The US presidential election and the innovation ecosystem

Evan Davis: What factors are most critical in creating a political and economic environment that allows innovation to thrive across the private and public company landscape?

Jonathan Curtis: Creating a political and economic environment that fosters innovation involves several critical factors. These include providing attractive economic incentives for private industry, maintaining stable, predictable, and market-based policies, supporting emerging technologies, and ensuring balanced antitrust enforcement. For example, funding and investment are crucial, especially in high-risk sectors like health care, where companies need attractive returns to encourage research and development. Additionally, clear guidelines for emerging technologies like artificial intelligence (AI), strong intellectual property protection and favorable tax policies can significantly contribute to a thriving innovation ecosystem.

The needs of smaller startups and private companies can differ from those of larger, established market leaders. Startups often require easier access to capital, regulatory flexibility and support networks like incubators and accelerators to navigate early-stage challenges. In contrast, larger companies benefit from stable regulations, favorable global trade policies and the ability to grow through mergers and acquisitions while navigating antitrust considerations. Tailoring policies to address these differences is essential for fostering a robust and dynamic innovation ecosystem to attract capital.

Evan McCulloch: I agree; health care innovation occurs when private industry is incentivized to provide it. Drug discovery and development is inherently expensive and risky; many new drugs fail, and the costs associated with these failures are embedded in the cost of each successful drug. So, for the industry to attract capital and deliver breakthrough treatments and therapeutics, companies need to know they’ll be rewarded with downstream revenue.

Evan Davis: What key policy differences between Donald Trump and Kamala Harris would impact innovation-driven businesses?

Matt Cioppa: We see a handful of key issues involving the technology sector, and innovation more broadly, driving diverging policies and outcomes. Jonathan mentioned establishing guidelines around AI, and we see this as the biggest tech issue at stake in the election, with Harris likely to favor a heavier regulatory hand. Philosophies around antitrust enforcement of "big tech" could also differ significantly. While both candidates have shown inclinations toward regulation, we anticipate that Harris would likely continue the Biden administration's more aggressive stance.  

Evan Davis: After years of Democratic alignment, Silicon Valley venture capital and tech executives are politically divided in 2024. What spurred this change, and how do these leaders hope a Republican administration will foster innovation?

Grant Bowers: The divide reflects shifting priorities. Some former Silicon Valley Democrats are drawn to Republican policies given concerns excessive regulation and government intervention will stifle innovation; they see a Trump administration offering deregulation and reduced oversight, along with lower corporate taxes. While that is likely to be true, the flip side may be that “big tech” companies left unchecked could become monopolistic, leading to less competition and fewer new, small businesses introducing disruptive ideas and technologies. Social issues like immigration and climate change may also keep many tech leaders aligned with Democrats.

Evan Davis:  How do you envision China/US relations under each administration, and what are the implications for investors?  

Grant Bowers: With Harris, I’d anticipate greater emphasis on diplomacy to address trade imbalances and intellectual property issues, with tariffs applied in a more nuanced, targeted way, potentially bringing more stability to the markets. In contrast, Trump could adopt a more confrontational stance with broader use of tariffs and stricter trade policies. This could encourage domestic innovation and manufacturing and reduce reliance on Chinese imports, but it also risks causing supply chain disruptions.  

Serena Perin Vinton: Tariffs can be incredibly inflationary. While they might serve as a catalyst to bring manufacturing onshore, that process takes time. Building up semiconductor manufacturing capacity would take three to four years—battery manufacturing might be closer to four or five. In the meantime, prices will rise as companies pass costs on to consumers. Heavy tariffs also risk slowing growth, which could lead to stagflation.  

Evan Davis: The recent ruling against Google raises questions around antitrust sentiment in big tech and broader implications for the innovation ecosystem. How do you see Trump and Harris navigating this issue?

Matt Cioppa: Right now, the Federal Trade Commission (FTC) and the Department of Justice (DOJ) each have several cases against large technology companies in pursuit of consumer protection and fair competition. We would expect this to continue under Harris.

