Intangible Investment and the Economy

Transcription

1 Intangible Investment and the Economy Jonathan Haskel, Imperial College Business School, Imperial College, London 9 th IRIMA Workshop, Intangible Investments for Competitiveness: micro-macro evidence, Brussels, 25 th October 2017 Book project with Stian Westlake Capitalism without Capital, 6 th December Using work and data from FP7 projects EU-KLEMS, COINVEST, INNODRIVE, SPINTAN.

2 Has capitalism gone wrong?

3 Stagnation: the G7 labour productivity slowdown 125 UK and G7xUK, GDP per hour, actual and projected post G7xUK UK UK actual UK actual and proj G7xUK, actual G7xUK, actual and proj Source: ONS (2017), International Comparisons of Productivity

4 Inequality dimensions Rise in company inequality, OECD work Rise in income inequality Workers who have done better have been in firms who have done better i.e. higher-paid workers are in firms with higherpaid co-workers Rise in inequality of esteem : city/rural; Trump: Brexit Source: Song et al, (2015)

5 Cities are more productive Source: OECD calculations in Ahrend, Lembcke and Schumann (2017)

6 Regional productivity gaps are widening Source: The Economist, 20 October 2017

7 At the same time, some significant puzzles Did the disconnected want Brexit? More connected regions are more Eurosceptic Are there few investment opportunities? US company global return on capital (excluding goodwill) Source: John Springford, Philip McCann, Bart Los and Mark Thissen Source: The Economist.

8 Why is this happening? Lack of profitable private-sector investment opportunities But profits are high Technology has slowed down But the internet, cloud computing etc? Anti-trust insufficient But has this got worse? Skill-biased technological change But why the 1%? The banking crisis But why would TFP slow down? Our view: the economy has changed

9 So the big question: to understand economies Which used to produce this and now produce this.

10 To understand capitalism, let s start by measuring capital Accounting definition of capital assets: Buildings Vehicles Equipment An example: Sainsbury s (UK 2 nd largest supermarket) 2016 Sales = US$30 bn Capital assets = US$12 bn

11 What about Microsoft? Capital assets Buildings Vehicles Equipment 2016 Sales = $85bn Capital assets = $5bn Microsoft have 3x the sales with ½ the assets Capitalism without Capital

12 Investment in modern economies Tangible investment Buildings and structures IT equipment (computer hardware, communications equipment) Non-computer machinery, equipment and weapons systems Vehicles Intangible investment Computerised information Software Databases Innovative property R&D and mineral exploration Creating entertainment, literary or artistic originals Design Economic competencies Training Market research and branding Business process re-engineering

13 So what s been happening to tangible and intangible investment? The long term Intangible and tangible investment over time, US Source: Carol Corrado

14 So now for every 1 of tangible investment there is around 1.10 of intangible Source: calculations from SPINTAN database

15 but intangible capital services growth has slowed since 2008 Source: calculations from SPINTAN database

16 Variation over countries Source: calculations from SPINTAN database

17 correlated with policy-relevant variables Source: calculations from SPINTAN database

18 including public R&D Source: calculations from SPINTAN database

19 Properties of intangibles 1: Accounting conventions In company and national accounts, many are unmeasured Typical treatment in company accounts If own-account, expensed, not capitalised If bought-in, valued and depreciated If company is sold goodwill is valued (some software and R&D can be capitalised under restrictive circumstances e.g. late in development stage) Implications it looks like we have some fabulously profitable companies (in return on capital terms i.e. huge sales, no capital. if we miss out investment, we undercount GDP Changes in investment are early predictors of business cycles, so we might miss early signals Brexit might affect investment, but if we don t count it we might miss any effects.

20 Properties of intangibles 2: economic properties Properties of intangibles- the four S s (Haskel/Westlake) Sunk - investment cannot be recovered Scalable fixed investment e.g. in Uber software, can be scaled Spillovers knowledge investment can be used by others Synergies investment synergies with other intangible capital and human capital Implications: Sunk: financing difficulties Spillovers: slowdown in investment affects other firms: demand for living in cities rises Scalable: intangible-intensive companies get relatively larger => frontier gap gets bigger Synergies: potentially large wage gains for intangible capital owners

21 Example of implications of intangibles: scalable 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 Implications: Productivity gap widens Widens the most in intangible-intensive industries Source: Andrews, D. C. Criscuolo and P. Gal (2015)

22 The productivity spread has risen the most in intangibleintensive industries And if these firms pay higher wages to all workers, wage inequality rises too. Source: Capitalism without Capital, using data from SPINTAN and Distributed Microdata project

23 Example of implications of intangibles: spillovers Tangible assets: unlikely to be spillovers Intangible assets: likely to be spillovers, Implication: slowdown in intangible capital services growth => slowdown in TFP growth

24 Slowdown in productivity growth Source: calculations from SPINTAN database

25 Example of implications of intangibles: synergy Synergies economic advantage in the intangible economy goes to those better able to appropriate spillovers and interact with others to create synergies What kind of person will succeed in this type of economy? Implication: People with psychological traits such as openness to experience

26 Summary Investment is becoming more intangible That s not well measured If you leave it out You understate GDP Cannot understand modern firms Intangible assets have different economic properties to tangible with implications for the economy Sunk: financing problems Scalable: leader/laggard gaps Spillovers: demand for cities rises, investment slowdowns in some firms affect all others Synergies: returns rise in intangible-intensive firms Rich set of business strategy and policy implications Leadership and management become more important Intangible investment correlated with policy instruments e.g. strictness of employment legislation Clearer IP not stricter Cities policy and banking policy is innovation policy Gains from integration larger, but losses from regulation also larger