Accounting for ideas: Bringing a knowledge economy into the picture

Abstract

Over the past 15–20 years, the margins of industrial classifications, corporate balance sheets and GDP have been altered to capture knowledge as a new category of value. This has resulted in the institutionalization of categories such as an information economy (1997), intangible assets (2001) and, most recently, a knowledge-adjusted GDP (2013) in these calculating technologies. By harnessing knowledge as a manageable and valuable object, these shifts are responding but also contributing to the concept of a knowledge economy. This paper investigates the conditions necessary to anchor these new categories of value. The analysis attends not only to the changing rules and regulations, but also to the rhetorics of visibility/invisibility, materiality/immateriality, and measurability/immeasurability used to make a case for these transformations.

Keywords:

• knowledge economy
• accounting
• intangible assets
• securitization
• GDP
• rhetoric

Acknowledgements

I would like to express my gratitude to the three anonymous reviewers for their astute insights. I also thank Susan Harding, Carel Smith, Lisa Rofel, Jack Amariglio, Alisa Puga, Donald Brenneis, John Marlovits, Annika Pot, Anna Tsing and Peter-Wim Zuidhof for their thoughtful comments and conversation. I thank Curt Ritter for permission to reproduce the CIT advertisements in this paper.

Disclosure statement

No potential conflict of interest was reported by the author.

Notes

1. The socio-economic category of a knowledge economy usually connotes a purported shift from an economy ‘based on natural resources and physical inputs’ to an economy ‘based on intellectual assets’ (Powell & Snellman, 2004, p. 215; see also Van Eekelen, forthcoming). It is, however, an amorphous object, produced by a motley mix of business analysts, artists, federal bank chiefs, ‘creatives’, accountants, philosophers populating the radical left, policy makers, and social scientists (e.g. Drucker, 1968; Florida, 2004; Moulier Boutang, 2011; Van Eekelen, forthcoming).

2. The North American Industry Classification System spans the United States, Mexico and Canada. Sector 51 is called Information (US), Información en Medios Masivos (Mexico) and Information and Cultural Industries (Canada) respectively.

3. This classificatory model for assembling and organizing data about economic activity within nation-states had come into its own in 1937, in the aftermath of the Great Depression (Guibert, Laganier, & Volle, 1971; Pearce, 1957).

4. A useful and diverse assessment of these terms has been provided in a 2004 special issue of Economy and Society [33(4)]. Rather than weighing its analytical usefulness, this paper tracks how the concept of a knowledge economy has become an object of management, knowledge or ownership in particular calculative regimes.

5. These new categories have subsequently been given a life in documents, conferences, and editorials organized by think tanks such as Michigan Future Inc. (Michigan, United States), European Knowledge Economy Platform (Europe), and Kennisland (the Netherlands).

6. In the sense that it was not ordered in a way that specifically delineated, included, and highlighted elements of a knowledge economy.

7. The USCB's category of an information economy is pitched at the level of industrial sectors.

8. I will discuss the ethereal definitions of intangible assets later in the paper.

9. What Nigel Thrift (2005) has called the ‘cultural circuits of capitalism’.

10. It appeared in the 31 March 2007 issue, a few months before the financial crisis unfolded. CIT went bankrupt in October 2009.

11. Goodwill is the part of a company's value that is not the material value (the net assets). It is defined as the difference between the price paid for a company minus the book value of equity. The value that cannot be accounted for is labelled goodwill.

12. Additionally, through this double movement of unpacking the economy, while repackaging it at the same time, they also inconspicuously sought to create a desire for their own financial services.

13. For an overview, see the Statement of Financial Accounting Standards No. 141 and No. 142 of the FASB, which was altered in 2001. The International Accounting Standards Board (IASB) changed its intangible assets section (IAS 38) in March 2004. While many nations have their own version of an accounting board, many are collaborating in the IASB to ‘streamline’ and ‘harmonize’ their standards for intangible assets, creating a smooth space of commensurable calculation. Australia, South Africa and Europe figure prominently among them.

14. They were by no means alone. Rhetoricians Deirdre McCloskey and Arjo Klamer (1995) offered a comparable although somewhat more modest impression, namely that by 1995, 25 per cent of the GDP was produced through ‘persuasion’. Peter Drucker (1968, p. 263) asserted almost 30 years earlier, in 1968, that in 1955, 25 per cent of the GDP was comprised of knowledge industries. In 1965 it was a third of the GDP, and in the late 1970s he estimated that half of all value produced would be attributable to a ‘knowledge sector’. By then, ‘Every other dollar earned and spent in the U.S. economy will be earned by producing and distributing ideas and information, and will be spent on procuring ideas and information’. The argument is thus a regularly recurring one, and is based on a variety of models. Drucker translated the census categories of ‘professional, managerial, and technical people’ to tabulate the new category. Walter Powell and Kaisa Snellman (2004, p. 201) identify a greater ‘share of the gross domestic product that is attributable to “intangible” capital’, but offer few specifics. Whatever the precise number, all these studies, ranging from accounting to rhetoric to business management, argue the percentage is significant.

