Intangible Capital and Modern Economies

Every practitioner of economics, whether student or professional, will at some point be asked about growth, innovation, and economic performance. Why are many African countries so poor? How did Japanese car companies come to dominate world production? How did some firms like Walmart, Amazon, and Facebook get to be so big, while others like Sears, Webvan, and MySpace crashed and burned? At this point, the practitioner will recall the textbook account of a production function, in which output is a function of inputs of capital, labor, and technology. To make the abstractions concrete, most textbooks are peppered with examples from agriculture or manufacturing. In agriculture, capital is tractors, labor is farmworkers, and technology is the "know-how" of crop production. Technology or know-how is discussed broadly as advancing through research and development (R&D) and policies that govern the protection of patents and other forms of intel-lectual property.