Solution Manual for Principles of Corporate Finance 14th Edition by Richard B...
Productivity Slowdowns and Inequality Speedups: What is the Role of Intangibles?
1. Productivity slowdowns and
inequality speedups: what is
the role of intangibles?
Jonathan Haskel, Imperial College Business School, Imperial College, London
www.imperial.ac.uk/people/j.haskel
@haskelecon; j.haskel@imperial.ac.uk
2016 Conference of the Global Forum on Productivity: Structural Reforms for Productivity Growth
Session 1: Sources and implications of the productivity slowdown, 7-8 July 2016 - Lisbon, Portugal
Features work from: SPINTAN (EUgrant No. 612774 ) with Carol Corrado, Cecilia Jona-Lasinio;
Book project with Stian Westlake www.theintangibleeconomy.com
5. Multiple crises confronting the world
economy…..
• Secular stagnation
• Financial regulation
• Inequality
• Political instability
• …need answers from Economists
• Two institutions leading the way…
6.
7. And
Source Chiara Criscuolo, 2015,
https://hbr.org/2015/08/productivity-is-soaring-at-top-
firms-and-sluggish-everywhere-else
8. The facts that need explaining
• Low investment with very low borrowing costs: secular stagnation?
(Summers)
• Low productivity growth (Gordon)
• Wage inequality rise (Katz, Autor, Piketty)
• Company inequality rise (OECD)
• (Political disaffection? OECD Productivity and Inclusiveness Nexus)
9. Preliminaries: have we made any progress on
understanding the labour productivity slowdown?
• Is the productivity slowdown “Keynesian”?
• Depressed animal spirits =>
• investment slowdown =>
• workers have less capital to work with =>
• Labour productivity slowdown
• What do the Conference Board say?
Source: The Conference Board Total Economy Database, 16 developed countries covered by the Conference Board Total Economy Database.
Countries are Austria (AUT), Belgium (BEL), Czech Republic (CZE), Denmark (DNK), Finland (FIN), France (FRA), Germany (GER), Hungary (HUN)
Ireland (IRL), Italy (ITA), Netherlands NLD), Portugal (PRT), Spain (ESP), Sweden (SWE), United Kingdom (UK) and the United States (USA).
10. Ok, so it’s a TFP slowdown..
• But that’s just finance and a big shock right?
12. Two other preliminaries
• Rise in company inequality
• Before the great recession
• Rise in income inequality
• For most (US) workers,
stopped rising in 2000
• Workers who have done
better have been in firms who
have done better i.e. higher-
paid workers are in firms with
higher-paid co-workers
Source: Song et al, (2015)
13. The facts that need explaining, revisited
• Low investment with very low borrowing costs: secular stagnation?
• Low total factor productivity growth, including in some of the successful
economies e.g. Scandinavia.
• Wage inequality rise (before great recession)
• Company productivity inequality rise (before great recession, and paying all
worker types higher wages)
• We also know that economies are getting more intangible intensive and did
so before the great recession.
• Question : what is the role of intangibles, if any, in explaining these facts?
16. Computerized
Information
Innovative
Property
Economic
Competencies
• Software development
• Database development
• R&D
• Mineral exploration
• Copyright development (artistic
originals)
• Design and other product
development costs
• Market research & advertising
• Business process investment
• Training & skill development
Intangible Assets
Broad category Type of Investment
Forms of
IPRs:
• Patent
• License
• Copyright
• Design IPR
• Trademark
IPRs/Codified
knowledge
Organizational
Type of Capital
Source: Corrado, Hulten and Sichel, 2005, 2009 and Carol Corrado, OECD/MIT presentation, NAS, December,
2012
17. Properties of intangibles
• (At least some) not measured in GDP.
• Implication: GDP too low since investment undermeasured. GDP and TFP growth slows
down if unmeasured investment is higher than measured GDP growth.
• Properties of intangibles- the four “S”s (Lev, CHS, Haskel/Westlake)
• Sunk
• Scalable
• Spillovers
• Synergies
• Implications:
• Sunk: financing difficulties
• Spillovers: if intangible investment falls, TFP growth falls; and by more in intangible-intensive
economies
• Scalable: intangible-intensive companies get relatively larger => frontier gap gets bigger
• Synergies: potentially large wage gains for intangible capital owners
• Do mismeasurement and 4S properties of intangibles help explain the data?
18. What has happened to investment over the
Great Recession?
Source: Figure 7, of OECD (2015), The Future of Productivity., based on
www.intan-invest.net
The OECD were the first to spot this…
19. The pattern of investment has changed…with
tangibles not recovering but intangibles more
resilient…
Source: Author calculations, using SPINTAN database
20. And the EU is lagging …
Source: Author calculations, using SPINTAN database
21. Spillovers: the slowdown in R&D capital growth
correlated with slowdown in TFP growth…
Mis-measurement: R&D spend slowed, but GDP
slowed more, so value added growth understated:
correlated with slowdown in TFP growth…
Implications of intangibles: spillovers and mis-measurement
Source: The Conference Board Total Economy Database and www.intan-invest.net
22. Theory predicts greatest impact in most intangible-
intensive countries…
Source: The Conference Board Total Economy Database and www.intan-invest.net
23. Implications of intangibles: scalable
• Are intangibles worsening the productivity gap between leading firms and
laggards? (Haskel and Westlake)
• Tangible-intensive industries
• constant returns,
• successful companies expand, but are no more productive. Frontier gap stays the
same
• Intangible-intensive industries, scalable,
• Increasing returns
• successful companies expand and get more productive. Frontier gap widens
• Test: Productivity gap should widen in more intangible-intensive industries
24. Finding: productivity
spread has risen the
most in intangible-
intensive industries.
And if these firms pay
higher wages to all
workers, wage inequality
rises too.
Source: Haskel and Westlake, 2016, using data from SPINTAN and Distributed Microdata project
25. Growth and inclusiveness :
Haskel/Westlake why the intangible economy makes people vote for Brexit
• It was the economy…
https://next.ft.com/content/1ce1a720-ce94-3c32-a689-8d2356388a1f
http://www.resolutionfoundation.org/wp-
content/uploads/2016/06/brexit2-1.png
…but was it?
26. ..it was also values?
• “Traditional” values
versus
“cosmopolitan” values
• Cosmopolitan values? From
psychology literature maybe
associated with personality traits:
• openness to experience.
• agreeableness
• Are these the types of workers who
can potentially succeed in an
intangible economy (benefit from
spillovers and synergies)?
27. Summary
• Key facts to explain
• TFP slowdowns and inequality speedups
• TFP falls are in some of the most previously successful countries e.g. Scandinavia.
• Are intangibles part of the story?
• Intangible investment fell in Great Recession, then grew more slowly
• But recovered faster than tangibles and GDP
• Implications
• GDP growth too low since investment more mis-measured => TFP growth falls
• Fewer spillovers => TFP growth falls
• And: both effects magnified in intangible-intensive countries
• Intangible-intensive firms scale up and frontier breaks away
• Political economy: are we leaving certain worker types behind? Who won’t
support globalisation?
http://www.e-axes.com/content/breakdown-productivity-diffusion
The famous Figure 11
Wrong. No correlation and note the slowdown is not in the basket case economies
3 broad categories, 9 asset types
e.g., UK innovation surveys find patents are the least used means of protecting innovation.
At the top is lead time, followed by confidentiality agreements and secrecy.
neuroticism, extraversion, openness to experience, agreeableness, and conscientiousness
https://en.wikipedia.org/wiki/Big_Five_personality_traits
openness to experience, conscientiousness, extraversion, agreeableness, and neuroticism,