WEBVTT - China Pivot, Sweden's innovation engine, US Army Sec. Driscoll 0:00:02.720 --> 0:00:08.600 Bloomberg Audio Studios, podcasts, radio news. 0:00:19.320 --> 0:00:22.240 This is Wall Street Week. I'm David Weston, bringing you 0:00:22.320 --> 0:00:26.400 stories of capitalism. Last week, the US Army announced plans 0:00:26.440 --> 0:00:29.320 to transform itself for a new world and a new 0:00:29.320 --> 0:00:32.120 way of fighting wars. We talked with the Secretary of 0:00:32.120 --> 0:00:35.040 the Army, Dan Driscoll about what of the old has 0:00:35.080 --> 0:00:37.320 to go out to make room for the new to 0:00:37.360 --> 0:00:40.760 come in. Plus, we traveled to Stockholm to see how 0:00:40.800 --> 0:00:44.000 the rest of Europe could follow Sweden's lead in building 0:00:44.000 --> 0:00:46.920 an innovation ecosystem on the back of capital markets with 0:00:47.120 --> 0:00:50.519 just about everyone owning a piece. But we start with 0:00:50.640 --> 0:00:53.680 China and a story about the two biggest economies in 0:00:53.720 --> 0:00:56.800 the world trying to come to trade terms. Who has 0:00:56.840 --> 0:01:00.320 the upper hand and is it possible for both to win. 0:01:02.240 --> 0:01:07.679 President Trump wants to rebalance the American economy back to 0:01:08.800 --> 0:01:15.679 a manufacturing economy with high precision manufacturing. I think everyone agrees, 0:01:15.920 --> 0:01:20.400 including Chinese leadership, that they need to rebalance towards more 0:01:20.520 --> 0:01:25.399 of a consumption and consumer economy. And the dream scenario 0:01:25.480 --> 0:01:27.759 would be if somehow we could do that together. 0:01:28.120 --> 0:01:31.720 Turning first to our special contributor, Larry Summers of Harvard, 0:01:34.200 --> 0:01:37.680 So Larry. This week we heard about the tentative agreement 0:01:37.680 --> 0:01:39.840 for ninety days at least between the United States and 0:01:39.920 --> 0:01:42.600 China dialing back on the tariffs. Was this a step 0:01:42.720 --> 0:01:44.479 forward for the Trump administration? 0:01:45.000 --> 0:01:50.760 I salute Secretary Bessant. The avoidance of value subtracted is 0:01:50.880 --> 0:01:55.440 value added, and by that standard, we added value. The 0:01:55.520 --> 0:01:59.840 United States backed off of what we are extremely imprudent 0:02:00.600 --> 0:02:06.640 and potentially economically very damaging prohibitive tariffs to the point 0:02:06.680 --> 0:02:10.640 of embargo on China. That was a good thing for 0:02:10.760 --> 0:02:15.320 the US economy, and as a consequence, the US stock 0:02:15.400 --> 0:02:21.400 market rose substantially in recognition of that. It was not 0:02:21.600 --> 0:02:26.160 an increase due to Chinese concessions. You could see that 0:02:26.360 --> 0:02:30.440 from the internals of the market. Companies like toy companies 0:02:30.480 --> 0:02:38.680 that were dependent on imports retailers performed particularly well. But look, 0:02:38.720 --> 0:02:42.480 when you make a mistake, when you've done something imprudent, 0:02:43.160 --> 0:02:46.400 it's a good idea to salvage what pride you can 0:02:47.160 --> 0:02:51.239 and to retreat. And that's what the Trump administration did, 0:02:51.760 --> 0:02:56.040 and I salute Secretary Vessant for his leadership in doing that. 0:02:56.280 --> 0:02:59.200 Part of any high stakes negotiation is trying to assess 0:02:59.400 --> 0:03:01.720 the pressure points on the two sides, and one of 0:03:01.760 --> 0:03:03.840 the things we've heard from President Trump is he believes 0:03:03.960 --> 0:03:05.880 there's a lot of pressure on China right now because 0:03:05.919 --> 0:03:08.520 it is a manufacturing economy and as he says, a 0:03:08.520 --> 0:03:11.800 lot of factories have gone quiet. Is he right? Is 0:03:11.840 --> 0:03:13.440 there a lot of pressure on China right now to 0:03:13.480 --> 0:03:14.160 come to terms. 