Three discussions on the changing economy

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Over the past few weeks there have been a number of meetings and conferences on the economy. Here are videos of three I found most interesting.

Making Sense of the Information Economy: A Mixed Record? is one session of a larger conference on What's Wrong with the Economy--and with Economics? put on by The New York Review of Books. Most of the other sessions deal with the state of the economics profession. This session deals with a particular part of the economy. I was particularly interested in Shoshana Zuboff's overview of what she calls the "advocacy capitalism" versus "surveillance capitalism" forms of the digital economy and society -- including how this affects the relationship between buyer and seller.

The Hutchins Center Explains: Productivity slowdown was a meeting at the Brookings Institution of three noted economic experts on productivity. The problem is that they (and other economist) can really explain changes in productivity. Martin Baily offers a myriad of possible factors, including conflicting theories of the rate of innovation. Of special interest to me was Harry Holzer's call for "incentives and assistance for employers to go 'higher road'." While this was mentioned just in passing, resurrecting the notion that high performance organizational structures matters is a good idea. [For more, see my earlier paper Time to Get Serious About Workplace Change.]

Then there was last week's Institute for New Economic Thinking conference New Economic Thinking: Liberté, Égalité, Fragilité. The opening plenary on economics and inequality is available on-line [note that the event does not start until 23 minutes into the video and the panel discussion with Angel Gurria, Thomas Piketty and Joseph Stiglitz does not start until 55 minutes into the video]. Papers and presentations are also available. Angel Gurria's (Secretary General of the OECD) discussion of how inequality hurts economic growth was especially of interest. I was also interested in Andy Wyckoff's presentation "Innovation & Inequality: Exploring the Role of KBC and Business Dynamics" [note: KBC stands for Knowledge-Based Capital aka intangible assets].

Happy viewing.

Customer data is an asset - or it is?

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By now you probably know that RadioShack is going through bankruptcy proceedings and closing stores. Last week, the bankruptcy court approved a plan to sell the company to the hedge fund Standard General who would co-locate the remaining stores with Sprint stores. (The sale is actually to the General Wireless subsidiary of Standard General). But, as the Wall Street Journal reports, General Wireless/Standard General appear to only be getting the stores and the workers:

The new RadioShack has only temporary rights to its name and certain patents as it gets back on its feet. Unless Standard General comes up with more money, RadioShack might need a new name after six months.

Rival bidder Salus has first claim on the RadioShack intellectual property, including the trademark, patents and customer lists.

Owed $150 million, Salus will get only partial payment out of the sale to Standard General. The intellectual property could be sold separately, and it could be sold to Standard General. However, Salus is in active talks with other potential buyers of RadioShack's intellectual-property, valuation adviser David Peress, of Hilco Streambank, said in court. [Hilco Streambank is handling the sale of the intangible assets.]

Now, here is where it get really interesting. Some of those intangible assets may not be assets after all. Specifically, customer lists may be subject to privacy laws that restrict their transfer to another owner. According to stories in the Washington Post and Bloomberg Business, the Attorney Generals of Texas and Tennessee have raised the possibility of filing suit to stop RadioShack from selling its customer lists. And, according to AdAge, the New York Attorney General is looking at the case. They argue that RadioShack made an explicit promise when it collected the data to not sell their customer lists. Since the sale of the lists would violate the company's privacy policies, they argue that it also violates state law.

These lawsuits might be a bit of a stretch. What the stories don't point out is that there is already a process to deal with these cases. The Bankruptcy Abuse Prevention and Consumer Protection Act of 2005 contains a specific set of provisions known as the Consumer Privacy Ombudsman provisions. This part of the bankruptcy code describes what type of data/information is or is not considered protected under privacy restrictions. It also sets up a process to appoint a Consumer Privacy Ombudsman to report to the court as to what data is protected, what may or may not be sold and under what conditions. For example, in one case, the buyer was required to contact those on the list and allow them to be removed (an "opt out" process). The goal of these provisions is to balance the traditional mission of a bankruptcy court to maximize repayment to the debtor (by maximizing the sale of all assets) with individual's privacy rights. [See here for a more detailed explanation of the law.]

The ruling by the Ombudsman can be complicated by the lack of a standard privacy clause. Some companies, such as Google and Facebook, have clauses in their privacy policies explicitly allowing the transfer of customer data in cases of an ownership change or asset sale. However, even in these cases questions can remain, such as which version of the company's privacy policy applies: the policy when the data was first collected or the most recent policy? And who collected the data: the parent company or an independent franchisee?

It remains to be seen what will ultimately happen to RadioShack's intangible assets. In the RadioShack case, the appointed Ombudsman has told the court that the lists are not yet being sold. Therefore she does not have a report for the court at this time. Obviously the Ombudsman needs to know the terms of any deal before making findings and recommendations.

