May 16, 2025 • 47 mins
This week, former US Treasury Secretary Lawrence H. Summers and Hoover Institution's Elizabeth Economy discuss the US pivot on trade dealings with China. Plus, a look at Sweden’s vibrant capital markets and Nasdaq's role in its innovation ecosystem. Later, US Army Sec. Driscoll joins us with the administration's approach to a decades-long spending challenge at the Pentagon.
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Speaker 1 (00:02):
Bloomberg Audio Studios, podcasts, radio news.
Speaker 2 (00:19):
This is Wall Street Week. I'm David Weston, bringing you
stories of capitalism. Last week, the US Army announced plans
to transform itself for a new world and a new
way of fighting wars. We talked with the Secretary of
the Army, Dan Driscoll about what of the old has
to go out to make room for the new to
come in. Plus, we traveled to Stockholm to see how
(00:40):
the rest of Europe could follow Sweden's lead in building
an innovation ecosystem on the back of capital markets with
just about everyone owning a piece. But we start with
China and a story about the two biggest economies in
the world trying to come to trade terms. Who has
the upper hand and is it possible for both to win.
Speaker 3 (01:02):
President Trump wants to rebalance the American economy back to
a manufacturing economy with high precision manufacturing. I think everyone agrees,
including Chinese leadership, that they need to rebalance towards more
of a consumption and consumer economy. And the dream scenario
(01:25):
would be if somehow we could do that together.
Speaker 2 (01:28):
Turning first to our special contributor, Larry Summers of Harvard,
So Larry. This week we heard about the tentative agreement
for ninety days at least between the United States and
China dialing back on the tariffs. Was this a step
forward for the Trump administration?
Speaker 4 (01:45):
I salute Secretary Bessant. The avoidance of value subtracted is
value added, and by that standard, we added value. The
United States backed off of what we are extremely imprudent
and potentially economically very damaging prohibitive tariffs to the point
(02:06):
of embargo on China. That was a good thing for
the US economy, and as a consequence, the US stock
market rose substantially in recognition of that. It was not
an increase due to Chinese concessions. You could see that
from the internals of the market. Companies like toy companies
(02:30):
that were dependent on imports retailers performed particularly well. But look,
when you make a mistake, when you've done something imprudent,
it's a good idea to salvage what pride you can
and to retreat. And that's what the Trump administration did,
(02:51):
and I salute Secretary Vessant for his leadership in doing that.
Speaker 2 (02:56):
Part of any high stakes negotiation is trying to assess
the pressure points on the two sides, and one of
the things we've heard from President Trump is he believes
there's a lot of pressure on China right now because
it is a manufacturing economy and as he says, a
lot of factories have gone quiet. Is he right? Is
there a lot of pressure on China right now to
come to terms.
Speaker 4 (03:14):
I think there's some pressure on China, but I think
there's more pressure on us because we're the one that's
a democratic country that's responsive to our people. We're the
one that has a highly inflation conscious population and prohibitive
tariffs raise price levels. We're the one that's the active
(03:41):
player here. So I think there was a lot of
pressure on us, to which we responded. I think it's
a very important part of governing to be willing to
recognize when you push things too far and to pull back.
But let's not be confused about what the path eater was.
(04:02):
It was an overly aggressive, overly truculent, erroneous approach from
which there has been a significant but still not total retreat.
Speaker 2 (04:14):
Larry Ticket step back from the particulars of balance of
trade and fairness and trade. As a macroeconomist, we do
have the second largest economy in the world by most measures,
by some even the largest economy in the world that
is not market driven fundamentally, it is centrally planned and
they've built up a huge productive capacity. How does one
(04:36):
deal with that? I don't think we ever had to
do that in the past. How do you deal with
that in terms of trade terms and making sure that
it doesn't distort things in our country?
Speaker 4 (04:46):
Well, I think what you do is you focus on
your own economic interests and if others want to subsidize
your consumers, if others want to subsidize your producers, that
can very easily be a good thing. And so you
try to define what your core interests are. We have
(05:08):
a core interest in national security. In everything that's national
security sensitive. We need to be trying to pivot away
from China. We need to be very attentive to the
security risks of Chinese presence in the United States. That's
issues like TikTok. We need to be very focused on
(05:33):
preventing China from getting access to intellectual property and ways
that's going to enable them to surpass us. But you
have to focus on your core interests, and when you're
worried about the export of Barbie dolls. You're not focusing
(05:53):
on your core interests when you're worried about trying to
get jobs here, putting together other the different components of
an iPhone, you're not worried about your core interests. So, yeah,
we do need a strategy with respect to China, a
strategy directed getting them to follow rules of the road
(06:16):
where that's important for our core national security interests. But
this kind of broad, indiscriminate attack that has been launched
that mostly serves to cause Americans to feel poorer, mostly
serves to increase our inflation. That's not the right way forward.
(06:41):
So I'm glad to see the adjustments that the Trump
administration has entered into.
Speaker 2 (06:46):
The tentative agreement reached in Geneva was just that tentative,
leaving a lot of work to be done before the
United States and China can reach a long term solution
to their trade conflicts. Elizabeth Economy is a China expert
at the Hoover Institution who keeps careful track of the
relative strengths and weaknesses of the world's two largest economies.
Speaker 5 (07:07):
I think both countries have economic vulnerabilities. I think the
assessment on the part of the Trump administration was that
China was more vulnerable because it exports much more to
the United States than the US does to China. Its
economy has also been struggling. It's been in a prolonged
economic slowdown for at least three years now. But I
think there was a fundamental miscalculation on the part of
(07:28):
the administration. They didn't appreciate that we have a much
greater soul or near soul source reliance on a number
of critical products from China, critical minerals, rare earth elements,
active pharmaceutical ingredients. These are all things that are essential
for our economic security, our national security, our human security,
(07:48):
and will devastate quite frankly, our pharmaceutical industries and our
defense and technology industries. So there's a balance, I think
between the Chinese vulnerabilities and the US vulnerabilities. Both of us,
I think, have vulnerabilities to in the space of this
tariff war.
Speaker 2 (08:03):
Does the rest of the world give one side between
I say, some China advantage over the other. I mean
both sides historically have tried to recruit the rest.
Speaker 4 (08:11):
Of the world.
Speaker 5 (08:12):
I think for the advanced market democracies, what we've seen
has been in some respects somewhat surprising. I think there
was a belief on the part of the Chinese government
that given this tariff for this global tariff war that
President Trump has launched, that it would be easy pickings
that China would walk in and basically say, we are
(08:33):
a stabilizing force in the global economy, We're a stabilizing
force in the international system. And they've gone around saying,
let's join hands and work together to push back against
President Trump and this tariff war. I think what they've
found is that really nobody's that interested in buying what
they're selling. There's an entire world now emerging that is
set to support the current rules based order that doesn't
(08:57):
include the United States, but also doesn't include China.
Speaker 2 (09:00):
One destination of Chinese goods that otherwise might be expert
would be domestically increased domestic consumption, which has been talked
about for years now. What are the prospects In fact,
Xi Jinping might say, Okay, we're going to stimulate the consumer.
Speaker 5 (09:14):
I mean, Chinese economists have been saying for years now
that the government needs to do more to support the
consumer economy, and part of that would be, you know,
investing more in the healthcare system, the education system, the
pension system, giving the Chinese people a sense that they
don't need to continue to save in the case of
an emergency. But Chijinping is allergic to what he calls
(09:37):
social welfare ism. He doesn't want to give the Chinese
people any incentive not to work, at least that's how
he looks at it. So again we've seen President she
over the course of this taraf war take a few steps,
you know, in the form of raising wages for civil servants,
notwithstanding the fact that a year ago or a year
and a half ago he actually cut those same wages.
(09:57):
So I don't know whether this is actually increase or
just taking them back to where they were. And also
again having this massive goods trade in program. But mostly
what he's done I think is, you know, encourage banks
to loan to small and medium sized enterprises. You've seen
Ali Baba, for example, reduce the cost of companies putting
(10:18):
their goods on its platform, to encourage small and medium
sized enterprises to be able to export. So there are
steps that are being taken, but there's nothing in the
way of sort of a massive boost to the consumer
economy that I think Chinese economists would.
Speaker 6 (10:31):
Like to see.
Speaker 2 (10:34):
Coming next the story of Nasdaq in Europe and how
Sweden's deep and robust capital markets connection to tech startups
could give the rest of Europe an example to follow.
Six fam today two and this is a story about
(11:02):
attracting bees with honey, specifically the honey of rich capital markets,
attracting the bees of tech entrepreneurs, something that has helped
drive US economic growth, but that has largely been lacking
in Europe, except in one particular corner.
Speaker 7 (11:21):
About thirty nine percent of household assets in the United
States are invested in equities, which is the highest in
the world. But here in Sweden it's thirty six percent.
Speaker 2 (11:31):
And it's not just how much, it's how broad.
Speaker 8 (11:34):
About ninety percent of the sweet savings are in some
financial assets, which makes us the most investing country, at
least in Europe.
Speaker 9 (11:44):
We're blessed to have a broad equity participation, so lots
of people who own stocks directly. What that does is,
of course, it creates this economic alignment, etc.
Speaker 2 (11:57):
We've come to expect robust capital markets supported by retail
investment in the United States, but not necessarily in Sweden,
a Nordic country with a population of just a little
more than ten million people that punches above its weight
in the depth of its capital markets and is home
to Nasdaq's European headquarters.
Speaker 7 (12:17):
We operate our markets here and also in the Nordics.
We own and operate almost all the markets in the Nordics.
Speaker 2 (12:23):
We spoke to Nasdaq CEO Adina Friedman in New York
in April, not long after President Trump had roiled the
markets with his sweeping tariff announcements.
Speaker 7 (12:32):
So on options in twenty twenty four, we had an
average of about twenty four million contracts traded a day.
On Friday, we had ninety four million contracts traded. Now,
what generally said that what's really really interesting is options
markets are extremely data heavy.
Speaker 2 (12:48):
Friedman and her Nasdaq team have plenty to handle with
US markets, but they also run European operations almost as large,
in what they call Nasdaq Nordic, which became part of
the group in two thousand and eight. We accompanied Friedman
on a trip to the European headquarters in Stockholm.
Speaker 7 (13:06):
Well, Stockholm is one of the great markets that we
own and operate here in the Nordics, but it also
is the headquarters to our market technology business where we
serve one hundred and thirty markets with our technology that
helps them power all the market those markets around the
world as well.
Speaker 2 (13:20):
How much of nasac's overall operation is represented in Stockholm, Well.
Speaker 7 (13:25):
We have about eight hundred employees here in Stockholm, slightly
smaller than New York, where we have about one thousand
employees in our New York office. So it kind of
gives you a sense that this really is our second
headquarters in the world. It's one of the special places
that I get the benefit of being able to come
to as we engage with the markets here in Sweden.
One of the things that I find interesting is how
similar it is here in Sweden versus New York. So
(13:48):
the markets in Sweden have a lot of characteristics to
the markets in the US, which is different than the
rest of Europe. So when we look at it, we
look at how liquid are the markets, how many new
companies come and list here in any given year, how
active are the markets in terms of having retail ownership
of equities, and in many many cases those are very
(14:09):
similar to the US. So we have twelve hundred companies
that are listed in the Nordics and in any given year,
we'll have dozens of companies list here, both small companies
on our SME market which is called First North, and
on the main market. So we're really really proud of
the fact that the markets here are very vibrant and
have a lot of similarities to what we see in
(14:30):
the US. But sitting here in Europe, almost.
Speaker 2 (14:33):
One sign of its strong capital markets is Sweden's IPO pace.
Between twenty thirteen and twenty twenty four, there were more
IPOs in Sweden than in Italy, France or Germany, second
in Europe only to the UK.
Speaker 7 (14:47):
The US markets are the largest, deepest, most liquid markets
in the world, but when you look at how that's
translated into the markets here in the Nordics, it actually
has a lot of a lot of the commonalities of
the market cap. The listed companies here in the Nordics
are about two trillion versus of course, we have about
thirty trillion in the United States just on Nasdaq. However,
(15:08):
you know, the liquidity that underpins that market cap here
in the Nordics is quite vibrant, very active.
Speaker 8 (15:14):
We have lots of IPOs in Sweden, we have more
IPOs than any European countries together, and I would say
that is one important source.
Speaker 2 (15:23):
Sweden's vibrant IPO market is no accident. It results in
part from government policies that encourage household participation in the markets.
Starting with taxes. Nicholas Wickman is Sweden's Minister for Financial Markets.
Speaker 8 (15:37):
First of all, for the smallest entrepreneurs and new entrepreneurs
closely held corporations as they are called, they have strong
tax incentives because there's a twenty percent tax on dividends
within the rate of return. Allow it's quite complicated, but
it's also quite strong incentives to do business. And then
(15:58):
we have the isk system that takes down the cost
of capital, so to say, it provides at least more
capital into the system because you have a low effective
taxation on your invested savings. So I would say those
are two important aspects, one for the entrepreneurs and one
for the providers of capital. We have strong incentives to
(16:19):
stay in business for a long period of time. We
don't have any inheritance tax, we don't have gift tax,
we don't have tax on accumulated wealth or wealth tax
as you normally say. So I would say there's strong
incentives to provide capital in the system. They are strong
incentives to do something good with it, and it's strong
(16:40):
incentives for active owners to remain active and perhaps to
have all their families and keep their businesses over generations.
Speaker 2 (16:47):
Another big driver of retail participation is an investment account
known as an ISSK, a government program under which two
point five percent of every employee's wages are put into
an account in their name, which they can allocate among
a range of funds. These funds are not subject to
capital gains tax. Instead, they are taxed one percent each
(17:09):
year on the value in the account.
Speaker 7 (17:11):
One of the great examples of where regulation has played
a really key role in driving liquidity in the markets
has been that ISK program where they started in twenty
twelve and they said every citizen should be investing in
the markets. So therefore they said, okay, well we'll create
a tax account where your only tax about one percent
of your total assets every year, no cap gains tax.
(17:34):
So it means that investors can really bring their money
into the markets. Their only obligation is to invest in
the public markets anywhere, and it allows investors to have
a great engagement with the economy.
Speaker 2 (17:49):
Christian cedar Home is the CEO of Investor AB, a
company which serves as the investment arm of the Wallenberg family,
one of the most prominent families in the country. In
the nineteen seventies, Wallenberg family businesses employed forty percent of
Sweden's industrial workforce and accounted for forty percent of the
total worth of the Stockholm stock market.
Speaker 9 (18:09):
This has created this sort of positive flywheel effect where
owning stocks in a company, you may even work for
that same company. By the way, and we're blessed to
have a great number of even just going in looking
in Sweden, great number of high quality companies, so you
may work for them, you may be invested in them,
and of course that creates this this engagement around business
(18:32):
as part of a society.
Speaker 2 (18:35):
You mentioned the breadth of ownership with equities in Sweden,
as I understand that there are ten million people roughly
in Sweden, you have six hundred and fifty thousand shareholders
yourself investor AB. How do you explain that bread How
does that happen?
Speaker 9 (18:48):
Well, I mean, first of all, we're really thankful for
the trust that the people put in our work, and
you know that they appreciate what we're doing, so we're
quite humbled to that and the way I look at investor,
what you get is you get engaged ownership and active
investment in a portfolio of about twenty five really good
(19:10):
companies or high quality companies and at the relatively sleam
costs as well. And then of course over time it
helps that we have created a strong total shareholder return
over most sort of longer time periods at least, so
something seems to be working with them Orther and I.
Speaker 8 (19:30):
Think it serves two purposes. First of all, it's about
social coherence. You have your job, you have your salary,
but you also have a share of the most productive
part of the economy that belongs to you because of
your savings. And it's about then, of course economic efficiency.
It provides capital for inventors and entrepreneurs. So's I would
say both about social coherence and economic efficients in a
(19:52):
very nice combination. Our social security system is important. It
makes it possible to take risks both with your savings
of course, but also in your work life as a whole.
When you have some basic, trustworthy welfare system, you know
that you could have a bit more risk of course
in the rest of the economy. So I think that
(20:13):
is one important one important topic. But of course also
the culture doesn't come from one source. The welfare system
could be one such source, education system could could be another.
And also of course that we provide financial stability, that
we safegoud our financial system.
Speaker 2 (20:36):
What does all this mean for Sweden's economy as a whole.
It's GDP is projected to grow two point three percent
in twenty twenty five, compared to just one point seven
percent for the United States. Perhaps as important is Sweden's
level of productivity, which drives future growth.
Speaker 8 (20:54):
Recent years, we have had the same problem as most
of the Western world, or especially the the Europe as large.
We have a productivity problem. But if you extend the
time period a bit, you can see that Sweden is
exceptionally productive.
Speaker 2 (21:09):
Sweden's approach to encouraging broad and deep capital markets comes
in sharp contrast to some of the rest of Europe.
In his report on European Competitiveness, former ECB President Mario
Draghi pointed to the lack of sufficient capital support as
one reason why Europe has lagged behind the United States
in the growth of tech giants. Henry McVay is the
(21:30):
head of the Global Macro and Asset Allocation Team at KKR,
and we spoke to him after he returned from a
trip to Europe.
Speaker 10 (21:38):
When you look at as a percentage of GDP, it's
about a third of the US. And so there's clearly
been a differential over the last ten and twenty years
on that's on the equity side. On the credit side,
what I think Europe has missed is it's really been
so bank controlled that you've missed the real growth in
the securitization market. So if you think about the US,
(21:58):
what we securitize everything guys into the capital markets.
Speaker 2 (22:01):
The Drug Report talking about that, well that shift capital markets?
Do you think in Europe?
Speaker 9 (22:07):
Well, it's it's certainly been a big wake up call
first of all. And if I take my positive had
on what I say is that hopefully now what what
you can read in the Drug Report, etc. Is turned
into really concrete actions as well, so that Europe can
leverage all the advantages it has. I mean it's a
(22:28):
large market, stable institutions, whatnot so and and high high
equity participation in some parts of Europe as well. And
then where do it shift? I mean, it's it seems
to just looking at where evaluations have gone recently, some
of the shifts you describe seem to you know, be
in the making where that goes long term, Probably others
(22:51):
are better position to tell.
Speaker 2 (22:54):
Right, If capital markets are key to innovation in tech,
what has the Swedish approach to retail equity investing meant
for its startup record? That's where we turn next. After
a short break for coffee and Fica, the pastry that
sweeze enjoy during their workday afternoons.
Speaker 7 (23:11):
We're in Sweden, so we have to we have to
we have to have fica so well, Fica's Queen's cake. Yes,
Feica is cake with coffee, so yes, exactly. So we're
going to have a pika leaders that tradition, right, It
is actually every Wednesday normally we have a Pica celebration
where we just get everyone together. So the whole purpose
(23:33):
is not to talk about work, is to talk about
each other and to create that sense of community. So
I love it. But it's a huge tradition here and
now we've brought it everywhere. Don't toast in Sweden? Do
you want to learn how to toast?
