Intangibles need to be factored into innovation policy - report
Classical economics and accounting is being challenged by intangible investment. This is one of the conclusions of 'The intangible economy impact and policy issues' published by the High-level expert group (HLEG) for DG Enterprise. Value creation comes largely from innovation creation and is illustrated by years of non-inflationary growth. However, there may have been an overreaction to what the new economy means. There is not sufficient evidence, concludes the report, to declare that the economic fundamentals are changing, but rather it is a 'shift of mindset relating to building and extracting value - in both the tangible and intangible worlds'. It also emphasises that knowledge, which has always been an important element in companies, may now be the key element in some firms. The breakdown of frontiers and the lack of tangible products mean that trading has changed nature. The impact of knowledge and intangibles will be greater on old economy companies rather than the newer dot.com ones, but the report also feels that these same dot.com companies will end up either being incorporated into older, established companies, or will disappear altogether. The effect of the impact will be clearest on three main industry groups: - traditional non-service industries 'especially those experiencing fundamental shifts in their value chains - new growth companies in all sectors - service industries, including the public support framework and government services The difficulty faced by the HLEG is the same as other groups who have tried to study this area, which is simply the range of conceptual ambiguities which accompany the area. Without a mature and tested measurement code, it is difficult to make definitive analysis about many areas of the subject. A recent announcement by the OECD (Organisation for economic cooperation and development) that its research in this area appears to have shown a tentative relationship between business intangibles, GDP and productivity growth, may be a breakthrough. But at present, 'statistical and accounting frameworks are in urgent need of updating,' says the report. This call for bringing things up to date to reflect the new environment stretches to research too. 'At present European-oriented research into intangibles amounts to too little too late,' says the report. 'A structured, interdisciplinary research programme must now be a top economic priority for the Commission, and this will require public support at the community level,' it continues. Better integration of public and private research is required. This means not only encouraging transfer of information, innovation and knowledge between the two, but also a more targeted approach to funding. 'Recognition [is needed] that publicly funded R&D needs re-orientating towards smart individuals and companies linked to networks to produce results, rather than propping up sclerotic organisations and R&D 'brands' that are past their prime,' says the report. Nonetheless, there is no simple way to incorporate the intangible economy into policy. A review of the Commission's existing approach, coupled with an analysis from a competition point of view along with a cautious approach to regulatory change are needed. Particularly in relation to the performance of the USA in the circulation of ideas, 'Europe is weak in this area and ways must be found of making pre-competitive research diffuse more freely into the corporate sector.' Finally, the report found that there is a need for policymakers to embrace these changes. The authors found that either apathy, an active resistance to change or cosmetic reaction were the responses that were most often encountered. They noted that the reaction that they feared most was the last of these three, as it was the 'easy option'. Rather they pressed the European Commission to adopt clear policy concepts and formulating and managing the necessary pan-European policy targets.