Intangible wealth

Books on the shelves are covered by a growing layer of dust. We likely less appeal to them and increasingly spent time in a global network on search of knowledge that we need. The newest information technologies have made a revolution in human development - information, an intangible category consisting of ones and zeros, is today a powerful stimulus of economic development. The number of information, speed of its transmission and processing, finally its accessibility made a revolution in the perception of the world where the distance has become less important, and the reaction to the timely received information is more and more. The global network and new technologies have increased the space for human choice.

The digital revolution brought its changes in organization and management of business. The physical capital of companies, which was considered the main asset in the evaluation of their market value, was to pass to the second place, conceding the primary role of intellectual capital. Since 1990s of the 20th century, the companies such as Microsoft, IBM, Oracle, HP and others began to get huge profits, creating and producing new technologies and IT-products. Thus, they invested in their intangible assets much more than physical. According to the data provided by the U.S. Federal Reserve System, the share of tangible assets of the U.S. non-financial corporations over the past 50 years (data for 2002) fell from 78 percent to 53 percent, and according to the Brookings University, the intangible assets of the U.S. companies make up approximately 70-75 percent of their welfare.

What is intellectual capital? What do you think, will the trade mark "Adidas" or reputation of "Volvo" be accounted in money if the company would be sold? And the American DFA, the Board of Directors of which includes two Nobel Prize winners? Will this fact be taken into account while selling the company? In addition to the balance of the physical assets, will such tangible asset of the Sony Company be taken into account, as its clientele? All of the above mentioned are intangible assets of companies, and more generally, of their intellectual capital, and although they are difficult to be reflected in financial documents, they present great value, at least not less than the buildings and equipment. Furthermore, intangible assets have one important characteristic: they must bring concrete economic benefits in the future.

What is Vista? This is a product of intellectual activity, the mathematical program, created by members of Microsoft. After the digital number with a relevant interface is placed on the disc, which can be sold, Vista becomes a product bringing profit, and the copyright registered by the companies will be its intangible assets (not the document itself, but the right to use). Patents for inventions, copyrights, software, computer databases, customer lists, goodwill, trademarks, technical documentation, market research - all of these are intangible assets of companies, their intellectual capital.

In a narrower sense, i.e. from the point of view of accounting, identifiable (accountable) and unidentifiable (for example, the reputation of company) intangible assets differ. Until now, there are different views on how to evaluate these assets and which of them must be reflected in the balance sheets because of the difference between book value and market value (today, the book value consists only of those which are confirmed by amortization, i.e. identifiable intangible assets).

Fearing of making optimistic statements about the future profit due to the fact that they can not be justified and thus, the investors can be damaged, many companies often underestimate the real value of intangible assets in their financial statements, or classify identifiable assets as unidentifiable in order to avoid the cost of amortization. The main obstacle for transparent reporting of intangible assets by companies is the lack of a clear, reliable and examinable system of measurement.

One of the most important components of intellectual capital is human capital. We well remember the three classical factors of production: land, labor and capital. Later entrepreneurial spirit was added to them, but relatively new and information as a powerful economic resource. But we are interested in this work. For a long time, the workers involved in various spheres of economy, have been accepted as faceless mass, capable of physical labor and producing goods. Nobody was interested in what knowledge and talents these people possess.

For the first time, in his works, Adam Smith tried to see not faceless mass in the labor force, capable only of manual work, but people with useful knowledge and skills, personal experience, specific skills. Smith pointed out that correctly using the knowledge and skills, employers can increase their incomes.

Almost 200 years were required for Smith's idea to gains its continuation before 1960s. In 1961 future Nobel laureate Theodor Schultz published in a magazine American comic Review an article titled "Investments in human capital". In his article Schultz explained economic growth of the West (rise of aggregated product) with investments in education and professional training of specialists. He also indicated direct link between increase of investments in human capital and improvement of financial welfare of people - owners of this capital. People invest money in their education, with a hope to receive high incomes in future. "This is a way which vacant people can use to improve their welfare," he wrote.

Adam Smith spoke with more clarity: "It is not from the benevolence of the butcher, the brewer or the baker, that we expect our dinner, but from their regard to their own self interest".

Businessmen and employers very quickly estimated the advantages of the new theory. They understood that long-term contribution to human capital finally can increase profits, as the experience proved. Numerous researches showed that human capital management is closely related to increase of stock price of companies. As personnel management is efficient, as successful financial indices and activities the companies have. 

Human capital is obviously important to grow economy. Its presence and use becomes more relevant day by day. Staring attention by western countries to towards education and human capital beginning from the 1960s promoted appearance of companies - world leaders in hi-tech, innovations and business management. Azerbaijan will grow with high growth pace, if to use international experience, to analyze it comprehensively and adapt to the existing situation.

We have intellectuals, but they are too less in number. It is necessary to establish in the country a stratum of people, whose knowledge and skills could help Azerbaijan to stand in one row with the developed countries.

Tough education is more largely spread indicator of human capital, pre-school education and training at work also play important role.

Used literature: "Human Capital: How what you know shapes your life" by Brian Keeley, OECD 2007

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