American exceptionalism has been increasingly questioned in recent years, by presidents, influencers, and everyday Americans alike. One area where the United States remains unquestionably exceptional is in its capital markets.
While they may not seem sizable, U.S. equity markets account for 38.5% of the $105.8 trillion in global market capitalization — roughly $40.7 trillion. According to the Securities Industry and Financial Markets Association (SIFMA), this is “3.7x the next largest market, the EU.”
While high stock market returns are not unique to the United States, The Economist notes that we benefit from two major advantages that work together to produce extraordinary outcomes: our markets are huge, and they offer high returns.
Fueling Innovation: Capital Markets as America’s Growth Engine
The United States is a nation of innovators and risk takers, and thankfully, we have deep capital markets that businesses can access when they need funding. In a 2024 interview with Yahoo News, Jeff Bezos said that America is “so set up to grow.” And grow we must.
Every company — from the Magnificent 7 to the small business — faces changes over time, and those changes require capital investment. Whether it’s transitioning from a homebase to a brick-and-mortar (or mobile location) or changing payroll software, hiring more staff, or investing in research and development (on everything from rockets to gluten-free cupcakes), access to capital makes these transitions more manageable.
In a separate December 2024 conversation with Andrew Ross Sorkin about the national debt, Bezos emphasized the importance of a “growth mindset” or “growth orientation.” Bezos noted that America is well positioned to assume this growth orientation, in part, because “we have the best risk capital system in the world.” He credits the abundance of start-up ventures and entrepreneurial success in the United States to the ease with which capital flows to bold, innovative projects, far more readily than in most other countries.
While they’re heavily regulated — often unnecessarily — U.S. capital markets are widely admired around the world. We should do what we can to make those markets more accessible to businesses and prospective investors.
Beyond Banks: The Rise of Venture Capital
In the United States, business financing increasingly occurs outside the traditional banking system. A bank is different from venture capital in that a bank needs to hold a portion — albeit small — of depositors’ money in reserve to meet withdrawals. Banks also tend to finance lower-risk businesses, often within the same geographic area or of a similar low risk level, to ensure loans are paid back. Businesses financing their ventures have turned away from bank loans and toward alternatives like venture capital.
Venture capital as a source of financing took hold in the U.S. in a way that it simply hasn’t in other regions, including Europe. There are many reasons for this, but the most important, in my view, is that it’s simply part of the American spirit. The general American ethos demands risk taking. It’s not hard to see why a nation like the United States' economic development followed a different path from other countries.
The United States is exceptional in many respects, and its founding may be the most defining. Europe’s origins were fundamentally different from America’s and their development didn’t follow the same course. From the beginning, explorers seeking a better life, new trade routes, or expanded resources needed both an innovative spirit and a form of venture capital to support their efforts.
One early example is whaling — an industry essential for lighting homes in a nascent America — which relied on what we might now call venture capital. Ventures that relied on the open ocean and large, unpredictable creatures came with immense risk. But if you want to make a nation work? You do whatever it takes. While our conquests look different today, the need to finance new ventures remains. Whether it's whale meat and blubber, or rocket ships, or a digital service you didn’t know you needed, people in the U.S. (and around the world) still rely on American capital markets to bring ideas to life.
When you’ve exhausted the traditional banking system and turned to friends and family, but still need more financing to start or expand a labor-intensive business, you turn to venture capital. The added benefit of financing with risk capital is that it often comes with business expertise alongside the funding. That’s why venture financing is often referred to as “smart money.” After all, both sides of a deal have a vested interest in seeing the venture succeed.
Bank financing remains an essential part of our economy and financial system. It offers benefits for businesses of all sizes. But venture capital, whether from venture firms or successful entrepreneurs, offers a different avenue for today’s risk-takers.
A Growth Mindset for a New Economic Era
While the federal government’s spending habit is unlikely to be reined in anytime soon — and even if by some miracle it were — the people it governs deserve an economy unencumbered by obstacles to financing their innovations. If we want more people to achieve more, and if we want to grow the size of the pie from which we all benefit, we must embrace a growth mindset. Financing is one critical part of the growth equation.
 | A guest post by
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