Self Help

Restarting the Future - Jonathan Haskel

Author Photo

Matheus Puppe

· 45 min read



  • The introduction contrasts two historical artifacts - a brass plaque on early 20th century cars claiming patent rights by George Selden, and a 14th century fresco by Ambrogio Lorenzetti depicting good governance in Siena - to illustrate how the future is still being determined.

  • The plaque represents how restrictive patents threatened the auto industry’s development but ultimately prevailed when Henry Ford challenged Selden’s patent. This shows that the future is contingent, not inevitable.

  • Lorenzetti’s fresco shows good governance and prosperity in Siena. The optimism it represents did not come to pass, as Siena lost power and prominence. So, optimistic visions of the future may still need to be realized.

  • The introduction argues that we are at a similar historical juncture today. The late 20th century was characterized by optimism about technology and new business models ushering in an era of prosperity. However, the reality since 2000 has been disappointing growth, productivity slowdowns, financial instability, and inequality.

  • The book proposes a new explanation rooted in the rise of intangible investment, assets, and property. Institutional failures to adapt to this changing economy caused the problems. The book offers solutions to fix the intangible economy and restart growth and prosperity.

  • Despite economic progress, there are several puzzling and paradoxical problems with today’s economy, including stagnation, inequality, dysfunctional competition, fragility, and inauthenticity.

  • Stagnation refers to slow productivity growth over the past decade, which has reduced incomes. This is puzzling given new technologies and businesses.

  • Inequality has increased since the 1980s, both in wealth and income. There is also a perceived cultural divide between elites and those left behind.

  • Competition seems dysfunctional, with entrenched firm fortunes, fewer startups, and job changes. However, people feel that economic life is more furious than ever.

  • The economic damage from COVID-19 illustrates fragility. Central banks also need more room to offset shocks with low interest rates.

  • Inauthenticity refers to a view that jobs and economic activity today lack authenticity and grit compared to the past.

  • Traditional economic explanations struggle to account for these symptoms. Conduct-based theories blame problems on poor policy, greed, or social change. Circumstance-based theories cite factors like demography, globalization, and technology.

  • This book argues that the root cause is that the economy has been transformed in ways not accounted for in traditional economics. New ideas are needed to understand the changed economy and address its problems.

  • The book argues that the economy is fundamentally shifting from being based on physical, tangible assets to intangible assets like ideas, knowledge, and relationships.

  • This shift explains our current economic challenges, like slower productivity growth. The economy’s institutions still need to adapt to this new intangible economy.

  • Intangible assets have different economic properties than physical assets. This requires changes to institutions around intellectual property, research funding, financial markets, and city planning/zoning.

  • With updating these institutions, worthwhile intangible investments are made, resulting in slower growth. The downsides of the intangible economy also go unchecked.

  • The book refers to this as “institutional debt” - the gap between our institutions and those we need for an intangible economy. It is like the technical debt that builds up in outdated software systems.

  • The book examines four areas where institutional debt is high: intellectual property laws, public research funding, financial markets, and urban planning. Reforms in these areas are needed to enable the intangible economy to thrive.

  • Since the early 2000s, developed economies have faced significant problems like stagnation, inequality, fragility, dysfunctional competition, and a sense of inauthenticity.

  • These problems have led to a widespread feeling that something is wrong with advanced economies. There is a sense of disappointment, as if we live in an “age of lead.”

  • Even before COVID-19, there were concerns about issues like low economic growth, income inequality, precarity, and jobs involving “bullshit” tasks.

  • Mainstream economists and critical voices alike have questioned whether capitalism is working as it should.

  • The COVID-19 crisis has illuminated some of these long-standing economic problems, clarifying hidden issues. It also provides an opportunity to address them.

  • The problems are resulting from the difficult transition in advanced economies from reliance on tangible assets to intangible assets. Updating institutions to match this new economic structure is critical to solving the issues.

  • Institutional renewal has happened before and can happen again. We can increase growth and prosperity with the right solutions and address significant challenges like climate change.

  • Stagnation - Economic growth has slowed dramatically since the early 2000s, defying expectations and standard explanations. Growth rates are far below what experts predicted and below the post-WWII trend.

  • Inequality - Income, wealth, and status inequality has risen substantially, with the top 1% capturing a large share of growth. This divides society between elite “winners” and left-behind “losers”.

  • Dysfunctional competition - Measures of competitive dynamics like firm turnover, profit margins, and concentration point to lack of competition. Dominant “superstar” firms are pulling away from the rest.

  • Fragility - The global financial crisis revealed fragilities in the financial system and economy. However, reforms have not adequately addressed the root causes, leaving continued vulnerability.

  • Inauthenticity - Economic statistics may overstate growth and progress due to mismeasurement. The performance of the economy does not match people’s lived experiences.

Overall, these interrelated trends paint a picture of an economy that is not living up to its potential to improve living standards and social welfare. Structural reforms are needed to reboot growth, competition, and resilience.

  • Economic growth has been slow for the past two decades despite abundant money, profitable businesses, and new technologies.

  • Inequality between rich and poor has grown, accompanied by increasing social and cultural divisions.

  • Economies seem fragile, with little policy space to cushion shocks like COVID-19 or address long-term issues like climate change.

  • Although data shows declining business dynamism and worker mobility, life still feels intensely competitive for many.

  • There is a sense that much modern economic activity is inauthentic or fake, lacking the authenticity and realness it once had.

  • Two archetypal narratives often emerge when discussing the current economic challenges in developed countries: The Lost Golden Age and The Great Divide.

  • The Lost Golden Age narrative holds that we live in an era deficient compared to a more prosperous past, supported by data on slower productivity growth. Some see this as a permanent decline, while others believe growth will rebound with new technologies.

  • The Great Divide narrative focuses on rising inequality and a growing divide between the elite and the masses, again supported by data on inequality. This is often tied to the idea that elites have changed the rules to benefit themselves at the expense of broader society.

  • These narratives converge in the view that greedy elites have broken the mechanisms that previously delivered steady growth and shared prosperity. However, these narratives oversimplify complex economic developments.

  • Overall, these narratives tap into long-standing archetypal stories to make sense of disappointing economic performance and provide simple explanations, but the actual causes are multi-dimensional.

  • There is no single cause of slow economic growth. The conventional explanations like lagging technology, insufficient education, the need for retooling, and rising monopolistic markups likely only tell part of the story.

