For quite a while now, I’ve been making the argument that, in an information economy, the relationship between investment, production and profit, central to capitalism, no longer works. Here’s an early statement from my Giblin lecture in 2005.
to the extent that innovation and productive growth arise from
activities that are pursued primarily on the basis non-economic motives, the link
between incentives and outcomes is weakened. This in turn undermines the
reationale for policies aimed at sharpening incentives and ensuring that everyone
engaged in the production of goods and services is exposed to the incentives15
generated by a competitive market. Such policies represent the core program of
‘economic rationalism’, the set of ideas that dominated Australian public policy in
the 1980s and 1990s.
I recently reviewed two books by Jonathan Haskel and Stian Westlake. Their 2017 book, Capitalism without Capital presented a relatively optimistic view of a market economy in which “intangible capital” plays a central role. But their followup Restarting the Future: How to Fix the Intangible Economy, is much bleaker
“When we think about the state of the economy today, it is hard not to think, it wasn’t supposed to be like this,”
My assessment was that
The real intangible here is likely to be monopoly power, generated either by intellectual property laws or control over platforms.
My conclusion
Haskel and Westlake discuss traditional spheres of government activity — the defence-related R&D that gave us the internet, for example — but they don’t consider whether governments should become active investors in intangible capital.
The possibilities are full of promise, but also potential pitfalls. Governments could expand the informational role of public media services like the ABC, reversing the cuts of recent decades. They could systematically strive to make information of all kinds available in an easily searchable form, bypassing advertising-driven search engines like Google. And they could provide platforms for social media on a common-carrier basis, requiring easy interconnection and discouraging the use of “algorithms” (a misnomer) to keep people inside a “walled garden.”
It’s easy to point to the problems that would arise if these possibilities were pursued in a world where trust in governments is low. But these are the kinds of arguments that need to be made when the existing economic model is failing so clearly.
Despite the limited scope of the reforms they consider, Haskel and Westlake’s work tackles fundamental questions considered by few other writers. Restarting the Future is essential reading for anyone interested in the future of capitalism, or in the possibility of a post-capitalist future. •
{ 22 comments }
MisterMr 10.17.22 at 11:23 am
“For quite a while now, I’ve been making the argument that, in an information economy, the relationship between investment, production and profit, central to capitalism, no longer works.”
It seems to me that this happens whenever there is no additional profit to be made by increasing investiment, that depending on the economic model you use happens whenever the economy reaches full employment (orthodox economic model) or when the reserve army of labor is too low (marxian/sraffian/MMT/impied in various post keynesian models).
Also, there is a logical difference in investiment that increases output (e.g. building new factories) and investiment that gives market advantage to someone but doesn’t increase output (e.g. spending in advertisement, buy limited resources like land, financial speculation like bitcoins etc.), however I think that it is difficult to practically distinguish the two things.
When the economy closes near full employment/peak employment, though, it is likely that non-productive investiment increases as a share of total investiment, thus making monopolies more evident, and increasing the wealth to income ratio.
This is IMHO what happens with the information economy, where “investiment” ends up being a search for government granted rents.
Anarcissie 10.17.22 at 3:51 pm
Since on my current budget I lacked the capital to acquire both of these books, which sound as if they might be interesting, given their relation to the old-time (1990s) USENET convos about such things, I checked around for what was free, and found the following review of the second by Barry Eichengreen in Foreign Affairs (May/June 2022) which reads in part,
That struck me as describing the problem as a solution to the problem., which (as noted above) lie in the creation and proliferation of rent-extracting monopolies that rest on IP laws and property in platforms. The point of capitalism is to get control of something other people need or want and to charge them, if not manipulate and control them, with that advantage. A second ambition of capitalists is to absorb or destroy competing capitalist projects, leading to monopoly. The innovations or thefts of innovation which characterize the histories of such as Facebook, Amazon, Apple, Microsoft, and so forth have long since been superseded by exertions of monopoly power where suppression rather than innovation is advantageous and characteristic. Extending the power of capital through funny money and increased IP enforcement is exactly what will make things worse; the system will fail to work as hoped for (according to the rationale of the problems given). I suppose we may therefore expect such suggestions to be implemented by those whom the monopolists have bought.
