So what is assetization? Filling some theoretical gaps

Abstract

Birch and Ward (2024) propose the concept of assetization to frame a research agenda in Human Geography. This interesting proposal suffers from a rather imprecise definition of what an asset is, and that is a gap I intend to fill. I argue that assetization, for Birch and Ward, does not concern every type of asset, but only what can be described as ‘financialized assets’, including financial as well as intangible assets. I underline what financialized financial and intangible assets have in common and how that makes them relevant for analyzing contemporary capitalism. More precise specification of the assets created by Birch and Ward's assetization process clarifies the concept's true potential contribution.

Introduction

Since assets are an everyday concept in the work of certain professionals, it is problematic for me to use the word without specifying how the theoretical use of the term differs from or matches its professional uses. Leaving aside common metaphorical uses (for instance, saying that a person is an asset in a team) there are two professions that evaluate and/or deal with assets: accountants and asset managers. In these two professions, the term has a precise definition – but not the same definition. The accounting meaning of assets is broader than the financial meaning. In the financial sense, an asset is an object in which money is invested with the aim of getting a return, whereas in the accounting sense, assets are things that are recorded on the asset side of balance sheets. Asset managers only deal with financial assets, although they consider that several asset classes exist, associated with different risk-return profiles. Accountants, on the other hand, distinguish between different types of assets (not all are financial assets), and classify them not by their risk-return profiles but according to their nature and use by the reporting entity. A company's balance sheet is not a portfolio of assets, but a list of resources available for its business operations.

I propose to position Birch and Ward's (2024) concept of assetization in relation to these meanings, adding to their analysis since this point is not addressed in their paper.

Birch and Ward's assetization means financialized assetization of financial and intangible assets

Two properties of assets emerge from Birch and Ward's various presentations of assetization: (a) an asset is defined by the fact that it ‘generates income streams’ they call ‘rents’; (b) the value of this asset is established through a valuation operation that takes into account these expected future revenues and ‘capitalizes’ them, notably using discounting. This makes it clear that Birch and Ward's concept of assetization derives from a financial understanding of assets, since these two criteria are satisfied by assets in the financial sense, but not by assets in the accounting sense. Yet intriguingly, most of their examples show that Birch and Ward want to cast their net wider than financial assets. My understanding is that they extend the concept to things that look like assets for financiers in that they are associated with an expected return and are valued by very specific methods of valuation, which can be called ‘financialized’ because they imitate financiers’ asset valuations (Chiapello, 2015). It would therefore be more accurate to speak only of ‘financialized assetization’, as strictly speaking things can be recognized as assets in a balance-sheet (a step that could also be called assetization) without being financialized. Not all accounting assets are financialized, and being financialized is not a property unique to financial assets, since the financialized gaze, which bases the value of a thing on the returns it can generate, has spread beyond the world of finance where it first emerged and is now colonizing a large number of situations (Chiapello, 2015). Birch and Ward's concept is thus narrower than the notion of accounting assets, but wider than financial assets, and the specificity of what they call ‘assets’ is that they are valued as financial assets (capitalized) without being particularly financial…. This makes Birch and Ward's concept hard to grasp as it does not align with the common understandings of what assets are.

In my opinion, it is the extension beyond financial assets that justifies the creation of this concept of assetization. Otherwise, assetization would add nothing to former concepts, such as financialization (Birch and Ward even explain that assetization is ‘the supply side of financialization’) or capitalization (in their seminal article on capitalization, Leyshon and Thrift (2007) focused only on the production of new financial assets). Conscious of the similarities between capitalization, assetization and financialization, Birch and Ward propose to consider assetization as a ‘useful meso-scale processual concept, which conceptually bridges macro-oriented notions of financialization and micro-oriented accounts of capitalization’. I find this proposal unconvincing because it does not say what assetization explains that the other two concepts miss, or what exactly the ‘middle ground’ they mention is. In my opinion, what the term ‘assetization’ adds is its attention to intangible assets as well as financial assets.

To support this argument, I refer to the fact that the concept of assetization was originally proposed by Birch (2017) as the opposite of commodification, to explain the valuation of hi-tech start-ups that do not yet produce any commodities but have to bear considerable research and development costs. These companies do not create commodities but assets, intangible assets in the form of patents, software, know-how, data, etc. To understand this economy, we must therefore study how such assets come into existence. They would appear to be quite different from the financial assets of the asset manager, except that a start-up's interest in its intangible assets can be explained by the financial valuation practices that capital investors apply not to the assets themselves, but to these hi-tech firms. Note that the assetization that initially interests Callum Ward (Ward, 2019) is more classically defined, in line with the large body of economic geography research on the transformation of material assets, such as land, housing or infrastructure, into financial assets (e.g. Aalbers, 2016; Halbert and Attuyer, 2016).