But regardless of the final outcome, the case raises interesting questions about how these assets are restricted and how they may or may not be utilized. One more factor to take into account when managing your intangible assets.

March employment in tangible and intangible industries

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Today's job numbers from BLS are only somewhat ok. Employment is up by 126,000 in March with the unemployment rate staying a 5.5%. Economists had expected an increase of 245,000 jobs.

Employment in tangible producing industries grew by a meager 25,700 in March. Employment in Manufacturing, Construction & Mining and Tangible Business Services all declined. Intangible producing industries added 100,400 jobs with most of that gain in Educational & Health Services. (See tables below.)

As the charts below shows, U.S. employment in tangible producing industries and intangible producing industries is just about equal. Up until March, employment in tangible producing industries had been growing slightly faster than in intangible producing industries.

For more background on this data, see my earlier posting.

Mar 2015 tangible & intangible employment.png

Mar 2015 parts.png

Update on new trade data process

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As part of this morning's trade data release, BEA announced that it and Census would be releasing an advanced estimate of trade data to be incorporated into (and improve the accuracy of) the advanced estimate of GDP (see BEA's blog announcement)). The advance estimate of the June trade data will be release July 30 (the same day as the 2nd quarter GDP advanced estimate) with the regular report released on August 5. Note that the regular report will still be subject to the standard revisions (the next month and after 6 months).

February trade in intangibles

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Good new this morning on trade. According to data from BEA, the U.S. trade deficit dropped by $7.2 billion in February to $35.4 billion. The bad news is that exports were down $3.0 billion and imports were down $10.2 billion. The slowdown in trade may be attributable to the bad weather and a West Coast dock strike. Interestingly, our deficit in petroleum products also dropped, due to falling oil prices.

However, our surplus in pure intangibles declined again slightly in February after a drop in January. Exports were down while imports were up. The surpluses in maintenance & repair services grew with an increase in export and a decline in imports. The surplus in financial services did just the opposite, declining as exports went down and imports up. The deficit in insurance services improved slightly. Net revenues from the use of intellectual property dropped slightly as revenues from foreign sources (exports) were up but charges for the use of intellectual property paid out to foreign sources (imports) increased more. The surplus in business services continued to grow a long string of declines last year.

Our Advanced Technology deficit once again improved in February to $3.1 billion. And once again the improvement was due improvement in the Information and Communications Technology (ICT) deficit as imports dropped by $2.3 billion even though exports were down $1 billion.

Advanced Technology goods also represent trade in intangibles. These goods are competitive because their value is based on knowledge and other intangibles. While not a perfect measure, Advanced Technology goods serve as an approximation of our trade in embedded intangibles. Adding the pure and embedded intangibles shows an overall surplus of $11.8 billion in February compared with $9.9 billion in January. Again, much of this was due to the lower ICT imports.

Intangibles trade-Feb15.png

Intangibles and goods-Feb15.png

Intangibles trade parts-Feb15.png

Oil goods intangibles-Feb15.png

Note: I am now reporting the trade data using the new BEA classifications for services trade, which breaks services into more categories. In the past, the intangible trade data was the sum of Royalties and License Fees and Other Private Services. Under the new classification system, intangibles trade data is the sum of the following items: maintenance and repair services n.i.e. (not included elsewhere); insurance services; financial services; charges for the use of intellectual property n.i.e.; telecommunications, computer, and information services; other business services.

Charges for the use of intellectual property n.i.e. is simply a renaming of Royalties and License Fees. This includes transactions with foreign residents involving intangible assets and proprietary rights, such as the use of patents, techniques, processes, formulas, designs, know-how, trademarks, copyrights, franchises, and manufacturing rights.

Maintenance and repair services n.i.e., financial services, and insurance services, were previously included in Other Private Services. Telecommunications, computer, and information services is a combination of those two items (telecommunications and computer & information services) that were also previously included in Other Private Services. Three categories previously in Other Private Services -- education-related and health-related travel and the expenditures on goods and services by border, seasonal, and other short-term workers -- were removed and reclassified to travel. The new category of other business services is a continuation of the older category Other Private Services with those components removed.

Thus, other business services includes categories such as advertising services; research, development, and testing services; management, consulting, and public relations services; legal services; construction, engineering, architectural, and mining services; and industrial engineering services. It also includes personal, cultural, and recreational services which includes fees related to the production of motion pictures, radio and television programs, and musical recordings; payments or receipts for renting audiovisual and related products, downloaded recordings and manuscripts; telemedicine; online education; and receipts or payments for cultural, sporting, and performing arts activities.

For more information on the changes, see the March 2014 Survey of Current Business article, "The Comprehensive Restructuring of the International Economic Accounts: Changes in Definitions, Classifications, and Presentations."

    Note: the views expressed here are solely those of the author and do not necessarily represent those of Athena Alliance.

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