The Intangible Economy

While not as bad as economist had expected (see WSJ and NYT estimates), the BLS data on employment released this morning shows a stagnate labor market:

The number of unemployed persons (14.9 million) and the unemployment rate (9.6 percent) were little changed in August. From May through August, the jobless rate remained in the range of 9.5 to 9.7 percent.

In part, this may be function of more people looking for a job, as the labor force increased. The number of voluntary part time workers (see chart below).

However, as the chart below shows, both the number of involuntary underemployed (part-time for economic reasons) and the number of workers involuntarily underemployed because of slack work increased in July. The increase in slack work is especially of concern as it indicates a slight slowdown in production.

In my earlier posting on the HP - Dell bidding war for 3Par, I wondered how much of the valuation was due to a better understanding by the bidders of the target's intangible assets. Was there some hidden value that the market didn't see in the company -- especially for the acquiring company? It could well be, given that investors may value intangibles differently than an operating company.

Now comes word that the war is over and HP has won. Dell dropped out when HP raised its price to $33 a share. This is for a company that was trading at Dell was originally willing to pay $18 a share for and was trading at $9.65 before the bid was made.

Does anyone really believe that value of 3Par's intangible assets are almost 3.5X greater that what the market estimated? Maybe the $18 bid make sense, but I can't help thinking that the last price is nothing but froth.

It will be very interesting to see how HP books the value of those intangibles once the acquisition is finalized.

It has long been a truism in innovation studies that demanding customer are an important source of innovation. But how does public policy affect the creation of demanding customers? There are two possible lines of thought on this -- neither being mutually exclusive. The first is that of competition (anti-trust) policy. If consumers are given a choice, they will spur innovation. The second is that of government procurement. The government itself can act as a demanding customer to spur innovation. The standard case is that of military and space technologies.

But an interesting approach alternative approach might emerge from looking at OECD's new Consumer Policy Toolkit:

The OECD publication "Consumer Policy Toolkit" examines how markets have evolved and provides insights for improved consumer policy making. It explores, for the first time, how what we have learned through the study of behavioural economics is changing the way policy makers are addressing problems.

The Toolkit is process oriented. It does not make specific policy recommendations although it describes the array of policy options ranging from consumer awareness and education to prohibitions on certain activities.

Nor is specifically being touted as an innovation policy. Its goal is to help consumer protection policy makers "quickly respond to a rapidly changing and highly sophisticated marketplace."

But its implications for innovation policy is obvious. If consumers are better prepared to cope with the more sophisticated marketplace, they will be better customers. And better customers are more likely to be more aware of their needs -- and demand more from the goods and services being offered. That demand will spur innovation.

In a couple of earlier postings, I discussed how the German company managing the patent portfolio of the Deutsche Bank IP funds has gone bankrupt. While the funds are still operating, this raise the question as to whether this model of acquiring patents for further development is viable. The idea is to take technologies that are not yet ready for commercialization and finish the job. This is in contrast to the model of acquiring patents to already developed and being utilized technologies -- to gain the licensing revenues and legal assertion awards.

Now, according to the blog IP Finance, the Japanese are going to try a similar fund in life sciences. We will have to wait and see if they are any more successful.

In a number of postings, I have referenced the transformation of agriculture in the industrial age -- and its continuing transformation in the I-Cubed Economy. A recent story in the Economist -- "The miracle of the cerrado" -- highlights the most recent transformation in the case of Brazil:

In less than 30 years Brazil has turned itself from a food importer into one of the world's great breadbaskets
. . .
And Brazil has done it without deforesting the Amazon (though that has happened for other reasons). The great expansion of farmland has taken place 1,000km from the jungle.

The reason for this success: Embrapa -- Empresa Brasileira de Pesquisa Agropecuária, or the Brazilian Agricultural Research Corporation. The article cites four activities key activities:

although it is true Brazil has a lot of spare farmland, it did not just have it hanging around, waiting to be ploughed. Embrapa had to create the land, in a sense, or make it fit for farming.
. . .
Second, Embrapa went to Africa and brought back a grass called brachiaria. Patient crossbreeding created a variety, called braquiarinha in Brazil, which produced 20-25 tonnes of grass feed per hectare, many times what the native cerrado grass produces and three times the yield in Africa.
. . .
Third, and most important, Embrapa turned soyabeans into a tropical crop.
. . .
Lastly, Embrapa has pioneered and encouraged new operational farm techniques.

But as the article goes on to point out:

Brazil's agricultural miracle did not happen through a simple technological fix. No magic bullet accounts for it--not even the tropical soyabean, which comes closest. Rather, Embrapa's was a "system approach", as its scientists call it: all the interventions worked together. Improving the soil and the new tropical soyabeans were both needed for farming the cerrado; the two together also made possible the changes in farm techniques which have boosted yields further.

In other words, they used information, intangibles and innovation to work a transformation. Not too bad for a sector that is often written off as old fashion and no longer important.