Measuring intangible assets outside of the SNA boundary Fernando Galindo-Rueda OECD - DSTI/EAS Working Party of National Accounts Meeting OECD, October.

Measuring intangible assets outside of the SNA boundary

Fernando Galindo-RuedaOECD - DSTI/EAS

Working Party of National Accounts Meeting OECD, October 2011

Outline

1. OECD project on “New Sources of Growth: Intangible

Assets” (NSG IA)2. The measurement workstream for

the NSG IA project – Issues and contributions

3. Next steps and questions

OECD Innovation Strategy Measuring innovation

3

Investment in fixed and intangible assets as a share of GDP, 2006

Source: OECD (2010), Measuring Innovation: A New Perspective, OECD, Paris based on COINVEST [www.coinvest.org.uk], national estimates by researchers, EU KLEMS database and OECD, Annual National Accounts Database.

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% Machinery and equipment Software and databases

R&D and other intellectual property products Brand equity, firm specific human capital, organisational capital

Contribution of IAs as proxy for impact of innovation investment on growth.

Intangible assets account for a large share of Labour Productivity growthPercentage contributions, 1995-2006 (or nearest available year)

0

1

2

3

4

5

6

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% Contribution from intangible capital Contribution from tangible capital Labour productivity growth

Source: OECD, based on research papers.

NSG: IA project• The OECD horizontal work on New Sources of Growth:

Intangible Assets (NSG: IA) mandated by the OECD Council and approved by the Budget Committee. 2011-2012

• Resources provided by the office of the OECD Secretary General (Central Priority Fund).

• General oversight role accepted by the Committee on Industry, Innovation and Entrepreneurship (CIIE). Coordination by STI Directorate.

• Various components:– Measurement. CSTAT– Global value chains. CIIE– Big data. ICCP – Knowledge networks and markets. CSTP. – Tax, corporate governance, competition…

• CSTAT PWB: Measures of intangible assets  -- contribution to horizontal project on new sources of growth:

– a working paper on intangible assets and growth accounting (Q4 2011) – empirical implementation for selected countries (Q4 2012)).

An expanding boundary

Software &databases

Entertainment, literary & artistic originals

Mineral exploration

and evaluation

Research & Experimental Development

Innovation K assets

other than R&D

Marketing and brand

assets

Organis-ational capital

Human capital

Intangible assets projectOECD TF SNA1993

“Innovation property”

“Economic competences”

SNA2008

SNA1993

SNA2008: Other intellectual property products?

Implementing a new paradigm?• Recognise the produced and “longer-lived”

nature of knowledge, despite uncertainty and immateriality

• Apply National Accounts disciplines and tools to clarify nature and extent of investment in innovation. Increase awareness of potential. – Supply and demand for knowledge– Transactions across sectors and countries– Relevant economic aggregates –

output/income – gross/net

Concepts• An asset is a store of value representing a

benefit accruing to the economic owner by holding or using the entity over a period of time.

• IPPs key step towards reflecting the Knowledge Economy

• IPPs/IAs definitions combine intangible assets:– Content of the work/activity– Objective of the activity– Embodiment of the output– Type of IP protection

Known measurement challenges• Defining and valuing different types of IPPs

outside the boundary• Measuring IPPs as inputs in the production

of other IPPs• Apply rule of precedence? • Originals and licenses to use• Deflators, asset lives• International dimension Reconcile what’s conceptually robust with

what is practically feasible and policy-relevant

Demonstrate potential of existing sources• Use estimates of market output of relevant

“knowledge” sector. • Comprehensive picture of earnings received by

knowledge workers by occ & industry – E.g. scientists, engineers, architects, designers, …

• Use of SU-IO tables to build ratios of K cost of production relative to earnings base. E.g. Archit & eng design, …

• Mapping out market and own account output, as well as assumptions.

• Consider existing (sometimes commercial) sources of market expenditures (e.g. marketing).

• Test feasibility of producing internationally comparable macro and sector estimates.

