Knowledge-based capital as a tool to stimulate innovation and economic growth?

When OECD is talking about intellectual asset management and knowledge based capital as key to further economic growth it is worth while spending some weekend hours away from the usual suspects. 

Newly an interesting new report from OECD on Intellectual Assets was published.

OECD is using the term "knowledge-based capital" (KBC) to describe intangible assets including R&D, data, software, patents, designs, new organizational processes, business models, workforce skills and firm-specific skills. The report looks specifically at public policy in the areas of innovation, taxation, entrepreneurship, competition, corporate reporting and intellectual property. One of the key findings where that countries that invest more in knowledge based capital are also more effective in reallocating resources to innovative firms. “As a share of gross domestic product (GDP), the United States and Sweden invest about twice as much in KBC as Italy and Spain, and patenting firms in the United States and Sweden attract four times as much capital as similar firms in Italy and Spain.”

Most OECD member countries use tax incentives to encourage businesses to invest in research and development to boost innovation and drive economic growth. Other governments like China, India and South Africa, are doing the same. 

But reforming these incentives would give countries a better return on their investment and support young innovative firms that play a crucial role in job creation.

The report says over a third of all public support for business R&D in the OECD is via tax incentives. Multinational companies benefit the most, as they can use tax planning strategies to maximise their support for innovation. This can create an inequitable situation that disadvantages purely domestic and young firms, says the OECD.

OECD is summarizing the background of the report like this:

“Investment and growth in OECD economies is increasingly driven by investment in intangible assets, also known as knowledge-based capital (KBC). In many OECD countries, firms now invest as much or more in KBC as they do in physical capital such as machinery, equipment and buildings. This shift reflects a variety of long-term economic and institutional transformations in OECD economies.

The rise of KBC creates new challenges for policymakers, for business and for the ways in which economic activity is measured. Many policy frameworks and institutions are still best suited to a world in which physical capital drove growth. New thinking is needed to update a range of policy frameworks – from tax and competition policies to corporate reporting and intellectual property rights.

To address the rise of KBC – and contributing to the OECD’s work on new approaches to economic challenges – the OECD is undertaking work which aims to:

• Provide evidence of the economic value of KBC as a new source of growth; and
  
• Improve understanding of current and emerging challenges for policy, in such areas as taxation, competition, intellectual property rights, personal data, and corporate reporting”
  

Those who care about economic growth (and that should be everyone), a full reading of the report is recommended.