Speaker 9: capital startup investment ourselves. But if I look at the

496
00:29:46,120 --> 00:29:49,520
Speaker 9: innovation more broadly, then I think one part of that

497
00:29:49,720 --> 00:29:53,520
Speaker 9: is maybe our small home market, right, meaning that we've

498
00:29:53,720 --> 00:29:57,720
Speaker 9: always been forced to go out there and compete with

499
00:29:58,200 --> 00:30:01,560
Speaker 9: the best in a way, So that's one big driver.

500
00:30:01,920 --> 00:30:06,160
Speaker 9: Then I also think that we have some more societal

501
00:30:06,640 --> 00:30:10,600
Speaker 9: infrastructure that works for us. Just to mention, I fil

502
00:30:10,680 --> 00:30:17,360
Speaker 9: mean one is free and generally high quality education for

503
00:30:17,440 --> 00:30:23,920
Speaker 9: all is broadly available. We also have pretty generous welfare systems,

504
00:30:23,960 --> 00:30:29,760
Speaker 9: including childcare, which has helped, of course to create a

505
00:30:29,840 --> 00:30:31,200
Speaker 9: labor market participation.

506
00:30:32,480 --> 00:30:35,440
Speaker 2: Access to capital through private markets is an important part

507
00:30:35,560 --> 00:30:36,840
Speaker 2: of the innovation puzzle.

508
00:30:37,440 --> 00:30:40,120
Speaker 10: Europe actually has about the same number of venture capital

509
00:30:40,160 --> 00:30:44,240
Speaker 10: companies per year that the gets hatched, which is interesting

510
00:30:44,320 --> 00:30:47,640
Speaker 10: relative to the US. What Europe has been missing is

511
00:30:47,680 --> 00:30:50,800
Speaker 10: those global dominant firms one hundred billion dollars in more.

512
00:30:51,120 --> 00:30:54,520
Speaker 10: Typically those companies are actually getting bought by US firms.

513
00:30:54,520 --> 00:30:58,280
Speaker 10: So there is the beginning of the food chain on innovation, right.

514
00:30:58,480 --> 00:31:01,840
Speaker 10: Entrepreneur is actually a French But what's happening is you

515
00:31:01,920 --> 00:31:05,240
Speaker 10: haven't made it to create a global dominant giant. You

516
00:31:05,240 --> 00:31:07,880
Speaker 10: have ASML, but you don't have the type of companies

517
00:31:08,000 --> 00:31:10,200
Speaker 10: that you have a Google and Meta and Microsoft, and

518
00:31:10,240 --> 00:31:12,720
Speaker 10: so that to me is the opportunity set is to

519
00:31:12,760 --> 00:31:15,840
Speaker 10: really see that value chain all the way through. You

520
00:31:15,920 --> 00:31:19,040
Speaker 10: haven't had the same opportunity set. In the US. It's

521
00:31:19,080 --> 00:31:21,440
Speaker 10: maybe twenty five percent of the index and in Europe

522
00:31:21,480 --> 00:31:25,760
Speaker 10: at seven. So there is entrepreneurs and there's growth, but

523
00:31:25,840 --> 00:31:28,000
Speaker 10: a lot in the public markets. A lot of that's

524
00:31:28,000 --> 00:31:30,160
Speaker 10: been concentrated in the US markets.

525
00:31:30,880 --> 00:31:33,520
Speaker 2: Investor AB is one of the most important sources of

526
00:31:33,520 --> 00:31:37,120
Speaker 2: private capital for Swedish companies, but its take on private

527
00:31:37,160 --> 00:31:39,720
Speaker 2: equity looks different from the United States.

528
00:31:40,240 --> 00:31:44,000
Speaker 9: Basically, when we make an investment, we do it not

529
00:31:44,120 --> 00:31:47,640
Speaker 9: having exit as part of the strategy, and that means

530
00:31:47,680 --> 00:31:52,040
Speaker 9: that we're really picky about getting companies who are in

531
00:31:52,120 --> 00:31:55,520
Speaker 9: industries or in markets or niches where you have some

532
00:31:55,600 --> 00:31:59,600
Speaker 9: kind of structural growth tailwind. We don't love to sort

533
00:31:59,600 --> 00:32:03,680
Speaker 9: of fight gravity, so we prefer the tailwind and then

534
00:32:04,040 --> 00:32:09,120
Speaker 9: companies with a long term right to win in those markets.

