Speaker 1: Bloomberg Audio Studios, podcasts, radio news.
Speaker 2: This is Wall Street Week. I'm David Weston, bringing you
Speaker 2: stories of capitalism. Last week, the US Army announced plans
Speaker 2: to transform itself for a new world and a new
Speaker 2: way of fighting wars. We talked with the Secretary of
Speaker 2: the Army, Dan Driscoll about what of the old has
Speaker 2: to go out to make room for the new to
Speaker 2: come in. Plus, we traveled to Stockholm to see how
Speaker 2: the rest of Europe could follow Sweden's lead in building
Speaker 2: an innovation ecosystem on the back of capital markets with
Speaker 2: just about everyone owning a piece. But we start with
Speaker 2: China and a story about the two biggest economies in
Speaker 2: the world trying to come to trade terms. Who has
Speaker 2: the upper hand and is it possible for both to win.
Speaker 3: President Trump wants to rebalance the American economy back to
Speaker 3: a manufacturing economy with high precision manufacturing. I think everyone agrees,
Speaker 3: including Chinese leadership, that they need to rebalance towards more
Speaker 3: of a consumption and consumer economy. And the dream scenario
Speaker 3: would be if somehow we could do that together.
Speaker 2: Turning first to our special contributor, Larry Summers of Harvard,
Speaker 2: So Larry. This week we heard about the tentative agreement
Speaker 2: for ninety days at least between the United States and
Speaker 2: China dialing back on the tariffs. Was this a step
Speaker 2: forward for the Trump administration?
Speaker 4: I salute Secretary Bessant. The avoidance of value subtracted is
Speaker 4: value added, and by that standard, we added value. The
Speaker 4: United States backed off of what we are extremely imprudent
Speaker 4: and potentially economically very damaging prohibitive tariffs to the point
Speaker 4: of embargo on China. That was a good thing for
Speaker 4: the US economy, and as a consequence, the US stock
Speaker 4: market rose substantially in recognition of that. It was not
Speaker 4: an increase due to Chinese concessions. You could see that
Speaker 4: from the internals of the market. Companies like toy companies
Speaker 4: that were dependent on imports retailers performed particularly well. But look,
Speaker 4: when you make a mistake, when you've done something imprudent,
Speaker 4: it's a good idea to salvage what pride you can
Speaker 4: and to retreat. And that's what the Trump administration did,
Speaker 4: and I salute Secretary Vessant for his leadership in doing that.
Speaker 2: Part of any high stakes negotiation is trying to assess
Speaker 2: the pressure points on the two sides, and one of
Speaker 2: the things we've heard from President Trump is he believes
Speaker 2: there's a lot of pressure on China right now because
Speaker 2: it is a manufacturing economy and as he says, a
Speaker 2: lot of factories have gone quiet. Is he right? Is
Speaker 2: there a lot of pressure on China right now to
Speaker 2: come to terms.
Speaker 4: I think there's some pressure on China, but I think
Speaker 4: there's more pressure on us because we're the one that's
Speaker 4: a democratic country that's responsive to our people. We're the
Speaker 4: one that has a highly inflation conscious population and prohibitive
Speaker 4: tariffs raise price levels. We're the one that's the active
Speaker 4: player here. So I think there was a lot of
Speaker 4: pressure on us, to which we responded. I think it's
Speaker 4: a very important part of governing to be willing to
Speaker 4: recognize when you push things too far and to pull back.
Speaker 4: But let's not be confused about what the path eater was.
Speaker 4: It was an overly aggressive, overly truculent, erroneous approach from
Speaker 4: which there has been a significant but still not total retreat.
Speaker 2: Larry Ticket step back from the particulars of balance of
Speaker 2: trade and fairness and trade. As a macroeconomist, we do
Speaker 2: have the second largest economy in the world by most measures,
Speaker 2: by some even the largest economy in the world that
Speaker 2: is not market driven fundamentally, it is centrally planned and
Speaker 2: they've built up a huge productive capacity. How does one
Speaker 2: deal with that? I don't think we ever had to
Speaker 2: do that in the past. How do you deal with
Speaker 2: that in terms of trade terms and making sure that
Speaker 2: it doesn't distort things in our country?
Speaker 4: Well, I think what you do is you focus on
Speaker 4: your own economic interests and if others want to subsidize
Speaker 4: your consumers, if others want to subsidize your producers, that
Speaker 4: can very easily be a good thing. And so you
Speaker 4: try to define what your core interests are. We have
Speaker 4: a core interest in national security. In everything that's national
Speaker 4: security sensitive. We need to be trying to pivot away
Speaker 4: from China. We need to be very attentive to the
Speaker 4: security risks of Chinese presence in the United States. That's
Speaker 4: issues like TikTok. We need to be very focused on
Speaker 4: preventing China from getting access to intellectual property and ways
Speaker 4: that's going to enable them to surpass us. But you
Speaker 4: have to focus on your core interests, and when you're
Speaker 4: worried about the export of Barbie dolls. You're not focusing
Speaker 4: on your core interests when you're worried about trying to
Speaker 4: get jobs here, putting together other the different components of
Speaker 4: an iPhone, you're not worried about your core interests. So, yeah,
Speaker 4: we do need a strategy with respect to China, a
Speaker 4: strategy directed getting them to follow rules of the road
Speaker 4: where that's important for our core national security interests. But
Speaker 4: this kind of broad, indiscriminate attack that has been launched
Speaker 4: that mostly serves to cause Americans to feel poorer, mostly
Speaker 4: serves to increase our inflation. That's not the right way forward.
Speaker 4: So I'm glad to see the adjustments that the Trump
Speaker 4: administration has entered into.
Speaker 2: The tentative agreement reached in Geneva was just that tentative,
Speaker 2: leaving a lot of work to be done before the
Speaker 2: United States and China can reach a long term solution
Speaker 2: to their trade conflicts. Elizabeth Economy is a China expert
Speaker 2: at the Hoover Institution who keeps careful track of the
Speaker 2: relative strengths and weaknesses of the world's two largest economies.
