The intangible economy: how capitalism works without capital.

Pedro_P

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▼  Let's start with a question: What would you say is the largest taxi company in the world?
Many would answer with a 4-letter name that is known in 785 urban areas of the world: Uber.
Well, Uber Technologies Inc., the US company founded in 2009 "that provides its customers internationally with transport vehicles with driver", does not own a taxi and, according to the firm, does not employ any driver either.
It is a great example of several corporate giants of today, such as Apple, Microsoft and Linkedin, whichseem to be made largely of air.
"If you look at your balance sheets, these companies have a very small amount of tangible assets," says Stian Westlake, political adviser to the British minister of science, research and universities and a member of Nesta, the UK's national foundation for innovation.
Together with Jonathan Haskell, Professor of Economics at Imperial College London, they wrote a book called "Capitalism without capital, the boom of the intangible economy" that explains many of the enigmas of modern capitalism, includingwhy so few people They can earn so much money apparently with so little physical substance.
Untouchable capital
To recognize the meaning of his absence, Haskell began by remembering what we mean by capital.
"It is the product of the investment of companies that build a long-term asset from which they can obtain a flow of benefits, an obvious example of which would bea building.
"When a supermarket decides to invest in a new store, the first thing it does is buy a store, that place counts as a good or a capital asset, and it's a tangible asset because it's something you can touch and feel."
In contrast, Westland explained, "an intangible asset is anything you can not touch or feel, an example is a research and development company.
"If you are researching to develop a new type of chip for mobile phones, what you are creating isan ideathat, although you can not touch it, had a cost in advance and provides benefits that the company obtains in the long term.
"That does not look much like a factory or a supermarket from an economic point of view, but it can be just as valid."
Omnipresent
That is what constitutes the "intangible economy", which today is everywhere, even in a placeapparently as physical asagym.
If you visit, you will see many things that can be touched;many tangible assets.
But you will also notice that a large part of their offer are classes such asbodypump,bodyattack,bodyflowor, writing them as they should be: BODYPUMP™, BODYCOMBAT™, BODYATTACK™.
These small TM letters mean "trademark" and are an indication of "how many of the most physical businesses are being transformed by the international economy," as Westland pointed out.
"These classes are not offered by gyms,but areabrand of a company based in New Zealand called Les Mills International.
"Basically, it's an intangible company that designs exercise routines, acquires the music rights they use, makes training packages for instructors and charges a license for that.
"So at the bottom of one of the most physical businesses of allthere is abusiness based on intangibles,generatingtons of money andgoingalmost unnoticed."
Unlimited
Companies have always had ideas or have invested in brands, but if we go back to the 1950s, the big new American companies that were listed on the stock market were composed mostly of tangible assets: 85% of their value.Not anymore
"In countries like the United States, the United Kingdom, Germany,most of the capital that is investedeach year is intangible: that is the great change.
"One of the big changes is, for example, that intangible assets tend to be what we would call scalable."
Let's go back to the 50s.
Suppose you are a particularly enterprising taxi driver and would like to expand your business.You would have several limitations such as knowledge of the geography of the area or the amount of money with which you account.You can put 5 people in your taxi but if you want to serve more people, you need to buy another taxi, hire another taxi driver.
Now think of a company like Uber, which hasa very valuable algorithmfor assigning taxis.You do not have to buy a new algorithm every time you want to expand your business;The one you have can be used in any large number of taxis in the city and, in fact, in any number of cities.
"A single intangible asset can take you very far," explains Westland, in conversation with the BBC.
"Just as in that market, in many others a situation of'the winner takes everything' is created,whoever has that competitive advantage dominates the entire market."
This is one of the reasons why the change to an intangible capitalism - capitalism without capital - is really important.
When companies based on non-physical assets, such as algorithms, grow,there isalmostno limit to how large they can becomeand, therefore, how rich the few people can be at the top.
People like the Amazon founder, Jeff Bezos, who earns about US $ 8 million per hour.
Without competition, without opportunity
A market in which "the winner takes everything," says Professor Haskell, brings both problems and benefits.
"You can get to the London airport, and get out of the San Francisco airport using the same algorithm to take taxis, there are several advantages of being part of that large scale and that big network, but of course, also worries, like the dominant company becomes lazy and does not serve clients well, forlack of rivalry, which is essential in the market. "
"On the other hand," says Westland, "the kind of people who thrive in these intangible companies tend to be educated people, open to new experiences, if you're not, if you do not have those advantages and privileges, it's likely that everything make it more difficult.
"If you think about the divisions that we are seeing in our societies, there are many people who are fed up with the metropolitan liberal elites."
What is perhaps one of the economic reasons that explains the phenomenon of Donald Trump.
"Certainly, if you look at the places where these intangible economies flourish, they are prosperous and diverse cities where ideas fly and people are very tolerant and liberal." Those were not the places that voted for Trump butthe places where that economy left behind. "
From everything to nothing
In terms of stability, intangibles seem more precarious.
If you have a steel mill, it could lose its value over time, or you could lose part of your market share.But you still have a steel factory.With the intangible, things get complicated.
"Intangibles have thestrange propertythat, suddenly, they can go from being very valuable to almost nothing," says Westland.
"One example is Monarch Airlines that got into trouble in the UK last year, the airline had a lot of tangible assets - in the form of airplanes - and a lot of intangible assets - the right to take off and land at several airports:both very valuable.
"When they went bankrupt, the planes were immediately ceded to the creditors, but with take-off and landing rights, nobody knew what to do: it was not clear who was the owner and there were many litigation.
"When a company fails, the value of intangibles - such as software and brands - plummets."
And if the value of huge firms is intangible, their fall leaves a void in which there is nothing to hold onto.That is a great challenge for the management of the economy.
Only services
Many economists lament the fact that we no longer do anything tangible, that everything is services, and they worry about what that means in terms of managing an economy.
Afterall, does it matter?
"One way in which it could matter, for example, is in terms of equality.
"It could well be that in the future, the few companies that can grow will become much richer and that the owners of these companies will be very successful, whilethe rest of the world will not live in very good conditions," concludes Professor Jonathan. Haskell.

► Literal translation from the article originally published in:: Source

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