Jonathan Haskel

Managing knowledge spaghetti, Imperial, March 2009

How much does the UK invest in innovation?

The transformation of the economy?

• The old economy • = tangible assets, production lines

• The new/knowledge economy• = Intangible assets• Software, design, R&D, know-how• Move to knowledge-intensive activities• Rise of the service sector

• Innovation as a key economic driver• How well do we measure this activity?

How well do we measure knowledge economy inputs?

• Much focus on R&D• Official survey/tax credit definition follows Frascati

• “Research and experimental development (R&D) comprises creative work undertaken on a systematic basis in order to increase the stock of knowledge, including knowledge of man, culture and society, and the use of this stock of knowledge to devise new applications”.• But exclusions are crucial: examples:

• Design• Market research • (Much) software• Training• Organisational change associated with R&D

• Key: measured R&D is spending on “scientific” discoveries• So retail and financial services R&D = 0• Suggests want to broaden out R&D to measure knowledge

economy spending

Counting more than just scientific R&D

• Count a wider range of intangible spending• Upstream: more than just R&D• Upstream spending also on • design, • software, • Creative endeavour (books, films etc.)

• Downstream: associated coinvestment with commercialisation of knowldege

• marketing, • training • organisational change

• Overall: innovation spending on intangible assets

Broader view of knowledge spend: intangible investment

A. Computerized information• Computer software (bought in, own account)• Computer databases

B. Scientific and creative property• Science and Eng R&D spending, usually leading to a patent/licence• Mineral exploration (mostly R&D in oil and minerals)• Artistic originals (mostly R&D in creating artistic originals)• Other product development, design, research, usually not leading to a patent/licence (I.e. non-

scientific R&D spend)• product devel costs in fin svcs• architect and eng design• R&D in soc sci and humanities

C. Economic competencies• Brand equity (to develop reputation capital via branding or trademarks)• Firm-specific human capital• Organizational structure (organisational capital)

Summary of results

•1997: Tang invest = £81bn, knwlg invest = £76bn

•2005: Tang invest = £96bn, knwlg invest = £117bn

Memo: GDP £1,500bn

RBS toxic asset insurance £270bn

Intan investment by type (% total)

17.8

24.3

2.6

9.1

0.3

12.0

6.1

5.2

0.2

0.3

7.9

14.3

15.0

22.4

1.8

10.4

0.4

11.1

6.3

6.4

0.2

0.4

9.6

16.0

0.0 5.0 10.0 15.0 20.0 25.0 30.0

Organizational structure

Firm-specific human capital

Market research

Advertising

R&D in social sciences and humanities

Own-account architectural & engineering design

Purchased architectural & engineering design

Financial services innovation

Copyright licenses

Mineral exploration

Scientific R&D

Software

%

2000

2004

Research agenda

• Improve measures of spending on this expanded group of assets (expand the R&D survey)

• Better understand effect of this spending on GDP• Policy: better understand the market failures that might

make private spending suboptimal (e.g. knowledge spillovers)