  • Education levels cannot fully explain the productivity slowdown, as skills growth increased in the euro area even as growth slowed.

  • The shift to intangible investment, like R&D, brands, and organizational capital, has been an essential economic change since the 1980s. Firms now invest more in intangibles than tangibles.

  • Growth in intangible investment has slowed in recent decades, contributing to slower growth.

  • Challenges remain in correctly measuring and accounting for intangibles and overcoming barriers to intangible investment. Better measurement and understanding of intangibles is needed.

  • The authors argue that the world needs to transition to a new intangible-based economy. Lagging intangible investment and challenges in mitigating the implications of intangibles help explain recent slower growth.

  • Intangible assets like R&D, brands, software, and business processes are becoming more important in advanced economies. Firms now invest more in intangibles than tangibles.

  • However, since around 2007, growth in intangible investment has slowed down compared to previous decades. This is an essential but overlooked trend.

  • Intangible assets differ from physical assets in four key ways: they are scalable, have spillovers, are sunk costs, and have synergies.

  • These characteristics affect business growth, competition, inequality, finance, and institutions. For example, scalability facilitates the rise of superstar firms, while spillovers and sunk costs create challenges for financing.

  • The shift to an intangibles economy creates problems, like inequality, and requires new institutions, like better intellectual property rules. There is an institutional lag.

  • The intangibles economy is different from the knowledge or postindustrial economy. Intangibles are about relationships and brands, not just information.

  • Overall the rise of intangibles transforms the economy in ways we are still coming to grips with. It creates opportunities and an “intangibles crisis” of problems and institutional gaps.

  • Intangible investments like R&D, design, branding, and organizational development are increasingly significant in modern economies, but “knowledge economy” is misleading. These investments also build relationships and emotional connections.

  • Intangible investments are not just for services and tech firms - manufacturing firms also rely heavily on them. Moreover, they are essential across all sectors, not just high-tech.

  • The long-run growth of intangibles is linked to economic development, as more prosperous societies demand more complex and meaningful goods and services. However, growth has slowed since 2008 due to complementarity with other stalled investments and increased financial frictions.

  • Institutions like banking often need to be better suited to supporting intangible investments. Moreover, short-term investor demands for profits can discourage long-term intangible spending.

  • Policy should aim to measure intangibles better and reform institutions to be more supportive. This will allow economies to benefit more from intangible investments.

Here are three key ways the intangibles crisis has contributed to economic stagnation:

  1. The slowdown in intangible investment since the financial crisis. This decline in a significant driver of growth has gone largely unrecognized.

  2. Increased market concentration and the gap between leading and lagging firms. This reduces competitive pressures and incentives for innovation and investment.

  3. Increased uncertainty and contested ownership of intangibles. This makes firms more cautious about investing, especially in risky, sunk-cost intangibles.

The combination of lower intangible investment and the economic features of intangibles like scalability and synergies has reduced growth and dynamism in the economy. Reversing the slowdown in intangibles investment and improving institutions to deal with intangibles’ challenges are essential for restarting growth.

  • Businesses are investing less in intangibles (R&D, software, skills training, etc.) than expected based on pre-2007 growth rates. This is likely contributing to slower economic growth in two main ways:
  1. Countries with sharper declines in intangible investment have seen worse economic slowdowns.

  2. Lower intangible investment leads to less total factor productivity (TFP) growth. TFP reflects beneficial spillovers from intangibles like innovations and management practices.

  • The slowdown in intangible investment may magnify new technologies’ disappointing impact, as intangibles have strong synergies with technological advances.

  • High historical intangibles, primarily relational/zero-sum intangibles, may also drag down TFP growth.

  • Although concentration and competition appear to have declined in some industries, this may be misleading in an intangible-intensive economy. With intangibles, slight differences between leaders and laggards are magnified.

  • Rates of return look flat when intangibles are included, suggesting rising returns are an illusion caused by failing to measure intangibles correctly.

  • Inequality trends can also be linked to intangibles, including the meritocracy trap driven by unequal access to education, and the growing gap between high and low wage earners.

Here is a summary of the key points about inauthenticity in the intangible economy:

  • There is a view that the intangible economy produces derivative and self-referential output rather than original. For example, social media platforms are seen as amplifying existing content rather than creating new content.

  • The intangible economy enables producing convincing fake or synthesized content, like deepfakes. This raises concerns about misinformation and erodes trust.

  • The intangible economy facilitates surveillance capitalism, where tech companies collect massive user data. This data is used to predict and influence behavior in ways seen as manipulative or inauthentic.

  • As the intangible economy grows, human interactions and experiences become more mediated through technology. This is seen as disconnecting people from authentic in-person connections.

  • The intangible economy has enabled the gig economy’s growth and precarious work. This is seen as undermining authentic, stable employment relationships.

  • The dominance of intangible capital has shifted power to a small number of large tech firms. This concentration of power threatens authentic open market competition.

  • There are concerns that the intangible economy disproportionately rewards “superstar” individuals and firms, contributing to inequality. This skews rewards away from authentic effort/merit.

In summary, critics see the growth of the intangible economy as fostering an inauthentic and unfair society and economy in multiple ways. However, others argue that the intangible economy also creates positive change. The concerns reflect unease with how technology disrupts existing social and economic patterns.

Here are the critical points about institutions and economic growth from the passage:

  • Good institutions help drive economic growth and investment. This idea is now uncontroversial among economists, after decades of research on institutions by scholars like Douglass North, Elinor Ostrom, and Daron Acemoglu.

  • The definition of a “good institution” can change over time as the economy changes. What helped growth in the past may not continue to do so. Institutional renewal is sometimes necessary.

  • An economy must adapt institutions to new economic conditions to avoid growth to stagnation, as in Siena. The frescoes there illustrate how good governance was seen as necessary for prosperity.

  • Institutions refer to the formal and informal rules that shape economic behavior, not to organizations themselves. Examples are property rights, norms, markets, and public goods provisions.

  • Some economists are wary of explanations that rely too heavily on institutions, seeing them as vague and needing more predictive power. However, well-specified institutions tied to economic mechanisms can illuminate causes of growth and stagnation.

  • Institutions are essential for facilitating economic exchange and growth but must evolve as the economy changes. Institutions that worked well historically may be less effective when the economy shifts towards more intangible assets.