Speaker 5: I think both countries have economic vulnerabilities. I think the
Speaker 5: assessment on the part of the Trump administration was that
Speaker 5: China was more vulnerable because it exports much more to
Speaker 5: the United States than the US does to China. Its
Speaker 5: economy has also been struggling. It's been in a prolonged
Speaker 5: economic slowdown for at least three years now. But I
Speaker 5: think there was a fundamental miscalculation on the part of
Speaker 5: the administration. They didn't appreciate that we have a much
Speaker 5: greater soul or near soul source reliance on a number
Speaker 5: of critical products from China, critical minerals, rare earth elements,
Speaker 5: active pharmaceutical ingredients. These are all things that are essential
Speaker 5: for our economic security, our national security, our human security,
Speaker 5: and will devastate quite frankly, our pharmaceutical industries and our
Speaker 5: defense and technology industries. So there's a balance, I think
Speaker 5: between the Chinese vulnerabilities and the US vulnerabilities. Both of us,
Speaker 5: I think, have vulnerabilities to in the space of this
Speaker 5: tariff war.
Speaker 2: Does the rest of the world give one side between
Speaker 2: I say, some China advantage over the other. I mean
Speaker 2: both sides historically have tried to recruit the rest.
Speaker 4: Of the world.
Speaker 5: I think for the advanced market democracies, what we've seen
Speaker 5: has been in some respects somewhat surprising. I think there
Speaker 5: was a belief on the part of the Chinese government
Speaker 5: that given this tariff for this global tariff war that
Speaker 5: President Trump has launched, that it would be easy pickings
Speaker 5: that China would walk in and basically say, we are
Speaker 5: a stabilizing force in the global economy, We're a stabilizing
Speaker 5: force in the international system. And they've gone around saying,
Speaker 5: let's join hands and work together to push back against
Speaker 5: President Trump and this tariff war. I think what they've
Speaker 5: found is that really nobody's that interested in buying what
Speaker 5: they're selling. There's an entire world now emerging that is
Speaker 5: set to support the current rules based order that doesn't
Speaker 5: include the United States, but also doesn't include China.
Speaker 2: One destination of Chinese goods that otherwise might be expert
Speaker 2: would be domestically increased domestic consumption, which has been talked
Speaker 2: about for years now. What are the prospects In fact,
Speaker 2: Xi Jinping might say, Okay, we're going to stimulate the consumer.
Speaker 5: I mean, Chinese economists have been saying for years now
Speaker 5: that the government needs to do more to support the
Speaker 5: consumer economy, and part of that would be, you know,
Speaker 5: investing more in the healthcare system, the education system, the
Speaker 5: pension system, giving the Chinese people a sense that they
Speaker 5: don't need to continue to save in the case of
Speaker 5: an emergency. But Chijinping is allergic to what he calls
Speaker 5: social welfare ism. He doesn't want to give the Chinese
Speaker 5: people any incentive not to work, at least that's how
Speaker 5: he looks at it. So again we've seen President she
Speaker 5: over the course of this taraf war take a few steps,
Speaker 5: you know, in the form of raising wages for civil servants,
Speaker 5: notwithstanding the fact that a year ago or a year
Speaker 5: and a half ago he actually cut those same wages.
Speaker 5: So I don't know whether this is actually increase or
Speaker 5: just taking them back to where they were. And also
Speaker 5: again having this massive goods trade in program. But mostly
Speaker 5: what he's done I think is, you know, encourage banks
Speaker 5: to loan to small and medium sized enterprises. You've seen
Speaker 5: Ali Baba, for example, reduce the cost of companies putting
Speaker 5: their goods on its platform, to encourage small and medium
Speaker 5: sized enterprises to be able to export. So there are
Speaker 5: steps that are being taken, but there's nothing in the
Speaker 5: way of sort of a massive boost to the consumer
Speaker 5: economy that I think Chinese economists would.
Speaker 6: Like to see.
Speaker 2: Coming next the story of Nasdaq in Europe and how
Speaker 2: Sweden's deep and robust capital markets connection to tech startups
Speaker 2: could give the rest of Europe an example to follow.
Speaker 2: Six fam today two and this is a story about
Speaker 2: attracting bees with honey, specifically the honey of rich capital markets,
Speaker 2: attracting the bees of tech entrepreneurs, something that has helped
Speaker 2: drive US economic growth, but that has largely been lacking
Speaker 2: in Europe, except in one particular corner.
Speaker 7: About thirty nine percent of household assets in the United
Speaker 7: States are invested in equities, which is the highest in
Speaker 7: the world. But here in Sweden it's thirty six percent.
Speaker 2: And it's not just how much, it's how broad.
Speaker 8: About ninety percent of the sweet savings are in some
Speaker 8: financial assets, which makes us the most investing country, at
Speaker 8: least in Europe.
Speaker 9: We're blessed to have a broad equity participation, so lots
Speaker 9: of people who own stocks directly. What that does is,
Speaker 9: of course, it creates this economic alignment, etc.
Speaker 2: We've come to expect robust capital markets supported by retail
Speaker 2: investment in the United States, but not necessarily in Sweden,
Speaker 2: a Nordic country with a population of just a little
Speaker 2: more than ten million people that punches above its weight
Speaker 2: in the depth of its capital markets and is home
Speaker 2: to Nasdaq's European headquarters.
Speaker 7: We operate our markets here and also in the Nordics.
Speaker 7: We own and operate almost all the markets in the Nordics.
Speaker 2: We spoke to Nasdaq CEO Adina Friedman in New York
Speaker 2: in April, not long after President Trump had roiled the
Speaker 2: markets with his sweeping tariff announcements.
Speaker 7: So on options in twenty twenty four, we had an
Speaker 7: average of about twenty four million contracts traded a day.
Speaker 7: On Friday, we had ninety four million contracts traded. Now,
Speaker 7: what generally said that what's really really interesting is options
Speaker 7: markets are extremely data heavy.
