What is the main message of Capitalism Without Capital?

The main message of Capitalism Without Capital is about the rise of intangible assets in the modern economy.

How long does it take to read Capitalism Without Capital?

The reading time for Capitalism Without Capital varies depending on the reader, but it typically takes several hours. However, the Blinkist summary can be read in just 15 minutes.

Is Capitalism Without Capital a good book? Is it worth reading?

Capitalism Without Capital is a must-read for anyone interested in understanding the changing nature of the economy. It offers fascinating insights and analysis.

Who is the author of Capitalism Without Capital?

The authors of Capitalism Without Capital are Jonathan Haskel and Stian Westlake.

Capitalism without Capital Summary of Key Ideas and Review

Name: Capitalism without Capital
Rating: 4.5 (89 reviews)
Author: Jonathan Haskel

Introduction

What’s in it for me? Understand how the nature of our economy is changing.

For centuries, our economy has revolved around the production and consumption of physical things, from cars to cows, grain to gold. But modern economies are changing, and the old model no longer holds. Increasingly, the most important investments and assets in our economy are nonphysical – or, in other words, intangible.

Today, the true value of companies like Microsoft, Apple, Google or even Starbucks lies in intangible assets, be it software, research capabilities, branding or organizational development. And that matters, because companies built around intangible assets behave differently from those reliant on physical goods. For one, they can scale up faster and grow bigger. They are also riskier for investors, and easier for competitors to exploit. The intangible economy is here, and these blinks explore its impact and future.

In these blinks, you’ll learn

the characteristics of intangible investments;
why Starbucks’s real assets are intangible; and
why an intangible economy could lead to lower investment unless governments step in.

Key idea 1 of 9

The focus of our economy is shifting from physical assets to intangible assets.

When William the Conqueror, ruler of late eleventh-century England, wanted an estimate of his kingdom’s wealth, he sent out surveyors. In towns and villages across the land, they talked to people, inspected buildings and property and counted animals. Outside of London, in the village of Stansted, which is today the site of a busy international airport, they recorded a mill, 60 pigs, three slaves and 16 cows. The village’s value was listed at £11 per year.

For centuries, the process of assessing value – of a business, a town or even a country – has involved measuring, counting and valuating physical, tangible things, like buildings, machinery or computers.

But economists are now catching up with an emerging reality. Intangible assets – things that we can neither see nor touch, but that are nonetheless valuable – are growing in economic importance.

To understand the rising importance of the intangible economy, imagine you find yourself in a 1970s supermarket. You probably wouldn’t feel too out of place, because, physically speaking, not much has changed in supermarkets in the past 50 years. Today’s supermarkets have aisles flanked by shelves coolers, freezers and checkout counters, just like those of half a century ago.

What’s changed for supermarkets is the incredible growth of intangible assets. Consider the rise of barcodes. They not only sped things up at the checkout, making it unnecessary for a worker to manually enter prices. They also enabled management to see, with the help of computer systems, and without a manual stock count, how many sales had been made, and what stock was in inventory. This, in turn, made it easier to manage stock, plan promotions and change prices without having to manually reprice every item.

This development greatly increased the productivity of supermarkets and enabled more complex and more profitable pricing systems. Supermarkets have also invested heavily in branding and marketing, two more key intangibles, boosted by data-driven loyalty-card systems.

Nowadays, the most valuable assets for many businesses are things we cannot touch. When Microsoft hit a market valuation of $250 billion in 2006 and became the most valuable company in the world at the time, the value of its traditional physical assets was a mere $3 billion – just 1 percent of its overall value. Businesses like Microsoft are hugely valuable, not because of the worth of their factories, or their machinery, or their warehouses. Rather, it’s because of their software, brand and intellectual property, and because the efficiency of their supply-chain organization means they can quickly get products to market.

Today, we’re experiencing an increasing disconnect as capitalism operates with less and less reliance on physical capital. Let’s explore a little how this change is taking place across the world.

Key idea 2 of 9

The trend toward an intangible economy is now clear, even if it has only been recorded very recently.

The modern concept of gross domestic product, or GDP, was invented in the 1930s as a way to measure how much production had fallen during the Great Depression. It sought to count the total output of, and investment in, the economy. But it ignored any investments that weren’t physical, so a car factory’s new machines counted as investment, but the money spent employing designers to research a new car model did not.

