Grasping the intangible nettles

Second albums after a huge first hit are always tricky, but the famous econ duo of Jonathan Haskel and Stian Westlake pull it off with Restarting the Future: how to Fix the Intangible Economy, a sequel to their best-selling Capitalism Without Capital.

That title was missing a ‘Physical’ in parenthesis before ‘Capital’, because the point was to underline the relative importance of intangible capital in the economy now – everything from patentable drug formulae to reputation to social trust to the tacit know-how that makes complex organisations function. While intangibles have always been important in the economy, they now predominate in the creation of economic value. Indeed this has been the case for decades now (my book The Weightless World is 25 years old this year). Jonathan and Stian (who are friends of mine) set out the special characteristics of intangibles – fours Ss, scalability, sunkenness, spillovers, and synergies – and explored the implications.

The new book starts with the observation that all is not well in the economy, with a litany that has become all too familiar: stagnant productivity, excessive inequality, a lack of resilience, ‘dysfunctional’ competition and what they term inauthenticity. They note, too, that investment in intangibles has slowed down markedly. Their diagnosis is that while existing institutions (in the broad sense in which that term is used in economics) were able to support intangible growth up to a point, progress now will depend on institutional reform: “institutions are out of sync with the intangible economy”. In their sights for reform are institutions and policies to support better (and fund) research and development, a redesigned competition policy, improvements to the financial architecture and monetary policy, and fixing cities.

The first half of the book is diagnosis, including rejecting some alternative diagnoses. In particular, they reject the idea that markets have become too concentrated, arguing that firms’ mark-ups have not risen when their intangibles are measured properly. I must say I don’t find this persuasive, given for example the steady consolidation of service sectors (pharmacies, vets, private healthcare, accountancy firms, financial advisers….) or simply observing the steady degrading of big tech service offers (eg Amazon searches being dominated by paid-for items). Still, competition policy certainly needs (and is getting) a refresh. Nor does this mean the intangibles explanation is invalid – on the contrary, it seems to be an integral part of the way production has been restructured.

The second half of the book then goes on to recommendations for reforms of policies and institutions, all rather sensible albeit not tangling with the politics of how these changes might come about except to observe that winners from the old regime will use their power to lobby against change.

I have some other quibbles. Jonathan and Stian put James Scott (Seeing Like A State) and Ernst Schumacher (Small is Beautiful) in the same ideas basket, which seems a bit odd to me although it’s decades since I read Schumacher. I don’t really understand their argument about inauthenticity, which draws on Graeber’s ‘bullshit jobs‘ and on Baudrillard, as an economic phenomenon – I decided it was about (lack of) trust or social capital but am not sure. The chapter on competition seems to claim that the debate about big tech etc only has one proposition, namely break-up, whereas in fact there is a rich debate about reshaping competition policy and enforcement in these large scale, spillover-laden markets. It also shoehorns in positional arms races in the jobs market into the ‘dysfunctional competition’ basket, when this is ja distinct labour market phenomenon.

But these really are quibbles about an excellent book. Their fundamental point about institutions lagging the structure of the economy is spot on, as is the implication that different kinds of collective approaches are needed to the economy. In the world of the four Ss, individualism and market-knows-best policies make for stagnation and discord. A final note: the book is published as the Russian invasion of Ukraine reminds us that tangibles from tanks to wheat really matter too. Simon Schama writes in the Financial Times that Ukraine’s ‘software’ has so far held out better than anybody might have feared against Russia’s hardware. But the world of the post-1989 era is changing.

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The deep structure of the knowledge economy – or, 25 years of weightlessness

I read The Knowledge Economy by Roberto Mangabeira Unger because James Plunkett (who reviewed my Cogs and Monsters for Prospect) tweeted how struck he was by the similarities between Unger’s book and mine. I can see what he means as we are after all writing about the same phenomenon of the increasing intangibility of value in advanced economies. Indeed it’s 25 years this year since my first book The Weightless World was published, so I’ve been writing about it for a quarter century, which is pretty startling.

However, one of the strange things for me reading Unger is the way we approach the same phenomenon using different languages, so I found some of his observations hard to understand. One of those is a key term, vanguardism, which can either be insular (what we have no – bad – only the few benefit from the knowledge economy) or inclusive (good, what we want). If you read left of centre philosophy perhaps this doesn’t need explaining, but it mystified me.

