We all know our polluting and resource-depleting economies are leading us to an ugly future. And while many swear by the intricate relationship between economic growth and the development of societies, how can we realistically decouple economic growth from resource use? Can we really enjoy perpetual growth, increased prosperity and the flourishing of human wellbeing globally while reducing carbon emissions and natural resource consumption? Could something like the knowledge economy, a system where consumption and production is based on intellectual capital, or so-called intangible assets, be part of the solution?
While we cannot run away from the fact that we need functioning primary and secondary sectors to maintain a functioning world, but intangible capital is increasingly and rapidly becoming the backbone of our economy. Intangible capital includes anything from research, design, development, creativity, education, science, brand equity and human capital, and this intangible economy largely relies on intellectual capabilities as opposed to natural resources or physical contributions (Brinkley 2008). In the knowledge economy, human capital is transformed into a productive asset or business product that can be sold to yield profits for an individual, an enterprise and the economy. And this is actually a universal process that operates across all sectors of the economy, manufacturing and services, high tech, low tech, domestic and international trade, public and private investments, large and small enterprises. The scale at which our economy is becoming more “invisible” is underestimated. Knowledge-based industries are coming close to accounting for half of national income, half of employment and a quarter of exports (Brinkley 2008).
Companies are investing more and more in intangible assets, and modern companies like Microsoft are generating triple the sales with half the assets of businesses dependent on tangible assets. In terms of value, for every £1 of tangible investments there are about £1.10 of intangible investments. Ever since the mid-2000s, companies have been investing more in intangible assets such as branding, design and technology than they have in machinery, hardware or property. “This is capitalism without capital.” says Haskel, a professor at Imperial College (Haskel 2017).
The portion of the world’s economy that doesn’t fit the old model of traditional capital investment keeps growing larger. This trend can imply many good things, but has major implications in tax law, economic policy and other aspects of society that are not getting sufficient attention. (Gates 2018). There is also a downside to growth in this invisible economy where the nature of investments is so significantly different to conventional ones. The scalability of intangible assets implies we would see the rise of an increasingly unequal economy with large firms serving many customers with few employees. Growing inequality would likely be one of the undesirable outcomes of an intangible economy (Haskel 2017).
Bottom Line: Growth in the invisible economy and knowledge-based capital could decouple economic growth from resource consumption and support sustainable societies driven by education and innovation.
* Please help my Economic Growth & Development students by commenting on unclear analysis, alternative perspectives, better data sources, or maybe just saying something nice :).