Valuing IP in the new GDP — at last

* This article originally appeared in the Winter 2013 edition of the "USC Annenberg Agenda" magazine. *

By Professor Paolo Sigismondi

The Bureau of Economic Analysis has since July 2013 modified the methodology calculating the U.S. Gross Domestic Product (GDP), adding the investment in research and development (R&D) and for entertainment, literary and artistic originals. The GDP is the main tool for measuring a country’s economy, and it is determined by private consumption, investment, government spending and net exports. The changes in how the GDP is calculated reflect the shifts in the 21st century global economy and follow updated international guidelines for national economic accounting.

Why this matters: At the microeconomic level these updates recognize and are consistent with business practices of industry players, which have long considered expenditures in R&D and the development of entertainment artifacts as long-term investments, included as intangible assets in their balance sheets. Successful entertainment products enjoy a very long shelf life: We still watch reruns of “Pretty Woman” and “Friends” and these products retain economic value as they continue generating revenue streams. At the macroeconomic level, the new methodology increases the magnitude of the GDP by inserting elements not previously included, hence affecting all the GDP-based analyses and calculations. At the mesoeconomic level, the updates might have political economy implications, perhaps increasing the incentives these industries could receive. And at the international level, this should further solidify the leadership of the U.S. economy, which invests the most in these categories.

While some critics point out the risks of inflating the value of the GDP, this move brings to the fore the power of creative ideas and innovation, underscoring the value of investments in knowledge and creativity in generating economic growth.

Professor Sigismondi teachers courses in Communication and Communication Management at USC Annenberg (read his bio).

* See the digital version of the "USC Annenberg Agenda" magazine here . Stay tuned for more Agenda articles being released online this month. *