It’s taken a long time for intangible investments to be reflected in official economic figures, and even now the situation is imperfect. In the United States, for example, money spent developing computer software has only been counted in official statistics as an investment since 1999. Its inclusion added 1.1 percent to GDP, which reflects its significant value.

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Key idea 3 of 9

Intangible assets are highly scalable, meaning we should get used to seeing some businesses grow very large, very quickly.

At some point in your life, you’ve probably bought a coffee from Starbucks. And if asked to name the company’s business assets, you might point to the large shiny coffee machines in each store.

The machines are a great example of how physical assets have limits. They can pump out a lot of coffee, but once a machine is working at full capacity, the branch manager will need to invest in a new machine if he wants to brew more coffee, and hire more employees to run it.

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Key idea 4 of 9

Intangible investments are sunk costs, which has implications for financing and may make future financial crashes worse.

Banks love certain types of lending, such as mortgages. That’s because, with a mortgage, a bank loans money secured against an asset – the house – that is not only valuable but immovable. If the borrower defaults, the bank can simply seize and sell the house.

Intangible assets are the opposite of immobile assets. By their very nature, they tend to be sunk costs – costs that a business or investor has already incurred and which can no longer be recovered. This means that the costs of investing in them are complicated and very difficult to calculate and recover if things go wrong.

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Key idea 5 of 9

Spillover effects, where businesses benefit from the ideas of other businesses, are increasingly common.

If you own a bus company, you probably don’t spend much time worrying about your competitors sneaking into your depot at night to use your buses. You have a lock on the depot door, a security guard and several hundred years of established property law on your side. And during the day, your competitors can’t make use of your buses because, well, your drivers are driving them.

The situation is different with intangibles, because they generate spillovers. That is, your competitors can easily steal your intangible assets. Invest in a bus, and only you can use it. Invest in an idea or concept, and it can be easily commandeered by your competitors.

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Key idea 6 of 9

In an intangible economy, ideas can fuse together, creating valuable synergies and new ways of doing things.

The science writer Matt Ridley once said that innovation is what happens when ideas have sex. It’s certainly true that new innovations can be born from different ideas coming together in unexpected ways.

Consider the microwave oven. At the end of World War II, Raytheon, a US defense contractor, was producing vacuum tubes for radar defenses. While working on the system, a Raytheon engineer named Percy Spencer realized that microwaves in a metal box could heat food. The first microwaves were produced, and a few years later, a novelty stand in New York was selling “speedy weeny” microwaved hot dogs.

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Key idea 7 of 9

Economic inequality is exacerbated by the growth of the intangible economy.

If you listen to the news, inequality seems to be an inescapable reality of daily life. Tech billionaires, investors and the rest of the global elite enjoy the benefits of globalism, while people in left-behind communities lead lives of economic insecurity. As a result, populist politics abound, from Donald Trump in the United States to the Five Star Movement in Italy.

Inequality has certainly been rising in major economies. For example, in 1979, men with a college education in the United States earned, on average, $17,000 more each year than those with just a high school education. By 2012, and adjusted for inflation, the gap was almost $35,000.

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Key idea 8 of 9

The rise of the intangible economy requires new thinking on education and finance.

The introduction of electrical power in the United States revolutionized the modern-day factory production line. Previously, it was powered by a single shaft run on steam power. A single problem could shut down the whole factory. But with the advent of electricity, suddenly every machine could have its own motor, a great step forward in productivity. However, by the early twentieth century, almost 40 years after electrical power was introduced, only half of the factory capacity had been electrified.

This slow adoption shows how it can sometimes take a long time for societies and economies to adjust to the new realities of innovations, and it will also take time to adjust to the intangible economy. But we can help ourselves by making some changes now.

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Key idea 9 of 9

Public investment in research and development will offer increasing benefits in an intangible economy.

Perhaps the greatest risk for the future intangible economy is the risk of underinvestment. If spillovers cannot be contained, and businesses don’t have confidence that they can reap the rewards of their research and development, then investment will lag. Jobs, salaries and economic growth will suffer.

It is possible that dominant, scalable firms will step in to fill some portion of the gap. For instance, businesses like Facebook, or Google, are happy to provide financial backing for start-up clusters in major tech hot spots like London or Berlin. And this investment will spill over and benefit other companies. But a company like Google is also big and diverse enough to reap some benefits for itself, as it uses or simply acquires new ideas generated by the start-up cluster it has invested in.

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