In Capitalism without Capital: The Rise of the Intangible Economy, Jonathan Haskel and Stian Westlake explore the crazy world around us in two very different ways. Half the book is a swashbuckling adventure, full of engaging examples. The other half is an accountant’s dream, complete with tables, charts, and acronyms. Frequently thought provoking but not always enjoyable—perhaps that’s how I should put it. They recognize the challenge of marrying the two approaches, at one point writing, “Modern economists, displaying an admirable flair for taking something exciting and giving it a boring name, called this trend ‘skills-biased technical change.’”

So what’s the book’s thesis? Intangible investments shape the economic world we inhabit, and understanding intangibles can help us better explain that world, specifically innovation and growth, inequality, management, and reform. “It is unlikely that the shift to intangibles is the only cause of any of these widespread and complex phenomena,” they say at the book’s end, “but we hope that we have shown that it may play a role—a role that for the most part has not been widely recognized.” Having spent time with Capitalism without Capital, let me say I think Haskel and Westlake have succeeded in these hopes. I find myself reflecting on, and talking about, intangibles in unexpected ways.

Intangibles 101

But what are intangibles? They are investments with four characteristics: (1) they represent sunk costs, like Toyota’s lean production systems (inseparable from the production lines themselves); (2) they generate spillovers, so even competitors can benefit from your success; (3) they tend to be scalable, like the branding, licensing, and secret recipe behind every liter of Coke; and (4) they flourish with other intangibles, like Apple’s iPod and the MP3 protocol. With an alliterative flourish, Haskel and Westlake offer us scalability, sunkenness, spillovers, and synergies (58).

Intangibles lurk behind the market capitalizations of major companies. Haskel and Westlake offer Microsoft as an example. Using 2006 data, they calculate that “the traditional assets of plant and equipment were only $3bn, a trifling 4 percent of Microsoft’s assets and 1 percent of market value.” They add, “By the conventional counting of assets then, Microsoft was a modern-day miracle.” Hence the book’s title: Microsoft makes money, and investors value the company as a moneymaker. Yet traditional accounting struggles to account for what exactly is doing the moneymaking. Corporations are making big money not with the tangible investments of buildings and vehicles but with the intangible investments of software and training. Indeed, corporations are making money from the work of others, even their competitors. These synergies are crucial because—here our authors quote Bill Joy—“no matter who you are, most of the smartest people work for someone else.”

This inability to estimate the value of intangibles explains one common lending practice for small businesses: liens on entrepreneurs’ homes. After all, if the (fictitious, and playfully named) coffee chain Tarbucks fails, they ask, “What assets could liquidators sell to pay off its outstanding debts?” The short answer: Not much, if we are talking about intangibles.

But that’s on the downside. The upside is tremendous. “The cost of developing the app Angry Birds—and investment in software—can be spread over an arbitrarily large number of downloads (currently well over two billion).” But intangibles aren’t just software and screens. They are policies and procedures, too: “Once you’ve written the Starbucks operating manual in Chinese—an investment in organization development—you can use it in each of the country’s 1,200-plus stores.” As you can see, part of the richness of Capitalism without Capital is its varied examples.

The Disappearing Jobs

Make no mistake, our authors warn: Intangibles threaten your job. That’s right—yours. The low-paid jobs will still be there, as well as the high-flying ones. But if your middle-income job has routine tasks that require little in the way of judgment, then be afraid, be very afraid. You may still have your job now, but technological change takes time and can often be unpredictable. They offer some interesting examples: The year with the highest demand for horses in the United States occurred 80 years after the opening of the first steam railway. The railway threatened to replace the horse, yet failed to do so—“but its descendant, the car, eventually did.”

But that suggests a possible phaseout rather than an apocalypse. So maybe we shouldn’t be so scared. And the picture may be even rosier than that. The data suggest automation increases opportunities for better work. Haskel and Westlake cite the work of James Bessen: Bank tellers received deposits and facilitated withdrawals, but machines replaced that function; banks did not decrease the number of bank tellers, however. Instead, the cost savings and increased time allowed banks to open more branches and retrain their bank tellers to sell financial products.

