[MUSIC PLAYING]
SPEAKER 1: Good morning.
Thank you all for coming.
Today at Google, we're delighted
to welcome Mr. Jonathan
Haskel and Mr. Stian Westlake.
Jonathan Haskel is a Professor
of Economics at Imperial
College Business School.
And Stian Westlake is
Advisor to the UK'S Minister
of Innovation and Technology.
Together, they won the Indigo
Prize in 2017 for their work
on economic measurement,
much of which
went into the book they are
here today to discuss titled,
"Capitalism without
Capital: The Rise
of the Intangible Economy."
Please join me in welcoming
to Google, Mr. Jonathan
Haskel and Stian Westlake.
[APPLAUSE]
JONATHAN HASKEL: Thank
you very much indeed,
ladies and gentlemen.
Thank you all very
much for coming.
We're going to split this
presentation into two.
I'm going to try and talk for
about 15 minutes about some
of the topics from the book.
And then I'll pass
over to Stian,
and delighted to have
some Q&A as well.
So here, talk about
capitalism without capital--
it's in three parts.
The first asks
the question, what
do we know about the rise
of the intangible economy?
I'll tell you what.
The intangible economy
isn't just a second.
Secondly, so why is
the intangible capital
a different type of capital?
And thirdly, what does this mean
for business in the economy?
So I'll walk you through
the first two things.
And then, as I mentioned,
I'll pass over to Stian.
So let's get started
with the core
of what this book is about.
And it is about the following.
The nature of investment in
capital assets is changing.
So here on the
left hand side are
the types of capital
assets, which
you'd be very familiar with
if you're an accountant,
or if you working on GDP
and things like that.
It's just kind of
straightforward for economists.
Here are the classic types
of investments that are made.
They're very tangible things,
buildings, computers, plant
and machinery, and vehicles.
And when national income
accounting, accounting GDP,
was invented in
the 1930s, 1940s,
these were the types of
assets which people measured
investment for, and
that passed on to GDP.
And company accounts reflect
this kind of thing as well.
At the core of our
book is the fact
that these assets, investment
in these assets, is going on,
but investment in
these intangible assets
is zooming ahead.
Let me walk you through
the kind of things which
these intangible assets
are, things like R&D,
training, design, things like
organizational development--
you know, you can buy shoes
from Walmart and from K-Mart,
but somehow they feel like
very different organizations--
things like brands and
marketing, artistic originals.
Here's Britain's most famous
innovation over here--
big intangible asset.
And as I don't need to say, in
this building here, software
and data--
important intangible
assets as well.
So these are the types of
assets which you can't touch
and you can't feel.
They're in contrast to
these tangible assets.
And as I say, the
core of our book
is about the movement of
these intangible assets.
Now, this would be, basically,
of no interest whatsoever,
were it not for the fact
that this change is actually
rather hard to discern.
GDP still doesn't include
most intangible assets.
Let's start with the assets
which GDP does include.
And that includes
these tangible assets.
So when you hear on the news
about the release of GDP
figures and all of that,
these are the types
of investments that those
national accountants will
be telling you about-- it's
going up, it's going down,
and all of that.
Some intangibles have
been added over the years.
So software is counted
as an asset, something
that firms are investing in.
Likewise, artistic originals,
and likewise, in R&D.
But there's still a whole load
of assets which aren't counted
so much in the GDP figures.
As I mentioned before,
design, business processes,
marketing, and so forth.
And I ought to
mention beta as well.
In GDP, the national
income accountants
are supposed to count
the kinds of investments
that firms are making in data
and understanding that data.
But that practice varies a lot
across different countries.
Now, if this thing is rather
hidden in the national income
accounts, it's distinctly
hidden in the company accounts.
So this slide on the
right is taken from a book
by Baruch Lev and Feng Gu.
And the title of that book
is "The End of Accounting."
And that's all you need to know.
And that the core
of their argument--
it's a wonderful book--
the core of their argument
is that company
accounts are basically
completely uninformative
about modern day companies.
Let me just walk you through
very quickly what this is.
This blue bar here says,
take the companies who
entered the US stock
market in the 1950s
and ask what fraction
of their market value
can be explained
by the assets that
are on their balance sheet.
These are traditional
tangible companies.
And the answer is 85%.
Take the companies
over here, who
entered the US stock
market in the 2000s,
ask the same question.
And the answer is about 25%.
This is an r-squared form of
regression, for those of you
who remember, [INAUDIBLE].
So in other words, these
company accounts here-- very
uninformative about
the set of assets which
are really powering a company.
And so therefore, underneath
our heading there,
this change is hidden.
Now, of course, if
intangibles are hidden,
you might ask the question,
well, how on earth
do we know anything about them?
And fortunately, some scholars
have recognized all of this.
Here's a picture of Fritz
Machlup, an Austrian refugee
who came, as many did, to
the US, found sanctuary
in this country in the 1930s.
And he wrote a book--
I'm sorry, this hasn't
come out very well--
in 1962, called "The
Production and Distribution
of Knowledge in
the United States."
And it's an early book.
It's a wonderful read,
actually, if you're
interested in the
history of technology.
It's an early book which
walks through really
some early computing, some
very early kind of software,
that people were
doing at that time.
And Machlup asks the
question, suppose
we counted the money
that firms were
spending on those types
of things as an investment
as well?
Now in the 1990s,
Hal Varian, who's
sitting over here,
and Carl Shapiro,
wrote a book called "Information
Rules" in the early part
of the information
economy, which
made a lot of these
points as well,
and pointed to some of
the economic attributes
of intangibles, which I'll
be talking about in a second.
I mentioned Baruch Lev before,
Professor of Accounting at NYU.
He had an important book
in 2001, which was more
on the accounting side.
And then some
co-authors of ours,
Carol Corrado, Charles
Hulton, and Dan Sichel,
wrote about this in 2005.
So essentially, what our book
does is it takes the kind
of experimental work that
these authors have done--
and the work that we've been
privileged enough to co-author
with them as well--
it takes that experimental
work and asks the question,
suppose we did count all of
this intangible investment,
what would the
economy look like?
And the book essentially
documents all of that.
Now, once you've written
a book on something,
you see them
absolutely everywhere.
So let me give you an example
of what we mean by intangibles
and just--
obviously, in the
tech sector, there
are lots of
intangibles, like I say,
software, and data, and
all that kind of thing.
But it's not just a story
about the tech sector.
Now, since you are a fit
and healthy California lot,
let's go to the gym, where
you see lots of intangibles,
according to us.
So in 1977, so this is Arnold
Schwarzenegger's breakthrough
movie "Pumping Iron" in 1977.
Here's a picture
of a gym in 1997.
Lots of tangible things,
namely buildings and machines.
And similarly, if you
go to the gym in 2007,
you see the buildings
and the machines.
But you see some intangible
things as well, actually.
So when you go into
the door, the software
registers you in the door and
tells you you haven't been--
you've only been doing
an hour that week
and not any of the week before.
People are doing training,
and teaching, all of this.
And there's branding and
marketing going on as well.
