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Industrial Research and Development, Intangible Capital Stocks

Recently, much attention has been paid to the emergence of ‘superstar’ firms that are pulling away from the rest of the economy. A brief by the US Council of Economic Advisors (2016) contains a striking visual of this development (Figure 1).

Figure 1 shows that the return on invested capital (ROIC) is becoming more unequal, with superstar firms (90th percentile) pulling away. Other manifestations of this phenomenon have been noted by Kurz (2017), Autor et al. (2017), and Van Reenen and Patterson (2017), among others.

Figure 1 Return on invested capital excluding goodwill, IC publicly-traded nonfinancial firms, 1965-2014

Note: The return on invested capital definition  is based on Koller et al. (2015), and the data presented here are updated and augmented versions of the figures presented in Chapter 6 of that volume. The McKinsey data include McKinsey analysis of Standard & Poor’s data and exclude financial firms from the analysis because of the practical complexities of computing returns on invested capital for such firms.  
Source: Council of Economic Advisors.