Light On Dark Matter

I posted recently on the question of what makes up the “dark matter” intangible assets that today are most of firm assets. Someone pointed me to a 2009 paper of answers:


[C.I. = ] Computerized information is largely composed of the NIPA series for business investment in computer software. …

[Scientific R&D] is designed to capture innovative activity built on a scientific base of knowledge. … Non-scientific R&D includes the revenues of the non-scientific commercial R&D industry … the costs of developing new motion picture films and other forms of entertainment, investments in new designs, and a crude estimate of the spending for new product development by financial services and insurance firms. …

[Brand equity] includes spending on strategic planning, spending on redesigning or reconfiguring existing products in existing markets, investments to retain or gain market share, and investments in brand names. Expenditures for advertising are a large part of the investments in brand equity, but … we estimated that only about 60 percent of total advertising expenditures were for ads that had long-lasting effects. …

Investment in firm-specific human and structural resources … includes the costs of employer-provided worker training and an estimate of management time devoted to enhancing the productivity of the firm. … business investments in firm-specific human and structural resources through strategic planning, adaptation, reorganization, and employee-skill building. (more; HT Brandon Pizzola)

According to this paper, more firm-specific resources is the biggest story, but more product development is also important. More software is third in importance.

Added 15Apr: On reflection, this seems to suggest that the main story is our vast increase in product variety. That explains the huge increase in investments in product development and firm-specific resources, relative to more generic development and resources.

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  • Robert Koslover

    Is that chart consistent with the chart from your earlier column? It seems the earlier one showed a far more dramatic change, but the vertical axes were different. Comparing the two, it seems that intangibles went up moderately in terms of the percentage of “non-farm business output,” but enormously in terms of the percentage of “market cap”. Did I get that right? If so, what does that mean/imply?

    • Curt Adams

      Following up on this, the intangibles discussed here are a minority of “dark matter”. S&P capitalization exceed $15 trillion in 2013, so 80% of that is $12 trillion. 22% of 2012 nonfarm output of 22 trillion is $4.5 trillion. Since this estimate of intangibles seems pretty extensive, that suggests the majority of intangibles is unearned things like oligopoly power and speculative froth.

      • This chart is shows the flow, while “capitalization” is a stock. Stocks are usually bigger than flows.

      • Lord

        That would tend to imply these investments are much more productive than tangible investments, right?

  • Mck

    Are “firm specific resources” here including “human resources”? In some sense, the employees don’t show up on the balance sheet. The famous quote “all of our most valuable assets go home every night” is indicative of the power the particular people a firm employees…

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