Speaker 2: Friedman and her Nasdaq team have plenty to handle with
Speaker 2: US markets, but they also run European operations almost as large,
Speaker 2: in what they call Nasdaq Nordic, which became part of
Speaker 2: the group in two thousand and eight. We accompanied Friedman
Speaker 2: on a trip to the European headquarters in Stockholm.
Speaker 7: Well, Stockholm is one of the great markets that we
Speaker 7: own and operate here in the Nordics, but it also
Speaker 7: is the headquarters to our market technology business where we
Speaker 7: serve one hundred and thirty markets with our technology that
Speaker 7: helps them power all the market those markets around the
Speaker 7: world as well.
Speaker 2: How much of nasac's overall operation is represented in Stockholm, Well.
Speaker 7: We have about eight hundred employees here in Stockholm, slightly
Speaker 7: smaller than New York, where we have about one thousand
Speaker 7: employees in our New York office. So it kind of
Speaker 7: gives you a sense that this really is our second
Speaker 7: headquarters in the world. It's one of the special places
Speaker 7: that I get the benefit of being able to come
Speaker 7: to as we engage with the markets here in Sweden.
Speaker 7: One of the things that I find interesting is how
Speaker 7: similar it is here in Sweden versus New York. So
Speaker 7: the markets in Sweden have a lot of characteristics to
Speaker 7: the markets in the US, which is different than the
Speaker 7: rest of Europe. So when we look at it, we
Speaker 7: look at how liquid are the markets, how many new
Speaker 7: companies come and list here in any given year, how
Speaker 7: active are the markets in terms of having retail ownership
Speaker 7: of equities, and in many many cases those are very
Speaker 7: similar to the US. So we have twelve hundred companies
Speaker 7: that are listed in the Nordics and in any given year,
Speaker 7: we'll have dozens of companies list here, both small companies
Speaker 7: on our SME market which is called First North, and
Speaker 7: on the main market. So we're really really proud of
Speaker 7: the fact that the markets here are very vibrant and
Speaker 7: have a lot of similarities to what we see in
Speaker 7: the US. But sitting here in Europe, almost.
Speaker 2: One sign of its strong capital markets is Sweden's IPO pace.
Speaker 2: Between twenty thirteen and twenty twenty four, there were more
Speaker 2: IPOs in Sweden than in Italy, France or Germany, second
Speaker 2: in Europe only to the UK.
Speaker 7: The US markets are the largest, deepest, most liquid markets
Speaker 7: in the world, but when you look at how that's
Speaker 7: translated into the markets here in the Nordics, it actually
Speaker 7: has a lot of a lot of the commonalities of
Speaker 7: the market cap. The listed companies here in the Nordics
Speaker 7: are about two trillion versus of course, we have about
Speaker 7: thirty trillion in the United States just on Nasdaq. However,
Speaker 7: you know, the liquidity that underpins that market cap here
Speaker 7: in the Nordics is quite vibrant, very active.
Speaker 8: We have lots of IPOs in Sweden, we have more
Speaker 8: IPOs than any European countries together, and I would say
Speaker 8: that is one important source.
Speaker 2: Sweden's vibrant IPO market is no accident. It results in
Speaker 2: part from government policies that encourage household participation in the markets.
Speaker 2: Starting with taxes. Nicholas Wickman is Sweden's Minister for Financial Markets.
Speaker 8: First of all, for the smallest entrepreneurs and new entrepreneurs
Speaker 8: closely held corporations as they are called, they have strong
Speaker 8: tax incentives because there's a twenty percent tax on dividends
Speaker 8: within the rate of return. Allow it's quite complicated, but
Speaker 8: it's also quite strong incentives to do business. And then
Speaker 8: we have the isk system that takes down the cost
Speaker 8: of capital, so to say, it provides at least more
Speaker 8: capital into the system because you have a low effective
Speaker 8: taxation on your invested savings. So I would say those
Speaker 8: are two important aspects, one for the entrepreneurs and one
Speaker 8: for the providers of capital. We have strong incentives to
Speaker 8: stay in business for a long period of time. We
Speaker 8: don't have any inheritance tax, we don't have gift tax,
Speaker 8: we don't have tax on accumulated wealth or wealth tax
Speaker 8: as you normally say. So I would say there's strong
Speaker 8: incentives to provide capital in the system. They are strong
Speaker 8: incentives to do something good with it, and it's strong
Speaker 8: incentives for active owners to remain active and perhaps to
Speaker 8: have all their families and keep their businesses over generations.
Speaker 2: Another big driver of retail participation is an investment account
Speaker 2: known as an ISSK, a government program under which two
Speaker 2: point five percent of every employee's wages are put into
Speaker 2: an account in their name, which they can allocate among
Speaker 2: a range of funds. These funds are not subject to
Speaker 2: capital gains tax. Instead, they are taxed one percent each
Speaker 2: year on the value in the account.
Speaker 7: One of the great examples of where regulation has played
Speaker 7: a really key role in driving liquidity in the markets
Speaker 7: has been that ISK program where they started in twenty
Speaker 7: twelve and they said every citizen should be investing in
Speaker 7: the markets. So therefore they said, okay, well we'll create
Speaker 7: a tax account where your only tax about one percent
Speaker 7: of your total assets every year, no cap gains tax.
Speaker 7: So it means that investors can really bring their money
Speaker 7: into the markets. Their only obligation is to invest in
Speaker 7: the public markets anywhere, and it allows investors to have
Speaker 7: a great engagement with the economy.
Speaker 2: Christian cedar Home is the CEO of Investor AB, a
Speaker 2: company which serves as the investment arm of the Wallenberg family,
Speaker 2: one of the most prominent families in the country. In
Speaker 2: the nineteen seventies, Wallenberg family businesses employed forty percent of
Speaker 2: Sweden's industrial workforce and accounted for forty percent of the
Speaker 2: total worth of the Stockholm stock market.
Speaker 9: This has created this sort of positive flywheel effect where
Speaker 9: owning stocks in a company, you may even work for
Speaker 9: that same company. By the way, and we're blessed to
Speaker 9: have a great number of even just going in looking
Speaker 9: in Sweden, great number of high quality companies, so you
Speaker 9: may work for them, you may be invested in them,
Speaker 9: and of course that creates this this engagement around business
Speaker 9: as part of a society.
