After two decades of digital titans taking the spotlight, the physical economy has spent the last two years reasserting itself. From the supply of toilet paper to the price of wheat, shortages of personal protective equipment in early 2020, and columns of Russian tanks in early 2022, it’s clear that the economy doesn’t depend on tweets and Dogecoin, but on the kind of honest everyday stuff you drop on your foot can.
At least that’s the new conventional wisdom. This common wisdom is joined by complaints of decline: why aren’t we doing anything more in Britain? Didn’t the Chinese show us all how to do it when they built a Covid hospital in a week?
There is some truth in this cry of despair, but also a lot of confusion. Take a closer look at the events of the past two years and the intangible economy seems more important than ever.
Be mindful of Covid. The successes and failures of the Chinese response had little to do with its ability to manufacture PPE or build a hospital in a matter of days. It was about the ability – or sometimes inability – to identify the virus, trace contacts and lock down population centers. It was similar elsewhere. Lack of oxygen or equipment has sometimes been an issue, but not as big an issue as lack of effective contact-tracing systems, testing capacity, or medical professionals.
Quality stats were another essential asset that acted as the pandemic equivalent of radar. Without reliable statistics, we made extremely consequential decisions by groping in the dark. As this data improved – from the infection survey conducted by the UK Office for National Statistics to the RECOVERY study, which ruled out bad treatments and identified effective ones – our responses were much more targeted.
The most obvious success was the rapid development and production of vaccines. A vaccination program is not purely immaterial. Vaccines require vials, needles, freezers and complex supply chains. But the importance of intangible assets is central and absolute: no know-how, no vaccine.
These intangible assets contain more than the information contained in an mRNA molecule. Vaccine development required years of previous research. Rapid, large-scale clinical trials were needed to prove they worked. Ensuring doses were made quickly required risk-sharing — specifically, requiring the government to buy many doses before it was clear they would work.
Perhaps the most underappreciated intangible asset in this launch was trust. Hong Kong has suffered a catastrophic Covid wave, not because it lacks a vaccine – it has plenty – but because the elderly residents who needed the vaccine most trusted it the least. Two-thirds of those over 80 were unvaccinated when the Omicron wave began in Hong Kong in February.
Taken as a whole, the experience of Covid is a reminder of how important intangible factors can be, whether it’s the expertise in the minds of healthcare professionals, data in spreadsheets and databases, life-saving clinical trials, the political environment surrounding vaccine development, or simply trust (or distrust). ) which is offered.
So let’s look at the war in Ukraine. Tangible physical factors are inescapable here, from boots on the ground to bullets lodged in the bodies of unarmed civilians. Europe nervously ponders its gas supplies while North Africa braces itself for the consequences of disrupting Ukraine’s wheat harvest: unaffordable bread.
But if it were all about real assets, Vladimir Putin would already be cementing a quick win. “Quantity has its own quality,” as Stalin never actually said. But quality also has a quality of its own.
The early success of the Ukrainian resistance was based on intangible or partially tangible advantages: better tactics, far more motivated troops, and anti-tank weapons incorporating some of the latest Western technologies. President Zelenskyi’s rhetorical gifts have won him the sympathy of Western public opinion and, by extension, Western governments. This sympathy has manifested itself most clearly in vicious financial sanctions. The ripping of the Central Bank of Russia from the global economy is perhaps the ultimate example of intangible warfare.
Obviously there’s a lot more to a thriving society than just junk. In a new book, Restarting the Future: How to Fix the Intangible Economy, Jonathan Haskel and Stian Westlake argue that not only is the intangible economy more important than ever, but that we have failed to reckon with this fact and therefore they are not to develop proper institutions and policies. That failure goes a long way to explaining some of the frustrations of the modern world—low growth, inequality, corporate power, fragility in the face of shocks, and growing concerns about bogus “bullshit jobs.”
“Intangibles” is a word with a wide meaning, encompassing everything from the software in a Javelin rocket to the soft power of a charismatic president. But that doesn’t make the idea empty; It explains why repairing the intangible economy is such a subtle challenge.
So the pendulum has not swung back to the physical economy as much as conventional wisdom would have it. The 21st century has been the century of the intangible economy and little has happened in the past two years to suggest otherwise.
Tim Harford’s new book How to Make the World Add Up
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