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September 21, 2005
Creating an intangible asset
For most people, the term "intangible asset" brings to mind intellectual property — patents, copyrights, trademarks — what we call intangible goods. It may, for regular readers of this blog, also bring to mind what we call intangible competencies, such as leadership, creativity, innovative processes, etc.
However, accountants have long recognized an extensive list of intangible goods — rights that can be bought or sold. Some of these are customer contracts, client lists, distribution networks, distribution rights, development rights, food recipes, franchise agreements, noncompete covenants, leasehold interests, procedural manuals, solicitation rights, subscription lists, and supplier contracts. For a full listing see our white paper, Reporting Intangibles.
The examples listed above are based on organizational know-how, business relationships and contracts. However, a number of intangibles are government created, in the form of a grant of a right. These include airport gates and landing rights, broadcast and other FCC licenses, permits, and use rights such as drilling, water, air, mineral, timber cutting, and route authorities.
A new example of a government created intangible comes from the Administration's new plan for tradable fishing rights— see Rule Changes Are Proposed for Fisheries — New York Times:
The Bush administration on Monday proposed using market-based incentives to govern saltwater fishing in certain areas, a tradable ticket to fish designed to impose order in waters prone to overfishing.A version of the system is already in operation — see Bush Aims for Market Approach to Fishing - Washington Post:
In Alaska, for example, fishermen are granted a portion of the allowed halibut catch and can trade these quotas among themselves; in most U.S. fisheries, regulators govern the annual catch by limiting how many days fishermen operate and how much they collect each trip.Needless to say, the proposal is not universally endorsed:
But the move to give fishermen private property rights to a public resource, along with the administration's overfishing plan, angered many environmentalists who say Bush's proposal does not do enough to protect overexploited fish stocks.
There is nothing new in government creation of private property rights to a public resource. Tradable pollution rights have become a stable of market-based environmental protection systems.
In fact, some argue that the entire intellectual property rights system is the government creation of private property rights to a public resource. It is certainly a government created property right — a state grant of an economic monopoly, as Judge Richard Posner, a leading conservative/libertarian thinker has pointed out. (For more on Posner's views on IPR, see Landes and Posner, The Political Economy of Intellectual Property Law.) The argument that ideas are a public, rather than a private, resource is a little more involved (see for example James Boyle, The Second Enclosure Movement and the Construction of the Public Domain).
The question I have is whether once created, the government can eliminate or take away these rights? If the market place is to operate efficiently, the stability of property rights and contracts must be adhered to. On the other hand, these grants were given for a specific public purpose — in this new case to prevent overfishing. Do these rights then become so entrenched as to out live the public good they were meant to improve? Isn't that partially what happened in 17th and 18th Century France when so many state-granted rights not only impeded economic development but help spark a revolution?
Posted by Ken Jarboe at September 21, 2005 9:23 AM
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