Measuring the Intangible Economy Greater Washington DC region
Eurasia Center
July 20, 2006
Ken Jarboe
Athena Alliance
Exploring the promises and pitfalls of the global information economy
www.athenaalliance.org
© Athena Alliance
July 2006
“Greater Washington is a giant in the
global creative economy. It's a true talent
magnet, a place where innovative, creative
and entrepreneurial people want, and
need, to be.”
– Dr. Richard Florida, Professor, George Mason
University and author of The Rise of the Creative
Class & The Flight of the Creative Class
From: Greater Washington Initiative, Greater Washington:
International Commerce and Culture, April 2006
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July 2006
Background: what is this new
intangible/creative/knowledge/information
/innovation economy
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July 2006
We focus on the technology
- it is in our face
Can’t see the structural
changes from close up
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July 2006
I-Cubed Economy
Information
Intangibles
Innovation
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July 2006
Background/antecedents
Daniel Bell - Post-Industrial Society
Peter Drucker - Knowledge worker
Alvin Toffler - Third Wave
Manuel Castells - Networked Society
Richard Florida - Creative Class
Danny Quah - Weightless Economy
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July 2006
Drucker on knowledge worker
“Increasingly, the human being does not
work in mass production, but in what might
be called ‘team production.’ And that means
that increasingly the producing human
being is a knowledge worker. Workers as
they did before the Industrial Revolution,
own the means of production. The means is
between their ears.” Peter Drucker as quoted in Patricia Panchak, “The Future of Manufacturing: An exclusive interview with Peter Drucker”, Industry
Week, September 21, 1998, pp.. 102-104.
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July 2006
Bell:
From: Daniel Bell, Coming of the Post-Industrial Society, Basic Books, 1976 edition, p. 117
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July 2006
Johnson,
Manyika,
and Yee:
From: Bradford C. Johnson, James M. Manyika, and Lareina A. Yee, “The next revolution in interactions” McKinsey
Quarterly, 2005 Number 4
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July 2006
Toffler:
• agriculture — local market
• manufacturing — national markets
• information — global markets
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July 2006
Castells:
From: Manuel Castells, The Rise of the Networked Society, Blackwell Publishing, 1996, p. 469
“dominant functions and processes in the information
age are increasingly organized around networks.
Networks constitute the new social morphology of
our society and the diffusion of networking logic
substantially modifies the operation and outcomes in
the processes of production, experience, power and
culture. While the networking form of social
organization has existed in other times and spaces,
the new information technology paradigm provides
the basis for its pervasive expansion throughout the
entire social structure.”
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July 2006
Castells: An informational economy in which sources of productivity and competitiveness for firms,
regions, countries depend, more than ever, on knowledge, information and the technology of
their processing – in all sectors: agriculture, manufacturing, services. Extraordinary potential
for solving problems but it is potentially more exclusionary.
A global economy that is not the same as a world economy, and is a new reality. At its
core it has strategically dominant activities which have the potential of working as a unit in
real time on a planetary scale. National, regional and local economies depend ultimately on
the dynamics of the global economy to which they are connected through networks and
markets. Reaches out to whole planet but does not include whole planet and excludes the
majority in an uneven geography.
The network enterprise is a new form of organization characteristic of economic activity,
but gradually extending its logic to other domains and organizations. It is a network made
either from firms or segments of firms, or from internal segmentation of firms. It includes
MNCs, strategic alliances between corporations, networks of SMEs, and link-ups between
corporations and networks of SMEs.
The transformation of work and employment. Anxiety and discontent about work. Power
relations have shifted in favor of capital with much downsizing, subcontracting and
networking of labor, inducing flexibility and individualization of contractual arrangements –
self employment, temporary work, and part-time.
Networked government where nation states still exist, but operate as actors of a much more
complex and interactive network.
