Yet another form of inequality has emerged, and solutions are evasive. But to solve a problem one must first define it. To this end, with Capitalism Without Capital, Haskel and Westlake have begun a necessary conversation.
Capitalism Without Capital: The Rise of the Intangible Economy
Jonathan Haskel, Stian Westlake
Princeton University Press
"…until you can describe what you're measuring, you can't begin to gather data." – Jonathan Haskel and Stian Westlake, Capitalism Without Capital: The Rise of the Intangible Economy
"Socrates: Do we not give information to one another, and distinguish things according to their natures?
Hermogenes: Certainly we do.
Socrates: Then a name is an instrument of teaching and of distinguishing natures, as the shuttle is of distinguishing the threads of the web." – Plato, Cratylus
What any good economics book (and the bad ones) will teach even a skimmer is that in the discipline, everything has a name, and that which does not yet have a name could have your surname affixed to it if you come up with something catchy enough. This is evident in Capitalism Without Capital: The Rise of the Intangible Economy by Jonathan Haskel, an economics professor at Imperial College London, and Stian Westlake, a senior fellow at the United Kingdom's innovation foundation Nesta, a book concerning itself with questions that can be solved by putting a name on a previously undefined phenomenon. This phenomenon, that of intangibles (or intangible investment), plays an increasingly important role in economics' core measurements and how these impact pressing matters of policy. Haskel and Westlake's book successfully traverses a host of economic topics, but it is their two chapters on inequality and infrastructure that ring most important to the global economy's current state.
With all technical books, a base level is expected of the target audience. For Capitalism Without Capital, having had a course in macroeconomics appears a proper starting point for understanding the overarching theory behind many of the book's broad concepts, but a strength of the work is that everything is well-defined and explained such that uncertainty about the important implications will be grasped regardless of background. With regards to what Haskel and Westlake deem important, the book's chorus repeatedly harkens to four characteristics that all intangibles share, helpfully compiled with words all starting with the letter "S".
Intangible investment is investment – "what happens when a producer either acquires a fixed asset or spends resources (money, effort, raw materials) to improve it" (quoted from the UN's System of National Accounts, pg. 20) – that is not physical. This includes but is not limited to software, research and development, and more abstract notions like a company's brand. The four characteristics linking all intangibles are elaborated upon in Chapter 4, and are: Scalability – the ability for an asset to be used "again and again" (pg. 60); Sunkenness – the inability to sell the asset to get back the initial investment; Spillover – the ability "for other businesses to take advantage of intangible investments they don't themselves make" (pg. 72); and Synergy – the combination of ideas. By themselves or in combination, it is this set of qualities that make intangible investment an increasing portion of the global economy, even if, as Chapter 3 lays out, measuring these investments for whole economies is not yet an exact science.
That intangibles have been named and defined allows for an exploration into their implications. Save for temporally unfixed concepts like branding – the 1800s' The Greatest Show on Earth! is equivalent to giving musicians their own soda cans in 2017 – the effect intangibles has on the economy has been aided by rapid technological progress.
Take inequality – as popular and crucial an economic topic as any. Haskel and Westlake write that "[t]he rise in the spread between the top and bottom firms seems to be in industries with lots of intangibles" (pg. 130). The middle isn't faring any better, with the authors earlier noting the labor market being "hollow[ed] out" by technology replacing middle-income jobs (pg. 124). There are, at the moment, apparent solutions to the problem. Sweden's social welfare system, for example, was highlighted in a New York Times article as relieving worry from those whose jobs have been swallowed up by technological advances. The dissipation of stress was a benefit seen by the largely-untested usage of a universal basic income, which, as explained in the linked essay, is in the early stages of complementing welfare programs.
But these fixes have only been tested for our current economic situation. While income inequality is often the more digestible concept, wealth inequality – centering around assets – is becoming apparent through the tenuous nature of affordable housing, especially in cities. For as they write in Chapter 10, there are "two important principles" for factoring in intangibles into city policies: "city rules should not make it hard to build new workplaces and housing" and "cities need to be connected and livable" (pg. 215). The foundation of being livable is, by definition, having somewhere to live in the first place, and this has turned into a crisis in some places and a branding opportunity for others.
On the latter point, the Outline wrote about an ad campaign by the Wisconsin Economic Development Corporation to lure Chicagoans to the state, lower rent one of the enticement (the intangible of branding in effect). On the former, cities are searching for solutions to housing crises, albeit maybe not at the scale needed. For example, Next City reported on a paper that examined 1,397 "inclusionary housing policies" and found that of the programs reporting data, 173,707 units of affordable housing were created. The authors spoke to Next City and explained that due to missing data, this number is low, but the example of New York City shows that the rate of disappearance for affordable units is uncomfortably quick. In the New York Review of Books' vital August 2017 article, "Tenants Under Siege: Inside New York City's Housing Crisis", a pair of unsettling examples emerged: "since 2007, at least 172,000 apartments have been deregulated… between 2007 and 2014, 25 percent of the rent-stabilized apartments on the Upper West Side of Manhattan were deregulated." Looking to fight this trend are institutions like city governments, which constitute a part of the second major take-away from the book, that of the effect on infrastructure.
Infrastructure in the physical sense is embedded in the political conversation due, in part, to a "long-awaited $1 trillion infrastructure plan" from the White House, while globally, the intangible side of this concept – "rules, norms, common knowledge, and institutions" (pg. 145) – has shown its necessity. Bloomberg Businessweek's look into the future of Zimbabwe's economy began with an anecdote about a company's inability to access their own funds, relying on a committee brought together by the country's central bank to determine what funds can be used that week. This uncertainty relates to what Haskel and Westlake consider "the softest of soft infrastructure": trust and social capital (pg. 156). Without trust between people and various forms of institutions, unlocking the potential of intangible infrastructure, and intangibles generally, is much more difficult.
Overall, the trust problem affects infrastructure directly, contributing to low (though, it seems, growing) trust in institutions in the United States that reflect upon the public's confidence in fixing problems like those described about inequality above. In the book's penultimate chapter the authors, in discussing the fictional country of Ruritania, explain that in a nation with strong social capital, it is "easier for ideas to spread around the economy and ma[ke] it more politically feasible to mitigate through government policy the potential increases arising from the intangible economy" (pg. 236).
This is the crucial problem facing policymakers today: how can they adapt to an ever-changing economy and use its new traits to their advantage? Successful businesses can, at once, watch their size and profits balloon thanks to the scalability of intangibles while, in the process, widening the gap between their ability to attract investment and that of smaller, less profitable enterprises. The winners, as they are wont to do, keep winning. For the rest, yet another form of inequality has lodged itself in our economic reality, and long-term solutions, as the authors acknowledge, escape both themselves and the politicians tasked with implementing these solutions into policy. But to solve a problem, one must first define it, and to this end, Haskel and Westlake have begun a necessary conversation.