Speaker 2: You mentioned the breadth of ownership with equities in Sweden,
Speaker 2: as I understand that there are ten million people roughly
Speaker 2: in Sweden, you have six hundred and fifty thousand shareholders
Speaker 2: yourself investor AB. How do you explain that bread How
Speaker 2: does that happen?
Speaker 9: Well, I mean, first of all, we're really thankful for
Speaker 9: the trust that the people put in our work, and
Speaker 9: you know that they appreciate what we're doing, so we're
Speaker 9: quite humbled to that and the way I look at investor,
Speaker 9: what you get is you get engaged ownership and active
Speaker 9: investment in a portfolio of about twenty five really good
Speaker 9: companies or high quality companies and at the relatively sleam
Speaker 9: costs as well. And then of course over time it
Speaker 9: helps that we have created a strong total shareholder return
Speaker 9: over most sort of longer time periods at least, so
Speaker 9: something seems to be working with them Orther and I.
Speaker 8: Think it serves two purposes. First of all, it's about
Speaker 8: social coherence. You have your job, you have your salary,
Speaker 8: but you also have a share of the most productive
Speaker 8: part of the economy that belongs to you because of
Speaker 8: your savings. And it's about then, of course economic efficiency.
Speaker 8: It provides capital for inventors and entrepreneurs. So's I would
Speaker 8: say both about social coherence and economic efficients in a
Speaker 8: very nice combination. Our social security system is important. It
Speaker 8: makes it possible to take risks both with your savings
Speaker 8: of course, but also in your work life as a whole.
Speaker 8: When you have some basic, trustworthy welfare system, you know
Speaker 8: that you could have a bit more risk of course
Speaker 8: in the rest of the economy. So I think that
Speaker 8: is one important one important topic. But of course also
Speaker 8: the culture doesn't come from one source. The welfare system
Speaker 8: could be one such source, education system could could be another.
Speaker 8: And also of course that we provide financial stability, that
Speaker 8: we safegoud our financial system.
Speaker 2: What does all this mean for Sweden's economy as a whole.
Speaker 2: It's GDP is projected to grow two point three percent
Speaker 2: in twenty twenty five, compared to just one point seven
Speaker 2: percent for the United States. Perhaps as important is Sweden's
Speaker 2: level of productivity, which drives future growth.
Speaker 8: Recent years, we have had the same problem as most
Speaker 8: of the Western world, or especially the the Europe as large.
Speaker 8: We have a productivity problem. But if you extend the
Speaker 8: time period a bit, you can see that Sweden is
Speaker 8: exceptionally productive.
Speaker 2: Sweden's approach to encouraging broad and deep capital markets comes
Speaker 2: in sharp contrast to some of the rest of Europe.
Speaker 2: In his report on European Competitiveness, former ECB President Mario
Speaker 2: Draghi pointed to the lack of sufficient capital support as
Speaker 2: one reason why Europe has lagged behind the United States
Speaker 2: in the growth of tech giants. Henry McVay is the
Speaker 2: head of the Global Macro and Asset Allocation Team at KKR,
Speaker 2: and we spoke to him after he returned from a
Speaker 2: trip to Europe.
Speaker 10: When you look at as a percentage of GDP, it's
Speaker 10: about a third of the US. And so there's clearly
Speaker 10: been a differential over the last ten and twenty years
Speaker 10: on that's on the equity side. On the credit side,
Speaker 10: what I think Europe has missed is it's really been
Speaker 10: so bank controlled that you've missed the real growth in
Speaker 10: the securitization market. So if you think about the US,
Speaker 10: what we securitize everything guys into the capital markets.
Speaker 2: The Drug Report talking about that, well that shift capital markets?
Speaker 2: Do you think in Europe?
Speaker 9: Well, it's it's certainly been a big wake up call
Speaker 9: first of all. And if I take my positive had
Speaker 9: on what I say is that hopefully now what what
Speaker 9: you can read in the Drug Report, etc. Is turned
Speaker 9: into really concrete actions as well, so that Europe can
Speaker 9: leverage all the advantages it has. I mean it's a
Speaker 9: large market, stable institutions, whatnot so and and high high
Speaker 9: equity participation in some parts of Europe as well. And
Speaker 9: then where do it shift? I mean, it's it seems
Speaker 9: to just looking at where evaluations have gone recently, some
Speaker 9: of the shifts you describe seem to you know, be
Speaker 9: in the making where that goes long term, Probably others
Speaker 9: are better position to tell.
Speaker 2: Right, If capital markets are key to innovation in tech,
Speaker 2: what has the Swedish approach to retail equity investing meant
Speaker 2: for its startup record? That's where we turn next. After
Speaker 2: a short break for coffee and Fica, the pastry that
Speaker 2: sweeze enjoy during their workday afternoons.
Speaker 7: We're in Sweden, so we have to we have to
Speaker 7: we have to have fica so well, Fica's Queen's cake. Yes,
Speaker 7: Feica is cake with coffee, so yes, exactly. So we're
Speaker 7: going to have a pika leaders that tradition, right, It
Speaker 7: is actually every Wednesday normally we have a Pica celebration
Speaker 7: where we just get everyone together. So the whole purpose
Speaker 7: is not to talk about work, is to talk about
Speaker 7: each other and to create that sense of community. So
Speaker 7: I love it. But it's a huge tradition here and
Speaker 7: now we've brought it everywhere. Don't toast in Sweden? Do
Speaker 7: you want to learn how to toast?
Speaker 4: Well?
Speaker 7: You toast? You say skulls? Don't you don't clean? You
Speaker 7: look at each other in the eye, you drink and
Speaker 7: you look at each other again. It's an old Viking tradition,
Speaker 7: like the idea was that if I had poisoned you
Speaker 7: would I wouldn't be able to look in the I.