My main frustration is that Birch and Ward do not really explain why having a single word to address both phenomena is useful. I provide some possible answers below.

Why is addressing financial and intangible assets together interesting?

The answer to this question probably lies in the common characteristics shared by financial and intangible assets in contemporary capitalism:

Firstly, both financial and intangible assets owe their existence to a materialization of ownership rights to intangible elements, such as future revenue streams (for financial assets), knowledge, data, brands and know-how, etc. (for intangible assets). These two types of assets have no physical materiality; instead they have legal and computational materiality ‘detached’ or ‘derived’ from some underlying physicality (Chiapello and Engels, 2021). They are the product of what Birch and Ward mention as a process of abstraction. This absence of physical reality is obviously decisive on the spatial level, and thus for research in geography, because it allows the mobility of value, in contrast to the immobility of tangible assets.

Secondly, financial and intangible assets have become increasingly important in recent decades, as shown by their growing presence in corporate balance sheets, a development that has been analyzed as financialization (e.g. Krippner, 2005) in the case of financial assets, and as evidence of new knowledge or a new intangible economy (e.g. Haskel and Westlake, 2018) in the case of intangible assets.

Thirdly, this growth is closely linked to the rise of financial actors and activities, manufacturing a constant stream of new types of financial assets in which to invest, while also increasing financial operations (mergers, acquisitions, IPOs) concerning knowledge-based companies. These operations have bred an expanding family of intangible accounting assets, since the knowledge and know-how created by companies cannot be recognized in balance sheets unless it is the subject of transactions, either in separate components, such as when a brand is sold, or as a whole when the company is sold and its goodwill (i.e. the intangible components of the business) is valued as a result.

The type of assetization that interests Birch and Ward, therefore, goes hand in hand with the trajectories of contemporary companies which are more financialized and more heavily reliant on knowledge management, two characteristics shared by what Birch and his colleagues call ‘technoscientific capitalism’ (Birch et al., 2022; Birch and Muniesa, 2020). This form of capitalism also has the specificity of having adopted very specific practices for identifying and valuing companies’ accounting assets. This came about in the 2000s with the adoption of new accounting standards requiring the use of what is called ‘fair value’, which bases valuation on future returns (or at least current market values) (Müller, 2014), in contrast to the former valuation practices based on historical cost. Financialized valuation of an asset takes into account all the future profits it is expected to generate, whereas historical cost valuation is simply a memory of the initial investment or purchase and does not make any expected returns visible. These two forms of accounting are associated with different periods in the history of capitalism (Ding et al., 2008; Richard, 2005) and different calculations of profit. Industrial capitalists make profits by selling goods for more than their production cost, and therefore construct balance sheets that can track historical costs. But this practice prevents them from materializing their profit before the production cycle is completed and the produced goods are sold on the market. Financial capitalists instead make a profit by exchanging assets whose financialized value incorporates expected future profits. They are in a position to extract value at the beginning of the investment cycle, before that value has even been produced, as in the start-ups studied by Birch (2017).

How does financialized assetization enable exploitation of territorialized activities by mobile actors?

The production of financial and intangible assets is a process that allows value to be extracted and circulated independently of the material processes of production that are spatially and socially situated. As such, it enables the exploitation of immobile, territorialized activities by mobile actors (Boltanski and Chiapello, 2005: 360). The increase in financial assets is already known to separate the financial sphere from the production sphere, and to keep capital mobile during a financialized phase of capitalism (Arrighi and Silver, 2001). The contribution of intangible assets to mobile capital is also important. Indeed the so-called intangible economy actually relies on outsourcing immobile tangible assets (e.g. production plants for cellphones or medicines) while appropriating value through stricter regulation of intellectual property rights (e.g. on brands and patents).

In this contribution, motivated by my dissatisfaction with the scope of their concept, I have attempted to specify (and reduce) Birch and Ward's concept of assetization while, I hope, remaining faithful to their intention. I have highlighted the importance of the work involved in manufacturing financial and intangible assets in contemporary capitalism, showing how assetization is instrumental for the appropriation of value associated with certain territories by actors located elsewhere, sometimes with absolutely no market economic activity, based on the promise of future returns. As this suggests, assetization should be an interesting, and explanatory, concept for economic geographers exploring certain processes in the production of socio-spatial inequalities.