A few years before the Great Recession, I was an advisor to the Federal Reserve Bank. I provided some limited advice on how to stimulate growth through innovation. It was too little, too late. Many financial experts far more capable than myself tried to help prevent the imminent collapse. But the politicians were sure they knew more about our economic system than the experts. Hindsight proves they knew very little and it was the everyday American who suffered from their ignorance and arrogance.

So here we are again. Less than a decade away from our brush with economic Armageddon, we are deregulating the financial industry. We don’t need the Dodd-Frank Wall Street Reform and Consumer Protection Act because the same financial institutions that were too big to fail (but required trillions of dollars to bail out) will apparently regulate and police themselves. It’s like returning to the honor system when half of the class was caught cheating and still failed the exam.

On top of that, the big investment banks have now invented something called spread networks. Author Michael Lewis brought these to light via his bestseller, Flash Boys. Basically, these networks give big banks an advantage by executing trades faster than everyone else, allowing them to buy lower and sell higher than the average Joe. While these spread networks game the system that the banks themselves created, the bigger problem is that they trip trading algorithms in other financial institutions. Forget irrational exuberance – this is artificial exuberance. These systems are not responding to market dynamics. They are creating them.

Ironically, investment banking itself was created from the outside-in. In the eighteenth century, inherited property was the only pathway to wealth. Mayer Amschel Rothschild, a Jew from Frankfurt, helped create many of the financial innovations we still recognize today: global banking, bond markets, foreign exchange and arbitrage. Rothschild, who endured pogroms and daily doses of anti-Semitism, developed imaginative ways to infiltrate a system designed to keep people like him out. Today, the biggest innovations in finance are largely happening outside of the financial community, as well. Digital cryptocurrencies, like Bitcoin, are emerging as viable financial alternatives. They’re basically managed via a continuously growing distributed database called a block chain. All users have a record of all transactions all the time, which means no hidden fees, accounting errors or hacked accounts. In other words: No bank needed.

Innovations like Bitcoin can disrupt more than just financial institutions. They can move independently of borders and the laws that govern nations. They can be used for illicit purposes without detection. Most importantly, since the government has no line of sight, collecting tax on these transactions is almost impossible.

Increasingly, digital innovations are being used to bypass ATM fees, deflect overage charges, and switch credit card debt to lower cost alternatives. They provide lending networks that are an affordable substitute to predatory payday loans, as well as algorithms that predict the credit worthiness of people with no credit history. And these are just the beginning. In the near future, artificial intelligence software, along with open and pervasive internet access, will make it easier to disintermediate the big banks. The ability to connect lenders with borrowers, manage complex corporate transactions like mergers, and invest capital productively will no longer be the monopoly of the banks.

While our largest financial institutions are lobbying to recover the freedoms they enjoyed before they destroyed the economy a decade ago, entrepreneurs are innovating their way around them, creating a financial future that will make banks more and more irrelevant. Which makes one wonder if someday, we’ll hear the phrase “Too Slow to Fail.”

Jeff DeGraff is the Dean of Innovation: professor, author, speaker and advisor to hundreds of the top organizations in the world. Connect with Jeff on Twitter @JeffDeGraff.

This article was originally published on The Next Idea

A recent headline in the Financial Times read, “Vancouver seizes chance to lure Silicon Valley tech talent.” The mayor of Vancouver confirms that inquiries from U.S. tech companies have risen sharply in recent months.

It’s no secret that Cisco Systems, Samsung and SAP have recently established a presence north of the border, but now it appears that Apple, Microsoft, Google and Facebook are all also considering their options. If this tire-kicking becomes a trend, it will compromise America’s ability to remain a global leader in technology.

According to a study in a recent California Management Review, the re-urbanization of America and other parts of the world is leading the collaborative innovation revolution. The demographics of these cities are very different than those of their surrounding areas. Austin, Madison, Raleigh Durham and Ann Arbor come to mind. These cities are also job-creating juggernauts that build a strong tax base and attract service businesses and more start-ups. They are innovation ecosystems that are vital to sustaining a high standard of living in a competitive world. What do these cities have in common? They are highly diverse.

Diversity is an essential element of an innovation ecosystem, because it brings a wide range of mindsets and talents into close proximity. The constructive conflict produces solutions to intractable challenges and creates irresistible opportunities. These people are deviating from the norm on purpose. The greater the variance, the greater the potential value.