Unfortunately my brilliant if simple-minded analysis cannot reach further than yourselves.
Alex SL 10.17.22 at 8:53 pm
Governments could do all of this, but in the absence of a well-organised movement demanding it, why would they?
Not sure why quasi-monopolies are “capitalism without capital”, though. There is still capital, just no real competition.
J-D 10.17.22 at 10:40 pm
Of which economic system in history is that not the point?
Trader Joe 10.18.22 at 11:52 am
Most business enterprises boil down to being either Toll collectors or Spread collectors.
Spread collectors generally make money by employing capital (their own capital and/or other peoples money) and make rents by generating a return in excess of the cost of capital. These are balance sheet oriented business so their focus is on asset and capital accumulation over time. Finance, Industrials, extractive industries etc. are all spread collectors.
Toll takers on the other hand are volume focused. Their business doesn’t particularly require capital because there is no need for leverage to enhance slender returns. What they need is as much throughput across their toll as they can possibly achieve. Advertising is intrinsic to driving the throughput and accordingly is symbiotic to the success of the enterprise. Information businesses, Software as a Service (SaaS) and any other recurring revenue business is toll taker (Starbucks is a toll taker).*
It seems definitional that as the proportion of the economy that is digital becomes greater the related need for supporting capital declines. The upshot is that as demand for capital decreases the cost of capital becomes lower which then facilitates low return spread taking projects some of which eventually become fundamental technologies (i.e. space exploration, green energy solutions, medical advance etc.).
*Naturally some businesses are a bit of both. Coca-cola is the classic hybrid – basically using capital to bottle abundant resources (Co2, water and sugar) and then charging a toll for thirst placing their product “always in arms reach” (according to their own strategic plan).
MisterMr 10.18.22 at 11:54 am
@J-D 4
“Of which economic system in history is that not the point?”
Hunter-gathering is an example, arguably small agriculture (horticulturalism is the term I think) before it became large enough to cause the creation of biggish kingdom etc..
Essentially there has to be some “mean of production” that is scarce, or can be privatized/controlled in some way.
In these situations, presumably people still tried to control each other, but not through economic means.
Even until recently, slavery doesn’t fit the bill because in slavery the slaves are the mean of production so it doesn’t make sense to say that you have to control them economically, first you control them and later you have the economic advantage.
Roger Nowosielski 10.18.22 at 8:12 pm
I’m somewhat in the same position as Anarcissie, commenter #2.
Upon further digging, I was able, however, to come up with the following references, including book reviews, an interview with Jonathan Haskel (ref #6), as well as a seven-hour-long audio rendition of the entire book (ref #7):
(1) https://www.jstor.org/stable/j.ctv1z3hmb1
(2) https://www.milkenreview.org/articles/restarting-the-future-how-to-fix-the-intangible-economy
(3) https://www.harvard.com/book/restarting_the_future/
(4) https://press.princeton.edu/books/hardcover/9780691211589/restarting-the-future
(5) https://searchworks.stanford.edu/view/14184175
(6) https://www.scribd.com/podcast/568135793/Jonathan-Haskel-and-Stian-Westlake-Restarting-the-Future-How-to-Fix-the-Intangible-Economy-Princeton-UP-2022-An-interview-with-Jonathan-Haskel
(7) https://books.apple.com/us/audiobook/restarting-the-future-how-to-fix-the-intangible-economy/id1599873955
J-D 10.19.22 at 12:13 am
If I have control of the goods and services provided by slaves and use that advantage to manipulate other people (not the slaves, other people), how does that not match Anarcissie’s description?
If I have control of the best stone tools and use that advantage to manipulate other people, how does that not match Anarcissie’s description?
TM 10.19.22 at 8:37 am
J-D 8: I don’t think the point of subsistence economies like hunter gathering and horticultaralism is “get(ting) control of something other people need or want and to charge them, if not manipulate and control them, with that advantage”. I don’t deny that economic manipulation can occur in such societies () but to say that the system is *designed to facilitate economic manipulation seems unsubstantiated.
