[Viewpoint] Coming to grips with the intangible
Our world consists of things we can see and touch and those we cannot. It often seems that the things we can see with the naked eye have been most responsible for the small triumphs in our lives. But when we look back at our trajectories, we realize that often it was the imperceptible that brought about our decisive triumphs.
Now that we have turned the corner after experiencing a global financial crisis, we must start contemplating how to direct the Korean economy toward new growth and sustainability.
We can only choose the right path for the future after a judicious look at our past travails. Corporate investment has always, and will continue to play, a pivotal role in stimulating growth and prosperity. Brisk investment can create jobs and boost growth potential.
But when we speak of investment, we generally refer to palpable physical assets. In fact, a company can invest in tangible or intangible assets. Tangible assets are things that have physical value, like equipment, factories and buildings. Intangible assets without physical attributes are corporate brands and intellectual property rights, like copyrights and patents.
Advanced countries are busy estimating the intangible assets of their economies to study how investment in these nonphysical assets can contribute to economic growth and labor productivity. The United States has been most quick in this area, transforming from a manufacturing-based economy to one based on intangible assets.
U.S. investment in intangible assets in early 2000 reached as high as $1.2 trillion, accounting for 13.1 percent of its gross domestic product - a size that eclipses our own country’s GDP. Moreover, American investment in intangible assets exceeded tangible investment by 20 percent.
Meanwhile, Japan’s investment in intangible assets made up a mere 7.6 percent of its GDP. In contrast to the U.S., Japan’s investment in intangible assets reached just 30 percent of its investment in tangible assets. Japanese economists point out Japan’s productivity has been lagging behind America’s in recent years because of the disproportionate amount of physical investments. Looking beyond what meets the eye - and acting on it - has made the difference in competitiveness between the two countries in recent years.
At this critical point of seeking a new growth paradigm, we must redefine the concept of investment. The proportion of capital investment in fixed, tangible assets in our GDP is not small compared to other advanced markets, especially when their economies were the size of ours.
To demand that companies increase spending in facilities may not be efficient or productive. While encouraging continued investment in physical assets, the government should encourage a more active corporate focus on developing innovative, intangible assets.
Investment in intangible assets are myriad. In the past, we usually targeted intangible assets in science and technology, such as software and databases. But advanced markets have stretched into such intangible fields as copyrights and patents in the film and music industries, as well as new financial instruments.
Strengthening corporate and company brand power via advertising spending, studies in corporate behavior, training and honing work skills, business methods and organization are all deemed valuable investments in future growth.
We too must reassess the concept and strengths of intangible assets and muster energy to expand in that field. It is high time that we grow out of our obsession with the traditional concept of capital investment. Our economy had been largely driven by manufacturing and aggressive facility expansion. We must seek out a new competitive edge through investment in intangible assets.
In recent years, facility investments failed to create enough jobs. Investment in intangible assets is a direct investment in manpower, or new talents and jobs. The more the economy grows, profit from investment in physical assets will decline. But returns from intangible assets will grow.
We must draw up a new paradigm to steer the economy. The first job should be ways to promote investment in the indiscernible with an eye on longer-term growth and further economic triumphs.
*The writer is a professor of economics at Sungshin Women’s University.
Translation by the JoongAng Daily staff.
by Kang Suk-hoon