Speaker 4 (23:46):
Well?
Speaker 7 (23:46):
You toast? You say skulls? Don't you don't clean? You
look at each other in the eye, you drink and
you look at each other again. It's an old Viking tradition,
like the idea was that if I had poisoned you
would I wouldn't be able to look in the I.
Speaker 2 (24:04):
The Dragi report on the Future of European competitiveness called
for Europe to develop a deeper pool of angel investors
and increase European IPOs to fund high growth companies. So
has Sweden's commitment to these sources of capital resulted in
a more robust startup culture. Sweden has produced more tech
unicorns per capita than any other country in Europe after Estonia,
(24:28):
and according to the World Intellectual Property Organization, Sweden ranked
second in global innovation among fifty one high income countries,
second to Switzerland and just ahead of the United States.
Speaker 11 (24:41):
Swedeness has some well known brands going to iq H
and m Ericsson or more recently Spotify in Klana. So
it's a strong culture entrepreneurship which has fostered in a
way innovation of course, but also investments in the community
large and from a capital market perspective. So in Stockholm
(25:03):
in particular, I think it's a small city, but investors
are ever far away.
Speaker 2 (25:08):
Ali Landin is the CEO and one of the co
founders of Froda, a tech startup that provides small and
medium sized enterprises with access to financing.
Speaker 11 (25:17):
We start the company back in twenty fifteen. We came
across the idea when we're sitting at Stock and School
Economics have an incubator called Stock School Economics Business Lab,
and we realize at the point in time that all
these entrepreneurs who were sitting at that incubator starting their
businesses were struggling to get access to external financing. And
(25:39):
we realize that this is a huge problem and it's
really hampering innovation and growth and competitiveness all across Europe.
Speaker 2 (25:50):
Even Sweden's retail banks work to bring their customers into
the world of investing.
Speaker 12 (25:55):
One of our things to do is to help people
to educate get them in financial literacy. So that means
that in the old days, the savings banks gave like
a few kroner two when you were new born and
you could save it. And what we do is we
talk with youngsters who educate them on financial literacy. We
(26:16):
give them easy ways to invest in equities, to put
their money into pensions and things like that, so we
help people through that journey to make sure that in
the end they have good financial health.
Speaker 2 (26:31):
Jens Hendrickson is the CEO of Sweatbank, one of the
largest Nordic banks, with around seventy five percent of its
revenue coming from Sweden.
Speaker 12 (26:40):
Were nation of engineers, and we're small and open economy,
and sometimes people that are you not afraid that the
new technology will will sort of make you lose your job?
And people say, no, we're afraid of the old technology
because the old technology might hurt them, might sort of
(27:00):
make us weaker. We need new technology develop going forward,
increased growth and make Sweden welfare and a better society
to live.
Speaker 2 (27:11):
In Sweden, support for innovation goes back decades.
Speaker 11 (27:16):
I remember back in the early or mid nineties there
was sort of an initiative called bring a Computer into
Every Home, which was launched by the government and essentially
meant that each and every household in Sweden could get
a computer for almost no money at all. I think,
but we don't have to the same extent as for instance,
(27:37):
the US. You have the the pockets of Silicon Valley,
those huge funds that can invest billions and billions of dollars.
We don't have that, So I think what that means
is Swedish tech companies or startups need to show profits
earlier in their journey compared to for their US counterparts. Also,
it's it's kind of a small market. You need to
(27:58):
demonstrate scalability to be able to show that this is
an idea that's not only sustainable in this tiny sort
of Nordic market, but this is an idea that you
can actually export across the globe. So as a requirement
that you need the people to show how this works
across the globe or at least in a lot large market.
Not only Sweden.
Speaker 2 (28:19):
Sweden innovation ecosystem is supported by more than it's tech
or tax and savings policies. Today, the country's social welfare
policies also have expanded to support the risk taking needed
to foster entrepreneurship.
Speaker 7 (28:33):
It is a very vibrant innovation ecosystem. I think that
the government has done a lot of work intentionally to
make sure that they allow companies to take risk, allow
companies to grow and expand become global players, and then
they have a great system that also encourages citizens to
invest in these innovators.
Speaker 8 (28:51):
Our social security system is important. It makes it possible
to take risks both with your savings of course, but
also in your work life as a whole. When you
have some basic, trustworthy welfare system, you know that you
can have a bit more risk of course in the
rest of the economy. So I think that is one
(29:12):
important topic. But of course, also the culture doesn't come
from one source. The welfare system could be one such source,
education system could be another. And also of course that
we provide financial stability, that we safegout our financial system
(29:34):
make it in the long term high functioning, well functioning.
Speaker 9 (29:39):
We don't do a lot of call it early venture
capital startup investment ourselves. But if I look at the
innovation more broadly, then I think one part of that
is maybe our small home market, right, meaning that we've
always been forced to go out there and compete with
the best in a way, So that's one big driver.
(30:01):
Then I also think that we have some more societal
infrastructure that works for us. Just to mention, I fil
mean one is free and generally high quality education for
all is broadly available. We also have pretty generous welfare systems,
(30:23):
including childcare, which has helped, of course to create a
labor market participation.
Speaker 2 (30:32):
Access to capital through private markets is an important part
of the innovation puzzle.
Speaker 10 (30:37):
Europe actually has about the same number of venture capital
companies per year that the gets hatched, which is interesting
relative to the US. What Europe has been missing is
those global dominant firms one hundred billion dollars in more.
Typically those companies are actually getting bought by US firms.
So there is the beginning of the food chain on innovation, right.
(30:58):
Entrepreneur is actually a French But what's happening is you
haven't made it to create a global dominant giant. You
have ASML, but you don't have the type of companies
that you have a Google and Meta and Microsoft, and
so that to me is the opportunity set is to
really see that value chain all the way through. You
haven't had the same opportunity set. In the US. It's
(31:19):
maybe twenty five percent of the index and in Europe
at seven. So there is entrepreneurs and there's growth, but
a lot in the public markets. A lot of that's
been concentrated in the US markets.
Speaker 2 (31:30):
Investor AB is one of the most important sources of
private capital for Swedish companies, but its take on private
equity looks different from the United States.
Speaker 9 (31:40):
Basically, when we make an investment, we do it not
having exit as part of the strategy, and that means
that we're really picky about getting companies who are in
industries or in markets or niches where you have some
kind of structural growth tailwind. We don't love to sort
of fight gravity, so we prefer the tailwind and then
(32:04):
companies with a long term right to win in those markets.
And typically, and it goes back to the point about innovation,
if we look at our companies across I mean call
it twenty five or so companies, most of them have
leading market positions and they have that thanks to leading
(32:24):
or sort of best in class products and this obsession
about the products and the customers. So that's I think
our We really pick on the long term attractiveness of
both the company but also the industry that they're in,
because we're weary that it's it's it's better basically with
some tailwind and some heldwind. To be clear, we have
(32:45):
shareholders in all parts of the world. We have Nordic roots,
but we see ourselves as global investors and if you
look at our companies, they typically have the Nordic roots
and the Nordic carriatter. But coming back to our small
home market set, and they're typically active across the globe.
(33:06):
If I look at investor ab in the company as such,
we have operations here in Stockholm, any New York. So
those are our two sort of home markets, and that's
where we go look for new platform investments or new
logos if you want.
Speaker 2 (33:21):
Sweden's model has worked to jumpstart its innovation and growth,
but replicating it in other parts of the EU is
not as easy as it sounds.
Speaker 8 (33:30):
There is a huge interest from other European countries and
from the European Union about the Swedish case. How did
we succeed to have our households to have this large
retail participation in the financial markets, How did we succeed
in reforming our pension system, How did we succeed in
getting those tax incentivized saving products in place that provides
(33:53):
the households with a better return than they would have
just the system where you pay taxes and get benefits
from the government, and then of course also provides corperations
with more capital than in other countries. So there is
a huge interest in the Swedish example, and since we're
humble people, of course will will say that, well, it's
(34:15):
it's a matter of several factors. It's it's it's not
a it's not one thing you could do here.
Speaker 2 (34:22):
If Europe manages to adapt the Swedish model of supporting
capitalism with social welfare, the growth upside of the EU
is high, but Sweden is setting its sites even higher.
Speaker 8 (34:33):
We say that the United States need to watch out
if we if we manage for the whole of Europe
to do this, because then we will be a much
more efficient competitor.
Speaker 12 (34:42):
And that means that you have a free education, you
have free universities, you have the daycare, shine care, you have,
and you can continue with all these things, and then
peakop can take a bit more financial risk. And you're right,
it is risk in that sense, but when you know
that risk usually pays off in the long run, well,
(35:03):
at least history has shown of that.
Speaker 2 (35:08):
Coming up, we talked with the new Secretary of the Army,
Dan Driscoll about the transformation plan he presented to Congress
last week and how it would address some of the
issues at the Pentagon we reported on last fall. This
(35:33):
is an update of a story we reported on last
November about getting our money's worth in our national defense spending.
Last week, the new Secretary of the Army presented to
Congress his plan to transform the largest branch of the
US military.
Speaker 1 (35:51):
Jacob the system is broken, but nobody felt like they
had the power to change it.
Speaker 2 (35:58):
Dan Driscoll is the Secretary of the Army Army serving
in Trump's current administration, which plans to redirect eight percent
or fifty billion dollars of non lethal Defense Department spending
to innovative weaponry.
