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Capitalism without Capital: The Rise of the Intangible Economy by Jonathan Haskel,‎ Stian Westlake, Princeton University Press, US $29.95, Pp 288, November 2017, ISBN 978-0691175034

A silent revolution has been taking place in the global economic system during the last couple of decades. The developed countries have been raising their investments in intangible assets like design and branding instead of tangible assets like machinery and building. The ability to deploy assets we cannot see or touch has been increasingly becoming the main source of success. In Capitalism without CapitalJonathan Haskel and Stian Westlake show how to measure the investments in intangible assets and their impact on the economies. They argue that the intangible investments have been instrumental in bringing about big economic changes during the last decade. They also predict what the economic future for the major economies look like and how managers, investors, and policy-makers can exploit the characteristics of the intangible age.

For centuries, when people wanted to measure how much something ought to be worth – an estate, a farm, a business, or a country – they counted and measured physical stuff. In particular, they measured things with lasting value. Haskel and Westlake say that these things became the fixed assets to understand on accountant’s balance sheets and the investments that economists and national statisticians counted up in their attempts to understand economic growth. The nature of these assets and investments changed over time. Fields and oxen became less important, animals gave way to machinery and factories and vehicles and computers. But the idea that assets for the most part things you could touch, and that investment means building or buying physical things was as true for twentieth-century accountants and economists as it was for the scribes of Domesday Book.

In economic thought, investment occupies a central place. Investment is what builds up capital, which together with labor, constitutes the two measured inputs to production that power the economy, the sinews and joints that make the economy work. The gross domestic product (GDP) is defined as the sum of the value consumption, investment, government spending, and net exports. Jonathan Haskel and Stian Westlake say, of these four, the investment is often the driver of booms and recessions, as it tends to rise and fall more dramatically in response to monetary policy and business confidence. As a result, the statisticians have put long and sustained efforts into measuring how much businesses invest, year after year, quarter after quarter. Until very recently, the investments that national statistical offices measured were all tangible assets.

Jonathan Haskel and Stian Westlake argue that modern economy does not run on tangible investment alone. Stansted Airport, for example, owned not just tarmac and terminals and trucks, but also things that were harder to see or touch such as complex software, valuable agreements with airlines and retailers, and internal know-how. All these things had taken time and money to build up and had a lasting value to whoever owned the airport, but they consisted not of physical stuff but of ideas, knowledge, and social relations. In the language of economists, they were intangible. Although none of these intangible assets are physical in the way that Microsoft’s office buildings or servers are, they all share the characteristics of investments. The company had to spend time and money on them up-front, and they delivered value over time that Microsoft was able to benefit from. But they were typically hidden from company’s balance books sheets and from the nation’s balance sheets in the National Accounts.

Jonathan Haskel and Stian Westlake powerfully argue that these unusual economic characters mean that the rise of intangible is more than a trivial change in the nature of the investment. We might reasonably expect an economy dominated by intangibles to behave differently too. Once we take into account the changing nature of capital in the modern economy, a lot of puzzling things start to make sense.

Authors look at how the shift to intangible investment helps us understand four issues of great concern to anyone who cares about the economy: secular stagnation, the long-run rise in inequality, the role of the financial system in importing the non-financial economy, and the question of what sort of infrastructure the economy needs to thrive. Armed with this understanding we then see what these economic changes mean for government policymakers, businesses, and investors. Our journey will take us past the appraisers of old into the unmapped territory that is a modern intangible investment.

Capitalism without Capital provides deep insight into the changing nature of global capitalism and how the fast-changing economic system is impacting world markets as well as economic managers, investors, and consumers. Those who do not adapt to the changing world economic structure will be pushed out to the margins. It is a necessary read for every entrepreneur, economic manager, and investor. This brilliantly-written, an easy-to-read scholarly book requires no previous knowledge of economics. The scholarly credentials of Jonathan Haskel and Stian Westlake remain unmatched.

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