Brendan Keenan: Intangibles are a real asset in measuring the economy
Never repeat yourself, has always been my motto. Well, not for a month or so anyway. But events and complications compel a quick return to last week's musings on the vexed question of GDP and other statistics.
The event was the 'business leaders' conference organised by the employers' group Ibec. The complication was that its chief executive, Danny McCoy, took the unusual position of embracing GDP, at least partially, rather than the more common view that it should be consigned to oblivion.
One can appreciate his point that GDP is the official, international measure of an economy. If that measure is saying the Irish economy grew by almost 8pc last year, what's not to like? But in his view, it is not just a question of looking good on the international scene; there is more substance in the figure than talk of leprechauns would have you believe.
It is certainly a mistake to think that any number - GDP, the new GNI* or whatever - can fully reflect reality. Even combinations of data need careful interpretation. The search for truth in statistics may have had much to do with the policy mistakes which led to the financial bubble. Alan Greenspan's bathtime study proved less useful than a certain well-known Irish economist's dismay at the building sites of Longford.
The current economic reality outlined by Mr McCoy certainly feels more like the boom portrayed by GDP than the modest but healthy growth in the modified figures. The workforce is back at its boomtime peak of 2.2 million, even though that figure contained an unsustainably large number of construction workers, whereas now there are not enough of them for the jobs that need to be done.
Disposable incomes are growing at 5pc a year, and all this with no assistance from borrowing. It could make one wonder whether, even if achieved, stripping out all the fancy and intangible stuff from the multinationals actually would give a more realistic picture of the Irish economy.
The Ibec chief suggested it would not. In his view, Ireland has become a resource economy, with the intellectual capital on corporate balance sheets the resource. Resource economies, usually based on oil or minerals, have a bad reputation because the profitability of resource extraction closes off other activity, and then the resources run out.
But until they do, no-one would think of leaving them out of GDP.
Intellectual capital is not finite. It can be renewed continuously, by research, development and sheer imagination. Better than oil or gas, said Mr McCoy, so don't be afraid of intangibles - the subject for the keynote speaker at the conference.
He was professor Jonathan Haskel of Imperial College London, author of 'Capitalism without Capital', which charts the rise of intangibles with the emergence of the new intellectual property corporate behemoths.
In the past, tangible investment in things like machinery would have been greater than spending on more nebulous assets like design, brand recognition or patented intellectual property itself.
But this has been reversed since the tech boom and the intangible now exceeds the tangible by a significant margin. The results can make the task of finding a meaningful measure for GDP seem simple by comparison.
In an analysis of the latest UK figures, Dr Haskel reckons that the apparent loss of productivity causing so much concern in Britain has much to do with the rise of intangibles. Investment in intangible assets has been greater than in tangible ones in all but two years from 2000-2015, according to estimates. Behind this is the change in the mix of industries which goes on all the time as some grow, or shrink, faster than others.
Employment patterns in telecommunications, finance and manufacturing industries made considerable contributions to the fall in productivity.
Dr Haskel says much of this seems to be due to a drop in the rate at which labour is flowing to high productivity industries. That may be a cause for concern, or a sign of the times we live in, or both. One thing we can be sure of in Ireland is that the bulk of the intellectual property is held on multinational balance sheets and we are entitled to be concerned that our own may not be getting renewed as quickly as it should.
To be fair, this was the thrust of Mr McCoy's speech. He may be more willing than some to see merit in the multinational numbers but that is of no use if the rest of the economy does not keep up.
As with all Ibec gatherings, competitiveness was a major theme.
The chief executive asserted that we are burning through it at a faster rate than in the great bubble, driven largely by wage demands to meet soaring accommodation costs. But it turns out there are difficulties with measuring competitiveness too, and for much the same reasons.
The standard measure is the Harmonised Competitive Index (HCI) which, according to the ECB, aims to provide "consistent and comparable measures of euro area countries' price and cost competitiveness".
It may be failing in that objective.
In a paper available on the 'Irish Economy' website, professor Frank Barry of TCD argues that, like much EU harmonisation, trying to have everyone do things the same way ends up hiding differences rather than providing data which might assist in reducing the differences.
And nowhere is more different than Ireland. Wages may be the single most important determinant in competitiveness, but they are not the only one.
Exchange rates matter.
The importance of sterling and the dollar in Irish trade means they matter more here than elsewhere. After Brexit, sterling volatility could make them matter even more. The HCI does not cover them properly, Dr Barry says.
The bottom line (or maybe it's the top line) is not wages but unit labour costs - what a firm pays to produce a unit of its goods or services. That depends, not just on what the workers earn, but how many units they produce - productivity. Enter our little friend with the green hat and the red beard.
"Labour productivity in certain sectors of the Irish economy is extremely high by international standards, because of the unusually strong presence of foreign-owned MNCs and their assignment to Ireland of returns on patents derived from research and development largely conducted elsewhere," the Barry paper says. It calls for a HCI* (my acronym) which would allow for the distortions in the same way the CSO's GNI* does for national income. As presented, the HCI shows a gain of around two percentage points since recovery got under way in 2014. But there was a fall of around five points last year, which may help explain Mr McCoy's concern.
One might say that some loss in competitiveness is in order, given the economy's recent performance, but this would have to be based more on instinct than reliable data. Ibec is on surer ground when it complains about the indisputable decline in the public sphere: to which it seems must now be added the once excellent GP service.
The only asterisks that requires are the ones which appear in printed swear words.