Gallup Poll: Capitalism vs. Socialism Gallup Poll: Capitalism vs. Socialism Democrats Republicans 71% have a positive attitude 47% have a positive attitude toward capitalism toward capitalism 16% have a positive outlook 57% have a positive outlook of socialism of socialism Source: Gallup Poll, August 13, 2018 Millennials: Capitalism vs. Socialism Millennials: Capitalism vs. Socialism More Millennials would prefer to live in a socialist country (44%) than in a capitalist one (42%). 7% said they would prefer to live in a communist country. 59% of U.S. adults prefer a capitalist country than a socialist one. 26% of Baby Boomers would want to live in a socialist nation. Source: YouGov/Victims of Communism Memorial Foundation study, Sacramento Bee, 11/4/2017 2018 Milken Institute Hamptons Dialogues Finance as a Force for Good 1
“The inherent vice of capitalism is the unequal sharing of blessings; the inherent virtue of socialism is the equal sharing of miseries.” – Winston Churchill “There can be no liberty unless there is economic liberty.” Margaret Thatcher 2018 Milken Institute Hamptons Dialogues Finance as a Force for Good 2
Berkeley 1964 Watts 1965 2018 Milken Institute Hamptons Dialogues Finance as a Force for Good 3
P= S Ft i *( S HC i + S SC i + S RA i ) P = Prosperity Ft = Financial Technology HC = Human Capital SC = Social Capital RA = Real Assets P= S Ft i *( S HC i + S SC i + S RA i ) Financial Human Social Real Technology Capital Capital Assets Innovative processes & Productivity: Rule of law Cash Property rights Receivables components including: Skills Convertible bonds Education Public health Real estate Universal education Factories Preferred stock Training High-yield bonds Experience Religious freedom Capital Collateralized loans Creativity Police/fire protection equipment Cultural resources Roads Collateralized bonds Habits Equity-linked Values Universal suffrage Buildings Protection of creditors Infrastructure securities Securitized obligations Rigorous financial (mortgages, credit reporting standards Transparent markets cards, etc.) Derivatives Regulatory continuity 2018 Milken Institute Hamptons Dialogues Finance as a Force for Good 4
Financial Technologies • Collateralized loan obligations • Collateralized bond obligations • Securitized mortgages • Securitized credit cards • Derivatives • Convertible bonds • Preferred stock • High-yield bonds America Goes to Work U.S. and Fortune 500 Employment 180 U.S. = + 62 million jobs 160 New financial technologies are fully implemented 140 120 100 Modern capital 80 markets begin Fortune 500 = minus 4 million 60 1970 1975 1980 1985 1990 1995 2000 Source: Bureau of Labor Statistics, Bloomberg, Thomson Reuters. 2018 Milken Institute Hamptons Dialogues Finance as a Force for Good 5
“Our biggest obstacle was not the opposition of the government or the monopoly position of AT&T. It was the availability of capital. Those days are over now.” Bill McGowan, 1986 Forever 21 “This is a reward that humbles me: the fact that immigrants coming to America … can come into a Forever 21 and know that all of this was started by a simple Korean immigrant with a dream.” Do Won Chang Founder, Forever 21 2018 Milken Institute Hamptons Dialogues Finance as a Force for Good 6
“The leader is the secret sauce of any great social enterprise.” - Cheryl Dorsey President, Echoing Green Institutional Investor Base for Non-Investment Grade Loans Banks CLOs Hedge,distressed and high-yield funds Loan mutual funds, financial and insurance companies 100% 80% 60% 40% 20% 0% 1994 1996 1998 2000 2002 2004 2006 2008 2010 2012 2014 2016 2018* Sources: S&P LCD (4/23/2018). 2018 Milken Institute Hamptons Dialogues Finance as a Force for Good 7
Concentration of Three Largest Banks Total assets of Top 3 banks as a percentage of home country’s GDP 250% 202% of GDP ($5.2 trillion) 200% Societe Generale 150% Credit Agricole 100% 34% of GDP ($6.6 trillion) 50% BNP Paribas J.P. Morgan Bank of America Wells Fargo 0% France United States Source: Thomson Reuters, Oxford Economics (11/21/2017). Note: Top 3 banks by country of headquarter. GDP estimate for 2017. European Credit Is a Bank Market Bonds and loans as a share of total corporate debt, Q4 2017 Bonds Loans 100% 90% 80% 70% 60% 50% 40% 30% 20% 10% 0% Spain Ireland Germany Italy Portugal France United Kingdom Source: ECB (11/21/2017); Non-consolidated loans and debt securities 2018 Milken Institute Hamptons Dialogues Finance as a Force for Good 8
