Private and Public Intangible Capital in the US and EU Economies: Recent Trends and New Policy Challenges

1. Private and Public Intangible Capital in the US and EU
Economies:
Recent Trends and New Policy Challenges
C. Jona-Lasinio, (LUISS Lab and ISTAT), Rome
C. Corrado, (The Conference Board), New York
J. Haskel, (Imperial College, CEPR and IZA), London
K. Jaeger, (The Conference Board), Bruxelles
M.Iommi, (LUISS Lab and ISTAT), Rome
WPIA - OECD
12-13 October 2015, Paris
This project has received funding from the European Union’s Seventh Framework Programme for
research, technological development and demonstration under grant agreement No. 612774
C. Jona-Lasinio SPINTAN 1 / 28

2. Outline
• SPINTAN (www.SPINTAN.net): our aim and progresses
• Conceptual issues and main measurement challenges
• Recent trends of public and private intangible investments in the
US and EU economies
• Sources of growth in the total economy
• Policy challenges and next steps
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3. The economic view of intangibles
• Taking seriously intangibles drastically changes our view of how
the rise of the knowledge economy impacts on growth and
productivity
• The economic view of intangibles asks for a deep investigation of
the channels through which public and private intangible
investment affect productivity growth.
• Integrating the impact of intangibles on growth in the total
economy is tricky
• Spillovers and complementarities across assets and sectors are difficult to
measure and hard to convey.
• The first step is to generate harmonized measures of intangibles
across sectors and countries
• Corrado, Hulten and Sichel (2005) developed the measurement framework for
intangibles in the market sector.
• Corrado, Haskel and Jona-Lasinio (2014) proposed a framework to measure
intangible investment in the nonmarket sector.
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4. Knowledge based capital in the total economy
Mapping the CHS assets to the nonmarket sector
and consumer product and food and drug safety (i.e, investments in product reputation). The
correspondence for computer software, purchased investments in organizational capital, and
function-specific worker capital (employer-provided training) is of course far closer.
Table 3: Knowledge Capital in a Total Economy
Market Sector Nonmarket Sector
Computerized Information Information, Scientific, and Cultural Assets
1 Software 1 Software
2 Databases 2 Open data
Innovative Property
3 R&D, broadly defined to 3 R&D, basic and applied science
include all NPD costs
4 Entertainment & artistic originals 4 Cultural and heritage, including
5 Design arch. & eng. design
6 Mineral exploration 5 Mineral exploration
Economic Competencies Societal Competencies
7 Brands 6 Brands
8 Organizational capital 7 Organizational capital
(a) Manager capital (a) Professional and manager capital
(b) Purchased organizational services (b) Purchased organizational services
9 Firm-specific human capital 8 Function-specific human capital
(employer-provided training) (employer-provided training)
Note—NPD=New Product Development, including testing and spending for new financial products
and other services development not included in software or conventional science-based R&D.
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5. Conceptual framework (Corrado, Haskel, Jona-Lasinio(2014))
Asset typology and SPINTAN topics
4
Types of capital
Knowledge capital
Intangible assets
Physical capital
Tangible assets
Human capital
Human assets
HEALTH and EDUCATION
CULTURE and the ARTS
SCIENCE and the economy
INFORMATION and the economy
Impacts, links, and synergies across
asset types are topic dependent
Topics of interest
The conceptual framework for the measurement of public intangibles is formulated with
the analysis of certain topics in mind: health and education, culture and the arts, science
and the economy, and information and the economy (i.e., not the environment, not mass
transport, etc.).
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6. The scope of intangible assets used by the public sector:
industries of interest
laboratories, public parks and museums) in many countries; see table 1 below. The use of “mar-
ket” vs. “nonmarket” groupings of industries is thus not precise because an industry can reflect
activity carried out by a mix of producers, as is evident with NACE Section R and the larger
section of which NACE Section MB is a part.4
Table 1: SPINTAN Industries of Interest
nace nace
section Industry title number
MB Scientific research and development 72
O Public administration and defence; compulsory social security 84
P Education 85
QA Human health activities 86
QB Residential care and social work activities 87-88
R Creative, arts and entertainment activities;
libraries, archives, museums and other cultural activities 90-91
Gambling and betting activities;
sports activities and amusement and recreation activities 92-93
Note—NACE Rev. 2.
Before we leave the subject of NACE-defined industries, it must be said that in some countries
there are industries with significant government or nonmarket production besides those listed
in table 1. These tend to be industries that engage in activities not germane to our topic areas,
Besides Public administration and defence, other industries in the
table contain a mix of market and nonmarket producers.
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7. Multiple measurement dimensions of Public intangibles
!CHS!intangible!assets!
Nonmarket!sector!4!industries!
!Informa9on,!
Scien9fic!and!
Cultural!assets!
Societal!
Competencies!
