Transcript Haskel_Sofia_July10

Intangibles, Innovation & Growth;
Theory and Evidence
Jonathan Haskel
Imperial College Business School, Imperial
College London
[email protected]
COINVEST Sofia seminar, July 2010
COINVEST is a European Commission Framework 7 project funded under
the Socio-economic Sciences and Humanities theme: www.coinvest.org.uk
Innovation for the iPhone era:
summary of COINVEST project
• Objective: better understanding of growth and innovation
• What drives growth and innovation?
– Henry Ford economy: machines = “tangible capital”
– iPhone economy: knowledge = “intangible capital”
• What “intangible capital” is behind the iPhone?
– Some R&D
– But also: design, software, marketing, business organisation etc.
• So what has COINVEST done?
– Measured wider set of intangible assets across 7 countries for the
market sector
– Integrated such measures with National Accounts
– Calculated effects of intangible investment on productivity and
growth
– Backed with micro studies
• To understand why this is new, some history behind
intangible studies
The intangibles agenda
• What drives growth?
– Using more of existing factors = factor accumulation
– Using existing factors better or developing new ones
= new ideas = innovation
• Traditional approach
– Account for output by
• Factor accumulation: in practice tangible factors
• Labour quality
• Innovation = the residual: that is, the increase in output that
cannot be explained by increases in tangible inputs
The intangibles agenda, 2
• Strength of growth accounting framework
– Conditional on assumptions, consistent account of growth
– Linked with core economic and national accounting measures,
e.g. GDP
– Link with economic theory means provides framework for
evaluating where private and social returns differ = policy
framework
– Very successful in understanding the ICT revolution
• Weakness of framework
– Relies on strong (?) assumptions
– Measurement issues formidable
– Account of innovation in the traditional approach (output, tangible
capital, labour quality) not strong:
• Has to be freely available knowledge
• Policy makers and non-economists find residual approach
unsatisfactory
•
The intangibles agenda, 3
Dissatisfaction with the residual moved innovation focus to
– Patents
– Innovation surveys and innovation indicators
– Innovation scoreboards
•
Growth accounting focus became
– IT revolution
– R&D
•
•
Innovation literature became rather disparate…
Many IT papers very much in growth accounting framework
– Backed by theory, strong measurement focus: core questions (did IT earn normal
market returns?)
•
Much other innovation work
– Patents work v detailed but
• Subset of innovation
• Citations data noisy
• Changes in registration methods affect time series
– Innovation survey work wider than just R&D, but
• Disconnected with other measures e.g. problems with time series
•
Hanging over this is feeling that innovation process has changed
–
–
–
–
Strongly related to IT, but broader e.g. organisational change
User innovation
Open innovation: companies innovating without patents
Innovative sectors are retailing, banking, airlines
The intangibles agenda, 4
• The Corrado, Hulten, Sichel approach: extend the boundaries of
growth accounting to more intangible assets besides R&D
– Software
– Innovative property
• R&D
• Design
• Financial services product development
– Economic competencies
• Marketing
• Training
• Firm organisational capital
• Timely because
– Fits with idea that innovation is more than just a residual
– Fits the ICT revolution intuition that implementing ICT needs coinvestment in branding, new organisations etc.
– Keeps the discipline of outputs and inputs
– Fits with the broader innovation idea…
Innovation in the modern era
• The iPhone:
– R&D and patents. But:
– Software, Design, Marketing and reputation,
• Low cost airlines
– No R&D, no patents. But:
– Software, branding, business process
• Financial services
– No R&D, no patents. But:
– Non R&D product development, software, branding,
business process, training
Intangibles: some strengths
• Intangibles framework passes tests of
– these innovations in the framework, including
spillovers (important in banking and airlines)
– Integrated with price and quantity systems
– Can evaluate policies e.g. policy suggestion
tax credit for software?
– Helps with Europe2020 measurement
ambitions
Intangibles: more data needed on:
• Intangibles framework needs assumptions on:
– List of assets and how to measure their spending
• Most existing surveys not set up to measure
• We think own-account very important so needs detailed
questionnaires e.g. time allocation in OECD software method
– Intangible asset and user cost deflators
• Intangibles often not traded, no observable asset or user cost
prices
– Incorporation into growth accounting
• Needs assumptions on depreciation and competition
Intangibles: the to do list
• Micro questionnaires
– New ONS questionnaire, extends R&D survey (slides below)
• Intangible depreciation
– Evidence from new ONS questionnaire (slides below)
• Intangible asset prices
– New work on inferring intangible prices from downstream
industries (joint work in progress with Carol Corrado and Peter
Goodridge)
• Policy analysis (slides below)
– Do intangibles close the productivity gap?