535
00:32:09,680 --> 00:32:12,560
Speaker 9: And typically, and it goes back to the point about innovation,

536
00:32:13,040 --> 00:32:15,640
Speaker 9: if we look at our companies across I mean call

537
00:32:15,680 --> 00:32:19,160
Speaker 9: it twenty five or so companies, most of them have

538
00:32:19,680 --> 00:32:24,680
Speaker 9: leading market positions and they have that thanks to leading

539
00:32:24,800 --> 00:32:27,760
Speaker 9: or sort of best in class products and this obsession

540
00:32:27,800 --> 00:32:31,040
Speaker 9: about the products and the customers. So that's I think

541
00:32:31,160 --> 00:32:35,160
Speaker 9: our We really pick on the long term attractiveness of

542
00:32:35,440 --> 00:32:38,920
Speaker 9: both the company but also the industry that they're in,

543
00:32:39,000 --> 00:32:42,480
Speaker 9: because we're weary that it's it's it's better basically with

544
00:32:42,560 --> 00:32:45,200
Speaker 9: some tailwind and some heldwind. To be clear, we have

545
00:32:45,760 --> 00:32:51,440
Speaker 9: shareholders in all parts of the world. We have Nordic roots,

546
00:32:52,160 --> 00:32:56,000
Speaker 9: but we see ourselves as global investors and if you

547
00:32:56,040 --> 00:32:59,080
Speaker 9: look at our companies, they typically have the Nordic roots

548
00:32:59,120 --> 00:33:02,280
Speaker 9: and the Nordic carriatter. But coming back to our small

549
00:33:02,320 --> 00:33:06,360
Speaker 9: home market set, and they're typically active across the globe.

550
00:33:06,880 --> 00:33:09,760
Speaker 9: If I look at investor ab in the company as such,

551
00:33:09,800 --> 00:33:12,920
Speaker 9: we have operations here in Stockholm, any New York. So

552
00:33:12,960 --> 00:33:15,760
Speaker 9: those are our two sort of home markets, and that's

553
00:33:15,760 --> 00:33:18,680
Speaker 9: where we go look for new platform investments or new

554
00:33:18,720 --> 00:33:20,040
Speaker 9: logos if you want.

555
00:33:21,480 --> 00:33:24,840
Speaker 2: Sweden's model has worked to jumpstart its innovation and growth,

556
00:33:25,280 --> 00:33:27,800
Speaker 2: but replicating it in other parts of the EU is

557
00:33:27,880 --> 00:33:29,680
Speaker 2: not as easy as it sounds.

558
00:33:30,000 --> 00:33:32,960
Speaker 8: There is a huge interest from other European countries and

559
00:33:33,000 --> 00:33:36,600
Speaker 8: from the European Union about the Swedish case. How did

560
00:33:36,600 --> 00:33:41,000
Speaker 8: we succeed to have our households to have this large

561
00:33:41,160 --> 00:33:44,880
Speaker 8: retail participation in the financial markets, How did we succeed

562
00:33:44,920 --> 00:33:47,960
Speaker 8: in reforming our pension system, How did we succeed in

563
00:33:47,960 --> 00:33:53,320
Speaker 8: getting those tax incentivized saving products in place that provides

564
00:33:53,360 --> 00:33:56,000
Speaker 8: the households with a better return than they would have

565
00:33:56,920 --> 00:33:59,320
Speaker 8: just the system where you pay taxes and get benefits

566
00:33:59,320 --> 00:34:03,120
Speaker 8: from the government, and then of course also provides corperations

567
00:34:03,160 --> 00:34:07,640
Speaker 8: with more capital than in other countries. So there is

568
00:34:07,680 --> 00:34:11,719
Speaker 8: a huge interest in the Swedish example, and since we're

569
00:34:11,840 --> 00:34:15,279
Speaker 8: humble people, of course will will say that, well, it's

570
00:34:15,360 --> 00:34:17,680
Speaker 8: it's a matter of several factors. It's it's it's not

571
00:34:17,719 --> 00:34:20,720
Speaker 8: a it's not one thing you could do here.

572
00:34:22,000 --> 00:34:25,120
Speaker 2: If Europe manages to adapt the Swedish model of supporting

573
00:34:25,160 --> 00:34:28,720
Speaker 2: capitalism with social welfare, the growth upside of the EU

574
00:34:28,960 --> 00:34:32,840
Speaker 2: is high, but Sweden is setting its sites even higher.

