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Private and Public Intangible Capital Productivity Growth and New Policy Challenges

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Private and Public Intangible Capital Productivity Growth and New Policy Challenges

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Private and Public Intangible Capital Productivity Growth and New Policy Challenges

  1. 1. Private and Public Intangible Capital: Productivity Growth and New Policy Challenges C. Jona-Lasinio, (LUISS Lab and ISTAT), Rome joint with C. Corrado, (The Conference Board), New York J. Haskel, (Imperial College, CEPR and IZA), London M.Iommi, (LUISS Lab and ISTAT), Rome Innovation & Growth, a process entangling public and private sectors 17-18 September 2015, Como 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 / 21
  2. 2. Motivation I "We will be more likely to promote innovative activity if we are able to measure it more effectively and document its role in economic growth" Ben Bernanke, May 2011 Speech in Washington DC at Athena Alliance/OECD Conference C. Jona-Lasinio SPINTAN 2 / 21
  3. 3. Defining intangible assets Computerized Information Innovative Property Economic Competencies • Software • Databases • R&D • Mineral exploration • Entertainment and artistic originals • Design and other new product development costs • Branding (mkt. research and long-lived advertising) • Firm-specific human capital (training) • Organizational capital (business process investment) Broad&category&&&&&Type&of&Investment&&&&&&&&&&&&&&&&& The$CHS$framework$ Non-R&D intangibles: what are they? Source: Corrado, Hulten and Sichel (2005) C. Jona-Lasinio SPINTAN 3 / 21
  4. 4. Intangibles vs tangibles 0.0# 2.0# 4.0# 6.0# 8.0# 10.0# 12.0# 14.0# EU15# US# Scandinavian#(DK,# FI,#SE)# Anglosaxon#(IE,UK)# ConAnental#(AT,#BE,# FR,#DE,#LU,#NL)# Mediterranean#(GR,# IT,#PT,#ES)# Tangibles# 10.6# 9.0# 11.2# 9.4# 9.9# 12.5# Intangibles# 6.6# 10.62# 7.86# 8.71# 6.89# 4.21# Tangible#vs#Intangible#GDP#shares:#1995R2009! (average!values)! Source: Corrado, Haskel, Jona-Lasinio, Iommi(2012) C. Jona-Lasinio SPINTAN 4 / 21
  5. 5. Intangibles vs tangibles Longer-term, intangible capital will gradually overtake tangible capital, fundamentally changing our perspective on growth .04 .06 .08 .10 .12 .14 1977 1980 1983 1986 1989 1992 1995 1998 2001 2004 2007 2010 Investment, Private industries, 1977 to 2011 (ratio to existing GDP) Intangible Tangible Excludes real estate/housing. Source—Corrado and Hulten (2010, 2012).Source: Corrado and Hulten (2010, 2012) C. Jona-Lasinio SPINTAN 5 / 21
  6. 6. The economic view of intangibles ("knowledge based capital") drastically changes view of growth and productivity • Traditional capital estimates are understated because many costs of innovation are not counted as investment • Empirical evidence shows that once intangible capital is included in a sources-of-growth analysis it accounts for 20-33% of labour productivity growth in the market sector of the US and EU economies. • The inclusion of different types of capital (and labour) inputs into a sources-of-growth model is a relevant improvement in the understanding of the drivers of productivity changes due to composition shifts to higher-performing types. • Implementation of this view drastically changes our view of how the rise of the knowledge economy impacts on growth and productivity C. Jona-Lasinio SPINTAN 6 / 21
  7. 7. 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 (www.intan-invest.net), cover a subset of industries: the market sector • SPINTAN (www.spintan.net) covers the nonmarket sector Investigate behavioural link public to private and vice versa (e.g. role of public sector intangibles on private sector) C. Jona-Lasinio SPINTAN 7 / 21
  8. 8. Investment slowdown: a common trend? 0%# 2%# 4%# 6%# 8%# 1970# 1975# 1980# 1985# 1990# 1995# 2000# 2005# 2010# 2015# United#States## Japan## EU812# EU#Core#9# EU#Cohesion#4# forecast#period#201482016# 10%# 15%# 20%# 25%# 30%# 35%# 1970# 1975# 1980# 1985# 1990# 1995# 2000# 2005# 2010# 2015# United#States## Japan## EU812# EU#Core#9# EU#Cohesion#4# forecast#period#201482016# Note: EU Core 9 is Austria, Belgium, Denmark, Finland, France, Germany, Italy, Netherlands, and the United Kingdom. EU Cohesion 4 is Greece, Ireland, Spain and Portugal. EU-12 are the 12 member states that joined the EU between 2004 and 2007. Data sources: AMECO, OECD.stat GFCF % of GDP, 1970-2016 General government Private sector (includes SOEs) C. Jona-Lasinio SPINTAN 8 / 21
