2019-06-03

Book Review: "Capitalism Without Capital" by Jonathan Haskel & Stian Westlake

I've recently read the book "Capitalism Without Capital" by Jonathan Haskel & Stian Westlake. I found out about this book from a reading list by Bill Gates that was circulated by various media outlets online, which suggested that this book would have a lot to say about the currently relevant issue of people's personal data held by large online companies like Facebook & Google. This turned out to not be the case, as there was only a single brief mention of this point later in the book. Instead, this book is a discussion about how companies in many developed countries rely more on intangible assets than tangible assets, how associated trends can explain many issues faced by societies in those countries today, and why governments need to take notice of these trends. The authors start by carefully defining their notions of investments & assets, along with tangibility (essentially physical goods that can be valued & traded relatively easily) versus intangibility (things like institutions, rules, know-how, intellectual property, and social relationships that are much harder to quantify & trade), and then discuss why the values of intangible assets are harder to measure and how various econometric organizations are trying to improve this situation. They then describe their central thesis, which is that intangible assets have much greater scalability, sunk costs, spillover effects, and synergistic effects compared to tangible assets, and this leads to qualitatively different economic & political outcomes. This leads to discussion of specific points, including the role of intangible assets in secular stagnation (low business investment levels despite low interest rates) as well as income & wealth inequality, the issues associated with creating infrastructure for as well as financing investment in intangible assets, the role of intangible assets in promoting a cult of management and the greater role of management in turn as intangible assets become more important, and the questions governments will have to face with respect to managing this growth in intangible assets.

I thought this book was meant for lay readers, but it seems more meant for policymakers, entrepreneurs, and the like, and it is a bit dense. Nonetheless, it is quite well-written, and I enjoyed gaining more perspective about these aspects of the economy that I wouldn't have consciously considered otherwise. I particularly appreciated the summaries at the end of each chapter, as the authors seemed to implicitly acknowledge the density of information in their book and wanted to refresh readers' minds after going through each chapter. Moreover, I really liked the fact that the authors were more interested in laying out the facts as they interpreted them instead of making bold, sweeping proclamations about the generality of their analysis: they really tried to avoid the golden hammer fallacy of trying to contort their explanation to fit every possible problem. As a particular example, one of the features of intangible goods being synergy would seem to suggest that as synergistic/agglomeration effects are correlated with dense urban development, then policymakers should promote dense urban development to promote the formation of synergy/agglomeration clusters and that this should be a guaranteed way of growing a local economy; however, the authors take pains to mention at multiple points in the book that the empirical evidence for this is sparse in general, and where it does exist, the results are mixed, thereby providing a testable & falsifiable scenario that leads to a failure to reject the null hypothesis. As another example, both this book and the book Radical Markets by Eric A. Posner & E. Glen Weyl (which I have reviewed here) discuss Friedrich Hayek's anecdote of pencil-making to illustrate how markets efficiently communicate information via prices, but while the authors of the other book uncritically praise and extend that notion, the authors of this book are quick to show how in practice, gathering price & other information as well as conducting bargaining can be quite costly, which is how Ronald Coase concluded that people organize into firms with hierarchies in order to lessen these costs and uncertainties. Also, in the chapter about what governments should consider doing, the authors explicitly state that they are not trying to suggest the existence of quick fixes, but are instead laying out the challenges in full and suggesting possible general approaches that governments can tailor to their specific needs. Overall, I would need to read a lot more to more seriously evaluate the claims in the book, so I wouldn't be able to recommend this to lay readers, but specialists in the field may find this book interesting & thought-provoking.

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