575
00:34:33,920 --> 00:34:35,960
Speaker 8: We say that the United States need to watch out

576
00:34:36,040 --> 00:34:38,760
Speaker 8: if we if we manage for the whole of Europe

577
00:34:38,800 --> 00:34:40,560
Speaker 8: to do this, because then we will be a much

578
00:34:40,560 --> 00:34:41,960
Speaker 8: more efficient competitor.

579
00:34:42,360 --> 00:34:45,200
Speaker 12: And that means that you have a free education, you

580
00:34:45,239 --> 00:34:49,920
Speaker 12: have free universities, you have the daycare, shine care, you have,

581
00:34:50,440 --> 00:34:52,920
Speaker 12: and you can continue with all these things, and then

582
00:34:53,239 --> 00:34:57,120
Speaker 12: peakop can take a bit more financial risk. And you're right,

583
00:34:57,360 --> 00:35:00,200
Speaker 12: it is risk in that sense, but when you know

584
00:35:00,280 --> 00:35:03,680
Speaker 12: that risk usually pays off in the long run, well,

585
00:35:03,840 --> 00:35:06,360
Speaker 12: at least history has shown of that.

586
00:35:08,680 --> 00:35:11,319
Speaker 2: Coming up, we talked with the new Secretary of the Army,

587
00:35:11,440 --> 00:35:15,160
Speaker 2: Dan Driscoll about the transformation plan he presented to Congress

588
00:35:15,239 --> 00:35:17,840
Speaker 2: last week and how it would address some of the

589
00:35:17,880 --> 00:35:33,360
Speaker 2: issues at the Pentagon we reported on last fall. This

590
00:35:33,520 --> 00:35:35,919
Speaker 2: is an update of a story we reported on last

591
00:35:35,960 --> 00:35:39,880
Speaker 2: November about getting our money's worth in our national defense spending.

592
00:35:40,440 --> 00:35:43,160
Speaker 2: Last week, the new Secretary of the Army presented to

593
00:35:43,200 --> 00:35:46,880
Speaker 2: Congress his plan to transform the largest branch of the

594
00:35:47,000 --> 00:35:51,200
Speaker 2: US military.

595
00:35:51,400 --> 00:35:56,080
Speaker 1: Jacob the system is broken, but nobody felt like they

596
00:35:56,080 --> 00:35:57,239
Speaker 1: had the power to change it.

597
00:35:58,080 --> 00:36:00,680
Speaker 2: Dan Driscoll is the Secretary of the Army Army serving

598
00:36:00,719 --> 00:36:04,760
Speaker 2: in Trump's current administration, which plans to redirect eight percent

599
00:36:05,120 --> 00:36:08,720
Speaker 2: or fifty billion dollars of non lethal Defense Department spending

600
00:36:08,920 --> 00:36:10,120
Speaker 2: to innovative weaponry.

601
00:36:10,800 --> 00:36:13,600
Speaker 1: With President Trump's leadership and his kind of incredibly high

602
00:36:13,680 --> 00:36:16,439
Speaker 1: risk tolerance, we were empowered and given the top cover

603
00:36:16,600 --> 00:36:19,440
Speaker 1: to basically go fix the things that are broken. And

604
00:36:19,480 --> 00:36:23,360
Speaker 1: so fundamentally what Army Transformation Initiative, what we call ATI,

605
00:36:23,560 --> 00:36:26,200
Speaker 1: is it does four things. So the first bucket of

606
00:36:26,239 --> 00:36:28,799
Speaker 1: things that it does is it looks at our obsolete

607
00:36:28,960 --> 00:36:32,440
Speaker 1: equipment and processes and the things that have led to

608
00:36:32,480 --> 00:36:35,319
Speaker 1: bad outcomes, and we stop buying those things. And so

609
00:36:35,520 --> 00:36:39,400
Speaker 1: some examples of that are humbies. We have Gray Eagles,

610
00:36:39,440 --> 00:36:41,719
Speaker 1: which are big, large drones that have been around for

611
00:36:41,800 --> 00:36:44,880
Speaker 1: decades and they just don't fit on the modern battlefield.

