X-From_: DANIEL.DAVIES at flemings.com Tue Feb 22 11:20:23 2000 From: DANIEL.DAVIES at flemings.com X-Lotus-FromDomain: FLEMINGS PRODUCTION To: owner-lbo-talk at dont.panix.com Date: Tue, 22 Feb 2000 16:19:12 +0000 Subject: Re: bull market reasoning Mime-Version: 1.0
>Daniel, if research is an expense from a company's pt of view--and do note
>that through threats of lawsuits, companies do lay claim to employees'
>brains if they venture off--is it still not an investment in so called
>human capital from what you call the whole-economy level? Isn't this a
>problem of externalities that economists like Paul Romer and Richard
Nelson
>have been dealing with? Wouldn't know.
Don't know enough about Romer et al myself to engage with this bit of yr post, sorry, tho' Brad DeLong will know more than enough for both of us. My comments:
1) I tend to be sceptical of companies which believe that they can enforceably own ideas inside their employees' heads. There's a little bit of case law, but also a lot of urban myths.
2) In as much as research and development is consumption foregone today in the hope of greater consumption tomorrow, it's clearly investment in some generalised, economist's sense of the word. But the actual practical import of this is not clear to me. Spending on research has the same effect on measured GDP whether it's called investment or consumption. If you prefer to call it "human capital" and put it on a national balance sheet, you can, but I'd personally prefer to have a "total capital" number that could be verified and live with a varying and increasing productivity of (physical) capital. In any case, we're agreed that the investment is (largely) external, implying that whoever's balance sheet it shows up on, it shouldn't be that of the company that spent the cash.
3) Also worth reminding ourselves that *we're* thinking about putting useful inventions like Zantac and Viagra on the national balance sheet. Baruch (and Sir David Tweedie, and the rest of the mob) want to see Nike and Coleman's Mustard as national assets. I really can't get my head round this at all -- unless we're going to go all the way into assuming that people actively enjoy owning branded goods, in the same way that they enjoy art and music. Which to me seems false to the subjective experience of buying brands. So how do we acount for them? Rakesh? Stuart? Doug? Kelley? Wojtek?
I once spent a riotous evening with a b-school bud and a graduate student of Roger Scruton's. The Scrutonite was describing his research on various topics in aesthetics, and the two suits present were attempting to apply his theories to the valuation of intangible assets. Things got very messy very quickly.
dd
Yours, Rakesh
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