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Intangible Capital
Marianne SaamCentre for European Economic Research (ZEW)
e-Frame Final Conference 10 February 2014
The e-Frame project is funded by the 7th EU Framework Programme, Theme 8 Socio-Economic Sciences and Humanities, Grant Agreement No.
290 520.
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GDP and Beyond: Measurement, Policy Use and Moving Forward
GDP is currently augmented by R&D investment
Beyond are other intangible assets not yet capitalised in national accounts
Measurement remains challenging, for example for services lives
Policy Use is much wanted (``smart growth‘‘) but for example industry-level data is still experimental
Moving Forward? Yes, a lot is being done out of FP7 projects, at the OECD, at NSIs, in national and transnational initiatives….
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Agenda
1. Measuring Intangible Assets: What is it and who measures it?
2. The Corrado-Hulten-Sichel Framework
3. Integration into National Accounts
4. Firm-level Measurement
5. Policy-Relevant Use
6. Outlook
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1. What is Intangible Capital?
„Knowledge-based assets (…) create future benefits for firms, but, unlike machines (…) they are not physical.“ (OECD, 2013)
„Intangible assets are non-physical sources of value (claims to future benefits) generated by innovation (discovery), unique organizational designs, or human resource practices“
(Lev, 2001)
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1. Who Wants to Measure Intangible Capital?
Statistical Agencies/Public Institutions
Academic ResearchersFirms10 February 2014 e-Frame Final Conference
Policy
Intangibles
Tangibles Labour
Perfor-mance
Media, society
Financial markets
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2. The Framework by Corrado, Hulten and Sichel
Corrado, Hulten and Sichel (2005, 2009 – CHS) • Framework to measure intangible investment in a way compatible with
national accounts
• ….and consistent with the economic theory of investment
Measurement of fraction of an identifiable data series on intangible spending that is investment• Expenditure on own-account or purchased knowledge assets• Wages paid for working time spent on creation of knowledge assets
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2. Data Using Framework by Corrado, Hulten and Sichel
INTAN-Invest database: Corrado, Haskel, Jona-Lasinio and Iommi (2012) published data on intangible investment of the market economy (plus sector O) for EU countries for the period 1995-2007
Freely available at www.intan-invest.net
Joint initiative of the FP7 SSH Projects COINVEST and INNODRIVE and The Conference Board, supported by the EC (2013)
First industry breakdown of INTAN-Invest data (NACE rev. 1.1) to industry-level in FP7 SSH project INDICSER
INTAN-Invest meanwhile available in NACE rev.2
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2. CHS: Country-level Results from INTAN-Invest
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GDP shares of tangible vs. intangible investment, 1995–2009 (average values)
Source: Corrado et al. (2013), Oxford Review of Economic Policy
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3. Integration into National Accounts?
1. Computer software and databases
2. Innovative propertyi. R&D (incl. in financial industry) new SNA 2008-
ESA 2010ii. Mineral explorations and evaluation Fixed asset
boundaryiii. Entertainment, literary and artistic originalsiv. Design
3. Economic competenciesi. Brand equity (advertising and market research) SNA 2008-ESA 2010ii. Organisational capital
Non-produced assetsiii. Firm-specific human capital (training) (counted if
transaction)
Based on Iommi (2013), presentation at e-Frame workshop in intangibles
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3. Integration into National Accounts?
Trade-off between completeness and accuracy of coverage of intangible assets
GDP has to be measure that is trusted , comparable across countries and time
From this perspective, conservatism with regard to changing GDP seems an almost necessary virtue
On the other hand, in the long term GDP has to keep up with new insights in the quantification of assets
„Knowledge economy“ ever more important in policy debate
Intangible assets core target in EU 2020: 3% of GDP in R&D
The debate about expanding the asset boundary should continue
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3. Integration into National Accounts? Comments from e-Frame Workshop Too early to extend asset boundary of NAs beyond R&D
Conditions for possible extension in the future
• Framework by CHS adapted for practical implementation at NSIs
• Internationally comparable surveys prior to potential implementation
• More knowledge about short-run properties of intangible investment
However, including only R&D may bias measurement of intangibles towards manufacturing
Mix of surveying and modelling may be needed (burden on firms)
Treatment of human capital in national accounts also seen as needing improvement
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4. Firm-level Measurement
ONS/NESTA survey collects information from more than 1000 firms on expenditures on six categories of intangible assets and on service lives (Field/Franklin 2012)
Goal: • Provide evidence on intangible investment beyond R&D• Collect data on own-account vs. purchased intangibles• Complement other surveys on intangibles• Find out whether firms can answer questions about service lives of
intangibles and about ownership of R&D assets
Sample is small compared to other ONS surveys, R&D expenditure looks lower than in other surveys
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4. Firm-level Measurement
Firms themselves may have an interest or obligation to measure intangible capital (see Guenther, 2013, presentation at OECD)
• To asses their contribution to firm performance• To comply to accounting rules• To communicate their investments to capital markets and policy
Critical points of accounting for intangibles• Level of financial information on intangibles in financial reporting is low• Large room for managerial discretion in the reporting on intangibles• Low voluntary disclosure of investment in intangibles• Intangibles data are not used much in management control, little
validation
Source: Guenther (2013), presentation at OECD•
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5. Policy-Relevant Use: Intangibles as Part of GDP
10 February 2014
“In the short term America’s new GDP measure makes international comparisons
more difficult.”