612
00:36:45,239 --> 00:36:48,520
Speaker 1: And a robotic combat vehicle on our CV, it's an

613
00:36:48,560 --> 00:36:51,120
Speaker 1: exquisite three million dollar piece of equipment that can be

614
00:36:51,120 --> 00:36:53,399
Speaker 1: taken out by an eight hundred dollars drone. The math

615
00:36:53,600 --> 00:36:58,200
Speaker 1: just doesn't work. Bucket two is what has led to

616
00:36:58,560 --> 00:37:01,360
Speaker 1: the types of contracts have gotten us into these outcomes

617
00:37:01,400 --> 00:37:03,880
Speaker 1: that we don't want. So in some instances we have

618
00:37:03,960 --> 00:37:06,680
Speaker 1: given away our right to repair our own equipment. We

619
00:37:06,680 --> 00:37:09,840
Speaker 1: would see this exquisite equipment sitting on the sidelines for

620
00:37:09,880 --> 00:37:12,480
Speaker 1: eight or twelve months at a time, and our soldiers

621
00:37:12,480 --> 00:37:14,759
Speaker 1: could three D print the two to twenty dollars part

622
00:37:14,800 --> 00:37:17,319
Speaker 1: to get it back in the game. Bucket three is

623
00:37:17,520 --> 00:37:20,759
Speaker 1: essentially taking the savings from cutting the obsolete equipment and

624
00:37:20,800 --> 00:37:23,440
Speaker 1: recycling it to the things we know we need. Modern

625
00:37:23,440 --> 00:37:26,800
Speaker 1: warfare is going to be a mixture of autonomous vehicles

626
00:37:26,840 --> 00:37:29,840
Speaker 1: and drones and data. It's buying all of that equipment

627
00:37:29,880 --> 00:37:32,120
Speaker 1: and really just giving us a command and control layer

628
00:37:32,320 --> 00:37:35,400
Speaker 1: for the modern battlefield. And then Bucket four is the bloat.

629
00:37:35,680 --> 00:37:38,120
Speaker 1: We have just too many people up in our leadership,

630
00:37:38,160 --> 00:37:40,200
Speaker 1: and so we're going to do things like cut one

631
00:37:40,239 --> 00:37:43,000
Speaker 1: thousand people from the Pentagon. We're going to push those

632
00:37:43,040 --> 00:37:45,719
Speaker 1: soldiers that are stuck up here pushing paperwork around. We're

633
00:37:45,760 --> 00:37:47,399
Speaker 1: going to get them back in helmets, get them back

634
00:37:47,400 --> 00:37:49,640
Speaker 1: in formations to do the jobs that they actually signed

635
00:37:49,719 --> 00:37:50,360
Speaker 1: up wanting to do.

636
00:37:51,320 --> 00:37:54,080
Speaker 2: Those who know have been calling for changes like these

637
00:37:54,160 --> 00:37:57,800
Speaker 2: for a long time. Former US Deputy Secretary of Defense

638
00:37:57,920 --> 00:38:02,120
Speaker 2: John Hamry says the Pentagon's fail failure to adapt compromises

639
00:38:02,200 --> 00:38:03,440
Speaker 2: its ability to fight.

640
00:38:04,400 --> 00:38:11,000
Speaker 13: We are not well organized for sustained long term conflict.

641
00:38:11,320 --> 00:38:13,680
Speaker 13: It would really be a strain for us to manage

642
00:38:13,719 --> 00:38:16,799
Speaker 13: a three year war. We tend to buy too few

643
00:38:16,880 --> 00:38:22,280
Speaker 13: weapons for long term warfare. Our industrial base is sluggish.

644
00:38:22,640 --> 00:38:25,520
Speaker 13: It's not that the companies aren't willing to produce, but

645
00:38:25,840 --> 00:38:30,719
Speaker 13: the government isn't willing to give them resources for search capacity.

646
00:38:31,480 --> 00:38:35,080
Speaker 13: We could fight a terrific short term war, but if

647
00:38:35,080 --> 00:38:37,480
Speaker 13: we had a prolonged war, it would be a challenge.

648
00:38:37,640 --> 00:38:39,560
Speaker 6: I think there are two problems. One is that we're

649
00:38:39,560 --> 00:38:42,240
Speaker 6: not spending enough, and two is that we're not spending

650
00:38:42,320 --> 00:38:43,240
Speaker 6: wisely enough.

651
00:38:44,000 --> 00:38:47,360
Speaker 2: Amy Zgart is a senior fellow at the Hoover Institution.

652
00:38:48,320 --> 00:38:51,759
Speaker 6: Or overall defense budget has a yawning gap with the

653
00:38:51,800 --> 00:38:56,040
Speaker 6: capabilities that this nation needs to advance national interests. At

654
00:38:56,080 --> 00:38:59,000
Speaker 6: the same time, we need to be spending money on

655
00:38:59,280 --> 00:39:05,320
Speaker 6: low cost, high tech, affordable unmanned systems and other capabilities.

