In October 1939, just as the Second World War was getting underway, the writer and theologian C.S. Lewis delivered a speech to a group of Oxford University students about the importance of “learning in wartime.” Many students were anxious about pursuing seemingly frivolous topics while “the lives of friends and the liberties of Europe” were “in the balance.” Lewis took seriously the question of whether studying philosophy, poetry and history was “like fiddling while Rome burns” but concluded that it was not. He said that things that are meaningful and important in what are considered “normal times” remain so in “wartime.”
We find ourselves in similar circumstances. As the COVID-19 pandemic and its economic impact threaten the health and well-being of Canadians and our friends and neighbours around the world, we ask ourselves whether our research on the intangible economy is important and worth continuing. How can research about the intellectual property policies and financial mechanisms needed to support Canada’s increasingly intangible economy, for example, matter in our current crisis?
We think it does. And we think it may be more important and urgent than it appears at first glance.
Intangible Shift: Stalled
Intangibles are key contributors to economic growth. Prior to the current crisis, countries that were making what we call the intangible shift were experiencing higher productivity and growth than less intangible intensive peers. Canada, we noted, was making the shift, but at a slower pace than others. We argued that this was a problem because it meant we were missing out on the substantial contributions to economic growth and prosperity that a more intangible economy offers. Our Intangible Shift research series was designed to identify policy options and business strategies that could support, accelerate, and manage the implications of Canada’s intangible shift.
Our current crisis presents both a challenge and an opportunity for Canada’s intangible economy. If the 2008-09 recession provides even a rough precedent, we will see declines in both tangible and intangible investments. But when recovery begins, there is the potential for an accelerated intangible shift. As we show below, while Canada’s intangible investments were stuck in low gear in the previous recovery period, the US—and to a lesser extent, countries in the EU—experienced very strong growth in intangible investments. We need to understand why that happened and identify policies and strategies to help Canada avoid missing out this time around.
Intangibles During and After Economic Downturns
Examining the 2008-09 recession and subsequent recovery, Canada has reason to be concerned about how our post-pandemic economic recovery might play out. Research on the effects of the 2008-09 recession in the US and European Union (EU) countries shows that while both tangible and intangible investments declined, the impact on intangibles was weaker, and post-crisis growth of intangibles stronger, than tangibles.
While investments in tangible assets in the US fell by 24 percent during the recession and recovered only slightly over the next five years, intangible investments slowed by only 7 percent during the crisis and recovered quickly. By 2013, intangible investments in the US were 10 percent higher than they were in 2007 and 18 percent higher than in 2009. Similarly, while tangible investments declined by 17 percent in the EU14 during the recession, intangible investments declined by only 2 percent and experienced faster growth in the recovery period.