Estimating the value of our intellectual capital

This guest blog item is reprinted with permission from Ken Jarboe at Athena Alliance.

Kevin Hassett and Rob Shapiro have released an update of their 2005 report on intellectual property. The new study, What Ideas Are Worth: The Value of Intellectual Capital And Intangible Assets in the American Economy reports that the value of intellectual capital (really intellectual property) has grown from between $5 and $5.5 trillion in 2005 to between $8.1 and $9.2 trillion in 2011. They have also tried to extend that estimate to a broader range of intangible assets (without however, a clear definition of what that entails). [By the way, much of the report is a study on why stronger intellectual property enforcement is needed.]

I have to say that these estimates seem excessively high. They are derivative estimates based on an imputation from current stock market values and from ratios provided by the more extensive economic analyses of Corrado, et al. The stock market imputation is especially troublesome as it assumes all of the value between book value and market value is due to intangible assets (so intangibles get basically defined as everything left over, just like "goodwill"). An alternative method they used is also somewhat of concern in that it based on the assumption that "intangible and tangible investments have the same or very similar productivity and depreciation rates." I am not at all sure that assumption holds.

But, in sheer dollar value, the analysis does demonstrate the importance of intangibles to the U.S. economy. And the concerns over the methodology point to the crying need to improve our measurements of intangible assets. The authors have tried to make a good faith estimate -- and have shown just how hard that can be to do.

We know intangible assets are important. Now we need to better understand just how important and what we can do to better foster and utilize these assets to increase economic prosperity.