  9. 9. Our contribution Some education and health is a mix of private and public, market and non-market. So to do market sector analysis, one should really break education and health into market and nonmarket. • And one should really do this for all other industries too. • What do we do? • We focus on a number of industries that potentially have significant non-market involvement. • We break those industries into market and non-market. C. Jona-Lasinio SPINTAN 9 / 21
  10. 10. 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 10 / 21
  11. 11. Intangible investment in the total economy: measures developed so far Two sets of intangible measures by industry and institutional sector: CHS type assets (Data and Trends) (Organizational capital (purchased and own account), Brands, Design, Training) • Geographical coverage: (AT, BE, DE, ES, FI, FR, IT, NL, SE, UK , US ) • Time coverage: 1995-2010 CHS type assets and NA intangibles (SOG analysis) • Geographical coverage: (DE, ES, FI, IT, UK) • Time coverage: 1995-2009 C. Jona-Lasinio SPINTAN 11 / 21
  12. 12. Intangible shares of Total value added Overall selected intangible investment accounts for 8% to 3% of total value added with private and public sectors accounting on average for 5% and 0.8% respectively. C. Jona-Lasinio SPINTAN 12 / 21
  13. 13. Intangible shares of Non-Market and Market value added In most advanced countries, US, UK and FI, nonmarket sector is more intangible intensive than the market sector. In the remaining countries it is the opposite (for these assets). But there is also interesting variation between countries. C. Jona-Lasinio SPINTAN 13 / 21
  14. 14. Composition of intangible investment expenditure Organizational capital accounts for the largest share of intangible investment both in the nonmarket (45%) and market (35%) sector. C. Jona-Lasinio SPINTAN 14 / 21
  15. 15. 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 15 / 21
  16. 16. 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 16 / 21
  17. 17. 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 17 / 21
  18. 18. Total Factor Productivity Growth (1995-2007) and market and non-market intangible capital deepending contributions Fi NonM Fi Mkt UK NonM UK Mkt It NonM It Mkt De NonM DE Mkt Es NonM Es Mkt 01234 DlnTFP 0 .2 .4 .6 .8 Contrib DlnK(intang)/H Market and non-market DlnTFP De Es Fi It UK 01234 DlnTFP .2 .3 .4 .5 .6 .7 Contrib DlnK(intang)/H, Mkt Market DlnTFP De Es Fi It UK 01234 DlnTFP 0 .2 .4 .6 Contrib DlnK(intang)/H, Non-Mkt Market DlnTFP C. Jona-Lasinio SPINTAN 18 / 21
  19. 19. Policy challenges • A primary characteristic of intangible capital, widely supported by growth accounting exercises and macroeconomic studies, is to be growth-promoting. • The non-rival nature of intangible capital implies a theoretical link to MFP growth via diffusion, suggesting that spillovers from intangibles likely exist beyond the well-researched effects from R&D. 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. C. Jona-Lasinio SPINTAN 19 / 21
  20. 20. Policy challenges But, despite progress on research, why is there caution on embracing the policy implications? • Some forms of intangible assets are pretty exotic as they have no physical form, making valuation, depreciation, etc. all difficult so that national accounts integration goes slowly • Integrating the impact of intangibles on growth is tricky: • Spillovers and complementarities are difficult to measure and hard to convey. • Causality is probably a bigger issue with intangibles than with tangibles • If intangibles is the main story, the focus is long-term, not short-term requiring bigger policy commitments. • Public-private "partnerships" is probably a bigger deal than for tangible investments • Promoting core intangible investment is consistent with goal of attaining a higher level of productivity and therefore a higher living standard. C. Jona-Lasinio SPINTAN 20 / 21
  21. 21. Thank you C. Jona-Lasinio SPINTAN 21 / 21

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