To make effective use of such a technology within a specific firm or industry, however, managers must supplement their purchases of new equipment with investments in firm- or industry-specific research and development, worker training, and organizational redesign--all examples of what economists call intangible capital.  Although investments in intangible capital are, for the most part, not counted as capital investment in the national income and product accounts, they appear to be quantitatively important.  One recent study estimated that, by the late 1990s, investments in intangible capital by U.S. businesses were as large as investments in traditional tangible capital such as buildings and machines (Corrado, Hulten, and Sichel, 2006).

Recognizing the importance of intangible capital has several interesting implications.  First, because investment in intangible capital is typically treated as a current expense rather than as an investment, aggregate saving and investment may be significantly understated in the U.S. official statistics.  Second, firms’ need to invest in intangible capital--and thus to divert resources from the production of market goods or services--helps to explain why measured output and productivity may decline or grow slowly during the period after firms adopt new technologies.  Finally, the concept of intangible capital may shed light on the puzzle of why productivity growth has remained strong despite the deceleration in IT investment.  Because investments in high-tech capital typically require complementary investments in intangible capital for productivity gains to be realized, the benefits of high-tech investment may become visible only after an extended period during which firms are making the necessary investments in intangibles.