Capitalism without Capital

Much has been made of the global power shift away from capital intensive businesses towards businesses with a low ratio of capital assets to market capitalisation (commonly cited examples being Uber, Airbnb, Netflix etc). This trend has been driven by knowledge businesses such as technology companies, but it isn’t quite true to say that they don’t have capital assets; rather, that these assets are intangible. In a speech earlier this month at the University of York, Prof Jonathan Haskel described this concept in more detail. He pointed to software, reputation, relationships and knowledge as the new capital, and ascribed it with four defining attributes: (1) scalability (the opportunity to use an asset again and again, e.g. software), (2) sunk costs (a lack of tradability resulting in irrecoverable expenditure, e.g. a brand name), (3) spillovers (benefiting from others investment, e.g. copying product designs), and (4) synergies (the ability to combine ideas to make new ones). Capital assets, such as real estate, need to compete for investment in the face of these attributes. The evidence shows that since the financial crisis intangibles account for more than half of assets in Europe, whilst in the US this switch-over happened much earlier (1995). However, perhaps in contradiction to this trend, in the UK we have seen real estate’s contribution to GDP rise from 6.9% in 1980 to 11.1% last year, albeit that this growth has now flattened.