0:03:14.400 --> 0:03:17.079 I think there's some pressure on China, but I think 0:03:17.080 --> 0:03:21.799 there's more pressure on us because we're the one that's 0:03:21.880 --> 0:03:27.800 a democratic country that's responsive to our people. We're the 0:03:27.840 --> 0:03:33.440 one that has a highly inflation conscious population and prohibitive 0:03:33.520 --> 0:03:40.040 tariffs raise price levels. We're the one that's the active 0:03:41.200 --> 0:03:43.520 player here. So I think there was a lot of 0:03:43.560 --> 0:03:47.840 pressure on us, to which we responded. I think it's 0:03:47.880 --> 0:03:52.120 a very important part of governing to be willing to 0:03:52.240 --> 0:03:56.800 recognize when you push things too far and to pull back. 0:03:57.400 --> 0:04:01.480 But let's not be confused about what the path eater was. 0:04:02.200 --> 0:04:08.880 It was an overly aggressive, overly truculent, erroneous approach from 0:04:08.920 --> 0:04:13.360 which there has been a significant but still not total retreat. 0:04:14.240 --> 0:04:17.120 Larry Ticket step back from the particulars of balance of 0:04:17.160 --> 0:04:21.200 trade and fairness and trade. As a macroeconomist, we do 0:04:21.320 --> 0:04:25.160 have the second largest economy in the world by most measures, 0:04:25.240 --> 0:04:27.599 by some even the largest economy in the world that 0:04:27.760 --> 0:04:32.000 is not market driven fundamentally, it is centrally planned and 0:04:32.040 --> 0:04:36.080 they've built up a huge productive capacity. How does one 0:04:36.200 --> 0:04:38.800 deal with that? I don't think we ever had to 0:04:38.800 --> 0:04:40.400 do that in the past. How do you deal with 0:04:40.440 --> 0:04:43.480 that in terms of trade terms and making sure that 0:04:43.560 --> 0:04:45.560 it doesn't distort things in our country? 0:04:46.040 --> 0:04:49.000 Well, I think what you do is you focus on 0:04:49.160 --> 0:04:54.719 your own economic interests and if others want to subsidize 0:04:54.760 --> 0:05:00.599 your consumers, if others want to subsidize your producers, that 0:05:01.120 --> 0:05:05.039 can very easily be a good thing. And so you 0:05:05.160 --> 0:05:08.000 try to define what your core interests are. We have 0:05:08.040 --> 0:05:12.160 a core interest in national security. In everything that's national 0:05:12.240 --> 0:05:16.960 security sensitive. We need to be trying to pivot away 0:05:17.480 --> 0:05:20.960 from China. We need to be very attentive to the 0:05:21.040 --> 0:05:26.560 security risks of Chinese presence in the United States. That's 0:05:26.600 --> 0:05:32.159 issues like TikTok. We need to be very focused on 0:05:33.279 --> 0:05:40.080 preventing China from getting access to intellectual property and ways 0:05:40.240 --> 0:05:44.120 that's going to enable them to surpass us. But you 0:05:44.200 --> 0:05:48.600 have to focus on your core interests, and when you're 0:05:49.040 --> 0:05:53.280 worried about the export of Barbie dolls. You're not focusing 0:05:53.360 --> 0:05:57.640 on your core interests when you're worried about trying to 0:05:57.680 --> 0:06:01.599 get jobs here, putting together other the different components of 0:06:01.640 --> 0:06:07.400 an iPhone, you're not worried about your core interests. So, yeah, 0:06:07.480 --> 0:06:11.400 we do need a strategy with respect to China, a 0:06:11.480 --> 0:06:16.200 strategy directed getting them to follow rules of the road 0:06:16.320 --> 0:06:22.719 where that's important for our core national security interests. But 0:06:23.320 --> 0:06:28.880 this kind of broad, indiscriminate attack that has been launched 0:06:29.000 --> 0:06:34.760 that mostly serves to cause Americans to feel poorer, mostly 0:06:35.120 --> 0:06:41.120 serves to increase our inflation. That's not the right way forward. 0:06:41.279 --> 0:06:44.520 So I'm glad to see the adjustments that the Trump 0:06:44.560 --> 0:06:46.200 administration has entered into. 0:06:46.839 --> 0:06:50.760 The tentative agreement reached in Geneva was just that tentative, 0:06:51.200 --> 0:06:53.039 leaving a lot of work to be done before the 0:06:53.160 --> 0:06:56.000 United States and China can reach a long term solution 0:06:56.360 --> 0:06:59.960 to their trade conflicts. Elizabeth Economy is a China expert 0:07:00.120 --> 0:07:03.120 at the Hoover Institution who keeps careful track of the 0:07:03.160 --> 0:07:07.279 relative strengths and weaknesses of the world's two largest economies. 