Trump has criticized big tech's complicated history with free speech, and vice-presidential running mate JD Vance has expressed support for Lina Khan and the current FTC’s approach, so it’s harder to anticipate what policies look like in this administration. At the end of the day, US tech companies contribute significantly to economic growth, and we think Trump will prioritize the economy and our role as a global leader in innovation, leading to a lighter hand on antitrust. If this plays out, we might also see a pickup in merger and acquisition (M&A) activity that would be supportive of smaller capitalization company valuations.

Evan Davis: The past two years have seen tremendous concentration in the Magnificent Seven. Could a changing political landscape broaden the market beyond this small group of mega caps?

Serena Perin Vinton: I think the biggest driver around continued market concentration in the Magnificent Seven is not politics—it’s earnings. Can these companies continue to deliver earnings, and forward earnings estimates, in line with lofty expectations? If investors see forward growth estimates for these businesses start to slow, that could be a huge catalyst. And lower interest rates under either administration could help substantially broaden the market as startups, and smaller- and mid-sized companies need capital to operate, versus their larger competitors that often just use free cash flow.

Evan Davis: Franklin Equity Group believes AI is the next major computing platform and will potentially unlock trillions of dollars in growth and productivity. How would each candidate balance the need to protect US intellectual property and national interests without overregulating and stifling innovation?

Matt Cioppa: Harris's involvement in the October 2023 Executive Order addressing AI safety, and her leadership on related policy initiatives, probably gives a clear line of sight into her priorities. We expect her to move quickly to establish guardrails to address privacy, discrimination, security, IP protection and impacts to the labor force, and only time will tell if this impedes the continued development and deployment of AI technology. Conversely, Trump plans to repeal Biden's executive order and align with his American AI Initiative Executive Order from February 2019, which focused more acutely on supporting America's leadership in AI technology via various funding initiatives.

Grant Bowers: I agree Trump is likely to focus on deregulation to spur rapid AI growth, protecting US intellectual property and national security through stricter trade policies and restrictions on foreign access to American AI technology. This could drive innovation in the near term but might lack oversight in areas like data privacy. Harris may take a more measured approach but potentially create a more stable environment that protects both national interests and public trust.

Matt Cioppa: With either outcome, I think AI's advancement in the coming four years will almost certainly prompt bipartisan efforts from Congress to establish a federal regulatory framework. A divided government may slow progress here, while a blue or red sweep could shape legislation more quickly.

Evan Davis: Do you expect meaningful shifts in health care policy or regulatory oversight?

Evan McCulloch: Both candidates have voiced support for lowering drug prices and health care costs for consumers, but limiting profits could reduce incentives for health care and biotech research and development. No question, health care costs are challenging. It’s a popular issue with consumers, especially seniors, and there is some bipartisan support for reform. But health care legislation is extremely difficult to pass. Even seemingly bipartisan legislation often fails to gain much support from the minority. We would only anticipate significant policy changes if one party sweeps the White House, Senate and the House. In our view, modest legislation or administrative changes implemented over time are much more likely, along with market forces that will continue to exert pressure on drug prices.

Evan Davis: Trump and Harris have widely divergent views around energy. What could we expect from each administration?

Fred Fromm: With Harris, I’d expect a continuation of the status quo in terms of the regulatory environment and restrictions to M&A. Trump would be less supportive of energy transition industries, so we could have higher demand for fossil fuels. We could also see lower regulatory hurdles for domestic drilling in Alaska, offshore in the Gulf of Mexico and in federal lands, which could open new, potentially lower cost regions. Energy infrastructure would likely improve, and I’d anticipate the current ban on liquified natural gas would be lifted. These could be positive factors helping meet the anticipated surge in demand coming from broader application of AI technologies in the coming decade. 

Serena Perin Vinton: Trump has been vocal around his plans to increase oil supply (“drill baby drill”), so it’s certainly possible we could see energy prices decline, although oil is a global commodity, so increased US supply might have limited impact. It’s fair to expect Trump would roll back tax incentives for electrification and renewables from the Infrastructure Act and Inflation Reduction Act, and that could slow adoption of electric vehicles and electrification technologies. But I think the genie is already out of the bottle—while policy changes may slow the rate of change, we are already on the journey toward electrification and renewable energy. We still anticipate that technology and innovation will evolve to address battery limitations, charging infrastructure and lower costs of electric vehicles, which will ultimately drive consumer choice.  

Evan Davis:  Thank you all for sharing your thoughts.