And in fact, there's a sort
of pure intangible company
who we talk about in the
book, which is a New Zealand
company called the Les Mills--
well, Bodypump is their
particular product,
which is a high intensity--
oh, those of you who
would go to the gym--
high intensity kind of training,
you know, with music going on,
and you lift weights, and
all that kind of stuff.
And what the Les
Mills do, they're
a small company in
New Zealand, who
have literally managed
to sell worldwide
their type of exercise.
And the exercise is
essentially a collection
of intangible assets.
They've negotiated with the
music rights owner, owners
to the music.
They've designed the
exercise that goes with it.
They train people
who stand in the gym,
and help you do the exercises
correctly, and so forth.
So those-- it's a pure
bundle of intangible assets,
if you sort of see what I mean.
And that was an
example that we, I say,
we talk about in the book.
Now, the rise of
intangible investment,
we think is a long term trend.
And again, we go back to
these experimental types
of results which
ask the question,
if you augmented GDP with
these intangible assets, what
would you see?
And you essentially
see a rise over here
in intangible assets--
this is shares of investments
in proportion to GDP--
and a fall of tangible assets.
And one of the
things about that,
which Carol Corrado
has looked at,
is she's looked at
that for the US.
I'm sorry, I have said this is
for the US and EU countries.
Carol Corrado has looked at
this for the US going back
to the 1940s, and shows a steady
rise-- that's the blue line--
in intangible assets
overtaking tangible assets.
So we have a thing
here, where we point out
that this rise in
intangible assets
predates the IT revolution.
I'll come back to
that in just a second.
But since lots of people are
going around writing books
with the word
"capital" in them, we
thought we'd try and push
our book a little bit.
We think intangible
capital is the capital
of the 21st century.
As these types of
graphs illustrate,
there's more of this type
of thing coming along.
Let me say a word about
the IT revolution,
given the building where
we have the honor to stand.
Which came first, the IT
or the intangible economy?
Because a lot of
people take the view
that after the IT revolution
came along, then, of course,
all this intangible
stuff came along.
So once computers came
along, then people
had to invent all sorts of ways
of reinventing the business,
and so on.
Let's just try a slightly
different point of view.
A little bit speculative, but
nonetheless, we'll try this.
So here's a picture.
Since we're a long
way from home,
here's a picture of British
people drinking tea.
So there's a-- just
to make us feel like--
we've been on
planes continuously
for the last few days-- just
to make us anchored to home.
This is in the Lyons Tea Shop.
This was-- we've called
it here the McDonald's
of mid-twentieth
century Britain.
Hopefully, a little more
healthy than McDonald's.
But this was a huge
chain of tea shops
which existed on, more
or less, every street
corner in many
British places and fed
the great national British diet.
And what that needed is--
it had a big payroll.
And it had huge numbers
of payroll clocks, who
were required to
administer the payroll,
lots of almost entirely
women waitresses working.
They needed to be paid,
they were working part-time,
they weren't working all day,
and all that kind of thing.
So along came the LEO, the Lyons
Electronic Office, the world's
first business computer.
It sort of has, I
guess, a linear--
for the history of
technology people--
a kind of lineage from the types
of computers that were invented
in the Second World
War to try to break
codes, and all of that.
And this was a
computer, essentially,
which was meeting the demand
for the administration
of this payroll.
So again, some sense--
this type of demand here
brought forth the invention
of IT and the computers.
And it was talked about
a bit in Beniger's book.
OK now, let me say a
little bit about why
intangible capital is different
before passing over to Stian.
You might say, well, surely
the nature of the economy,
and investment in the
economy, changes all the time.
So we used to invest in canals.
Then we started
investing in railways.
And then we started
investing in roads.
Then we started
investing in airports.
You might say, the
nature of investment
is changing all the time,
then why should we bother?
And we argue the intangible
investment is interesting
because it's got some
different economic properties.
So now we get to put our
economist hat on for a second.
It's got some different economic
properties to tangibles.
And this is where
there's an overlap
in our book with Hal Varian's
book, which I mentioned
earlier, about information.
So the first thing is, which
is mentioned in Hal's book,
is that intangible
assets can often
be used over and over
again, in multiple places.
They can be scaled up.
There's some examples
of this in a second.
The second is they're all going
to begin with S, these things,
just to help you
clear in their mind.
Intangible assets are
what economists call sunk.
It's often difficult to get them
back or recover their value.
Again, an example coming up.
Thirdly, spillovers--
tangible assets
spill over in ways that other
people can benefit from them.
And fourthly, synergies.
If you bundle these
intangible assets together,
then you can get a
particularly valuable product.
Let me walk you
through some of this.
And then Stian will talk about
some of the consequences.
So again, just to
make us feel at home,
let's again start with
London taxi cabs here.
Taxi cabs, if you've ever been
to London-- as you will know,
you can squeeze five
people in there.
If you want to take
a sixth person,
you've got to get
a new taxi cab.
So the taxi cabs are not
scalable in the way that Uber,
of course--
you know, you can use it
to get to London airport,
to get to San Francisco.
You can use it in San Francisco.
You can scale this thing
over and over again.
So the first interesting
consequence about intangibles
is that companies who have
these intangible assets
can potentially scale
up very substantially.
Secondly, I mentioned this
economics term, "sunkenness."
A word about Nokia, great
European success story,
back in the day of
course, that at one point
had 72% of the world's
smartphone market.
But it all went
wrong, essentially,
after the invention of the Apple
iPhone, and Apple took over.
Nokia basically had
at least a couple
of assets on its balance sheet.
The first thing is it had
a very nice headquarters,
very razzmatazz headquarters.
It was able immediately
to sell that asset.
Now, if you'll remember what
I was saying earlier on,
that's a tangible asset.
It's a building, a
company building.
So that's well
known to accountants
and to national
income accountants.
A tangible asset-- it
was able to dispose of it
and sell it off.
But it had a big intangible
asset, namely the Symbian
Operating System, which after
the merger with Microsoft,
became Windows Mobile.
And that-- essentially,
it was impossible to get
any of that money back.
So the intangible
asset was much more
difficult to get
that money back.
So that's, as I said, what
economists call as sunk.
That's obviously going to
have some implications for how
a bank might feel,
if a bank is going
to lend a company some money,
which Stian will come back to
in just a second.
Spillovers, I mentioned
spillovers before.
So if you've got a tangible
asset, like a factory,
you just put a guard outside it.
Nobody else can get
into your factory.
On the other hand, if you've
got an intangible asset
like a design--
well, if you think
back to smartphones
before Apple came along, they
were all a bit clunky, frankly.
They were all just
a bit embarrassing.
And the moment that the
Apple smartphone came along,
basically all the
other smartphones
looked like that Apple.
So this is what economists
call spillovers,
namely if I have an idea, it
can spill over, potentially,
to other people.
So other people can
adopt that idea.
Whereas if I have a
factory, you guys and gals
can't come into my factory.
So again, Hal Varian's book
talks about that kind of issue
as well.
So obviously, that's going
to make it difficult,
potentially, for the people
investing in intangible assets
to maybe get some
of their returns.
OK, the last S that we have of
these properties is synergy.
