Capitalism Without Capital: The Rise of the Intangible Economy, summary

Capitalism Without Capital The Rise of the Intangible Economy Book by Jonathan Haskel & Stian Westlake, Review & Summary


About The Book:

The first comprehensive account of the growing dominance of the intangible economy

Early in the twenty-first century, a quiet revolution occurred. For the first time, the major developed economies began to invest more in intangible assets, like design, branding, R&D, and software, than intangible assets, like machinery, buildings, and computers. For all sorts of businesses, from tech firms and pharma companies to coffee shops and gyms, the ability to deploy assets that one can neither see nor touch is increasingly the main source of long-term success.

But this is not just a familiar story of the so-called new economy. Capitalism without Capital shows that the growing importance of intangible assets has also played a role in some of the big economic changes of the last decade. The rise of intangible investment is, Jonathan Haskel and Stian Westlake argue, an underappreciated cause of phenomena from economic inequality to stagnating productivity.

Haskel and Westlake bring together a decade of research on how to measure intangible investment and its impact on national accounts, showing the amount different countries invest in intangibles, how this has changed over time, and the latest thinking on how to assess this. They explore the unusual economic characteristics of intangible investment, and discuss how these features make an intangible-rich economy fundamentally different from one based on tangibles.

Capitalism without Capital concludes by presenting three possible scenarios for what the future of an intangible world might be like, and by outlining how managers, investors, and policymakers can exploit the characteristics of an intangible age to grow their businesses, portfolios, and economies.


Editorial Reviews:

One of the “Wise Words 2017 Books of the Year” in Economics and Business

One of Blackwell’s Best of Non-Fiction 2017

One of Financial Times ( Best Books of 2017: Economics

Selected for Askblog’s Books of the year 2017, chosen by Arnold Kling

“Compelling…. Haskel and Westlake have mapped the economics of a challenging new economy.”
―Martin Wolf, Financial Times

“One of this year’s most important and stimulating economic reads…. Read this book.”
―Tyler Cowen, Marginal Revolution

“For an introduction … it would be hard to do better than Capitalism without Capital, which is clear and lively and raises―without having all the answers―the relevant questions.”
―Diane Coyle, Enlightened Economist

“The book makes its case in a lighthearted, conversational way that will appeal to economists and non-economists alike.”
The Economist

“One of the year’s most talked-about books.”
―John Harris, The Guardian


From the Back Cover

“The nineteenth- and the twentieth-century world where capitalists owned factories and workers supplied labor has ended. In this book, Haskel and Westlake explain with fascinating examples how business assets today are mostly intangible and how this changes everything we know about business—corporate strategy, accounting, leadership, and industrial strategy. Whether you are a customer, investor, manager, employee, or politician, you will gain new insights from this tour de force.”
–John Kay, author of Other People’s Money

“A must-read for anyone concerned about how to revive the growth of living standards.”
–Robert Peston, author of How Do We Fix This Mess?: The Economic Price of Having It All and the Route to Lasting Prosperity

“On almost every page of this book, I found myself going ‘Oh, now I understand’ or ‘Yes, I never looked at it that way.’ Capitalism without Capital is highly original and illuminating. It has changed the way I look at things.”
–Daniel Finkelstein, The Times columnist

“This book shines a wonderful spotlight on the hidden capital that influences our world–measuring and understanding it is a top priority.”
–William R. Kerr, Harvard Business School

“This fascinating book examines an important but overlooked subject—the intangible nature of capital and activity in the modern economy. The transformation of the intangible economy has rarely been pointed out, and its implications are not much understood or discussed. There are no other books similar to this one.”
–Diane Coyle, author of GDP: A Brief but Affectionate History

“With an impressive breadth of topics, this thorough book takes a compelling look at the importance of intangible capital. Arguing that it offers an invaluable lens to view modern, dynamic innovative economies, the framework that Haskel and Westlake set forth is useful, insightful, and indispensable.”
–Carol Corrado, The Conference Board


About The Author:

Jonathan Haskel, CBE is a British economist and professor of economics at Imperial College Business School. Prior to joining Imperial College London, Haskel was a professor and head of the economics department at the Queen Mary University of London.

