Transcript Does Investment in Intangible Assets Explain the UK

Intangibles and innovation
Jonathan Haskel
[email protected]
Middlesex, 2009
Broad questions
• Better understanding of the “new” or “knowledge” economy: work on
intangibles
– “Old economy” = tangibles
• traditional machines, production lines etc
– “New Economy” = intangibles
• Software, design, brand reputation
• Move to knowledge-intensive activities
• Rise of the service sector
• Better understanding of innovation: relate intangibles to innovation
– DIUS “Innovation Nation” White Paper: commission an “innovation
index”
• Presentation
–
–
–
–
Where do we see new/knowledge economy in the data?
How this relates to innovation
What research can do to shed more light on these questions
(Papers at www.coinvest.org.uk plus links)
How does the iPod show up in (US) National
Accounts?
• iPod: designed in California, made in China
• Apple
– nominal value added =
Sales – value of imports – (design+marketing+R&D)
– Initially value added is negative, with spending on
design etc. and no sales
– Then value added is positive when sales on stream
– Sources of rise in value added is a residual so hard to
understand knowledge economy
• Alternative model
– Apple invests in knowledge capital asset by investing
in R&D, design, marketing
– Real GDP rises with more investment
– Innovation measured by more knowledge investment
Intangibles research programme
•
•
•
•
Settle on list of intangible assets
Measure investment in them
Calculate knowledge assets created
Incorporate into National Accounts
– Output side: additional value added
– Input side: additional input i.e. knowledge stock
• Hopefully gives
– Better GDP measure
– Better account of drivers of GDP
– Better account of knowledge economy
Relation of intangibles to innovation
• What is innovation?
– NESTA (2007) “change associated with the creation and
adoption of ideas that are new-to-world, new-to-nation/region,
new-to-industry or new-to-firm”
– Frascati “Technological innovation activities are all of the
scientific, technological, organisational, financial and commercial
steps, including investments in new knowledge, which actually,
or are intended to, lead to the implementation of technologically
new or improved products and processes”
– Oslo “A technological product innovation is the
implementation/commercialisation of a product with improved
performance characteristics such as to deliver objectively new or
improved services to the consumer. A technological process
innovation is the implementation/adoption of new or significantly
improved production or delivery methods. It may involve
changes in equipment, human resources, working methods or a
combination of these”
Intangibles and innovation, our
definition
• Innovation is about producing more output
– Not ideas, happiness etc.
• But what part of this new output is due to
innovation?
What part of extra output is due to innovation?
• Imagine an economy with no innovation
• How could we get more output? Ryanair
– Lay on another plane and another crew
– Deepening physical capital and labour = duplication
• How would we get more output from innovation?
– Faster boarding, turnaround: better software
– Deepening knowledge capital = innovation
• Summary: innovation is
– extra output over and above that from use of additional
physical capital and labour
– Or, the extra output from use of new knowledge capital
• So what do we measure?
• Measure growth in output (GDP), and in inputs: physical
capital, knowledge capital, labour
• Innovation accounts are data on knowledge investment
• Innovation index is contribution of knowledge investment to
output growth
How would this affect the iPod?
