The Invisible Economy: The Rise of Intangible Assets and its Impact on Global Economics and Policy

This episode introduces the concept of the "intangibles economy," also referred to as the data-driven economy or the Fourth Industrial Revolution, highlighting its unprecedented pace of change compared to historical eras. It challenges the adequacy of traditional economic frameworks, such as the Kuznets' vision of structural transformation, to fully comprehend this new reality where wealth is increasingly derived from intangible assets. The discussion sets the stage for exploring how these broad trends necessitate a re-evaluation of policymaking tools and incentive structures.

The speaker categorizes intangibles into three main types: computerized information (software, databases), innovative property (R&D, entertainment, design), and economic competencies (training, market research, branding). A crucial distinction is drawn between static and dynamic comparative advantage, emphasizing that countries must strategically invest in dynamic advantages to move beyond limiting themselves to value derived solely from raw materials and labor. This shift is dramatically illustrated by the S&P 500, where intangibles accounted for 17% of firm value in 1975 but soared to 90% by 2020, indicating a profound global transformation in wealth composition.

Practical insights include the urgent need for a global statistical effort, akin to the UN's system of national accounting, to accurately measure intangible assets and their dynamics. The episode outlines key structural features of the intangibles economy: high upfront costs coupled with very low marginal costs of production, which often lead to natural monopolies or oligopolies and significant first-mover advantages, particularly in establishing technical standards. The unparalleled speed of breakthroughs in artificial intelligence is presented as a major challenge, leaving policymakers constantly playing catch-up and users struggling to adapt to rapidly evolving technologies.

Broader implications reveal a new geopolitical and geoeconomic landscape, with AI patenting dominated by a "two-horse race" between the US and China, explaining much of the current global power dynamics. The phenomenon of "economies of agglomeration" is discussed, where innovation clusters in specific geographic regions due to a confluence of talent, research, capital, and a permissive regulatory environment. Finally, the episode underscores the blurring lines between national and international policy and highlights the critical non-commercial dimensions of data, such as privacy, security, and human rights, which must be integrated into the governance of data and AI.

"The only certainty seems to be change."

"Change has never been as rapid as it is currently."

"Intangibles are driven by intellectual property which is mostly proprietary, often exclusionary. And this is where wealth now tends to reside."

"We need a global statistical effort of the kind we saw in the 1950s when the UN developed its system of national accounting which standardized the way countries measure key economic aggregates..."

"intellectual property alone accounts for about 58% almost but not quite 2/3 of the value of a smartphone."

"90% of the value of firms in the S&P 500 comes from intangibles and only 10% comes from tangibles."

"The US and China dominate. This is a two-horse race in which the US and China controlled something like 93% of the patents in AI."

"When you have high upfront costs and very low marginal costs of production, average costs everywhere falling, which is the classic characteristic of a monopoly."

"That kind of pace of change means that policymakers are always playing catch-up."

"data especially possesses significant non-commercial dimensions such as our privacy, our security and broader questions of human rights which are part and parcel of the way in which we manage data and AI."