Intangibles, Innovation & Growth:
Review of COINVEST project
Jonathan Haskel
Imperial College Business School, Imperial
College London
j.haskel@ic.ac.uk
All data, papers, presentations: www.coinvest.org.uk
Beyond EUKLEMS seminar, Brx Dec 2010
COINVEST is a European Commission Framework 7 project funded under
the Socio-economic Sciences and Humanities theme
COINVEST project
Questions asked to address today
• History and theoretical basis of the project
• Current state of the project and resulting datasets including
geographical coverage, years and main variables
• Specific problems remaining to be resolved
• Future data deliveries
• Interactions with other projects in the cluster and elsewhere (EU
funded or not)
• Policy use so far
• Analytical use so far
• Potential policy uses
• Analytical prospects
• The most interesting results so far
Q1. History and theoretical
basis of the project
• Objective: better understanding of growth and innovation
• What drives growth and innovation?
– Henry Ford manufacturing economy: machines = “tangible capital”
– iPhone service economy: knowledge = “intangible capital”
• What “intangible capital” is behind the iPhone?
– Some R&D
– But also: design, software, marketing, business organisation etc.
• So what has COINVEST done?
– Measured wide set of intangible assets across 7 countries for the
market sector. Some industry level work where data permits
– Integrated such measures with National Accounts
– Calculated effects of intangible investment on productivity and
growth
– Backed with micro studies
Q2. Current state of the project and resulting datasets
including geographical coverage, years and main variables
• Macro work
– Reseachers based in/with contact in national statistic bureau for
countries: Bulgaria, France, Germany, Portugal, Sweden, UK, US,
1980-2004/5/6
– Measure investment in intangible assets
• Software
• Innovative property (R&D, Design, Product development in finance)
• Firm competencies (Branding, Training, Organisational capital)
– measure impact on growth by growth accounting
– vary original Corrado et al method
• Data posted on web for these countries, different versions per
country based on different assumptions, deliverable 9 on
www.coinvest.org.uk
• Micro work
– Accounting data, new questionaires, micro firm data
Q3. Specific problems remaining to be resolved
Q4. Future data deliveries
Q5. Interactions with other projects
• Q3. Data issues
– More consistent measurement especially of big ticket items: training and
design
– Implementation of software method for design and financial services
– Organisational capital
– Deflators
• Q4. Future data
– Ongoing work using UK data on all of above
• Q5. Interaction with other projects
– Data designed to fit with KLEMS-type approach
– Innodrive: we have gone beyond CHS method. Training data to be
resolved
– Interactions with various domestic projects e.g. UK innovation index,
capitalisation of R&D
– Welcome future interaction
Q6. Policy use so far, Q7. Analytical use so far
Q8. Potential policy uses
•
Q6. Policy use so far
–
OECD
•
•
•
–
EU
•
•
–
Centrepiece of UK innovation index and UK annual report (other indicators dropped)
Key evidence in UK science budget policy
Extensively quoted in Treasury documents
Work presented to Governer and Monetary Policy Committee of Bank of England
Q7. Analytical use so far
–
–
•
Used by IFN in policy briefs, presented in Swedish Parliament
Follow meeting in Euro Parliament, 2nd Feb 2011
UK
•
•
•
•
•
Various presentations in Brussels
Presentation to Mrs. Geoghhegan-Quinn. Approach adopted by high-level committee on the
measurement of innovation in Europe, chair Prof Mas-Collel
Sweden
•
•
–
COINVEST data Figure 1 in OECD innovation strategy and ministerial release.