– The role of public sector R&D
– Cross country studies of policy indicators and intangibles
Some results
• Some macro results
– Investment in intangibles
– Effects on growth
– Cross-country comparisons
• Some micro results
– New questionaires
Tangible and Intangible Investment, 2006
(% market sector GDP, COINVEST + other countries)
25.00
20.00
15.00
10.00
5.00
0.00
Tangible Investment
Intangible Investment
Ratio intang/tang investment
1.6
1.4
1.2
1
0.8
0.6
0.4
0.2
0
Investment by intangible asset
(share in GDP, 2005 selected countries)
Software and databases
R&D and other intellectual property products
Brand equity, firm training, organisational capital
14
12
10
4.44
5.86
8
3.58
1.98
1.41
0.73
1.43
1.42
US
UK
0
3.18
5.48
3.27
2.23
0.83
Portugal
2
2.84
Germany
4
5.36
3.30
France
6.07
3.48
Sweden
6
Japan
%GDP
2.81
4.73
2.90
Growth accounting
(selected countries, 1995-06)
%
4.5
Labour quality
Physical capital deepening
Multifactor productivity
Intangible capital deepening
4.0
3.5
1.30
3.0
0.69
2.5
2.0
0.82
0.90
0.33
1.23
1.5
0.30
0.64
0.22
0.18
US
0.91
0.5
0.0
0.95
1.40
UK
1.0
1.33
0.83
0.48
0.37
0.69
0.88
0.43
0.40
0.68
-0.15
Germany
France
Japan
Sweden
-0.5
Intangible Investment (% GDP)
Intangible Investment and GDP per Capita
(2001-04)
14.00%
JP
UK
12.00%
10.00%
8.00%
FI
SE
FR
CZ
6.00%
IT
DE
ES
4.00%
US
AU
NL
DK
AU
SK
2.00%
EL
0.00%
0
10000
20000
30000
40000
50000
GDP per capita (PPP $)
Source: Hao et al. (2009) for Germany, France, Italy and Spain; CHS (2009) for the US , Marrano et al. (2009) for
the UK, Jalava et al. (2007) for Finland, Fukao et al. (2009) for Japan, Edquist (2009) for Sweden, Van RooijenHorsten et al. (2008) for the Netherlands and Barnes and McClure (2009) for Australia. GDP per capita is from the
Total Economy Database of The Conference Board.
intan inv (%gdp)
Intangibles and Barrier of
Enterpreneurship
14.00%
US
12.00%
UK
JP
SE
10.00%
FI
8.00% AU
NL FR
DE
DK
6.00%
IT AT CZ
4.00%
2.00%
EL
0.00%
0
20
40
ES
SK
60
80
days required to open a business
100
120
Intangibles and R&D in Gov Budget
14.00%
intan inv (%gdp)
12.00%
SE
10.00%
JP
US
UK
DK NL FR
DE
CZ AT IT
ES
8.00%
6.00%
4.00%
SK
2.00%
EL
0.00%
0
0.5
1
1.5
2
2.5
3
R&D as a % of gov budget
Source: Hao et al. (2009) for Germany, France, Italy and Spain; CHS (2009) for the US , Marrano et al. (2009) for the UK,
Jalava et al. (2007) for Finland, Fukao et al. (2009) for Japan, Edquist (2009) for Sweden, Van Rooijen-Horsten et al. (2008)
for the Netherlands and Barnes and McClure (2009) for Australia. R&D as a share of governmetn budget is from Eurostat.
Development of micro evidence
• Main micro data on intangible investment
– Software (purchased) from purchase inquiries
– R&D from R&D surveys
• We want to be broader than this
– EU innovation surveys
• Some ask intangible spending questions
• But mostly poorly drafted and answered
– UK effort: to extend the UK R&D survey
UK Intangible Investment Survey
• Survey
– Conducted by ONS in October 2009
– Voluntary postal survey of 2,004 UK companies with ten or more
employees across the production and service sectors. Response
rate 42%
– Stratified by industry and employment
– Linkable via business register
• Questions
– Firms’ spending on main intangible assets: R&D, software,
training, branding, design, organisation or business process
improvement
• Own account and
• Bought in
– Life lengths
• Priorities
– Ask for own account data
– Linked to business register
Layout of questionnaire
Assets divided into sections
Each section has a filter question which
defines the asset with examples
Then asks purchased and ownaccount
Finally life lengths
% of respondent firms conducting intangible
investment by asset category
40%
Percent of firms conducting intangible asset
35%
35%
30%
30%
25%
22%
20%
15%
13%
10%
10%
8%
5%
0%
Training
Software
Reputation & Branding
R&D
Design
Business Process
Improvement
Asset Category
• Confirms: non-R&D intangible spending is much more widespread than R&D
spend
Total expenditure by category (£m), weighted
to give estimates of UK totals
12000
10000
In-house
Purchased
Total expenditure (£m)
8000
2732
7716
4864
6000
4700
4000
6433
4366
2000
3616
2360
728
847
309
0
Training
Software
Reputation & Branding
R&D
asset Category
•
Observe importance of in-house spending
Design
649
Business Process
Improvement
Average benefit lives by asset (years)
5.0
4.6
4.2
4.0
Average benefit lives (years)
4.0
3.2
3.0
2.8
2.7
2.0
1.0
0.0
Training
Software
Reputation & Branding
R&D
Design
Business Process
Improvement
Asset Category
• Findings
– All are > 1 year
– If we include time to development and implement,
R&D is longer
Summary
• Intangible investments are structured way
of thinking about growth and innovation
• Becoming part of measurement systems
anyway
– Software treated as investment
– R&D to be so treated
• Need new questionnaires: some being
developed
Spares
Accounting for knowledge in growth
• Is knowledge becoming more “important” in the Economy?