Haskel has taught at the University of Bristol and London Business School and been a visiting professor at the Tuck School of Business, Dartmouth College, US; Stern School of Business, New York University, US; and visiting researcher at the Australian National University. Haskel is a professor of economics at Imperial College Business School, specializing in innovation and productivity.

He is a non-executive director of the UK Statistics Authority. In May 2018, it was announced that Haskel would become a member of the Bank of England’s Monetary Policy Committee (MPC), replacing Ian McCafferty from 1 September. There were four women on the five-person shortlist. He was appointed Commander of the Order of the British Empire in the 2018 Birthday Honours.

Stian Westlake, Executive Director of Policy and Research
Stian led Nesta’s Policy and Research team. His research interests included the measurement of innovation and its effects on productivity, the role of high-growth businesses in the economy, financial innovation, and how government policy should respond to technological change.

Stian joined Nesta in 2009. Before Nesta, he worked in social investment at The Young Foundation, as a consultant at McKinsey&Company in Silicon Valley and London (where his work focused on health care, private equity, and infrastructure), and as a policy adviser in HM Treasury. He also founded Healthy Incentives, a healthcare social enterprise. Stian was educated at the University of Oxford, Harvard University, and London Business School.

He is @stianwestlake on Twitter.





Did You Know: (Book Articles)

Why Are Intangibles Sunk Costs?

If a business makes an intangible investment and later on decides it wants to back out, it’s often hard to reverse the decision and try to get back the investment’s cost by selling the created asset— and, in general, it’s harder than in the case of a tangible asset. Economists describe these kinds of irrecoverable costs as “sunk.” Consider a world in which some commercial disaster hits a hypothetical chain of coffee shops— let’s call it Tarbucks— and the company goes bust. What assets could the liquidators sell to pay off its outstanding debts? First to go would be the shops that the company owns or leases;

there’s an active and liquid market in commercial property, so finding a buyer at a reasonable price should be possible. Its coffee machines and shop fixtures and delivery vehicles and cash registers will also be salvageable: there are secondary markets where these sorts of things are bought and sold. (Indeed, as we saw in chapter 1, there are markets for all sorts of exotic plant and machinery, from oil tankers to tunnel- boring machines.) But its intangible assets are harder to sell.

Its brand may be valuable, but perhaps not— and even if it is, getting money for it may rely on a trade sale that has to be negotiated specifically for the purpose. Tarbucks’s codified operating procedures and the processes it uses to serve customers quickly may have been very valuable to the company when it was in business, but they will prove difficult to sell to someone else, especially if they are specific to Tarbucks’s layout or product offering.

If Tarbucks has some valuable intellectual property, say, a patented roasting technique, the liquidators may be able to sell this. But if the knowledge isn’t governed by formal intellectual property rights (say, the know-how involved in buying coffee beans effectively) or if it’s distributed among the company’s employees (for example, through training), it becomes, to all intents and purposes, impossible to sell.

Now, of course, some tangible assets are also hard to sell if a company or a project fails. Very specialized machinery may be worthless to anyone but its original owner, implying a certain proportion of its cost is sunk. An isolated coal mine dug in a spot that can only sell to a local power station is worthless if the local power station does not want to buy its coal.

The Channel Tunnel or Narita Airport can’t be packaged up and moved should they no longer be required in their present location. But on the whole, the problem is worse when it comes to intangible assets. In particular, there are two characteristics of tangible assets that make them easier to sell and less likely to be sunk investments.

The first is the phenomena of mass production and standardization. One of the wonders of mass production is that many tangible assets are copies of other tangible assets. The world’s businesses own lots of Ford transit vans, lots of Windows servers, lots of ISO- 668 shipping containers. This makes them easier to sell. (It also makes it easier to estimate their price, since there are often published market values for secondhand tangibles, a point we will return to.) Standards also help make tangible assets fungible between businesses.

