By Leo Melamed
CME Group Center of Innovation
Fred Arditti Innovation Award
Honoring Michael Bloomberg
Chicago, Illinois - April 23, 2008
We are here to celebrate innovation and honor the contribution
of a great innovator, the Mayor of the City of New York, Michael
Bloomberg. It is most appropriate that we do so here and that
we do so at this moment in American history.
That we do so here, because the CME Group was built on innovation.
Innovation is our existence, our Raison D'etre, our very being.
Scratch beneath our surface and you will find it flowing in our
veins; go deeper and you will find it in our genes; and if you
psychoanalyze us, you will find that we harbor the crazy notion
that maybe we invented it.
has been said many times. The timing for the launch of financial
futures at the IMM in 1972 could not have been more perfect.
It was conceived as the world left the gold standard in favor
of the information standard. It coincided with new technologies
that were making it possible for news to travel at the speed
of light. And the U.S. had the so-called "First Mover
the next three decades Americans dominated the world's capital
markets, dwarfing everyone around. In derivatives, the CME together
with the CBOT and NYMEX became the catalyst for the development
of CBOE stock options, OTC instruments, the concept of financial
risk management, and spawned financial futures exchanges in every
corner of the globe. In securities, the New York Stock Exchange,
the NASDAQ, as well as other American exchanges grew without
equal --- deeper, and more liquid than anywhere else.
Nobel Laureate in economics, Merton Miller, liked to say the
period between the mid-1960s and mid-1980s was singular. In his
view, no other twenty-year period in recorded American history
witnessed even a tenth of the financial innovation of those two
decades. Tonight's award winner exemplifies that conclusion.
In 1981, at the same moment we at the IMM launched our Eurodollar
contract under the guidance of Fred Arditti, the instrument that
forever changed risk management of interest rates, Michael Bloomberg,
recognized that the traditional global approach to financial
information was too slow and too arbitrary for the coming era.
The information company he launched offered cutting edge technology
to bring transparency and scope of information that forever changed
the speed, delivery and efficiency of the financial world.
Both Merton Miller and Michael Bloomberg must have had a sense
of the revolutionary advances in technology that were to follow.
Indeed, Michael Bloomberg was among the first to understand the
impact of the digital communications revolution. Advances that
profoundly influenced the conduct of markets and exchanges, resulting
in increased competition, global distribution, electronic trade,
expansion of transaction volume, and unceasing waves of continuous
That we do so at this moment in history, because so much is
heard these days about the downfall of America, about all that
it is wrong, how we have fallen in the eyes of the rest of the
world. No doubt there is room for criticism. Surely, our nation
is not without its faults. But let us keep everything in perspective.
In the history of mankind there are as many different innovations
as there are stars in the sky. They vary from the ridiculous
to the momentous, from the innocuous to the historic, from the
transitory to the permanent. The Twentieth Century, probably
witnessed more discoveries and innovations than were recorded
from the beginning of our species. There is no reason to suspect
that the Twenty First Century will be bashful in this regard.
However, according to The Encyclopedia Britannica's classification
of the world's great ideas and inventions, through the end of
the 20th Century, better than 50% were conceived in the US. In
fact, stimulated and fueled by the American industrial revolution,
the number of patents issued to American inventors increased
dramatically during the 19th and 20th centuries, resulting in
millions more than all foreign patents combined. These have immeasurably
improved the world's standard of living and linked the U.S. globally
across all physical and cultural divides.
I am not talking about the invention of fire, the wheel,
or the printing press. I am talking about some fairly significant
breakthroughs on which modern civilization stands. Things like
the electric light bulb, the phonograph, motion pictures, the
electronic computer, the transistor, air conditioning, the airplane,
the telephone, and the credit card to name but a few. And of
course, there is the Internet.
I while I am at it, how about some really, really neat items
without which, I dare say, life would not be what it is. Things
like: chewing gum, potato chips, toilet paper, scotch tape, duct
tape, the zipper, the brassiere, the disposable razor, Kleenex,
Post-It notes, Prozac, Viagra, the list goes on and on.
other words, while Americans may be losing jobs in manufacturing,
and may be outsourcing services to foreign domiciles, we remain
number one in ideas, inventions, and innovations. It is no accident.
Milton Friedman explained the reason time and time again. The
story of the United States is a story of two interdependent miracles:
an economic miracle and a political miracle. Each miracle resulted
from a separate set of revolutionary ideas --- both sets of ideas,
as we know, by a curious coincidence, were formulated in the
same year, 1776.
all know this history, but it bears repeating. One set of
ideas was embodied in Adam Smith's The Wealth of Nations, which
established that an economic system could succeed only in an
environment which allowed the freedom of individuals to pursue
their own objectives. No other nation on earth has understood
and applied this principle better than the people of the United
States. The second set of ideas, drafted by Thomas Jefferson,
was embodied in The Declaration of Independence. It proclaimed
the entitlement of some self-evident truths among which are life,
liberty and the pursuit of happiness. Although it took a civil
war to completely execute that resolve, our nation became the
first in history to be established on the principle that every
person is entitled to pursue his own values.
than any other nation on this globe, Americans are free to
think, to experiment, to tinker, to innovate. Our pluralistic
society based on fundamental human freedoms --- one of a kind
on the face of the Earth and unique to the history of civilization
--- produced an environment that invites ideas. Thus, when
these two ideals were applied during the two centuries following
their introduction to a people with an immigrant ancestry,
of a multi-cultural heritage, and a multi-racial composition,
they produced an unimaginable and incomparable result. Contrary
to the beliefs of some of our politicians and media commentators,
they became a lightning rod for innovation. They created a
crucible for experimentation. They combined to become the decisive
driver of progress in science, technology, and economic development.
But time marched on. The industrial world has caught up with
us. Suddenly, we find that the American first-mover advantage
has diminished. The growth track the U.S. maintained in the decades
after the onset of globalization has been steadily leveling off,
while the growth track of other nations has ramped up. Suddenly,
the U.S., its commercial enterprises, and its exchanges are facing
serious competition from other capital markets. There is no one
to blame for this reality. We were excellent teachers and our
students learned well. Nor can it be fixed with populist demagoguery
or by advocating a protectionist agenda. In the globalized marketplace
of today, such remedies would be devastating to both U.S. capital
markets and the American standard of living.
solution will be found first by recognizing that we have entered
a new era in the global marketplace. All major capital markets
have modern trading capabilities, competent securities and
derivatives exchanges, and cutting edge technology. In addition,
we are beginning to feel the competitive pinch from the two Asian
giants, China and India. To remain competitive in the Twenty
First Century, the U.S. must accept the fact that American businesses
now face competitors from across the ocean rather than from across
the street or across the river. The new paradigm necessitates
continued innovation, reduction of burdensome compliance costs,
containment of baseless litigation, and to maintain open markets
for goods. Beyond that, we must redouble our efforts to sustain
our academic excellence --- the very feature that had so much
to do with our first-mover advantage.
more than anything else, to keep things in perspective we must
recognize that the extraordinary strengths that brought us
to the pinnacle of innovation are still in place. They have
not changed, nor must they ever be allowed to diminish. Our Constitutional
and cultural birthright that allows and encourages Americans
to think freely, experiment, research and create, represents
a priceless legacy --- an endowment of phenomenal potency with
which we can face our competitive tomorrow.
This Center of Innovation will continue to celebrate the fulfillment
of these triumphs.
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