  • Institutions help address four critical conditions of exchange: 1) Finding potential exchange partners; 2) Ensuring beneficiaries contribute; 3) Securing commitments from partners; 4) Minimizing haggling/influence costs.

  • Different institutions emerge to support exchange as economies develop. Societies with minimal external trade require few formal institutions around property rights or contract enforcement. Institutions like exclusive land rights and inheritance systems arise as the external exchange grows.

  • The rise of intangible capital puts new strains on existing institutions. Information asymmetries and uncertainty around intangible assets create challenges for exchange. New institutions may be needed to facilitate intangible investment and reduce tension.

  • To understand if and how institutions must adapt, we must closely examine the changing exchange conditions in an intangible economy and identify where existing institutions fall short. The history of lighthouses will illustrate how institutions coevolve with technology and economic conditions.

  • Exchange requires certain conditions to function well, such as managing dispersed information, solving collective action problems, commitment, and minimizing influence costs.

  • Institutions that support exchange often provide solutions to these conditions.

  • Trust, reciprocity, and reputation helped facilitate early exchange before more formal institutions developed. However, as societies grew more extensive, more formal institutions replaced these.

  • Property rights provide incentives to maintain resources and allow exchange through establishing markets. They developed when scarcity increased, such as with the fur trade.

  • Collective decision-making institutions help solve collective action problems and harness dispersed information, through mechanisms like voting.

  • Contract enforcement supports commitment over time in exchange. Governments require specific institutions to enable commitment due to their inability to sign binding contracts directly.

  • Overall, institutions that support exchange help with conditions like commitment, collective action, information dispersion, and influence costs. Trust and reciprocity help broadly, while property rights, collaborative decision-making, and contract enforcement aid more specific conditions. An excellent institutional design considers minimizing costs like influence and maximizing benefits like information aggregation.

Here are the key points from the passage:

  • Institutions help support some but not all conditions for exchange. Different institutions support exchange conditions (e.g. property rights help with incentives, voting systems help with collective action).

  • If the underlying conditions of exchange change, existing institutions may no longer be suitable. New institutions may be needed to support the new requirements.

  • The history of lighthouses illustrates this point. Lighthouses provide an information service (warning ships) and have a public goods problem (non-excludable use).

  • Private lighthouses worked initially when the technology was limited. However, new lighting technology in the 1800s increased the range, allowing ships to free-ride. This made excludability necessary.

  • So public ownership became more suitable as the technology changed. Institutions have to adapt as the conditions of exchange change. What counts as a “good” institution depends on the context.

In summary, institutions support exchange conditions but may become unsuitable when those conditions change. The lighthouse example shows how institutions must adapt to technological changes that alter the nature of exchange.

  • Institutions are specific to particular economic circumstances. The ideal institutions for maintaining lighthouses changed when lighthouse technology improved.

  • Institutions exhibit inertia and can persist even when circumstances change. Britain was slow to update its lighthouse institutions when technology improved, which led it to invest less in lighthouses.

  • Institutions are unpredictable in their effects, since they emerge from evolution rather than design. Creating effective new institutions takes time and effort.

  • Institutions are political, as vested interests can prevail in preserving suboptimal institutions. Private lighthouses persisted in Britain initially even though public funding was needed for the new technology.

The main point is that institutions coevolve with technology and economic context. When technologies or markets change substantially, the institutional framework may also need to change to support economic progress. However, institutions are hard to modify and inherently unpredictable in their effects deliberately.

  • Institutions are hard to design well because their effects are often unpredictable and emerge over time. Attempts to create good institutions can go awry, leading to lousypersisting bad legacy institutions.

  • Institutions tend to be specific to a particular technology or economic context. As the economy changes, old institutions may become ill-suited to the new conditions.

  • Institutions are prone to inertia and can be hard to change once established. Outdated institutions often linger rather than adapting to new circumstances.

  • Small groups with vested interests are adept at preserving institutions that benefit them, even when they are socially harmful. Changing institutions requires overcoming this political resistance.

  • The shift to an intangibles-based economy has created new institutional demands relating to property rights, information flows, incentives, and norms. Old institutions developed for a tangible capital economy sometimes work well for intangible capital. New institutions are needed to manage issues like spillovers, synergies, sunk costs, and scaling.

  • Overall, institutional fragility and lag are risks in economic transition. Crafting effective new institutions is difficult but essential as the technological landscape evolves. Key challenges are overcoming political resistance and reinventing rules and norms for a changing economy.

Here are a few key points summarizing the section on the two paradoxes facing governments in promoting intangible investment and strengthening intellectual property rights:

  • The first paradox is about the quantity versus quality of innovation. The iPhone illustrates how government funding laid the groundwork for breakthrough technologies, while the wheelie suitcase shows incremental private sector innovation. There is a debate over whether governments should focus on funding potentially transformative innovations or improving existing technologies.

  • The second paradox is that strengthening intellectual property rights incentivizes innovation but also can increase monopoly power and rent-seeking that stifle competition and follow-on innovation. There is a tradeoff between providing incentives for innovation through IP rights and ensuring healthy competition and access to knowledge.

  • Resolving these paradoxes is challenging. There are debates over the right balance of public vs private funding, essential vs applied research, and strength of IP rights. Getting the mix right can increase intangible investment and growth, but the complexities make simple solutions elusive.

  • There are also significant political economy barriers, as incumbent firms lobby to shape policies and institutions to benefit themselves rather than maximize innovation and growth. Overcoming the political obstacles requires an insulating approach from this lobbying.

Does this help summarize the critical points on governments’ two big paradoxesnts face in promoting intangible investment and reforming intellectual property rules? Let me know if you want me to expand or modify the summary.

  • The wheelie suitcase example illustrates how innovation often comes from simple combinations of existing ideas/technologies. This supports the view that the specific combinations of intangible capital matter more than total investment.

  • Intangible capital tends to be more heterogeneous than tangible capital. Economist Ludwig Lachmann argued that what matters is entrepreneurs identifying valuable new combinations of money, not just maximizing investment.

  • With intangibles, both the quantity (investment level) and quality (right combinations) matter. Traditionally policymakers have tried to increase both.

  • But there are signs these goals conflict in areas like R&D and higher education. Despite the growing investment, productivity could be faster. Rules to allocate funding seem imperfect and vulnerable to capture by interests.

