Capitalism Without Capital

This episode features the renowned British economist and author Jonathan Haskel. He talks about the shift from tangible to intangible assets and how the economy has evolved over the last 20 years. The pandemic is sort of a kick to the intangible assets programme and the vaccine itself is an incredible intangible asset.

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We were joined by an industry expert and the hosts of Cipher Vision podcast

• Jonathan Haskel from Imperial College
• Nigel Swycher CEO LexisNexis Cipher
• Francesca Levoir co-host

Highlights

I’m an economist. And being an empirical economist who likes looking at data, I spent the first part of my career listening to endless seminars.

It’s that shift from the tangible to the intangible, that enables you to better understand how it is that the economies have evolved. I think we’re not considering the wider range of intangible investments. And if we did do, we probably have a fuller picture of the innovation process.

Thinking about the corporate landscape, I think when we look now at the fortune 500 companies, half of them have disappeared. The average age of a company on the s&p 500 is less than 20 years old. Do you think that has to do with the the change and the rise of intangibles and how should we look at a company’s assets, tangibles versus intangibles?

Economists like me, maybe slightly older economists are brought up on Galbraith. Companies like General Motors, Bethlehem Steel, used to dominate the fortune 500. Oil companies were typically an example, as they had enormous tangible assets, but a company like Microsoft has almost none of those types of tangible assets.

How do you explain the difference between the assets of tangible and intangibles, so between General Motors and Microsoft. I know you write about the four S’s

Four S’s describe these different economic properties that we think these intangibles have. It’s best if I just pick a specific example, which is, of course, the best known British innovation, Harry Porter. The four S’s are Scale, Synergies, Spillovers and Sunk Costs.

When we try to correlate the GDP of companies of countries with the intangible assets, which is typically missing, we get strong correlations. So that’s on a macro scale, but also the work that you’re doing at LexisNexis Cipher attempting to better value, what it is it that companies are doing.

Keynes decided that he would rather be approximately right than precisely wrong. Which is to say, if we don’t count intangible assets, or rather have this asymmetric treatment, we’re sort of very precise, but we know that we’re wrong in our precision. So where on the spectrum does one want to lie between being precise, but wrong, but being approximate, but being right.

When we look at GDP as policymakers or just as concerned citizens, it’s through that lens, that we make a lot of our decisions, and we try to figure out where the economy is going amongst the community of national accountants who are designing all of this stuff. They are very plugged into these issues of intangible assets.

Hopefully the message of our book and the work LexisNexis Cipher is doing, these style of podcasts. I hope that sort of spreading the word somewhat, and emphasising how important all of this is.

The whole pandemic is a sort of a kick to the intangible assets programme, which policymakers are super interested in. Just as we’re talking about the pandemic, the very thing which is hopefully going to get us out of this pandemic, namely, the vaccine is itself an incredible intangible asset.

If we’ve got policymakers working hard, and we’ve got national accounts working hard? What can the IP teams within organisations do to help understand the value of intangibles?

80% of the enterprise value of companies is or will be intangible, and it’s not being communicated. So one of the things that I’m very fixated about is we shouldn’t regard this just to be an accounting problem. We can’t wait 40 years for catch up. And therefore the key word should be transparency. I’d like to use ESG as an example. ESG now accounts for about 20% of the $46 billion invested in companies in the US .

If CEOs and mainboards are being asked these questions, please tell us your intangible assets story. I understand from Mr. Haskel and many others that it’s critical to both company, the country and the world.

Cipher Vision – I would say is that intangibles are the company assets of the future.

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