In the middle — and a hiatus


Photo by Alby Oakshott

I think this beautiful photo sums up the current economic situation: caught in the middle. Financial markets and the “real” economy are in transition — and that transition will continue to be volatile. Just like that drop of water.
With that said, the Intangible Economy is taking a short break from all that volatility. We will return in April.

Reputational assets

And by the way, on the Bear Stearns deal — what does it say about reputation as an asset when a $150 per share company (which is what it was this time last year) can get bought for $2 a share. When the death spiral hits, reputation and other intangibles can vanish – just like the value of those supposedly more solid financial assets that Bear Stearns was holding.

Uncharted territory

I know it is a worn cliché, but the financial system really is in uncharted territory. The Fed’s actions over the weekend are unprecedented. First there is the degree of Fed involvement. According to the New York Times – Fed Acts to Rescue Financial Markets “In a highly unusual maneuver, Fed officials said they would secure the loan by effectively taking over the huge Bear Stearns portfolio and exercising control over all major decisions in order to minimize the central bank’s own risk.”
Second is the expansion of assets accepted as collateral. As the Wall Street Journal – Central Bank Offers Loans To Brokers, Cuts Key Rate points out, “The loans will be secured solely by difficult-to-value assets inherited from Bear Stearns.” This is similar to the new lending facility the Fed created earlier.
Tracking how well the Fed deals with these “hard-to-value” assets will be important as the financial situation stabilizes. If it goes well, we may see an increased in the comfort level of the financial system to deal with these valuation issues, with systems possibly put in place to reduce the risk created by these issues. That would bode well for the use of intangibles in the financial system – which face obstacles because of valuation issues.

Insurers outsourcing medical care

So called medical tourism is getting a big boost from health care insurance companies – according to Business Week – Outsourcing the Patients:

Yes, just like manufacturing facilities and call centers, health care is moving offshore. “All of the largest U.S. insurers are starting to educate themselves or are putting [offshore] programs in place,” says Jonathan Edelheit, president of the Medical Tourism Assn., an industry group formed just last year. Companies that self-insure are also bombarding Edelheit’s group with requests for information.
Getting covered employees to leave the U.S. won’t be that hard, says Edelheit. An insurance company could waive all deductibles and co-pays, offer to cover travel costs for the patient and family members, even throw in a cash incentive, and still save tens of thousands of dollars. After all, a heart procedure that costs $100,000 in the U.S. runs only $10,000 to $20,000 at some of the best private hospitals in Asia. And the quality of care? Foreign hospitals in such arrangements are typically approved by Joint Commission International, part of the same nonprofit organization that accredits American hospitals.
Blue Cross took the lead in medical offshoring when it formed its first partnership, with Bumrungrad Hospital, in February. Since then the insurer has signed similar pacts with the Parkway Group Healthcare, owner of three hospitals in Singapore, and hospitals in Turkey, Ireland, and Costa Rica. Three members of India’s Apollo Hospitals Group are also joining the network. And another large Indian chain, Wockhardt Hospitals, is talking with U.S. insurers as well. “Americans haven’t come to grips with having their heart surgery in Thailand,” says Curtis Schroeder, the American CEO of Bumrungrad. “But that will change.”

And what is that going to do to the service-based economic development strategy of places dependent on major medical facilities, like Cleveland and Rochester, MN (see earlier posting)?

Short takes

Here are some new reports and stories of interest on intangibles:
Creative Britain – New Talents for the New Economy:

Britain is a creative country and our creative industries1 are increasingly vital to the UK. Two million people are employed in creative jobs and the sector contributes £60 billion a year – 7.3 per cent – to the British economy. Over the past decade, the creative sector has grown at twice the rate of the economy as a whole and is well placed for continued growth as demand for creative content – particularly in English – grows.
This is a strong position. But there are major challenges ahead over the next decade. Global competition is growing as other countries recognise the economic value of creativity. To face this, our creative industries need the best possible business support structures in place and an abundant pool of talented people with the right skills to meet the needs of an expanding creative sector.

European Innovation Scoreboard 2007:

Based on their innovation performance, the countries included in the EIS 2007 fall into the following country groups:
* The innovation leaders include Denmark, Finland, Germany, Israel, Japan, Sweden, Switzerland, the UK and the US. Sweden is the most innovative country, largely due to strong innovation inputs although it is less efficient than some other countries in transforming these into innovation outputs.
* The innovation followers include Austria, Belgium, Canada, France, Iceland, Ireland, Luxembourg, and the Netherlands.
* The moderate innovators include Australia, Cyprus, Czech Republic, Estonia, Italy, Norway, Slovenia and Spain.
* The catching-up countries include Bulgaria, Croatia, Greece, Hungary, Latvia, Lithuania, Malta, Poland, Portugal, Romania and Slovakia. Turkey currently performs below the other countries.

The State of Indian Design: For a designer or advertising creative, India is a pretty exciting place to be right now.
A Powerful New Tool for Patent Valuation: The small, Chicago-based Patent Board offers clients a way to estimate the potential worth of an idea.
Happy reading

Technology trade

The Center for American Progress has released a new report early this week — Our Nation’s Surprising Technology Trade Deficit:

A snapshot of global trade statistics in advanced technology products since 2002 reveals that U.S. economic competitiveness in innovation may be slipping away. Surprisingly, the United States has recorded a deficit in high-technology products over the past five years. By the end of 2007, our nation’s high-tech deficit reached new record highs, measured either in absolute terms or as a share of the overall trade deficit.

This isn’t new news to those who have been following trade. As I’ve noted in every posting on the intangibles trade, “The last monthly surplus in Advanced Technology Products was in June 2002 and the last sustained series of monthly surpluses were in the first half of 2001.”
The report comes to the conclusion that we need an innovation policy:

A larger and more deep-seated problem, however, has been the dramatic difference between U.S. innovation policies and those of our global competitors. As other countries have been investing in innovation to create a skilled workforce and encourage more research and development, the United States has, by and large, neglected to make innovation a policy priority. The U.S. high-tech trade deficit finds its roots in the negligence of our innovation policy and requires a strong policy response.

I would second that recommendation.

An intangible pays off

This little tidbit from Vickie Elmer’s “Working” column in yesterday’s Washington Post — The Best Pay Less:

The members of Fortune magazine’s Most Admired Companies pay less for talent than less-admired companies in their industry, especially for workers outside the executive suite, according to management consultant Hay Group.
The companies pay about 5 percent less overall for talent because they have less need to hire expensive outsiders, according to Hay, which has worked with Fortune to identify and rank the most admired firms. The list includes Apple, General Electric, Google, Starbucks and Goldman Sachs.
“These companies achieve more with less because they tend to be better at giving people more rounded experiences and development, and do not have to rely so much on [salaries] . . . to persuade their people to perform,” said Hay’s Tom McMullen.
They give bonuses to staff members at all levels, including team bonuses for those “who deliver on strategy.” They pay higher salaries and bonuses to senior executives who inspire the troops.
“No doubt the cachet of working with one of the world’s top companies is a motivating factor, too,” McMullen said.

So, bottom line is that the intangible of a good reputation is good for the bottom line.