656
00:39:05,520 --> 00:39:08,000
Speaker 6: There's been a lot of discussion about doing that in

657
00:39:08,040 --> 00:39:10,960
Speaker 6: the Pentagon, a lot of discussion about doing that in Congress,

658
00:39:11,440 --> 00:39:14,279
Speaker 6: but those kinds of systems are still rounding dust in

659
00:39:14,320 --> 00:39:16,920
Speaker 6: the Pentagon budget compared to where we need to be.

660
00:39:17,920 --> 00:39:21,359
Speaker 6: This is the most dangerous and the most complicated threat

661
00:39:21,440 --> 00:39:25,560
Speaker 6: landscape the United States has faced since nineteen forty five.

662
00:39:26,640 --> 00:39:30,520
Speaker 6: We have great power competition with China and Russia, then

663
00:39:30,560 --> 00:39:34,040
Speaker 6: there's Iran and North Korea, and we also have non

664
00:39:34,080 --> 00:39:37,600
Speaker 6: state actors. Terrorist threat levels are increasing again, and they're

665
00:39:37,680 --> 00:39:41,440
Speaker 6: enabled by new technologies which are spreading rapidly. It's a

666
00:39:41,719 --> 00:39:45,680
Speaker 6: very demanding landscape. The United States Defense Department is having

667
00:39:45,680 --> 00:39:48,800
Speaker 6: to do more, and our budgets have not kept pace

668
00:39:49,000 --> 00:39:52,520
Speaker 6: with the threat landscape. So as a percentage of GDP,

669
00:39:53,239 --> 00:39:56,319
Speaker 6: the US government is spending half as much today on

670
00:39:56,400 --> 00:40:01,040
Speaker 6: defense as we did in the nineteen eighties, one twentieth

671
00:40:01,360 --> 00:40:04,479
Speaker 6: as much on defense as we did in the Korean War.

672
00:40:05,040 --> 00:40:08,360
Speaker 6: So the needs are growing, the funding is declining.

673
00:40:09,560 --> 00:40:11,919
Speaker 1: If you look at the Pentagon for the last thirty

674
00:40:12,040 --> 00:40:16,080
Speaker 1: or forty years, you've had this very inefficient bureaucratic system

675
00:40:16,160 --> 00:40:18,360
Speaker 1: that has calcified, and we like to talk about it

676
00:40:18,360 --> 00:40:21,240
Speaker 1: as kind of like a pretzel for decision making, contorting

677
00:40:21,280 --> 00:40:22,000
Speaker 1: it on itself.

678
00:40:22,680 --> 00:40:25,960
Speaker 13: We've done things inside the Defense Department for many years,

679
00:40:26,040 --> 00:40:30,200
Speaker 13: but this revolution that's taking place in digital technology is

680
00:40:30,239 --> 00:40:32,719
Speaker 13: in the private sector, and we don't know how to

681
00:40:32,760 --> 00:40:36,000
Speaker 13: bring that into the government because we want them to

682
00:40:36,080 --> 00:40:38,640
Speaker 13: slow down and fit our model. Well, they're not going

683
00:40:38,680 --> 00:40:43,400
Speaker 13: to do that. Defense acquisition runs at x and the

684
00:40:43,400 --> 00:40:46,680
Speaker 13: private sector is moving at five X. I think the

685
00:40:46,800 --> 00:40:51,560
Speaker 13: greatest challenge going forward is going to be how do

686
00:40:51,719 --> 00:40:55,800
Speaker 13: we bring in the cutting edge technology the private sector

687
00:40:55,880 --> 00:41:00,919
Speaker 13: is developing and incorporate it into our weapons storms And

688
00:41:01,400 --> 00:41:03,520
Speaker 13: we do not have an answer to that question.

689
00:41:04,480 --> 00:41:08,360
Speaker 14: With this new idea of having non traditional defense contractors

690
00:41:08,440 --> 00:41:12,960
Speaker 14: and Silicon Valley companies like Pallanteer and SpaceX that lots

691
00:41:13,000 --> 00:41:15,880
Speaker 14: of people have heard of, it's bringing new ideas in

692
00:41:15,960 --> 00:41:19,560
Speaker 14: new innovation, and it's giving us the best of breed technology.

693
00:41:20,320 --> 00:41:23,600
Speaker 2: Andy Lowry is the CEO of Epirus, a defense tech

694
00:41:23,719 --> 00:41:27,920
Speaker 2: contractor that focuses on drone technology, an essential part of

695
00:41:27,960 --> 00:41:30,960
Speaker 2: fighting the wars of the future. The company is valued

696
00:41:31,000 --> 00:41:34,160
Speaker 2: and an estimated one billion dollars and has raised over

697
00:41:34,239 --> 00:41:37,040
Speaker 2: five hundred and fifty million dollars in the private sector.

