In 1931, John Maynard Keynes published a short essay entitled “Economic Possibilities for Our Grandchildren” in which he considered the possibility of solving what he called “the economic problem”. According to Keynes, the question of scarcity should have been dealt with at the beginning of the 21st century. Decades of capitalist progress would leave society with the ability to produce the resources needed to guarantee everyone a good standard of living. The problem, at this point, would be to find ways to spend some well-deserved time off.
More than 90 years later, it’s fair to say that Keynes’ abundance prediction was not wrong: the scale of production possibilities before us in 2022 is far beyond what he probably imagined in 1931. But the “economic problems” did not go away. . In fact, there is a raging intellectual debate about how to define our main problems and what to do about them. Is finding a way to create more growth always the key to a good company? Or is our main economic problem finding a way to deal with inequality and environmental degradation?
The most recent contribution to this debate comes from Jonathan Haskel, professor of economics at Imperial College Business School, and Stian Westlake, chief executive of the Royal Statistical Society. They are firmly in the “more growth” camp. Their book, Restart the future, suggests that capitalism can be revitalized by promoting “new investments” in what they call “intangible capital”. This thesis builds on their latest collective effort, Capitalism without capital, published in 2017. In this book, Haskel and Westlake described how the capitalist system shifted from investing in physical capital, such as machines and factories, to intangible capital, such as software. It is important to note that this type of capital behaves differently from physical assets: the more it constitutes the economy, the more it can modify the dynamics of capitalism itself.
In their latest article, Haskel and Westlake argue that the speed of these changes in capitalism has not been matched by developments in the institutions that govern the economy. For example, public spending on research and development is still based on generating more new research while good quality innovation now comes from unique combinations of different types of existing capital. The result of these “institutional lags” has been below-average investment in intangible assets and weak economic growth. The solution proposed by Haskel and Westlake is a range of institutional solutions that will drive prosperity in the intangible-rich new economy.
The book is strongest when it deftly explores policies that could help boost investment. Here, as economists, the authors can play on their own turf – exploring how best to squeeze the juice from the intangible orange. In a series of policy discussions on cities, finance, competition and R&D funding, they outline how intangible assets can be harnessed to create growth and what more can be done to manage the undesirable impacts of economic transformation – such as the growing divide between cities.
More controversial is their argument that energizing the growth engine of intangible capital will provide a solution to our current political economic problems. This idea is based on a theory of social change where political and economic stability is essentially unlocked by growth. This growth, in turn, relies on finding the right institutional “code” to unlock the kind of market exchange that brings prosperity, happy citizens, and a thriving society.
It is interesting to speculate what Keynes would have made of this argument. It is undeniable that he would have been impressed by Haskel and Westlake’s vision of a prosperous society, harnessing the power of “immaterial” investment to create great leaps in productivity and output. He may also, it is suspected, have been skeptical about whether continued growth in an era of relative historical abundance is still the main “economic problem”. This is especially the case at a time when capitalism’s growth orientation is increasingly inseparable from some of the overlapping existential environmental crises we face.
Haskel and Westlake’s insights into how institutions currently inhibit an intangible-dominated economy are valuable. Their recommendations, if adopted, may well unlock additional growth. But that alone cannot create a better future: the “economic problem” is now much more complex than that.
Reboot the future: How to Fix the Immaterial Economy by Jonathan Haskel and Stian Westlake, Princeton University Press, £22, 320 pages