Common power sockets and voltages make it easier to move machine tools from one factory to another. Midsized vans are to some extent interchangeable. But there are far fewer standards among intangible assets, nor are most intangibles mass- produced.

The second reason tangible investments are easier to sell is that they are less likely to be uniquely linked to the firm that owns them and its business. Plenty of tangible assets, from buildings to land, are useful to many types of business. A patent, a clever set of operating procedures, or a brand are more likely to be mainly useful to the company that developed them in the first place. Even where markets for intangibles exists— such as for patents— many of the assets are much more useful to their original owner than to anyone else.


One of the most debated economic issues of the 2010s is inequality.

According to the painstaking work of Thomas Piketty, Anthony Atkinson, and others, the rich (in terms of earnings and wealth) have over the past few decades been getting richer, and the poor poorer. And other dimensions of inequality have become more salient: inequalities between generations, between different places, and between elites and those who feel alienated and disrespected by modern society. Perhaps this multidimensional element to inequality is why it has such huge public resonance.

The news provides a steady stream of stories about billionaires buying £150- million apartments in London and Manhattan, juxtaposed with reports of people in “left- behind” communities falling prey to opiate addiction, embracing political extremism, and dying young. Many reasons have been proposed for why inequality is increasing, from new technologies to neoliberal politics to globalization. But as we’ve seen in the past few chapters, there is a deep and long-term shift going on in the nature of developed economies because of the rise of intangibles. Might this also have contributed to levels and different dimensions of inequality that we see in today’s societies?


measures of inequality

To clarify the types of inequality it’s helpful to distinguish between two economic concepts: income and wealth. Incomes are earned by labor and by capital (an asset) and are a “flow.” The incomes of labor consist mostly of earnings. Incomes of capital are rental payments and dividends, both being flows of payments received over a time period. Wealth is the value of assets/capital owned, which is a “stock.” For households, wealth is typically a house; for businesses, the tangible and intangible assets owned and used in production.

The flow is computed from the stock by means of a rate of return: your capital income is your wealth times the rate of return you are earning on wealth. You can think of your labor income flow in terms of rates of return as well: it’s the rate of return on your stock of “human capital.” Wealth capital is typically the result of saving and inheritance, human capital of education and talent. Data show that in developed economies labor income is typically about 65– 75 percent of total national income (also called GDP), the rest being capital income.

The annual return on wealth is around 6– 8 percent, so total wealth is about 400 percent of GDP/total income. How can wealth be so much larger than GDP? Wealth is a stock and is accumulated over potentially many years of building assets. gDP/income is an annual flow. Finally, as the Institute for Fiscal Studies notes, wealth inequality is much higher than income inequality. The wealthiest 10 percent of households hold 50 percent of the wealth. The least wealthy 25 percent of households hold almost no wealth at all.

The Gini coefficient, which is a summary measure for how unequal a distribution is, ranges from 0 to 1, where a measure of 0 is equality and 1 is where only one person accounts for the entire measure. The Gini coefficient is 0.64 for wealth and 0.34 for net income (Crawford, Innes, and O’Dea 2016).


The softest of soft infrastructure:
Trust and social capital

Trust among people and firms is an important precondition for intangible investment in two ways.

First of all, it encourages the kinds of interactions that create synergies between different intangibles: people are less likely to share ideas in closed and demarcated societies. (Other social characteristics, like openness to experience and low levels of hierarchy, both of which are occasionally measured at a population level, probably matter too.)

Second, trust helps provide certainty around the rules for investing in intangibles. We saw earlier that uncertain rules are bad for investment: if a company is unsure whether it can gather data on its customers and whether it can use such data for commercial purposes, it is less likely to spend money gathering the data in the first place; indeed, even knowing that it specifically cannot use the data for certain things may be a better basis for investment than total uncertainty. Higher levels of trust and social capital may make it easier to reach stable consensus on these kinds of rules, which makes the rules themselves more reliable.


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