What the downfall of Roman Britain can teach us about Intangible Assets

In AD43 the Roman Emperor Claudius invaded Britain. Unlike Julius Caesar’s earlier attempt, Claudius successfully pacified the Britons and extend Pax Romana across the bulk of the British Isles.

In the three centuries that followed, the Romans transformed Britain and with it the lives of the Britons.

They constructed extensive road networks, established market towns including London, excavated massive mines, raised enormous fortifications such as Hadrian’s Wall, initiated major public works such as baths, mills and aqueducts and built luxurious villas, complete with underfloor heating.

This all came to an end in 410AD, when Honorius, the 71st Emperor of Rome, withdrew the last Roman legions from Britain, declaring that Roman Britons should “look to their own defence”.

The date marked the end of Roman occupation of the British Isles. What followed was a rapid descent into chaos as repeated invasions from Saxons, Angles and Jutes decimated the previously prosperous Romano-Britain economy and society.

Living standards for the average Briton plummeted so far they didn’t return to Roman levels until the 1700s, some 1300 years later. More than 40 generations of Britons lived lives that were nastier, more brutish and shorter than their long-distant Roman relatives.

What has any of this got to do with business? Quite a bit actually.

If a modern accountant had compiled a financial statement for Roman Britain in the decades prior to the legions’ withdrawal it would have looked remarkably healthy: strong incomes from trading wool, silver, salt, tin and lead (not wine – some things never change) and a balance sheet recording a panoply of fixed (physical) assets such as the aforementioned roads, bridges and public works. Roman Britain certainly didn’t look like a business on the verge of bankruptcy.

Why then, following a two-century accumulation of the most advanced fixed assets in the world, did Roman Britain fall into such an abject state of poverty? The answer is surprisingly simple.

While the Romans left behind their physical assets, they took something far more important: knowledge. The Roman withdrawal resulted in a rapid loss of critical skills: engineering, road building, masonry, judicial processes, mining, manufacturing, education and even writing slowly petered out. Roman Britain despite having a surfeit of physical assets entered the Dark Ages.

See the problem with a villa with underfloor heating is that it isn’t much good if you don’t have anyone who knows how to operate it. Mines cease to be productive if mining skills are lost. Roads and bridges cease to move trade and people if they are not correctly repaired.

Across the province the evacuation, enslavement and murder of skilled workers and artisans resulted in the almost complete destruction of the unseen portion of Roman Britain’s balance sheet: its intangible assets.

The know-how, skills and expertise brought by the Romans then subsequently lost were the real generator of value in Roman Britain. Britain had been occupied by modern humans for at least 4000 years prior to Claudius and had barely scrapped above subsistence agriculture.

The Romans brought knowledge and for a brief 367-year period Roman Britain flared brightly as one of the most prosperous of Rome’s provinces. When those intangible assets (knowledge) were lost the light (and the wealth) were lost for centuries.

There’s an interesting side note that affirms this theory – Scotland, which the Romans never managed to conquer and which was therefore never the recipient of Roman knowledge (intangible assets), never fell because it never rose. It would take until the 18th (after being subjugated by England and after the transfer of once Roman now English intangible assets) for the Scottish Enlightenment to occur.

If anyone thinks this isn’t relevant today think again.

Imagine a fixed asset-intensive business like a steel mill. It will have lots of physical, tangible assets on the balance sheet. It certainly doesn’t look intangible. Now imagine I gave you a free steel mill. The catch is that I get to keep all the intangible assets.

I get to keep the software that runs the mill (that’s intangible), the regulatory approval that allows you to legally operate the mill (that’s intangible too), the customer and supplier relationships (those are intangible) and the industrial know-how (intangible too). You get the point.

Regardless of what your accountant tells you the steel mill is not an asset, it’s a liability. The real value in the mill is the ability to run it safely and efficiently and that is entirely driven by the intangible assets. I could have left the world’s most advanced steel mill in the middle of London in 410AD and it would have been “repurposed” as a stable within a few months.

The story of the collapse of Roman Britain tells us several interesting things:

• Physical assets are worth little unless you possess intangible assets that enable you to utilise them.
• Regardless of what your accountant tells you for virtually all businesses (outside pure real estate development) their physical “assets” are not really assets at all but are liabilities – the most valuable assets are your intangible assets (estimated to be approximately 90% of the value of most businesses today).
• Following (1) and (2) the balance sheet is an extremely unreliable guide as to where the real value lies.
• Intangible assets (rather than physical assets) are the real driver of value, in today’s digital era that is even more true.
• Intangible assets if not managed correctly can be lost very rapidly and when they are lost expect rapid declines or reversals in value and growth

Roman Britain stands as a warning to both business and political leaders alike: civilization and the wealth it bestows (the wealth that pays for education and healthcare and transport networks) is a function of the accumulation of intangible assets, not physical ones.