FQ.07.27: Favorite Quote for This Week

[Intangible capital is] the preponderant form of wealth.  When we look at the shares of intangible capital across income classes, you see it goes from about 60 percent in low-income countries to 80 percent in high-income countries.  That accords very much with the notion that what really makes countries wealthy is not the bits and pieces, it's the brainpower, and the institutions that harness that brainpower.  It's the skills more than the rocks and minerals.
—Kirk Hamilton

Comments

[ilsm]

"skills"........

Interesting term, I can think of a few others.

[Someone dumb]

I wish I knew what that meant.

[Steve]

Mason:
It means that intangible assets, such as know-how, represent a far larger portion of the value of a nation or a business firm than measurable assets do, such as cash in the bank or square feet of office buildings. But intangible assets are too difficult for bean counters to measure, so they don't even try to count them -- and because they don't try, it makes things like the (measurable) $50 trillion "unfunded federal liabilities" that much scarier-looking for newspaper headlines. Accountants count what's easy to count, not what counts.

[pawnking]

Steve, speaking as an accountant and financial analyst, I would contend that accountants counting what's easy to count allows us to evaluate how well these things are used. Measurements such as Return On Investment, Internal Rate of Return, and such allow to evaluate the productivity of tangible assets, i.e. intangible assets.

I would contend that the tools for evaluating intangible assets are all there, just not properly used and appreciated by the financially illiterate.

[Steve]

pawnking:
You're right, some good work is in progress regarding reporting of intangibles (see the book by Baruch Lev). It will always be difficult to quantify (by definition), but it's the dark matter on the asset side that the doomsters never mention.

[Bob]

Steve,

I'm not sure the doomsters, in general, would know an asset from a liability if it hit them square in the face. Mention intellectual property and you get a blank stare.

I fault the MBA factories for a lot of this, though. They're good at spewing out accounting and financial knowledge but sorely lacking on organizational skills, ethics and integrity.

And I wish we would stop all the emphasis on what one knows an place more on how one uses it.