Improving existing micro sources - NESTI

• “Frascati” R&D surveys. NESTI Task Force reviewing design of surveys in order to: – Adapt to changes in ways companies manage

and report R&D activities– Improve ability to meet SNA capitalisation

needs

• “Oslo” innovation surveys. NESTI project to: – Review questions on expenditures on

innovation – Opportunity to identify clearer linkages

between the notion of intangibles investment and investment in innovation.

ZEW Proposal for an Alternative Design

Category Expenditure Please estimate the sharein 2010 spent on

innovation*

1. In-house R&D € R&D ______ 100 %

2. Purchase of external R&D € R&D ______ 100 %

3. Additions to property, plant & equipment1) € SBS _____ _____ %

4. Additions to software1) € SBS______ _____ %

5. Additions to concessions,rights and licenses1) € __________ _____ %

6. Employer funded training (internal+external) € __________ _____ %

7. Advertising, marketing campaigns,market research (i+e) € __________ _____ %

8. Costs of design activities (i+e)1) € __________ _____ %

9. Costs of organisation / businessprocess improvement (i+e) € __________ _____ %

1) excluding expenditures for R&D* to be defined: only technological or technological + non-technological (combined or

separately)

Developing new micro sources

• Recognise limited scope for new sources

• Feasibility of asking questions on broad range of intangible investment– UK. ONS and NESTA. 2nd survey in field – Italy. ISTAT pilot survey in field– Other countries considering pilot

surveys or piloting questions within their innovation surveys

– Google discussion group set up

Measuring “Big Data” - WPIIS“Big data” = large stock of information created

by mobile networks, remote sensors and cloud computing – 3 proposals:

i) The value added of the “digital data” industries. ISIC Rev 4. 6311 (data activities) 6312 (web portals) 5812 (publ direct.) 5819 (other publ)

ii)“Digital data” on the Internet. Market value of companies owning technology for collecting, processing and diffusing digital data as proxy for its value.

iii)Advertising expenditures on the Internet.

Design and marketing as test cases• Design assets. NESTI.

– Increasing importance by policy makers– Overlaps with R&D and software – Mix of fcn/aesthetics – tech and non tech– Diverse communities of practice / methods

• Marketing / brand assets. WPIA– Importance in company value – NPNFA in SNA– Extreme form of rivalry – social vs private value– Embodiment and dependencies (e.g. possible to

sustain brand value without quality improvement?)

Growth accounting

• State assumptions more explicitly: Factor shares, CRS, knowledge rents. Limitations

• Test ability of broader intangibles view to reduce the productivity growth unknowns. – Address practical GA problems.

• Consider the implications for output and income growth of a world with increasing number of risky, fast depreciating, knowledge assets

Analysis -WPIA

• Link input-based measures with output based measures– E.g. using measures of patent quality, etc…

• Test whether intangibles measures meet “asset properties”. – Econometric approaches to test flow of capital

services. • Establish policy relevance parameters, e.g:

– Extent of knowledge spillovers versus business-stealing effects (e.g. for marketing expenditures).

Measurement deliverables• Technical paper: Review the strengths and drawbacks of standard

methodologies for the definition and measurement of the flows and stocks of key intangible assets and their link to innovation.

• Technical paper: Experience with firm-based measures of intangible assets/innovation and guidelines

• Technical paper(s) on individual assets: big data, design, other• Dataset on investment in intangible assets at the macro level

(drawing on existing estimates? business sector/Total Economy sector? Extrapolate data beyond 2005-6).

• Dataset on investment in intangible assets at the sectoral level• Dataset on IP portfolio of companies? (matched patents,

trademarks, ORBIS)• Stand-alone publication with new metrics and measurement

agenda (making the case for improving measures of intangible assets)

Next steps

• Ongoing review of data sources• Conceptual development work • Focus on specific intangibles• Organisation of expert workshop

– Late January / early February – Combine different communities of

expertise

Questions• Perception of national user needs? • Priorities for the work?• Interest in contributing to conceptual work? • Feasibility of providing some detailed data

breakdowns from existing sources?• Interest in contributing to the workshop?

Thanks

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