“We help companies grow by helping them to raise capital. Companies that grow create wealth. This, in turn, allows people to have jobs that create more growth and more wealth. It's a virtuous cycle … We have a social purpose.” - Lloyd Blankfein Former Chairman & CEO Goldman Sachs In 1996 there were 7,322 stocks listed in the Wilshire 5000. In 2017, there were only 3,492. In 2017, there were only 3,492. Source: Wikipedia 12/31/2017 2018 Milken Institute Hamptons Dialogues Finance as a Force for Good 9
Private Equity’s Footprint Private Equity’s Footprint NYSE and NASDAQ = 6,004 companies Private equity = 7,580 portfolio companies “At least $2.4 trillion was raised privately in the United States in 2017. “$2.1 trillion was raised publicly. 10 Largest For-Profit U.S. Employers 1. Walmart (1,400,000) 2. Private Equity 3. Private Equity 4. Private Equity 5. Private Equity 6. Private Equity 7. Private Equity 8. Private Equity 9. Kroger (443,000) 10. UPS (434,000) 2018 Milken Institute Hamptons Dialogues Finance as a Force for Good 10
Enterprise Value Per Employee Macy’s $128,000 Walmart $133,000 IBM $448,000 Sony $527,000 Amazon $1.7 million Microsoft $5.9 million Alibaba $6.9 million Apple $8.6 million Google $9.6 million Facebook $19.0 million Source: Thomson Reuters (8/13/2018). Notes: Measure based on latest EV and latest full-time employment numbers. Increase in U.S. Corporate Cash Holdings US$ billions Q4 2007 Q1 2018 300 285 250 200 143 150 102 100 82 74 70 61 50 26 25 21 18 20 14 8 8 8 8 5 0 Apple Microsoft Google GE Cisco Oracle Pfizer Merck Chevron +1445% +577% +70% +476% +198% +735% -23% +3% -40% Note: Cash and marketable securities. Source: Company Filings, Thomson Reuters (4/13/2018). 2018 Milken Institute Hamptons Dialogues Finance as a Force for Good 11
Increase in Corporate Cash Balances 2006 to 2018 Cash holdings of publicly listed companies, percent of GDP Percent of GDP Q1 2006 Q1 2018* 160% 140% 135% 120% 100% 80% 68% 61% 60% 51% 47% 39% 37% 40% 33% 29% 26% 28% 26% 21% 21% 19% 20% 16% 16% 15% 15% 13% 4% 4% 3% 1% 0% Japan France UK China Canada Korea Spain US Brazil Italy Germany Russia Note: Cash and marketable securities, * latest Balance Sheet data available; GDP current forecast. Source: Thomson Reuters, Bloomberg (1/29/2018). Global Liquidity – Sovereign Wealth Funds (US$ Billions) 1. Government Pension Fund of Norway $999 2. China Investment Corp. $900 3. Abu Dhabi Investment Authority $828 4. Kuwait Investment Authority $524 5. SAMA Foreign Holdings of Saudi Arabia $494 6. Hong Kong Monetary Authority $457 7. SAFE Investment Company of China* $441 8. Government of Singapore Investment Corp. $359 9. Qatar Investment Authority $320 10. National Social Security Fund (China) $295 Source: SWF Institute, January 2018 2018 Milken Institute Hamptons Dialogues Finance as a Force for Good 12
“Underlying most arguments against the free market is a lack of belief in freedom itself.” - Milton Friedman Number of People Living in Poverty Number of People Living in Poverty Less than $1.25/day People not living in absolute poverty People living in absolute poverty 2018 Milken Institute Hamptons Dialogues Finance as a Force for Good 13
Another Definition of Prosperity Another Definition of Prosperity Amount of Work Required to “Earn” an Hour of Reading Light 1750 BC Sesame-oil lamp 50 hours 1800 Tallow candle 6 hours 1880 Kerosene lamp 15 minutes 1950 Filament light bulb 8 seconds 2011 Compact fluorescent bulb ½ second Source: Matt Ridley, The Rational Optimist The Challenge – Atmospheric SO 2 The Challenge – Atmospheric SO 2 SO 2 Emission (Gg) 40,000 35,000 30,000 25,000 20,000 15,000 10,000 5,000 0 Source: US Environmental Protection Agency. 2018 Milken Institute Hamptons Dialogues Finance as a Force for Good 14
SO 2 Reductions Annual Mean Ambient SO 2 Concentration the consent of the Author. 2012 Environmental Financial Products LLC Reproduction or quotation of this material is expressly forbidden without 1989 - 1991 2004 - 2006 29 The Result – Atmospheric SO 2 The Result – Atmospheric SO 2 SO 2 Concentration (PPB) 360 75% decrease in SO 2 in 36 years 300 240 180 120 60 0 Source: US Environmental Protection Agency. 2018 Milken Institute Hamptons Dialogues Finance as a Force for Good 15
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