January 1, 1995

Research, development and other intangible investments in the Netherlands

Traditionally, economists assume that technological progress falls like manna from heaven. Tangible investments (like machines, buildings, roads) are then designated as the major driving force behind economic development.

As to these, Dutch investments in fixed assets amounted to Dfl 113 bln in 1991, of which Dfl 8 bln in computers and telecommunication. However, technological progress is in fact not an autonomous phenomenon. Society has to invest in intangible assets in order to get fresh ideas. These ideas lead to new products, which crowd out outdated types. In 1991 The Netherlands for instance spent Dfl 25 bln on education and an additional Dfl 30-35 bln on research & development, patents, software and marketing (disembodied know-how). It appears that the economy may grow permanently if it can fully exploit the spin-offs of the stock of know-how, which also requires sufficient investment in computers and telecommunication.

Put differently, new ideas become increasingly cheaper compared with ordinary goods and services due to the use of spin-offs of know-how. Consequently, new insights penetrate the economy. The consequences for economic policy are clear. Instead of focussing solely on stimulating tangible investments, policy makers should also encourage education and intangible investment and improve the knowledge-infrastructure. Hence, the integration of the traditional and the new view on economic development will make economic policy more effective and less onesided. As an illustration we discuss in this paper how we could integrate R&D-expenditures by enterprises in The Netherlands (Dfl 5½ bln in 1991) into a traditional macroeconomic model. For The Netherlands estimations were not sufficiently conclusive to demonstrate a robust relation between R&D and tangible investments, national profits and the interest rate. This is probably due to the fact that Dutch R&D firms are not representative for the whole Dutch economy, as almost all R&D is carried out by Philips, Shell, AKZO Nobel, DSM and Unilever (together 60%), 33 other "Dutch" enterprises (20%) and 17 establishments of foreign concerns (15%). These enterprises are often multinational corporations in electronics, metalmanufacturing or chemicals, which compete globally in their individual market segments.

The 25% drop in R&D by Philips is by far the main reason for the fall in Dutch business enterprise-R&D since 1988. This decrease in nominal Dutch R&D-spending may have been largely compensated by a sharp fall in the R&D-price, indicated by the considerable rise in the number of Dutch patent applications (output indicator). The R&D-price fell due to the moderate wage rise, enhanced efficiency in the laboratories, and possibly a better exploitation of know-how.

This document is only available in Dutch.


Bert Minne

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