0:07:07.720 --> 0:07:10.960 I think both countries have economic vulnerabilities. I think the 0:07:11.000 --> 0:07:14.000 assessment on the part of the Trump administration was that 0:07:14.200 --> 0:07:17.240 China was more vulnerable because it exports much more to 0:07:17.280 --> 0:07:19.720 the United States than the US does to China. Its 0:07:19.720 --> 0:07:22.480 economy has also been struggling. It's been in a prolonged 0:07:22.480 --> 0:07:25.200 economic slowdown for at least three years now. But I 0:07:25.200 --> 0:07:28.120 think there was a fundamental miscalculation on the part of 0:07:28.160 --> 0:07:31.800 the administration. They didn't appreciate that we have a much 0:07:31.840 --> 0:07:36.560 greater soul or near soul source reliance on a number 0:07:36.600 --> 0:07:40.360 of critical products from China, critical minerals, rare earth elements, 0:07:40.640 --> 0:07:43.880 active pharmaceutical ingredients. These are all things that are essential 0:07:43.960 --> 0:07:47.800 for our economic security, our national security, our human security, 0:07:48.240 --> 0:07:51.720 and will devastate quite frankly, our pharmaceutical industries and our 0:07:51.760 --> 0:07:54.880 defense and technology industries. So there's a balance, I think 0:07:54.920 --> 0:07:59.000 between the Chinese vulnerabilities and the US vulnerabilities. Both of us, 0:07:59.000 --> 0:08:02.040 I think, have vulnerabilities to in the space of this 0:08:02.120 --> 0:08:02.680 tariff war. 0:08:03.120 --> 0:08:06.239 Does the rest of the world give one side between 0:08:06.360 --> 0:08:08.680 I say, some China advantage over the other. I mean 0:08:08.720 --> 0:08:12.000 both sides historically have tried to recruit the rest. 0:08:11.840 --> 0:08:12.320 Of the world. 0:08:12.880 --> 0:08:17.160 I think for the advanced market democracies, what we've seen 0:08:17.200 --> 0:08:20.400 has been in some respects somewhat surprising. I think there 0:08:20.560 --> 0:08:23.120 was a belief on the part of the Chinese government 0:08:23.200 --> 0:08:27.160 that given this tariff for this global tariff war that 0:08:27.480 --> 0:08:30.400 President Trump has launched, that it would be easy pickings 0:08:30.720 --> 0:08:33.160 that China would walk in and basically say, we are 0:08:33.400 --> 0:08:35.840 a stabilizing force in the global economy, We're a stabilizing 0:08:35.840 --> 0:08:38.960 force in the international system. And they've gone around saying, 0:08:39.000 --> 0:08:42.520 let's join hands and work together to push back against 0:08:42.600 --> 0:08:45.640 President Trump and this tariff war. I think what they've 0:08:45.679 --> 0:08:49.199 found is that really nobody's that interested in buying what 0:08:49.240 --> 0:08:53.280 they're selling. There's an entire world now emerging that is 0:08:53.320 --> 0:08:57.199 set to support the current rules based order that doesn't 0:08:57.200 --> 0:09:00.320 include the United States, but also doesn't include China. 0:09:00.400 --> 0:09:03.520 One destination of Chinese goods that otherwise might be expert 0:09:03.679 --> 0:09:07.040 would be domestically increased domestic consumption, which has been talked 0:09:07.040 --> 0:09:10.760 about for years now. What are the prospects In fact, 0:09:11.080 --> 0:09:14.400 Xi Jinping might say, Okay, we're going to stimulate the consumer. 0:09:14.800 --> 0:09:18.120 I mean, Chinese economists have been saying for years now 0:09:18.520 --> 0:09:21.840 that the government needs to do more to support the 0:09:21.880 --> 0:09:24.720 consumer economy, and part of that would be, you know, 0:09:24.840 --> 0:09:27.600 investing more in the healthcare system, the education system, the 0:09:27.600 --> 0:09:30.840 pension system, giving the Chinese people a sense that they 0:09:30.840 --> 0:09:32.760 don't need to continue to save in the case of 0:09:32.840 --> 0:09:37.000 an emergency. But Chijinping is allergic to what he calls 0:09:37.000 --> 0:09:40.720 social welfare ism. He doesn't want to give the Chinese 0:09:40.760 --> 0:09:43.520 people any incentive not to work, at least that's how 0:09:43.600 --> 0:09:46.320 he looks at it. So again we've seen President she 0:09:46.440 --> 0:09:48.880 over the course of this taraf war take a few steps, 0:09:49.240 --> 0:09:52.600 you know, in the form of raising wages for civil servants, 0:09:53.000 --> 0:09:55.439 notwithstanding the fact that a year ago or a year 0:09:55.440 --> 0:09:57.760 and a half ago he actually cut those same wages. 