15. A comprehensive list of intangible assets that could be recognized can be found in FAS 141 (pp. 28–32).

16. Ironically, the campaign Capital Redefined SM itself comprised a concrete example of the very intangible material CIT has sought to bring into the limelight as capital. In the finest, hardly readable print of the ad, we learn that ‘Capital Redefined’ was a service mark of the CIT Group Inc. Whereas a trademark identifies and distinguishes a particular good, a service mark identifies and protects the concept of a particular service. Service marks are any word, name, symbol, device, or any combination, used, or intended to be used, in commerce, to identify and distinguish the services of one provider from services provided by others, and to indicate the source of the services (United States Patents and Trademarks Office [USPTO], 2013a, n.p.). Since services may not exist in a stable tangible form (such as a soda can in the case of a good), advertisements are actually the place where service marks not only identify a particular service, but also where the mark itself, the sign of distinction, enters the world of the real. That is, when registering a trade or service mark, a specimen needs to be deposited, a ‘real-world example of how the mark is actually used on the goods or in the offer of services’ (USPTO, 2013b, n.p.). In the case of goods, actual use of a trademark can be proven by ‘[l]abels, tags, or containers’ (USPTO, 2013b, n.p.). Since services are not necessarily offered in an unchanging tangible form, ‘advertising such as magazine advertisements or brochures’ pass as real-world examples of the use of the mark’ (USPTO, 2013b, n.p., emphasis added). An advertisement, the place that is supposed to conjure an idea of reality, consequently also functions as tangible evidence ‘that a mark is in actual use in commerce’ (USPTO, 2013b, n.p.). It is a place or passage point where intangible goods such as service- and trademarks are materially documented, accounted for, and become part of the real.

17. Originally, the accountants organized themselves in the American Institute of Accountants. The FASB did not emerge until 1972.

18. Intangibles are actually also at the centre of much ‘Corporate Social Responsibility’ (CSR) advocacy – run by NGOs such as Amnesty International, as well as special units of pension funds or large corporations. These advocates for responsible investment try to cajole corporations to run their business more ethically. If not, they argue, the intangibles – reputation, brand value – will take a hit, meaning share prices will drop. CSR advocates, moreover, are very keen to use the rhetoric of calculative realism – reminiscent of mainstream accountants and economists discussed here – to make the negative cost of socially irresponsible activities ‘visible’.

19. The quality of lacking substance seems to perpetuate an idea-thing dichotomy, where the idea is immaterial and things are by definition material.

20. At the same time, through this and other technologies, intangibles are conceptually removed from the minds in which they take shape. The accountant's frame of ideas-as-assets makes ideas appear disentangled from people.

21. For a historical view on the rise of shareholder value, see Lazonick and O’ Sullivan (2000).

22. Identification can also happen through a legal grid, as when identification ‘arises from contractual or other legal rights (regardless of whether those rights are transferable or separable from the entity or from other rights and obligations)’ (FAS 141, §39).

23. The problem of valuing intangibles according to their market value, what is called mark-to-market, is that this process is pro-cyclical (see Blackburn, 2008, p. 102). If times are good, the market price for intangibles rises. Consequently, the value on the balance sheet increases, this value can be used as collateral for new loans, etc.

24. It is quite striking how ‘time’ matters and is mobilized in accounting for value. First, there is the question of establishing ‘past cost’ and ‘future revenue’. The latter can be tapped for ‘current credit’. Then there is the question of a currently active market, and the need for a historical track record of the valorization of like goods. Finally, there is the question of amortization with its conceptualization of finite/indefinite lives.

25. These services form new divisions of existing valuation businesses, such as Appraisal Economics Inc., or they have come into existence with the change of the FASB standards, such as the company Intangible Business.

26. Blackburn identifies the cost of value as one of the major drains in finance capitalism (Blackburn, 2006, p. 41).

27. One of the first economists to attempt to make knowledge readable as an object that could be subjected to economic calculations was Fritz Machlup (1962).

28. Economists therefore often resort to counting patents and citations (Foray, 2004, p. 11).

29. Whereas the idea/expression dichotomy makes an argument for the materiality of the copyrighted idea, the United States Copyright Office lists four types of ideational products that are (generally) excluded from copyright (2013a). The first concerns ‘works that have not been fixed in a tangible form of expression’. The second is an assortment of products, all belonging to the public domain: ‘Titles, names, short phrases, and slogans; familiar symbols or designs; mere variations of typographic ornamentation, lettering, or colouring; mere listings of ingredients or contents’. The third category of things excluded from copyright, important for the line of inquiry in this paper, consists of ‘ideas, procedures, methods, systems, processes, concepts, principles, discoveries, or devices, as distinguished from a description, explanation, or illustration’. The last category concerns ‘[w]orks consisting entirely of information that is common property and containing no original authorship’. This includes calendars and lists ‘taken from public documents or other common source’. The first and third groups reflect and reproduce the idea/expression dichotomy. The first category reiterates that ideas need to be expressed in a fixed and tangible form in order to be protected, and the third category suggests that these expressions could take the form of an idea's ‘description, explanation, or illustration’. The second and fourth categories draw a line around common property. That which is common knowledge cannot be subject to intellectual property arrangements.

