Intellectual Capital as a driver of the global economy

A conversation with Robert McGarvey.

“Not that the conventional mind set is wrong, in many ways it’s right by definition – it is the way things are in the real world. But I do believe that the value of intangibles is also real, intangibles do generate significant earnings for many companies and if handled properly can have solid (collateral) asset value.

In my view conventional thinking about non-traditional assets is predicated on a few misunderstandings:

(1) Few people are aware that economies transition from one asset class to another. Many people I speak to are dumbfounded when I point out that all this has happened before, with enormous consequences. Quite frankly it just doesn’t seem possible that changes of that magnitude could be happening around them - without their awareness.

(2) Few are aware of the explosive growth in non-traditional assets, and even fewer are aware that the vast majority of GDP is attributable to intangibles. As a result many consider intangibles marginal in economic and business terms. (The accounting treatment of intangibles as “Goodwill”, which amounts to ignoring IP is at the root of the problem). In practice these blind spots, limitations in peoples’ thinking are the opportunity, but they also mean that intangibles are going to have a difficult time gaining equivalence with traditional assets.

(3) Very few professionals in the field are aware of the significant ‘hardening’ of intangible assets in recent years. There have been a number of legal rulings, a great advance in accounting standards (IASB and FASB), a huge amount of independent research (at NYU and others), new securities regulations etc. and there is obviously much greater skill now-a-days in building and exploiting software and other intangibles in business circles. All these changes, taken together, are slowly strengthening the asset quality of intangibles. Nevertheless, there are (at present) few secondary markets for IP that could provide the independent, third party verification of intangible market value that would give comfort to many conventionally minded people.

(4) More importantly perhaps, even among those people who are in the IP business few are aware that the most valuable of the non-traditional assets are “informal” relationship based forms of customer equity, brands, etc. These assets are very real, own-able, and tradable etc, and are informal in that they are not legally defined in the same way as the formal forms of IP such as patents, copyright materials and trademarks etc.