NA!intangibles!(So$ware,*
R&D,*Mineral*explora4on)*
Non!NA!intangibles!(Open*
data,*Cultural*and*heritage,*
including*design,*Brands,*
Organiza4onal*capital,*
Func4onBspecific*human*
capital)*
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8. Aim
Complete the coverage of intangible investment by industry making
possible analysis of productivity for the total economy based on a
complete accounting of intangible capital inputs.
• Existing measures of intangible investment, INTAN-Invest, cover
a subset of industries: the market sector
• SPINTAN covers the nonmarket sector
New conceptual and measurement challenges
• Identify the asset boundary in the total economy
• Impute a rate of return to public capital formation
• Investigate behavioural link public to private and vice versa (e.g.
role of public sector R&D on private sector)
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9. The SPINTAN database
• SPINTAN will deliver (December 2016) estimates of public
intangible investment by industry and institutional sector for 22
European economies plus the US, China, India and Brazil for the
years 1995-2013.
• The data will be cross-country harmonized and consistent with
the National Accounts (NA) principles and with business sector
estimates of intangibles developed by INTAN-Invest
(www.INTAN-Invest.net)
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10. Data description
Descriptive analysis will focus on 3 sets of data
• Descriptive analysis (1995-2010)
• CHS type assets for 22 EU countries and the US
• CHS type assets - Non-National Accounts for
10 EU countries and the US
• Sources of growth analysis in the total economy (1995-2009)
• CHS type assets for 5 EU countries
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11. New issues to be investigated....
• What is the magnitude of overall intangible investment in the
total economy?
• Does the non-market sector is relatively more or less intangible
intensive than the market sector?
• What are the linkages between nonmarket and market intangibles?
• What is the productivity contribution of intangible capital in the
market and nonmarket sectors?
• Market and nonmarket intangibles over the business cycle
• Do Non-NA intangibles are relevant?
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12. Public intangibles matter
Public intangible investments (GDP shares)
0.0#
0.2#
0.4#
0.6#
0.8#
1.0#
1.2#
1.4#
1.6#
1.8#
AT# BE# BG# CZ# DE# DK# EL# ES# FI# FR# HU# IE# IT# LU# NL# PL# PT# RO# SE# SI# SK# UK# US#
2000# 1.0# 0.8# 0.3# 0.9# 0.6# 0.4# 0.2# 0.2# 0.6# 0.3# 0.6# 0.9# 0.9# 0.2# 0.8# 0.4# 0.3# 0.1# 0.5# 0.5# 0.9# 0.9# 1.4#
2010# 1.1# 1.0# 0.2# 0.9# 0.9# 0.6# 0.2# 0.4# 1.0# 0.4# 0.6# 0.9# 1.1# 0.2# 1.2# 0.5# 0.3# 0.1# 0.5# 0.6# 0.5# 1.4# 1.7#
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13. Nonmarket and market Non-NA intangible shares of GDP
Overall (market and nonmarket) Non-NA intangible investment account for 7% to 3% of
GDP with private and public sectors accounting on average for 5% and 0.6% respectively.
0.0#
1.0#
2.0#
3.0#
4.0#
5.0#
6.0#
at# de# es# be# fi# fr# it# nl# se# uk# us#
NMKT# 0.3# 0.4# 0.2# 0.6# 0.7# 0.4# 0.5# 0.6# 0.6# 1.0# 1.2#
MKT# 3.5# 3.7# 2.5# 4.8# 3.2# 4.1# 2.9# 4.5# 4.1# 5.0# 5.3#
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14. Non-Na intangible shares of nonmarket and market value added
Intangible intensity varies considerably across countries with most advanced economies
( US, UK and FI) more intensive in the nonmarket sector. In the remaining countries it is
the opposite (for these assets).
NMKT%
MKT%
0.0%
1.0%
2.0%
3.0%
4.0%
5.0%
6.0%
7.0%
8.0%
9.0%
10.0%
es% at% fr% de% nl% se% be% it% fi% us% uk%
NMKT% 1.7% 2.7% 3.3% 4.2% 4.5% 4.7% 4.9% 4.9% 7.2% 9.5% 9.5%
MKT% 3.5% 5.0% 6.9% 5.5% 6.6% 6.8% 7.1% 4.3% 4.8% 7.6% 7.4%
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15. Nonmarket and market Non-NA intangible investment (1995-2010)
Nonmarket and market intangible intensities are positively correlated.
