Plant machinery lying idle generates no revenue (a negative) but it also extends the life of the asset (a positive). A knowledge worker lying idle (ie, furloughed) also generates no revenue (a negative) but their knowledge can also ‘degrade’ (so another negative).
In this case two negatives don’t make a positive. They just make a bigger negative.
That’s the gist of an argument put forward by two academics, Jonathan Haskel and Stian Westlake in their thought-provoking blog entitled ‘Quarantine in an intangible economy’.
Hopefully the blog will be read by many more as Philip Aldrick, a columnist in The Times , wrote about it recently. His article’s headline says it all, “Intangible capital is the magic dust that Britain has been sadly lacking’ (June 13th).
This particular sentence jumped off the page at me, “For a consulting firm, every new project and every new client “increases its knowledge. Being out of commission for six months makes [a firm] less valuable”’.
Intuitively, that feels correct. And worrying. Not just for the UK’s creative industries sector, but for the wider economy too. According to a recent House of Commons Research Briefing, the services sector now accounts for 81% of our economy.
In there can be found all the consultants, coders, analysts and the like whose intangible capital grows with every new project they work on and whose value to their firm – and the economy – goes up accordingly. Only in this case it’s going down.
As economic activity picks up again these knowledge workers will become more knowledgeable again. And so more valuable. But the blog authors highlight another worrying aspect of post-Covid life; too much social distancing could also have an impact on intangible capital accumulation.
The Victorian economist Alfred Marshall first referred to the ‘agglomeration effect’. When organisations and their workers ‘cluster’ together so they share ideas, new working methodologies and best practices.
London’s historic clusters included the rag trade based in Spitalfields, the jewellery trade based in Hatton Garden and even tailors in Savile Row. The creative industry has had its clusters too; the old advertising agencies around Soho and Golden Square and more recently, the digital agencies further East in Spitalfields.
Yes, we will all adapt to a new working life spent largely (if not entirely) at home, but at what cost to our ability to create new ideas? To ‘bounce stuff’ off each other over a coffee, in a corridor, outside during a ‘fag break’ (it’s a well-known fact that the smokers were the best informed about any company as well as being the unhealthiest). Or best of all, over a long lunch?
History suggests we may be in for a lean period when it comes to creativity. Aldrick’s article quotes a paper produced last year by Michael Andrews for the US National Bureau of Research that found the number of patents filed during the Prohibition fell because ‘people weren’t mixing in the saloons’.
Creatives. We might have a new excuse for going to the pub. It’s called protecting our intangible capital.