In the end, the way I translated this was as referring to a system of production (to use the terminology of, say, Michael Best, particularly his older book The New Competitive Advantage but also How Growth Really Happens) – from Fordism to post-Fordism to whatever is emerging now (a prize for whoever comes up with the best ‘-ism’ term?). And there are some very interesting observations in The Knowledge Economy. For instance, Unger reckons the progressive left is too focused on demand side questions (MMT and all that, redistributive tax) and not enough on the supply side – the issue not even being ‘pre-distribution’ but something more deeply structural. 51E08vPVsIL._SY291_BO1,204,203,200_QL40_ML2_

Unger criticises the dominance of economics by marginalism, which I’m on board with, as indeed with his observation about the importance of ideas in shaping the realities of economic life. We’re in the mioddle of a period of contestation of world views for the first time since the late 1970s, although the free market Thatcher/Reganism or neoliberalism (or your preferred term) is putting up a stiff fight. But then he oddly asserts that economists are not interested in production. This would be news to all the many I/O economists and institutional economists out there. All in all, I found this an interesting read but in the end a bit abstract. If only I understood what inclusive vanguardism meant. Still, this is the joy of stepping outside your own discipline to look at it from the perspective of others.

 

 

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Taking ideas seriously

In preparation for delivering the 2021 John Urry lecture at Lancaster University on Thursday, I’ve been re-reading the book that introduced me to his work, Economies of Signs and Space, co-authored with Scott Lash. It was published in 1994, but being an economist, and therefore more ignorant of the other social sciences than I ought to be, I had only just found it when I wrote my 1997 The Weightless World. The commonalities in our ideas were striking – more so to me now than I recall them being 25 years ago, although I cite the book.

These included the intuition about the increasing salience of time and space – both books have a ‘cities’ chapter – fragmenting production systems, the importance of the cultural industries, the deficit of institutions lagging behind economic and cultural change. But above all the increasing share of value assigned to the intangible or weightless. They write: “What is increasingly produced are not material objects but signs,” and note the “increasing component of sign-value or image embedded in material objects.”

The lecture this week will pick up on these insights – I think I and they were pretty prescient – to talk about what it means to have an economy of ideas, but will also talk about the need to re-focus on the material foundation of this economy: giant warehouses and energy-guzzling AIs. Oh, and human brains.

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Peakiness

The release of ONS figures on the consumption of physical materials in the UK got some attention earlier this week. The statistics show that in both total and per capita terms, there has been a long term decline in the amount of stuff involved in economic activity, although it’s still just over 10 tonnes per person each year (down from 15 tonnes in 2000). The new figures take account of trade and the fact that the UK is a net importer, particularly of manufactures – figures for earlier years, which also suggested a decline in the ‘weight’ of the UK economy, did not adjust for trade. The ‘resource productivity’ of the economy is increasing so we now get nearly £3 worth of GDP for every kilo of materials, up from £1.87 in 2000. The one resource whose use is not trending down is fossil fuels.

What’s the explanation? The same ones as 20 years ago when I wrote (free pdf) The Weightless World: the switch toward services and intangibles, the miniaturisation and use of lighter materials in products such as fridges and cars, the combining of many products (phone, camera, tape recorder, map etc) into one (smartphone), the dematerialisation of goods and services (books to e-books, CDs to downloads). Much more recycling, too.

[amazon_image id=”0262531666″ link=”true” target=”_blank” size=”medium” ]Weightless World: Strategies for Managing the Digital Economy (Obex Series)[/amazon_image]

Isn’t this good news? Tim Jackson (of

fame) comments grumpily in this Guardian article that he doesn’t believe the figures: “You do see these micro trends of peak stuff, but the idea we’re living in a peak stuff world is nuts.” Not for a moment am I relaxed about the environmental impact of economic growth (and I just joined the Natural Capital Committee because of my belief that we need to do much better at stewardship of our natural assets – see Dieter Helm’s
). Yet I am, you know, pretty happy that this trend is repeated across the OECD and that the UK is doing particularly well in terms of reduced material consumption.

There has been much comment about the UK’s dismal labour productivity and multifactor productivity performance of late. There is probably some mismeasurement, but not enough to explain the flatlining. We ought though to recognize the improved productivity of some physical (buildings, sharing of assets) capital. And this trend in resource productivity, £ of GDP per kilo of materials used in creating it, is welcome:

Real output per kilo of material used, UK 2000-2013

Real output per kilo of material used, UK 2000-2013

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20 years of the weightless world

It’s 20 years since I started to write my first book,

. As I plan for this year’s Festival of Economics (in Bristol, 17-19 November 2016), I picked the book up again (out of print but you can download it free from my website). We’ll be doing a session on the way digital and other innovations have been changing the economy, life, the universe and everything.

[amazon_image id=”0262531666″ link=”true” target=”_blank” size=”medium” ]Weightless World: Strategies for Managing the Digital Economy (Obex Series)[/amazon_image]

It seems remarkably prescient, rather to my surprise, albeit more optimistic in tone than feels appropriate now. The rise of not just flexible but independent working. The growing importance of city economies. Private digital currencies. The tension between national politics and global problems. The mismatch between institutions of the 19th and 20th centuries and the way people will live and work in the 21st century.

On reflection, 20 years is just too prescient. If only I’d published it five years ago…

Here I am in 1996, writing The Weightless World too early

Here I am in 1996, writing The Weightless World too early

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