AT#
DE#
ES#
BE#
FI#
FR#
IT#
NL#
SE#
UK#
US#
0.00#
0.20#
0.40#
0.60#
0.80#
1.00#
1.20#
1.40#
1.50# 2.00# 2.50# 3.00# 3.50# 4.00# 4.50# 5.00# 5.50# 6.00#
NonMarket#intangible#investments#(%GDP)#
Market#intangible#investment#(%#of#GDP)#
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16. Non-NA intangible investment and GDP per capita (1995-2010)
...and public intangible intensity is positively correlated with the level
of economic development
AT#
DE#
ES#
BE#
FI#
FR#
IT# NL#
SE#
UK#
US#
0.0#
5.0#
10.0#
15.0#
20.0#
25.0#
25000# 30000# 35000# 40000# 45000# 50000#
Non#Market/Market#intangible#investments#
GDP#Per#capita#(EKS#US#$#2010)#
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17. Non-NA intangible investment and GDP per hours worked (1995-2010)
...also measured as GDP per hours worked
AT#
DE#
ES#
BE#
FI#
FR#
IT#
NL#
SE#
UK#
US#
0.0#
5.0#
10.0#
15.0#
20.0#
25.0#
35.0# 40.0# 45.0# 50.0# 55.0# 60.0#
Non#Market/Market#intangible#investments##
GDP#per#hours#worked#
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18. GDP shares of market and nonmarket intangibles
over the business cycle: (1995-2007) vs (2007-2010)
!4.0%
!3.0%
!2.0%
!1.0%
0.0%
1.0%
2.0%
3.0%
4.0%
5.0%
6.0%
at% de% es% be% fi% fr% it% nl% se% uk% us%
GDP%shares%of%market%and%nonmarket%intangible%
investment:%1995!2007%
(%#changes)#
MKT$ NMKT$
!6.0%
!4.0%
!2.0%
0.0%
2.0%
4.0%
6.0%
8.0%
at% de% es% be% fi% fr% it% nl% se% uk% us%
GDP%shares%of%market%and%nonmarket%intangible%
investment:%2007!2010%
(%#changes)%%
Intangible investment has been marginally impacted by the financial
crisis and nonmarket intangibles even less compared to market
intangibles!
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19. What are the main drivers of non-NA intangible investment?
Organizational capital accounts for the largest share of intangible
investment both in the nonmarket (45%) and market (35%) sector.
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20. Organizational capital: shares in total market and nonmarket
intangible investments
On average purchased OC accounts for a larger share both in
nonmarket and market sectors but shares varies considerably across
countries and sectors.
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21. Return to nonmarket capital
• Once we have capitalized public intangibles we want to evaluate
their contribution to productivity growth.
• To achieve this goal we need to impute a net return to public
investments.
• A SPINTAN background paper by (Corrado and Jaeger, 2015)
explores using the social rate of time preference (Feldstein, 1964;
OECD 2009) as a relevant alternative for imputing a rate of
return to government capital.
• But at this stage we adopt the national accounts assumption of a
zero nonmarket sector rate of return.
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22. Sources of growth analysis
• Adding national accounts intangibles (R&D, software, and artistic
and entertainment originals plus mineral exploration) to the
SPINTAN and INTAN-Invest measures of intangibles we are able
to look at a fairly complete picture of intangible inputs to total
production across a sample of advanced countries:
• Finland, Germany, Italy, Spain, and the United Kingdom
• Data sources: SPINTAN, INTAN-Invest and EUKLEMS
• Contributions to labour productivity growth of market and
nonmarket sectors.
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23. Contributions to Labour Productivity Growth:1995-2009
The performance of advanced economies differs widely according to market versus
nonmarket sector. In Germany, UK and Finland intangible capital is an important source
of growth for the public sector.
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24. Contributions to Labour Productivity Growth:
1995-2007 vs 2007-2009
At the very beginning of the financial crisis, intangible capital
positively supported labour productivity growth of both market and
non-market sectors in the advanced economies.
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25. Summing up
• Intangible capital accounts for one-fifth to one-third of labor
productivity growth in the market sector of the US and EU
economies
• ....and for one-third of labor productivity growth in the nonmarket
sector in the EU economies
• Intangibles appear to be counter cyclical particularly in the
nonmarket sector
• Organizational capital is a key asset in this framework
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26. Policy challenges
• A primary characteristic of intangible capital, widely supported by
growth accounting exercises and macroeconomic studies, is to be
growth-promoting.
• This is because intangible investments likely generate spillovers to
the economic system being non-rival and possibly non-excludable.
Such spillovers, if they exist, might be within the private sector
and/or between the public and private sector.
• In the light in particular of the claim and counter-claim around
public sector austerity and fiscal policy in Europe, it would be
vital to know which, if any, public sector intangibles had positive
spillovers to the rest of the economy.
• If intangibles is the main story, the focus is long-term, not
short-term requiring bigger policy commitments.
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27. SPINTAN: Next steps
• Generate real measures of public intangible investments and net
capital stocks.
• Impute a rate of return to nonmarket capital.
• Provide a deep investigation of mechanisms trough which the
synergies between Public and Private sector affect economic
growth.
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28. Thank you
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