Search
  • Robert MacCulloch

Capitalism without Capital: Have Kiwi politicians got the future of NZ wrong?

Several years ago a former colleague of mine at Imperial College London wrote a book called "Capitalism without Capital". Bill Gates described it as a 'brilliant new book' on his blog. The book argues that only a few decades ago the focus of capitalism was on firms that owned "tangible capital", which refers to things you can touch like land, buildings, machines and physical infrastructure. But a revolution has taken place in the 21st century: the dominant form of investment in Europe and America is now "intangible capital" - like software, reputation, relationships and knowledge. Intangible investment overtook tangible investment in these two regions before the 2008 global financial crisis.


For example, in 2018 the world’s largest companies by market capitalization included Apple, Alphabet, Microsoft, Amazon and Tencent. If you look at their balance sheets, they had very little tangible capital. For example, Microsoft only had $5 billion worth of tangible capital but $85 billion worth of R&D capital. Alphabet (Google) has $20 billion of tangible capital but $53 billion of R&D capital.


The importance of intangible investment changes the debate, prevalent in NZ in the run-up to our election, that the country should put the major part of its energies into building up our physical infrastructure, like roads, city rail links and tunnels. Maybe that's wrong - maybe a big mistake policymakers are making right now is throwing our tertiary institutions and private businesses that invest in intangible assets into decline as tight borders and rationing of quarantine places choke their access to talented new hires and overseas students. Maybe the media and Green Party focus on wealth taxes targeting physical land and buildings is misplaced in a world where new billionaires are being minted out of their ownership of intangible - not tangible - capital which is often extremely hard to value.


Bill Gates argues that the book raises "a number of big questions that lots of countries should be debating right now. Are trademark and patent laws too strict or too generous? Does competition policy need to be updated? How, if at all, should taxation policies change? What is the best way to stimulate an economy in a world where capitalism happens without the capital? We need really smart thinkers and brilliant economists digging into all of these questions. "Capitalism Without Capital" is the first book I’ve seen that tackles them in depth, and I think it should be required reading for policymakers".