698
00:41:37,680 --> 00:41:43,000
Speaker 15: ePRESS makes force fields just like you see on science

699
00:41:43,000 --> 00:41:46,680
Speaker 15: fiction movies. We have created the first version of a

700
00:41:46,760 --> 00:41:56,080
Speaker 15: human made force field that can protect things like bases, aircraft, tanks, cars, vehicles, stadiums, refineries, borders.

701
00:41:56,880 --> 00:41:59,680
Speaker 15: All of these things right now are falling prey to

702
00:41:59,800 --> 00:42:04,040
Speaker 15: a infiltration of drones. Not just flying droms. You have

703
00:42:04,440 --> 00:42:07,759
Speaker 15: drones on the water, drones on land, drones in the air,

704
00:42:07,840 --> 00:42:11,879
Speaker 15: drones in space. You have cyber powered drones everywhere.

705
00:42:12,640 --> 00:42:13,400
Speaker 2: Enter ePRESS.

706
00:42:13,440 --> 00:42:16,200
Speaker 14: ePRESS, with our force fields can now line up right

707
00:42:16,239 --> 00:42:19,080
Speaker 14: at an edge of a fence and knock everything down

708
00:42:19,160 --> 00:42:21,920
Speaker 14: like there's a wall of energy that anything that comes

709
00:42:21,920 --> 00:42:25,160
Speaker 14: into falls to the ground and is rendered useless.

710
00:42:26,120 --> 00:42:29,400
Speaker 2: Epreus delivered counter drone technology to the Navy as recently

711
00:42:29,440 --> 00:42:33,120
Speaker 2: as March. The goal of their Leonidas system is to

712
00:42:33,200 --> 00:42:34,440
Speaker 2: take down drones.

713
00:42:35,160 --> 00:42:39,399
Speaker 14: These force fields will prevent massive attacks. Because we can

714
00:42:39,440 --> 00:42:42,280
Speaker 14: only make dozens of missiles a month as a country,

715
00:42:42,480 --> 00:42:46,319
Speaker 14: they can make tens of thousands of drones per month,

716
00:42:46,480 --> 00:42:50,320
Speaker 14: tens thousands of drones per month. That ratio doesn't work

717
00:42:50,719 --> 00:42:54,000
Speaker 14: will never keep up. We'll lose to the attrition, the

718
00:42:54,040 --> 00:42:57,800
Speaker 14: war of attrition unless we come up with what force fields.

719
00:42:57,800 --> 00:43:01,240
Speaker 14: If we put force fields up in those drones, doesn't

720
00:43:01,280 --> 00:43:05,200
Speaker 14: matter ten hundred thousand, just rack it up the cash book,

721
00:43:05,239 --> 00:43:07,480
Speaker 14: because every one of those is ten K, fifteen K,

722
00:43:07,560 --> 00:43:09,840
Speaker 14: and you're losing them one again, again and again. So

723
00:43:09,920 --> 00:43:13,320
Speaker 14: we actually flip this whole paradigm over on its head

724
00:43:13,360 --> 00:43:15,680
Speaker 14: and cause them to have to say, now, what are

725
00:43:15,719 --> 00:43:17,200
Speaker 14: we going to do do we still want to fight

726
00:43:17,239 --> 00:43:20,120
Speaker 14: fights with drones and just risk them getting lost to

727
00:43:20,160 --> 00:43:24,040
Speaker 14: these new systems. We've kind of grown a little comfortable,

728
00:43:24,080 --> 00:43:26,400
Speaker 14: i would say, in the way that we've.

729
00:43:26,200 --> 00:43:29,360
Speaker 15: Been fighting this sort of war of deterrence. But now

730
00:43:29,800 --> 00:43:34,920
Speaker 15: enter this new age of consumer electronics, highly distributed, highly networked.

731
00:43:35,640 --> 00:43:38,480
Speaker 15: No one single thing can do that much damage. But

732
00:43:38,520 --> 00:43:42,680
Speaker 15: when you add hundreds and put them in a swarm configuration,

733
00:43:43,600 --> 00:43:45,799
Speaker 15: it's the new way that wars are being fought, and

734
00:43:45,840 --> 00:43:49,520
Speaker 15: it's confounding our defense department, and they need help. They

735
00:43:49,560 --> 00:43:53,359
Speaker 15: need solutions not from the traditional primes, but from a

736
00:43:53,440 --> 00:43:57,560
Speaker 15: new age prime, a neo prime that's able to use

737
00:43:57,640 --> 00:44:00,160
Speaker 15: the best of Silicon Valley combined with the best to

738
00:44:00,239 --> 00:44:05,000
Speaker 15: defense in combination to help mitigate and fight and defend

739
00:44:05,040 --> 00:44:06,480
Speaker 15: against this new emerging threat.