  • Metrics used to allocate R&D funding may encourage gaming and easy projects rather than breakthroughs. More graduates take jobs not needing degrees, suggesting mismatches in skills.

  • Overall, policies to increase investment in intangibles like R&D and education may reach diminishing returns or create misalignments. More attention may be needed to get the right combinations and quality.

  • Rules for subsidizing intangible investments like R&D are imperfect and sometimes perverse, failing to account for new models of research (e.g., data and software tools) and disincentivizing replication studies. This makes it hard for research funding to keep pace with technological change.

  • Institutional capture and conflicts of interest also distort optimal funding allocation. Academics may prioritize activities like student fees over knowledge generation and spillovers.

  • Intellectual property rights like patents aim to mitigate spillovers by granting temporary monopolies, but they have downsides too. Litigation and “patent trolling” waste money and create gridlock. Extreme cases show that IP law can hinder innovation.

  • There are arguments on both sides - some say IP is essential for innovation, others that it does more harm than good. The truth likely lies in the middle. The ideal level of IP protection balances enabling innovation through incentives versus avoiding gridlock from monopolies. Finding this optimum is an ongoing challenge.

Here are the key points summarizing the discussion on intangibles, IPRs, and centralization:

  • There is a tradeoff between compensating for spillovers of intangible investments (which discourage such investments) and promoting synergies between intangibles (to maximize valuable combinations).

  • If intangibles are homogeneous and spillovers strong, favor more substantial IP rights and public subsidy (quantity theory). If you think intangibles are heterogeneous and getting the right combinations is essential, select milder IP and encourage experimentation (quality theory).

  • Many reform proposals respond to problems of imperfect IP rules, rent-seeking, and adapting to technological change. For example:

  • Discretionary funding agencies (DARPA model) allow more radical project selection and escape rigid bureaucracies.

  • Patent reform proposals (e.g. Boldrin/Levine) aim to tailor rules better to innovation specifics.

  • Extending intangible subsidies beyond R&D and education, e.g., to open-source software.

  • Overall recommendations:

  1. Cautiously weaken IP rights to encourage combinations and experimentation

  2. Reform funding to allow more discretion and focus on neglected intangibles like open data/software

  3. Improve quality and targeting of public training/education spending

  4. International coordination on new rules to limit negative spillovers but encourage positive ones

  • To increase investment in intangibles, governments should fund more basic research, vocational training, open data/software projects, and R&D tax credits. They should also reform patent and IP laws to reduce lobbying and rent-seeking.

  • But there are two political challenges:

  1. Balancing system capability and resistance to lobbying/rent-seeking. Rules-based bodies are prone to gaming, while politically shielded bodies are vulnerable. Committing political capital is critical.

  2. Gaining legitimacy for policies that may benefit unpopular elites. Presenting approaches as responding to external threats can help override opposition.

  • Investing political capital and building state capacity on intangibles is essential. This requires hiring skilled staff, analytical capability, and committing support to resist lobbying.

  • A minority of governments have gained legitimacy for intangible investment by invoking external threats. However, success also requires creating conditions for entrepreneurship and delivering high-quality outputs.

Here is a summary of the key points from the excerpt:

  • An economy based on intangible assets (ideas, software, brands, etc.) makes borrowing more difficult and risky. Intangible assets have little resale value if a debtor defaults, reducing their usefulness as collateral.

  • An intangible economy lowers the natural interest rate, squeezing monetary policy. Central banks need more room to stimulate growth by cutting rates.

  • Pension funds and insurers must be allowed to invest more in innovative companies to provide the necessary financing.

  • Fiscal policy may need to play a more significant role in stabilizing the economy given the constraints on monetary policy.

  • Financial systems built around tangible assets struggle in an intangible economy, reducing investment, innovation, and growth while increasing economic instability. Reforms are needed to allow financial institutions to support intangible investments properly.

  • Intangible assets like intellectual property are more complicated to use as collateral for debt financing than tangible assets like property. This creates a gap between the financing needs of intangible-intensive firms and the ability of capital markets to provide that financing.

  • Small and medium enterprises rely heavily on collateral-based lending, so they are disadvantaged in financing intangible investments.

  • There is evidence that bank lending has shifted away from financing intangibles and toward real estate in recent decades as intangible investment has grown.

  • Equity financing faces challenges too. Pension funds and insurance firms need more funding for unlisted equity where venture capital operates. Accounting rules and value investing strategies are less helpful in valuing intangible assets.

  • The post-financial crisis pullback in lending may have worsened the tyranny of collateral and contributed to the slowdown in intangible investment.

  • Overall, the financial system must be equipped to provide the financing that intangible-intensive firms need.

  • Value investing has underperformed since 2007, partly due to the growing importance of intangible assets that must be reflected in financial accounts. This makes accounting metrics used to identify value stocks less effective.

  • Mean reversion in stock returns has also slowed down. Poorly performing companies no longer automatically improve while market darlings inevitably fail. This is attributed to the importance of intangibles, which enable some firms to maintain high profitability.

  • The Matthew effect may also impact bank lending (“the rich get richer”). Banks rely on simple heuristics to make lending decisions, which works less well when firm performance diverges. Good firms stay good, and bad ones remain bad.

  • Managing for shareholder value maximization causes issues with spillovers and short-termism in an intangibles economy. Firms cut R&D that benefits the broader economy. Complex investments are avoided to satisfy ignorant short-term traders.

  • Financial institutions designed for tangible asset economies with mean reversion and low spillovers become less suitable when intangibles dominate. This includes bank lending, value investing, and shareholder value governance.

  • Inflation targeting by central banks is a sensible policy because it provides a clear target that is easy to understand, especially in times of uncertainty. However, it has become more challenging in an intangible economy.

  • Lower interest rates boost investment and demand through various channels like the cost of capital, bank lending, and broad credit. However, these mechanisms have become less predictable for intangible-rich firms that rely less on debt and collateral.

  • Changes in demand affect inflation according to the Phillips curve relationship. However, inflation has become persistently low and unresponsive to demand (a “flatter” Phillips curve). Globalization and the intangible economy may explain this.

  • Interest rates are ultimately limited by natural forces that determine the “neutral” interest rate. However, estimating this neutral rate has become problematic in the intangible economy as traditional anchors like growth and productivity have weakened.

  • As a result, monetary policy and simple inflation targeting face more uncertainties. More responsibility for economic stabilization falls on fiscal policy in the intangible economy.