Central role in innovation conceptual and measurement strategy
Further meetings at NESTI and Washington National Academy Science, Feb 2011. Feeding into
innovation survey design
Macro spending, growth accounting, cross-country correlations
Micro/accounting studies
Q8. Potential policy uses
–
–
–
–
Cross-country comparisons with policy variables
Evaluation of private and social returns to market sector spend
Role of public sector R&D
Design of innovation surveys
Q9. The most interesting results so
far
Intangibles are assets
(Average benefit lives by asset, years)
• UK firm-level study on how long companies
expect to benefit from typical investments in
various intangible assets
5.0
4.6
4.2
4.0
Average benefit lives (years)
4.0
3.2
3.0
2.8
2.7
2.0
1.0
0.0
Training
Software
Reputation & Branding
Asset Category
R&D
Design
Business Process
Improvement
Intangible/tangible investment varies
significantly across countries
(2006, % market sector GDP, COINVEST + other countries)
25.00
20.00
15.00
10.00
5.00
0.00
Tangible Investment
Intangible Investment
Sweden, Germany intensive in R&D
UK, US intensive in competencies
(Investment by intangible asset share in GDP, 2005 selected countries)
Software and databases
R&D and other intellectual property products
Brand equity, firm training, organisational capital
14
12
10
4.44
5.86
8
3.58
1.98
1.41
0.73
1.43
1.42
US
UK
0
3.18
5.48
3.27
2.23
0.83
Portugal
2
2.84
Germany
4
5.36
3.30
France
6.07
3.48
Sweden
6
Japan
%GDP
2.81
4.73
2.90
Industry picture: UK, Sweden
intensive in finance
Intangible and Tangible investment as a share of VA by
industry and by country, 2006
(VA adj for Intangibles)
Intangible
Tangible
50%
45%
40%
35%
30%
25%
20%
15%
10%
5%
0%
UK
Germany
Sweden
Manufacturing
UK
Germany
Sweden
Financial and business svc
UK
Germany
Sweden
Retail hotel transport
Intangible contributions
Retail: similar; Mfr: Sweden high;
Finance: UK high
Components of Labour Productivity Growth, %
Intangible cap deep
100%
19%
Tangible cap deep
12%
29%
80%
60%
40%
20%
39%
68%
24%
41%
TFP
22%
24%
20%
45%
47%
59%
15%
18%
17%
9%
9%
9%
5%
13%
27%
50%
10%
29%
0%
-20%
47%
Intermediate Inputs
Labour quality
Sweden
6%
14%
5%
13%
Germany
22%
9%
Sweden
UK
Germany
Sweden
UK
Financial and
business svcs
Retail
Manufacturing
UK
TFP
19%
12%
29%
24%
27%
22%
24%
20%
Intermediate Inputs
39%
68%
47%
41%
50%
45%
47%
59%
Labour quality
3%
2%
5%
3%
0%
6%
3%
3%
Tangible cap deep
10%
5%
6%
22%
15%
18%
17%
5%
Intangible cap deep
29%
13%
14%
9%
9%
9%
9%
13%
Growth accounting
(selected countries, 1995-06)
%
4.5
Labour quality
Physical capital deepening
Multifactor productivity
Intangible capital deepening
4.0
3.5
1.30
3.0
0.69
2.5
2.0
0.82
0.90
0.33
1.23
1.5
0.30
0.64
0.22
0.18
US
0.91
0.5
0.0
0.95
1.40
UK
1.0
1.33
0.83
0.48
0.37
0.69
0.88
0.43
0.40
0.68
-0.15
Germany
France
Japan
Sweden
-0.5
Policy
• What policy variables are associated with
cross-country intangible investment?
intan inv (%gdp)
Intangibles and Barrier of
Enterpreneurship
14.00%
US
12.00%
UK
JP
SE
10.00%
FI
8.00% AU
NL FR
DE
DK
6.00%
IT AT CZ
4.00%
2.00%
EL
0.00%
0
20
40
ES
SK
60
80
days required to open a business
100
120
Intangibles and R&D in Gov Budget
14.00%
intan inv (%gdp)
12.00%
SE
10.00%
JP
US
UK
DK NL FR
DE
CZ AT IT
ES
8.00%
6.00%
4.00%
SK
2.00%
EL
0.00%
0
0.5
1
1.5
2
2.5
3
R&D as a % of gov budget
Source: Hao et al. (2009) for Germany, France, Italy and Spain; CHS (2009) for the US , Marrano et al. (2009) for the UK,
Jalava et al. (2007) for Finland, Fukao et al. (2009) for Japan, Edquist (2009) for Sweden, Van Rooijen-Horsten et al. (2008)
for the Netherlands and Barnes and McClure (2009) for Australia. R&D as a share of governmetn budget is from Eurostat.