740
00:44:07,200 --> 00:44:10,120
Speaker 2: The Silicon Valley's money is also piling into the potential

741
00:44:10,120 --> 00:44:14,080
Speaker 2: of new defense technology. Defense related US startups have raised

742
00:44:14,120 --> 00:44:17,200
Speaker 2: more than ten billion dollars in venture capital since the

743
00:44:17,239 --> 00:44:18,800
Speaker 2: start of twenty fourteen.

744
00:44:20,000 --> 00:44:22,440
Speaker 1: Warfare has changed in the last couple of years. It's

745
00:44:22,440 --> 00:44:25,520
Speaker 1: an inflection point that humans have been fighting very similarly

746
00:44:25,560 --> 00:44:29,240
Speaker 1: since probably the dawn of mankind. You didn't have things

747
00:44:29,320 --> 00:44:32,640
Speaker 1: like autonomous vehicles, you didn't have things like generative AI,

748
00:44:32,760 --> 00:44:36,040
Speaker 1: you didn't have drone swarms that could be using such

749
00:44:36,360 --> 00:44:40,480
Speaker 1: cheap equipment. Russia, we think, has manufactured one million drones

750
00:44:40,480 --> 00:44:42,960
Speaker 1: in the last twelve months. That just fundamentally alters how

751
00:44:42,960 --> 00:44:45,000
Speaker 1: we have to think about these things. And so what

752
00:44:45,040 --> 00:44:47,600
Speaker 1: we've tried to do is start to include our partners

753
00:44:47,680 --> 00:44:50,400
Speaker 1: much earlier in the process. We are hopeful that our

754
00:44:50,520 --> 00:44:54,200
Speaker 1: Army Transformation initiative will be a renaissance for the defense

755
00:44:54,239 --> 00:44:57,279
Speaker 1: industrial based small and medium businesses. We want to get

756
00:44:57,280 --> 00:44:59,440
Speaker 1: their products in the hands of soldiers as quickly as

757
00:44:59,440 --> 00:45:02,320
Speaker 1: we possibly can. The larger primes that have been around

758
00:45:02,320 --> 00:45:04,839
Speaker 1: for a while, they have served at function. They will

759
00:45:04,920 --> 00:45:06,960
Speaker 1: likely some of them at least will continue to serve

760
00:45:07,000 --> 00:45:09,279
Speaker 1: a function for the United States Army, but we can

761
00:45:09,360 --> 00:45:12,440
Speaker 1: no longer allow them to take five or ten years

762
00:45:12,480 --> 00:45:15,440
Speaker 1: where we just pay for the innovation that we as

763
00:45:15,440 --> 00:45:18,040
Speaker 1: a nation need. And so specifically what we were doing is,

764
00:45:18,080 --> 00:45:20,400
Speaker 1: as an example, we were out on the West Coast

765
00:45:20,440 --> 00:45:23,239
Speaker 1: with a company that does the autonomous software for a

766
00:45:23,320 --> 00:45:25,479
Speaker 1: lot of vehicles in the United States, and we asked them,

767
00:45:25,960 --> 00:45:28,320
Speaker 1: have you done this with any military vehicles, and they said, no,

768
00:45:28,440 --> 00:45:31,160
Speaker 1: absolutely not. The process is miserable. It takes two years,

769
00:45:31,320 --> 00:45:33,080
Speaker 1: we have to come up, go through all these requirements.

770
00:45:33,160 --> 00:45:34,920
Speaker 1: We just can't do it as a company. And so

771
00:45:35,080 --> 00:45:36,560
Speaker 1: we just turned to our team and said, hey, get

772
00:45:36,600 --> 00:45:38,960
Speaker 1: them a Humby and get them an infantry squad vehicle.