30. Tangibles need to be separable too, they require an active market, etc.

31. See Fox Keller and Grontkowski (1983) for an excellent analysis of the long history of the imbrications of visibility and knowledge.

32. The visual aspects in the construction of our understanding of the economy have also been explored by Link (2004), Thompson (1998) and Tufte (2001).

33. See also Tribe (1978) for a history of the object of an economy.

34. The tension between making the economy visible by, for instance, charting it, while having as one of its main mechanisms an invisible thing – the hand – is of course at the heart of much economic theory. ‘[T]his unseen hand opens up a blind spot in the social field, yet holds the whole together. What is the social body to which it belongs? First and foremost, it is a body composed of things, a web of commodities circulating in an exchange that connects people who do not see or know each other’ (Buck-Morss, 1995, p. 450).

35. The claim that knowledge is a good that is somehow beyond measure is made not only by business analysts, macroeconomists and accountants. It is also a central claim in the discourse on ‘immaterial labour’ on the left. Hardt and Negri claimed (1994), for instance, that labour productivity had become immeasurable, because of its immaterial qualities (for critiques, see Henninger, 2007, p. 175; Toms, 2008). What interests me is the recurrent claim that (the production of) knowledge is somehow beyond numbers, that it is priceless, unmeasurable and invisible (see also Andriessen & Tissen, 2000; Blair & Wallman, 2001).

36. A case in point is trade secrets. While these particular intangibles are potentially tangible – e.g. customer lists materialize as letters on paper or dots on a screen, an idea can be entangled in material products and processes – they are only valuable if intangible and a secret. The FRB (2006, p. 12) argues as much, offering the Coca-Cola formula as an example: ‘many intangibles are specific to a firm and valuable, at least in part, because the firm is able to exclude competitors from gaining access to key information and technology’. In those cases, their value is held exactly in making them invisible and intangible: they bank on a hovering between creating a belief that ‘it’ is really there, and that ‘it’ cannot ever see the light of day.

37. In making a case that value can be located in other realms, the notion of invisible value also resonates with narratives that are critical of capital and capitalism, whereas intangible assets are, of course, at the heart of capitalism.

38. Documentation on the comprehensive review can be found at www.bea.gov/gdp-revisions (December 2013).

39. The GDP combines private consumption, public sector spending, investments and net exports. ‘Consumption’ by businesses is not measured, because it is presumed that besides investment, whatever enters the business will morph eventually into a product for sale (e.g. the salad bought by a restaurant will eventually be sold to a private customer, and enter the GDP as private consumption). Intangibles bought by a business are likewise considered a consumptive expense by a company.

40. It is striking how many of the tools used to create economic objects have been forged in the aftermath of the Great Depression. Many of the tools to assess national economies, industrial output and business statistics were developed and standardized in that period. Granted, the current crisis has been co-created through an undoing in the past 40 years of some of the very provisions that were created in the Great Depression, but it is still striking how much of the basic vocabularies, categories, and orderings that are considered commonsensical originate in this period. Our current understandings of what counts as an economy, as productive activity, and as value are mediated through this prism.

41. While these economists take the stability of the economy to be the foundation for the existence of intangibles, I have hypothesized elsewhere that it was actually economic instability, and more particularly, a crisis in value production, that lay at the heart of this reconfiguration of value (Van Eekelen, forthcoming).

42. It is intriguing, although beyond the scope of this paper, to track the rather opaque terms that have arisen in the context of finance capitalism, both in its naturalization and in its critiques. To name three: ‘invisible balance sheet’ (Neftci, 2002); ‘shadow banking system’ (Tett & Davies, 2007) and ‘grey capital’ defined as ‘great clouds of institutionalized savings, including private pension money, entrusted to financial industry insiders’ (Blackburn, 2008, p. 74).

43. ‘Conceptual economy’ was a term that the Fed's former chairman Alan Greenspan frequently used to describe the US economy, which was less and less an economy of material production and more and more one revolving around ideas. He argued that the GDP was ‘conceptualizing’, meaning that ‘the fraction of the total output of our economy that is essentially conceptual rather than physical has been rising’ (Greenspan, 2003, n.p.; see Van Eekelen, forthcoming). An archive of his speeches can be found at http://fraser.stlouisfed.org/publication/?pid=452 (December 2013).

44. For an extended discussion, see Van Eekelen (forthcoming).

Additional information

Funding

Research for this paper was supported by a University of California Chancellor's Fellowship, an EUR fellowship from Erasmus University Rotterdam, and a NWO Veni grant [grant number 275-69-003].

Notes on contributors

Bregje F. van Eekelen

Bregje van Eekelen is Assistant Professor in History of Society at Erasmus University Rotterdam. She wrote her dissertation, ‘The social life of ideas: Economies of knowledge’ at the University of California, Santa Cruz. She is currently working on a 4-year NWO (NSF) funded project on the history of creative thinking in military and industrial settings in the United States, 1930–1965.