Bill Gates reviews Capitalism without Capital, a new book about “intangible” products and services.
They start by defining intangible assets as “something you can’t touch.” It sounds obvious, but it’s an important distinction because intangible industries work differently than tangible industries. Products you can’t touch have a very different set of dynamics in terms of competition and risk and how you value the companies that make them…
What the book reinforced for me is that lawmakers need to adjust their economic policymaking to reflect these new realities. For example, the tools many countries use to measure intangible assets are behind the times, so they’re getting an incomplete picture of the economy. The U.S. didn’t include software in GDP calculations until 1999. Even today, GDP doesn’t count investment in things like market research, branding, and training—intangible assets that companies are spending huge amounts of money on.
Measurement isn’t the only area where we’re falling behind—there are a number of big questions that lots of countries should be debating right now. Are trademark and patent laws too strict or too generous? Does competition policy need to be updated? How, if at all, should taxation policies change? What is the best way to stimulate an economy in a world where capitalism happens without the capital? We need really smart thinkers and brilliant economists digging into all of these questions. Capitalism Without Capital is the first book I’ve seen that tackles them in depth, and I think it should be required reading for policymakers.
Recently I was reading something suggesting that countries should keep a balance sheet, which keeps track of stocks, in addition to GDP, which is more like an income statement keeping track of flows. This seems right to me. Spending on education and training adds to the stock of human capital at some rate, but efficiency may vary and the stock is also being depleted at the same time. Drawing down natural capital increases income on the short term but comes at the expense of the long term. Research and development are a little different because they affect the pace of progress, or at least improve the odds of the gamble.