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July 2006
Florida:
“Creative workers” comprise 30% of the workforce
Drive economic activity
Don’t cluster where the jobs are; they cluster in centers
of creativity
Places that are multidimensional and diverse
(following from Jane Jacobs)
Place that are tolerant of diversity (creative index
correlates with gay index)
http://www.creativeclass.org/
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July 2006
Pine & Gilmore:
Experience Economy
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July 2006
Danny Quah, LSE:
Weightless economy
“that greater value, as a fraction of GDP, resides in
economic commodities that have little or no physical
manifestation . . . (e)xamples of weightlessness and
dematerialisation are diverse: they range from
economic activities such as stocking supermarket
shelves and styling haircuts, all the way through
financial services and up to telecommunications and
providing software products on CD-ROM.”
Danny Quah “Increasingly weightless economies,” Bank of England Quarterly Bulletin, 1997
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July 2006
Historical example: the industrial age boom just
before the civil war through the turn of 20th Century
The Railroad Age
• opened up new markets
The economic boom came only in part from the
massive building (and overbuilding) of the
railroads. More important is how the railroads
changed other parts of the economy:
• increased machine-based manufacturing
• created new managerial processes,
including governmental processes
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July 2006
Manufacturing All sectors of the economy
under competitive challenge
with a fusion of services and
manufacturing
Quality Customization, speed and
responsiveness to customer
needs
Productivity & technological Innovation – broadly defined
innovation Not just technological, not
just new products
Design (ascetics)
New business models
Industrial Age Information Age
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July 2006
Change in the nature of production:
More inputs/resources are “weightless” or intangible
More outputs/products are “weightless” or intangible
Not just new technological products or lower price – but expanding consumer
choice through more customized products, more individualized service and
greater attention to ascetics in order to respond to changing consumer tastes.
Need to foster and develop intangible assets: business systems and new business
methods, worker skills and know-how, informal relationships that feed
creativity and new ideas, high-performance work organizations, formal
intellectual property such as patents and copyrights, brands, and innovation
and creativity skills.
What is new:
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July 2006
Economic growth is not
just “science-based” or
“technology-based”
It is Intangibles-Based
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July 2006
“What economists really have been describing with growing
frequency in recent years is the movement from a tangible-
asset to an intangible-asset-based economy. The economy is
not itself new, but the relative importance of economic assets
has been fundamentally transformed. In an intangible
economy, concepts such as patents, copyrights, customer
relationships, brand value, unique institutional designs, the
value of future products and services, and their structural
capital (corporate culture, systems, and processes) become
ever more important to firms. Most of the value of the
intangible economy is anchored to a firm’s stock of human
capital and to the locations in which they reside.”
What they say:
Ross DeVol and Rob Koepp with Junghoon Ki, State Technology and Science Index Enduring Lessons
for the Intangible Economy, Milken Institute, March 2004
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July 2006
R&D funding
Patents issued
Math & Science scores
Number of Students in Science & Engineering
Technology workforce - number of scientists and
engineers
Technology concentration - number of high tech firms
What they do (measure):
© Athena Alliance
July 2006
Why?
Intangibles are very hard to
measure!
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July 2006
Management
Leadership
Strategy Execution
Communication & Transparency
What are Intangibles
Jonathan Low and Pam Cohen Kalafut, Invisible Advantage:
How Intangibles are Driving Business Performance
Relationships
Brand Equity
Reputation
Alliances & Networks
Organization
Technology and Processes
Human Capital
Workplace Organization & Culture
Innovation
Intellectual Capital
Adaptability
© Athena Alliance
July 2006
Source: Clark Eustace, The PRISM Report 2003: Research findings and policy recommendations,
October 2003
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July 2006
Soft intangible (information) assets
The 3Ks:
• know-how
• know-what
• know-who
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July 2006
Information assets are:
• human capital (individual) and
social capital (group)
• formal (codified) and informal (tacit)
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July 2006
“Indigenous” Knowledge Local, in that it is rooted in a particular community and situated within broader
cultural traditions; it is a set of experiences generated by people living in those
communities
Indigenous Knowledge For Development: A Framework For Action, Knowledge and Learning Center,
Africa Region, World Bank, Washington, DC, November 4, 1998
Tacit knowledge and, therefore, not easily codifiable
Transmitted orally, or through imitation and demonstration. Codifying it may
lead to the loss of some of its properties
Experiential rather than theoretical knowledge. Experience and trial and error
Learned through repetition, which is a defining characteristic of tradition even
when new knowledge is added
Constantly changing, being produced as well as reproduced, discovered as well as
lost; though it is often perceived by external observers as being somewhat static
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July 2006
Some attempts to measure
intangibles
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July 2006
Leonard Nakamura,
Philadelphia Fed:
the value of US gross investments in intangibles is over $1
trillion annually
these intangibles include:
R&D,
advertising and marketing,
software,
financial activities
creative activities of writers, artists and entertainers
Leonard Nakamura, “A Trillion Dollars a Year in Intangible Investment and the New Economy,” in John Hand and Baruch Lev, editors. Intangible Assets:
Values, Measures and Risks, Oxford University Press, 2003.