So here's the EpiPen, as I was
saying, $1.2 billion profits
for Mylan in 2015.
And you might think that the
core of the EpiPen, which
hasn't signed it, as it
were, the chemical formula
to stop anaphylactic shock.
The core of it is
an intangible asset,
namely an idea, namely the
chemical compound that's in it.
And you might think,
well, that's just
protected by a patent.
There is indeed a patent.
But the patent ran out
almost 100 years ago.
So the core of it,
or the value of it,
can't necessarily
be in the patent
because that's not
defended anymore.
So what is it?
According to us, it's a bundle
of these intangible assets.
Let's go through
some of the others.
First of all, it's the design.
So it's designed in a
particularly convenient way.
Secondly, there's lots of
branding going on as well.
Often when people talk
about this type of thing,
they talk about the
EpiPen in the way
that people used to
talk about Hoovers,
when they were talking
about vacuum cleaners.
Thirdly, there's a lot of
marketing and distribution
around all of this, and
complicated marketing arms,
and so forth, which the
company worked very hard at.
And fourthly, there's lots
of training going on as well.
People get trained to use this.
And often, the training uses
the very word EpiPen itself.
In other words, it uses
the branded word itself.
So again, the synergies
are that we think that when
you put these intangible
assets together--
so the intangible
assets of the R&D
knowledge, the design, the
training, the marketing,
the branding.
If you put these
intangible assets together,
then you can get a
particularly valuable product.
OK, why don't I
pass over to Stian
to say some more about what
this means to the economy
and society.
STIAN WESTLAKE:
Thank you, Jonathan.
And thank you all for coming.
Jonathan's talked about
the rigorous empirical
and conceptual stuff.
This is more the speculative
so-what stuff now.
But I'm going to talk
about a few things.
I'm going to talk
about what this
means for leader companies
and laggard companies,
in this phenomenon
that economists
call secular stagnation.
I'm going to talk a
bit about what this
means for financing businesses.
I'm going to talk about the
human side of this, who wins
and who loses in an
intangible economy.
And then, because it's kind
of related to my day job,
I'm going to talk about
maybe how governments
should respond to this.
But let's start by talking
about winners and losers
in the business world.
And standing here, in a kind
of illustrious intangible
intensive business, I probably
don't need to tell you this.
But there's been some
great data-driven research
in the last few
years, by the OEC
and other people, that
show that in sector
after sector, in
country after country,
the gap between the most
successful businesses
and the rest, in terms of
profitability, productivity,
and other measures,
has been growing.
So this is manufacturing firms.
This is service firms.
But it kind of works.
It's fractal.
It works, if you look by
sector and by country as well.
And the productivity and
the profitability of firms
seems to be splitting.
And economists and
policy makers have really
started scratching
their heads at this.
They'll say, what can be
the possible explanation?
What are the potential reasons?
The OEC have said,
well, maybe this is--
technology is not
diffusing enough.
So Google's smaller
competitors are not
learning enough about Google's
algorithms quickly enough.
Well, that might be going wrong.
Or maybe the governmental
organizations
that are meant to
encourage competition
in the markets have
somehow dropped the ball,
or they're off the pace.
Those have been some
possible explanations.
We think that the rise
of intangible investment
helps explain this puzzle,
for a number of reasons.
And I'm going to go back to
the four S's that Jonathan
talked about earlier.
So the first-- this kind of
idea of scalability that Hal
and others have written about--
we think is hugely important
from this point of view.
If you think of an intangible
intensive business,
like Uber in the
hustle transport sector
or Starbucks in the cafe
and beverage sector,
Uber's got a bunch of
valuable intangibles
related to its
network of drivers,
its data, its software.
Starbucks has got very
valuable intangibles
in the form of its brand,
its operating processes,
and its supply chains.
Those assets are
much more valuable
at scale, where if
you can deploy them
across a big business,
than they would
be for a little small
local taxi firm near me,
or an excellent but
small local cafe near me.
So if you're in that position
of those small, relatively less
profitable firms, your
incentive to invest
in the next intangible
is that much less.
Spillovers matter as well.
Some of you may be
familiar with this book
a while ago from Hank
Chesbrough, a great management
studies guy.
He talked about open
innovation, the idea
that businesses can
do a lot of innovation
by learning from
other companies.
And you know, you can
spend a lot of money
on consultants telling
you how to do that.
Sometimes they're
very good at it.
Open innovation
is kind of a skill
of capturing the spillovers
of other people's
intangible investments.
And if we imagine
that capability
to be unevenly
distributed, which
is the reason why business
school professors will observe
it in different
companies, then you'd
imagine that would be another
way that some companies could
pull ahead of
others in an economy
where there are lots of
these spillovers to be had.
And then finally,
synergies, the idea
that these intangibles
are especially good when
you combine them
with other ideas,
as Brian Arthur, the Santa
Fe Institute of Technology
theorist, likes to point out.
This was something that was--
I think I saw it on
"Buzzfeed" originally.
But this was someone looking
at the App Store, the Apple App
Store, a while ago.
And they were looking at
Facebook's relationship
with them and pointed out
that Facebook had either
made a lot of the most
downloadable apps,
or they had acquired
them, or they
were in a position where
they could clone them,
because the synergies between
the intangibles that Facebook
had, in terms of software
data and their relationship
with their user base, were so
synergistic with other things
that people were developing.
So all of these things
potentially mean that even
if competition regulators are
working just as hard as they
ever were, and even if
technology diffusion--
no one has slacked off, everyone
pays attention to technology,
it's everywhere--
you could still see this gap
between leaders and laggards
widening.
And we think this is
also helpful in terms
of understanding secular
stagnation, which
is a concept some of you
will be really familiar with.
For non-economists,
it's this kind
of paradoxical mixture of low
investment in the economy.
Companies are, on the
whole, not investing a lot,
even though interest
rates are low.
So money is cheap.
When money is cheap, normally
companies will invest more.
And there is high
observed return
of investment on the
companies that are investing,
and high corporate profits.
Those things shouldn't coexist.
If corporate profits are
high and money is cheap,
economists would
say, well, surely
everyone wants to pile in.
But that's not happening
for various reasons.
And we think this kind of
helps explain it slightly,
because our leader firms
have a strong incentive
to invest in
intangibles because they
can get the benefits
of those synergies.
They potentially get spillovers
from other investments.
So they will exhibit high
investment and high ROI,
which is certainly what we see.
But at the same time,
you'd have a large crowd
of laggard firms, who
have less incentive
to invest in intangibles
because they can't
benefit from these synergies.
And if they do, who knows?
They'll just be copied, or
others will get the benefits.
And so they would have
low investment, low ROI.
And we think that
the aggregate there
could be a high measured
return investment,
because the people who
are making investments
are reaping high profits,
and the stock price
of those companies is
driving up indices.
But at the same time, the
aggregate level investment
in a productivity would be low.
So we think that might
partly contribute
to this weird paradox that's
going on in the economy today.
Sorry for the blurry picture.
Here's some Occupy
Wall Street guys.
And obviously, one of
the very salient beliefs
in the world at the moment is
that the financial services
sector is doing a very
poor job of meeting
the needs of the real economy.