Speaker 2: The Dragi report on the Future of European competitiveness called
Speaker 2: for Europe to develop a deeper pool of angel investors
Speaker 2: and increase European IPOs to fund high growth companies. So
Speaker 2: has Sweden's commitment to these sources of capital resulted in
Speaker 2: a more robust startup culture. Sweden has produced more tech
Speaker 2: unicorns per capita than any other country in Europe after Estonia,
Speaker 2: and according to the World Intellectual Property Organization, Sweden ranked
Speaker 2: second in global innovation among fifty one high income countries,
Speaker 2: second to Switzerland and just ahead of the United States.
Speaker 11: Swedeness has some well known brands going to iq H
Speaker 11: and m Ericsson or more recently Spotify in Klana. So
Speaker 11: it's a strong culture entrepreneurship which has fostered in a
Speaker 11: way innovation of course, but also investments in the community
Speaker 11: large and from a capital market perspective. So in Stockholm
Speaker 11: in particular, I think it's a small city, but investors
Speaker 11: are ever far away.
Speaker 2: Ali Landin is the CEO and one of the co
Speaker 2: founders of Froda, a tech startup that provides small and
Speaker 2: medium sized enterprises with access to financing.
Speaker 11: We start the company back in twenty fifteen. We came
Speaker 11: across the idea when we're sitting at Stock and School
Speaker 11: Economics have an incubator called Stock School Economics Business Lab,
Speaker 11: and we realize at the point in time that all
Speaker 11: these entrepreneurs who were sitting at that incubator starting their
Speaker 11: businesses were struggling to get access to external financing. And
Speaker 11: we realize that this is a huge problem and it's
Speaker 11: really hampering innovation and growth and competitiveness all across Europe.
Speaker 2: Even Sweden's retail banks work to bring their customers into
Speaker 2: the world of investing.
Speaker 12: One of our things to do is to help people
Speaker 12: to educate get them in financial literacy. So that means
Speaker 12: that in the old days, the savings banks gave like
Speaker 12: a few kroner two when you were new born and
Speaker 12: you could save it. And what we do is we
Speaker 12: talk with youngsters who educate them on financial literacy. We
Speaker 12: give them easy ways to invest in equities, to put
Speaker 12: their money into pensions and things like that, so we
Speaker 12: help people through that journey to make sure that in
Speaker 12: the end they have good financial health.
Speaker 2: Jens Hendrickson is the CEO of Sweatbank, one of the
Speaker 2: largest Nordic banks, with around seventy five percent of its
Speaker 2: revenue coming from Sweden.
Speaker 12: Were nation of engineers, and we're small and open economy,
Speaker 12: and sometimes people that are you not afraid that the
Speaker 12: new technology will will sort of make you lose your job?
Speaker 12: And people say, no, we're afraid of the old technology
Speaker 12: because the old technology might hurt them, might sort of
Speaker 12: make us weaker. We need new technology develop going forward,
Speaker 12: increased growth and make Sweden welfare and a better society
Speaker 12: to live.
Speaker 2: In Sweden, support for innovation goes back decades.
Speaker 11: I remember back in the early or mid nineties there
Speaker 11: was sort of an initiative called bring a Computer into
Speaker 11: Every Home, which was launched by the government and essentially
Speaker 11: meant that each and every household in Sweden could get
Speaker 11: a computer for almost no money at all. I think,
Speaker 11: but we don't have to the same extent as for instance,
Speaker 11: the US. You have the the pockets of Silicon Valley,
Speaker 11: those huge funds that can invest billions and billions of dollars.
Speaker 11: We don't have that, So I think what that means
Speaker 11: is Swedish tech companies or startups need to show profits
Speaker 11: earlier in their journey compared to for their US counterparts. Also,
Speaker 11: it's it's kind of a small market. You need to
Speaker 11: demonstrate scalability to be able to show that this is
Speaker 11: an idea that's not only sustainable in this tiny sort
Speaker 11: of Nordic market, but this is an idea that you
Speaker 11: can actually export across the globe. So as a requirement
Speaker 11: that you need the people to show how this works
Speaker 11: across the globe or at least in a lot large market.
Speaker 11: Not only Sweden.
Speaker 2: Sweden innovation ecosystem is supported by more than it's tech
Speaker 2: or tax and savings policies. Today, the country's social welfare
Speaker 2: policies also have expanded to support the risk taking needed
Speaker 2: to foster entrepreneurship.
Speaker 7: It is a very vibrant innovation ecosystem. I think that
Speaker 7: the government has done a lot of work intentionally to
Speaker 7: make sure that they allow companies to take risk, allow
Speaker 7: companies to grow and expand become global players, and then
Speaker 7: they have a great system that also encourages citizens to
Speaker 7: invest in these innovators.
Speaker 8: Our social security system is important. It makes it possible
Speaker 8: to take risks both with your savings of course, but
Speaker 8: also in your work life as a whole. When you
Speaker 8: have some basic, trustworthy welfare system, you know that you
Speaker 8: can have a bit more risk of course in the
Speaker 8: rest of the economy. So I think that is one
Speaker 8: important topic. But of course, also the culture doesn't come
Speaker 8: from one source. The welfare system could be one such source,
Speaker 8: education system could be another. And also of course that
Speaker 8: we provide financial stability, that we safegout our financial system
Speaker 8: make it in the long term high functioning, well functioning.
Speaker 9: We don't do a lot of call it early venture
Speaker 9: capital startup investment ourselves. But if I look at the
Speaker 9: innovation more broadly, then I think one part of that
Speaker 9: is maybe our small home market, right, meaning that we've
Speaker 9: always been forced to go out there and compete with
Speaker 9: the best in a way, So that's one big driver.
Speaker 9: Then I also think that we have some more societal
Speaker 9: infrastructure that works for us. Just to mention, I fil
Speaker 9: mean one is free and generally high quality education for
Speaker 9: all is broadly available. We also have pretty generous welfare systems,
Speaker 9: including childcare, which has helped, of course to create a
Speaker 9: labor market participation.
Speaker 2: Access to capital through private markets is an important part
Speaker 2: of the innovation puzzle.
Speaker 10: Europe actually has about the same number of venture capital
Speaker 10: companies per year that the gets hatched, which is interesting
Speaker 10: relative to the US. What Europe has been missing is
Speaker 10: those global dominant firms one hundred billion dollars in more.
