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Intangible Capital. Marianne Saam Centre 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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intangible capital

Intangible Capital

Marianne Saam

Centrefor European Economic Research (ZEW)

e-Frame Final Conference

10 February 2014

The e-Frame projectisfundedbythe 7th EU Framework Programme, Theme 8 Socio-EconomicSciencesandHumanities, Grant Agreement No. 290 520.

gdp and b eyond measurement policy use and moving forward
GDP andBeyond: Measurement, PolicyUseandMoving Forward
  • GDP iscurrentlyaugmentedby R&D investment
  • Beyondareotherintangibleassets not yetcapitalised in national accounts
  • Measurement remainschallenging, forexampleforserviceslives
  • PolicyUseismuchwanted (``smart growth‘‘) but forexampleindustry-level datais still experimental
  • Moving Forward? Yes, a lotisbeingdone out of FP7 projects, atthe OECD, at NSIs, in national and transnational initiatives….

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agenda
Agenda
  • MeasuringIntangible Assets: Whatisitandwhomeasuresit?
  • The Corrado-Hulten-Sichel Framework
  • Integration into National Accounts
  • Firm-level Measurement
  • Policy-Relevant Use
  • Outlook

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1 what is i ntangible capital
1. WhatisIntangible Capital?
  • „Knowledge-basedassets (…) createfuturebenefitsforfirms, but, unlikemachines (…) theyare not physical.“ (OECD, 2013)
  • „Intangibleassetsare non-physicalsourcesofvalue (claimstofuturebenefits) generatedbyinnovation (discovery), uniqueorganizationaldesigns, or human resourcepractices“

(Lev, 2001)

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1 who wants to measure intangible capital
1. Who WantstoMeasureIntangible Capital?

Statistical Agencies/Public Institutions

Academic Researchers Firms

Policy

Financial markets

Perfor-

mance

Intangibles

Media, society

Tangibles

Labour

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2 the framework by corrado hulten and sichel
2. The Framework by Corrado, Hultenand Sichel
  • Corrado, Hultenand Sichel (2005, 2009 – CHS)
    • Framework tomeasureintangibleinvestment in a waycompatiblewith national accounts
    • ….andconsistentwiththeeconomictheoryofinvestment
  • Measurement offraction of an identifiable data series on intangible spending that is investment
    • Expenditure on own-accountorpurchasedknowledgeassets
    • Wagespaidforworking time spent on creationofknowledgeassets

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2 data using framework by corrado hulten and sichel
2. Data Using Framework by Corrado, Hultenand 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
  • Freelyavailableatwww.intan-invest.net
  • Joint initiative ofthe FP7 SSH Projects COINVEST and INNODRIVE and The Conference Board, supportedbythe EC (2013)
  • First industry breakdown of INTAN-Investdata (NACE rev. 1.1) toindustry-level in FP7 SSH project INDICSER
  • INTAN-Investmeanwhileavailable in NACE rev.2

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2 chs country level results from intan invest
2. CHS: Country-levelResultsfrom INTAN-Invest

GDP shares of tangible vs. intangible investment, 1995–2009 (average values)

Source: Corrado et al. (2013), Oxford Review ofEconomicPolicy

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3 integration into national accounts
3. Integration into National Accounts?
  • Computer softwareanddatabases
  • Innovative property
    • R&D (incl. in financialindustry) new SNA 2008-ESA 2010
    • Mineral explorationsandevaluation Fixed assetboundary
    • Entertainment, literaryandartisticoriginals
    • Design
  • Economiccompetencies
    • Brand equity (advertisingandmarketresearch) SNA 2008-ESA 2010
    • Organisational capital Non-producedassets
    • Firm-specific human capital (training) (countediftransaction)

Based on Iommi (2013), presentationat e-Frame workshop in intangibles

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3 integration into national accounts1
3. Integration into National Accounts?
  • Trade-off betweencompletenessandaccuracyofcoverageofintangibleassets
  • GDP hastobemeasurethatistrusted,comparableacross countries and time
    • Fromthisperspective, conservatismwithregardtochanging GDP seems an almostnecessaryvirtue
  • On theotherhand, in thelongterm GDP hastokeepupwithnewinsights in thequantificationofassets
  • „Knowledge economy“ evermoreimportant in policydebate
  • Intangibleassetscoretarget in EU 2020: 3% of GDP in R&D
  • The debateaboutexpandingtheassetboundaryshouldcontinue

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3 integration into national accounts comments from e frame workshop
3. Integration into National Accounts? Comments from e-Frame Workshop
  • Tooearlytoextendassetboundaryof NAs beyond R&D
  • Conditionsforpossibleextension in thefuture
    • Framework by CHS adaptedforpracticalimplementation at NSIs
    • Internationallycomparablesurveyspriorto potential implementation
    • More knowledgeaboutshort-run propertiesofintangibleinvestment
  • However, includingonly R&D maybiasmeasurementofintangiblestowardsmanufacturing
  • Mix ofsurveyingandmodellingmaybeneeded (burden on firms)
  • Treatment of human capital in national accounts also seenasneedingimprovement

