Category: Main

John Kay has a very provocative new article arguing that what we have now is capitalism without capital: the businesses that make profit very often don’t actually own the capital they use – they rent it from a specialist investment vehicle.

The facia identifies the operator, not the owner, of capital. The name of the airline on the side of the plane and the company logo on the back of the truck today give no clue to the ownership of the vehicle.

What this means is that profits can not be described as return on capital:

They talk of profits as returns to capital, although they are really mostly economic rents – returns to brands, reputations, intellectual property, to corporate knowledge and organisation, and the exercise of market power.

That there is some truth in this is demonstrated by the occasional spectacle of a company being taken over, its staff leaving, and the new owner being left with nothing at all since the new subsidiary didn’t actually own anything.

However, I think Kay overstates things. The piece is a variant of the common error of privileging manufacturing over services. What, for example, is the significant difference between capital in the form of a machine, which produces a return, and capital in the form of a reputation, which produces an “economic rent”? The machine is perhaps more durable than than the reputation, but only quantitively – in fact it can catch fire and disappear overnight, in the same way a reputation can, or it can slowly rust and lose value much as a brand declines.

I think the significant fact is that today, more than in the past, most of what we as a society do, in economic terms, are things that we don’t really know for sure how to do well. If everybody knows more or less equally how to produce, say, cotton cloth, then the only scarce thing you need in order to produce it is the machinery. If the knowledge of how to build and run, say, an efficent search engine, is much more rare and valuable than a pile of computers in an office, then the “corporate knowledge and organisation” is the vital capital, and actually financing the premises and the hardware is a “non-core” activity that might reasonably by subcontracted out.

I agree with John Kay that this is a hugely significant change, but I disagree with the tone of the piece which seems to imply that it is a sinister or harmful one. It is a natural effect of automation that once we really know how to do something, it becomes cheap. The early manufacturers Kay discusses carried out mass production with machines that were expensively hand-built by craftsmen – today not only the consumer goods, but the machines that produce them, and the machines that produce those machines are all cheaply mass-produced – that is the difference. What has real economic value in today’s world are good management and technology – and some old things that have held their value: raw materials (but to a lesser extent than previously) and friendly politicians.

One partial protection against the ever-present danger in the Blogosphere of losing yourself in an isolated “echo chamber” of like-minded thinkers is to step out of doors – and back in time – and actually meet real people.
A couple of days ago I stepped back a decade, to the London debating club which was the forum for my thinking in the years between talk.politics.misc in the Department of Computing lab and Anomaly UK. The views of people who are adjacent to me in physical space-time are perhaps deserving of more of my attention than they would be had I selected them from the limitless ether.

On the subject of selective education, one member drew a contrast between his own educational experience and that of today’s children. He said that as a working-class boy at a Grammar School, he and those like him had a desire to (horrible phrase) “better themselves” that seemed to be missing today. The “horrible phrase” comment was his own, and when I asked him why he thought it was horrible, he didn’t seem sure – he just said that we didn’t say things like that these days.
He didn’t seem to make any connection between the unfashionableness of the phrase (which he appeared to accept) and the demise of the thing itself, which he appeared to regret. The connection seems obvious to me.

Another speaker, a younger man, interested me because he said he had been dissuaded from going to University by the general perception of lowered standards and value of university education. He was planning to go to Sandhurst. I suspect more people are going to choose career paths that bypass higher education, and that some industries are going to take advantage. The military, with its own well-established training and education system, is well placed to do so.

I’ve been re-reading Dennett’s Kinds of Minds, and was struck by his suggestion that the key advantage in being able to think about one’s desires, rather than simply following them, is that it enables you to be deceptive about them.
What he doesn’t say, but supports the theory, is that it is easier to know what we want people to think we want, than it is to know what we really want. The implication is that our real desires are deeper than the reasons we defend them with. Our “reasons” are fundamentally for consumption by others.
This is a commonplace in politics, where the justifications for our political positions change more easily than the positions themselves. It is consistent, for instance, with Arnold Kling’s recent piece on how the core beliefs of the US left are derived from theories that few still accept.
Not that the problem is confined to the left – that is just one example I read today. It will always be easier to spot that sort of thing in one’s political opponents, but I think it is universal.
I don’t mean to exaggerate and say that reason is entirely subservient to prejudice. But, if Dennett is right, then in order of priority, and of evolutionary chronology, unconscious intentions come first, then reasoned “approximations” to the unconscious intentions, and finally, feedback from conscious calculation to unconscious (or subconscious – I’m not sure of the technical distinction) intention or attitude. That feedback allows us to change our minds based on reason, but its status as a spin-off of other uses of reason explains why it is difficult for us to do so.

In my previous post I defended the press on the grounds that they had to supply what their customers wanted. On the other hand, they clearly have, and exercise, the ability to set the news agenda. And I can’t help noticing that someone seems to have it in for the Liberal Democrats.

In a matter of about three weeks, three of their senior figures have been “outed” in the press – Kennedy as an alcoholic, then Oaten and now Hughes as homosexuals. Certainly in the first two cases, and possibly in the third, the facts were known for a long time, but someone chose to make them public now. Why now?

There is an echo of the occasion when the then leader, Paddy Ashdown, was exposed as an adulterer in the run-up to an election. The information in that instance may have from a burglary of a solicitor’s office, and political skulduggery was suspected.

There is not an election coming up now, so what is the reason? The Tories have a new leader, one who has a chance at winning over some Lib Dem voters… is there a connection?

Alternatively, Iain Dale suggests that betting on the leadership race might be the reason.

On the subject of Simon Hughes’ continuing candidacy, it has been suggested (by Jonathan Freedland among others) that his sexuality is not a problem, but his past dishonesty concerning it is. I don’t think that is a reasonable position: One can say now that he should have been open, but like any senior politician, he has been around a couple of decades, and being honest in the 70’s or 80’s would have been a less realistic option than it is now. Note that, according to the Wikipedia article, in the 1983 Bermondsey by-election, even Hughes’ opponent Peter Tatchell tried (unsuccessfully) to cover up his homsexuality.