Speaker 10: Typically those companies are actually getting bought by US firms.
Speaker 10: So there is the beginning of the food chain on innovation, right.
Speaker 10: Entrepreneur is actually a French But what's happening is you
Speaker 10: haven't made it to create a global dominant giant. You
Speaker 10: have ASML, but you don't have the type of companies
Speaker 10: that you have a Google and Meta and Microsoft, and
Speaker 10: so that to me is the opportunity set is to
Speaker 10: really see that value chain all the way through. You
Speaker 10: haven't had the same opportunity set. In the US. It's
Speaker 10: maybe twenty five percent of the index and in Europe
Speaker 10: at seven. So there is entrepreneurs and there's growth, but
Speaker 10: a lot in the public markets. A lot of that's
Speaker 10: been concentrated in the US markets.
Speaker 2: Investor AB is one of the most important sources of
Speaker 2: private capital for Swedish companies, but its take on private
Speaker 2: equity looks different from the United States.
Speaker 9: Basically, when we make an investment, we do it not
Speaker 9: having exit as part of the strategy, and that means
Speaker 9: that we're really picky about getting companies who are in
Speaker 9: industries or in markets or niches where you have some
Speaker 9: kind of structural growth tailwind. We don't love to sort
Speaker 9: of fight gravity, so we prefer the tailwind and then
Speaker 9: companies with a long term right to win in those markets.
Speaker 9: And typically, and it goes back to the point about innovation,
Speaker 9: if we look at our companies across I mean call
Speaker 9: it twenty five or so companies, most of them have
Speaker 9: leading market positions and they have that thanks to leading
Speaker 9: or sort of best in class products and this obsession
Speaker 9: about the products and the customers. So that's I think
Speaker 9: our We really pick on the long term attractiveness of
Speaker 9: both the company but also the industry that they're in,
Speaker 9: because we're weary that it's it's it's better basically with
Speaker 9: some tailwind and some heldwind. To be clear, we have
Speaker 9: shareholders in all parts of the world. We have Nordic roots,
Speaker 9: but we see ourselves as global investors and if you
Speaker 9: look at our companies, they typically have the Nordic roots
Speaker 9: and the Nordic carriatter. But coming back to our small
Speaker 9: home market set, and they're typically active across the globe.
Speaker 9: If I look at investor ab in the company as such,
Speaker 9: we have operations here in Stockholm, any New York. So
Speaker 9: those are our two sort of home markets, and that's
Speaker 9: where we go look for new platform investments or new
Speaker 9: logos if you want.
Speaker 2: Sweden's model has worked to jumpstart its innovation and growth,
Speaker 2: but replicating it in other parts of the EU is
Speaker 2: not as easy as it sounds.
Speaker 8: There is a huge interest from other European countries and
Speaker 8: from the European Union about the Swedish case. How did
Speaker 8: we succeed to have our households to have this large
Speaker 8: retail participation in the financial markets, How did we succeed
Speaker 8: in reforming our pension system, How did we succeed in
Speaker 8: getting those tax incentivized saving products in place that provides
Speaker 8: the households with a better return than they would have
Speaker 8: just the system where you pay taxes and get benefits
Speaker 8: from the government, and then of course also provides corperations
Speaker 8: with more capital than in other countries. So there is
Speaker 8: a huge interest in the Swedish example, and since we're
Speaker 8: humble people, of course will will say that, well, it's
Speaker 8: it's a matter of several factors. It's it's it's not
Speaker 8: a it's not one thing you could do here.
Speaker 2: If Europe manages to adapt the Swedish model of supporting
Speaker 2: capitalism with social welfare, the growth upside of the EU
Speaker 2: is high, but Sweden is setting its sites even higher.
Speaker 8: We say that the United States need to watch out
Speaker 8: if we if we manage for the whole of Europe
Speaker 8: to do this, because then we will be a much
Speaker 8: more efficient competitor.
Speaker 12: And that means that you have a free education, you
Speaker 12: have free universities, you have the daycare, shine care, you have,
Speaker 12: and you can continue with all these things, and then
Speaker 12: peakop can take a bit more financial risk. And you're right,
Speaker 12: it is risk in that sense, but when you know
Speaker 12: that risk usually pays off in the long run, well,
Speaker 12: at least history has shown of that.
Speaker 2: Coming up, we talked with the new Secretary of the Army,
Speaker 2: Dan Driscoll about the transformation plan he presented to Congress
Speaker 2: last week and how it would address some of the
Speaker 2: issues at the Pentagon we reported on last fall. This
Speaker 2: is an update of a story we reported on last
Speaker 2: November about getting our money's worth in our national defense spending.
Speaker 2: Last week, the new Secretary of the Army presented to
Speaker 2: Congress his plan to transform the largest branch of the
Speaker 2: US military.
Speaker 1: Jacob the system is broken, but nobody felt like they
Speaker 1: had the power to change it.
Speaker 2: Dan Driscoll is the Secretary of the Army Army serving
Speaker 2: in Trump's current administration, which plans to redirect eight percent
Speaker 2: or fifty billion dollars of non lethal Defense Department spending
Speaker 2: to innovative weaponry.
Speaker 1: With President Trump's leadership and his kind of incredibly high
Speaker 1: risk tolerance, we were empowered and given the top cover
Speaker 1: to basically go fix the things that are broken. And
Speaker 1: so fundamentally what Army Transformation Initiative, what we call ATI,
Speaker 1: is it does four things. So the first bucket of
Speaker 1: things that it does is it looks at our obsolete
Speaker 1: equipment and processes and the things that have led to
Speaker 1: bad outcomes, and we stop buying those things. And so
Speaker 1: some examples of that are humbies. We have Gray Eagles,
Speaker 1: which are big, large drones that have been around for
Speaker 1: decades and they just don't fit on the modern battlefield.
