Jonathan Haskel & Stian Westlake on Capitalism without Capital

Early in the twenty-first century, a quiet revolution occurred. For the first time, the major developed economies began to invest more in intangible assets, like design, branding, R&D, and software, than in tangible assets, like machinery, buildings, and computers. For all sorts of businesses, from tech firms and pharma companies to coffee shops and gyms, the ability to deploy assets that one can neither see nor touch is increasingly the main source of long-term success. But this is not just a familiar story of the so-called new economy. Capitalism without Capital shows that the growing importance of intangible assets has also played a role in some of the big economic changes of the last decade.

What do you mean when you say we live in an age of Capitalism without Capital?

Our book is based on one big fact about the economy: that the nature of the investment that businesses do has fundamentally changed. Once businesses invested mainly in things you could touch or feel like buildings, machinery, and vehicles. But more and more investment now goes into things you can’t touch or feel: things like research and development, design, organizational development—“intangible’ investments. Today, in developed countries, businesses invest more each year intangible assets than in tangibles. But they’re often measured poorly or not at all in company accounts or national accounts. So there is still a lot of capital about, but it has done a sort of vanishing act, both physically and from the records that businesses and governments keep.

What difference does the rise of intangible investments make?

The rise of intangible investment matters because intangible assets tend to behave differently from tangible ones—they have different economic properties. In the book we call these properties the 4S’s—scalability, sunkenness, synergies, and spillovers. Intangibles can be used again and again, they’re hard to sell if a business fails, they’re especially good when you combine them, and the benefits of intangible investment often end up accruing to businesses other than the ones that make them. We argue that this change helps explain all sorts of important concerns people have about today’s economy, from why inequality has risen so much, to why productivity growth seems to have slowed down.

So is this another book about tech companies?

It’s much bigger than that. It’s true that some of the biggest tech companies have lots of very valuable intangibles, and few tangibles. Google’s search algorithms, software, and prodigious stores of data are intangibles; Apple’s design, brand, and supply chains are intangibles; Uber’s networks of drivers and users are intangible assets. Each of these intangibles is worth billions of dollars. But intangibles are everywhere. Even brick and mortar businesses like supermarkets or gyms rely on more and more intangible assets, such as software, codified operating procedures, or brands. And the rise of intangibles is a very long-term story: research by economists like Carol Corrado suggests that intangibles investment has been steadily growing since the early twentieth century, long before the first semiconductors, let alone the Internet.

Who will do well from this new intangible economy?

The intangible economy seems to be creating winners and losers. From a business point of view, we know that around the world, there’s a growing gap between the leading businesses in any given industry and the rest. We think this leader-laggard gap is partly caused by intangibles. Because intangibles are scalable and have synergies with one another, companies that have valuable intangibles will do better and better (and have more incentives to invest in more), while small and low performing companies won’t, and will lag ever further behind.

There is a personal dimension to this too. People who are good at combining ideas, and who are open to new ideas, will do better in an economy where there are lots of synergies between different assets. This will be a boon for educated, open-minded people, people with political, legal, and social connections, and for people who live in cities (where ideas tend to combine easily with one another). But others risk being left further behind.

Does this help explain the big political changes in recent years?

Yes—after the EU referendum in the UK and the 2016 presidential election in the US, a lot of pundits were asking why so many so-called “left behind” communities people voted for Brexit or Donald Trump. Some people thought they did so for cultural reasons, others argued the reasons were mainly economic. But we would argue that an intangible economy, these two reasons are linked: more connected, cosmopolitan places tend to do better economically in an intangible economy, while left-behind places suffer from an alienation that is both economic and cultural.

You mentioned that the rise of intangible investment might help explain why productivity growth is slowing. Why is that?

Many economists and policymakers worry about so-called secular stagnation: the puzzling fact that productivity growth and investment seems to have slowed down, even though interest rates are low and corporate profits are high, especially since 2009. We think the growing importance of intangibles can help explain this in a few ways.

  • There is certainly some under-measurement of investment going on—but as it happens this explains only a small part of the puzzle.
  • The rate of growth of intangible investment has slowed a bit since 2009. This seems to explain part of the slow-down in growth (and also helps explain why the slowdown has been manly concentrated in total factor productivity)
  • The gap between leading firms (with lots of intangibles) and laggard firms (with few) may have created a scenario where a few firms are investing in a lot of intangibles (think Google and Facebook) but for most others, it’s not worth it, since their more powerful competitors are likely to get the spillover benefits.

Does the intangible economy have consequences for investors?

