CTA CEO and president Gary Shapiro sat down with Nasdaq president and CEO, Adena T. Friedman in the “Great Minds: The Future of the 21st Century Economy” CES session. Friedman expounded on how technological advancements in business and modern market infrastructure will impact the 21st-century economy. Here is a truncated version of their conversation, edited only for readability and clarity.
Shapiro: You have a lot of conversations with CEOs and clients all around the globe. What do you think are the most critical areas or opportunities or challenges that leaders are most concerned with?
Friedman: When I go and talk to a lot of CEOs, there are three key areas they’re really focused on: the geopolitical landscape, how that’s changing supply chain management, nearshoring, regionalization of the economy, and what kind of technologies need to be brought to bear to get to be more modern in managing their supply chains. I think Covid really laid bare some real concerns there. The second is on digital transformation. As you know, every company is trying to figure out how to become more efficient, more tech-savvy, so that they can grow more effectively with technology, as opposed to just having people be the growth engine. Then the third is on people and talent, the need for a lot more tech talent, and the fact that, generally speaking, we just don’t have enough workers for the needs of the companies right now.
Shapiro: Do you think there is going to be seriously more reshoring and more dual source?
Friedman: I do, yeah. I think every company that is a major manufacturer that has a global supply chain is rethinking their supply chain. Changing your supply chains is a very very time- and cost-intensive activity. You can do it successfully over a long period of time – those tend to be like 20-year decisions, not five-year decisions. You’re hearing a lot of decisions have been made, activity is starting. But it’ll probably be another five to seven years before you see real change there.
Shapiro: You mentioned hiring, which clearly affects everyone. Do you sense it changed more recently, or is it softening?
Friedman: There’s something the industry’s calling the “birth dearth” that’s coming. Because of the credit crisis, people had fewer children. If you think about how many people are going to be graduating from high school in 2026 to 2028, there’s like a 7 to 20 percent reduction in high school graduates in that period of time. That is very concerning to companies that have a high reliance on people. Therefore, that digital transformation is really really important, to use new technologies, to use AI, to use modern tech in order to avoid the need for massive amounts of hiring in a period of time where, at least in the U.S., we don’t have as many workers coming into the workforce. That is an underpinning of a lot of company decisions to keep investing in tech, even if the economy is not perfect right now.
Shapiro: You mentioned AI is that one of the critical technologies you see in the future. What are the technologies that are going to transform industry?
Friedman: It is definitely AI, and then you think about 10 years out what quantum could do to AI. Quantum computing is becoming real. It is the very beginning of time on that, but you are starting to see companies bringing qubits together to make it so that we can have much much much higher processing capabilities. And then you also have the cloud [which has] really unlocked the ability for data to be leveraged in new ways. So you’ve got the cloud being able to bring scalability to data, AI coming in, and being able to make sense and intelligent solutions on the back of that vast amount of data.
And then you have the decision capabilities that quantum’s going to introduce over the next decade. In our industry, the financial industry, you have a lot of AI being used to help retail investors make smarter investment decisions, but at the same time leveraging it for the protection of the system. We have anti-fin crime technology, and the cloud and AI together are critical to solving this problem, it’s about a $3 trillion problem. Banks are managing money laundered through the system all the time. Criminals are using banks to perpetrate their crimes. How do you solve that problem? It has been a very people-intensive answer so far, but technology has got to be brought to bear and AI is critical for that.
Shapiro: What’s the opportunity that you see in terms of companies? What should entrepreneurs in the audience be thinking, especially if they have great programming skills?
Friedman: Think about how to leverage data to draw conclusions…the ability for yourself or your investors to make better investment choices, to predict the future performance of a company, to predict the future performance of a sector. Anyone who’s able to do that effectively, leveraging and harnessing data, is going to win. That’s a huge ability of the technology. We have incredible data scientists focused on anti-fin crime and it is a huge business – we’re talking about $10 billion to manage crime in the banking system, so that’s a huge opportunity. We would love to talk to you guys if you have new technologies that you think you could bring to bear to manage down crime in the system. We’re ready to hear from you.
Shapiro: When I go around the world, the first question they almost always ask is what makes the U.S. special as the home to innovation. What’s different about the U.S. that makes innovation thrive as much as it does?
Friedman: It starts with our foundation as a democracy. We’re founded on the basis of free speech, freedom of thought, freedom of expression, and challenging the status quo. We were born by challenging the status quo. That’s actually been embedded in our educational system. While there are a lot of things we can do to make our educational system better, I think that the level of creativity, the ability for kids to be creative, for them to be innovative, for them to learn how to debate and discuss in a respectful way, to learn how to have that freedom of thought and freedom of expression, it unlocks the brain. And if it unlocks the brain, it allows for innovation.
The third is the laws, and, ironically, I think the laws that are most effective in harnessing innovation are the bankruptcy laws because it allows people to take risks. You can try, fail, and try again. There’s almost no country in the world that has our bankruptcy laws. It allows for risk-taking. So you’ve got this kind of general sense of risk-taking from the democratic system, you’ve got an education system that teaches kids how to take risks just by stating their opinions, and you’ve got the laws that were kind of allow for innovation allowing for risk-taking. I think that all of that combined is what makes it special.
Shapiro: One of the issues that we’re all focused on is inflation. It’s a global phenomenon. Now I will say the consumer technology industry in 2021 was deflationary. In a lot of categories, our prices went down. Obviously, the Fed uses interest rates as almost the sole tool for fighting inflation. But there’s another way to fight inflation, and that’s greater productivity.
Friedman: Absolutely.
Shapiro: Could you talk about productivity and the role of innovation and the role of financial markets?
Friedman: Every company is trying to become more productive, more efficient, to do more with the capital that you’ve deployed. Every company is trying to bring the greatest and latest technology into their business, whether you’re a transportation company, a consumer goods company, obviously you’re seeing every single industry is focused on that. I am on the board of the New York Fed so I get a chance to look at how they assess the economy, what measures they are using to determine what policies they should have. They do try to measure productivity [but] it’s a rather elusive metric to be honest with you. I’m not sure AI could be used much more effectively in helping us understand how you look at all the data points to determine what productivity is. I believe that we will continue to see productivity gains, and I do agree that they’re deflationary. How you measure those though, in terms of making monetary policy decisions, is a little bit harder.
Shapiro: Well, I want to end on a happier note. When you talk to CEOs every day as part of your job and when they ask you what you think we should be investing in, what advice do you give?
Friedman: I would say invest in cloud, invest in AI. We’re taking every element of our business to the cloud, including our markets. We actually just launched our first options market in the cloud and in December of last year, 4 billion messages a day flowing through that options market and we’re super excited about it. We have much more scalability so that we’re going to have the benefit of the analytics from the cloud, the scalability of the cloud. I think talking about productivity as a deflationary thing, you’re going to have lower overtime hopefully, a lower cost of infrastructure. So every company, I would say, focus on the cloud, focus on AI, and that’s going to drive your business forward. Anyone who’s ignoring those massive mega trends are going to find themselves falling behind.
Shapiro: And that’s why people come here, to make sure they don’t miss the next trend. I want to thank you for coming to see us for the first time. We’re very excited to have you here, we’re excited about the partnership we have with Nasdaq.
