The Pursuit of Innovation as an Ecosystem – Not a Singular Outcome
Any economic growth strategy starts with a universal truth: innovators are rocket fuel for growth. The most dynamic economies in the world understand this and pursue innovation as an ecosystem, not a singular outcome. If economies want to realize the potential of new and emerging mega-trends like AI or quantum computing, they will benefit not just from investing in innovation, but also creating better systems for innovators to thrive.
The United States is a model for this approach, benefiting from a solid legal framework that protects intellectual property and supports the monetization of great ideas, as well as constructive bankruptcy laws that allow innovators to try, fail, and try again. The U.S. benefits from a strong education system that emphasizes both critical and creative thinking, a risk-reward culture, and a strong and secure public capital market ecosystem that drives liquidity and capital into the system.
Economies in the Nordics and Baltics have proven that building a culture that recognizes the power of having its citizens invested in the markets can be a key part of innovation ecosystems. For example, Sweden empowers and incentivizes citizens to take ownership of their investments. Its why Swedish households, on average, hold 36 % of their investments in equities – much higher than citizens of many of the other leading economies in Europe. It is no surprise that the Stockholm exchange has cultivated such a formidable IPO pipeline and that Swedish companies are some of the most innovative in the world.
Governments in the region have also been deliberate about harnessing their countries’ assets for the long-term benefit of their citizens. It’s the kind of self-reinforcing model that benefits every part of society, and one that would benefit both the U.S. and other major economies. Particularly compelling is the creation of sovereign wealth funds and the modernization of pension systems. This has helped secure retirement benefits and ensured that wealth creation accrues in large part to citizens, while still enabling capital deployment across the private sector to drive economic growth.
A More Disciplined Commitment to Smart Regulation
In the U.S. and around the world, governments can catalyze more inclusive economic growth by making it easier for the average investor to invest in growth companies, and this begins with better protecting and improving the public company model. We can reduce the regulatory burden on great companies who want to be public. We can reimagine the proxy advisory and shareholder proposal process to improve the relationship between companies and their shareholders. We can fight for litigation reform that streamlines legal processes and reduces frivolous lawsuits that cost shareholders millions, and negatively impacts our innovation ecosystems an immeasurable amount.
When we look beyond the markets, regulatory activity traps have consumed capital within banks, preventing it from being used to scale businesses and invest into our economy. Overregulation imposes its own heavy costs, with compliance expenses alone rising by nearly $50 billion annually for financial institutions since 2008. Regulatory frameworks in the U.S., Europe and across the globe would benefit from being grounded in common-sense principles, which include being measurable, purpose-driven and outcomes-oriented.
For instance, when regulators perform enforcement reviews, many have tended to use metrics that measure inputs rather than outcomes. They may focus on “check the box” activities, rather than on the specific outcomes the company is achieving with those measures. The result is that companies are rewarded for inefficiency, rather than being incentivized to deploy innovative solutions in critical risk areas. Globally, Nasdaq estimates that nearly $1 trillion of bank capital could be unlocked if banks and government agencies created a more efficient and tech-forward regulatory environment. As technology advances at lightning speed, flipping this dynamic would be a huge step forward for risk mitigation—one that would create a more stable regulatory environment that fosters trust and compliance.
A Globally Connected Capital System
While there continues to be a movement in many economies away from globalization, it’s critical to understand that the pursuit of domestic policy agendas does not inherently conflict with the interests of global capital markets. In fact, markets and their innovative technologies play a unifying role by enabling capital to be scaled and allocated across the global economy — both empowering the goals of regional economies, while also driving the advancement of major global mega-trends, such as AI.
If we broaden our perspective to encompass the entire financial industry – across banks, investors and exchanges – it’s clear we can also leverage the power of technology and AI to create a stronger, safer economy. Modernizing market infrastructures, adopting emerging technologies, and strengthening defenses against cross-border financial crime and cyberattacks are critical steps that can create more resiliency within our system and drive better global capital flows in the process.
There are aspects of economic growth that are, by their nature, competitive. This is not one of them. When it comes to market infrastructure, a rising tide lifts all boats. This is an area to cast aside competitive differentiation in favor of coordination and collaboration. Take, for instance the consortium approach Nasdaq leverages in our anti-financial crime business. By bringing insights together from across 2,500 financial institutions, we’ve created a potent crime-fighting network that stops bad actors every day.
As we look at the potential of the new year ahead, the call for robust, innovation-driven economic growth is louder and more urgent than ever. The ecosystems of innovation, which have been cultivated and proven across different pockets of the global economy provide a blueprint for sustainable economic advancement. By embracing the best these models have to offer and by taking bold action, we can unleash the unifying power of markets and innovation.