It's something that we
feel a lot in London,
where we have a big
financial services sector.
And it's felt around the world.
We, again, think that
there is an issue here
with an intangible economy,
that in an intangible economy,
the financial subsystem
that we have at the moment
is relatively less
well-geared to backing that.
One of the reasons is one of
the other of our four S's,
this idea of sunkenness.
The fact that if your
company goes bust,
its intangible assets are
pretty hard to sell on.
They're pretty hard to salvage.
And obviously, if you are a debt
financier-- if you're a bank,
if you're a bond holder--
that's a disaster for you.
You want companies that have
lots of really fungible assets
that you can take a charge
over if the company fails.
And obviously, we have a
financial system that is,
to a great extent--
Silicon Valley excepted--
dominated by debt provision,
whether that's bank
finance of small businesses
or bond finance for
larger businesses.
There are some ways of
potentially tackling that.
There are some really
interesting financial services
companies trying to expand the
scope of intellectual property
backed lending.
There's a great interesting
company called MCAM in the UK
and in Singapore.
The governments are trying to
work out ways of using patents
and so forth as security.
So there are markets
emerging there.
But I think our normative
position is this probably
suggests that we want
to see more equity
finance in the economy.
And that would require
very big changes.
Obviously, most
countries strongly
favor debt finance
in their tax system,
because you can
claim debt interest
as a tax deduction,
which you can't
claim the similar
deduction on equity.
But it would also require
significant institution
building.
Because with the exception of
the kind of very remarkable
venture capital system in
Silicon Valley, Israel,
and almost nowhere
else, we don't
have institutions that really
provide capital, certainly,
for private companies
or small businesses,
other than in the form of debt.
So big project there.
The second problem from
the financial system
relates to these
spillovers, this idea
that Company A can
make an investment,
but Company B gets
most of the benefit.
And some of you may be familiar
with the history of the CT
scanner, a remarkable
medical invention that
transformed cancer therapy,
neurology, and so forth.
The origins of the CT scanner--
this is me and Jonathon's
patriotism again--
was it was invented by
a British company, EMI,
who you may be familiar
with as a record label.
But EMI stands for Electrical
and Mechanical Industries.
And back in the day,
they were a kind
of classic 1960s conglomerate.
They made everything from
Beatles LPs to kettles.
And one of the things that they
spent all the cash that they
made from the Beatles
on was the development
of the CT scanner, which was
a project of an engineer they
had called Godfrey Hounsfield.
He pushed this through.
He invented it.
EMI shareholders sadly made
absolutely zilch out of the CT
scanner because that
market was immediately
dominated by General Electric,
and by Siemens in Germany.
So the shareholders
made nothing.
Now, this is, to some
extent, a problem
for publicly traded companies,
for public equity finance,
in an intangible economy.
And there is some really
interesting empirical research
in the finance field that
seems to suggest that at least
some publicly traded firms
underinvest in intangibles.
There's a great economist--
Walton in London
Business School,
called Alex Edmonds,
who looked at both R&D
and organizational capital.
He worked out the companies
that were very highly
rated for their organizational
capital, that won awards
for it, that you could trade
off the back of that otherwise
totally public information they
systematically outperformed,
which just the equity
markets don't adequately
value some of those things.
And again, it's the intangibles.
And again, there's a
bit of a paradox here.
Because if you imagine
that there are spillovers.
And you're thinking, what
should my portfolio be?
That would, on the one
hand, increase the benefits
of diversification.
If you're a shareholder in EMI,
but you're also a shareholder
in Siemens and G, you don't
care that EMI don't make money,
because if you're sufficiently
diversified in that sector,
the spillovers-- you
can internalize them,
even if the company
management can't.
So on the one hand,
you think this
is going to mean more
index funds, more
advantage to diversification.
But the flip side
is that it turns out
that this effect, the
effect that shareholders
are wary of,
intangibles, is mitigated
by concentrated ownership.
Because investors who can
do ambitious due diligence
on these complicated
intangible back project.
Again, there's
evidence that they
are more willing to put up
with good projects on the--
with ambitious intangible
based projects on management.
So that would suggest that you
would see more longshore hedge
funds doing lots of analysis.
You'd expect to see the
returns to kind of detail
the equity analysis
rate going up.
And you'd expect to see
more active management.
So it's kind of a bit
of a paradox here.
And indeed, it does evoke
the way financial services is
going, where you are having
a bifurcation between more
of what activist and
analytic heavy hedge funds,
but at the same time, the big
pool of very diversified kind
of mechanical traders.
Better reporting may help this.
The book that Jonathan talked
about, "The End of Accounting,"
by Lev and Gu, is
really interesting
because it says that
we can fix some of this
by providing better
information to investors.
But it's not a panacea.
And again, the
venture capital sector
is one way of doing this.
So you take the capital
private to get rid
of some of these issues.
But although one of
the struggles that
places like the UK, and
other developed economies
outside the US,
have struggled with
is, how do you grow your
venture capital sector?
You're in the fortunate
position here of having one.
But they are quite hard
to grow from scratch.
The second thing worth
talking about-- this
comes to few benefits
from the economy.
And I just want to go back
into history a little bit
to talk about these intangible
assets tend to be contested.
This is in a museum in Istanbul.
This is the oldest human
law code, the law code
of Ur Nammu, a king in Samaria.
And this oldest human
law code details,
in very recognizable detail, how
you can own tangible assets--
fields, houses,
animals-- the kind
of things people
owned 2,000 years BC.
Humans have much less experience
in dealing with the ownership
of intangible assets.
Depending on how you cut it, the
earliest laws relating to this
are either from 1500s or 1700s.
So human beings have had
over 3,500 years more
to get our heads around what
it means to own physical stuff,
than to own intangible
stuff, and what rights
we have over it.
And you know, I'm a
historian by background.
So I kind of think that
the human race needs time
to digest things.
We are slow thinkers on
these important questions.
And one thing that
we know is that when
the ownership of assets
is unclear, or contested,
all other things
being equal, that
tends to reduce investment.
And at the risk of indulging
in a little bit more history,
this is the story of
barbed wire and what it
did to agriculture in the West.
So this is kind of an analogy
from tangible capital.
There's a great
economic history paper
by Hornback of a decade ago
that looked at investment
in improving fields, improving
croplands, in the Wild West
in the 19th century.
And it turned out that
investment in agricultural land
was quite low in that period.
Because what would
tend to happen
is if you would dig and
drain ditches, and do
all these kind of great
things, with your field,
and then some cattle baron's
herds would trample it,
and they would all
be alfalfa, and you
would have wasted your time.
But then there was
an exogenous shock.
In the late 19th
century, some guys
invented a very cheap way
of keeping cows and crops
separate from one another,
which was barbed wire.
It was much cheaper
than fencing.
There wasn't a lot of trees
or fence in the Wild West.
So they went to this technology.
And what these
historians showed is
that there was suddenly
a spike in investment
in agricultural land.
People started
digging the ditches
they weren't digging before.
