Capitalism Without Capital

Why do firms with few factories and little physical equipment dominate the world economy? In Capitalism Without Capital, Jonathan Haskel and Stian Westlake argue that capitalism has shifted from a material to an intangible form—one where value lies in ideas, design, software, brands, and organizational processes rather than land, machinery, or goods. This transformation changes how you measure growth, finance innovation, manage firms, and design public policy.

The book opens by contrasting the Domesday Book’s medieval surveys of manors and farms—pure inventories of physical capital—with a modern valuation of Stansted Airport, where value increasingly derives from slots, logistics know-how, and brand. It’s a vivid symbol of a broader shift. As the authors emphasize, today’s wealth is embedded in the unseen: code, designs, data, culture, and relationships. You can’t understand modern capitalism if you keep counting factories while ignoring software.

Understanding Intangible Investment

Using the Corrado–Hulten–Sichel framework, intangible assets fall into three broad types: computerized information (software, databases), innovative property (R&D, design, artistic originals), and economic competencies (branding, organizational capital, and staff training). These categories now dominate investment flows. Data from the INTAN-Invest database show that by the mid-1990s, U.S. firms were investing more in intangibles than in tangible assets. By the late 1990s, the U.K. followed. Yet national accounts, accounting rules, and many managers still see only part of the picture.

Why Intangibles Rise

Several structural trends drive intangibles. Information technologies reduce replication costs. Globalization expands market reach, rewarding scalable innovations. Services’ rising relative costs push firms toward knowledge-intensive assets. Digital networks and open communities increase returns to ideas. Public R&D and supportive regulation also encourage private intangible investment—countries like Finland and Sweden with strong public research investment show high intangible intensity.

Intangibles behave differently from physical capital. They are scalable, hard to collateralize, spill over to others, and synergize unpredictably with complementary ideas. These distinct properties—the book’s “Four S’s”—explain why an intangible economy looks unfamiliar: superstar firms coexist with stagnating productivity, wealth pools in cities, and traditional financial systems struggle to adapt.

Core argument

Capitalism’s center of gravity has moved from the tangible to the intangible. This shift changes the logic of finance, management, inequality, and policy. To govern or invest wisely, you must understand the economic behavior of assets you can neither see nor easily count.

If you fail to recognize intangibles, you misread productivity, misprice firms, and misdesign policy. The rest of the book explores how these invisible assets alter measurement, markets, growth, and fairness in modern capitalism—and how institutions must evolve to keep pace.

Counting intangibles means rewriting the rules of economic measurement. Traditional investment data assumed that only physical goods could be owned or depreciated. Yet as software, R&D, and branding began to dominate total investment, economists from Corrado and Hulten to national accountants at the BEA had to reconstruct how we estimate assets we can’t touch. These changes changed the measured size, productivity, and structure of entire economies.

How to Measure the Invisible

Measurement starts with firm-level spending. National statistic agencies survey how much companies pay for software, design, training, or in-house R&D, then estimate the portion that creates long-lived value rather than ephemeral expense. They rely on occupational wages (developers, engineers), time-use data, and quality-adjusted price indices. Depreciation estimates must also be redefined: software or marketing can lose value 30% per year, while R&D depreciates slowly. Treating these correctly affects GDP, productivity, and saving rates.

Skeptics worry that many intangibles—brand-building, training—are not truly ‘investments’. But evidence like Rauch’s advertising experiments or Toyota’s durable training and lean systems shows they consistently raise future performance. Even public spending—on weather data, patents, or statistical agencies—creates intangible capital. Jarboe’s estimates for the U.S. suggest over $200 billion of annual public intangible-like investment.

Key message

Once you expand the definition of capital to include knowledge and organization, whole economies look more investment-intensive and productive than official accounts ever showed.

Yet valuation remains approximate. Intangibles rarely trade, so cost-based proxies are necessary. Their benefits may spill over, generating social returns higher than private ones. The challenge for national accountants, investors, and policymakers is to keep improving the map of an increasingly dematerialized economy.

To grasp why intangible capitalism works differently, you must internalize the book’s central analytical tool: the Four S’s—scalability, sunkenness, spillovers, and synergies. These properties give intangible assets an economic character unlike machines or buildings, driving both immense rewards and systemic volatility.

Scalability

An intangible asset can be reused without much additional cost. Once you build iOS or write Bodypump choreography, you can scale globally. This nonrival nature, when combined with digital distribution and network effects, fuels ‘winner-take-all’ outcomes—massive global platforms like Google or Facebook.

Sunkenness

Intangibles are difficult to resell if a project fails. You can liquidate buses or real estate, but not brand reputation or organizational culture. EMI’s failed CT scanner investment—where others captured the commercial prize—illustrates why financing intangibles is risky. Banks dislike collateral they cannot seize, explaining tight credit for high-knowledge firms.

Spillovers

Knowledge leaks. Other firms learn from your breakthroughs even if you don’t license them. Apple’s iPhone design spurred a wave of imitators. These spillovers boost social value but depress private incentives, justifying government R&D support and open innovation.

Synergies

When combined, intangibles can create exponential value. Walmart’s productivity surge came from fusing IT with logistics reorganization; radar research fused with appliance design to birth the microwave. This combinatorial character makes prediction—and policy design—harder but also richer in potential payoff.

Consequences

Together these S’s produce winner-take-all markets, financing frictions, large productivity spread between firms, and persistent uncertainty. They also make management, law, and finance central to growth.

Understanding these four properties is the key to diagnosing the new capitalism. They collectively explain why the same forces that generate rapid growth for a few can also produce stagnation and inequality at scale.