0:09:57.800 --> 0:09:59.880 So I don't know whether this is actually increase or 0:10:00.160 --> 0:10:02.480 just taking them back to where they were. And also 0:10:02.640 --> 0:10:06.600 again having this massive goods trade in program. But mostly 0:10:06.640 --> 0:10:09.640 what he's done I think is, you know, encourage banks 0:10:09.880 --> 0:10:13.880 to loan to small and medium sized enterprises. You've seen 0:10:13.920 --> 0:10:18.680 Ali Baba, for example, reduce the cost of companies putting 0:10:18.679 --> 0:10:21.600 their goods on its platform, to encourage small and medium 0:10:21.640 --> 0:10:23.680 sized enterprises to be able to export. So there are 0:10:23.720 --> 0:10:25.800 steps that are being taken, but there's nothing in the 0:10:25.840 --> 0:10:29.120 way of sort of a massive boost to the consumer 0:10:29.160 --> 0:10:31.280 economy that I think Chinese economists would. 0:10:31.040 --> 0:10:32.440 Like to see. 0:10:34.480 --> 0:10:38.000 Coming next the story of Nasdaq in Europe and how 0:10:38.040 --> 0:10:42.200 Sweden's deep and robust capital markets connection to tech startups 0:10:42.480 --> 0:10:45.360 could give the rest of Europe an example to follow. 0:10:53.200 --> 0:11:02.800 Six fam today two and this is a story about 0:11:02.840 --> 0:11:07.960 attracting bees with honey, specifically the honey of rich capital markets, 0:11:08.000 --> 0:11:11.800 attracting the bees of tech entrepreneurs, something that has helped 0:11:11.880 --> 0:11:15.440 drive US economic growth, but that has largely been lacking 0:11:15.559 --> 0:11:18.959 in Europe, except in one particular corner. 0:11:21.960 --> 0:11:25.000 About thirty nine percent of household assets in the United 0:11:25.040 --> 0:11:27.679 States are invested in equities, which is the highest in 0:11:27.720 --> 0:11:30.880 the world. But here in Sweden it's thirty six percent. 0:11:31.320 --> 0:11:34.160 And it's not just how much, it's how broad. 0:11:34.480 --> 0:11:37.439 About ninety percent of the sweet savings are in some 0:11:38.640 --> 0:11:42.400 financial assets, which makes us the most investing country, at 0:11:42.480 --> 0:11:43.599 least in Europe. 0:11:44.000 --> 0:11:49.680 We're blessed to have a broad equity participation, so lots 0:11:49.720 --> 0:11:54.240 of people who own stocks directly. What that does is, 0:11:54.240 --> 0:11:56.840 of course, it creates this economic alignment, etc. 0:11:57.600 --> 0:12:01.199 We've come to expect robust capital markets supported by retail 0:12:01.240 --> 0:12:05.079 investment in the United States, but not necessarily in Sweden, 0:12:05.400 --> 0:12:07.920 a Nordic country with a population of just a little 0:12:07.920 --> 0:12:10.920 more than ten million people that punches above its weight 0:12:11.040 --> 0:12:13.480 in the depth of its capital markets and is home 0:12:13.520 --> 0:12:15.599 to Nasdaq's European headquarters. 0:12:17.160 --> 0:12:20.160 We operate our markets here and also in the Nordics. 0:12:20.200 --> 0:12:22.880 We own and operate almost all the markets in the Nordics. 0:12:23.320 --> 0:12:26.360 We spoke to Nasdaq CEO Adina Friedman in New York 0:12:26.400 --> 0:12:29.440 in April, not long after President Trump had roiled the 0:12:29.480 --> 0:12:32.040 markets with his sweeping tariff announcements. 0:12:32.400 --> 0:12:35.680 So on options in twenty twenty four, we had an 0:12:35.720 --> 0:12:38.720 average of about twenty four million contracts traded a day. 0:12:39.080 --> 0:12:43.000 On Friday, we had ninety four million contracts traded. Now, 0:12:43.120 --> 0:12:45.880 what generally said that what's really really interesting is options 0:12:45.960 --> 0:12:47.720 markets are extremely data heavy. 