What Is Intangible Capital?

The Difficulty of Valuation

Intangible capital is special. It is difficult to value and difficult to sell. Take training, for example. Training does not belong to the company; it belongs to the people who were trained. So when they leave, the skills leave with them. This raises questions for companies and also for countries that fear “brain drain.”

To see why this matters, think about large digital companies. Take Apple. Its value comes mainly from intangible assets: patents, software, design, and the quality of its people. Physical production of the iPhone is outsourced. Apple keeps only the highest value-added tasks, mainly design and innovation.

The Limits of Economic Measurement

Measuring intangible capital is very difficult. We can see this with GDP. GDP is the sum of value added produced in a country in one year. On paper, it should capture everything. But in practice, it does not.

In simple terms, value added is: revenue minus intermediate consumption. Then this value added is shared among: taxes and subsidies, wages, and profits.

So, anything without accounting value does not appear clearly. Human capital, for example. For the company, it often looks like a cost, not an asset.

From a social point of view, the problem is the same. One cannot directly measure the benefit of health spending, education, or social cohesion. One also does not measure unpaid work, like volunteering, even though it clearly creates value.

Three Major Problems

These limits create three major problems with intangible capital.

Underinvestment: because leaders cannot prove a clear, direct return, they invest too little. Think of training. We know it helps. But how much to invest? This is very hard to quantify.

Strategic myopia: decisions focus only on what is visible and tangible. For example, companies may lay off older workers who seem less productive. But they lose their experience and knowledge. The French nuclear industry is a good case. For 20 years, there was too little investment. Now it is difficult to restart projects because key skills and expertise have been lost.

A poor understanding of how innovation really works: if you do not understand intangible capital, you are almost flying blind in a knowledge economy. You invest in buildings and machines but miss the real mechanism of innovation.