The future of the information (non) economy
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.
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. •
7 thoughts on “Capitalism without capital doesn’t work”
“The real intangible here is likely to be monopoly power, generated either by intellectual property laws or control over platforms.”
At some cracked-record risk, let me go on about the very interesting case of Cambridge-based ARM, the dominant global designer of microprocessors.
• ARM is a pure design shop. It has no factories and very few physical labs. All its income is from IP licenses to companies that make physical electronic equipment (phones, PCs, servers, embedded microcontrollers…).
• ARM’s policy is to license to all comers. For oven-ready chip designs it charges a low unit fee (cents not dollars). Architectural licenses, allowing the likes of Apple to design their own chips using ARM’s instruction set, cost millions. AnandTech: “A single use license for a Cortex A-class CPU will be somewhere around $1M up front plus ~2% per chip sold. “
• The ARM ecosystem now covers hundreds of thousands of engineers worldwide, sharing a common vocabulary and with highly transferable experience.
• ARM ploughs a lot of its income back into R&D and the designs steadily improve.
It’s pretty much a benevolent monopolist. A good many of its customers (Apple, Samsung, Amazon, TSMC…) are much bigger than it, and technically could go it alone, or set up a rival consortium, as has been tried with the small-scale open-source RISC-V initiative. This risk keeps ARM honest, cheap and innovative.
Paradoxically, ARM’s monopoly supports a more competitive downstream electronics industry. The designs come with a lot of technical support, especially valuable to smaller players. When Nvidia tried to buy ARM, the acquisition was successfully opposed both by many other companies (who feared favouritism for in-house Nvidia products) and by regulators in the USA, the EU and China (on competition grounds). For practical purposes, ARM is now a protected species of one, a ward of the international community.
I don’t know what general lessons can be drawn from this, except that we should be open to new and possibly strange institutional patterns.
Ah, very interesting. I goggled to find out which Cambridge they are in – (I know … sorry? … yes a bit … ) – and their website says they call themselves “Arm.” My next question will of course be, why are they named that?
Being as usual up in the bleachers, I am not clear on how the economy is failing in a *new* way. (I am familiar with the regular ways.) I will have to go snoop around to find out why these authors’ minds changed so much in 5 years. I have never though believed that humans undertake economic activities solely for the money – people are more complicated than that. Besides wanting to eat regularly, I think people want love and attention.
And as for the government, it is ever clearer that you can’t have a democracy without a good press corps. So, I agree, we need to do something to shore up that sector! Tout suite-y!! I should go look up Prof. O’Hares ideas on that. I’m not sure I ever quite got it…
An aside re monopoly, chios & Texas Instruments.
I can’t confirm, a a long ago memory so please correct, TI used to have a monopoly on chip numbering,. Back in the days of 555’s timer chips, the production run uniquely numbered each chip.
The number range and random numbers were contolled and supplied by Texas Instruments.
Is this off topic?
– “The Sveriges Riksbank Counterfeit Nobel Award Goes to Bernanke et al. for the Wrong Model” Yves Smith below…
– “A Nobel Award for the Wrong Model”
By Peter Bofinger and Thomas Haas
– And Econned.
JQ said “The real intangible here is likely to be monopoly power, generated either by intellectual property laws or control over platforms.” … “but they don’t consider whether governments should become active investors in intangible capital.”
From Econned: “Regulators can tackle debt levels surgically by barring certain types of instruments and practices. But this effort can take place only if authorities do not cede control of the financial system to the inmates. Unfortunately, to a large degree, that has already happened.”
ECONned: How Unenlightened Self Interest Undermined Democracy and Corrupted Capitalism
“The Sveriges Riksbank Counterfeit Nobel Award Goes to Bernanke et al. for the Wrong Model” Yves Smith below…
“A Nobel Award for the Wrong Model”
By Peter Bofinger and Thomas Haas
“The role of the banks is therefore limited to a redistribution of the all-purpose good to type 1 agents at a time when no investment returns have been generated. Equating this early participation in future earnings with the “creation of liquidity” by banks is a concept that, as we shall show, has nothing to do with reality.
“Is the provision of interest payments to depositors before bank earnings are generated a typical feature of banking so that the DD-model “captures the central mechanisms of banking” (Royal Swedish Academy of Sciences 2022b, p.4)? In reality, banks typically do not pay interest, or only very marginal interest, on highly liquid bank accounts. Without the interest payment in T=1, the DD-bank becomes perfectly stable as its liability side is matched by investments in the all-purpose good that can be transformed at zero costs for consumption purposes. But in this case, banks would no longer provide any benefit for the economy.
“A model that fits the arguments of the Royal Swedish Academy
“Due to the flawed structure, the DD model leads to flawed policy implications. It assumes that deposit insurance which redistributes the existing assets is the adequate approach to bank runs. In a monetary analysis, a bank run can only be stopped by the central bank which as a lender of last resort must increase the amount of central bank money to stop the panic.
“Thus, in contrast to the Krugman-Tweet mentioned at the beginning, in the DD model there is no room for a lender of last resort which was the key message by Bagehot. DD blew smoke on the clear and very simple insights of Bagehot.”
Bagehot, W. (1873). Lombard Street: A Description of the Money Market, London, Henry S. King.
[ Lombard Street: A Description of the Money Market
Via “The Sveriges Riksbank Counterfeit Nobel Award Goes to Bernanke et al. for the Wrong Model”
“As we wrote in ECONNED:
…”There was one last capital reserve to tap, U.S. taxpayers, to revive the financial system and make the innovators whole. Widespread anger turned into sullen resignation as the public realized its opposition to the looting was futile.
“Regulators can tackle debt levels surgically by barring certain types of instruments and practices. But this effort can take place only if authorities do not cede control of the financial system to the inmates. Unfortunately, to a large degree, that has already happened.”
“Needless to say, you won’t hear this sort of talk anywhere in policy or elite economic circles.”…
…”in the possibility of a post-capitalist future.” … our eye gaze is tracked, monetised and stored.
Human intangibles are Meta’s new sales tool.
The intangible Nick Clegg.
“Meta’s New Headset Will Track Your Eyes for Targeted Ads
“Eye tracking data could be used “in order to understand whether people engage with an advertisement or not,” said Meta’s head of global affair Nick Clegg in an interview with the Financial Times. (Meta didn’t respond to Gizmodo’s request for comment.)”
It would seem that the BOM could do with better management.
There was a time, under Abbott in particular, where institutions like BOM, CSIRO and ABC were put under great stress to not speak of certain issues, acknowledging climate change being one.
We have moved on and we need to invest more into our quality institutions.
BOM CEO, appointed by Turnbull, the promoter of the efficiency dividend, made sure that there was no mention of climate change, no discussion of studies into climate change and no discussion on the policy of the above.