That’s obviously not always going to be the case. One answer is to prepare younger workers for the future, so they will be nimble in a world of intangibles. But such training, they rightly note, requires some predictive power we lack. So they suggest replacing the what of training with the when. Adult training makes predicting future skills less important, they think, because it delivers training people need now. Fair enough. But this result strikes me as a foregone conclusion rather than the deliverance of an analysis of intangibles.

Our Leader, Our Leader, Our Awesome Rent-Seeker!

Leadership becomes more and not less valuable in capitalism without capital. Our authors offer a fifth component of commercial success to the four Peter Thiel gives in his Zero to One: “But one characteristic of successful businesses that Thiel seems to omit is building a good organization.” As evidence, they suggest management and leadership play an important part in distinguishing Walmart from K-Mart. Haskel and Westlake become really persuasive when they talk about leadership. All leaders have followers, but “what’s much more interesting is when followers voluntarily stay loyal to their leaders” (their emphasis).

Leaders also help their companies utilize synergies. Our authors helpfully explore Paul Nightingale’s “invisible infrastructure” of norms and rules essential for synergies in an intangible economy. Behind these norms and rules: trust and social capital. In a tight network of people you trust, work flows freely across company boundaries; fantastic leadership helps signal to others that a firm is trustworthy.

But leaders can be successful at using the power of the government for corporate, rather than public, gain. Because intangible assets are highly scalable if you win the contest to claim them as your own, “The rewards for successful lobbying are very high.” James Bessen mathematizes this reality; our authors cite his research showing increases in stock prices being more strongly correlated with corporate spending on regulation and lobbying than on research and development. Sigh.

An International Derby

It’s not just corporations and people trying to compete in an intangible world. Nations want to get in the game, too. But how can they do so? Haskel and Westlake offer a tour of nations trying to plant and grow the venture capitalism flowers of the United States in their home gardens. The results have been unimpressive.

What’s a small country to do in an intangible world? They offer four suggestions: first, become an arbitration center for intangible claims, with clear ownership laws and efficient courts; second, offer favorable tax rates on intangibles; third, encourage financial and intellectual centers, and, fourth, increase the nation’s social capital. They offer Singapore and Ireland as two countries pursuing something like the path they have sketched.

They recognize the challenges of government investment, from ignorance to lack of funding. They say though science and technology policy has historically been “technocratic, rather than democratic” governments may need to forge “a different political settlement” in which they show how investments “contribute to specific goals that voters value.” This all sounds, quite frankly, bizarre. Or perhaps it’s not. Our authors offer an interesting example in their discussion about government financing of investment: the U.S. military’s funding of the semiconductor industry in the 1950s. But this example suggests, though, that perhaps the science and technology policy has been less technocratic, and more democratic, than they recognize. If we need semiconductors to beat the Soviets, let’s do it. But if we don’t have a public consensus on an issue (e.g., climate change), let’s wait and see. And, besides, given that Silicon Valley seems like the obvious model, I wonder whether Haskel and Westlake should have considered it in more detail. If it’s the place where intangibles are made, what’s the secret sauce?

Inequality of Esteem?

At times, the authors made me wince. Brexit and Trump floated the waves created by—wait for it—an “inequality of esteem” (their phrase). Basically, people bristle at “being patronized and disrespected by what they perceive as an out-of-touch, technocratic, even degenerate Establishment.” Later they describe “esteem inequality” as the “increasingly prevalent” recognition that “the population is dividing into two halves: one more cosmopolitan, more educated, and more liberal and the other more traditionalist, and more skeptical of elite opinion and of metropolitan values.”

Bastian Jaeger notes that those favoring Brexit show less openness to experience than those voting to stay in the EU. Haskel and Westlake complete the task: “Perhaps creativity and innovation require openness to ideas,” they suggest, before concluding:

This suggests a new explanation for why the divide between supporters of Trump, Brexit, and similar movements and their respective nonsupporters is growing. The supporters tend to share certain underlying attitudes such as traditionalism and low openness to experience. But they find themselves in an economy that, because of the growing importance of intangibles, is increasingly favoring people with different psychological traits and value systems. The cultural causes of Brexit and Trump are exacerbated by the economic causes—causes that arise from the emergence of an intangible economy.