  • The neutral interest rate (R*) has fallen as more people save for retirement, increasing the supply of savings. This lowers the real interest rate.

  • Returns on safe assets like government bonds have declined, while returns on business investments have remained steady. This has widened the spread between safe and risky returns.

  • The rise in this spread suggests an increase in required risk compensation between safe and risky lending.

  • The trend toward intangible investment may explain part of the rising risk premium, as intangibles are harder to collateralize and riskier to invest in.

  • There is a positive correlation between intangible intensity and the spread between returns on capital and safe rates, supporting the view that intangibles raise risk spreads.

  • The decline in R* puts downward pressure on central bank interest rates, reducing their room to cut rates to stimulate growth during downturns.

  • Workarounds like IP-backed debt, venture capital, and using homes as collateral have emerged but need improvement. VC needs to be more scalable to most industries. Home collateralization is risky and regressive.

  • Overall, the financial system needs help to efficiently provide capital to intangible-intensive businesses, requiring adaptations and imperfect workarounds. Developing better financing methods for intangibles is a significant challenge.

  • Many business loans in the UK are mortgage lending in disguise, with directors’ houses used as security. As intangible investment has risen, banks have lent less to businesses and more to real estate.

  • If banks lend less to small businesses, those firms’ balance sheets consist more of real estate loans and become more exposed to the property market.

  • It becomes more challenging for potential entrepreneurs with home ownership to start businesses, shrinking the talent pool.

  • Monetary policy has less room to maneuver in the face of economic shocks due to high debt levels, making the economy more fragile.

  • Proposals include:

  1. Ending the tax advantage for debt over equity financing to reduce leverage.

  2. Changing financial regulations to encourage investment in illiquid assets like those of intangibles-based firms.

  3. Investment managers incorporate positive spillovers into ESG mandates, favoring intangible-investing firms.

  4. Increasing the role of fiscal policy, either through greater central bank power, independent budgetary agencies, or parliamentary budget offices.

  • The growth of intangibles increases the importance of physical proximity and urban real estate, but governing institutions must keep up. Cities are more economically productive but are only delivering for some inhabitants.

  • A growing gap exists between thriving cities and more minor “left behind” towns. Town inhabitants tend to be older, less educated, more populist, and want a rebalancing.

  • COVID-19 led to remote work and a departure from cities, making cities seem less appealing. This parallels past backlashes against dominant cities.

  • Improving urban institutions requires technocratic fixes and ideological, distributional, and cultural change on issues like zoning, housing, and transportation.

  • Potential solutions include building denser, relaxing zoning laws, improving public transit, redistributing tax revenue, and place-based policies to help left-behind areas.

  • Rural areas need connectivity. Better urban-rural links via transport and remote work can spread prosperity.

  • Changes require political will to overcome entrenched interests. However, optimizing cities for intangibles can make them work better for all.

  • The economic rise of cities has coincided with the rise of intangible capital. Cities facilitate matching, learning, and sharing effects that are increasingly valuable in an intangible economy.

  • However, rising housing costs in prosperous cities consume productivity benefits. Outdated land use rules and NIMBYism constrain development.

  • Smaller declining cities face even more significant problems. They lack agglomeration effects and are prone to economic shocks. The Matthew effect exacerbates divergence between thriving and struggling places.

  • Political dysfunction emerges from this growing divide. Populism appeals to disengaged voters in struggling areas.

  • Technology like remote work may help transcend geographic constraints. However, it is still being determined if COVID-induced remote work will persist and reshape where people live and work.

  • Solutions require institutional changes to rules governing land use and planning in thriving cities and transport investment in smaller towns. The potential of remote work should also be harnessed while recognizing its limitations.

  • COVID-19 led to a large-scale experiment in remote working. While some sectors like information/communications saw productivity gains, most businesses do not intend to increase home working post-pandemic permanently. This suggests that while remote work will increase, cities and offices will remain important.

  • There are two broad approaches to dealing with the rising demand for thriving cities:

  1. The technocrat’s solution of relaxing planning laws to allow more development and growth in thriving cities, even if it comes at the expense of struggling towns. This is economically sensible but politically difficult.

  2. The politician’s solution is resisting changes to protect constituents’ interests and promising to revive struggling towns. This is politically expedient but needs to be more economically realistic.

  • Neither approach on its own solves the problem. Purely technocratic solutions ignore political constraints, while purely political solutions ignore economic realities.

  • A better solution involves new institutions that address both the economic and political dimensions, such as empowering local governments to capture some of the benefits of growth to fund improvements in left-behind areas. The goal is to align economic and political incentives.

  • Cities face two significant problems - difficulty building more homes due to NIMBYism, and inadequate infrastructure/transport. These limit the growth and benefits of urban agglomeration.

  • To increase housing supply, proposals like street votes and block-wide zoning aim to decentralize planning decisions to small local areas. This aligns incentives better and empowers communities.

  • To improve infrastructure, technocratic solutions like congestion charging face political resistance. Good policy design like allocating revenues locally can help overcome this.

  • In left-behind places, politicians make unrealistic promises about restoring past prosperity. A better approach recognizes global economic shifts and aims for inclusive growth via place-based policies, worker support, and links to thriving hubs.

Here are the key points about local areas that have prospered in an intangible economy:

  • The Basque Country in Spain has achieved prosperity and growth partly through the efforts of the Mondragon Corporation, a workers’ cooperative group that invests heavily in technical training and R&D. This suggests investing in intangibles like skills can lead to productivity growth in local areas.

  • “Community wealth building” encourages local economic development through public procurement, cooperatives, and local institutions. It aims to increase local wages and skills. While not proven, it may help encourage complementary investments in intangibles that create value locally.

  • These models deserve more experimentation to help poorer places become more productive. However, politicians need realistic expectations, as local growth has no consistent recipe for growth.

  • Increased remote working during COVID-19 may help some left-behind places attract remote workers if they offer an attractive lifestyle. However, making remote work effective raises institutional questions.

  • The “death of distance” through remote work would be a significant change, challenging the dominance of big cities. We are in an unplanned experiment in remote work, whose productivity effects could be more precise and made apparent.

  • There are concerns that competition between firms is decreasing, leading to calls for more aggressive antitrust policies and breaking up large companies. However, the authors argue that there are better approaches than this because the change in competition is driven by the increasing importance of intangibles, not just policy changes.