Yes! Company accounts generally don’t record intangibles (except, haphazardly, as “goodwill” after an acquisition). This means that, as intangible assets become more important, corporate balance sheets tell investors less and less about the true value of a company. Much of what equity analysts spend their days doing is, in practice, trying to value intangibles.

And there’s lots of value to be had here: research suggests that equity markets undervalue intangibles like organizational development, and encourage public companies to underinvest in intangibles like R&D. But informed investors can take advantage of this—which can benefit both their own returns and the performance of the economy.

Jonathan, you’re an academic, and Stian, you are a policymaker. How did you come to write this book together?

We started working together in 2009 on the Nesta Innovation Index, which applied some of the techniques that Jonathan had worked on to measure intangibles to build an innovation measurement for the UK. The more we thought about, the clearer it became that intangibles helped explain all sorts of things. Ryan Avent from the Economist asked us to write a piece for their blog about one of these puzzles, and we enjoyed doing that so much we thought we would try writing a book. One of the most fun parts of writing the book was being able to combine the insights from academic economic research on intangibles and innovation with practical insights from innovation policy.

CapitalismJonathan Haskel is professor of economics at Imperial College Business School. Stian Westlake is a senior fellow at Nesta, the UK’s national foundation for innovation. Haskel and Westlake are cowinners of the 2017 Indigo Prize.

Brian Kernighan on what we all need to know about computers

KernighanLaptops, tablets, cell phones, and smart watches: computers are inescapable. But even more are invisible, like those in appliances, cars, medical equipment, transportation systems, power grids, and weapons. We never see the myriad computers that quietly collect, share, and sometimes leak vast amounts of personal data about us, and often don’t consider the extent to which governments and companies increasingly monitor what we do. In Understanding the Digital World, Brian W. Kernighan explains, in clear terms, not only how computers and programming work, but also how computers influence our daily lives. Recently, Kernighan answered some questions about his new book.

Who is this book for? What kind of people are most likely to be interested?

BK: It’s a cliché, but it really is aimed at the proverbial “educated layman.” Everyone uses computers and phones for managing their lives and communicating with other people. So the book is for them. I do think that people who have some technical background will enjoy it, but will also find that it will help their less technical friends and family understand.

What’s the basic message of the book?

BK: Computers—laptops, desktops, tablets, phones, gadgets—are all around us. The Internet lets our computers communicate with us and with other computers all over the world. And there are billions of computers in infrastructure that we rely on without even realizing its existence. Computers and communications systems have changed our lives dramatically in the past couple of decades, and will continue to do so. So anyone who hopes to be at least somewhat informed ought to understand the basics of how such things work. One major concern has been the enormous increase in surveillance and a corresponding reduction in our personal privacy. We are under continuous monitoring by government agencies like the NSA in the United States and similar ones in other countries. At the same time, commercial interests track everything we do online and with our phones. Some of this is acceptable, but in my opinion, it’s gone way too far. It’s vital that we understand better what is being done and how to reduce the tracking and spying. The more we understand about how these systems work, the more we can defend ourselves, while still taking advantage of the many benefits they provide. For example, it’s quite possible to explore interesting and useful web sites without being continuously tracked. You don’t have to reveal everything about yourself to social networks. But you have to know something about how to set up some defenses. More generally, I’m trying to help the reader to reach a better than superficial understanding of how computers work, what software is and how it’s created, and how the Internet and the Web operate. Going just a little deeper into these is totally within the grasp of anyone. The more you know, the better off you will be; knowing even a little about these topics will put you ahead of the large majority of people, and will protect you from any number of foolish behaviors.

Can you give us an example of how to defend ourselves against tracking by web sites?

BK: Whenever you visit a web site, a record is made of your visit, often by dozens of systems that are collecting information that can be used for targeted advertising. It’s easy to reduce this kind of tracking by turning off third-party cookies and by installing some ad-blocking software. You can still use the primary site, but you don’t give away much if anything to the trackers, so the spread of information about you is more limited.

If I don’t care if companies know what sites I visit, why should I be worried?

BK: “I’ve got nothing to hide,” spoken by an individual, or “If you have nothing to hide, you have nothing to fear,” offered by a government, are pernicious ideas. They frame the discussion in such a way as to concede the point at the beginning. Of course you have nothing to hide. If that’s true, would you mind showing me your tax returns? How did you vote in the last election? What’s your salary? Could I have your social security number? Could you tell me who you’ve called in the past year? Of course not—most of your life is no one else’s business.