In Eric Weiner’s bestseller, The Geography of Genius, he makes the case that most of what we would now call intellectual property has historically come from a relatively small group of people who are in the same right place at the same right time – think Athens in the Classical period, the Florentine Renaissance, Detroit in 1900 or Silicon Valley in 2000. In most cases, these places were anomalies that were eventually forced to conform to the norms of the larger homogenous area. Predictably, the loss of these communities was also a portent of the rapid decline of civilizations that traded their future for the past.

Today’s innovation ecosystems can be anywhere on the planet. But it’s interesting to note that over half of all the high quality patents have come from innovators born outside of the U.S. or from first generation Americans. Some survey data even suggests that immigrants are five times as likely as native-born U.S. citizens to produce a patentable innovation. We see similar trends for start-up businesses. This human capital brings innovation into our country from all corners of the world.  But it can just as easily go somewhere else, and the rift between the current administration and Silicon Valley makes that more and more likely.

In fact, it’s already happening. Research universities, the innovation engines for the U.S. economy, are facing increasing visa hurdles for students, postdoctoral fellows, and researchers. This is particularly ominous because these people are our next generation innovators.

There are innovation ecosystems in cities all around the world: Bangalore, Cambridge, Santiago and Tel Aviv – and let’s not forget Toronto, Montreal and Vancouver. Maybe we should consider building a wall between the U.S. and Canada to keep our best and brightest at home. Then again, such a wall would just likely be a colossal waste of money because these bright folks would just find a new way under, around and through it.

Jeff DeGraff is the Dean of Innovation: professor, author, speaker and advisor to hundreds of the top organizations in the world. Connect with Jeff on Twitter @JeffDeGraff.

This article was originally published on The Next Idea

You may have missed it, but last summer Walmart got into some hot water with the Federal Trade Commission for its”Made in the U.S.A.” campaign. According the FTC, for a company to make that claim, all of a product’s components must be manufactured and assembled in the United States.

In a globally integrated supply chain, how do you determine if something is “made” in a country?

For starters, over half the world’s steel production is in China. The U.S. produces less than 5%. So chances are, anything made with steel, the major component in heavy manufacturing, already fails the “Made in the U.S.A.” test.

To get around this, many companies now use the term “sourced” to mean products made, assembled or grown in the USA. This is a clever marketing ploy because it tells us very little about where the jobs are being created, the real reason we value “Made in the U.S.A.”

That brings us to the impending shift in U.S. policy better known as “America First.”

When we talk about global trade, countries with well-documented protectionist practices like China, Russia and Japan come to mind. However, according to Global Trade Alert, an independent branch of the Centre for Economic Policy Research that monitors policies that affect world trade, the country with by far the most restrictive tariff and non-tariff barriers is the United States. In other words, American has been first for decades.

China is the world’s second largest economy. Its rise has largely been due to the massive low-wage workforce that produces about 10% of all manufactured goods in the world. This has made it a cornerstone of the global supply chain. The U.S. now only produces about 5% of the all the vehicles in the world. According the American-Made Index, the number of cars built with 75% domestic parts from the U.S. and Canada has plummeted to only seven in 2015. This makes it highly impractical, if not impossible, to extricate U.S. manufacturing from other countries and trading blocs.

This takes us to the heart of the matter. To bring manufacturing jobs back to America would likely require one of three scenarios:

  1. We pay significantly higher prices for the same goods we now buy. This would most adversely affect the poorest among us, such as those on fixed incomes. And the automotive industry, a key employer in our state, would be one of the hardest-hit.
  2. We coerce our workforce to work for wages comparable to those in developing countries. This approach increases the number of working poor in America.
  3. We automate and eliminate these jobs. Where plants once had hundreds of workers, there are now only a handful of highly skilled robotics operators.

Yes, we would like to find employment and advancement opportunities for all Americans. But, ironically, these proposed protectionist trade policies will leave us isolated from the high-growth markets and opportunities required to actually put America first. Let’s stay in the global markets we have established over the past century and double down on our innovation capabilities. Doing it that way, we could lead world into the 21st century and put America first the American way.

Jeff DeGraff is the Dean of Innovation: professor, author, speaker and advisor to hundreds of the top organizations in the world. Connect with Jeff on Twitter @JeffDeGraff.

This article was originally published on The Next Idea