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4 firm level measurement
4. Firm-level Measurement
  • ONS/NESTA surveycollectsinformationfrommorethan 1000 firms on expenditures on sixcategoriesofintangibleassetsand on servicelives (Field/Franklin 2012)
  • Goal:
    • Provideevidence on intangibleinvestmentbeyond R&D
    • Collectdata on own-account vs. purchasedintangibles
    • Complementothersurveys on intangibles
    • Find out whetherfirmscananswerquestionsaboutservicelivesofintangiblesandaboutownershipof R&D assets
  • Sample issmallcomparedtoother ONS surveys, R&D expenditurelookslowerthan in othersurveys

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4 firm level measurement1
4. Firm-level Measurement
  • Firmsthemselvesmayhave an interestorobligationtomeasureintangiblecapital(see Guenther, 2013, presentation at OECD)
    • Toassestheircontributionto firm performance
    • Tocomplytoaccountingrules
    • Tocommunicatetheirinvestmentstocapitalmarketsandpolicy
  • Critical pointsofaccountingforintangibles
    • Level offinancialinformation on intangibles in financialreportingislow
    • Large roomformanagerialdiscretion in thereporting on intangibles
    • Low voluntarydisclosureofinvestment in intangibles
    • Intangiblesdataare not usedmuch in managementcontrol, littlevalidation

Source: Guenther (2013), presentation at OECD

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5 policy relevant use intangibles as part of gdp
5. Policy-Relevant Use: Intangiblesas Part of GDP

“In the short term America’s new GDP measure makes international comparisons more difficult.”

(Economist, 3.8.2013)

“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)

“GDP – New Statistics Let Debt Ratio Decline”

(FAZ, Germany, 21.1.14)

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5 policy relevant use intangibles as driver of gdp
5. Policy-Relevant Use: Intangiblesas Driver of GDP

Conclusionsfrom OECD project

  • Supply-sideprogramsshouldsupportintangibleinvestment in areasofhighestsocialreturn
  • Intellectualpropertyrightsneedfurtherdevelopment
  • Intangibleassetsare an importantfactor in global valuechain
  • Securitisationofdebtusingintangibleassetscouldbeimprovedtoaddressshortfallsofearly-stage riskcapital
  • Manyoftheworld‘smostsuccessfulcompanies‘ valueresidesalmostentirely in theirknowledge-basedassets, but corporatefinancialreportsprovide limited information
  • Policiesneedtoaddresstheeconomic potential of „bigdata“

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6 outlook
6. Outlook
  • Intangibleinvestment: bothtechnologicaland non-technologicalinnovation
  • Long-term:littlereason not toaccountforintangibleinvestment in GDP
  • Medium term:academicprojects, experimental surveysandsatelliteaccounts will moveagendaforward
  • Major measurementissues on servicelifes, ratesofreturnandsectoralheterogeneityare not solved
  • Common languagetobefoundbetweenacademics, publicinstitutions, statisticians at NSIs andfirms
  • Existingsurveys on innovationandtrainingwith a more „micro“ approachcontinuetobeimportantsourceofevidence
  • Data constructionforthepublicsectorhas just started (SPINTAN)

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further reading
Further Reading

Corrado, C., J. Haskel, C. Jona-Lasinio, M. Iommi (2013), Innovation andintangibleinvestment in Europe, Japan andthe United States, Oxford Review ofEconomicPolicy, 29(2),261-268.

OECD (2013), New Sourcesof Growth: Knowledge-Based Capital – Key AnalysesandPolicyConclusions – Synthesis Report.

European Commission (2013), Joint database on intangiblesfor European policymaking - Data fromInnodrive, CoinvestandThe Conference Board – A policy-sciencedialogoe, DG for Research and Innovation – Socio-EconomicSciencesandHumanities.

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back up i communicating intangibles to the public
Back up I: Communicatingintangiblestothepublic

Are wepersuadedthatintangibleassetsexist?

  • A machinemaybevaluable, obsolete orbroken, but I can in principledeterminebycommonlyagreedcriteriawhetheritexists
  • The existenceof a patent or a pieceofsoftwareis also quitestraightwardtocommunicate
  • Creatingassetsthroughtraining, consulting, marketingormanagerialeffortmaybemuchmorerisky
  • Society morescepticalaboutintangiblevaluecreation after financialcrisis
  • …maybe tooconventionalreasoning. Machines, softwareorpatentsmay also becountedwhile not contributingpositivelytoproductivity

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back up iii growth accounting
Back Up III: Growth Accounting

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 indicser
Back Up IV: Industry-level Resultsfrom INDICSER

Share of F&E, design andeconomiccompetencies in adjusted VA

average 1995-2007, sourcedataused: EU KLEMS 2009, INTAN-Invest

Source: Niebel, O‘MahonyandSaam (2013)

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back up v firm level measurement uk
Back Up V: Firm-level Measurement UK

Source: Field and Franklin (2012), presentedby Daniel Ker (ONS) at the e-Frame workshop on intangibles

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