  • The rise of intangibles changes the nature of competition. Features like network effects, high fixed costs, and winner-takes-most dynamics mean sectors with many intangibles see a few dominant firms. This concentration is driven by economics, not weak antitrust.

  • Competition policy should focus on lowering barriers to new firm creation and mobility of workers between firms. This will allow the forces of creative destruction to operate. Breaking up big tech firms may not increase competition.

  • There is also unhealthy competition between individuals, like rat races driven by status and relative income concerns. This causes anxiety and dysfunction but gets less attention than competition between firms.

  • Educators and governments should look at ways to reduce excessive individual competition through reforms to education, housing policy, and taxation. This could lower anxiety and dysfunction while maintaining dynamism.

  • There are concerns that competition between firms is declining, as evidenced by increased concentration, rising markups, and growing gaps between leading and lagging firms. Some see conglomerates as another sign of reduced competition.

  • However, the rise of intangibles offers an alternative explanation. Intangibles allow firms to scale up over many locations, so national concentration can increase even as local competition intensifies.

  • Accounting for intangibles reduces the apparent rise in markups and profits. The share of profits is exaggerated by including residential property income.

  • Intangibles allow large firms to expand into new markets, creating conglomerates rapidly, but this expansion increases competition.

  • Competition between workers is also intensifying - for jobs, schools, status - due to the rising importance of intangibles like skills and credentials. This risks escalating wasteful spending on degrees and needs addressing.

  • Overall, the effect of intangibles on competition is complex but regulators should focus on local competition and competition between workers, not just national firm concentration.

  • Intangibles help explain the crisis of interfirm competition in three ways:

  1. Including intangibles in measures of market power (like markups) reduces or eliminates apparent increases in market power.

  2. The growing importance of intangibles has increased local competition as intangibles-rich national chains open more local establishments, even as national competition falls.

  3. Concentration has increased most in the most intangible-intensive sectors, suggesting winner-takes-all dynamics of intangible capital rather than a deterioration of competition policy.

  • However, an intangible economy is harder to regulate and requires changes to competition policy institutions.

  • There are concerns that the digital economy allows for more personalized pricing and segmentation, meaning informed consumers no longer hold down prices for uninformed consumers. However, evidence of truly personalized pricing still needs to be improved.

  • Interventions to change the structure of prices rather than increase competition can have unintended consequences, like helping some consumers at the expense of others. Careful analysis is required.

  • Differential pricing can benefit companies and consumers in intangibles-intensive businesses like software or video games, by allowing them to cover fixed costs while selling to consumers at different price points.

  • Ensuring market entry and dynamism becomes more complex with intangibles-intensive businesses, as their competitive advantages are highly heterogeneous. This requires more bespoke analysis and negotiations by regulators.

  • Competition policy may need to expand beyond traditional antitrust to encompass a broader range of policies affecting business dynamism. An “n+1” regulator could grant temporary licenses to innovative new business models that violate regulations.

  • Sectoral regulators could shift to regulating by activity rather than industry, which would help adapt regulations to intangibles-intensive platforms.

  • Caution is warranted on interventions in digital markets aimed at the structure of prices or breaking up companies, as scale and synergies benefit consumers. Instead, competition policy should treat intangibles as a feature and aim to encourage rivalry and entry.

  • Growth in intangible capital like software, brands, and intellectual property has intensified competition among firms and workers.

  • Stronger economies of scale and temporary dominance of markets by some firms have made it harder for new innovative firms to compete. This requires new approaches by competition regulators to focus on enabling market entry.

  • For workers, the importance of intangibles increases the premium on skills and credentials. This intensifies the “rat race” where workers compete intensely for qualifications and jobs.

  • Education and credentials risk becoming more about signaling talent rather than building skills. Signaling requires costly investments but does not increase productivity like skills do.

  • Participants in the labor market have incentives to focus on signaling value of degrees rather than their skills value. This can lead to excessive signaling competition.

  • Reforms are needed to refocus education on building skills rather than just signaling and tempering unproductive labor market competition. This requires changes in norms and incentives.

  • Many jobs now require qualifications or certification that did not in the past, ostensibly for skills and safety reasons. This could explain decreasing graduate wage premiums in the UK, as more jobs require degrees to differentiate candidates.

  • There is a debate around whether college wage premiums in the US are due to signaling rather than increased productivity. One argument is that dropping out a year before graduating leads to a significant wage penalty, suggesting the diploma matters more than the extra year of learning.

  • Some see making education more of a market with student choice and competition among providers as a solution. Still, this risks increased credentialism and signaling without actual skill development.

  • Government policy generally sees more education as better, focusing little on discouraging signaling. Policymakers need more data and experiments to understand signaling and design systems to reduce it.

  • The push for ever more students in higher education resembles a quantity over quality view. The solution may be more variety in valuable skills rather than higher enrollment.

  • Periods of rapid economic growth (“efflorescences”) have occurred throughout history but typically do not last long. Societies thrive during one technological era but then struggle to adapt their institutions to the next era.

  • Our current economic malaise may have similar origins - institutions that enabled growth in the past are now poorly suited to an economy based on intangible capital like knowledge and relationships.

  • We need institutional reforms in cities, competition, investment, and finance to fix this. However, reforms also require building state capacity, balancing quantity and quality of investment, resisting rent-seeking, and cultural change.

  • Two fundamental tradeoffs:

    • Centralized provision of public/collective goods versus costs of rent-seeking and information loss
    • Quantity versus quality of intangible investment
  • “State capacity” affects where society operates on these tradeoffs. Higher state capacity enables more centralized goods at lower cost.

  • The goal is to shift the tradeoffs outwards - enable more centralized goods and higher quantity/quality of investment for rent-seeking and information loss. This requires institutional reforms and cultural change.

  • There is a fundamental tradeoff between centralization of production of public goods and minimizing wasteful influence activities/maximizing information. The more centralized production is, the more influence activities occur, and information needs to be included.

  • The shift to an intangible economy has worsened this tradeoff in two main ways:

    • With more synergies required, the lack of information becomes more costly, flattening the curve (at any given level of information, fewer public goods can be produced).
    • Increased inequality lowers state capacity, shifting the curve leftward (lower trust, weaker institutions).
  • Improving state capacity (ability to collect taxes, enforce laws, and provide public goods) is critical to encouraging intangible investment and dealing with its consequences. This involves strengthening government agencies and receptive politicians.

