private and public intangible capital in the us and eu economies: recent trends and new policy...

Private and Public Intangible Capital in the US and EUEconomies:

Recent Trends and New Policy Challenges

C. Jona-Lasinio, (LUISS Lab and ISTAT), RomeC. Corrado, (The Conference Board), New York

J. Haskel, (Imperial College, CEPR and IZA), LondonK. Jaeger, (The Conference Board), Bruxelles

M.Iommi, (LUISS Lab and ISTAT), Rome

WPIA - OECD12-13 October 2015, Paris

This project has received funding from the European Union’s Seventh Framework Programme forresearch, technological development and demonstration under grant agreement No. 612774

C. Jona-Lasinio SPINTAN 1 / 28

Outline

• SPINTAN (www.SPINTAN.net): our aim and progresses• Conceptual issues and main measurement challenges• Recent trends of public and private intangible investments in theUS and EU economies

• Sources of growth in the total economy• Policy challenges and next steps


The economic view of intangibles

• Taking seriously intangibles drastically changes our view of howthe rise of the knowledge economy impacts on growth andproductivity

• The economic view of intangibles asks for a deep investigation ofthe channels through which public and private intangibleinvestment affect productivity growth.

• Integrating the impact of intangibles on growth in the totaleconomy is tricky

• Spillovers and complementarities across assets and sectors are difficult tomeasure and hard to convey.

• The first step is to generate harmonized measures of intangiblesacross sectors and countries

• Corrado, Hulten and Sichel (2005) developed the measurement framework forintangibles in the market sector.

• Corrado, Haskel and Jona-Lasinio (2014) proposed a framework to measureintangible investment in the nonmarket sector.


Knowledge based capital in the total economy

Mapping the CHS assets to the nonmarket sector

2.1 CHS-type Assets

Table 3 summarizes the CHS list of intangibles assets (on the left) and maps them to the public

or nonmarket sector (on the right). As may be seen, two broad categories of public intangible

assets are proposed. One consists of information, scientific, and cultural assets, and the second

is societal competencies. Before we discuss what’s di↵erent across the two columns, let us make

a few points about the similarities. First, while the character of some assets are rather di↵erent

when produced by public institutions, e.g., R&D, brands, and mineral exploration, one may

still draw a correspondence between these assets across sectors. For example, Jarboe (2009)

defines public investments in brand as expenditures for export promotion, tourism promotion,

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 Assets1 Software 1 Software

2 Databases 2 Open data

Innovative Property3 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. design6 Mineral exploration 5 Mineral exploration

Economic Competencies Societal Competencies7 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 productsand other services development not included in software or conventional science-based R&D.

The circled items are rather di↵erent in a public sector context. Open data refers to in-

formation assets in the form of publicly collected data issued and curated for public use. This

runs the gamut from patent records to demographic statistics and national accounts to geo-

14


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 withthe analysis of certain topics in mind: health and education, culture and the arts, scienceand the economy, and information and the economy (i.e., not the environment, not masstransport, etc.).


The scope of intangible assets used by the public sector:industries of interest

because these industries contain significant nonmarket production (e.g., federally-run research

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 nacesection Industry title number

MB Scientific research and development 72O Public administration and defence; compulsory social security 84P Education 85

QA Human health activities 86QB Residential care and social work activities 87-88R Creative, arts and entertainment activities;

libraries, archives, museums and other cultural activities 90-91Gambling 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,

e.g., transportation and homebuilding. On the other hand, there are industries of interest to our

work in SPINTAN that are not listed, e.g., those receiving government R&D subsidies, but such

industries tend to have little nonmarket production other than their own-produced intangible

assets for which we have already accounted.

Industries vs. Institutional Sector. National accountants classify economic activity according

to institutional sectors, not industries. Figure 2 illustrates the relationship between national

account sectors and the nonmarket/market conceptual distinction in a simplified way. The

national accounts nonmarket sector is found above the horizontal line in figure 2 and consists

of general government (GG) and nonprofit institutions serving households (NPISH). The public

sector is found to the left of the vertical line in figure 2 and consists of general governments and

government sponsored enterprises (GSEs).

Investment activities of the general government and nonprofit institutions (NPI) are the

focus of SPINTAN. It is important to recognize that many nonprofit institutions are considered

4Appendix table A1 (page 45) shows the full intermediate structure of NACE Rev. 2.

5

Besides Public administration and defence, other industries in thetable contain a mix of market and nonmarket producers.


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)*


Aim

Complete the coverage of intangible investment by industry makingpossible analysis of productivity for the total economy based on acomplete accounting of intangible capital inputs.

• Existing measures of intangible investment, INTAN-Invest, covera 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)


The SPINTAN database

• SPINTAN will deliver (December 2016) estimates of publicintangible investment by industry and institutional sector for 22European economies plus the US, China, India and Brazil for theyears 1995-2013.

