Comparison of the European and the U.S. capital markets -How can Europe take back the lead in innovation with the help of venture capital?

Czviín Dávid Máté (2021) Comparison of the European and the U.S. capital markets -How can Europe take back the lead in innovation with the help of venture capital? Külkereskedelmi Kar.

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Absztrakt (kivonat)

I am fascinated by the US economy and especially by its capital markets since the beginning of my understanding of the current world economy many years ago. I am captivated by its ability to allocate the available capital resources in its economy to the most efficient way as no other country can do in the world. How it was able and still able to make possible the birth and the growth and development of some the biggest and most innovative and successful companies of the last 200 years of global capitalistic history. How together with the most investment friendly financial regulation system and with also the most competitive economic environment in the world it had and still has the capability to continually produce such a vast amount of financial success in it’s economy which created a sound base for the ascension of the US to global superpower status from the beginning of the twentieth century and which made it possible for the country to “win” the cold war and essentially destroy the other still existing global superpower at the end of the twentieth century; the Soviet Union, essentially converting it from communism/socialism to a somewhat capitalistic country. For this reason, my primary focus of interest was primarily the two biggest stock exchange of the U.S., the original New York Stock exchange for the traditional economy and the stock exchange of Nasdaq for the newly birthed technological economy and also the listed companies of these trading floors. But recently I had the great opportunity to work as an apprentice at one of the largest banks in Hungary at its department of Risk Management essentially under the hands of its leadership. During my hard but extremely instructive half a year there I was able to get a first-hand experience of the various aspects of the day-to-day workings of the European capital market. This sparked my interest to further study the differences between the two leading truly capitalistic economic global superpower. The title truly capitalistic is important here cause in the last ten years a new economic superpower emerged on the world stage, China. After almost forty years of rapid growth now its total GDP (even if we calculate in the long holding suspicion that a portion of their reported economic data probably manipulated and doctored by its government) exceeds the total GDP of the previously leading US even if it’s per capita GDP is still far from the U.S. or E.U. member state ones. However, because it’s economy still essentially mainly exploit it’s vast, very diligent and disciplined but most importantly cheap and abundant workforce in comparison to the US and to the European alternatives and because it does not have a democratic political system, uncompromised rule of law, truly open globalized capital markets, and a completely free private sector it largely lacks the fast, efficient, creative and successful business innovation and private sector research and development which are present in the two other economic superpowers. Therefore, it currently cannot be considered fully capitalistic in my opinion no matter how big its total GDP growth will be of that country with a population of 1.4 billion people. However, they are undoubtedly continually trying to evolve, that is why nowadays we can find some very new example of successful Chinese domestic and global companies that are primarily located in new breakthrough technological sectors. The country’s huge new digital technology firms such as Alibaba, Tencent, WeChat or Alibaba’s new fintech subsidiary “startup” Ant Group with its 588 million user base (the largest in the world) are already illustrates what immense potential China can achieve in the near future if it’s continue it’s current policies of increasingly open economy and outmost promotion of technological innovation. It must be also considered, that after its incredible increase of the average income levels of its population in the last 30 years, it now has an aging demographic similar to other developed countries of the world and recent sociological researches suggest a sharp decline in its population in the near future. Therefore the U.S. and the E.U. have to calculate with a future China with a less but also more stable, educated, and rich population which will definitely lead to a more intensive, fast, and creative innovation ecosystem for the country, which will eventually pose a great threat towards the two economic superpowers currently leading positions in global innovation. And because innovation is the most important driving factor of the fully developed leading economies of the 21. century, it is essential for the two economic superpowers to reconsider their current policies and regulation regarding the aid and promotion of new innovation. This is particularly true for the E.U. which is lagging far behind the U.S. in most aspects of innovation since the second half of the 20. century. One of the main reasons for the second place of the E.U. in innovation is the lack of deepness of its capital markets. The next table clearly shows this.  In the first chapter of this thesis, first and foremost and I will collect and assess general information about venture capital. In my opinion venture capital nowadays is the best new type of investing and financing form for companies leading in innovation and acting in new technological sectors of the economy. That is the reason why I think it is important to define Venture Capital correctly and understand the primary market forces behind it as fully as possible. It is also essential to recognize the potential profit that this new type of financing can add to a given economy, and lastly to consider the possible explanation for the sluggish beginning of the development of venture capital in the E.U. In the next chapter I will concentrate on examining the historical differences of the capital flows between the U.S and the E.U. How capital accumulated historically in different states of the U.S. especially between the originally more agricultural Southern States and the Northern States with higher productivity. Continuing further the analysis of historical capital flows I will look through the capital accumulation history in Europe in the twentieth century. What were the differences and the similarities in capital accumulation among E.U member states and U.S states? Which economic superpower has now the more developed capital flow structure in the classical economic view? Then the next chapter of the thesis will focus on the current state of the two most successful venture capitalist environments of the world. What were the most important happenings in the third financial quarter of 2020 in the European venture capital scene? Which were the most successful fundraisings and what are the current outlooks of the scene for future quarters? After that, I will collect and assess the same information for the U.S. venture capital scene and finally for the global state of venture capital for the same third quarter. Then in the next two chapters I will try to answer my hypothesis question: How can Europe take back the lead in innovation with the help of venture capital? To reach this goal, first in the fifth chapter I will collect and analyse relevant information about the current stance of innovation in Europe. What could be the continent’s current structural problems regarding innovation? For the E.U. to stay globally competitive, productivity improvements with the aid of innovation and new technology are essential so next, I will examine the current obstacles against these improvements. Despite the E.U. has great potential in its existing startup scene, it’s embracing of new traditional and digital innovation is very sluggish, so then the thesis will look through a possible explanation for this. Lastly in this chapter, I will try to define the new global era for innovation, the era of superstar companies and global digital platforms, and also put a heavy emphasis on examining the E.U. current position in the face of this new era of innovation. After the evaluation of the present stance of innovation in the E.U., in the sixth chapter I will try to look into the near future and examine five possible methods to the E.U. to take back the leading position in global innovation. Each method tries to tackle specific obstacles against the E.U. in its effort to further boost and develop its innovation ecosystems. Each method divided into three parts, I will first examine the already existing strengths of the E.U. regarding the specific method, the particular new global trends in innovation which creates the necessity for that method and lastly the possible ways for the E.U. to change the playing field so it can capitalize on the new innovation trends connected to that particular method. Finally, in the last chapter of the thesis, I will summarize my findings to give a general conclusion about my hypothesis question and the potential answers for it.

Intézmény

Budapesti Gazdasági Egyetem

Kar

Külkereskedelmi Kar

Tanszék

Nemzetközi Gazdaságtan Tanszék

Tudományterület/tudományág

NEM RÉSZLETEZETT

Szak

Nemzetközi gazdálkodás szak (angol)

Mű típusa:	diplomadolgozat (NEM RÉSZLETEZETT)
Kulcsszavak:	Európa, innováció, kockázati kőke, összehasonlító elemzés, startups, tőkeáramlás, usa
SWORD Depositor:	Archive User
Felhasználói azonosító szám (ID):	Archive User
Rekord készítés dátuma:	2021. Már. 01. 13:05
Utolsó módosítás:	2021. Szep. 21. 11:42

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