The one-sentence summary

Almost everything we are told about business is wrong.

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WHAT THE BOOK SAYS

  • Corporations once exercised power through their ownership of the means of production, but today products and production have dematerialised. The commodities we now value appear on your screen, fit in your pocket or occupy your head.
  • Big businesses now face a crisis of legitimacy. The pharmaceutical industry creates life-saving vaccines but has lost the trust of the public. Meta and Alphabet have more customers than any companies in history but are widely reviled. The pursuit of shareholder value has destroyed many great companies.
  • What we call profit is no longer primarily a return on capital but is ‘economic rent’ – the earnings that arise because some people, places and institutions have commercially valuable talents which others struggle to emulate. It is often regarded as unearned because it exceeds what is economically or socially necessary and usually comes about due to market inefficiencies or information asymmetries.
  • Rent seeking is an attempt to appropriate value created by other individuals or companies through monopolies or unneeded intermediary services.
  • Four main problems exist in the relationship between business and society:
    1. The motivation and standards of behaviour of leaders of industry
    2. The interface between business and finance
    3. The difficulty of constructing a regulatory regime that is relevant and effective
    4. The sometimes too tenuous relationships between prices, costs and values.
  • Tripartite linkage refers to the connection from personal wealth to the provision of productive capital to control of business. This was a defining characteristic of the Industrial Revolution but it has now dissolved.
  • Maturity transformation allowed liquid saving to fund long-term investment.
  • Manufacturing fetishism is the idea that manufacturing is the central economic activity and that everything else is somehow subordinate. It is deeply ingrained in human thinking.
  • The unprecedented prosperity of the modern world is the result of the growth in our collective intelligence. Together we know more than any individual can know, so together we are better at everything.

WHAT’S GOOD ABOUT IT

  • The diamond-water paradox is worth understanding. Diamonds are valuable not just because they are beautiful but also because they are hard to find and their extraction involves a lot of labour, whereas water is plentiful and easy to find. The value of some water to you is immense because you would die without it, so the first litre is high and the last litre that you overuse in the shower is low. The insight here is the difference between the average and the margin.
  • Social psychology research has observed human tendencies both to create ‘in’ groups (cooperation) and to reinforce that identification by shared hostility to ‘out’ groups (competition). This is now described as affective polarization.
  • The four most expensive words in investing are “This time it’s different.”
  • Many customers now love the product but hate the producer.
  • Economists must abandon the pretence of knowledge and stop trying to answer unanswerable questions.
  • Entrepreneur is from the French meaning between and taker – a coordinator, or someone who brings things together.
  • The myth of ownership describes the tension between executives running a company and shareholders. In the true sense, no one really owns Amazon or Apple.
  • The Nikefication of the economy refers to the fact that Nike is a hollow corporation that manufactures nothing.
  • Paul Romer, former chief economist at the World Bank, coined the term ‘mathiness’ to describe the wide use of symbolic notation by economists to give a misleading impression of rigour.

WHAT YOU HAVE TO WATCH

  • Not much. This is a comprehensive review of economic development in the world. There is a certain amount of economic technical material, but it is clearly explained for the layperson.