  • The policy agenda to improve state capacity faces resistance from the political right (prefers weak state) and left (dislikes focus on bureaucratic capability over values). However, the economic case is clear - better state capacity is needed to address issues arising from the intangible economy.

Here is a summary of the key points regarding state capacity interactions with the private sector:

  • There is a tension between increasing the quantity versus quality of intangible investments. Providing more subsidies for intangibles like R & D may increase quantity but reduce quality if poorly designed.

  • Governments have traditionally used delegation and rules-based approaches to resist rent-seeking and lobbying. However, these can backfire if circumstances change. Governments may need to expend political capital to prioritize resisting lobbying actively.

  • There are several political strategies to make institutional reforms work: tweak reforms to be more palatable, use persuasion to change minds, link reforms to things voters care about, or build political capital elsewhere to push through reforms.

  • Small countries with an external threat often develop effective institutions for intangibles. Missions can also generate institutional reforms if compelling enough.

  • Earning political legitimacy elsewhere can provide capital to spend on institutional reforms. This is seen in “technopopulist” approaches in some countries.

In summary, there are tradeoffs between quantity versus quality of intangibles. Governments need proactive strategies to implement institutional reforms, including expending political capital, linking to voter interests, and techno-populist approaches.

  • There has been a shift in advanced economies from tangible to intangible capital as the main driver of growth. This includes investments in R&D, software, design, organizational development, training, and branding.

  • This shift can explain several economic trends such as declining physical investment, lower productivity growth, wage stagnation, and rising inequality.

  • The current institutional framework was designed for a tangible capital economy and needs to be better suited for an intangible capital economy. This creates problems around supporting research, urbanization, financial markets, and competition policy.

  • To restart growth and shared prosperity, we must develop new institutions and policies tailored to the intangible economy. This includes better funding research, embracing cities, reforming financial markets, and updating competition policy.

  • The shift to intangibles raises issues around state capacity, influence activities, inequality, and trust. Cultural change may also be needed. Solutions will differ across countries but require courage and determination to rebuild institutions for the modern intangible economy.

Here is a summary of the key points regarding intangible assets and institutions:

  • Intangible assets like brands, patents, and organizational processes create value but are hard to measure. Their boom may explain the productivity paradox of recent decades.

  • Intangibles tend to have increasing returns to scale and lead to winner-take-most dynamics, contributing to rising inequality. They require complementary organizational capital to be fully exploited.

  • Institutions like property rights, impartial courts, and inclusive political systems enable exchange, protect property, and enforce contracts. They determine how gains from specialization and trade are distributed.

  • Inclusive institutions that restrain elites and monopolies while empowering citizens foster prosperity. Extractive institutions that concentrate power undermine growth.

  • Institutions evolve gradually, shaped by path dependency and collective action problems. Good institutions require checks on government power, political inclusion, and accountability.

  • Well-functioning markets require appropriate property rights, enforceable contracts, mechanisms for collective action, commitment devices, dispute resolution, and norms of trust and reciprocity. These facilitate specialization, exchange and minimize transactions costs.

Here is a summary of the key points about finance and intangible investment:

  • Intangible investments like R&D, brands, and organizational capital are challenging to collateralize for debt finance compared to tangible assets like property. This makes debt finance less suited to funding intangibles.

  • Accounting standards make it hard to record and value intangibles on balance sheets correctly. This adds to the difficulty of using intangibles as collateral.

  • Equity finance through public markets relies on accounting valuations and needs better intangible measurement. Investors need help to value intangible assets.

  • Private equity can play more of a role since it does not rely on public accounting valuations. However, the financial system needs to be better set up to fund long-term risky intangible investments.

  • Potential solutions include improving accounting standards for intangibles, developing more patient long-term equity finance, and expanding the role of private equity and debt. However, fundamentally, the financial system needs to support intangible investment better.

  • Thomas Jefferson believed cities were susceptible to disease and favored an agrarian society. He thought cities should be decentralized into smaller unidades with green spaces between them.

  • There are benefits to density in cities, such as knowledge spillovers and productivity growth. However, density also leads to higher housing costs.

  • The rise of remote work during the pandemic may reduce the appeal of expensive city centers. However, cities will likely continue to play an important economic role.

  • Local autonomy and community involvement can help address issues like housing affordability. Solutions like land value taxes, congestion pricing, and community land trusts have been proposed.

  • Place-based policies to boost lagging regions require good local leadership and participation. Transport and digital infrastructure are essential to connect less dense areas.

  • Skills, health, and early years interventions can improve prospects for people in struggling areas. Engaging the community is critical to successful local regeneration.

Here is a summary of the key points from Urukoglu, and Zhang 2021 and Hsieh and Rossi-Hansberg 2019:

Urukoglu, and Zhang 2021:

  • Examines the relationship between market power and productivity growth in the US over the past few decades.
  • Finds increased market power is associated with lower productivity growth, especially in industries with high concentration and abnormally high profits.
  • Suggests lax antitrust enforcement has allowed increases in market power that hamper productivity.

Hsieh and Rossi-Hansberg 2019:

  • Develops a spatial model of housing and labor markets to study the aggregate implications of distortions that reduce the density of economic activity in high productivity locations.
  • Estimates the misallocation of labor across US cities and industries from 1964 to 2009 lowered aggregate output by 37% in 1964 and by 47% in 2009.
  • Suggests ways to reduce misallocation include land use liberalization in high productivity cities like New York and San Francisco.

In summary, both papers find that distortions or misallocations in the economy, whether from increased market power or constraints on density, can significantly reduce productivity growth. Policy reforms regarding antitrust enforcement and land use regulation could improve outcomes.

Here is a summary of the key points from the selected research papers and articles:

  • There is evidence of a slowdown in productivity growth and innovation in advanced economies since the 2000s, compared to the decades before. Possible explanations include lower rates of knowledge diffusion, weaker competition, measurement issues around intangibles, and the limits of general purpose technologies like ICT.

  • Intangible assets like R&D, software, and organizational capital now make up a significant share of investment and value added. However, their properties, like scalability and drunkenness, can enable winner-takes-most dynamics and rising market power.

  • Policies to spur innovation and diffusion include R & D tax credits, better intangibles financing, competition reform, training, urban planning, and institutional changes around corporate governance. There is also a case for more active industrial strategy to support innovation.