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July 2006
Corrado, Hulten, and Sichel
“Published macroeconomic data traditionally exclude
most intangible investment from measured GDP. This
situation is beginning to change, but our estimates
suggest that as much as $800 billion is still excluded
from U.S. published data (as of 2003), and that this
leads to the exclusion of more than $3 trillion of
business intangible capital stock.”
See Carol A. Corrado, Charles R. Hulten, and Daniel E. Sichel, “Measuring Capital and Technology: An Expanded
Framework,” Federal Reserve Board, August 2004, and
. . . “Intangible Capital and Economic Growth” NBER Working Paper No. 11948 January 2006
© Athena Alliance
July 2006
Corrado, Hulten, and Sichel
Computerized information
1. Computer software: own use, purchased, and custom software.
2. Computerized databases
Scientific and creative property
3. Science and engineering research and development (costs of new products and
new production processes, usually leading to a patent or license):
4. Mineral exploration (spending for the acquisition of new reserves)
5. Copyright and license costs (spending for the development of entertainment and
artistic originals, usually leading to a copyright or license): Development costs in the motion picture industry,
development costs in the radio and television, sound recording, and book publishing industries.
6. Other product development, design, and research expenses (not necessarily leading
to a patent or copyright): New product development costs , new architectural and engineering designs, R&D in
social sciences and humanities
Economic competencies
7. Brand equity (advertising expenditures and market research for the development of brands and trademarks)
8. Firm-specific human capital (costs of developing workforce skills, i.e., on-the-job training and tuition
payments for job-related education)
9. Organizational structure (costs of organizational change and development; company formation expenses)
See Carol A. Corrado, Charles R. Hulten, and Daniel E. Sichel, “Measuring Capital and Technology: An Expanded
Framework,” Federal Researve Board, August 2004, and
. . . “Intangible Capital and Economic Growth” NBER Working Paper No. 11948 January 2006
© Athena Alliance
July 2006
The Intangible Economy: beyond services
Tangible Intangible
Goods things packaged
“information”
Services moving atoms information, ideas,
physical tasks knowledge, relations
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July 2006
Measuring the Greater
Washington region
© Athena Alliance
July 2006
Metro Washington Employment
May 2006
Manufacturing
2%
Trade, Transportation and
Utilities
14%
Information
3%
Financial Activities
5%
Professional and Business
Services
22%
Educational and Health
Services
10%
Leisure and Hospitality
9%
Other Services
6%
Government
23%
Construction and Mining
6%
© Athena Alliance
July 2006
Metro Washington Employment
May 2006
Repair and Maintenance
1%
Personal and Laundry
Services
1%
Tangible business
services
9%
Tangible education and
health services
2%
Telecommunications
1%
Accommodation and
Food Services
8%
Trade, Transportation
and Utilities
14%
Construction and Mining
6%
Manufacturing
2%
Arts, Entertainment, and
Recreation
1%
Information (excluding
telecommunications)
2%Financial Activities
5%Professional and
Business Services
(excluding tangible
services)
13%
Educational and Health
Services (excluding
tangible services)
9%Federal Government
12%