Speaker 1 (36:10):
With President Trump's leadership and his kind of incredibly high
risk tolerance, we were empowered and given the top cover
to basically go fix the things that are broken. And
so fundamentally what Army Transformation Initiative, what we call ATI,
is it does four things. So the first bucket of
things that it does is it looks at our obsolete
equipment and processes and the things that have led to
(36:32):
bad outcomes, and we stop buying those things. And so
some examples of that are humbies. We have Gray Eagles,
which are big, large drones that have been around for
decades and they just don't fit on the modern battlefield.
And a robotic combat vehicle on our CV, it's an
exquisite three million dollar piece of equipment that can be
taken out by an eight hundred dollars drone. The math
(36:53):
just doesn't work. Bucket two is what has led to
the types of contracts have gotten us into these outcomes
that we don't want. So in some instances we have
given away our right to repair our own equipment. We
would see this exquisite equipment sitting on the sidelines for
eight or twelve months at a time, and our soldiers
could three D print the two to twenty dollars part
(37:14):
to get it back in the game. Bucket three is
essentially taking the savings from cutting the obsolete equipment and
recycling it to the things we know we need. Modern
warfare is going to be a mixture of autonomous vehicles
and drones and data. It's buying all of that equipment
and really just giving us a command and control layer
for the modern battlefield. And then Bucket four is the bloat.
(37:35):
We have just too many people up in our leadership,
and so we're going to do things like cut one
thousand people from the Pentagon. We're going to push those
soldiers that are stuck up here pushing paperwork around. We're
going to get them back in helmets, get them back
in formations to do the jobs that they actually signed
up wanting to do.
Speaker 2 (37:51):
Those who know have been calling for changes like these
for a long time. Former US Deputy Secretary of Defense
John Hamry says the Pentagon's fail failure to adapt compromises
its ability to fight.
Speaker 13 (38:04):
We are not well organized for sustained long term conflict.
It would really be a strain for us to manage
a three year war. We tend to buy too few
weapons for long term warfare. Our industrial base is sluggish.
It's not that the companies aren't willing to produce, but
(38:25):
the government isn't willing to give them resources for search capacity.
We could fight a terrific short term war, but if
we had a prolonged war, it would be a challenge.
Speaker 6 (38:37):
I think there are two problems. One is that we're
not spending enough, and two is that we're not spending
wisely enough.
Speaker 2 (38:44):
Amy Zgart is a senior fellow at the Hoover Institution.
Speaker 6 (38:48):
Or overall defense budget has a yawning gap with the
capabilities that this nation needs to advance national interests. At
the same time, we need to be spending money on
low cost, high tech, affordable unmanned systems and other capabilities.
There's been a lot of discussion about doing that in
the Pentagon, a lot of discussion about doing that in Congress,
(39:11):
but those kinds of systems are still rounding dust in
the Pentagon budget compared to where we need to be.
This is the most dangerous and the most complicated threat
landscape the United States has faced since nineteen forty five.
We have great power competition with China and Russia, then
there's Iran and North Korea, and we also have non
(39:34):
state actors. Terrorist threat levels are increasing again, and they're
enabled by new technologies which are spreading rapidly. It's a
very demanding landscape. The United States Defense Department is having
to do more, and our budgets have not kept pace
with the threat landscape. So as a percentage of GDP,
the US government is spending half as much today on
(39:56):
defense as we did in the nineteen eighties, one twentieth
as much on defense as we did in the Korean War.
So the needs are growing, the funding is declining.
Speaker 1 (40:09):
If you look at the Pentagon for the last thirty
or forty years, you've had this very inefficient bureaucratic system
that has calcified, and we like to talk about it
as kind of like a pretzel for decision making, contorting
it on itself.
Speaker 13 (40:22):
We've done things inside the Defense Department for many years,
but this revolution that's taking place in digital technology is
in the private sector, and we don't know how to
bring that into the government because we want them to
slow down and fit our model. Well, they're not going
to do that. Defense acquisition runs at x and the
(40:43):
private sector is moving at five X. I think the
greatest challenge going forward is going to be how do
we bring in the cutting edge technology the private sector
is developing and incorporate it into our weapons storms And
we do not have an answer to that question.
Speaker 14 (41:04):
With this new idea of having non traditional defense contractors
and Silicon Valley companies like Pallanteer and SpaceX that lots
of people have heard of, it's bringing new ideas in
new innovation, and it's giving us the best of breed technology.
Speaker 2 (41:20):
Andy Lowry is the CEO of Epirus, a defense tech
contractor that focuses on drone technology, an essential part of
fighting the wars of the future. The company is valued
and an estimated one billion dollars and has raised over
five hundred and fifty million dollars in the private sector.
Speaker 15 (41:37):
ePRESS makes force fields just like you see on science
fiction movies. We have created the first version of a
human made force field that can protect things like bases, aircraft, tanks, cars, vehicles, stadiums, refineries, borders.
All of these things right now are falling prey to
(41:59):
a infiltration of drones. Not just flying droms. You have
drones on the water, drones on land, drones in the air,
drones in space. You have cyber powered drones everywhere.
Speaker 2 (42:12):
Enter ePRESS.
Speaker 14 (42:13):
ePRESS, with our force fields can now line up right
at an edge of a fence and knock everything down
like there's a wall of energy that anything that comes
into falls to the ground and is rendered useless.
Speaker 2 (42:26):
Epreus delivered counter drone technology to the Navy as recently
as March. The goal of their Leonidas system is to
take down drones.
Speaker 14 (42:35):
These force fields will prevent massive attacks. Because we can
only make dozens of missiles a month as a country,
they can make tens of thousands of drones per month,
tens thousands of drones per month. That ratio doesn't work
will never keep up. We'll lose to the attrition, the
war of attrition unless we come up with what force fields.
(42:57):
If we put force fields up in those drones, doesn't
matter ten hundred thousand, just rack it up the cash book,
because every one of those is ten K, fifteen K,
and you're losing them one again, again and again. So
we actually flip this whole paradigm over on its head
and cause them to have to say, now, what are
we going to do do we still want to fight
fights with drones and just risk them getting lost to
(43:20):
these new systems. We've kind of grown a little comfortable,
i would say, in the way that we've.
Speaker 15 (43:26):
Been fighting this sort of war of deterrence. But now
enter this new age of consumer electronics, highly distributed, highly networked.
No one single thing can do that much damage. But
when you add hundreds and put them in a swarm configuration,
it's the new way that wars are being fought, and
it's confounding our defense department, and they need help. They
(43:49):
need solutions not from the traditional primes, but from a
new age prime, a neo prime that's able to use
the best of Silicon Valley combined with the best to
defense in combination to help mitigate and fight and defend
against this new emerging threat.
Speaker 2 (44:07):
The Silicon Valley's money is also piling into the potential
of new defense technology. Defense related US startups have raised
more than ten billion dollars in venture capital since the
start of twenty fourteen.
Speaker 1 (44:20):
Warfare has changed in the last couple of years. It's
an inflection point that humans have been fighting very similarly
since probably the dawn of mankind. You didn't have things
like autonomous vehicles, you didn't have things like generative AI,
you didn't have drone swarms that could be using such
cheap equipment. Russia, we think, has manufactured one million drones
(44:40):
in the last twelve months. That just fundamentally alters how
we have to think about these things. And so what
we've tried to do is start to include our partners
much earlier in the process. We are hopeful that our
Army Transformation initiative will be a renaissance for the defense
industrial based small and medium businesses. We want to get
their products in the hands of soldiers as quickly as
we possibly can. The larger primes that have been around
(45:02):
for a while, they have served at function. They will
likely some of them at least will continue to serve
a function for the United States Army, but we can
no longer allow them to take five or ten years
where we just pay for the innovation that we as
a nation need. And so specifically what we were doing is,
as an example, we were out on the West Coast
with a company that does the autonomous software for a
(45:23):
lot of vehicles in the United States, and we asked them,
have you done this with any military vehicles, and they said, no,
absolutely not. The process is miserable. It takes two years,
we have to come up, go through all these requirements.
We just can't do it as a company. And so
we just turned to our team and said, hey, get
them a Humby and get them an infantry squad vehicle.
In the next week we got it to them. They said,
what do you want us to do? We said, just
ten days, take it. Do whatever you can possibly do
(45:44):
to transform our vehicles. They sent us a video ten
days later they had made our vehicles fully autonomous. Seven
weeks later, our soldiers are actually testing that equipment and
we're going to fly in those software developers to come
see the outcomes. And so these are the types of
things that we have to be doing as an army.
This exists in venture backed businesses. This is how they
do it every single day, and we as an army
(46:06):
just have to get better at it.
Speaker 2 (46:08):
Other people have tried to reform the Pentagon. There are
a lot of constituents up on Capitol Hill, in the
contractors that you work with, even within the Pentagon itself.
What has been the reaction of those people who have
vested interest in keeping it the way it was?
Speaker 1 (46:24):
I think change is hard. I think many of them
appreciate that this is necessary. A lot of their sons
and daughters and grandsons and granddaughters serve. The Army has
its two hundred and fiftieth anniversary this year. We're actually
older than the United States of America itself. And what's
incredibly powerful about that is we touch most Americans in
some way, whether it's a coach or a neighbor or
(46:45):
a parent, and so I think deep down they know
that these are the right changes. I think deep down
they know that President Trump is Secretary Heagseth are going
to allow us to make these very difficult changes. And
so my perception of most of the conversations has been
and once they've appreciated that we are not backing down,
we are conceding no ground. We are taking zero parochial
(47:07):
interests into account. We have set that stage with everyone Republican,
a Democrat. We are doing the right thing for soldiers
in the American taxpayer, and that is it. I think
once they can process that and appreciate this is that
the actual time work change is happening. We then transition
to a mode of what can their business do to
thrive and survive in this new model? And we are
going to keep testing and learning from our soldiers and
(47:29):
closing the innovation loop and executing on the things that
are necessary.