  • Education and human capital may be overvalued - signaling and credentialism also play a role. Moreover, the social returns to innovation appear larger than private returns, suggesting underinvestment. This strengthens the case for public policy to boost innovation.

  • Measurement issues around intangibles like R&D are still a challenge. Statistical agencies are working to capture better intangible inputs and outputs, which could affect measured productivity growth.

Here is a summary of the key points from the references:

  • There has been a decline in global accurate interest rates and risk premiums since the 2008 financial crisis, driven by factors like aging populations and lower growth. This has implications for monetary policy and financial stability (Daly, 2016).

  • The pace of scientific progress has accelerated in recent decades due to increased spending and globalization (Dattani & Bechhofer, 2021).

  • Market concentration and declining business dynamism in advanced economies may contribute to weak investment, productivity growth, and innovation (Decker et al., 2018; Diez et al., 2019).

  • Intangible assets like R&D, brands, and organizational capital are increasing in production. This has implications for productivity measurement and corporate finance (Demmou et al., 2019).

  • The rise of superstar firms with high profit margins may reflect increased market power and declining competition in parts of the economy (De Loecker & Eeckhout, 2018).

  • Occupational licensing has expanded significantly in recent decades in the US and UK, raising concerns about impediments to labor mobility and competition (Forth et al. 2011, Department of the Treasury et al. 2015).

  • Factors like trust, social capital, and good institutions seem essential for prosperity, though their erosion may pose risks (Fukuyama, 1995; Putnam, 2000).

  • Fiscal policy may need to play a more significant countercyclical role given constraints from the zero lower bound on interest rates (Furman & Summers, 2020).

Here is a summary of the key points from the references:

  • There are concerns that economic growth has slowed in advanced economies in recent decades, with some arguing this reflects a slowdown in innovation and productivity growth. However, measurement issues make trends difficult to discern.

  • The rise of intangible assets like R&D, brands, software, and organizational capital may help explain weak investment, productivity, and wage growth despite corporate profitability. Managing and valuing intangibles poses challenges.

  • Institutional factors like patent policy, industry consolidation, zoning rules, occupational licensing, and contracting frictions may hinder competition, innovation, and economic dynamism. Reforms could unlock growth.

  • The financial sector may misaligned to allocate resources toward housing over business investment. Reforms to channel funds to innovative firms and manage corporate debt could aid growth.

  • Radical uncertainty makes forecasting the future complex. The policy should focus on adapting flexibly rather than optimizing based on fragile predictions. Fostering decentralized, experimental policy approaches may be helpful.

  • A combination of measurement issues, intangible assets, institutions, finance, and uncertainty help explain recent growth patterns. Careful empirical study alongside policy experimentation is needed.

Here is a summary of the key points from the references:

  • Innovation and technological progress are critical for economic growth and development. However, the innovation process faces challenges like financing constraints, coordination problems, and resistance to creative destruction.

  • Government has a vital role in fostering innovation through funding basic research, strengthening institutions like patent law and competition policy, and upgrading education and skills. However, it must be careful not to over-centralize or over-plan the process.

  • Financial markets and accounting practices may undervalue intangible assets like R&D, brands, and organizational capital that are increasingly important for innovation. New approaches are needed to measure correctly and finance intangibles.

  • Planning systems and zoning rules often hinder innovation in cities and housing. More flexibility and room for experimentation could enable faster adaptation to new technologies and business models.

  • Inequality of opportunity remains an issue, though there are debates around the extent to which meritocracy has declined. Improving access to education and skills is essential for social mobility.

  • Measuring productivity and real income growth properly accounting for new goods and quality improvements is an ongoing challenge. This may affect assessments of stagnation versus continued progress.

Here is a summary of the key points from the PDF:

The article discusses the pros and cons of education as a definite solution to economic problems versus education as just one factor among many.

  • Education has long been a driver of economic growth and prosperity. However, its impact can be overstated. Other factors like technology, infrastructure, and institutions also play significant roles.

  • Education does correlate with higher incomes at the individual level. However, the link between more education and faster growth must be clarified. The nation needs to clarify more critical factors for national economic success.

  • Education quality matters more than just quantity. Many developing countries have expanded access to schooling but have yet to see significant gains. The skills being taught and learned are key.

  • Education works best when paired with other reforms like good governance, property rights, openness to trade, flexible labor markets, etc. Education alone cannot transform an economy.

  • At the same time, education remains crucial for developing human capital and expanding opportunities. Abandoning education would be a mistake. The debate is about how much to prioritize it versus other policies.

  • Overall there are no definitive answers. The impact of education is complex and dependent on context. However, it should not be seen as a silver bullet. A nuanced, multifaceted policy approach is needed.

Here is a summary of the key points about Arvin, 132 and the topics mentioned:

  • Arvin, 132 refers to a city in California with around 20,000 people. It should be discussed more extensively in the book.

  • Gentrification is discussed in the context of rising housing costs pricing out lower-income residents in prosperous city centers.

  • Edward Glaeser is an economist who has studied and written about cities. He is cited regarding urban density and housing costs.

  • The Glorious Revolution in Britain established parliamentary supremacy and constrained the monarch’s power. It laid the groundwork for secure property rights.

  • Ben Goldacre is a doctor and science writer who has critiqued problems with medical research and publishing. He is referenced when discussing concerns about the reliability and integrity of academic research.

  • Claudia Goldin is an economist who has researched women in the workforce, income inequality, and the role of education. She is cited regarding wage patterns.

  • The book examines economic stagnation, inequality, fragility, and a lack of trust and meaning as symptoms of an “intangibles crisis” related to the shift towards an intangible economy. New institutions and policies are needed to address this crisis.

Here are the key points from the summarized passages:

  • Working from home (WFH) has become more common, with 60% of Americans working from home during the pandemic. WFH has benefits and challenges, such as improved work-life balance, but potential loneliness and lack of collaboration.

  • Working conditions have historically been poor, with extended hours and unsafe environments during the Industrial Revolution. Labor regulations and unions helped improve conditions.

  • The World in 2020 by McRae predicted global turbulence but did not foresee the COVID-19 pandemic.

  • Yudkowsky and Yurukoglu have written about artificial intelligence.

  • Zimbabwe has faced economic challenges.

  • The authors Haskel and Westlake have expertise in economics and statistics.



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