• The data will be cross-country harmonized and consistent withthe National Accounts (NA) principles and with business sectorestimates of intangibles developed by INTAN-Invest(www.INTAN-Invest.net)


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 for10 EU countries and the US

• Sources of growth analysis in the total economy (1995-2009)• CHS type assets for 5 EU countries


New issues to be investigated....

• What is the magnitude of overall intangible investment in thetotal economy?

• Does the non-market sector is relatively more or less intangibleintensive than the market sector?

• What are the linkages between nonmarket and market intangibles?• What is the productivity contribution of intangible capital in themarket and nonmarket sectors?

• Market and nonmarket intangibles over the business cycle• Do Non-NA intangibles are relevant?


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#


Nonmarket and market Non-NA intangible shares of GDP

Overall (market and nonmarket) Non-NA intangible investment account for 7% to 3% ofGDP 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#


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 isthe 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%


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#

Non

Market#intan

gible#investmen

ts#(%

GDP)#

Market#intangible#investment#(%#of#GDP)#


Non-NA intangible investment and GDP per capita (1995-2010)

...and public intangible intensity is positively correlated with the levelof 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#intan

gible#investmen

ts#

GDP#Per#capita#(EKS#US#$#2010)#


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#intan

gible#investmen

ts##

GDP#per#hours#worked#


GDP shares of market and nonmarket intangiblesover the business cycle: (1995-2007) vs (2007-2010)

95-07MKT NMKT

at 1.2 0.4de 0.3 4.6es 1.6 1.7be 2.0 1.7fi 1.5 -4.0fr 1.7 2.9it 1.2 1.8nl 1.2 0.3se 1.4 -0.6uk 2.1 5.9us 1.2 2.9

NMKT/rate of gr0710MKT 0710NMKT

at 1.2 4.5de 0.3 5.3es 1.6 6.3be 2.0 3.4fi 1.5 -4.6fr 1.7 1.4it 1.2 3.4nl 1.2 1.6se 1.4 2.7uk 2.1 2.1us 1.2 3.6

!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 financialcrisis and nonmarket intangibles even less compared to marketintangibles!


What are the main drivers of non-NA intangible investment?

Organizational capital accounts for the largest share of intangibleinvestment both in the nonmarket (45%) and market (35%) sector.


Organizational capital: shares in total market and nonmarketintangible investments

On average purchased OC accounts for a larger share both innonmarket and market sectors but shares varies considerably acrosscountries and sectors.


Return to nonmarket capital

• Once we have capitalized public intangibles we want to evaluatetheir contribution to productivity growth.

• To achieve this goal we need to impute a net return to publicinvestments.

• 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 ofreturn to government capital.

• But at this stage we adopt the national accounts assumption of azero nonmarket sector rate of return.


Sources of growth analysis

• Adding national accounts intangibles (R&D, software, and artisticand entertainment originals plus mineral exploration) to theSPINTAN and INTAN-Invest measures of intangibles we are ableto look at a fairly complete picture of intangible inputs to totalproduction 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 andnonmarket sectors.


Contributions to Labour Productivity Growth:1995-2009

The performance of advanced economies differs widely according to market versusnonmarket sector. In Germany, UK and Finland intangible capital is an important sourceof growth for the public sector.


Contributions to Labour Productivity Growth:1995-2007 vs 2007-2009

At the very beginning of the financial crisis, intangible capitalpositively supported labour productivity growth of both market andnon-market sectors in the advanced economies.


Summing up

• Intangible capital accounts for one-fifth to one-third of laborproductivity growth in the market sector of the US and EUeconomies

• ....and for one-third of labor productivity growth in the nonmarketsector in the EU economies

• Intangibles appear to be counter cyclical particularly in thenonmarket sector

• Organizational capital is a key asset in this framework


Policy challenges

• A primary characteristic of intangible capital, widely supported bygrowth accounting exercises and macroeconomic studies, is to begrowth-promoting.

• This is because intangible investments likely generate spillovers tothe economic system being non-rival and possibly non-excludable.Such spillovers, if they exist, might be within the private sectorand/or between the public and private sector.

• In the light in particular of the claim and counter-claim aroundpublic sector austerity and fiscal policy in Europe, it would bevital to know which, if any, public sector intangibles had positivespillovers to the rest of the economy.

• If intangibles is the main story, the focus is long-term, notshort-term requiring bigger policy commitments.


SPINTAN: Next steps

• Generate real measures of public intangible investments and netcapital stocks.

• Impute a rate of return to nonmarket capital.• Provide a deep investigation of mechanisms trough which thesynergies between Public and Private sector affect economicgrowth.


Thank you


private and public intangible capital in the us and eu economies: recent trends and new policy...

Economy & Finance