The News&Observer review Capitalism without Capital by Jonathan Haskel and Stian Westlake …..

Virtually no one denies that the economies in most developed countries have changed considerably over the past quarter century. That said, scholars and journalists often emphasize different aspects of the change and differ considerably amongst themselves regarding causes and effects.

Despite their differences, it seems fair to say that most find places in their analyses for discussions of the relative decline of manufacturing and the relative rise of services, for globalization and technological change, and, more recently, for discussions of subjects such as the “sharing economy,” robots and artificial intelligence.

Far fewer take the path followed by British economists Jonathan Haskel and Stian Westlake and focus on changes in patterns of investment. Indeed, in their important new book “Capitalism without Capital,” the pair focus on one change in particular – the rise of investment in “intangibles” – and make a strong case that this change matters.

To be sure, we’ve long heard that business investment is important to economic growth, but when most of us think of business investment, we tend to think of physical assets that provide benefits over a relatively long period of time (a factory, machinery, computers, delivery trucks, etc.). Economists refer to such assets as physical capital – goods, devices and contrivances made by humans that aid in the production process – and have long accorded physical capital a primary role in economic life. While businesses always invested some in non-physical or intangible assets – training, research and development, organizational improvements, etc. – until recently such investments were dwarfed by tangible investments one could touch.

Beginning in the United States in 1993, however, business investment in “intangible” capital for the first time surpassed investment in tangible, physical capital. The same thing happened in the United Kingdom in the late 1990s and in Sweden and Finland shortly thereafter. In other developed countries, investment in intangible capital is following the same trend, closing in on the value of investment in physical capital.

So what’s the big deal? Does this matter to anyone other than bean counters and egghead academics? Haskel and Westlake make a good case that it matters to all of us.

How? For starters, when most of a country’s new investment comes in the form of intangibles — software, databases, R&D, training, business process re-engineering, branding and design, not to mention networks and relationships – rather than in the form of tangible buildings, machines, vehicles, etc., certain groups benefit and other groups do not. Moreover, because intangible assets are basically “knowledge products” rather than physical constructs, they are considered by economists to be “non-rivalry” goods, which can be used by many people anywhere without being used up (unlike a can of Coca-Cola). As such, non-rivalry goods are eminently scalable: Once a software package, an algorithm or a business process such as Six Sigma is developed, the incremental cost of making it available to one user or to 1 million users is minimal, often allowing companies that make successful investments in intangibles to attain great scale, market power and wealth. Think Facebook or Alphabet (Google).

Or take the case of Apple, the most valuable company in the world by market capitalization. Its main assets are intangibles, relating to design IPR (intellectual property rights), branding and its elaborately curated global supply chains built on relationships with other companies such as Taiwan-based Foxconn rather than on any fixed, physical assets owned by Apple itself.

We’re in a whole new world, it seems – a world of capitalism increasingly without what most of us once thought of as capital. In an area so heavily dependent on intangible capital as ours, this is a very relevant and timely book.