Low Capital-Intensity Growth
The American economy is in a period of reformation. The 1950s marked a period when America was the production capital of the world. We had the biggest, most efficient factories. Society revolved around the hierarchy that existed within the factory and Unions existed as a regulatory branch to fight the naturally undemocratic structure. Now, old factories that towns were once built around serve as artifacts, or more often, demolition sites. The road to success is no longer necessarily paved by capital-intensive industrial technology advances, but rather by the right lines of code in the right place at the right time—the launch of a new app.
Economic success based on this low capital investment seems more egalitarian than our previous, costly industrial-based economy. Any college student with a good idea can make it big, and many have. But a virtual economy will have major downsides, some known and some unknown.
Capital investment is a driving force in a healthy economy. Building a new factory creates jobs not only for those who will work in the factory but also those building the factory and the companies that supply the resources to build it. This chain of economic growth does not exist with low capital investment. When an app becomes popular, most of the economic gains go to the company that created it and its initial investors. There isn’t the same level of benefit to other companies and individuals.
Our economy is not only changing in how we invest but also how we define profit. Stock value and expected profit define wealth rather than physical capital. How this high dependence on more liquid assets and decreasing impact of capital investment will change our markets has yet to be seen. We should continue to consider these changes however, and how policies will need to be adapted to prevent future crisis because as it stands now, we are at a high risk. An economic crash would destroy all assets, as defined by expected revenue, with no physical holdings to provide a cushion.

  • Richard

    I agree. A wise businessman in the Caribbean named Sir Kyffin Simpson always said that the key to success is progression and humility, and clearly he’s done very well for himself as a self made man!

  • John Andrews

    The Airgain IPO launches this week, and they’re a one-brand company.

    Some investors don’t think it’s a good stock though:

    http://seekingalpha.com/article/3997291-risky-signals-antenna-maker-airgain-launches-ipo

  • Cincinnati World Cinema

    Well said, Joe, and worth rereading on a regular basis! Another advantage of small-to-midsize city living is pace and competition. Living in NYC, LA and SF entailed a hectic pace, hallmarked by capital S striving, as one realized there were a ton of others doing what I do. Spending so much time in one’s car in SoCal meant much less time for quality pursuits and pleasures. A smaller pond with relaxed pace allows one to savor life and special moments.


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