New issue of the International Productivity Monitor: a symposium on intangibles
This blog is written by The Productivity Institute’s Managing Director Bart van Ark, who is an editor of the International Productivity Monitor alongside Andrew Sharpe from the Centre for the Studies of Living Standards.
The 46th issue of the International Productivity Monitor contains five articles and features a symposium of three articles on international productivity performance with a particular focus on the role of intangible capital. Two additional articles discuss the reasons for the recent fall in GDP per capita in Canada and the relationship between productivity and managerial quality.
The sources of growth in modern economies have drastically changed in recent decades. This is especially true for the composition of productive capital. Since the 1990s the investment share of intangibles capital, when broadly measured by including, for example, organisational capital, marketing and branding and business training, has outpaced that of tangible capital, especially in advanced economies. A new stream of research on intangibles and productivity has emerged, pointing out the increased contribution of intangible capital to output and productivity growth relative to tangible capital.
Corrado-Hulten-Sichel Typology of Intangible Capital: Broad Categories and Asset Types
International productivity growth: the role of intangibles
The symposium contains three articles making use of a new and unique international dataset, EUKLEMS & INTANProd database, which has merged the original EUKLEMS Growth and Productivity Accounts with a comprehensive range of data on intangible capital by industry. The 2023 release of the EUKLEMS & INTANProd database includes 30 countries with investment and capital metrics for seven tangible assets and eight intangible assets and growth contributions for 38 industries. It provides a version of accounts that is consistent with the official national accounts, and one that uses additional types of intangible assets, which of course affects the measures of capital, value added and productivity. The three articles in the symposium analyse the new dataset through different lenses.
The first article, Intangible Capital, TFP Growth and Green Shoots in New Productivity Data, is by Filippo Bontadini, Carol Corrado, Jonathan Haskel, Massimiliano Iommi, Cecilia Jona-Lasinio, and Tsutomu Miyagawa. They provide a comprehensive description and analysis of the data, sketching out a stylised “upstream/downstream” model of production with intangible capital, which is used to assess the performance of innovation, intangibles and productivity for Japan, the United Kingdom, the United States and a range of EU economies.
The second article, Are Intangibles Running out of Steam?, by Bart van Ark, Klaas de Vries and Abdul Erumban focuses on one specific question, namely whether intangibles may have contributed to the productivity slowdown in advanced countries since the Global Financial Crisis. The authors analyse a range of different metrics from the EUKLEMS-INTANProd database for the UK, and find a moderate slowdown in the growth of the intangible capital stock and a slightly weaker contribution to productivity growth since 2011. In contrast, the authors of the first article argue that, when using a somewhat shorter timeframe (2014-2019, avoiding the aftermath of the European sovereign debt crisis) and adjusting for mismeasurement of prices for consumer digital services, green shoots of improvements in the performance of intangible capital can be observed.
Indeed the recent trends measuring the direct contribution from intangible capital deepening on productivity in a growth accounting perspective are in part a “glass half-full, glass half-empty” story. However, both papers express concerns regarding the spillovers from intangible capital on total factor productivity (TPF) growth. Bontandini et al. point at weaker mechanisms governing knowledge diffusion, arguing that the acquisition of intangibles is associated with increased within-industry productivity dispersion and diminished competition. Van Ark, de Vries and Erumban in particular point at the increased complexity of combining intangibles and tangibles in the production process. Both papers argue for policies ranging from voluntary industry data sharing, the creation of new platforms for technology extension competition, and other competition policies and market redesign that facilitate diffusion across the economy.
The third article in the symposium, Cracking the Productivity Code: An International Comparison of UK Productivity, by John van Reenen and Xuyi Yang, uses the EUKLEMS-INTANProd database to analyse the slowdown in UK productivity growth, using France, Germany and the United States as the main comparator countries. The authors show that the extraordinary weakening in UK productivity growth since the Global Financial Crisis is mostly due to the comparatively large slowdown in the growth of capital intensity, whereas the fall in TFP growth was broadly similar to other countries. They also find that roughly half of Britain’s gap in productivity level to other countries can be accounted for by lower tangible and intangible capital intensity. Their findings suggest that UK policy should focus on the problem of chronic underinvestment, which might be reversed by greater regulatory convergence to Europe following Brexit, a credible Growth Plan by the government, a better supply of finance for investment from pension funds, a strengthening of the creation of intermediate skills, and improvements in the land use planning system.
Productivity Growth Slowdown After the Global Financial Crisis, CHS Market Economy, Average Percentage Contribution to the Slowdown per year (2007-2019 less 1995-2007)
In sum, the three papers on intangible capital set out a large academic and policy-focused research agenda for the role of investment and capital for economic growth and productivity.
Productivity in Canada
Real GDP per capita has fallen since mid-2022 in Canada, a situation normally experienced only during recessions. But real output growth was positive in both 2022 and 2023. In the fourth article in the issue, Accounting for the Decline of Canada’s Real GDP Per Capita since Mid-2022, Philip Smith addresses this paradoxical situation through a detailed decomposition of GDP per capita into six components. The author identifies the very large increase in 2022 and 2023 in the non-permanent resident (NPR) population, driven by increases in the number of temporary foreign workers and international students as the key factor behind the fall in real GDP per capita. This development disincentivised business investment, reducing labour productivity growth. The low wages and productivity levels of NPRs also impeded aggregate productivity and income growth.
GDP per Capita and Its Determinants, Quarterly Cumulative Logarithmic Change, 2019 Q1 to 2024 Q1, Seasonally Adjusted
Management and productivity
It is widely recognised that managerial quality is a key determinant of firm performance, including productivity growth in the medium and long term. But the importance of managerial quality in the short term is less well documented. In the fifth and final article in the issue, Employment, Output and Productivity Adjustment During the Great Recession: The Role of Managerial Quality, Gilbert Cette, Jimmy Lopez , Jacques Mairesse, and Giuseppe Nicoletti look to bridge this gap in the literature by showing that, during the Great Recession, countries with better managed firms experienced smaller employment and output losses, which preserved productivity levels. The authors use a projection method to estimate the impact of shocks on post-2009 macro development at different levels of managerial quality in a country-industry panel for 2007-2015 for 18 industries in 10 OECD countries. Both output and employment are resilient when managerial quality is higher.
The International Productivity Monitor is published jointly by Centre for the Study of Living Standards and The Productivity Institute.