State and Local
Government
10%
Business, Professional,
Labor, Political, and
Similar Organizations
2%
Religious, Grantmaking,
Civic, and Similar
Organizations
2%
Intangible
57%
© Athena Alliance
July 2006
Gross Regional Product
Intangible
86%
Waste management and
remediation services - 0%
Educational services
3%
Government
35%
Other services, except
government - 6%
Accommodation and food
services - 3%
Health care and
social assistance
5%
Management of companies
1%
Rental and leasing
services and lessors of
intangible assets
0%
Transportation and
warehousing, excluding
Postal Service
1%
Retail trade - 1%
Wholesale trade - 1%
Manufacturing - 0%
Construction - 1%
Mining - 0%
Agriculture, forestry, fishing,
and hunting
0% Utilities - 1%
Professional and technical
services
20%
Information
6%
Finance and
insurance
5%
Real estate
9%
Arts, entertainment,
and recreation
1%
Administrative and support
services
3%
“Basic” 3-digit Sectors, Washington-Arlington-Alexandria, DC-
VA-MD-WV MSA, 2004
Industry Location Employment Percent
Quotients of Total
ISPs, search portals, and data processing 3.33 25,302 1.17%
Professional and technical services 2.85 384,025 17.80%
Other information services 2.77 2,718 0.13%
Publishing industries, except Internet 1.6 28,954 1.34%
Unclassified 1.49 7,104 0.33%
Real estate 1.45 40,756 1.89%
Broadcasting, except Internet 1.42 9,151 0.42%
Administrative and support services 1.12 167,780 7.78%
Performing arts and spectator sports 1.12 8,465 0.39% 674,255 66.8%
Telecommunications 1.61 32,963 1.53%
Air transportation 1.44 14,654 0.68%
Construction of buildings 1.35 43,338 2.01%
Personal and laundry services 1.29 32,551 1.51%
Furniture and home furnishings stores 1.28 14,297 0.66%
Specialty trade contractors 1.26 110,287 5.11%
Electronics and appliance stores 1.21 12,584 0.58%
Accommodation 1.14 40,622 1.88%
Sporting goods, hobby, book and music stores 1.12 14,389 0.67%
Heavy and civil engineering construction 1.09 19,409 0.90% 335,094 33.2%
Total "basic" 1,009,349 46.80%
From Washington, DC - Economic Development Background Report – DRAFT Comprehensive Plan, April 2006
Source: U.S. Bureau of Labor Statistics, Covered Employment & Wages (CEW) Series
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July 2006
“Basic” 3-digit Sectors, Washington-Arlington-Alexandria, DC-
VA-MD-WV MSA, 2004
Industry Location Employment Percent
Quotients of Total
NAICS 518 ISPs, search portals, and data processing 3.33 25,302 1.17%
NAICS 541 Professional and technical services 2.85 384,025 17.80%
NAICS 519 Other information services 2.77 2,718 0.13%
NAICS 517 Telecommunications 1.61 32,963 1.53%
NAICS 511 Publishing industries, except Internet 1.60 28,954 1.34%
NAICS 999 Unclassified 1.49 7,104 0.33%
NAICS 531 Real estate 1.45 40,756 1.89%
NAICS 481 Air transportation 1.44 14,654 0.68%
NAICS 515 Broadcasting, except Internet 1.42 9,151 0.42%
NAICS 236 Construction of buildings 1.35 43,338 2.01%
NAICS 812 Personal and laundry services 1.29 32,551 1.51%
NAICS 442 Furniture and home furnishings stores 1.28 14,297 0.66%
NAICS 238 Specialty trade contractors 1.26 110,287 5.11%
NAICS 443 Electronics and appliance stores 1.21 12,584 0.58%
NAICS 721 Accommodation 1.14 40,622 1.88%
NAICS 451 Sporting goods, hobby, book and music stores 1.12 14,389 0.67%
NAICS 561 Administrative and support services 1.12 167,780 7.78%
NAICS 711 Performing arts and spectator sports 1.12 8,465 0.39%
NAICS 237 Heavy and civil engineering construction 1.09 19,409 0.90%