0:12:48.200 --> 0:12:51.199 Friedman and her Nasdaq team have plenty to handle with 0:12:51.440 --> 0:12:56.000 US markets, but they also run European operations almost as large, 0:12:56.040 --> 0:12:59.439 in what they call Nasdaq Nordic, which became part of 0:12:59.480 --> 0:13:02.600 the group in two thousand and eight. We accompanied Friedman 0:13:02.679 --> 0:13:05.840 on a trip to the European headquarters in Stockholm. 0:13:06.360 --> 0:13:09.760 Well, Stockholm is one of the great markets that we 0:13:09.840 --> 0:13:12.160 own and operate here in the Nordics, but it also 0:13:12.280 --> 0:13:15.080 is the headquarters to our market technology business where we 0:13:15.160 --> 0:13:17.480 serve one hundred and thirty markets with our technology that 0:13:17.520 --> 0:13:19.719 helps them power all the market those markets around the 0:13:19.760 --> 0:13:20.360 world as well. 0:13:20.800 --> 0:13:25.359 How much of nasac's overall operation is represented in Stockholm, Well. 0:13:25.120 --> 0:13:28.440 We have about eight hundred employees here in Stockholm, slightly 0:13:28.480 --> 0:13:30.160 smaller than New York, where we have about one thousand 0:13:30.160 --> 0:13:31.720 employees in our New York office. So it kind of 0:13:31.720 --> 0:13:33.760 gives you a sense that this really is our second 0:13:33.760 --> 0:13:37.480 headquarters in the world. It's one of the special places 0:13:37.480 --> 0:13:39.280 that I get the benefit of being able to come 0:13:39.320 --> 0:13:42.960 to as we engage with the markets here in Sweden. 0:13:43.120 --> 0:13:45.040 One of the things that I find interesting is how 0:13:45.080 --> 0:13:48.080 similar it is here in Sweden versus New York. So 0:13:48.640 --> 0:13:51.800 the markets in Sweden have a lot of characteristics to 0:13:51.840 --> 0:13:54.240 the markets in the US, which is different than the 0:13:54.280 --> 0:13:56.880 rest of Europe. So when we look at it, we 0:13:56.920 --> 0:13:59.520 look at how liquid are the markets, how many new 0:13:59.520 --> 0:14:03.400 companies come and list here in any given year, how 0:14:03.440 --> 0:14:06.080 active are the markets in terms of having retail ownership 0:14:06.640 --> 0:14:09.720 of equities, and in many many cases those are very 0:14:09.760 --> 0:14:12.520 similar to the US. So we have twelve hundred companies 0:14:12.520 --> 0:14:15.120 that are listed in the Nordics and in any given year, 0:14:15.280 --> 0:14:19.160 we'll have dozens of companies list here, both small companies 0:14:19.160 --> 0:14:22.120 on our SME market which is called First North, and 0:14:22.240 --> 0:14:25.000 on the main market. So we're really really proud of 0:14:25.000 --> 0:14:28.160 the fact that the markets here are very vibrant and 0:14:28.680 --> 0:14:30.720 have a lot of similarities to what we see in 0:14:30.760 --> 0:14:33.680 the US. But sitting here in Europe, almost. 0:14:33.560 --> 0:14:36.960 One sign of its strong capital markets is Sweden's IPO pace. 0:14:37.480 --> 0:14:41.080 Between twenty thirteen and twenty twenty four, there were more 0:14:41.160 --> 0:14:45.520 IPOs in Sweden than in Italy, France or Germany, second 0:14:45.560 --> 0:14:47.200 in Europe only to the UK. 0:14:47.880 --> 0:14:50.840 The US markets are the largest, deepest, most liquid markets 0:14:50.840 --> 0:14:53.240 in the world, but when you look at how that's 0:14:53.240 --> 0:14:56.160 translated into the markets here in the Nordics, it actually 0:14:56.240 --> 0:14:58.640 has a lot of a lot of the commonalities of 0:14:58.720 --> 0:15:01.720 the market cap. The listed companies here in the Nordics 0:15:01.720 --> 0:15:04.240 are about two trillion versus of course, we have about 0:15:04.440 --> 0:15:07.880 thirty trillion in the United States just on Nasdaq. However, 0:15:08.200 --> 0:15:11.640 you know, the liquidity that underpins that market cap here 0:15:11.760 --> 0:15:14.040 in the Nordics is quite vibrant, very active. 