And it kind of shows
that if you can
fix these problems
of contestedness,
if you can show who owns
something, who has rights
to something, then, all
other things being equal,
you'd expect more investment.
It's more worthwhile.
And therefore,
more of it happens.
This gets us to a
question which I
know is very dear to the
hearts of at least maybe
some people here, or some of
your colleagues-- intellectual
property rules, so who
should own intangible assets.
And I think here, there's a
kind of interesting trade-off
between the spillovers
that Jonathan talked about
and the synergies.
On the one hand, if we
think about spillovers--
this is a very standard debate
that many platforms have with
rights holders and
creative industries--
how do you best
manage the spillovers?
This is Blind
Willie Johnson, one
of the most celebrated
blues artists,
whose one of his tracks was on
the Voyager Golden Disc, sort
of representative
of human culture.
He made no money from his music.
He died stony-broke
and a tragic example
of failing to internalize the
spillovers with intangibles.
The flip side,
obviously, this is
what sometimes gets called
the Mickey Mouse trap.
This is the extension
of copyright
that coincidentally seems to
keep Mickey Mouse continually
within copyright for Disney.
So you kind of have a challenge.
On the one hand, we
don't want a world
where no creators
get the benefit
of their intangible investment.
On the other hand, it's
equally problematic
to have a world where
rights holders have
a massive incentive
to continue to lobby
to extend their rights
over things they created
a long time in the past--
and something I think a
lot about on my day job
and something I know Google
spent a lot of thinking about
as well.
So that's one issue about IP.
But of course,
there's another issue
about IP, which is if you
have very tight rules,
how do you get these
synergies, these kind
of unpredictable benefits,
when people bring together
different rights?
And where is the next,
for example, Spotify,
who were fought tooth and nail
by some parts of the music
industry, but actually now,
they work well in partnership.
The one thing that
you might look at here
is if we can improve the clarity
of IP rules, which means having
well-funded patent offices.
It means paying bureaucrats
for it, frankly, but coming up
with effective rules
that resolve some
of these inclarity questions.
That seems to be
a good way forward
for encouraging investment.
It also means if
we think about who
gains from a human level
in this economy, people who
can make sense of this
contestedness of assets,
who can bring
together the synergies
and fix the spillovers,
seem to do well.
One category of people
who seem to do that
are heroic entrepreneurs,
people often
to the last systems innovation.
And you know the Elon
Musk story, if you buy it,
is very much a story of
bringing together synergies.
A second group is people
with political connections,
if you think it's important
to influence these things.
So this is Neelie Kroes,
European commissioner,
who was taken on in a role
in Uber, where clearly he's
working out some
of these issues.
The contestedness of some
of Uber's very valuable
intangible assets is
a big salient point.
There's also kind of
a thing where just
traditional desk jobs,
which people often
think will get abolished,
will become more important.
Robert Reich, the US economist,
wrote a book a long time ago,
where he talked about
symbolic analysts, people
who make sense of stuff going
on in capitalism in the world.
They're probably going to
get more important as well.
And then also, there's kind of
a question about leadership.
I remember, McKinsey used to
talk about the war for talent
back in the 1990s.
And obviously, the
cult with leadership
continues, but to the
extent that leadership
is about bringing
together these synergies,
about addressing these issues.
That would make sense why it's
been growing in importance
around the same time that
these intangible assets have
been growing.
It also means that cities
will become more important.
This is one of the many stories.
I saw one on the front
page of the "Mercury News"
today, about how San
Francisco, and by
extension Silicon
Valley, have become
tough places to afford housing.
I don't probably need
to tell you guys that.
We have similar things in
the UK, in parts of the UK.
But one thing this
does mean, cities
are places where the
spillovers are realized,
where synergies take place.
People talked about the death
of distance 30 years ago.
But so far, the death of
distance, for the most part,
hasn't happened.
So weirdly, in an economy
based on intangibles,
where you want to bring
these ideas together,
physical places, physical
places where people interact,
will become more important.
And it does mean, you know, if
we take the democratic decision
that we want to have very
strict planning laws,
but we don't want
to build very much--
we want to make it
hard to own houses--
that choice will become
a more and more costly
choice, as time goes by.
There's a kind of
interesting twist here.
Some of you will
have no doubt read
Thomas Piketty's
"Capital," which
talks about the massive
rise of inequality
over the past few decades.
One of the commentaries on
this by Matt Ronglie at MIT,
and by some other
French economists,
pointed out that a
big chunk of the rise
of the wealth of the richest
people that Piketty documented
was actually the rise
in housing prices.
And there are many drivers of
that, including interest rates,
and so forth.
But it's notable that where
that property tends to be
is in these places where
the intangible happens.
There's a very curious
link between intangibles
and this very tangible form of
inequality of property wealth.
Cities also are becoming
more sectorally diverse.
And there's a kind of Silicon
Valley application here.
This is Youngstown,
Ohio, a classic steel
town from the
early 20th century,
and clusters in the old days.
Economists love clusters.
But clusters in the old
days were very often
places where people
specialized in one industry.
It seems that because
of the synergies,
there is some
evidence that clusters
are becoming more diverse.
This is some work by Shane
Greenstein at Harvard,
who looked at the Bay Area, and
how innovation in the Bay Area
was changing.
The Bay Area is the blue line.
The other clusters
are in other lines.
And not only is the Bay Area
responsible for more and more
patenting in the US, it's also
responsible for more and more
non-attack, or
non-ICT patenting,
which one
interpretation of which
is that clusters are
becoming more diverse.
It's not just that you've
got to have a cluster that's
really good at semiconductors,
or really good at fashion.
But actually, you now need to
be a cluster of everything.
And this kind of
creates some trouble
for small towns, which are
kind of historic embattled.
This rise of liberal
citadels-- this
was the "New York Times's"
graphic of Clinton's America.
This shows that some of
these economic divides
seem to be very intermingled
with the cultural divides
that lie behind
populist politics.
We think that part of the
rise of populism maybe being
influenced by the fact
that the economic divisions
between thriving cities
are kind of very related
to the cultural divisions.
And we can talk about
some of the psychology
behind that in the
Q&A, if that's helpful.
My pitch for what this means
from a tech point of view--
the mother of all demos was
obviously a huge step forward
in distance killing technologies
like videoconferencing
50 plus years ago.
I think that's kind of--
the death of distance
clearly has not happened.
But there is kind of a question,
well, at some point, perhaps,
distance will die.
Will it be VR?
Will it be some kind of
collaboration software?
An old colleague
of mine has just
written a book called
"Collective Intelligence," how
people come together
in different ways.
This is if one could
succeed at doing this,
at really creating those kind
of genuine economic clusters
at distance, it would
transform not just the economy,
but it would transform
politics as well.
So for me, that's a non-obvious
[INAUDIBLE] project.
What all of this means
is an intangible economy
is one where inequality
is potentially higher.
So we talked about
wealth inequality.
A ton of this comes
from property prices.
And as we've said,
property prices
are driven by this kind
of rise in global cities,
those places where
intangibles happen.
Income inequality-- there's
some really interesting
recent research showing that
income inequality is driven
as much by the gaps between the
performance of different firms
as by performance between
different workers.
