The Importance of Knowledge Capital

Despite claims to the contrary, ownership of Knowledge Capital is highly concentrated.

Much of the rhetoric about the knowledge-based "new economy" is speculation unsupported by economic data. What draws attention are boasts about staggering profits made in the bidding up of Internet stocks. We are living in a time in which established rules of financial viability—such as making profits—should be discarded, according to prophets of the knowledge-based economy. As excesses based on speculation capture the imagination, perhaps the time has come to place some concepts of valuation of assets in a measured perspective.

In prior articles ("Knowledge Metrics," October and November 1999 KMM), I illustrated the flight from financial capital to knowledge capital by cases drawn from the pharmaceutical industry. This approach demonstrated how one calculates knowledge-based metrics and how they differ from conventional financial accounting measures. However, these examples could be seen as applying only to conditions in the knowledge-rich pharmaceutical sector and so not relevant as a valid insight about the U.S. economy overall.

To paint a much larger picture, I collected 1998 financial data on 7,288 leading U.S. corporations whose stocks are listed publicly. These firms employed 36.2 million people. Their financial assets were $19.8 trillion, equal to 64 percent of all corporate assets in the U.S. This breadth should make for a credible sample. This sum also dwarfs in scope the dot-com firms that are attracting so much media attention; those new firms, in terms of employment and assets, constitute only a tiny fraction of my statistically valid sample of the real U.S. economy. Here are some of the most revealing findings: