Secret to Nat'l Wealth? Intangibles like human capital and education

Science reporter Ronald Bailey summaries a World Bank repot on the intagibles of national wealth. They find American's have intangible capital per person worth a half million dollars. (No wonder the US remains the most popular destination for immigration.)

What is intangible capital? Systems of effective law, and education, for example.

"The Bank...identifies intangible capital as the difference between total wealth and all produced and natural capital. Intangible capital encompasses raw labor; human capital, which includes the sum of the knowledge, skills, and know-how possessed by population; as well as the level of trust in a society and the quality of its formal and informal social institutions.

"'The most striking aspect of the wealth estimates is the high values for intangible capital. Nearly 85 percent of the countries in our sample have an intangible capital share of total wealth greater than 50 percent,' write the researchers. They further note that years of schooling and a rule-of-law index can account for 90 percent of the variation in intangible capital. In other words, the more highly educated a country's people are and the more honest and fair its legal system is, the wealthier it is."

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http://www.reason.com/rb/rb121605.shtml

 

Fascinating report Orson - thanks very much.

Cheers,

George

 

In the early 1970s, the very large Brown Shoe Company quietly but deliberately filed a tax return in which they depreciated their human capital. Their argument was that if they bought a $10,000 machine, it had a certain life expectancy, and they could deduct a percentage of its cost every year. But if they spent $10,000 training an employee, that human being also had a life expectancy (with the company), and was more valuable than any machine, so they should be able to depreciate that $10,000. It spent some time in the tax courts, but needless to say the IRS prevailed.

(Midas Muffler, where I then worked, co-financed the endeavor, along with Oscar Mayer -- arguably the three most socially active corporations in America at that time.)