Page 25 - Intangible value

The role of
intangible investments
in the economy
RESEARCH DIRECTOR JYRKI ALI-YRKKÖ AND RESEARCHER MIKA PAJARINEN / ETLATIETO OY
An increasingly large proportion of the economy in prac- tically all developed countries is related to intangibility, such as services, R&D activities and brands. Although physical products and their production still matter, the signi cance of intangibility and non-material matters will increase in many respects, and also in the properties of physical products.
The increase in the signi cance of intangibility can be seen clearly in, for example, investments. Especially in the developed countries, investments in tangible as- sets no longer increase as fast as they did before. At the same time, investments in intangible assets are on the rise. This can be seen in increasing investments in re- search and product development (R&D), brand build- ing, software and other intangible targets. Both tangible and intangible investments aim at bene ts that will be gained later. In other words, they are more like contribu- tions towards achieving an output rather than important in themselves. What is achieved with these investments is therefore essential.
The investments alone and the possible pro ts they produce do not describe the full signi cance of intangi- bility in the economy. The growth of services and their growing role as a contributor to the gross national prod- uct are one part of intangibility. The share of industry in the overall production has been declining for decades in practically all developing countries. Contrary to what is generally believed, the same development is also taking place in China. After the beginning of the 2000s, the sig- ni cance of industry in China has also started to decline, while the eld of services is growing intensely.
In addition to Finland, intangible investments have in- creased in many other countries in the past two dec-
ades. The revenue to companies from these investments is realised as increasing service or product sales or as decreased unit costs. Analyses made of the impact on productivity at the level of national economy do not usually make a distinction between the effects of an in- crease of output and decrease of investments. Intangible capital created by intangible investments differs from tangible capital. Intangible capital does not wear down in use, but its value may vary considerably more than that of tangible capital. The public sector in Finland contrib- utes to the building of companies' intangible capital by supporting their R&D projects. However, R&D activities represent less than half of companies' intangible capital.
It is obvious that all bene ts from intangibility cannot be measured in money. For example, democracy, human rights, clean air and diversity of nature certainly have val- ue, but they cannot be measured in money. This article focuses on the type of intangibility which can at least roughly be measured in money and which is created as a result of money changing hands.
INVESTMENTS IN INTANGIBILITY AND PROFITS FROM THESE INVESTMENTS
An increasing proportion of investments currently made in the western countries is intangible.7 There is no un- equivocal way to measure intangible investments and the intangible capital accumulated through them. The dif culty of measuring applies to both companies and the entire economy.
At the level of companies, the problem of measuring is linked to accounting practices. The different ways busi- ness value is treated in the balance sheet as regards com-
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