Hmm. If intangibles exacerbate cultural causes, how do they actually play a causal role? Our authors offers a circuitous route: “So,” they write, “the increasing importance of intangibles leads to economic pressures that underscore the political divides driving today’s populist movements.” Let’s get this right: the increasing importance of A leads to pressures of B that underscore C driving D? I guess that’s possible, but I think we need more, especially when there’s evidence to the contrary. I missed the empirical data correlating certain psychological traits and value systems with success in an intangible world.

Our authors claim the economy favors “people with different psychological traits and value systems.” But they do so after appealing to Eric Kaufmann’s analysis of Brexit. “Culture and personality,” Kaufman writes, “not material circumstances, separate Leave and Remain voters. This is not a class conflict so much as a values divide that cuts across lines of age, income, education and even party.” Though the authors do not say so, Kaufman’s analysis suggests a counterexample to the explanatory power of intangibles. Competing values—and not new economic pressures—explain the results.

And what really is “openness to experience”? Whatever you think of Trump and Brexit, surely they stand as saloons of the Wild West as political options, and not the status quo. People voting against Brexit voted to Remain, which is hardly a slogan for “openness to experience.” Furthermore, when I consider Bastian Jaeger’s own report for Psychology Today, the data on personality differences to which he appeals, and the kinds of questions asked, call me skeptical. Or maybe I’m just “closed to experience”? But, honestly: Saying I have a rich vocabulary, excellent ideas, use difficult words, and spend time reflecting on things apparently gets me openness. Are these questions really tests for openness, or are they occasions to report one’s own vanity? I imagine Wolfgang Amadeus Mozart would exhibit this kind of openness to experience, but J. S. Bach would not—given John Eliot Gardiner’s juicy anecdote about Bach drawing his sword against a rabble led by a bassoonist Bach had insulted.

Perhaps successful people are told they’re great and believe it, so when they’re asked whether they use big words, they nod in the affirmative. Alternatively, perhaps more deeply religious parts of the world socialize people against hubris. (Hubris. Does that count as a difficult word?) Tellingly, I’m not sure the intangible giants of Google, Apple, Facebook, and Amazon actually show openness to ideas—an unexpected result if openness to experience predicts success with intangibles. Franklin Foer’s World Without Mind explores the mindset of today’s techies. As I put it in my review for Law & Liberty, “Foer convincingly argues that Silicon Valley hides its authoritarian impulse behind its lip service to libertarianism.” And writing an operating manual for Starbucks employees in China strikes me as something requiring less openness to new experiences and more traditionalism to a certain corporate culture.

Have We Always Lived in an Age of Intangibles?

Some of the book’s older examples make me wonder whether the problem of intangibles is a perennial one, rather than a new one. Haskel and Westlake explore “the role of Walmart in saving the US economy in the 1990s.” The use of computers in the low-tech world of retail contributed to enormous productivity gains and lower prices.

And if Walmart saved America, the Beatles saved the crown. EMI, via its subsidiary Parlophone, participated in the global economic revolution known as the Beatles: “At their peak, their records and ticket sales were generating $650 a second in today’s money. The dollar receipts from their overseas tours are even credited with temporarily saving the British government from a currency crisis.” With the right technology, a property right in music is scalable. The Beatles didn’t need to go into the studio for each individual record produced for fans. As the marginal costs zoom towards zero, the profits fly to the sky. Lucy in the sky with diamonds, indeed.

EMI used this cash to invest in research and development, leading most notably to the development of the CT (or CAT) scanner. The researcher received the Nobel Prize and a knighthood, but “from a commercial point of view, it was something of a failure for EMI.” Why? EMI couldn’t recoup all its investment. The sale of new technologies requires a salesforce, and if competitors can do it better, and the investments are sunk and spilling over to their gain, then these synergies allow them to capture the profits in unpredictable ways.

But how new is the challenge of intangibles? In their footnotes, our authors consider events in the history of intangibles before the turn of the century—the nineteenth century, that is. As they note, Henry P. Crowell needed to persuade people his Quaker Oats were fit for human consumption; James Spratt worked harder to persuade dog owners to buy the dog biscuits he started making in the 1860s. I think our authors see the contemporary problem as sufficiently new to require a different approach, but their own examples made this reviewer pause. But my uncertainty doesn’t undermine the book’s achievement. Capitalism without Capital offers legitimate and genuine insights into today’s world.