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


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

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

  1. 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. 2. Outline • SPINTAN ( 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 C. Jona-Lasinio SPINTAN 2 / 28
  3. 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. C. Jona-Lasinio SPINTAN 3 / 28
  4. 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. C. Jona-Lasinio SPINTAN 4 / 28
  5. 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.). C. Jona-Lasinio SPINTAN 5 / 28
  6. 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. C. Jona-Lasinio SPINTAN 6 / 28
  7. 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)* C. Jona-Lasinio SPINTAN 7 / 28
  8. 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) C. Jona-Lasinio SPINTAN 8 / 28
  9. 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 ( C. Jona-Lasinio SPINTAN 9 / 28
  10. 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 C. Jona-Lasinio SPINTAN 10 / 28
  11. 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? C. Jona-Lasinio SPINTAN 11 / 28
  12. 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# C. Jona-Lasinio SPINTAN 12 / 28
  13. 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# C. Jona-Lasinio SPINTAN 13 / 28
  14. 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% C. Jona-Lasinio SPINTAN 14 / 28
  15. 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)# C. Jona-Lasinio SPINTAN 15 / 28
  16. 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)# C. Jona-Lasinio SPINTAN 16 / 28
  17. 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# C. Jona-Lasinio SPINTAN 17 / 28
  18. 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! C. Jona-Lasinio SPINTAN 18 / 28
  19. 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. C. Jona-Lasinio SPINTAN 19 / 28
  20. 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. C. Jona-Lasinio SPINTAN 20 / 28
  21. 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. C. Jona-Lasinio SPINTAN 21 / 28
  22. 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. C. Jona-Lasinio SPINTAN 22 / 28
  23. 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. C. Jona-Lasinio SPINTAN 23 / 28
  24. 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. C. Jona-Lasinio SPINTAN 24 / 28
  25. 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 C. Jona-Lasinio SPINTAN 25 / 28
  26. 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. C. Jona-Lasinio SPINTAN 26 / 28
  27. 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. C. Jona-Lasinio SPINTAN 27 / 28
  28. 28. Thank you C. Jona-Lasinio SPINTAN 28 / 28