Speaker 2 (47:33):
Don't that does it for us here at Wall Street Week,
I'm David Weston. See you next week for more stories
of capitalism.
Bloomberg Audio Studios, podcasts, radio news.
Speaker 2 (00:19):
This is Wall Street Week. I'm David Weston, bringing you
stories of capitalism. Last week, the US Army announced plans
to transform itself for a new world and a new
way of fighting wars. We talked with the Secretary of
the Army, Dan Driscoll about what of the old has
to go out to make room for the new to
come in. Plus, we traveled to Stockholm to see how
(00:40):
the rest of Europe could follow Sweden's lead in building
an innovation ecosystem on the back of capital markets with
just about everyone owning a piece. But we start with
China and a story about the two biggest economies in
the world trying to come to trade terms. Who has
the upper hand and is it possible for both to win.
Speaker 3 (01:02):
President Trump wants to rebalance the American economy back to
a manufacturing economy with high precision manufacturing. I think everyone agrees,
including Chinese leadership, that they need to rebalance towards more
of a consumption and consumer economy. And the dream scenario
(01:25):
would be if somehow we could do that together.
Speaker 2 (01:28):
Turning first to our special contributor, Larry Summers of Harvard,
So Larry. This week we heard about the tentative agreement
for ninety days at least between the United States and
China dialing back on the tariffs. Was this a step
forward for the Trump administration?
Speaker 4 (01:45):
I salute Secretary Bessant. The avoidance of value subtracted is
value added, and by that standard, we added value. The
United States backed off of what we are extremely imprudent
and potentially economically very damaging prohibitive tariffs to the point
(02:06):
of embargo on China. That was a good thing for
the US economy, and as a consequence, the US stock
market rose substantially in recognition of that. It was not
an increase due to Chinese concessions. You could see that
from the internals of the market. Companies like toy companies
(02:30):
that were dependent on imports retailers performed particularly well. But look,
when you make a mistake, when you've done something imprudent,
it's a good idea to salvage what pride you can
and to retreat. And that's what the Trump administration did,
(02:51):
and I salute Secretary Vessant for his leadership in doing that.
Speaker 2 (02:56):
Part of any high stakes negotiation is trying to assess
the pressure points on the two sides, and one of
the things we've heard from President Trump is he believes
there's a lot of pressure on China right now because
it is a manufacturing economy and as he says, a
lot of factories have gone quiet. Is he right? Is
there a lot of pressure on China right now to
come to terms.
Speaker 4 (03:14):
I think there's some pressure on China, but I think
there's more pressure on us because we're the one that's
a democratic country that's responsive to our people. We're the
one that has a highly inflation conscious population and prohibitive
tariffs raise price levels. We're the one that's the active
(03:41):
player here. So I think there was a lot of
pressure on us, to which we responded. I think it's
a very important part of governing to be willing to
recognize when you push things too far and to pull back.
But let's not be confused about what the path eater was.
(04:02):
It was an overly aggressive, overly truculent, erroneous approach from
which there has been a significant but still not total retreat.
Speaker 2 (04:14):
Larry Ticket step back from the particulars of balance of
trade and fairness and trade. As a macroeconomist, we do
have the second largest economy in the world by most measures,
by some even the largest economy in the world that
is not market driven fundamentally, it is centrally planned and
they've built up a huge productive capacity. How does one
(04:36):
deal with that? I don't think we ever had to
do that in the past. How do you deal with
that in terms of trade terms and making sure that
it doesn't distort things in our country?
Speaker 4 (04:46):
Well, I think what you do is you focus on
your own economic interests and if others want to subsidize
your consumers, if others want to subsidize your producers, that
can very easily be a good thing. And so you
try to define what your core interests are. We have
(05:08):
a core interest in national security. In everything that's national
security sensitive. We need to be trying to pivot away
from China. We need to be very attentive to the
security risks of Chinese presence in the United States. That's
issues like TikTok. We need to be very focused on
(05:33):
preventing China from getting access to intellectual property and ways
that's going to enable them to surpass us. But you
have to focus on your core interests, and when you're
worried about the export of Barbie dolls. You're not focusing
(05:53):
on your core interests when you're worried about trying to
get jobs here, putting together other the different components of
an iPhone, you're not worried about your core interests. So, yeah,
we do need a strategy with respect to China, a
strategy directed getting them to follow rules of the road
(06:16):
where that's important for our core national security interests. But
this kind of broad, indiscriminate attack that has been launched
that mostly serves to cause Americans to feel poorer, mostly
serves to increase our inflation. That's not the right way forward.
(06:41):
So I'm glad to see the adjustments that the Trump
administration has entered into.
Speaker 2 (06:46):
The tentative agreement reached in Geneva was just that tentative,
leaving a lot of work to be done before the
United States and China can reach a long term solution
to their trade conflicts. Elizabeth Economy is a China expert
at the Hoover Institution who keeps careful track of the
relative strengths and weaknesses of the world's two largest economies.
Speaker 5 (07:07):
I think both countries have economic vulnerabilities. I think the
assessment on the part of the Trump administration was that
China was more vulnerable because it exports much more to
the United States than the US does to China. Its
economy has also been struggling. It's been in a prolonged
economic slowdown for at least three years now. But I
think there was a fundamental miscalculation on the part of
(07:28):
the administration. They didn't appreciate that we have a much
greater soul or near soul source reliance on a number
of critical products from China, critical minerals, rare earth elements,
active pharmaceutical ingredients. These are all things that are essential
for our economic security, our national security, our human security,
(07:48):
and will devastate quite frankly, our pharmaceutical industries and our
defense and technology industries. So there's a balance, I think
between the Chinese vulnerabilities and the US vulnerabilities. Both of us,
I think, have vulnerabilities to in the space of this
tariff war.
Speaker 2 (08:03):
Does the rest of the world give one side between
I say, some China advantage over the other. I mean
both sides historically have tried to recruit the rest.
Speaker 4 (08:11):
Of the world.
Speaker 5 (08:12):
I think for the advanced market democracies, what we've seen
has been in some respects somewhat surprising. I think there
was a belief on the part of the Chinese government
that given this tariff for this global tariff war that
President Trump has launched, that it would be easy pickings
that China would walk in and basically say, we are
(08:33):
a stabilizing force in the global economy, We're a stabilizing
force in the international system. And they've gone around saying,
let's join hands and work together to push back against
President Trump and this tariff war. I think what they've
found is that really nobody's that interested in buying what
they're selling. There's an entire world now emerging that is
set to support the current rules based order that doesn't
(08:57):
include the United States, but also doesn't include China.
Speaker 2 (09:00):
One destination of Chinese goods that otherwise might be expert
would be domestically increased domestic consumption, which has been talked
about for years now. What are the prospects In fact,
Xi Jinping might say, Okay, we're going to stimulate the consumer.
Speaker 5 (09:14):
I mean, Chinese economists have been saying for years now
that the government needs to do more to support the
consumer economy, and part of that would be, you know,
investing more in the healthcare system, the education system, the
pension system, giving the Chinese people a sense that they
don't need to continue to save in the case of
an emergency. But Chijinping is allergic to what he calls
(09:37):
social welfare ism. He doesn't want to give the Chinese
people any incentive not to work, at least that's how
he looks at it. So again we've seen President she
over the course of this taraf war take a few steps,
you know, in the form of raising wages for civil servants,
notwithstanding the fact that a year ago or a year
and a half ago he actually cut those same wages.
(09:57):
So I don't know whether this is actually increase or
just taking them back to where they were. And also
again having this massive goods trade in program. But mostly
what he's done I think is, you know, encourage banks
to loan to small and medium sized enterprises. You've seen
Ali Baba, for example, reduce the cost of companies putting
(10:18):
their goods on its platform, to encourage small and medium
sized enterprises to be able to export. So there are
steps that are being taken, but there's nothing in the
way of sort of a massive boost to the consumer
economy that I think Chinese economists would.
Speaker 6 (10:31):
Like to see.
Speaker 2 (10:34):
Coming next the story of Nasdaq in Europe and how
Sweden's deep and robust capital markets connection to tech startups
could give the rest of Europe an example to follow.
Six fam today two and this is a story about
(11:02):
attracting bees with honey, specifically the honey of rich capital markets,
attracting the bees of tech entrepreneurs, something that has helped
drive US economic growth, but that has largely been lacking
in Europe, except in one particular corner.
Speaker 7 (11:21):
About thirty nine percent of household assets in the United
States are invested in equities, which is the highest in
the world. But here in Sweden it's thirty six percent.
Speaker 2 (11:31):
And it's not just how much, it's how broad.
Speaker 8 (11:34):
About ninety percent of the sweet savings are in some
financial assets, which makes us the most investing country, at
least in Europe.
Speaker 9 (11:44):
We're blessed to have a broad equity participation, so lots
of people who own stocks directly. What that does is,
of course, it creates this economic alignment, etc.
Speaker 2 (11:57):
We've come to expect robust capital markets supported by retail
investment in the United States, but not necessarily in Sweden,
a Nordic country with a population of just a little
more than ten million people that punches above its weight
in the depth of its capital markets and is home
to Nasdaq's European headquarters.
Speaker 7 (12:17):
We operate our markets here and also in the Nordics.
We own and operate almost all the markets in the Nordics.
Speaker 2 (12:23):
We spoke to Nasdaq CEO Adina Friedman in New York
in April, not long after President Trump had roiled the
markets with his sweeping tariff announcements.
Speaker 7 (12:32):
So on options in twenty twenty four, we had an
average of about twenty four million contracts traded a day.
