CME Group Center of Innovation
Fred Arditti Innovation Award Honoring Michael Bloomberg
Chicago, Illinois - April 23, 2008

Remarks By Leo Melamed

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’être, 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.

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 advantage.” For the next three decades Americans dominated the world’s capital markets, dwarfing everyone around. In financial futures, 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 and 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 20-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 innovation.

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 Encyclopaedia Britannica’s classification of the world’s great ideas and inventions, through the end of the twentieth century, better than 50 percent were conceived in the U.S. In fact, stimulated and fueled by the American industrial revolution, the number of patents issued to American inventors increased dramatically during the nineteenth and twentieth 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.

No, 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.

And while I am at it, how about some really, really neat items without which, I daresay, 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.

In 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.

We 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.

More 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 multicultural heritage and a multiracial 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.

The 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 futures 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 maintenance of 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.

But 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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