Summary
• A portfolio of results
– macro
– micro (accounting, Innovation survey and
questionaire data)
• More to do
– Comparability and robustness
– Data development, especially deflators
– Policy analysis
Spares
UK Intangible Investment Survey
• Survey
– Conducted by ONS in October 2009
– Voluntary postal survey of 2,004 UK companies with ten or more
employees across the production and service sectors. Response
rate 42%
– Stratified by industry and employment
– Linkable via business register
• Questions
– Firms’ spending on main intangible assets: R&D, software,
training, branding, design, organisation or business process
improvement
• Own account and
• Bought in
– Life lengths
• Priorities
– Ask for own account data
– Linked to business register
Layout of questionnaire
Assets divided into sections
Each section has a filter question which
defines the asset with examples
Then asks purchased and ownaccount
Finally life lengths
% of respondent firms conducting intangible
investment by asset category
40%
Percent of firms conducting intangible asset
35%
35%
30%
30%
25%
22%
20%
15%
13%
10%
10%
8%
5%
0%
Training
Software
Reputation & Branding
R&D
Design
Business Process
Improvement
Asset Category
• Confirms: non-R&D intangible spending is much more widespread than R&D
spend
Total expenditure by category (£m), weighted
to give estimates of UK totals
12000
10000
In-house
Purchased
Total expenditure (£m)
8000
2732
7716
4864
6000
4700
4000
6433
4366
2000
3616
2360
728
847
309
0
Training
Software
Reputation & Branding
R&D
asset Category
•
Observe importance of in-house spending
Design
649
Business Process
Improvement
Summary
• Intangible investments are structured way
of thinking about growth and innovation
• Becoming part of measurement systems
anyway
– Software treated as investment
– R&D to be so treated
• Need new questionnaires: some being
developed
The intangibles agenda
• What drives growth?
– Using more of existing factors = factor accumulation
– Using existing factors better or developing new ones
= new ideas = innovation
• Traditional approach
– Account for output by
• Factor accumulation: in practice tangible factors
• Labour quality
• Innovation = the residual: that is, the increase in output that
cannot be explained by increases in tangible inputs
The intangibles agenda, 2
• Strength of growth accounting framework
– Conditional on assumptions, consistent account of growth
– Linked with core economic and national accounting measures,
e.g. GDP
– Link with economic theory means provides framework for
evaluating where private and social returns differ = policy
framework
– Very successful in understanding the ICT revolution
• Weakness of framework
– Relies on strong (?) assumptions
– Measurement issues formidable
– Account of innovation in the traditional approach (output, tangible
capital, labour quality) not strong:
• Has to be freely available knowledge
• Policy makers and non-economists find residual approach
unsatisfactory
•
The intangibles agenda, 3
Dissatisfaction with the residual moved innovation focus to
– Patents
– Innovation surveys and innovation indicators
– Innovation scoreboards
•
Growth accounting focus became
– IT revolution
– R&D
•
•
Innovation literature became rather disparate…
Many IT papers very much in growth accounting framework
– Backed by theory, strong measurement focus: core questions (did IT earn normal
market returns?)
•
Much other innovation work
– Patents work v detailed but
• Subset of innovation
• Citations data noisy
• Changes in registration methods affect time series
– Innovation survey work wider than just R&D, but
• Disconnected with other measures e.g. problems with time series
•
Hanging over this is feeling that innovation process has changed
–
–
–
–
Strongly related to IT, but broader e.g. organisational change
User innovation
Open innovation: companies innovating without patents
Innovative sectors are retailing, banking, airlines
The intangibles agenda, 4
• The Corrado, Hulten, Sichel approach: extend the boundaries of
growth accounting to more intangible assets besides R&D
– Software
– Innovative property
• R&D
• Design
• Financial services product development
– Economic competencies
• Marketing
• Training
• Firm organisational capital
• Timely because
– Fits with idea that innovation is more than just a residual
– Fits the ICT revolution intuition that implementing ICT needs coinvestment in branding, new organisations etc.
– Keeps the discipline of outputs and inputs
– Fits with the broader innovation idea…