0:15:14.480 --> 0:15:16.880 We have lots of IPOs in Sweden, we have more 0:15:16.880 --> 0:15:20.440 IPOs than any European countries together, and I would say 0:15:20.480 --> 0:15:22.280 that is one important source. 0:15:23.320 --> 0:15:27.240 Sweden's vibrant IPO market is no accident. It results in 0:15:27.320 --> 0:15:31.680 part from government policies that encourage household participation in the markets. 0:15:32.040 --> 0:15:37.160 Starting with taxes. Nicholas Wickman is Sweden's Minister for Financial Markets. 0:15:37.440 --> 0:15:40.760 First of all, for the smallest entrepreneurs and new entrepreneurs 0:15:40.800 --> 0:15:45.160 closely held corporations as they are called, they have strong 0:15:45.240 --> 0:15:49.280 tax incentives because there's a twenty percent tax on dividends 0:15:49.720 --> 0:15:52.880 within the rate of return. Allow it's quite complicated, but 0:15:52.960 --> 0:15:58.280 it's also quite strong incentives to do business. And then 0:15:58.320 --> 0:16:01.880 we have the isk system that takes down the cost 0:16:01.960 --> 0:16:04.240 of capital, so to say, it provides at least more 0:16:04.240 --> 0:16:07.520 capital into the system because you have a low effective 0:16:08.240 --> 0:16:11.800 taxation on your invested savings. So I would say those 0:16:11.840 --> 0:16:15.560 are two important aspects, one for the entrepreneurs and one 0:16:15.600 --> 0:16:19.760 for the providers of capital. We have strong incentives to 0:16:19.800 --> 0:16:21.800 stay in business for a long period of time. We 0:16:21.840 --> 0:16:24.720 don't have any inheritance tax, we don't have gift tax, 0:16:25.440 --> 0:16:29.920 we don't have tax on accumulated wealth or wealth tax 0:16:29.960 --> 0:16:33.040 as you normally say. So I would say there's strong 0:16:33.080 --> 0:16:37.280 incentives to provide capital in the system. They are strong 0:16:37.320 --> 0:16:40.640 incentives to do something good with it, and it's strong 0:16:40.680 --> 0:16:44.640 incentives for active owners to remain active and perhaps to 0:16:44.680 --> 0:16:47.520 have all their families and keep their businesses over generations. 0:16:47.840 --> 0:16:51.600 Another big driver of retail participation is an investment account 0:16:51.640 --> 0:16:55.520 known as an ISSK, a government program under which two 0:16:55.520 --> 0:16:58.600 point five percent of every employee's wages are put into 0:16:58.640 --> 0:17:01.840 an account in their name, which they can allocate among 0:17:01.840 --> 0:17:05.159 a range of funds. These funds are not subject to 0:17:05.200 --> 0:17:09.160 capital gains tax. Instead, they are taxed one percent each 0:17:09.280 --> 0:17:11.440 year on the value in the account. 0:17:11.840 --> 0:17:14.880 One of the great examples of where regulation has played 0:17:15.040 --> 0:17:17.879 a really key role in driving liquidity in the markets 0:17:18.080 --> 0:17:21.240 has been that ISK program where they started in twenty 0:17:21.320 --> 0:17:24.639 twelve and they said every citizen should be investing in 0:17:24.680 --> 0:17:27.800 the markets. So therefore they said, okay, well we'll create 0:17:27.800 --> 0:17:31.120 a tax account where your only tax about one percent 0:17:31.320 --> 0:17:34.520 of your total assets every year, no cap gains tax. 0:17:34.960 --> 0:17:38.400 So it means that investors can really bring their money 0:17:38.400 --> 0:17:42.240 into the markets. Their only obligation is to invest in 0:17:42.280 --> 0:17:46.320 the public markets anywhere, and it allows investors to have 0:17:46.680 --> 0:17:48.840 a great engagement with the economy. 0:17:49.200 --> 0:17:52.679 Christian cedar Home is the CEO of Investor AB, a 0:17:52.760 --> 0:17:56.080 company which serves as the investment arm of the Wallenberg family, 0:17:56.280 --> 0:17:59.320 one of the most prominent families in the country. In 0:17:59.359 --> 0:18:03.480 the nineteen seventies, Wallenberg family businesses employed forty percent of 0:18:03.520 --> 0:18:06.960 Sweden's industrial workforce and accounted for forty percent of the 0:18:07.000 --> 0:18:09.560 total worth of the Stockholm stock market. 