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Measuring intangible assets outside of the SNA boundary

Measuring intangible assets outside of the SNA boundary. Fernando Galindo-Rueda OECD - DSTI/EAS Working Party of National Accounts Meeting OECD, October 2011. Outline. OECD project on “New Sources of Growth: Intangible Assets” (NSG IA) The measurement workstream for the NSG IA project

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Measuring intangible assets outside of the SNA boundary

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  1. Measuring intangible assets outside of the SNA boundary Fernando Galindo-Rueda OECD - DSTI/EAS Working Party of National Accounts Meeting OECD, October 2011

  2. Outline • OECD project on “New Sources of Growth: Intangible Assets” (NSG IA) • The measurement workstream for the NSG IA project • Issues and contributions • Next steps and questions

  3. OECD Innovation Strategy • Measuring innovation Investment in fixed and intangible assets as a share of GDP, 2006 intangibles 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. 3

  4. Contribution of IAs as proxy for impact of innovation investment on growth. Intangible assets account for a large share of Labour Productivity growth Percentage contributions, 1995-2006 (or nearest available year) Source:OECD, based on research papers.

  5. NSG: IA project • The OECD horizontal work onNew 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)).

  6. An expanding boundary SNA1993 OECD TF Intangible assets project “Innovation property” Innovation K assets other than R&D Entertainment, literary & artistic originals Research & Experimental Development “Economic competences” Software & databases SNA1993 Mineral exploration and evaluation Marketing and brand assets Human capital Organis- ational capital SNA2008 SNA2008: Other intellectual property products?

  7. 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

  8. 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

  9. 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

  10. 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.

  11. 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.

  12. ZEW Proposal for an Alternative Design • Category Expenditure Please estimate the share • in 2010 spent on innovation* • 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)

  13. 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

  14. Measuring “Big Data” - WPIIS “Big data” = large stock of information created by mobile networks, remote sensors and cloud computing – 3 proposals: • The value added of the “digital data” industries. ISIC Rev 4. 6311 (data activities) 6312 (web portals) 5812 (publ direct.) 5819 (other publ) • “Digital data” on the Internet. Market value of companies owning technology for collecting, processing and diffusing digital data as proxy for its value. • Advertising expenditures on the Internet.

  15. 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?)

  16. 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

  17. 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).

  18. 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)

  19. 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

  20. 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 fernando.galindo-rueda@oecd.org NESTIteam

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