(Economist, 3.8.2013)
“GDP – New Statistics Let Debt Ratio Decline”
(FAZ, Germany, 21.1.14)
“R&D expenditure is recorded as GFCF and no longer as current
expenditure. This will increase EU GDP by around 1.9%. (...) very important in the context of the
Europe 2020 strategy.”
(European Commission, 16.1.14)
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5. Policy-Relevant Use: Intangibles as Driver of GDP
Conclusions from OECD project Supply-side programs should support intangible investment in areas of highest
social return
Intellectual property rights need further development
Intangible assets are an important factor in global value chain
Securitisation of debt using intangible assets could be improved to address shortfalls of early-stage risk capital
Many of the world‘s most successful companies‘ value resides almost entirely in their knowledge-based assets, but corporate financial reports provide limited information
Policies need to address the economic potential of „big data“
•
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6. Outlook
Intangible investment: both technological and non-technological innovation
Long-term: little reason not to account for intangible investment in GDP
Medium term: academic projects, experimental surveys and satellite accounts will move agenda forward
Major measurement issues on service lifes, rates of return and sectoral heterogeneity are not solved
Common language to be found between academics, public institutions, statisticians at NSIs and firms
Existing surveys on innovation and training with a more „micro“ approach continue to be important source of evidence
Data construction for the public sector has just started (SPINTAN)
•
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Further Reading
Corrado, C., J. Haskel, C. Jona-Lasinio, M. Iommi (2013), Innovation and intangible investment in Europe, Japan and the United States, Oxford Review of Economic Policy, 29(2),261-268.
OECD (2013), New Sources of Growth: Knowledge-Based Capital – Key Analyses and Policy Conclusions – Synthesis Report.
European Commission (2013), Joint database on intangibles for European policymaking - Data from Innodrive, Coinvest and The Conference Board – A policy-science dialogoe, DG for Research and Innovation – Socio-Economic Sciences and Humanities.
•
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Back up I: Communicating intangibles to the public
Are we persuaded that intangible assets exist?
• A machine may be valuable, obsolete or broken, but I can in principle determine by commonly agreed criteria whether it exists
• The existence of a patent or a piece of software is also quite straightward to communicate
• Creating assets through training, consulting, marketing or managerial effort may be much more risky
• Society more sceptical about intangible value creation after financial crisis
• …maybe too conventional reasoning. Machines, software or patents may also be counted while not contributing positively to productivity
•
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Back Up II: Asset List of INTAN-Invest
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Asset type Key Source Depreciation Rate
Computerized information
1. Software EU KLEMS (investment) 31.52. Databases EU KLEMS (investment) 31.5
Innovative property
3. Mineral exploration NA/SUT (investment) 7.54. R&D (scientific) BERD (expenditures) 155. Entertainment and artistic originals NA/SUT (investment) 206. New product/systems in financial services EU KLEMS, WIOD, STAN (labour compensation) 20
7. Design and other new product/systems SBS (turnover) 20
Economic competencies
8. Brand equity a. Advertising Zenith Optimedia (turnover) 55b. Market research SBS (turnover)/ ESOMAR (add. source for consistency) 55
9. Firm-specific resources a. Employer-provided training CVTS (costs of CVT)/LCS(apprentice costs) 40b. Organizational structure SBS (turnover), LFS (# employees)/SES (earnings) 40
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Back Up III: Growth Accounting
•
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Total capital deepening
Tangibles
IntangiblesLabour
composition
MFP
(1) (2) (3) (4) (5) (6)
Austria 2.4 0.8 0.3 0.5 0.2 1.4
Belgium 1.8 0.7 0.2 0.5 0.1 1.0
Denmark 1.4 1.2 0.7 0.5 0.2 –0.1
Finland 3.8 0.9 0.2 0.7 0.2 2.7
France 1.9 1.0 0.4 0.6 0.4 0.5
Germany 1.7 1.0 0.7 0.3 0.0 0.8
Ireland 3.8 1.4 0.8 0.6 0.1 2.2
Italy 0.6 0.7 0.5 0.2 0.2 –0.4
Netherlands 2.3 0.9 0.4 0.5 0.4 1.0
Spain 0.8 1.0 0.7 0.3 0.5 –0.6
Sweden 3.7 1.9 1.1 0.8 0.3 1.5
UK 2.9 1.5 0.8 0.7 0.4 1.1
US 2.8 1.5 0.7 0.8 0.2 1.1
Contributions to the growth of output per hour, 1995–2007
Source: Corrado et al. (2013)
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Back Up IV: Industry-level Results from INDICSERShare of F&E, design and economic competencies in adjusted VAaverage 1995-2007, source data used: EU KLEMS 2009, INTAN-Invest
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Source: Niebel, O‘Mahony and Saam (2013)