• Current method
– Inputs: Count scientific R&D only on separate survey
– Output/value added:
• No effect by assumption: all R&D used up in a year, no
enduring asset created or value added, so only an
intermediate
• Intangibles approach
– Count a wider range of inputs
• Upstream: more than just R&D
– Upstream spending also on design, software
• Downstream: need associated coinvestment
– Marketing, organisational change
– Output/value added
• Rises: spending is an enduring knowledge asset so its
investment
• Shows up as innovation spending on intangible
assets
Intangibles and innovation research
programme
• “Innovation accounting”
– Settle on list of intangible assets
– Measure investment in them
– Calculate knowledge assets so created
• Needs deprecation, price indices
• “Innovation index”
– Incorporate into National Accounts
• Output side: additional value added
• Input side: additional input i.e. knowledge stock
– Work out contribution of increased knowledge stock to
growth
• Needs elasticity of output with respect to labour, tangible
inputs, knowledge inputs
Algebra of including intangibles
Excluding intang:
Expenditure : V  C  I TAN
Income : pV V  wL  pKTAN K TAN
Growth a / c :  ln V  sL  ln L  sK TAN  ln K TAN   ln TFP
Innovation : II   ln TFP
Including intang:
Expenditure : V  INTAN  C  I TAN  I INTAN
Income :
pV V  INTAN  wL  pKTAN K TAN  pKINTAN K INTAN
Growth a / c :  ln V  INTAN  sL  ln L  sK TAN  ln K TAN  sK INTAN  ln K INTAN   ln TFP  INTAN
Innovation : II  sK INTAN  ln K INTAN   ln TFP  INTAN
List of intangible assets
(Corrado, Hulten, Sichel, 2005)
A. Computerized information
• Computer software (bought in, own account)
• Computer databases
B. Scientific and creative property
• Science and Eng R&D spending, usually leading to a patent/licence
• Mineral exploration (mostly R&D in oil and minerals)
• Artistic originals (mostly R&D in creating artistic originals)
• Other product development, design, research, usually not leading to a
patent/licence (I.e. non-scientific R&D spend)
– product devel costs in fin svcs
– architect and eng design
– R&D in soc sci and humanities
C. Economic competencies
• Brand equity (to develop reputation capital via branding or trademarks)
• Firm-specific human capital
• Organizational structure (organisational capital)
A. Computerized information
Method and data sources
Computerized information
Computer software
Purchased: via surveys. Own account: labour force data on
software professionals. Source: National Accounts
Computerized databases
Included
B. Scientific and creative property
Innovative property
Scientific R&D
Current expenditure on R&D from BERD. R&D in computer
industry subtracted
Mineral exploration
Mainly R&D in mining and spending on mineral exploration.
National Accounts
Copyright and license costs
Spending on creation of originals e.g. TV, movies, books.
National Accounts
Other product development, design and
research
20% of all intermediate purchase by Financial Services
New product development costs in the
industry, ONS data. Intermediate purchases reduced by
financial industry
purchases of adv, software, consulting and design.
New architectural and engineering
designs
Sales of architecture and design industry SIC 742, ABI data.
Own account using labour costs data.
R&D in social science and humanities
No broad statistical information. Estimated as twice industry
revenues of social science and humanities R&D industry
C. Economic competencies
Brand equity
Advertising expenditure
Total spending on advertising as reported by Advertising
Association, less expenditure on classified ads
Market research
Twice revenues of the market and consumer research industry
as reported in ABI.
Firm-specific human capital
NESS05, survey of employer provided training. Includes: A)
Direct firm expenses (in-house trainers, outside trainers, tuition
reimbursement, and outside training funds) B) Wage and
salary costs of employee time in training.
Organizational structure
Purchased
Data on revenues of managment consulting industry from
Management Consulting Assocation.
Own account
No broad statistical information. Estimated as 20% of value of
executive time using ASHE data on wages in executive
occupations, excluding software occupations.
Does it matter?
Industries
TABLE 1
Assignment of SIC codes and NACE1 sections to our 6 industries
Proposed sector categories
SIC code
1
Agriculture, Fishing and Mining
1 - 14
2
3
4
Manufacturing
Electricity, Gas and Water Supply
Construction
15 - 37
40 - 41
45
5
Wholesale and Retail Trade, Hotels and
Restaurants,
Transport
and
Communications
50 t- 64
Financial
Services
65 - 74
6
Intermediation
and
Business
A
B
C
D
E
F
G
H
I
J
K
NACE1 sections
Agriculture, hunting and forestry
Fishing
Mining and quarrying
Total manufacturing
Electricity, gas and water supply
Construction
Wholesale and retail trade
Hotels and restaurants
Transport
and
storage
and
communication
Financial intermediation
Real estate, renting and business
activities
Tan and intang invest by ind
T ot al t angible and int angible invest ment by indust ry, 1997-2005 (£ bn).
Agricult ure, F isihing &
Mining
Manufact uring
Elect ricit y, Gas &
Wat er
Const ruct ion
T rade, Hot els & Rest .,
T ransport & Comm.
