The Cambridge economist discusses the rise of intangible assets.
Professor Diane Coyle was among the pioneering economists who first started exploring the implications of the intangible economy in the late 1990s. Her book The Weightless World (1997) anticipated many of the consequences troubling policymakers two decades on, including rising inequality, the backlash against globalisation and the growing divide between cities and rural areas.
In her recent prize-winning paper, ‘Making the Future Count’, co-authored with Benjamin Mitra-Kahn, Coyle argues GDP should be amended to account properly for intangibles. Over the longer term, GDP could even be replaced altogether with a more useful ‘dashboard’ of metrics that track citizens’ access to different assets, both tangible and intangible. Coyle argues this would provide a more comprehensive picture of a country’s economic welfare.
In this Q&A, Coyle discusses the implications of the growth of the intangible economy and how policymakers and economists will need to adapt.
AIQ: It has been 20 years since you wrote The Weightless World. How has the intangible economy developed since then?
Diane Coyle: It has become a pretty well-embedded trend. It isn’t that we’ve stopped being interested in stuff – we still have possessions and live in houses and so on. But the share of value in the economy that is intangible has clearly increased. You see that most dramatically in the stock market, where so much of company valuations now are intangible.
AIQ: Are those high valuations among the big technology companies skewing markets or economies in any significant way?
DC: It’s complicated for a number of reasons. One is that we don’t have very good data on what companies are doing and how to value intangible assets. For instance, we know that for any company, a lot of the market value is going to be bound up with goodwill or other intangibles. But that can evaporate overnight if there’s some kind of scandal or crisis. Intangible assets have a ‘fragility’ compared to physical assets.
Second is that we don’t have any good statistics on data – we know the volume of data being carried over networks is going up, but not what companies are doing with it or what they’re using it for. Emails might contain blueprints or just chit-chat. There’s a lot we don’t know in terms of the measurement of intangible assets.
AIQ: Are there any other problems caused by intangible assets?
DC: The other problem is that they’re what economists call public goods in the technical language: the fact one 19 person uses them doesn’t stop another person using them. That refers to things that are literally provided by the public sector, like parks or national defence. But knowledge and ideas and other intangible assets also have this characteristic, in that lots of different people can use them at the same time. Now, we don’t know how freely public goods ought to be distributed. That’s one of the reasons intellectual property is such a fraught area, because the intellectual property rules for intangible assets have grown up by analogy with physical property, which means that value goes to a very small number of people who take out these patents.
AIQ: Does this mean regulators should step in to curb the power of the big tech companies?
DC: There are lots of examples of companies that dominate these winner-take-all markets for a certain amount of time and then get knocked off their perch by someone else. Myspace was replaced by Facebook, for example. There is a debate now as to whether the big four or five have got so big that this won’t happen to them. Regulators are puzzling over what to do about that. I would argue they need to think about it in terms of allowing other competitors to get into the market: that could include looking at intellectual property rules to ensure patents are not too exclusionary; it might mean setting standards for data so that it can be transferred between different platforms. Those are the kind of rules I think regulators should be looking at, rather than more interventionist approaches.
AIQ: Much of the rhetoric around big technology companies that deal in intangibles is negative. You have argued that governments can learn from them in their use of data and provision of services. Could you expand on this?
DC: People are writing about Uber replacing public transport in the US, but why couldn’t public authorities copy them and do it themselves? There’s nothing that says it has to be a venture capital-backed company that does this. Take social care. The demand for social care is going to grow enormously. It is much better and more efficient to look after people in their own homes. Why not create a platform that matches people in a certain area who can only work a few hours a week – because they need to take the kids to school or have other responsibilities – with people who need someone to come in and chat to them, cook them a meal. There’s nothing to stop a local authority copying that model. Organisational change is much harder than buying a new computer – it’s hard to change the way public bodies do things as it’s a much more complicated environment than the private sector. But if people say data is the new oil, public authorities have lots of data, and they can use it for the public good. This new economy has lots of public good characteristics and we want it to benefit everybody.
AIQ: You have written widely on GDP and how it fails to properly measure the health of the modern economy. Could you explain this failure?
DC: There are two problems with the current approach. The first is that it doesn’t pay any attention at all to sustainability, broadly understood, because it only looks at current consumption and current income, and not the extent to which we are consuming capital assets to maintain our standard of living. That’s true of all assets, not just environmental ones. The other is the question of distribution. We could do better in current statistics. If the ONS in the UK had put more resources into collecting regional and finer geographical statistics in the past, we would have known that some parts of the country simply haven’t benefited from GDP growth for about 10 years or more; it was all very concentrated in the southeast. We think we are only measuring what we see, but in fact it’s the other way around: we see what gets measured.
AIQ: How might we improve GDP as a metric to better measure the welfare of economies?
DC: We ought to pay attention to the distributional question even if we don’t change the statistics. If we ask what are the sorts of assets people have access to, we would start to think about other things: What is the transport infrastructure available to people in areas of low income? What are the schools like; are they able to build up the human capital to give people the life chances they need? You can think about distribution in a much more empowering way if you have these kinds of figures.
AIQ: Are policymakers ready to give up their reliance on conventional GDP?
DC: There’s a lot of interest in change at the moment. But it’s a bit like having a technical standard, like driving on the left side of the road. Nobody is going to switch until anyone else switches. If politicians started saying GDP is not important, all the newspapers would say: “Well you’re only saying that because it isn’t growing.” So there needs to be some kind of consensus and enough intellectual firepower behind switching to something else, as was the case when GDP was invented during the Second World War and immediately afterwards. The debate about what we would switch to is still going on.