On Friday, we had ninety four million contracts traded. Now,
what generally said that what's really really interesting is options
markets are extremely data heavy.
Speaker 2 (12:48):
Friedman and her Nasdaq team have plenty to handle with
US markets, but they also run European operations almost as large,
in what they call Nasdaq Nordic, which became part of
the group in two thousand and eight. We accompanied Friedman
on a trip to the European headquarters in Stockholm.
Speaker 7 (13:06):
Well, Stockholm is one of the great markets that we
own and operate here in the Nordics, but it also
is the headquarters to our market technology business where we
serve one hundred and thirty markets with our technology that
helps them power all the market those markets around the
world as well.
Speaker 2 (13:20):
How much of nasac's overall operation is represented in Stockholm, Well.
Speaker 7 (13:25):
We have about eight hundred employees here in Stockholm, slightly
smaller than New York, where we have about one thousand
employees in our New York office. So it kind of
gives you a sense that this really is our second
headquarters in the world. It's one of the special places
that I get the benefit of being able to come
to as we engage with the markets here in Sweden.
One of the things that I find interesting is how
similar it is here in Sweden versus New York. So
(13:48):
the markets in Sweden have a lot of characteristics to
the markets in the US, which is different than the
rest of Europe. So when we look at it, we
look at how liquid are the markets, how many new
companies come and list here in any given year, how
active are the markets in terms of having retail ownership
of equities, and in many many cases those are very
(14:09):
similar to the US. So we have twelve hundred companies
that are listed in the Nordics and in any given year,
we'll have dozens of companies list here, both small companies
on our SME market which is called First North, and
on the main market. So we're really really proud of
the fact that the markets here are very vibrant and
have a lot of similarities to what we see in
(14:30):
the US. But sitting here in Europe, almost.
Speaker 2 (14:33):
One sign of its strong capital markets is Sweden's IPO pace.
Between twenty thirteen and twenty twenty four, there were more
IPOs in Sweden than in Italy, France or Germany, second
in Europe only to the UK.
Speaker 7 (14:47):
The US markets are the largest, deepest, most liquid markets
in the world, but when you look at how that's
translated into the markets here in the Nordics, it actually
has a lot of a lot of the commonalities of
the market cap. The listed companies here in the Nordics
are about two trillion versus of course, we have about
thirty trillion in the United States just on Nasdaq. However,
(15:08):
you know, the liquidity that underpins that market cap here
in the Nordics is quite vibrant, very active.
Speaker 8 (15:14):
We have lots of IPOs in Sweden, we have more
IPOs than any European countries together, and I would say
that is one important source.
Speaker 2 (15:23):
Sweden's vibrant IPO market is no accident. It results in
part from government policies that encourage household participation in the markets.
Starting with taxes. Nicholas Wickman is Sweden's Minister for Financial Markets.
Speaker 8 (15:37):
First of all, for the smallest entrepreneurs and new entrepreneurs
closely held corporations as they are called, they have strong
tax incentives because there's a twenty percent tax on dividends
within the rate of return. Allow it's quite complicated, but
it's also quite strong incentives to do business. And then
(15:58):
we have the isk system that takes down the cost
of capital, so to say, it provides at least more
capital into the system because you have a low effective
taxation on your invested savings. So I would say those
are two important aspects, one for the entrepreneurs and one
for the providers of capital. We have strong incentives to
(16:19):
stay in business for a long period of time. We
don't have any inheritance tax, we don't have gift tax,
we don't have tax on accumulated wealth or wealth tax
as you normally say. So I would say there's strong
incentives to provide capital in the system. They are strong
incentives to do something good with it, and it's strong
(16:40):
incentives for active owners to remain active and perhaps to
have all their families and keep their businesses over generations.
Speaker 2 (16:47):
Another big driver of retail participation is an investment account
known as an ISSK, a government program under which two
point five percent of every employee's wages are put into
an account in their name, which they can allocate among
a range of funds. These funds are not subject to
capital gains tax. Instead, they are taxed one percent each
(17:09):
year on the value in the account.
Speaker 7 (17:11):
One of the great examples of where regulation has played
a really key role in driving liquidity in the markets
has been that ISK program where they started in twenty
twelve and they said every citizen should be investing in
the markets. So therefore they said, okay, well we'll create
a tax account where your only tax about one percent
of your total assets every year, no cap gains tax.
(17:34):
So it means that investors can really bring their money
into the markets. Their only obligation is to invest in
the public markets anywhere, and it allows investors to have
a great engagement with the economy.
Speaker 2 (17:49):
Christian cedar Home is the CEO of Investor AB, a
company which serves as the investment arm of the Wallenberg family,
one of the most prominent families in the country. In
the nineteen seventies, Wallenberg family businesses employed forty percent of
Sweden's industrial workforce and accounted for forty percent of the
total worth of the Stockholm stock market.
Speaker 9 (18:09):
This has created this sort of positive flywheel effect where
owning stocks in a company, you may even work for
that same company. By the way, and we're blessed to
have a great number of even just going in looking
in Sweden, great number of high quality companies, so you
may work for them, you may be invested in them,
and of course that creates this this engagement around business
(18:32):
as part of a society.
Speaker 2 (18:35):
You mentioned the breadth of ownership with equities in Sweden,
as I understand that there are ten million people roughly
in Sweden, you have six hundred and fifty thousand shareholders
yourself investor AB. How do you explain that bread How
does that happen?
Speaker 9 (18:48):
Well, I mean, first of all, we're really thankful for
the trust that the people put in our work, and
you know that they appreciate what we're doing, so we're
quite humbled to that and the way I look at investor,
what you get is you get engaged ownership and active
investment in a portfolio of about twenty five really good
(19:10):
companies or high quality companies and at the relatively sleam
costs as well. And then of course over time it
helps that we have created a strong total shareholder return
over most sort of longer time periods at least, so
something seems to be working with them Orther and I.
Speaker 8 (19:30):
Think it serves two purposes. First of all, it's about
social coherence. You have your job, you have your salary,
but you also have a share of the most productive
part of the economy that belongs to you because of
your savings. And it's about then, of course economic efficiency.
It provides capital for inventors and entrepreneurs. So's I would
say both about social coherence and economic efficients in a
(19:52):
very nice combination. Our social security system is important. It
makes it possible to take risks both with your savings
of course, but also in your work life as a whole.
When you have some basic, trustworthy welfare system, you know
that you could have a bit more risk of course
in the rest of the economy. So I think that
(20:13):
is one important one important topic. But of course also
the culture doesn't come from one source. The welfare system
could be one such source, education system could could be another.
And also of course that we provide financial stability, that
we safegoud our financial system.
Speaker 2 (20:36):
What does all this mean for Sweden's economy as a whole.
It's GDP is projected to grow two point three percent
in twenty twenty five, compared to just one point seven
percent for the United States. Perhaps as important is Sweden's
level of productivity, which drives future growth.
Speaker 8 (20:54):
Recent years, we have had the same problem as most
of the Western world, or especially the the Europe as large.
We have a productivity problem. But if you extend the
time period a bit, you can see that Sweden is
exceptionally productive.
Speaker 2 (21:09):
Sweden's approach to encouraging broad and deep capital markets comes
in sharp contrast to some of the rest of Europe.
In his report on European Competitiveness, former ECB President Mario
Draghi pointed to the lack of sufficient capital support as
one reason why Europe has lagged behind the United States
in the growth of tech giants. Henry McVay is the
(21:30):
head of the Global Macro and Asset Allocation Team at KKR,
and we spoke to him after he returned from a
trip to Europe.
Speaker 10 (21:38):
When you look at as a percentage of GDP, it's
about a third of the US. And so there's clearly
been a differential over the last ten and twenty years
on that's on the equity side. On the credit side,
what I think Europe has missed is it's really been
so bank controlled that you've missed the real growth in
the securitization market. So if you think about the US,
(21:58):
what we securitize everything guys into the capital markets.
Speaker 2 (22:01):
The Drug Report talking about that, well that shift capital markets?
Do you think in Europe?
Speaker 9 (22:07):
Well, it's it's certainly been a big wake up call
first of all. And if I take my positive had
on what I say is that hopefully now what what
you can read in the Drug Report, etc. Is turned
into really concrete actions as well, so that Europe can
leverage all the advantages it has. I mean it's a
(22:28):
large market, stable institutions, whatnot so and and high high
equity participation in some parts of Europe as well. And
then where do it shift? I mean, it's it seems
to just looking at where evaluations have gone recently, some
of the shifts you describe seem to you know, be
in the making where that goes long term, Probably others
(22:51):
are better position to tell.
Speaker 2 (22:54):
Right, If capital markets are key to innovation in tech,
what has the Swedish approach to retail equity investing meant
for its startup record? That's where we turn next. After
a short break for coffee and Fica, the pastry that
sweeze enjoy during their workday afternoons.
Speaker 7 (23:11):
We're in Sweden, so we have to we have to
we have to have fica so well, Fica's Queen's cake. Yes,
Feica is cake with coffee, so yes, exactly. So we're
going to have a pika leaders that tradition, right, It
is actually every Wednesday normally we have a Pica celebration
where we just get everyone together. So the whole purpose
(23:33):
is not to talk about work, is to talk about
each other and to create that sense of community. So
I love it. But it's a huge tradition here and
now we've brought it everywhere. Don't toast in Sweden? Do
you want to learn how to toast?
Speaker 4 (23:46):
Well?
Speaker 7 (23:46):
You toast? You say skulls? Don't you don't clean? You
look at each other in the eye, you drink and
you look at each other again. It's an old Viking tradition,
like the idea was that if I had poisoned you
would I wouldn't be able to look in the I.
