After two decades of digital titans hogging the limelight, the physical economy has spent the past 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 become obvious that the economy doesn’t depend on tweets and dogecoin but on the kind of honest everyday stuff you can drop on your foot. That, at least, is the new conventional wisdom. Alongside that conventional wisdom go lamentations of decline: why don’t we in the UK make anything any more? Didn’t the Chinese show us all how it was done that time they built a Covid hospital in a week?
There is some truth in this cry of despair, but also a great deal of confusion. Look more closely at the events of the past two years and the intangible economy seems more important than ever. Consider Covid. The successes and failures of the Chinese response had little to do with their ability to manufacture PPE or build a hospital in a few days. They were all about the capacity — or sometimes incapacity — to identify the virus, trace contacts and lock down population centres.
The same was true elsewhere. Shortages of oxygen or equipment were sometimes a problem but not as great a problem as the shortage of effective contact-tracing systems, testing capacity or expert medical staff. High-quality statistics were another essential asset, acting as the pandemic equivalent of radar. Without reliable statistics, we were taking hugely consequential decisions by groping in the dark. As this data improved — from the infection survey conducted by the UK’s Office for National Statistics to the RECOVERY trial that has ruled out poor treatments and identified effective ones — our responses have been far better targeted.
The most obvious success was the rapid development and production of vaccines. A vaccine programme is not purely intangible. Vaccines require vials, needles, deep freezers and complex supply chains. But the importance of intangible assets is central and absolute: no knowhow, no vaccine.
There is more to these intangible assets than the information contained in an mRNA molecule. Developing vaccines required years of earlier research. Proving they worked required rapid, large-scale clinical trials. Ensuring doses were produced quickly required risk-sharing — in particular, government commitments to buy lots of doses before it was clear they would work.
Perhaps the most underrated intangible asset in this rollout was trust. Hong Kong has suffered a catastrophic wave of Covid not because it lacks vaccines — it has plenty — but because the elderly residents who most needed the vaccine were the least likely to trust it. Two-thirds of the over-80s were unvaccinated when Hong Kong’s Omicron wave began in February.
Taken as a whole, the experience of Covid is a reminder of how essential intangible factors can be, whether it’s the expertise in the heads of medical professionals, data in spreadsheets and databases, life-saving clinical trials, the policy environment surrounding the development of vaccines, or simply trust (or mistrust) of what is being offered.
So let’s look at the war in Ukraine. Tangible physical factors are inescapable here, from boots on the ground to bullets in the bodies of unarmed civilians. Europe nervously contemplates its gas supply, while north Africa braces itself for the consequence of interruption to Ukraine’s wheat harvest: unaffordable bread. But if tangible assets were all that mattered, Vladimir Putin would already be consolidating a quick victory.
“Quantity has a quality of its own,” as Stalin never actually said. But quality has a quality of its own, too. The early success of Ukrainian resistance has been built on intangible or partially tangible advantages: better tactics, vastly more motivated troops and anti-tank weapons that incorporate some of the latest western technology. President Zelensky’s rhetorical gifts have delivered him the sympathy of western public opinion and thus of western governments. That sympathy has manifested itself most obviously in vice-like financial sanctions. Ripping the Russian central bank out of the world economy is perhaps the ultimate example of intangible warfare.
Clearly, there is much more to a flourishing society than mere stuff. 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 we have failed to reckon with that fact, and thus failed to develop the right institutions and policies. That failure goes a long way to explaining some of the disappointments of the modern world — low growth, inequality, corporate power, fragility in the face of shocks and growing concerns about inauthentic “bullshit jobs”.
“Intangibles” is a word with an expansive meaning, covering everything from the software in a Javelin missile to the soft power of a charismatic president. But that does not make the idea vacuous; it explains why fixing the intangible economy is such a subtle challenge. So the pendulum has not swung back to the physical economy as much as the conventional wisdom might have you believe. The 21st century has been the century of the intangible economy, and little has happened in the last two years to suggest otherwise.
Written for and first published in the Financial Times on 15 April 2022.