Top positive review
A look at the growth of intangible property based capitalsm
Reviewed in the United States on December 11, 2017
Capitalism without Capital is an interesting book with very topical subject matter. Recent years has seen the brisk rise in market value of businesses defined by their network effects and operational leverage to the new economy rather than those dependent on traditional accounting defined forms of capital. In addition we have seen rising domestic Gini coefficients despite global improvements in aggregate output. Capitalism without Capital investigates the increased investment in intangible assets and their place in the modern economy. The authors propose that the increasing proportion of intangible investment can partially explain many of the economic issues that have been the center of attention of late and in addition need to be focused on more directly as we have so far not understood how to better capitalize and promote intangible investment as well as deal with various inequality effects that might come from them.
Capitalism without Capital is split into two parts with the first titles - The Rise of the Intangible Economy. The author details how a simple business like a gym has morphed in how it adds value from a business which provided capital to one that effectively provides a coordinated service. This basic example serves to indicate that many modern businesses are increasingly defined by background coordination rather than provision of capital and this has required substantial amounts of intangible investment. The authors go through various accounting identities and show over the last 20 years how intangible capital investment has been growing and has closed in substantially on tangible forms of capital if not exceeded it. The authors describe how this evolution has occurred and geographically where it has occurred more, there is no doubt that it has been associated with the rise of technology as much intangible investments are aimed at improving coordination which is dependent on technology and communication systems to be in place. The authors then spend time on discussing the challenges of accounting for intangible investing and their return potential distributions are substantially wider than tangible investments. As a consequence capitalizing them is more challenging, a few quick conclusions though are that intangible investments can often be written off but they also have the ability to scale extremely well and have long lives. The authors give the example of how EMI effectively developed the CT scan but GE was able to capitalize on it for a low licensing fee. The authors give some foundational economic ideas about intangible investments and how they often lie in the realm of non-rival goods, an idea promoted by Paul Romer for what drives economic growth. The first section effectively lays the groundwork for how to think economically about intangible investment and how it differs from tangible investment and the trends of these categories.
The authors get into their core ideas in the second part- The consequences of the Rise of Intangible Economy. In particular they start by discussing the potential role of intangible investing in secular stagnation and then move on to inequality. The post financial crisis led to concerns of secular stagnation where margins are high, investment is low alongside productivity growth. The authors argue that a world in which investment is taking place in the intangible form would display these characteristics. The arguments are reasonable but to a certain extent the arguments are also arguments of how intangible investments can lead to monopoly capital and the consequence of a world with increasing returns to scale and barriers to entry is facilitated by intangible investing, it seemed a bit odd to argue about the second order effects of secular stagnation rather than the first order (consolidation of industry, increased margins and worse labor/capital dynamics). The second focus, inequality of wages is a continuation of this though they bring up another important idea which is that if more of a business is defined by intangibles then this halo effect of ascribing shareholder value creation to the CEO is questionable. The authors do an ok job of describing how these phenomenon can be associated to the world in which intangible investment is what is driving value but the overall arguments are not at all definitive because they are very big topics. The authors also discuss how intangible investments require more equity and how policies that promote debt funding make it harder to invest in intangible despite them being currently demanded. The authors also discuss how business which use intangible investment vs create intangible investments might be structured differently, the former more authority based the latter more egalitarian. These sound superficially reasonable but I think some of what is discussed is vastly oversimplified. The authors then move to public policy and how to think about what we need to be navigating. The authors highlight some basic principles that distinguish what a good government from a bad with respect to intangible investing, highlighting things like tax, institutional arrangement, patent and IP laws to name a few. The broad principles are agreeable but the real challenge is the details. The author's also highlight how a government can fill a gap in basic research and build the foundation for businesses to further do R&D upon. The topic of how rights should be tied to ideas founded upon government R&D is not discussed, which I think is a shame.
Capitalism without Capital is definitely worth reading as it gives a perspective on how many of the challenges we are facing might have aspects of intangible investments at their core. The authors are careful to highlight they do not have answers and that the problems we face are very complex but this book begins to frame some of the issues to think about. The authors touch upon many major ideas, the lack of borders on intangible investment and difficulty in taxing them, the need to create areas where people can coordinate but at same time not overdevelop them, the need to include government in supporting basic science research but have accountability. The list goes on- I definitely think the book is a good one to introduce some important concepts. There is no doubt that intangible investments will continue to drive benefits for some but create hindrances for others so it is time to start addressing them with better policy and accounting standards.