Speaker 2 (24:04):
The Dragi report on the Future of European competitiveness called
for Europe to develop a deeper pool of angel investors
and increase European IPOs to fund high growth companies. So
has Sweden's commitment to these sources of capital resulted in
a more robust startup culture. Sweden has produced more tech
unicorns per capita than any other country in Europe after Estonia,
(24:28):
and according to the World Intellectual Property Organization, Sweden ranked
second in global innovation among fifty one high income countries,
second to Switzerland and just ahead of the United States.
Speaker 11 (24:41):
Swedeness has some well known brands going to iq H
and m Ericsson or more recently Spotify in Klana. So
it's a strong culture entrepreneurship which has fostered in a
way innovation of course, but also investments in the community
large and from a capital market perspective. So in Stockholm
(25:03):
in particular, I think it's a small city, but investors
are ever far away.
Speaker 2 (25:08):
Ali Landin is the CEO and one of the co
founders of Froda, a tech startup that provides small and
medium sized enterprises with access to financing.
Speaker 11 (25:17):
We start the company back in twenty fifteen. We came
across the idea when we're sitting at Stock and School
Economics have an incubator called Stock School Economics Business Lab,
and we realize at the point in time that all
these entrepreneurs who were sitting at that incubator starting their
businesses were struggling to get access to external financing. And
(25:39):
we realize that this is a huge problem and it's
really hampering innovation and growth and competitiveness all across Europe.
Speaker 2 (25:50):
Even Sweden's retail banks work to bring their customers into
the world of investing.
Speaker 12 (25:55):
One of our things to do is to help people
to educate get them in financial literacy. So that means
that in the old days, the savings banks gave like
a few kroner two when you were new born and
you could save it. And what we do is we
talk with youngsters who educate them on financial literacy. We
(26:16):
give them easy ways to invest in equities, to put
their money into pensions and things like that, so we
help people through that journey to make sure that in
the end they have good financial health.
Speaker 2 (26:31):
Jens Hendrickson is the CEO of Sweatbank, one of the
largest Nordic banks, with around seventy five percent of its
revenue coming from Sweden.
Speaker 12 (26:40):
Were nation of engineers, and we're small and open economy,
and sometimes people that are you not afraid that the
new technology will will sort of make you lose your job?
And people say, no, we're afraid of the old technology
because the old technology might hurt them, might sort of
(27:00):
make us weaker. We need new technology develop going forward,
increased growth and make Sweden welfare and a better society
to live.
Speaker 2 (27:11):
In Sweden, support for innovation goes back decades.
Speaker 11 (27:16):
I remember back in the early or mid nineties there
was sort of an initiative called bring a Computer into
Every Home, which was launched by the government and essentially
meant that each and every household in Sweden could get
a computer for almost no money at all. I think,
but we don't have to the same extent as for instance,
(27:37):
the US. You have the the pockets of Silicon Valley,
those huge funds that can invest billions and billions of dollars.
We don't have that, So I think what that means
is Swedish tech companies or startups need to show profits
earlier in their journey compared to for their US counterparts. Also,
it's it's kind of a small market. You need to
(27:58):
demonstrate scalability to be able to show that this is
an idea that's not only sustainable in this tiny sort
of Nordic market, but this is an idea that you
can actually export across the globe. So as a requirement
that you need the people to show how this works
across the globe or at least in a lot large market.
Not only Sweden.
Speaker 2 (28:19):
Sweden innovation ecosystem is supported by more than it's tech
or tax and savings policies. Today, the country's social welfare
policies also have expanded to support the risk taking needed
to foster entrepreneurship.
Speaker 7 (28:33):
It is a very vibrant innovation ecosystem. I think that
the government has done a lot of work intentionally to
make sure that they allow companies to take risk, allow
companies to grow and expand become global players, and then
they have a great system that also encourages citizens to
invest in these innovators.
Speaker 8 (28:51):
Our social security system is important. It makes it possible
to take risks both with your savings of course, but
also in your work life as a whole. When you
have some basic, trustworthy welfare system, you know that you
can have a bit more risk of course in the
rest of the economy. So I think that is one
(29:12):
important topic. But of course, also the culture doesn't come
from one source. The welfare system could be one such source,
education system could be another. And also of course that
we provide financial stability, that we safegout our financial system
(29:34):
make it in the long term high functioning, well functioning.
Speaker 9 (29:39):
We don't do a lot of call it early venture
capital startup investment ourselves. But if I look at the
innovation more broadly, then I think one part of that
is maybe our small home market, right, meaning that we've
always been forced to go out there and compete with
the best in a way, So that's one big driver.
(30:01):
Then I also think that we have some more societal
infrastructure that works for us. Just to mention, I fil
mean one is free and generally high quality education for
all is broadly available. We also have pretty generous welfare systems,
(30:23):
including childcare, which has helped, of course to create a
labor market participation.
Speaker 2 (30:32):
Access to capital through private markets is an important part
of the innovation puzzle.
Speaker 10 (30:37):
Europe actually has about the same number of venture capital
companies per year that the gets hatched, which is interesting
relative to the US. What Europe has been missing is
those global dominant firms one hundred billion dollars in more.
Typically those companies are actually getting bought by US firms.
So there is the beginning of the food chain on innovation, right.
(30:58):
Entrepreneur is actually a French But what's happening is you
haven't made it to create a global dominant giant. You
have ASML, but you don't have the type of companies
that you have a Google and Meta and Microsoft, and
so that to me is the opportunity set is to
really see that value chain all the way through. You
haven't had the same opportunity set. In the US. It's
(31:19):
maybe twenty five percent of the index and in Europe
at seven. So there is entrepreneurs and there's growth, but
a lot in the public markets. A lot of that's
been concentrated in the US markets.
Speaker 2 (31:30):
Investor AB is one of the most important sources of
private capital for Swedish companies, but its take on private
equity looks different from the United States.
Speaker 9 (31:40):
Basically, when we make an investment, we do it not
having exit as part of the strategy, and that means
that we're really picky about getting companies who are in
industries or in markets or niches where you have some
kind of structural growth tailwind. We don't love to sort
of fight gravity, so we prefer the tailwind and then
(32:04):
companies with a long term right to win in those markets.
And typically, and it goes back to the point about innovation,
if we look at our companies across I mean call
it twenty five or so companies, most of them have
leading market positions and they have that thanks to leading
(32:24):
or sort of best in class products and this obsession
about the products and the customers. So that's I think
our We really pick on the long term attractiveness of
both the company but also the industry that they're in,
because we're weary that it's it's it's better basically with
some tailwind and some heldwind. To be clear, we have
(32:45):
shareholders in all parts of the world. We have Nordic roots,
but we see ourselves as global investors and if you
look at our companies, they typically have the Nordic roots
and the Nordic carriatter. But coming back to our small
home market set, and they're typically active across the globe.
(33:06):
If I look at investor ab in the company as such,
we have operations here in Stockholm, any New York. So
those are our two sort of home markets, and that's
where we go look for new platform investments or new
logos if you want.
Speaker 2 (33:21):
Sweden's model has worked to jumpstart its innovation and growth,
but replicating it in other parts of the EU is
not as easy as it sounds.
Speaker 8 (33:30):
There is a huge interest from other European countries and
from the European Union about the Swedish case. How did
we succeed to have our households to have this large
retail participation in the financial markets, How did we succeed
in reforming our pension system, How did we succeed in
getting those tax incentivized saving products in place that provides
(33:53):
the households with a better return than they would have
just the system where you pay taxes and get benefits
from the government, and then of course also provides corperations
with more capital than in other countries. So there is
a huge interest in the Swedish example, and since we're
humble people, of course will will say that, well, it's
(34:15):
it's a matter of several factors. It's it's it's not
a it's not one thing you could do here.
Speaker 2 (34:22):
If Europe manages to adapt the Swedish model of supporting
capitalism with social welfare, the growth upside of the EU
is high, but Sweden is setting its sites even higher.
Speaker 8 (34:33):
We say that the United States need to watch out
if we if we manage for the whole of Europe
to do this, because then we will be a much
more efficient competitor.
Speaker 12 (34:42):
And that means that you have a free education, you
have free universities, you have the daycare, shine care, you have,
and you can continue with all these things, and then
peakop can take a bit more financial risk. And you're right,
it is risk in that sense, but when you know
that risk usually pays off in the long run, well,
(35:03):
at least history has shown of that.
Speaker 2 (35:08):
Coming up, we talked with the new Secretary of the Army,
Dan Driscoll about the transformation plan he presented to Congress
last week and how it would address some of the
issues at the Pentagon we reported on last fall. This
(35:33):
is an update of a story we reported on last
November about getting our money's worth in our national defense spending.
Last week, the new Secretary of the Army presented to
Congress his plan to transform the largest branch of the
US military.
Speaker 1 (35:51):
Jacob the system is broken, but nobody felt like they
had the power to change it.
Speaker 2 (35:58):
Dan Driscoll is the Secretary of the Army Army serving
in Trump's current administration, which plans to redirect eight percent
or fifty billion dollars of non lethal Defense Department spending
to innovative weaponry.
Speaker 1 (36:10):
With President Trump's leadership and his kind of incredibly high
risk tolerance, we were empowered and given the top cover
to basically go fix the things that are broken. And
so fundamentally what Army Transformation Initiative, what we call ATI,
is it does four things. So the first bucket of
things that it does is it looks at our obsolete
equipment and processes and the things that have led to
(36:32):
bad outcomes, and we stop buying those things. And so
some examples of that are humbies. We have Gray Eagles,
which are big, large drones that have been around for
decades and they just don't fit on the modern battlefield.
