Ehsan Masood hails an account of the mixed implications of governments valuing research as an investment.
Capitalism Without Capital: The Rise of the Intangible Economy
Any researcher whose eyes glaze over at the phrase 'national accounting' should heed this tale. In the years since the financial crisis of 2008, Britain's science budget has been protected. While libraries shut, children's services shrank and nurses and teachers saw real wages fall, science spending has held steady. Why? Because successive finance ministers have been persuaded that cutting science, unlike cuts to other forms of public spending, would jeopardize the nation's future economic growth.
Notwithstanding the contested ethics for such a choice, chancellor George Osborne, one of these ministers, was able to protect science spending partly because of a seemingly arcane rule change by the UN Statistical Commission, implemented in Britain in 2014. Research and development had been recategorized as an investment rather than a cost, gifting science the golden ticket of future budget increases.
This is one tale told in Capitalism Without Capital. Economist Jonathan Haskel and UK government adviser Stian Westlake describe in an entertaining and engaging way why governments need to count innovation as an engine of profit. The authors also make the bigger point that there are many other hidden investments in an economy, from software code to new business processes. Unlike spending on science, these are not yet factored in by the spreadsheet-wielders who run offices for national statistics.
Less than a century old, national income accounting is rooted in the ability to value the 'stuff' that we can touch and feel. That is because much twentieth-century economic activity pivoted on industrial manufactured goods such as processed food, aircraft, cars, pharmaceuticals and weapons, all of which could be bought and sold for a price.
But the companies that made these goods — the Krafts, Fords and Raytheons — have since been joined by the likes of Amazon, Airbnb and Uber. And these 'new economy' companies have astronomical valuations. The problem is that national statistical offices from Chile to China have yet to agree on how all that these firms do should be reflected in gross domestic product, or GDP.
There are several reasons why this absence of what Haskel and Westlake call “intangibles” matters. Politicians, the markets and the media obsess about GDP figures. Political careers can rise or fall in tandem with them. Moreover, across the United States and Europe, and especially after the crash, the rate of GDP growth has been underwhelming; between 2010 and 2016, US GDP, for instance, rose by just 2.1% per year. If the figures are failing to account for one of the richest and fastest-growing economic sectors, then it is probable that the rate of economic growth is being underestimated. That alone is likely to be an incentive for governments to accelerate incorporation of intangibles into GDP.
Some intangibles, however, face bigger battles than others before they are likely to find a home in the GDP tent. Published valuations of the percentage of GDP accounted for by the 'domestic' economy — unpaid caring, cooking and cleaning in the home — range from 26% (estimated by the US Bureau of Economic Analysis) to 50%. Yet GDP largely ignores this form of labour, along with women's central role in it.
That omission has not been lost on a number of organizations. The International Association for Feminist Economics, the Caring Economy Campaign and the Institute for Women's Policy Research, for instance, are working to end inequality and misogyny in economics. It is also true that male authors in this field (myself included) haven't covered this in the detail it deserves. In October, more than 1,000 economists signed a petition urging the American Economic Association to tackle misogyny. There are issues of methodology to resolve, but the principle of including household labour in the nation's books is unanswerable.
Comparatively more work has been done in valuing the cost of environmental degradation as a loss of 'natural capital'. In 2011, monetary values of natural capital and ecosystem services were conservatively estimated to be at least equal to GDP and possibly worth twice as much (see go.nature.com/2h0aro6 and R. Costanza et al. Glob. Environ. Change 26, 152–158; 2014). Yet this does not get a mention in Capitalism Without Capital. Biodiversity and ecosystem processes still languish outside GDP's remit, although as much as a decade ago, researchers Niu Wenyuan and Wang Jinnan came close to persuading China's leadership to create a green GDP.
When it comes to valuing research and development, Haskel and Westlake make a sobering observation. Now that science is an investment, its funders will expect it to behave as such. That means that there will be extra strain on the principle by which politicians don't interfere in the setting of academic research priorities — known in Britain as the Haldane principle, after First World War minister and troubleshooter Richard Burdon Haldane. The era of scientists being left to run their own show may be drawing to a close if science is expected to make economic returns. You have been warned.