And if that's the
case, then this rising
gap between the leader and
the laggard firms that we
talked about earlier, seems to
be a really important driver.
And then we talked
about this kind
of status inequality,
inequality of esteem, the fact
that in many rich
countries, there's
a group of people
who basically feels
that the elite disrespect them.
And that's more of a
problem than it used to be.
This kind of-- to us,
the fact that you've
got these cultural and
economic causes of inequality
intermingling, seems
to have, for us,
given some explanation for why
this problem is getting worse.
I'm going to talk
quickly about what
governments, and what public
policy, might want to do.
And then we're going to
throw it open to questions.
One, I think, big
question is whether this
may very well create a stronger
argument for public investment.
This is a chart from some
of Jonathan's research,
showing the share of
government publicly funded R&D
against investment in
intangibles in the wider
economy.
There's some evidence that
there's some correlation there.
So government investment
crowds in private investments
in intangibles.
So we think there's a
strong case for saying,
this will be more important.
You might expect
this share to rise.
And given this
line, it's probably
going to continue to increase.
That's just more
public investment
as a proportion of the
economy over time, which
can be pretty significant.
However, speaking as a
public policy person,
there's a lot we need to learn
about how to do this well.
Governments are reasonably good
at investing in academic R&D.
And basic science
had a long time
to think about how to do that.
But investing in
other intangibles,
like training or design
through procurement,
is something trickier.
It's very interesting to
see somewhere like Paris,
where the government
has set up a kind
of publicly owned Uber-style
clone called My Taxi.
It's an example of an intangible
based publicly owned business.
Is that the way to do it?
Maybe.
Is it to create more open
data, which is effectively
another publicly provided asset.
Maybe it's that.
But I think we're
feeling our way in a way
that with publicly
funded research,
we kind of know more about
what's going on there.
The other big
question, we talked
about these big cultural
and political divides
in the age of populism.
If you want to make the case
for more public investment,
how do you do that in a world
where political legitimacy
is diminished?
I think that kind of leads
us onto the question of well,
do we need new institutions
for an intangible economy?
The first Industrial
Revolution gave rise
to all sorts of institutions
and social technologies,
whether it was the time
clock and the kind of labor
discipline, whether it was
mutual aid and insurance,
to try and kind of
manage the needs
of an industrial workforce,
whether it was things
like mass production,
where we see there's
a big literature on
how electrification led
to an entire change
in the way factories
and manufacturing was organized.
So typically, these big
technological changes
in how the economy works
have been really fecund
for social innovation and
institutions that have
arisen hand-in-hand with them.
So there is kind of question
well, what else do we need?
One question for
me is, how do we
internalize these spillovers
of intangible investments?
So I talked about Godfrey
Hounsfield, the CT scanner guy.
And although EMI did
really badly out of that,
he did really well.
Because the queen
gave him a knighthood,
and he was the fellow
of the Royal Society,
and he got a Nobel Prize.
That is one way of doing it.
Society can reward people with
honors of one sort or another.
But that's a very kind
of 1960s vision, or early
20th century vision.
So one question we often
get asked is, are there
blockchain applications here?
I think it's compulsory
in these kind of talks
to mention blockchain
at some point.
And that's all I will do.
But I'm also fascinated by
some of the things, some
of the experiments, that
China are putting in place
in terms of social credit.
Clearly, there's a lot of
political economy questions
related to that.
But I see a lot of very
interesting social innovation
experiments coming out of China.
And finally, how do
you build these things
in a more fractured society?
I'm going to leave it there.
There are some copies
of the book here.
We talk about all
sorts of other things.
We talk a bit about Brexit and
Trump and medieval history.
I try and get as much medieval
history into books as I can.
And yeah, we're kind
of open to questions.
So thank you.
[APPLAUSE]
SPEAKER 1: OK, great.
AUDIENCE: First of
all, thanks for coming.
Certainly, interesting.
And I think very,
very important.
One observation and
also a question.
They're related.
The chart that you
showed earlier about-- it
was about the increase
of intangible value
in the economy.
It was very linear.
And my own thought on it is
that we may actually and should
be on the precipice of an
inflection point with AI
and laws of automation.
And so I'd be interested
in your thoughts.
Secondly, there
was a book recently
written-- you may be
familiar with-- by Kate
Raworth, "Doughnut Economics."
And in it, she argues
that we should not
be targeting economic growth.
And in the traditional sense of
GDP, I think that's sensible.
But Stian, for you,
how is the type
of thinking that you guys are
talking about being integrated
into national measures so
that people will be satisfied
that the economies are growing,
but it's not in nuts and bolts?
JONATHAN HASKEL: So thank
you for the question.
Just quickly on AI.
I mean, one view of AI--
listen, I'm talking to a room
who is incredibly well-informed
about this, so I
slightly hesitate here--
is that it is somewhat
of an example of what
we're talking about.
So if I think about
some of what I
read about machine
learning and AI,
it consists of incredibly
fast computers.
So that's the tangible bit.
Interrogating
gigantic databases.
I mentioned
databases earlier on.
That's like an
intangible bit as well.
Using fantastic software,
which does that interrogation
amazingly quickly
to recognize faces,
and cats, and tables, and
all those various things.
So in a sense, I guess--
if I can put an
intangible spin on it,
it is precisely
the kind of blend
of the tangibles with the
intangibles that you see.
That's one way of
thinking about it.
As far just quickly as
the "Doughnut Economics"
is concerned, I mean, the
"Doughnut Economics" book--
I don't know if Kate Raworth
has come to give a talk here,
but it's essentially a kind
of very anti-economist's book.
So, of course, as a
card-carrying economist,
I find it quite an annoying
book in that respect.
But challenge is good.
So you know, we ought to
be reading all of this.
I think her core
message in that book
is very much along the lines
that we mustn't neglect
the environment if we have
economic growth at all costs,
we'll have pollution and all
these very terrible things
and all that kind of thing.
Along the side,
she criticizes GDP
as being an absolutely
terrible measure of anything.
And at that point, I would take
a little bit of issue with her,
but I think it relates to
your question about how
we can build all of this.
I think our view when we talked
about this in the Indigo Prize
that David kindly mentioned
is that what we want to do
is we want to bring
this stuff into GDP.
And so make GDP more
reflective of these types
of intangible investments,
which it currently is not.
So a bit of a slight crusade
for GDP in some ways,
but making it more relevant to
the type of intangible economy
that is being built
in this very building.
AUDIENCE: Hi.
I wanted to ask about the
economic history of this.
So you showed a chart
at the beginning
that showed the intangible
economy sort of starting
to rise in the 1940s and 1930s.
So yeah, just wanted
you to speculate on what
the causes of those could be.
STIAN WESTLAKE: So that's
a really good question.
It's something we sort of
mull over a bit in the book
and we don't have
an absolute answer.
I don't know if anyone reads
Cosma Shalizi's various blog
posts, a guy in
Santa Fe Institute.
He has this wonderful theory
that the singularity actually
happened in the
late 19th century.
If what we mean is technological
acceleration causing
an emergent system to basically
have a life of its own.