0:18:09.800 --> 0:18:13.200 This has created this sort of positive flywheel effect where 0:18:13.920 --> 0:18:16.760 owning stocks in a company, you may even work for 0:18:16.800 --> 0:18:19.199 that same company. By the way, and we're blessed to 0:18:19.200 --> 0:18:22.280 have a great number of even just going in looking 0:18:22.280 --> 0:18:25.760 in Sweden, great number of high quality companies, so you 0:18:25.800 --> 0:18:27.920 may work for them, you may be invested in them, 0:18:28.400 --> 0:18:33.000 and of course that creates this this engagement around business 0:18:32.800 --> 0:18:34.640 as part of a society. 0:18:35.000 --> 0:18:37.640 You mentioned the breadth of ownership with equities in Sweden, 0:18:37.800 --> 0:18:40.000 as I understand that there are ten million people roughly 0:18:40.040 --> 0:18:43.520 in Sweden, you have six hundred and fifty thousand shareholders 0:18:43.520 --> 0:18:47.119 yourself investor AB. How do you explain that bread How 0:18:47.160 --> 0:18:47.879 does that happen? 0:18:48.359 --> 0:18:51.440 Well, I mean, first of all, we're really thankful for 0:18:51.480 --> 0:18:55.080 the trust that the people put in our work, and 0:18:55.760 --> 0:18:58.280 you know that they appreciate what we're doing, so we're 0:18:58.320 --> 0:19:01.480 quite humbled to that and the way I look at investor, 0:19:01.520 --> 0:19:05.520 what you get is you get engaged ownership and active 0:19:05.560 --> 0:19:10.320 investment in a portfolio of about twenty five really good 0:19:10.359 --> 0:19:16.760 companies or high quality companies and at the relatively sleam 0:19:16.960 --> 0:19:20.080 costs as well. And then of course over time it 0:19:20.240 --> 0:19:24.280 helps that we have created a strong total shareholder return 0:19:24.560 --> 0:19:27.840 over most sort of longer time periods at least, so 0:19:27.880 --> 0:19:30.240 something seems to be working with them Orther and I. 0:19:30.240 --> 0:19:32.560 Think it serves two purposes. First of all, it's about 0:19:32.640 --> 0:19:35.680 social coherence. You have your job, you have your salary, 0:19:35.720 --> 0:19:38.320 but you also have a share of the most productive 0:19:38.359 --> 0:19:41.440 part of the economy that belongs to you because of 0:19:41.480 --> 0:19:44.679 your savings. And it's about then, of course economic efficiency. 0:19:44.680 --> 0:19:49.280 It provides capital for inventors and entrepreneurs. So's I would 0:19:49.280 --> 0:19:52.119 say both about social coherence and economic efficients in a 0:19:52.200 --> 0:19:57.040 very nice combination. Our social security system is important. It 0:19:57.119 --> 0:19:59.680 makes it possible to take risks both with your savings 0:19:59.680 --> 0:20:02.920 of course, but also in your work life as a whole. 0:20:03.640 --> 0:20:09.119 When you have some basic, trustworthy welfare system, you know 0:20:09.240 --> 0:20:11.240 that you could have a bit more risk of course 0:20:11.320 --> 0:20:13.320 in the rest of the economy. So I think that 0:20:13.400 --> 0:20:18.600 is one important one important topic. But of course also 0:20:18.880 --> 0:20:22.760 the culture doesn't come from one source. The welfare system 0:20:22.920 --> 0:20:27.359 could be one such source, education system could could be another. 0:20:28.080 --> 0:20:32.840 And also of course that we provide financial stability, that 0:20:32.920 --> 0:20:35.960 we safegoud our financial system. 0:20:36.240 --> 0:20:39.280 What does all this mean for Sweden's economy as a whole. 0:20:39.920 --> 0:20:43.000 It's GDP is projected to grow two point three percent 0:20:43.040 --> 0:20:45.920 in twenty twenty five, compared to just one point seven 0:20:45.920 --> 0:20:50.280 percent for the United States. Perhaps as important is Sweden's 0:20:50.359 --> 0:20:53.520 level of productivity, which drives future growth. 0:20:54.200 --> 0:20:57.040 Recent years, we have had the same problem as most 0:20:57.040 --> 0:21:01.840 of the Western world, or especially the the Europe as large. 0:21:01.960 --> 0:21:05.520 We have a productivity problem. But if you extend the 0:21:05.600 --> 0:21:07.520 time period a bit, you can see that Sweden is 0:21:07.720 --> 0:21:09.119 exceptionally productive. 