Total "basic" 1,009,349 46.80%
From Washington, DC - Economic Development Background Report – DRAFT Comprehensive Plan, April 2006
Source: U.S. Bureau of Labor Statistics, Covered Employment & Wages (CEW) Series
© Athena Alliance
July 2006
“Basic” 3-digit Sectors, District of Columbia, 2004
Industry Location Employment Percent
Quotients of Total
Other information services 11.13 2,174 0.51%
Membership associations and organizations 8.59 44,078 10.27%
Unclassified 6.45 6,106 1.42%
Educational services 4.35 35,798 8.34%
Professional and technical services 3.5 93,841 21.87%
Broadcasting, except Internet 3.42 4,374 1.02%
Publishing industries, except Internet 2.56 9,180 2.14%
ISPs, search portals, and data processing 2.1 3,175 0.74%
Performing arts and spectator sports 1.83 2,759 0.64%
Museums, historical sites, zoos, and parks 1.71 790 0.18%
Real estate 1.67 9,301 2.17%
Administrative and support services 1.4 41,415 9.65%
Internet publishing and broadcasting 1.15 133 0.03%
Motion picture and sound recording industries 1.06 1,591 0.37% 254,715 80.8%
Private households 2.17 4,315 1.01%
Accommodation 2.1 14,795 3.45%
Hospitals 1.34 22,466 5.23%
Social assistance 1.34 10,696 2.49%
Personal and laundry services 1.18 5,915 1.38%
Utilities 1.11 2,487 0.58% 60,674 19.2%
Total "basic" 1,009,349 46.80%
From Washington, DC - Economic Development Background Report – DRAFT Comprehensive Plan, April 2006
Source: U.S. Bureau of Labor Statistics, Covered Employment & Wages (CEW) Series
© Athena Alliance
July 2006
“Basic” 3-digit Sectors, District of Columbia, 2004
Industry Location Employment Percent
Quotients of Total
NAICS 519 Other information services 11.13 2,174 0.51%
NAICS 813 Membership associations and organizations 8.59 44,078 10.27%
NAICS 999 Unclassified 6.45 6,106 1.42%
NAICS 611 Educational services 4.35 35,798 8.34%
NAICS 541 Professional and technical services 3.50 93,841 21.87%
NAICS 515 Broadcasting, except Internet 3.42 4,374 1.02%
NAICS 511 Publishing industries, except Internet 2.56 9,180 2.14%
NAICS 814 Private households 2.17 4,315 1.01%
NAICS 518 ISPs, search portals, and data processing 2.10 3,175 0.74%
NAICS 721 Accommodation 2.10 14,795 3.45%
NAICS 711 Performing arts and spectator sports 1.83 2,759 0.64%
NAICS 712 Museums, historical sites, zoos, and parks 1.71 790 0.18%
NAICS 531 Real estate 1.67 9,301 2.17%
NAICS 561 Administrative and support services 1.40 41,415 9.65%
NAICS 622 Hospitals 1.34 22,466 5.23%
NAICS 624 Social assistance 1.34 10,696 2.49%
NAICS 812 Personal and laundry services 1.18 5,915 1.38%
NAICS 516 Internet publishing and broadcasting 1.15 133 0.03%
NAICS 221 Utilities 1.11 2,487 0.58%
NAICS 512 Motion picture and sound recording industries 1.06 1,591 0.37%
Total "basic" 315,389 73.49%
From Washington, DC - Economic Development Background Report – DRAFT Comprehensive Plan, April 2006
Source: U.S. Bureau of Labor Statistics, Covered Employment & Wages (CEW) Series
© Athena Alliance
July 2006
© Athena Alliance
July 2006
For Further Information
www.athenaalliance.org
Knowledge Management as an Economic Development Strategy, Athena Alliance, EDA Reviews of Economic Development Literature and Practice: No. 7, 2001 April 2001. Inclusion in the Information Age: Re-framing the Debate, Athena Alliance, October 2001. Extending the Information Revolution, Athena Alliance, February 2002.
Reporting Intangibles:A Hard Look at Improving Business
Information in the U.S., Athena Alliance, April 2005
