Intangibles and government investment

· January 30, 2019

I just finished the excellent Capitalism without Capital, which covers the rise of investment in intangible assets such as knowledge and brand, rather than tangible assets like machines.  

One of their final conclusions is that the properties of intangibles will lead to systemic underinvestment by the private sector. These properties include the property rights around intangibles and the spillover effects that often lead to firms other than the innovator getting the benefits of an innovation. The book promoted greater investment by government in areas likely to have high spillovers - basic research, adult education and training, and so on. The challenge is funding this when the specific beneficiaries are often hard to tax.

One question I had (that we likely don’t have the data to explore right now) is how this increased intangible investment has played out in China. As a major partner or owner in many businesses, the CCP fits the definition of a long term investor who would be tolerant of spillover effects. In fact, I’d say that the pressure around technology transfers and aggressive subsidies under certain technical domains (particular networking and electric cars) is a heavy handed demonstration that is still in line with the principles Haskel and Westlake outlined. 

I wonder how much the disparity in relative economic growth of (say) India and China over the last decade can be credited towards increases in production of intangibles in China (new IP development) versus use of intangibles in India’s high-tech space (Wipro, HCL and friends). Similar comparisons could be drawn with  Taiwan as part of the state sponsorship of the development of the chip foundries there. 

Overall: strong recommendation on the book.