0:21:09.520 --> 0:21:13.280 Sweden's approach to encouraging broad and deep capital markets comes 0:21:13.320 --> 0:21:16.040 in sharp contrast to some of the rest of Europe. 0:21:16.440 --> 0:21:20.879 In his report on European Competitiveness, former ECB President Mario 0:21:21.040 --> 0:21:24.280 Draghi pointed to the lack of sufficient capital support as 0:21:24.359 --> 0:21:27.680 one reason why Europe has lagged behind the United States 0:21:27.840 --> 0:21:30.600 in the growth of tech giants. Henry McVay is the 0:21:30.640 --> 0:21:34.520 head of the Global Macro and Asset Allocation Team at KKR, 0:21:34.800 --> 0:21:37.000 and we spoke to him after he returned from a 0:21:37.040 --> 0:21:38.080 trip to Europe. 0:21:38.480 --> 0:21:41.160 When you look at as a percentage of GDP, it's 0:21:41.200 --> 0:21:43.200 about a third of the US. And so there's clearly 0:21:43.280 --> 0:21:45.880 been a differential over the last ten and twenty years 0:21:46.320 --> 0:21:48.880 on that's on the equity side. On the credit side, 0:21:49.040 --> 0:21:51.320 what I think Europe has missed is it's really been 0:21:51.440 --> 0:21:55.399 so bank controlled that you've missed the real growth in 0:21:55.440 --> 0:21:58.639 the securitization market. So if you think about the US, 0:21:58.640 --> 0:22:01.440 what we securitize everything guys into the capital markets. 0:22:01.480 --> 0:22:05.280 The Drug Report talking about that, well that shift capital markets? 0:22:05.280 --> 0:22:06.760 Do you think in Europe? 0:22:07.000 --> 0:22:10.440 Well, it's it's certainly been a big wake up call 0:22:10.720 --> 0:22:14.760 first of all. And if I take my positive had 0:22:14.840 --> 0:22:18.920 on what I say is that hopefully now what what 0:22:18.960 --> 0:22:21.359 you can read in the Drug Report, etc. Is turned 0:22:21.359 --> 0:22:25.280 into really concrete actions as well, so that Europe can 0:22:25.440 --> 0:22:28.159 leverage all the advantages it has. I mean it's a 0:22:28.240 --> 0:22:33.520 large market, stable institutions, whatnot so and and high high 0:22:33.520 --> 0:22:36.960 equity participation in some parts of Europe as well. And 0:22:37.000 --> 0:22:39.240 then where do it shift? I mean, it's it seems 0:22:39.280 --> 0:22:43.600 to just looking at where evaluations have gone recently, some 0:22:43.920 --> 0:22:46.840 of the shifts you describe seem to you know, be 0:22:46.960 --> 0:22:51.920 in the making where that goes long term, Probably others 0:22:51.920 --> 0:22:54.160 are better position to tell. 0:22:54.240 --> 0:22:58.160 Right, If capital markets are key to innovation in tech, 0:22:58.480 --> 0:23:01.520 what has the Swedish approach to retail equity investing meant 0:23:01.560 --> 0:23:05.240 for its startup record? That's where we turn next. After 0:23:05.359 --> 0:23:08.639 a short break for coffee and Fica, the pastry that 0:23:08.680 --> 0:23:11.720 sweeze enjoy during their workday afternoons. 0:23:11.880 --> 0:23:13.600 We're in Sweden, so we have to we have to 0:23:14.080 --> 0:23:19.280 we have to have fica so well, Fica's Queen's cake. Yes, 0:23:19.320 --> 0:23:22.920 Feica is cake with coffee, so yes, exactly. So we're 0:23:22.920 --> 0:23:25.159 going to have a pika leaders that tradition, right, It 0:23:25.280 --> 0:23:30.480 is actually every Wednesday normally we have a Pica celebration 0:23:30.600 --> 0:23:33.000 where we just get everyone together. So the whole purpose 0:23:33.119 --> 0:23:35.600 is not to talk about work, is to talk about 0:23:35.600 --> 0:23:38.720 each other and to create that sense of community. So 0:23:38.840 --> 0:23:42.080 I love it. But it's a huge tradition here and 0:23:42.119 --> 0:23:45.159 now we've brought it everywhere. Don't toast in Sweden? Do 0:23:45.160 --> 0:23:46.280 you want to learn how to toast? 0:23:46.400 --> 0:23:46.560 Well? 0:23:46.560 --> 0:23:50.359 You toast? You say skulls? Don't you don't clean? You 0:23:50.359 --> 0:23:53.840 look at each other in the eye, you drink and 0:23:53.880 --> 0:23:56.560 you look at each other again. It's an old Viking tradition, 0:23:56.800 --> 0:23:58.680