And a robotic combat vehicle on our CV, it's an
exquisite three million dollar piece of equipment that can be
taken out by an eight hundred dollars drone. The math
(36:53):
just doesn't work. Bucket two is what has led to
the types of contracts have gotten us into these outcomes
that we don't want. So in some instances we have
given away our right to repair our own equipment. We
would see this exquisite equipment sitting on the sidelines for
eight or twelve months at a time, and our soldiers
could three D print the two to twenty dollars part
(37:14):
to get it back in the game. Bucket three is
essentially taking the savings from cutting the obsolete equipment and
recycling it to the things we know we need. Modern
warfare is going to be a mixture of autonomous vehicles
and drones and data. It's buying all of that equipment
and really just giving us a command and control layer
for the modern battlefield. And then Bucket four is the bloat.
(37:35):
We have just too many people up in our leadership,
and so we're going to do things like cut one
thousand people from the Pentagon. We're going to push those
soldiers that are stuck up here pushing paperwork around. We're
going to get them back in helmets, get them back
in formations to do the jobs that they actually signed
up wanting to do.
Speaker 2 (37:51):
Those who know have been calling for changes like these
for a long time. Former US Deputy Secretary of Defense
John Hamry says the Pentagon's fail failure to adapt compromises
its ability to fight.
Speaker 13 (38:04):
We are not well organized for sustained long term conflict.
It would really be a strain for us to manage
a three year war. We tend to buy too few
weapons for long term warfare. Our industrial base is sluggish.
It's not that the companies aren't willing to produce, but
(38:25):
the government isn't willing to give them resources for search capacity.
We could fight a terrific short term war, but if
we had a prolonged war, it would be a challenge.
Speaker 6 (38:37):
I think there are two problems. One is that we're
not spending enough, and two is that we're not spending
wisely enough.
Speaker 2 (38:44):
Amy Zgart is a senior fellow at the Hoover Institution.
Speaker 6 (38:48):
Or overall defense budget has a yawning gap with the
capabilities that this nation needs to advance national interests. At
the same time, we need to be spending money on
low cost, high tech, affordable unmanned systems and other capabilities.
There's been a lot of discussion about doing that in
the Pentagon, a lot of discussion about doing that in Congress,
(39:11):
but those kinds of systems are still rounding dust in
the Pentagon budget compared to where we need to be.
This is the most dangerous and the most complicated threat
landscape the United States has faced since nineteen forty five.
We have great power competition with China and Russia, then
there's Iran and North Korea, and we also have non
(39:34):
state actors. Terrorist threat levels are increasing again, and they're
enabled by new technologies which are spreading rapidly. It's a
very demanding landscape. The United States Defense Department is having
to do more, and our budgets have not kept pace
with the threat landscape. So as a percentage of GDP,
the US government is spending half as much today on
(39:56):
defense as we did in the nineteen eighties, one twentieth
as much on defense as we did in the Korean War.
So the needs are growing, the funding is declining.
Speaker 1 (40:09):
If you look at the Pentagon for the last thirty
or forty years, you've had this very inefficient bureaucratic system
that has calcified, and we like to talk about it
as kind of like a pretzel for decision making, contorting
it on itself.
Speaker 13 (40:22):
We've done things inside the Defense Department for many years,
but this revolution that's taking place in digital technology is
in the private sector, and we don't know how to
bring that into the government because we want them to
slow down and fit our model. Well, they're not going
to do that. Defense acquisition runs at x and the
(40:43):
private sector is moving at five X. I think the
greatest challenge going forward is going to be how do
we bring in the cutting edge technology the private sector
is developing and incorporate it into our weapons storms And
we do not have an answer to that question.
Speaker 14 (41:04):
With this new idea of having non traditional defense contractors
and Silicon Valley companies like Pallanteer and SpaceX that lots
of people have heard of, it's bringing new ideas in
new innovation, and it's giving us the best of breed technology.
Speaker 2 (41:20):
Andy Lowry is the CEO of Epirus, a defense tech
contractor that focuses on drone technology, an essential part of
fighting the wars of the future. The company is valued
and an estimated one billion dollars and has raised over
five hundred and fifty million dollars in the private sector.
Speaker 15 (41:37):
ePRESS makes force fields just like you see on science
fiction movies. We have created the first version of a
human made force field that can protect things like bases, aircraft, tanks, cars, vehicles, stadiums, refineries, borders.
All of these things right now are falling prey to
(41:59):
a infiltration of drones. Not just flying droms. You have
drones on the water, drones on land, drones in the air,
drones in space. You have cyber powered drones everywhere.
Speaker 2 (42:12):
Enter ePRESS.
Speaker 14 (42:13):
ePRESS, with our force fields can now line up right
at an edge of a fence and knock everything down
like there's a wall of energy that anything that comes
into falls to the ground and is rendered useless.
Speaker 2 (42:26):
Epreus delivered counter drone technology to the Navy as recently
as March. The goal of their Leonidas system is to
take down drones.
Speaker 14 (42:35):
These force fields will prevent massive attacks. Because we can
only make dozens of missiles a month as a country,
they can make tens of thousands of drones per month,
tens thousands of drones per month. That ratio doesn't work
will never keep up. We'll lose to the attrition, the
war of attrition unless we come up with what force fields.
(42:57):
If we put force fields up in those drones, doesn't
matter ten hundred thousand, just rack it up the cash book,
because every one of those is ten K, fifteen K,
and you're losing them one again, again and again. So
we actually flip this whole paradigm over on its head
and cause them to have to say, now, what are
we going to do do we still want to fight
fights with drones and just risk them getting lost to
(43:20):
these new systems. We've kind of grown a little comfortable,
i would say, in the way that we've.
Speaker 15 (43:26):
Been fighting this sort of war of deterrence. But now
enter this new age of consumer electronics, highly distributed, highly networked.
No one single thing can do that much damage. But
when you add hundreds and put them in a swarm configuration,
it's the new way that wars are being fought, and
it's confounding our defense department, and they need help. They
(43:49):
need solutions not from the traditional primes, but from a
new age prime, a neo prime that's able to use
the best of Silicon Valley combined with the best to
defense in combination to help mitigate and fight and defend
against this new emerging threat.
Speaker 2 (44:07):
The Silicon Valley's money is also piling into the potential
of new defense technology. Defense related US startups have raised
more than ten billion dollars in venture capital since the
start of twenty fourteen.
Speaker 1 (44:20):
Warfare has changed in the last couple of years. It's
an inflection point that humans have been fighting very similarly
since probably the dawn of mankind. You didn't have things
like autonomous vehicles, you didn't have things like generative AI,
you didn't have drone swarms that could be using such
cheap equipment. Russia, we think, has manufactured one million drones
(44:40):
in the last twelve months. That just fundamentally alters how
we have to think about these things. And so what
we've tried to do is start to include our partners
much earlier in the process. We are hopeful that our
Army Transformation initiative will be a renaissance for the defense
industrial based small and medium businesses. We want to get
their products in the hands of soldiers as quickly as
we possibly can. The larger primes that have been around
(45:02):
for a while, they have served at function. They will
likely some of them at least will continue to serve
a function for the United States Army, but we can
no longer allow them to take five or ten years
where we just pay for the innovation that we as
a nation need. And so specifically what we were doing is,
as an example, we were out on the West Coast
with a company that does the autonomous software for a
(45:23):
lot of vehicles in the United States, and we asked them,
have you done this with any military vehicles, and they said, no,
absolutely not. The process is miserable. It takes two years,
we have to come up, go through all these requirements.
We just can't do it as a company. And so
we just turned to our team and said, hey, get
them a Humby and get them an infantry squad vehicle.
In the next week we got it to them. They said,
what do you want us to do? We said, just
ten days, take it. Do whatever you can possibly do
(45:44):
to transform our vehicles. They sent us a video ten
days later they had made our vehicles fully autonomous. Seven
weeks later, our soldiers are actually testing that equipment and
we're going to fly in those software developers to come
see the outcomes. And so these are the types of
things that we have to be doing as an army.
This exists in venture backed businesses. This is how they
do it every single day, and we as an army
(46:06):
just have to get better at it.
Speaker 2 (46:08):
Other people have tried to reform the Pentagon. There are
a lot of constituents up on Capitol Hill, in the
contractors that you work with, even within the Pentagon itself.
What has been the reaction of those people who have
vested interest in keeping it the way it was?
Speaker 1 (46:24):
I think change is hard. I think many of them
appreciate that this is necessary. A lot of their sons
and daughters and grandsons and granddaughters serve. The Army has
its two hundred and fiftieth anniversary this year. We're actually
older than the United States of America itself. And what's
incredibly powerful about that is we touch most Americans in
some way, whether it's a coach or a neighbor or
(46:45):
a parent, and so I think deep down they know
that these are the right changes. I think deep down
they know that President Trump is Secretary Heagseth are going
to allow us to make these very difficult changes. And
so my perception of most of the conversations has been
and once they've appreciated that we are not backing down,
we are conceding no ground. We are taking zero parochial
(47:07):
interests into account. We have set that stage with everyone Republican,
a Democrat. We are doing the right thing for soldiers
in the American taxpayer, and that is it. I think
once they can process that and appreciate this is that
the actual time work change is happening. We then transition
to a mode of what can their business do to
thrive and survive in this new model? And we are
going to keep testing and learning from our soldiers and
(47:29):
closing the innovation loop and executing on the things that
are necessary.
Speaker 2 (47:33):
Don't that does it for us here at Wall Street Week,
I'm David Weston. See you next week for more stories
of capitalism.
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