F inancial & Business
Services
T ot al Market Sect or
T angibles
Int angibles
T angibles
Int angibles
T angibles
Int angibles
T angibles
Int angibles
T angibles
Int angibles
T angibles
Int angibles
T angibles
1997
7.2
2.5
19.8
26.1
5.3
1.1
1.9
3.2
30.8
17.6
16.1
25.1
81.0
Int angibles
75.6
2005
6.5
1.8
13.0
31.4
5.4
1.5
2.5
6.4
37.0
31.2
31.9
45.0
96.3
117.3
Intan investment by type (% total)
Software
14.3
Scientific R&D
7.9
9.6
0.4
Mineral exploration
Copyright licenses
16.0
0.3
0.2
0.2
Financial services innovation
5.2
6.4
6.3
Purchased architectural & engineering design
6.1
2000
11.1
Own-account architectural & engineering design
2004
12.0
0.4
R&D in social sciences and humanities
0.3
Advertising
9.1
10.4
1.8
Market research
2.6
22.4
Firm-specific human capital
15.0
Organizational structure
0.0
5.0
10.0
15.0
24.3
17.8
20.0
25.0
30.0
%
Intan investment by ind (% indVA)
20
18
16
14
%
12
10
8
6
4
2
0
1997
1998
1999
2000
2001
2002
2003
2004
2005
Agricult ure, Fishing & Mining
Manufact uring
Elect ricit y, Gas & Wat er
Const ruct ion
Trade, Hot els & Rest ., Transp. & Comm.
Financial & Business Services
Mkt sector intang invest, by asset
type
30
Soft ware
R&D
25
Mining
Copyright
20
£ bn
Finance
Design (purch.)
15
Design (ownacc.)
Non-scient ific
10
R&D
Advert ising
5
Market research
Training
0
Org. St ruct ure
1997
1998
1999
2000
2001
2002
2003
2004
2005
Decomposition of ALP
Excluding Soft ware
Including All
Int angibles
Growth Rates
2.81
2.80
Average labour product ivit y
2.74
2.74
Hours
0.08
0.07
Aggregat e Value-Added
Contributions
Average labour product ivit y
2.74
2.74
Capital Deepening
1.15
2.23
ICT T angible Capital Deepening
0.52
0.47
Non-ICT T angible Capital Deepening
0.63
0.58
-
1.19
Labour Qualit y
0.52
0.45
Aggregat e TF P
1.07
0.05
Int angible Capit al Deepening
Innovation index
All industries
Cont ribut ion of
Int angible
Capit al
Deepening
1.19
Cont ribut ion of
Aggregat e T F P
0.05
T ot al
1.24
1
2
3
4
5
6
Agricult ure, F ishing and Mining
Manufact uring
Elect ricit y, Gas and Wat er Su pply
Const ruct ion
T rade, Hot els & Rest ., T ransport & Comm.
F inancial Int ermediat ion and Business Services
0.01
0.54
0.02
0.08
0.29
0.25
-0.19
0.18
-0.02
-0.02
0.18
-0.08
-0.18
0.72
0.00
0.06
0.47
0.17
1
% o f co lum n t o t a ls
A griculture, Fishing and Mining
1%
-15%
2
Manufacturing
45%
58%
3
Electricity, Gas and W ater Supply
2%
0%
4
Construction
7%
5%
5
T rade, Hotels & R est., T ransport & Comm.
24%
38%
6
Financial Intermediation and Business Services
21%
14%
6
T otal
100%
100%
Future work: extended survey
Intangible
investment
type
Computerised
information
Innovative
property
Includes the following
intangibles
(1) Computer software
(2) Computer databases
(1) Scientific R&D
(2) Mineral exploration
(3) Copyright and license costs
(4) New product development costs in
the financial industry
(5) New architectural and engineering
designs
(6) R&D in social science and
humanities
Economic
(1) Brand Equity
competencies (2) Firm-specific human capital
(3) Organisational structure
Status
√
√
√
√
√
X
Part
√
Part
Part
X
Ongoing work
• Better measurement
– Spending on design, organisational capital, financial services
– Depreciation
– Current work: add-on module to official R&D questionnaire
• Cross country work
– FP7 project
• comparisons across EU and US countries
• Comparative
– Intang investment
– Effects on growth
– International comparisons of productivity levels
– Running extended R&D survey in other countries (France,
Sweden, Germany)