773
00:45:38,960 --> 00:45:40,960
Speaker 1: In the next week we got it to them. They said,

774
00:45:40,960 --> 00:45:42,160
Speaker 1: what do you want us to do? We said, just

775
00:45:42,200 --> 00:45:44,239
Speaker 1: ten days, take it. Do whatever you can possibly do

776
00:45:44,680 --> 00:45:47,080
Speaker 1: to transform our vehicles. They sent us a video ten

777
00:45:47,160 --> 00:45:50,480
Speaker 1: days later they had made our vehicles fully autonomous. Seven

778
00:45:50,480 --> 00:45:53,680
Speaker 1: weeks later, our soldiers are actually testing that equipment and

779
00:45:53,719 --> 00:45:56,480
Speaker 1: we're going to fly in those software developers to come

780
00:45:56,520 --> 00:45:59,000
Speaker 1: see the outcomes. And so these are the types of

781
00:45:59,080 --> 00:46:01,480
Speaker 1: things that we have to be doing as an army.

782
00:46:01,520 --> 00:46:04,319
Speaker 1: This exists in venture backed businesses. This is how they

783
00:46:04,360 --> 00:46:06,839
Speaker 1: do it every single day, and we as an army

784
00:46:06,920 --> 00:46:07,920
Speaker 1: just have to get better at it.

785
00:46:08,680 --> 00:46:10,960
Speaker 2: Other people have tried to reform the Pentagon. There are

786
00:46:10,960 --> 00:46:15,040
Speaker 2: a lot of constituents up on Capitol Hill, in the

787
00:46:15,040 --> 00:46:18,080
Speaker 2: contractors that you work with, even within the Pentagon itself.

788
00:46:19,000 --> 00:46:21,400
Speaker 2: What has been the reaction of those people who have

789
00:46:21,480 --> 00:46:23,520
Speaker 2: vested interest in keeping it the way it was?

790
00:46:24,200 --> 00:46:27,319
Speaker 1: I think change is hard. I think many of them

791
00:46:27,360 --> 00:46:30,040
Speaker 1: appreciate that this is necessary. A lot of their sons

792
00:46:30,080 --> 00:46:34,120
Speaker 1: and daughters and grandsons and granddaughters serve. The Army has

793
00:46:34,160 --> 00:46:36,720
Speaker 1: its two hundred and fiftieth anniversary this year. We're actually

794
00:46:36,760 --> 00:46:39,479
Speaker 1: older than the United States of America itself. And what's

795
00:46:39,480 --> 00:46:43,319
Speaker 1: incredibly powerful about that is we touch most Americans in

796
00:46:43,360 --> 00:46:45,759
Speaker 1: some way, whether it's a coach or a neighbor or

797
00:46:45,760 --> 00:46:48,600
Speaker 1: a parent, and so I think deep down they know

798
00:46:48,680 --> 00:46:51,160
Speaker 1: that these are the right changes. I think deep down

799
00:46:51,200 --> 00:46:54,320
Speaker 1: they know that President Trump is Secretary Heagseth are going

800
00:46:54,360 --> 00:46:57,000
Speaker 1: to allow us to make these very difficult changes. And

801
00:46:57,040 --> 00:47:00,000
Speaker 1: so my perception of most of the conversations has been

802
00:47:00,000 --> 00:47:03,680
Speaker 1: and once they've appreciated that we are not backing down,

803
00:47:03,719 --> 00:47:06,759
Speaker 1: we are conceding no ground. We are taking zero parochial

804
00:47:07,120 --> 00:47:10,520
Speaker 1: interests into account. We have set that stage with everyone Republican,

805
00:47:10,520 --> 00:47:12,640
Speaker 1: a Democrat. We are doing the right thing for soldiers

806
00:47:12,640 --> 00:47:14,560
Speaker 1: in the American taxpayer, and that is it. I think

807
00:47:14,600 --> 00:47:17,560
Speaker 1: once they can process that and appreciate this is that

808
00:47:17,719 --> 00:47:21,160
Speaker 1: the actual time work change is happening. We then transition

809
00:47:21,239 --> 00:47:23,920
Speaker 1: to a mode of what can their business do to

810
00:47:24,040 --> 00:47:26,839
Speaker 1: thrive and survive in this new model? And we are

811
00:47:26,880 --> 00:47:29,160
Speaker 1: going to keep testing and learning from our soldiers and

812
00:47:29,200 --> 00:47:32,160
Speaker 1: closing the innovation loop and executing on the things that

813
00:47:32,200 --> 00:47:32,840
Speaker 1: are necessary.

814
00:47:33,160 --> 00:47:40,120
Speaker 2: Don't that does it for us here at Wall Street Week,

815
00:47:40,280 --> 00:47:43,520
Speaker 2: I'm David Weston. See you next week for more stories

816
00:47:43,520 --> 00:47:57,600
Speaker 2: of capitalism.