What’s the one thing that you would advise everyone to do right now to improve their online privacy and security?

BK: Just one thing? Learn more about how your computer and your phone work, how the Internet works, and how to use all of them wisely. But I would add some specific recommendations, all of which are easy and worthwhile. First, in your browser, install defensive extensions like like AdBlock and Ghostery, and turn off third-party cookies. This will take you less than ten minutes and will cut your exposure by at least a factor of ten. Second, make sure that your computer is backed up all the time; this protects you against hardware failure and your own mistakes (both of which are not uncommon), and also against ransomware (though that is much less a risk if you are alert and have turned on your defenses). Third, use different passwords for different sites; that way, if one account is compromised, others will not be. And don’t use your Facebook or Google account to log in to other sites; that increases your vulnerability and gives away information about you for minor convenience. Finally, be very wary about clicking on links in email that have even the faintest hint of something wrong. Phishing attacks are one of the most common ways that accounts are compromised and identities stolen.

KernighanBrian W. Kernighan is a professor in the Department of Computer Science at Princeton University. He is the coauthor of ten other books, including the computing classic The C Programming Language (Prentice Hall). He is the author of Understanding the Digital World: What You Need to Know about Computers, the Internet, Privacy, and Security.

David Alan Grier: The Light of Computation

by David Alan Grier

When one figure steps into the light, others can be seen in the reflected glow. The movie Hidden Figures has brought a little light to the contributions of NASA’s human computers. Women such as Katherine Goble Johnson and her colleagues of the West Area Computers supported the manned space program by doing hours of repetitive, detailed orbital calculations. These women were not the first mathematical workers to toil in the obscurity of organized scientific calculation. The history of organized computing groups can be traced back to the 17th century, when a French astronomer convinced three friends to help him calculate the date that Halley’s comet would return to view. Like Johnson, few human computers have received any recognition for their labors. For many, only their families appreciated the work that they did. For some, not even their closest relatives knew of their role in the scientific community.

GrierMy grandmother confessed her training as a human computer only at the very end of her life. At one dinner, she laid her fork on the table and expressed regret that she had never used calculus. Since none of us believed that she had gone to college, we dismissed the remark and moved the conversation in a different direction. Only after her passing did I find the college records that confirmed she had taken a degree in mathematics from the University of Michigan in 1921. The illumination from those records showed that she was not alone. Half of the twelve mathematics majors in her class were women. Five of those six had been employed as human computers or statistical clerks.

By 1921, organized human computing was fairly common in industrialized countries. The governments of the United States, Germany, France, Great Britain, Japan, and Russia supported groups that did calculations for nautical almanacs, national surveys, agricultural statistics, weapons testing, and weather prediction. The British Association for the Advancement of Science operated a computing group. So did the Harvard Observatory, Iowa State University, and the University of Indiana. One school, University College London, published a periodical for these groups, Tracts for Computers.

While many of these human computers were women, most were not. Computation was considered to be a form of clerical work, which was still a career dominated by men. However, human computers tended to be individuals who faced economic or social barriers to their careers. These barriers prevented them from becoming a scientist or engineer in spite of their talents. In the book When Computers Were Human, I characterized them as “Blacks, women, Irish, Jews and the merely poor.” One of the most prominent computing groups of the 20th century, the Mathematical Tables Project, hired only the impoverished. It operated during the Great Depression and recruited its 450 computers from New York City’s unemployment rolls.

During its 10 years of operations, the Math Tables Project toiled in obscurity. Only a few members of the scientific community recognized its contributions. Hans Bethe asked the group to do the calculations for a paper that he was writing in the physics of the sun. The engineer Philip Morse brought problems from his colleagues at MIT. The pioneering computer scientist John von Neumann asked the group to test a new mathematical optimization technique after he was unable to test it on the new ENIAC computer. However, most scientists maintained a distance between themselves and the Mathematical Tables Project. One member of the Academy of Science explained his reservations about the Project with an argument that came to be known as the Computational Syllogism. Scientists, he argued, are successful people. The poor, he asserted, are not successful. Therefore, he concluded, the poor cannot be scientists and hence should not be employed in computation.

Like the human computers of NASA, the Mathematical Tables Project had a brief moment in the spotlight. In 1964, the leader of the Project, Gertrude Blanch, received a Federal Woman’s Award from President Lyndon Johnson for her contributions to the United States Government. Yet, her light did not shine far enough to bring recognition to the 20 members of the Math Tables Project who published a book, later that year, on the methods of scientific computing. The volume became one of the most highly sold scientific books in history. Nonetheless, few people knew that it was written by former human computers.