Speaker 1: And a robotic combat vehicle on our CV, it's an
Speaker 1: exquisite three million dollar piece of equipment that can be
Speaker 1: taken out by an eight hundred dollars drone. The math
Speaker 1: just doesn't work. Bucket two is what has led to
Speaker 1: the types of contracts have gotten us into these outcomes
Speaker 1: that we don't want. So in some instances we have
Speaker 1: given away our right to repair our own equipment. We
Speaker 1: would see this exquisite equipment sitting on the sidelines for
Speaker 1: eight or twelve months at a time, and our soldiers
Speaker 1: could three D print the two to twenty dollars part
Speaker 1: to get it back in the game. Bucket three is
Speaker 1: essentially taking the savings from cutting the obsolete equipment and
Speaker 1: recycling it to the things we know we need. Modern
Speaker 1: warfare is going to be a mixture of autonomous vehicles
Speaker 1: and drones and data. It's buying all of that equipment
Speaker 1: and really just giving us a command and control layer
Speaker 1: for the modern battlefield. And then Bucket four is the bloat.
Speaker 1: We have just too many people up in our leadership,
Speaker 1: and so we're going to do things like cut one
Speaker 1: thousand people from the Pentagon. We're going to push those
Speaker 1: soldiers that are stuck up here pushing paperwork around. We're
Speaker 1: going to get them back in helmets, get them back
Speaker 1: in formations to do the jobs that they actually signed
Speaker 1: up wanting to do.
Speaker 2: Those who know have been calling for changes like these
Speaker 2: for a long time. Former US Deputy Secretary of Defense
Speaker 2: John Hamry says the Pentagon's fail failure to adapt compromises
Speaker 2: its ability to fight.
Speaker 13: We are not well organized for sustained long term conflict.
Speaker 13: It would really be a strain for us to manage
Speaker 13: a three year war. We tend to buy too few
Speaker 13: weapons for long term warfare. Our industrial base is sluggish.
Speaker 13: It's not that the companies aren't willing to produce, but
Speaker 13: the government isn't willing to give them resources for search capacity.
Speaker 13: We could fight a terrific short term war, but if
Speaker 13: we had a prolonged war, it would be a challenge.
Speaker 6: I think there are two problems. One is that we're
Speaker 6: not spending enough, and two is that we're not spending
Speaker 6: wisely enough.
Speaker 2: Amy Zgart is a senior fellow at the Hoover Institution.
Speaker 6: Or overall defense budget has a yawning gap with the
Speaker 6: capabilities that this nation needs to advance national interests. At
Speaker 6: the same time, we need to be spending money on
Speaker 6: low cost, high tech, affordable unmanned systems and other capabilities.
Speaker 6: There's been a lot of discussion about doing that in
Speaker 6: the Pentagon, a lot of discussion about doing that in Congress,
Speaker 6: but those kinds of systems are still rounding dust in
Speaker 6: the Pentagon budget compared to where we need to be.
Speaker 6: This is the most dangerous and the most complicated threat
Speaker 6: landscape the United States has faced since nineteen forty five.
Speaker 6: We have great power competition with China and Russia, then
Speaker 6: there's Iran and North Korea, and we also have non
Speaker 6: state actors. Terrorist threat levels are increasing again, and they're
Speaker 6: enabled by new technologies which are spreading rapidly. It's a
Speaker 6: very demanding landscape. The United States Defense Department is having
Speaker 6: to do more, and our budgets have not kept pace
Speaker 6: with the threat landscape. So as a percentage of GDP,
Speaker 6: the US government is spending half as much today on
Speaker 6: defense as we did in the nineteen eighties, one twentieth
Speaker 6: as much on defense as we did in the Korean War.
Speaker 6: So the needs are growing, the funding is declining.
Speaker 1: If you look at the Pentagon for the last thirty
Speaker 1: or forty years, you've had this very inefficient bureaucratic system
Speaker 1: that has calcified, and we like to talk about it
Speaker 1: as kind of like a pretzel for decision making, contorting
Speaker 1: it on itself.
Speaker 13: We've done things inside the Defense Department for many years,
Speaker 13: but this revolution that's taking place in digital technology is
Speaker 13: in the private sector, and we don't know how to
Speaker 13: bring that into the government because we want them to
Speaker 13: slow down and fit our model. Well, they're not going
Speaker 13: to do that. Defense acquisition runs at x and the
Speaker 13: private sector is moving at five X. I think the
Speaker 13: greatest challenge going forward is going to be how do
Speaker 13: we bring in the cutting edge technology the private sector
Speaker 13: is developing and incorporate it into our weapons storms And
Speaker 13: we do not have an answer to that question.
Speaker 14: With this new idea of having non traditional defense contractors
Speaker 14: and Silicon Valley companies like Pallanteer and SpaceX that lots
Speaker 14: of people have heard of, it's bringing new ideas in
Speaker 14: new innovation, and it's giving us the best of breed technology.
Speaker 2: Andy Lowry is the CEO of Epirus, a defense tech
Speaker 2: contractor that focuses on drone technology, an essential part of
Speaker 2: fighting the wars of the future. The company is valued
Speaker 2: and an estimated one billion dollars and has raised over
Speaker 2: five hundred and fifty million dollars in the private sector.
Speaker 15: ePRESS makes force fields just like you see on science
Speaker 15: fiction movies. We have created the first version of a
Speaker 15: human made force field that can protect things like bases, aircraft, tanks, cars, vehicles, stadiums, refineries, borders.
Speaker 15: All of these things right now are falling prey to
Speaker 15: a infiltration of drones. Not just flying droms. You have
Speaker 15: drones on the water, drones on land, drones in the air,
Speaker 15: drones in space. You have cyber powered drones everywhere.
Speaker 2: Enter ePRESS.
Speaker 14: ePRESS, with our force fields can now line up right
Speaker 14: at an edge of a fence and knock everything down
Speaker 14: like there's a wall of energy that anything that comes
Speaker 14: into falls to the ground and is rendered useless.
Speaker 2: Epreus delivered counter drone technology to the Navy as recently
Speaker 2: as March. The goal of their Leonidas system is to
Speaker 2: take down drones.
