GLOBAL: What is intellectual capital? Does it matter?

Innovation and knowledge are fast becoming new measures of international economic growth competitiveness with universities at the core. But measuring 'knowledge capital' or the more intangible intellectual capital as a contributor to national prosperity is still a new field.

Potential for future competitiveness is increasingly based on aspects of the knowledge economy but other conditions must also be met for a country to become richer, according to Leif Edvinsson of the University of Lund in Sweden, who has just released a book National Intellectual Capital: A comparison of 40 countries* which ranks countries according to how well knowledge and human capital translates into economic development and prosperity.

He believes investing in intellectual capital can ensure not just economic growth but quality growth that can be sustained. "A country may be wealthy today, but what about tomorrow? Knowledge and human capital must be sustainable," Edvinsson told University World News.

"Intellectual capital is much more about quality of education and human experience than the number of people in higher education," Edvinsson said. In his view universities are important "not as mass education, but as training for the human brain - universities are the back office rather than the front office of innovation and development," he said.

So simply building more universities and getting more students into higher education will not create intellectual capital unless the economy can provide graduates with relevant jobs, or the environment to set up innovative companies. Intellectual wealth, according to the World Bank, can improve people's lives as well as give them higher income.

The role of the university is 'amplified' in a country's intellectual capital by additional features, which encourage production and innovation. These include a country's infrastructure, particularly communications and computing infrastructure, networks which include trade but also university and research networks, and ability to renew or innovate with research and development underpinned by the financial and economic conditions to do so.

"There is a kind of cultural dimension that plays a huge role in intellectual capital, which includes openness, risk taking and willingness to renew," said Edvinsson.

Insights gleaned from knowledge industries - the company Google is described as 90% intellectual capital and 10% financial capital - can be applied to nations, Edvinsson argued.

"Intellectual capital is future earning capabilities. It is about an opportunity in waiting, about sustainability, thinking ahead and adding value. Consequently national intellectual capital is comprised of the knowledge, wisdom, capability and expertise that provide countries with a competitive advantage over other countries and determine a country's potential for future growth."

He acknowledged that it is difficult to measure intellectual capital. However, a combination of measurable indicators that include education, ICT infrastructure, market openness and research provides some pointers.

The top 10 nations over the last decade and a half in terms of intellectual capital according to this measure are, in order: Finland, Sweden, Switzerland, Denmark, United States, Singapore, Iceland (until 2008), The Netherlands, Norway and Canada.

"The Nordic countries have the highest degree of national intellectual capital," said Edvinsson. "This means they will continue to be successful in the future."

And Nordic intellectual capital has increased over the 14-year period studied. "As a group they also invest the highest percentage of gross domestic product in education (5.4%-7.4%), have the highest ratio of broadband subscribers, the highest level of e-readiness and they invest the highest percentage of GDP in R&D (1.57%-3.64%)," he noted in his book.

But he added: "Finland is suffering some competitive disadvantage after enjoying a high degree of intellectual capital for a decade. It seems that national intellectual capital development undergoes a life cycle. Those currently at the peak may decline some day, especially as more and more countries are becoming aware of the value of intellectual capital and are aggressively pursuing it."

Japan, South Korea and Taiwan are ranked 14, 21 and 17 respectively, and are particularly strong in 'renewal capital' which includes research and development, cooperation between universities and enterprises, research publications and patents - although these do not necessarily transfer as strongly into economic capital as the combined conditions in the Nordic countries.

But Singapore's 6th position, for example, is based on one of the highest human capital (education and training) scores over the years, indicating it has lasting competitiveness. "The pattern of national intellectual capital development indicates that Singapore is advancing towards the most advanced type of intangible assets," said Edvinsson.

However, in Malaysia a strong achievement in business environments did not boost its overall intellectual capital, in part because of much lower education and research performances, indicating that strength in a single component of intellectual capital is not enough. "There has to be matching mutual support" to advance, said Edvinsson. In Asia he described Thailand as a "rising star in terms of intellectual capital".

Both China (ranked 36 in the world on intellectual capital) and India (ranked 40) are relatively weak in education and training, despite recent hype about their higher education sectors. However, China is increasing fast on this measure.

But Edvinsson noted in his analysis of countries that progressed from poor to fast-growth economies in the last 15 years that "one should invest more in human capital accumulation as it is the very basis of other intangible assets".

"Countries that are rich in knowledge-intensive activities will be the winners in terms of future wealth creation," he said.

* Leif Edvinsson and Carol Yeh-Yun Lin (2010) National Intellectual Capital: A comparison of 40 countries. Springer.