Capitalism Without Capital

Our central argument in this book is that there is something fundamentally different about intangible investment, and that understanding the steady move to intangible investment helps us understand some of the key issues facing us today: innovation and growth, inequality, the role of management, and financial and policy reform. (Location 255)

Finally, intangible investments tend to have synergies (or what economists call complementarities) with one another: they are more valuable together, at least in the right combinations. The MP3 protocol, combined with the miniaturized hard disk and Apple’s licensing agreements with record labels and design skills created the iPod, a very valuable innovation. (Location 301)

They divided intangible investment into three broad types: see table 3.1. There was “computerized information,” “innovative property,” and “economic competencies.” (Location 787)

Most of the physical things an aid organization might invest in to tackle death from dehydration don’t scale. If you build a water pump, dig a well, or buy a water tanker, you can only meet the needs of so many people before you need to repeat the investment. But the idea of ORT can be used again and again, once you have discovered (Location 1165)

People often observe that while the early bird catches the worm, it is the second mouse that gets the cheese. (Economist and blogger Chris Dillow made the point that the incentive to be a “fast follower” might be higher in a sector experiencing a lot of technological progress: waiting not only allows a firm to benefit from the spillovers of the first firm to invest, but it might also benefit from falling prices for investments like software.)5 (Location 1841)

But there was one group of companies for which having MPs or lords on the board brought a measurable advantage: companies working in the emerging technology sectors of their day: synthetic chemicals, car and bike manufacturing, electricity generation and distribution, and so forth. Braggion and Moore showed that new tech companies with grand directors saw increases in their share price, including specific jumps if an existing director was elected to Parliament. They also found it easier to raise financing. (Location 2194)

In light of this, in 1937 Ronald Coase (another Nobel laureate) asked a deceptively simple, but very profound, question: Why then do firms exist? If markets do a pretty good job coordinating the economy, what’s the need for firms? Coase’s answer was that firms did a cheaper job of coordination than markets. Inside a firm, Coase said, coordination by internal markets would be very costly since you would have to (a) discover what the market prices are and (b) negotiate a contract for each and every transaction. This (Location 3124)

This divides into monitoring (monitoring the firm and improving); targets (setting targets and acting upon them); and incentives (rewarding employees based on performance). As they nicely summarize: “Our methodology defines a badly managed organization as one that fails to track performance, has no effective targets, and bases promotions on tenure with no system to address persistent employee underperformance. In contrast, a well-managed organization is defined as continuously monitoring and trying to improve its processes, setting comprehensive and stretching targets, and promoting high-performing employees and fixing (by training or exit) underperforming employees.” (Location 3204)