Firms run differently when ideas matter more than machines. Intangibles demand flexible management, distinct financing, and new strategic playbooks. The most successful firms—Google, Apple, Les Mills, or Toyota—win by orchestrating synergies and scaling knowledge systems faster than anyone else.

Organizational Design and Leadership

When investments are sunk and tacit, hierarchy can reduce coordination costs (as Coase and Williamson foresaw). However, creative work requires autonomy. You witness two archetypes: firms that create intangibles, like research labs or design studios, thrive on autonomy and loose networks; firms that use intangibles, such as franchises or logistics chains, depend on routines, strong monitoring, and internal discipline. Good management matches form to function.

Leadership now combines charisma and systems skill. Elon Musk’s cross-sector coordination shows how leaders align multiple intangibles—technology, finance, brand—to mobilize ecosystems. Hermalin’s theory explains why credible commitment and shared sacrifice build trust and retention in knowledge-heavy teams.

Competition and Strategy

Because scalable intangibles reward first movers, markets tend toward concentration. Sutton’s framework helps explain the “superstar” firm phenomenon: top companies capture most profits while laggards struggle to catch up. Strategic choices differ: Apple’s closed ecosystem emphasizes control and appropriation; Microsoft’s or Google’s partial openness leverages spillovers for scale. Firms must balance openness against exclusivity to harness synergies without losing rents.

Managerial lesson

Success in the intangible economy means managing culture, coordination, and credibility as much as capital. The best managers are system designers, not merely overseers.

For you as a manager or investor, this means nurturing trust, adaptability, and sustained learning—intangibles in themselves that multiply other intangibles’ returns.

Money flows differently in an economy of invisible assets. Traditional finance, built for collateralizable property, falters when confronted with code and culture. Accounting too lags behind reality, obscuring value creation and distorting incentives.

The Financing Gap

Banks lend against collateral—assets they can seize. But brand equity or training manuals can’t be repossessed, which drives lenders away from intangible-heavy firms. As a result, such firms rely more on retained earnings, equity, or venture capital. VC coevolved with the intangible economy: its staged bets, equity contracts, and networked mentoring fit high-risk, scalable projects like early Google or Facebook. Yet VC can’t fund everything—large, spillover-heavy ventures like energy R&D require public coinvestment and patient capital.

Accounting Blind Spots

Under current rules, purchased intangibles are capitalized, but internally developed ones are expensed. That makes R&D or brand-building look like cost rather than investment. Studies by Baruch Lev and others show that as intangibles rise, the correlation between accounting metrics and market valuations collapses. Investors, deprived of clear signals, either overreact or underinvest. New proposals—IFRS adjustments to capitalize R&D, or stewardship-focused exchanges like the Long-Term Stock Exchange—aim to close the gap.

Financial insight

Intangibles tilt finance toward equity, lengthen time horizons, and demand investors who understand that value creation now lives in human systems, not fixed assets.

Reforming tax biases favoring debt, building IP-backed lending markets, and encouraging concentrated long-term ownership could better align capital with intangible growth. Until then, investors who learn to identify intangible moats will hold an edge.

The macro puzzles of the 21st century—low investment, flat productivity, and widening inequality—make sense in light of intangible capital’s peculiar behavior. The authors describe how scalability and spillovers amplify heterogeneity, creating superstar firms and laggard sectors, while sunkenness deters investment across the board.

Investment Without Growth

In a world of cheap credit, investment should boom—but it hasn’t. One reason is mismeasurement: much intangible investment went uncounted until recently. But beyond that, returns concentrate among firms able to scale and capture spillovers. Leaders keep investing; laggards despair, producing aggregate weakness despite top-level booms. When intangible accumulation slows, spillovers decline, dragging down total factor productivity.

Inequality of Firms, Places, and People

Superstar firms’ profits flow mainly to educated employees and shareholders, widening income gaps. Cities that host intangible clusters—London, Stockholm, Silicon Valley—enjoy extraordinary prosperity, but housing constraints turn these clusters into engines of property-driven wealth. Those excluded geographically or culturally fall behind. The same openness and creativity that intangible success rewards map onto cultural divides fueling political backlash.

Macro insight

Intangibles explain why profits can soar while productivity stalls, and why prosperity clusters amid rising discontent. Market success becomes ever less tethered to visible investment and ever more to social capital and scale.

These forces can produce secular stagnation—persistent low growth despite financial abundance—and threaten the civic trust that an innovation economy requires to function.

Governments, investors, and citizens must adapt institutions built for factories to a world of ideas. The authors conclude that success in the intangible economy depends on new infrastructures—legal, financial, and social—that make collaboration easier while curbing rent-seeking.

Finance and Taxation

Current systems favor debt; intangible investment needs patient equity. Possible reforms include tax credits for equity, removing interest deductibility, encouraging IP-backed lending (as in Singapore and Malaysia), and promoting institutional investors who hold large, long-term stakes.

Legal and Urban Infrastructure

You need high-quality patent offices, clear standards, and competition policy that recognizes scale and network effects. Urban planning must safeguard both housing affordability and social spaces that sustain idea exchange. Kate Downing’s departure from Palo Alto and the closure of Camden’s Black Cap pub show how housing and culture jointly affect innovation’s geography.

Public Investment and Social Capital

When spillovers are large, governments must coinvest in R&D, infrastructure, and lifelong education. Equally important is trust: the social capital that allows collaboration and openness. Without it, the very synergies that make intangibles valuable collapse into defensive hoarding or rent-seeking.

Final takeaway

The intangible economy rewards countries that build shared infrastructure—both physical and institutional—for knowledge exchange and patient investment. Get that balance wrong, and growth, fairness, and trust all erode.

Ultimately, “capitalism without capital” demands capitalism with foresight. The invisible economy’s success depends on how well society measures, finances, and governs the assets you can’t see but can’t live without.