INVESTMENT VALUE

Audio-book Review
By Chet Yarbrough
(Blog:awalkingdelight)
Website: chetyarbrough.blog

Capitalism Without Capital

CAPITLALISM WITHOUT CAPITAL

Written by: Jonathan Haskel, Stian Westlake

Narrated by: Derek Perkins

JONATHAN HASKEL (AUTHOR, BUSINESS SCHOOL PROFESSOR IMPERIAL COLLEGE LONDON)
JONATHAN HASKEL (AUTHOR, BUSINESS SCHOOL PROFESSOR IMPERIAL COLLEGE LONDON)
STIAN WESTLAKE (AUTHOR, ENGLISH BUSINESS CONSULTANT)
STIAN WESTLAKE (AUTHOR, ENGLISH BUSINESS CONSULTANT)

In addressing 21st century technology, Haskel and Westlake argue that the tradition of hard asset value is diminished. In today’s technological economy, the authors suggest investment in intangibles is as important as investment in buildings and machinery.

Haskel and Westlake acknowledge intangibles have always been an important part of economic growth. They note worker training programs, specialized employee’ experience, and patented designs have always had value; but auditors rarely (if at all) quantified those intangibles as anything other than expense. Little of a company’s investment in training, employee experience, and patents is assigned as an asset by analysts who use pre-twenty-first century accounting rules.

Most intangibles have historically been classified as uncapitalized expenses. In part, because quantification of intangibles is difficult to measure. Before the tech-revolution, investments in training, patents, and experience were looked at as costs of doing business. They were most often expensed (with some exception for patents).

When companies are sold, value of goods (machinery, buildings, inventory), and historical price/earnings ratios are the principal determinants of value. Haskel and Westlake note that patents are unreliable values because competitors reverse engineer product that, with newly created changes, are arguably new “unpatented” products; e.g. cell phones, computer chips, software programs, etc.

COMPUTERS AND MOBILE PHONES
Haskel and Westlake note that patents are unreliable values because competitors reverse engineer product that, with newly created changes, are arguably new “unpatented” products; e.g. cell phones, computer chips, software programs, etc.

With growth of companies like Amazon, Microsoft, Apple, Google, Uber, Facebook, et al–standard accounting practice needs more than hard assets to determine value. Though it is difficult to patent intangibles, Haskel and Westlake suggest new accounting methods are, and should be, created for today’s and tomorrow’s industries. The idea of new accounting methods leads to “Capitalism Without Capital”.

INTERNET LOGO
With growth of companies like Amazon, Microsoft, Apple, Google, Uber, Facebook, et al–standard accounting practice needs more than hard assets to determine value.
information thief
Haskel and Westlake suggest information replaces capital as the fuel for economic growth.

Haskel and Westlake suggest information replaces capital as the fuel for economic growth. They extend their argument by advising investors, lenders, and governments to increase their capital commitment to intangibles. This seems ironic in view of a remaining need for traditional capital investment to energize 21st century economic growth. However, the authors are arguing capital is a smaller part of overall economic growth; albeit a critically important part. What they are suggesting is that investment should be recognized as an asset; not just an expense. Investors and lenders should look beyond bricks and mortar as a measure of security for capital investment. Some would argue that companies like Tesla should be able to carry a higher debt load because its value is greater than the sum of its hard assets.

GOVERNMENT VS. PRIVATE RESEARCHFurther, Haskel and Westlake emphasize Governments continued subsidization and investment in research and development in those areas where near term return is problematic. The example the authors give is DARPA in its early invention as a precursor of the internet, but there are many more examples; e.g. nuclear power, computer hardware, weather prediction, space exploration, etc.

Historically, intangible value has always been with us but recognized as an expense. Haskel and Westlake suggest intangibles need to be partially and judiciously accounted for as assets. When recognized as assets, intangible values open the door to wider private and public finance.

Author: chet8757

Graduate Oregon State University and Northern Illinois University, Former City Manager, Corporate Vice President, General Contractor, Non-Profit Project Manager, occasional free lance writer and photographer for the Las Vegas Review Journal.

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out /  Change )

Google photo

You are commenting using your Google account. Log Out /  Change )

Twitter picture

You are commenting using your Twitter account. Log Out /  Change )

Facebook photo

You are commenting using your Facebook account. Log Out /  Change )

Connecting to %s