• Computers, iPods, etc. it feels like it! Can we be more precise? How do we think
about growth?
• Proximate causes and ultimate causes
• Proximate:
•
•
Ryanair. Machines and workers.
How do you get more? Either:
• Duplicate: more planes, more crew.
• Innovate: more ideas
• So proximate drivers of growth are:
•
•
•
More capital (planes)
More labour (crew, check in)
More ideas (fast boarding, arranging rostering)
• Ultimate drivers are determinants of these
•
•
Corruption and appropriation
Schooling investment etc.
Sunday, March 27, 2016
30
So, what drives growth? Capital,
labour, ideas?
• Measurement
•
We need to measure the contribution of the quality adjusted stock of capital and
labour
• Capital: computers, better planes
• Labour: better educated
•
Measuring ideas is very hard. So do this as a residual i.e.
• Ideas contribution = output growth minus labour and capital input growth
• OR: output growth
= contribution of labour and capital input growth
+ ideas contribution (total factor productivity)
• How much are these relative contributions?
• Start by looking at developing countries
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31
How exactly do we do the
calculation? Growth accounting
Start with a very stylised model of production
Output = TFP  Capital Stocka  Labor Hours(1-a)
Features
• breaks out contribution of ideas, labour, capital
• diminishing marginal returns
• constant returns to scale
• Easy form for growth rates (changes in ln)
% ch in output
= % change in TFP
+ a*(% change in Capital Stock)
+(1-a)*(% change in Labor Hours)
Sunday, March 27, 2016
32
Three sector model
Intang as intermediates
(a) Intangible sector : N t  F N ( LN ,t , K N ,t , t ); Pt N N t  Pt L LN ,t  Pt K K N ,t
Kt  It  (1   K ) Kt 1
(b) Tangible sector : I t  F I ( LI ,t , K I ,t , N I ,t , t ); Pt I I t  Pt L LI ,t  Pt K K I ,t  Pt N N I ,t
(c) Consumption sector : Ct  F C ( LC ,t , K C ,t , N C ,t , t ); Pt C Ct  Pt L LC ,t  Pt K K C ,t  Pt N N C ,t
GDP: Pt QQt   a ,b ,c VA  Pt C Ct  Pt I I t  Pt L Lt  Pt K K t
Intang as investment
Kt  It  (1   K ) Kt 1
(a) Intangible sector : N t  F N ( LN ,t , K N ,t , RN ,t , t ); Pt N N t  Pt L LN ,t  Pt K K N ,t  Pt R RN ,t
Rt  Nt  (1   R ) Rt 1
(b) Tangible sector : I t  F I ( LI ,t , K I ,t , RI ,t , t ); Pt I I t  Pt L LI ,t  Pt K K I ,t  Pt R RI ,t
(c) Consumption sector : Ct  F C ( LC ,t , K C ,t , RC ,t , t ); Pt C Ct  Pt L LC ,t  Pt K K C ,t  Pt R RC ,t
GDP: Pt Q Qt   a ,b ,c VA  Pt C Ct  Pt I I t  Pt N N t  Pt L Lt  Pt K K t  Pt R Rt
Lesson: a. GDP rises
b. international productivity comparisons change
Sources of growth with intangibles
Excluding intang:
Growth a / c :  ln V  sL  ln L  sK TAN  ln K TAN   ln TFP
Innovation index : II   ln TFP
Including intang:
Growth a / c :  ln V  INTAN  sL  ln L  sK TAN  ln K TAN  sK INTAN  ln K INTAN   ln TFP  INTAN
Innovation index : II  sK INTAN  ln K INTAN   ln TFP  INTAN
Lessons: a. productivity growth changes
b. TFPG changes
c. “innovation” changes