So his argument is
that modern capitalism,
the singularity has
already happened
and all these technologies
are actually the kind
of the manifestation of that.
To be slightly less
speculative about it,
I think there is a sense in
which the nature of modern
capitalism-- and by modern, I
mean sort of since about 1850--
just demands a huge
amount of organization
of not just ideas, but
relationships between people.
Whether that's
customers and producers
or whether it's producers
and supply chain and workers.
And what the intangible
economy is doing
is it's picking that up.
This is the kind of
accretion of stuff
that is in some fundamental way
very essential to capitalism.
Now, obviously, although we
kind of said, well, maybe this
came first rather than
IT, IT is hugely important
because it's very
complementary to these things.
You can't have software
in any meaningful sense
without the technological
infrastructure
to run the software on.
IT in various sorts makes
it a lot easier to record
and build and accumulate
these relationships.
So there's definitely a
complementarity there.
Another thing that's
kind of interesting to me
is that if you look
at the relationship
between regulation, like labor
market regulation and product
regulation by country.
And you look at intangible
investment in relation to that,
less regulation
of those sorts is
linked with more
intangible investment.
And the kind of intuition
there that people
like Erik Brynjolfsson and John
Van Reenen have talked about
is that if you want to
invest in new ideas,
buying new products, new
ways of doing things,
it's potentially easier to do if
you have a more flexible labor
market, if you have
product markets that
are more friendly to
disruption in your markets.
So there is kind of one
other possible driver
that since about 1980, many
of the world's economies
have been on a kind
of deregulatory path.
And it's possible that
some of those things
may have also increased
this investment.
There may be
diminishing returns.
We're not saying that you should
have no regulations at all.
But it may be that some
combination of ICT,
just the general
trajectory of capitalism,
and the regulatory,
the political economy,
might have been
driving that increase.
We don't know.
AUDIENCE: I wanted to
comment that there is--
that traditionally,
we sort of think
of companies as
containers of value.
And one of the things that we've
seen in the last 30 years or so
is the rise of open source where
some participants are actually
militantly opposed to
being called a company.
And yet, you want
to measure somehow
what they are contributing.
Have there been any
efforts to measure like--
for example, for the Free
Software Foundation, what
the value of their
intellectual capital
is, even without their
participation necessarily?
JONATHAN HASKEL: Yeah,
it's a great question.
And in a sense, some of these
interesting and difficult
properties that we were talking
about of these intangible
assets call into question
traditional measurement
methods.
So the traditional measurement
method around software
is to go out and find out how
many software engineers are
working and figure out
their costs and all of that.
And from that, back
out some kind of notion
about how much firms are
investing in new software.
But of course, if it's
open source software,
and it's being
written by some group,
and then other people
are benefiting from it,
as we were just
talking about, then you
understate the types
of benefit that
come from that kind of endeavor
in a very substantial kind
of way.
So again, it's one of
the peculiar features
of intangible assets that
make this whole project very
difficult.
So statistical
agencies, accountants
aren't bothering with
any of this stuff at all.
National income accountants
in statistical agencies
are trying, but they come
up against these kinds
of difficulties.
But almost certainly, those
kinds of contributions
are understated in that way.
STIAN WESTLAKE: Yeah.
The whole question of how you
measure the kind of economy
outside firms is
something that I think
is a really tough and
important problem.
AUDIENCE: Thank you.
AUDIENCE: Thanks for the talk.
I think I have a question kind
of little bit related to One
of the earlier questions.
So we talked about how certain
problems, like the income gap
or wealth gap or even like
happiness kind of stuff
is kind of really
getting worse and worse
with like the evolution
of the economy.
So I'm just curious
like, do we see
like a trend of evolving
our economy as a society
to kind of make
these things better?
Are we kind of
evolving our economy,
but being a little vigilant
of the cons of capitalism,
or even like theories of
people, like Émile Durkheim,
or are we really destined
to failure through our own
success?
STIAN WESTLAKE: I
mean, if we come back
to this question of GDP
growth, is it good for us?
I guess there is quite
a bit of good news
that doesn't get talked
about in the critique.
So if we think about the UN's
Human Development Index, which
is a kind of very earnest
attempt to measure
what really matters
for humans, that's
extremely highly
correlated with GDP.
So there's definitely
some sense in which
GDP growth is associated
with these good things.
Economic growth seems
to be associated
with things like greater
tolerance on the whole
and with paradoxically
environmental protection
So as countries get
rich, or often they
stop chopping down trees
and start planting them
and so forth.
That's not to say that
things like climate change
aren't significant
challenges to the economy,
but it does give some-- it's
some reason not to despair.
I think some of these questions,
like the rise of inequality,
particularly if it's driven by
these changes in the capital
stock that otherwise are kind
of useful and productive,
I think that really
is important.
And my take-- and you know,
Jonathon's the economist.
I'm the non-economist.
My take is that that's the
legitimate domain of politics.
That's what we
should be thinking
about from a political
point of view
and deciding consciously as a
society what choices we want
to make around distribution.
Just because the
economy is trending
in a particular
dimension doesn't
mean we can't intervene to
create the society we want.
AUDIENCE: Or in fact, the point
I have is like, I do agree,
this GDP growth-- or having
a number to kind of depict
the overall status of how we are
growing in terms of technology
or money, that's important.
But then, I think more
often, like we actually
see things very differently.
Maybe it's a little
bit more philosophical,
but we see when we
talk about economy,
we just talk about
kind of strategies
we should use to
grow, like our income
levels or overall ability to
purchase, or things like that.
While we kind of
totally not correlated
with like the
corresponding changes
in the behavior or
the social structure
that happens when we are kind
of targeting certain things.
So my point is I
think, don't we need
to be like a little bit cautious
of the other stuff as well?
So that while we are
really kind of targeting
for like the overall
growth, maybe
there are certain things that
we are not really considering,
which are like a
byproduct of [INAUDIBLE]??
JONATHAN HASKEL: Can I
try a reflection on that?
And you tell me if I'm
not capturing your point.
I mean, I think it's back to
the age-old argument about what
technology does.
So speaking as a
university academic,
the invention of searching the
internet is fantastic for me
because I can find this
paper, and this paper,
and all that kind of thing.
It's greatly improved
my job massively.
On the other hand, if
you read, for example,
"The Financial Times," their
employment correspondent,
Sarah O'Connor, who's written
a series of articles about
the Amazon warehouse, where
the invention of technology--
the software for sort
of monitoring workers--
seems to be
de-humanizing workers.
I'm putting words
into [INAUDIBLE]..
And these workers in
the Amazon warehouse
are really having
quite a difficult time.
Part of what your question
is pointing to is I
think an age-old question
about whether technology
might be a liberating
force for some workers,
stopping them from
routine tasks,
but then might be particularly
bad and oppressive
for other types as well.
That's a tough issue,
very tough issue.
AUDIENCE: It seems,
at least to me,
that the entertainment sector is
becoming a lot more intangible
as well.
For example, if I cancel my
cable subscription and web
surf instead, it seems
a lot harder to measure.
We do have ads and so forth.
But I was curious, do you
think this is happening?