Speaker 14: These force fields will prevent massive attacks. Because we can
Speaker 14: only make dozens of missiles a month as a country,
Speaker 14: they can make tens of thousands of drones per month,
Speaker 14: tens thousands of drones per month. That ratio doesn't work
Speaker 14: will never keep up. We'll lose to the attrition, the
Speaker 14: war of attrition unless we come up with what force fields.
Speaker 14: If we put force fields up in those drones, doesn't
Speaker 14: matter ten hundred thousand, just rack it up the cash book,
Speaker 14: because every one of those is ten K, fifteen K,
Speaker 14: and you're losing them one again, again and again. So
Speaker 14: we actually flip this whole paradigm over on its head
Speaker 14: and cause them to have to say, now, what are
Speaker 14: we going to do do we still want to fight
Speaker 14: fights with drones and just risk them getting lost to
Speaker 14: these new systems. We've kind of grown a little comfortable,
Speaker 14: i would say, in the way that we've.
Speaker 15: Been fighting this sort of war of deterrence. But now
Speaker 15: enter this new age of consumer electronics, highly distributed, highly networked.
Speaker 15: No one single thing can do that much damage. But
Speaker 15: when you add hundreds and put them in a swarm configuration,
Speaker 15: it's the new way that wars are being fought, and
Speaker 15: it's confounding our defense department, and they need help. They
Speaker 15: need solutions not from the traditional primes, but from a
Speaker 15: new age prime, a neo prime that's able to use
Speaker 15: the best of Silicon Valley combined with the best to
Speaker 15: defense in combination to help mitigate and fight and defend
Speaker 15: against this new emerging threat.
Speaker 2: The Silicon Valley's money is also piling into the potential
Speaker 2: of new defense technology. Defense related US startups have raised
Speaker 2: more than ten billion dollars in venture capital since the
Speaker 2: start of twenty fourteen.
Speaker 1: Warfare has changed in the last couple of years. It's
Speaker 1: an inflection point that humans have been fighting very similarly
Speaker 1: since probably the dawn of mankind. You didn't have things
Speaker 1: like autonomous vehicles, you didn't have things like generative AI,
Speaker 1: you didn't have drone swarms that could be using such
Speaker 1: cheap equipment. Russia, we think, has manufactured one million drones
Speaker 1: in the last twelve months. That just fundamentally alters how
Speaker 1: we have to think about these things. And so what
Speaker 1: we've tried to do is start to include our partners
Speaker 1: much earlier in the process. We are hopeful that our
Speaker 1: Army Transformation initiative will be a renaissance for the defense
Speaker 1: industrial based small and medium businesses. We want to get
Speaker 1: their products in the hands of soldiers as quickly as
Speaker 1: we possibly can. The larger primes that have been around
Speaker 1: for a while, they have served at function. They will
Speaker 1: likely some of them at least will continue to serve
Speaker 1: a function for the United States Army, but we can
Speaker 1: no longer allow them to take five or ten years
Speaker 1: where we just pay for the innovation that we as
Speaker 1: a nation need. And so specifically what we were doing is,
Speaker 1: as an example, we were out on the West Coast
Speaker 1: with a company that does the autonomous software for a
Speaker 1: lot of vehicles in the United States, and we asked them,
Speaker 1: have you done this with any military vehicles, and they said, no,
Speaker 1: absolutely not. The process is miserable. It takes two years,
Speaker 1: we have to come up, go through all these requirements.
Speaker 1: We just can't do it as a company. And so
Speaker 1: we just turned to our team and said, hey, get
Speaker 1: them a Humby and get them an infantry squad vehicle.
Speaker 1: In the next week we got it to them. They said,
Speaker 1: what do you want us to do? We said, just
Speaker 1: ten days, take it. Do whatever you can possibly do
Speaker 1: to transform our vehicles. They sent us a video ten
Speaker 1: days later they had made our vehicles fully autonomous. Seven
Speaker 1: weeks later, our soldiers are actually testing that equipment and
Speaker 1: we're going to fly in those software developers to come
Speaker 1: see the outcomes. And so these are the types of
Speaker 1: things that we have to be doing as an army.
Speaker 1: This exists in venture backed businesses. This is how they
Speaker 1: do it every single day, and we as an army
Speaker 1: just have to get better at it.
Speaker 2: Other people have tried to reform the Pentagon. There are
Speaker 2: a lot of constituents up on Capitol Hill, in the
Speaker 2: contractors that you work with, even within the Pentagon itself.
Speaker 2: What has been the reaction of those people who have
Speaker 2: vested interest in keeping it the way it was?
Speaker 1: I think change is hard. I think many of them
Speaker 1: appreciate that this is necessary. A lot of their sons
Speaker 1: and daughters and grandsons and granddaughters serve. The Army has
Speaker 1: its two hundred and fiftieth anniversary this year. We're actually
Speaker 1: older than the United States of America itself. And what's
Speaker 1: incredibly powerful about that is we touch most Americans in
Speaker 1: some way, whether it's a coach or a neighbor or
Speaker 1: a parent, and so I think deep down they know
Speaker 1: that these are the right changes. I think deep down
Speaker 1: they know that President Trump is Secretary Heagseth are going
Speaker 1: to allow us to make these very difficult changes. And
Speaker 1: so my perception of most of the conversations has been
Speaker 1: and once they've appreciated that we are not backing down,
Speaker 1: we are conceding no ground. We are taking zero parochial
Speaker 1: interests into account. We have set that stage with everyone Republican,
Speaker 1: a Democrat. We are doing the right thing for soldiers
Speaker 1: in the American taxpayer, and that is it. I think
Speaker 1: once they can process that and appreciate this is that
Speaker 1: the actual time work change is happening. We then transition
Speaker 1: to a mode of what can their business do to
Speaker 1: thrive and survive in this new model? And we are
Speaker 1: going to keep testing and learning from our soldiers and
Speaker 1: closing the innovation loop and executing on the things that
Speaker 1: are necessary.
Speaker 2: Don't that does it for us here at Wall Street Week,
Speaker 2: I'm David Weston. See you next week for more stories
Speaker 2: of capitalism.