1. Jonathan Haskel Managing knowledge spaghetti, Imperial, March 2009 How much does the UK invest in innovation?

2. 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?

3. 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

4. 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

5. 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)

6. 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

7. Intan investment by type (% total)

8. 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)