If so, how can we
kind of measure
this extremely intangible
entertainment value
that people are getting
through all these hours they're
web surfing on social
media and so forth?
STIAN WESTLAKE: Do
you want to take that?
JONATHAN HASKEL:
I mean, again, I
think that's in the box of
a hard, hard measurement
question, which people are
sort of struggling with.
But you're right, the
entertainment industry--
I mean, I think the way
that we think about it,
but we see intangibles
everywhere,
is this just bundle
of intangible assets.
We talk in the book, for
example, about Harry Potter.
As I was mentioning
before, Britain's
most famous innovation
in many ways.
It's not only the
script, but it's also
the computer graphics.
It's the set design and
all those kinds of things.
So it's that kind of
bundle of things together,
which creates a particularly
valuable type of asset.
But of course, that
has to be delivered
to people's houses via
broadband and cable
and all that kind of
thing, about which there
are many ownership
types of arguments.
So there's a big policy area
about the delivery of it
as well.
STIAN WESTLAKE:
And I think there's
two interesting questions there
arising from this intangible--
sort of the increasing
intangibility.
One of which is
kind of, how do you
measure the stuff that
doesn't get paid for?
It's a kind of
measurement question.
At the same time,
there's a question
which rights holders
and creators would ask,
which is, how do you get some
payment for things that people
are consuming and are enjoying?
Which is as much a
question, going back
to this kind of contestedness.
What are the terms of trade?
What are the rules?
What are the rules
of these markets?
I think they're both
pretty pressing questions.
SPEAKER 1: OK, great.
Last question.
AUDIENCE: This isn't going
to be a very good question.
I have a couple random
thoughts in my head,
but I'm wondering if you can--
because the purpose
will be for you guys
to help stitch them
together, point me out
where I'm conflicted.
So the first one is it seems
to me like a reasonable claim
to make would be that as our
economy gets more developed,
it's gotten more specialized.
And it seems like as it
gets more specialized,
the distance between
any two workers grows.
So the job that I do and
the job that he does--
I have no idea who this guy is--
is probably
functionally different.
I don't think I could come
in and do his job tomorrow.
I don't think he could come
and do my job tomorrow,
because the context required
to do our specific tasks
is actually not that
close to each other.
So it seems like
the more specialized
the economy gets, the kind
of, like I say, distance--
I don't know what I'm actually
measuring-- gets further apart.
And what that means is that
communication and organization
become a more important
skill in order
to bind all these
things together.
That was like one
random thought I had,
if you guys had sort of
thought about the problem
from that point of view.
And then, the other was
that you guys have clearly
put a lot of
thinking into funding
at a government, like country
or even institutional level.
But there's also an
individual level of funding
that has to happen, where
I have to decide to go
get a particular degree or not.
And I decide, even within
that degree, what happens.
And so this other point
about specialization
is the more specialized
things become,
some of those things,
some of those choices
to become specialized
require very advanced funding
on the part of the individual.
And to the extent that
our economy is maximized
by reconfiguring
all these jobs, that
can be a total bummer
if you guess wrong
or it can be a lottery
ticket if you guess right.
And then, the other point is--
back to the one that you
made with technology,
is that the other force
that technology can do is it
can actually reduce the training
required to accomplish a job.
And that actually
means the job pays
less than it did before my
individual investment was
lower.
So I'm wondering if you
guys see trends in--
or I don't know,
solutions in the sort
of level of individuals
making these investments.
And whether those things are
going in the right direction
or not?
So like I said, this
wasn't a good question.
I admit that upfront.
But some thoughts that
you guys [INAUDIBLE]..
STIAN WESTLAKE: Yeah.
I think that's
really interesting.
I mean, I think we've--
on that second
question about, well,
what's an individual to do
in terms of their own skills
and training in
this new economy?
I think the first thing, this
question about how specialized
do you need to be?
On the one hand, clearly the
demands of new technology
do increase the premium to
certain highly-specialized
skills.
Everyone is hiring
data scientists.
So next year, it'll be
something else and so forth.
The flip-side is--
and it comes back
to these properties of
intangibles, particularly
the spillovers
and the synergies.
We know that one thing that
will be really rewarded
in an intangible
economy is the ability
to bring together
different intangibles
and kind of coordinate them.
And that suggests that not so
much technical specialization,
but actually a lot of
quite old-fashioned skills,
like social skills, leadership,
and perhaps a combination
of a sufficient level
of technical expertise
plus an ability to be
kind of an integrator,
might be really valuable.
In my days when I was a
management consultant,
I had this awful phrase
called "spiky integrators."
I don't know if that's
a general thing.
But it'd be someone who's
got a spike in one area,
but enough competence
in other areas
to integrate different skills.
And it may be that in an economy
of more synergies and more
spillovers, those skills
are particularly valued.
I know in my old
work, we did a lot
of research asking
hiring companies
about the skills they were
looking for in data scientists.
And that was the
kind of sweet spot.
It was, we want people who
are enough of a quant jock
to understand what's going on,
but they also need to be able--
and then, the company
would reel off
five different
things they needed
to understand related to their
own particular business model.
Now, in some ways,
that's quite good news
for our kind of hypothetical,
perplexed young person
setting out.
Because it means that there are
some more transferable skills
that are worth developing.
Often, quite soft skills.
But then, I kind of do
agree with your more--
the more concerned part
of what you're saying.
Because if we are
expecting people
to invest more in their
skills, this uncertainty
still applies because some of
these skills will be specific.
And I guess there, this
is the question of, well,
how do you genuinely
generate lifelong learning
in an economy?
Well, most world
economies, learning
stops at 18, or 21, or 25.
I think that's partly a
technological question
and partly a social question.
JONATHAN HASKEL: Can I try
a very quick reflection?
Would it be all right?
SPEAKER 1: Sure.
JONATHAN HASKEL: Just
on your nice question,
as a card-carrying
economist, I think
you asked a very
profound question, which
is, if you think about
societies before they
were very specialized.
You know, the farmer
would know the farm worker
and they would--
you do me a favor,
and you a favor,
and all that kind of thing.
But once you get a very
specialized economy,
and the distance between
people goes apart,
there isn't so now I'm
going to be an economist.
There's just a shortage of love.
That's the problem.
There's just not enough
love to go around.
And so we have to have
in society some way
to replace that.
And it's called
the price system.
And the miracle of
economics is that
this incredible
decentralized economy where
people don't know each
other is coordinated
by the price system.
So the shoes you're wearing,
you don't know the person
who's built the shoes.
Hundreds of years ago, you
would know who's made the shoes.
But you don't know that now.
Now, of course, in the
intangible economy,
for the types of reasons
we've talked about,
maybe the price system
just doesn't work so well.
So we don't quite know
what the ownership
is, as Stian was saying.
We don't quite know about the
spillovers, and all of that.
So I think we need to possibly
reinvent all of that stuff,
because we may not
have the right system
to deal with it at the moment.
SPEAKER 1: Thank you, Jonathan.
Stian.
Thank you, everyone, for coming.
JONATHAN HASKEL: Thank you.
[APPLAUSE]
