Streamline Training & Documentation: A Nation's Intangible Wealth

Tuesday, October 02, 2007

A Nation's Intangible Wealth

Just about a year ago I devoted a pair of posts to the subject of a firm's intangible assets.

Now Ronald Bailey has written an article for the Wall Street Journal that elucidates the importance of intangible assets at the national level. Bailey opens with a telling comparision:

A Mexican migrant to the U.S. is five times more productive than one who stays home. Why is that?

The answer is not the obvious one: This country has more machinery or tools or natural resources. Instead, according to some remarkable but largely ignored research — by the World Bank, of all places — it is because the average American has access to over $418,000 in intangible wealth, while the stay-at-home Mexican's intangible wealth is just $34,000.

The rest of the article addresses what a country's intangible wealth consists of, how it is measured, and how it affects employees' productivity. Bailey's principal source is a study published by the World Bank in 2005: "Where is the Wealth of Nations? Measuring Capital for the 21st Century."

In brief:

What is a nation's intangible capital? It's such factors as "the trust among people in a society, an efficient judicial system, clear property rights and effective government."

How is intangible capital measured? Statistical analysis enabled the authors of the report to quantify the importance of such institutions as education and the rule of law for a country's intangible wealth. For instance,

The rule-of-law index was devised using several hundred individual variables measuring perceptions of governance, drawn from 25 separate data sources constructed by 18 different organizations. The latter include civil society groups (Freedom House), political and business risk-rating agencies (Economist Intelligence Unit) and think tanks (International Budget Project Open Budget Index).

What is the impact of intangible capital?Both in its own right, and through more or less efficient combination with other types of capital (e.g., natural resources and equipment), intangible capital enables workers to be more productive — indeed it enables them to be decently productive in the first place, before you even get to the issue of enhanced productivity due to increases in the stock of capital.

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Labels: Business acumen, Productivity

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