Alberta’s economy has lurched toward crisis and panic this year. With the energy industry floundering, is there an alternative economy that could lead Alberta out of the wilderness?
Surprisingly there is. And we don’t have to start from scratch to renew growth. The resources are right in front of us, hidden in an obscure place called intangible assets.
But if these new assets are so valuable, why can’t we see them?
Productive intangible assets exist in great numbers in Alberta. But they’re invisible because of our antiquated accounting protocols and financial reporting standards.
What can we do to change this undesirable situation?
A good place to start would be accepting that modern capitalism is in transition.
Studies conducted by the World Bank suggest that intangibles contribute more than three-quarters of all value in the modern economy. Intangibles, including services and intellectual forms of property – such as apps, algorithms, social media networks, patents, copyright materials and software – are dominating the economy.
Yet almost none of this intangible asset wealth appears on corporate balance sheets. Nor is it adequately incorporated in governments’ gross domestic product or productivity statistics.
The rise of intangibles is the most significant transformation in capitalism since the industrial revolution. And it’s happening now. Giant forces of change are altering the strategic landscape, while digital superstars like Google, Facebook and Amazon are aggressively disrupting businesses large and small.
These forces of change aren’t only impacting Alberta, they’re causing acute anxiety and confusion around the world. There’s little doubt that the rise of U.S. President Donald Trump and Brexit are, in part, a function of the economic anxiety associated with the loss of industrial jobs in developed nations.
So for Albertans, it’s important to appreciate that the past is not a reliable guide to the future. Getting things straight begins with understanding the impact of asset dynamism within our economy.
Regrettably, economists, the specialists we trust to guide us can’t help in this. Economists don’t talk much about assets and have little awareness of changes in the underlying asset structure of the economy.
The science of economics is almost entirely focused elsewhere, on exchange processes and market dynamics. According to economists, assets are simply ‘externalities’ and aren’t studied extensively. Nor are they included in their economic models.
But assets are vitally important: they’re the institutional vessels within which capital value is generated, stored and preserved.
And assets properly identified and formally recognized can be leveraged by individuals, businesses and society at large to generate the resources needed to drive commercial value and fund the social infrastructure of a modern society.
It doesn’t take a PhD to recognize that if we’re ignoring intangible assets (which represent almost 80 per cent of the productive value today), we’re in trouble.
Intangibles are everywhere in every business and in all sectors, but they’re left undocumented, essentially invisible. This handicaps businesses that have diminished balance sheets, profits and overall equity.
Socially, the implications are huge. Not only are knowledge-rich technology startups starving for capital, but corporate profits across the board are understated and therefore tax revenues are lower than they should be.
At a deeper level, the monetary consequences of not recognizing intangibles are also profound.
Consider that the value in money is derivative, depending on the productive assets underpinning the economy. In theory, the money supply in an economy should grow in tandem with the growth in productive assets (tangible and/or intangible), on the basis that for every dollar of productive assets the economy needs, at least a dollar of new currency or credit is available to facilitate exchange of that value.
In other words, money supply could be vastly increased if we recognized intangible assets.
Opportunity is staring Alberta in the face. But this intangible lifeline needs to be identified and the assets formally recognized and supported by appropriate institutions.
Fixing this problem in Alberta is simple. If properly instructed Alberta’s bank, ATB Financial, could lead the charge in recognizing and collateralizing intangible assets. It could then play a significant role in re-capitalizing the Alberta economy.
So 2019 could be a turnaround moment for Alberta. Intangible assets would jumpstart commercial investment, vastly strengthen corporate balance sheets and increase the volume and velocity of money flows in the economy.
That’s economic salvation.
Robert McGarvey is an economic historian and former managing director of Merlin Consulting, a London, U.K.-based consulting firm. Robert’s most recent book is Futuromics: A Guide to Thriving in Capitalism’s Third Wave.
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