The first negative [for intangible assets] is what economists call “partial excludability.” With physical and financial assets, you can completely exclude others from enjoying these assets. If I own a car and there is an effective police force, I can prevent anybody from using my car. But let’s say that I have an employee who is brilliant and that I have invested in his or her training. If he leaves tomorrow, then others will enjoy the entire benefits of my investment. It’s very easy to invent a round patent, for example, and just get most of the benefits.
So with respect to intellectual capital, it’s very difficult-even with patent laws-to appropriate, to secure and to derive all the benefits from the assets. This weighs heavily on accountants, because for something to qualify as an asset, it must control the benefits. But you don’t really control the benefits from training employees, for example. So they say, “Well, you may get benefits from it from time to time, but you don’t control it, so it’s not an asset.”
The second thing that is unique to intellectual capital is that there are basically no markets in intellectual capital. You cannot trade in them. There is no market in R&D, no market in processes, and no market in human assets. Which means that it makes it riskier and more difficult to manage and value these assets. The market provides guidelines for valuations. …But there are no comparables for R&D, no comparables for human resources, because there are no markets, no prices and no trades. So it’s very, very difficult to value these assets.
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