The attention to Katherine Goble Johnson is welcome because it reminds us that science is a community endeavor. When we recognize the authors of scientific articles, or applaud the distinguished men and women who receive Nobel Prizes (or in the case of computer science, Turing Medals) we often fail to see the community members that were essential to the scientific work. At least in Hidden Figures, they receive a little of the reflected light.

David Alan Grier is the author of When Computers Were Human. He writes “Global Code” for Computer magazine and products the podcast “How We Manage Stuff.” He can be reached at grier@gwu.edu.

Ben Peters: Announcing “555 Questions to Make Digital Keywords Harder”

This post appears concurrently at Culture Digitally.

I have relatives who joke that our family motto ought to be “if there’s a harder way, we’ll find it.” Like all jokes, this one rings true–at times painfully true. Everyone, of course, seeks convenience and yet we discover so often the opposite—new hardness, challenges, problems—that prove both uncomfortable and useful. Perhaps (if you’ll forgive the perverse suggestion!), critical digital teaching and scholarship should be harder as well.

How should we make digital technology criticism harder? How should critical engagement with tech discourse best carry on? What intellectual challenges does it currently face? What challenges must it face?

If you haven’t already seen it, Sara Watson released her new and significant report on the state of tech criticism last week. I am excited to announce the release of another kind of resource that just might help us keep after such questions—especially in our classrooms.

Please enjoy and share this freely downloadable, 35-page teaching resource now available on the Princeton University Press website:

“555 Questions to Make Digital Keywords Harder: A Teaching Resource for Digital Keywords: A Vocabulary of Information Society and Culture

555 questions image 2Use this document as you will. Many may use it to support preexisting courses; a bold few may organize critical responses to it. The questions that prompted its creation are straightforward: Is it possible to gather enough material to generate and sustain a semester of discussion in undergraduate and graduate courses based on or around the volume Digital Keywords: A Vocabulary of Information Society and Culture? Can this document, paired with that volume, sustain a stand-alone course? Whatever the answers, the document’s purpose is to complicate—not to simplify—keyword analysis for all. Keywords are supposed to be hard.

Each essay in the volume receives four sections of notes. (1) Background music suggests music that could be played in the classroom as students shuffle in and out of class; the music is meant to prompt students’ talking and thinking about the topic at hand. (2) What can we learn from the contributor listing? fosters the vital habit of learning to understand not only the reading content but also the author and his or her background. (3) Exercise suggests an activity to prompt discussion at the start of a lecture or seminar—and to be shared at the end of a class in order to encourage sustained thinking about a given keyword essay in the next class. Students may also be asked to bring prepared lists with them at the start of a class. Finally, (4) discussion prompts are meant to raise one thread of harder questions, not easy answers, for classroom debate. Most of these 555 questions are meant to model conversation pathways that elevate the theoretical stakes of thinking with and in language.

This document is in some ways an antidote to the editorial instinct to consolidate, polish, and finalize the topics raised in this volume. As the editor of this fine volume, I stand convinced that these twenty-five essays constitute state-of-the-art and definitive scholarly approaches to significant keywords. In fact it is because I am convinced of the volume’s virtues that I seek here to test them—and I know no better way to do that than to ask questions that unravel, challenge, and extend the threads of thought woven together in the essays themselves. I am sure I join my fellow contributors in inviting readers, students, and scholars to do the same with these essays.

“555 Questions” is also something of a methodological extension of Williams’s keywords project—that is, these 555 questions are meant not to provoke particular responses so much as, in admittedly sometimes slapdash and zigzag ways, to model the type of language-based discussion that all sensitive users of language may engage in on their own terms. In other words, most of the questions raised in these pages require little more than taking language and its consequences seriously—at least initially. I am sure I have not done so in these pages with any more fertility or force than others; nevertheless, I offer these pages as a working witness to the generative capabilities of language analysis to get along swimmingly with both the real-world empiricism of the social sciences and the textual commitments of the humanities. I have not questioned my own introduction to the volume, which I leave to others, although I’ll leave off with this quote from it:

“No one can escape keywords so deeply woven into the fabric of daily talk. Whatever our motivations we—as editor and contributors—have selected these keywords because we believe the world cannot proceed without them. We invite you to engage and to disagree. It is this ethic of critical inquiry we find most fruitful in Williams. Keyword analysis is bound to reward all those who take up Williams’s unmistakable invitation to all readers: Which words do unavoidably significant work in your life and the world, and why?”

Peters