In the case of prehistoric hunter gatherers, afaik the archaelogical record doesn’t provide much evidence for economic inequality. In the case of certain Native American horticulturalist societies, there are records that chiefs did accumulate goods and used them to manipulate others (by giving gifts, not by charging others!) and consolidate their power. It is debatable whether economic power was used for political ends or rather the economic power was a function of the political power. In any case we know that these societies were heavily influenced by contact with Europeans (even before direct contact!) and their goods and trade interests, so these societies may not have been “pure” preagricultural/precapitalist any more. The historical record therefore should be interpreted with caution.
MisterMr 10.19.22 at 10:02 am
What TM@8 said.
I’ll just say that, while controlling other people is something that always happened to a degree or the other, “capitalism” is a kind of society where such dominance passes purely through economic means.
Then of course even in “capitalism” sometimes the controlling is done through guns and direct violence, and even in other kinds of societies sometimes the controlling will be done through direct economic control. But in other societies the economic control is not the primary mean of coercion.
J-D 10.19.22 at 10:44 pm
I responded to a comment in which Anarcissie wrote this:
How can anybody tell what the point of any economic system is?
John Quiggin 10.20.22 at 7:18 am
I’m reminded of the old Soviet joke “Capitalism is the exploitation of man by man. Communism is exactly the reverse”
TM 10.20.22 at 9:05 am
J-D: “How can anybody tell what the point of any economic system is?”
It’s a tricky question because while economic systems are man-made, they are not “designed” by conscious actors with a specific purpose in mind. I would prefer to refer to the observable effects of economic arrangements.
You earlier asked: “Of which economic system in history is that not the point?” I took this as a rhetorical question expressing that what has been said about capitalism can be said about all economic systems. Perhaps I misread you.
engels 10.20.22 at 11:47 am
The point of capitalism is to get control of something other people need or want and to charge them, if not manipulate and control them, with that advantage.
Of which economic system in history is that not the point?
Feudalism: peasants are tied to the land, with obligations to the lord (not landless labourers who pay/submit for access to it).
Slavery: dominant class owns people outright and doesn’t need to manipulate them through ownership of something else.
Etc
engels 10.20.22 at 11:50 am
How can anybody tell what the point of any economic system is?
This is a completely different line of quibbling! I assume “the point” was shorthand for “what you have to do to win” as in “the point of football is to score goals”…
J-D 10.20.22 at 12:21 pm
To repeat myself, I was responding to a comment in which Anarcissie wrote:
If we amend that observation to relate to observable effects, rather than ‘the point’, would you say, ‘An observable effect of capitalism is people using control of something other people need or want to charge them, if not manipulate and control them, with that advantage’? If so, under what economic arrangements is that kind of effect not observed?
Anarcissie 10.20.22 at 1:37 pm
J-D 10.17.22 at 10:40 pm — I was merely pointing out that, according to reviewer, Haskell and Westlake appear to suggest a solution to the problem (“resolving this conflict”) is precisely to make the problem worse, which was what I said or tried to say. Naturally I would never impugn capitalism itself; I merely observed that, if you have a problem like an expanding — indeed, exploding — rentier sector based on the exploitation of IP laws (for example), then increasing the power and stringency of those laws could expected to increase the severity of the problem.
Ebenezer Scrooge 10.20.22 at 7:45 pm
Banks have been in the information economy for a quarter of a millennium; international merchants even longer. The problem, I think, is that today’s information economy is nearly inherently monopolistic. The old one–more limited by space and time–was not.
Tm 10.20.22 at 9:41 pm
J-D 16 Your question has been answered. I hope you found the answers helpful (if not, too bad).
J-D 10.20.22 at 11:11 pm
I do not think the word ‘merely’ means what you think it means.
The comment included this statement:
I didn’t question that.
But then, having already made that point, the comment went on with this statement:
That’s what I was responding to. If you think the additional statement was suitable for adding clarity, I suggest that the opposite was true.
J-D 10.21.22 at 4:05 am
I found them confirmatory of my suspicion that there was no value in the statement I was asking about, which is a kind of help.
Limericky Dicky 10.24.22 at 3:01 pm
“Of which econ. system in history is that not the point?”
What’s the mystery? It’s quite clear: socialism!
But that old Cold War prism distorts it, I guess. How Blacklister-y!
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