Why is US Return on Assets in Decline?

October 8th, 2009, by Haydn Shaughnessy | located in Conversations | No comments yet | trackback

John Seeley Brown is the writer that converted me to digital sociology and digital economics. The Social Life of Information is the classic social technology text, written prior to anyone talking about social technologies. Lately Brown, along with John Hagel, has been writing about asset returns:

“Corporate returns are under pressure from far more than the recession. The patterns we’ve uncovered span decades and deeply affect even the highest performing companies, with the single greatest driver of these challenges, and indeed future opportunities, being our underlying digital infrastructure. Regardless of when the economy shifts back to an upturn, the long-term implications for continued erosion of return-on-assets will continue.”

And worrying abut their decline in the USA

Among the key findings, U.S. companies’ return-on-assets (ROA) have progressively dropped 75 percent from their 1965 level despite rising labor productivity. Even the highest performing companies are struggling to maintain their ROA rates and increasingly losing market leadership positions.

The point to where Seeley Brown and Hagel’s thoughts are leading is a kind of vanishing point. Radical innovation on a scale and of a type we can’t imagine. I know, I know. they quote things like the impact of innovation in China and India on the west - blowback innovation. But I value more this sense that we can’t imagine or anticipate the radical changes we are due after 40 yea of relatively lethargic inactivity disguised as growth.

I see the problem slightly differently - as a gradual desertion of conventional demand and supply economics for social and moral reasons - because it increasingly failed to deliver fairness. That’s the subject of a paper I’ve written which I hope will be presented soon in Stockholm but if not Memphis in December.

UPDATE: Meanwhile…. isn’t the RoA paradox partly resolved if we look at the contribution of intangible assets to corporate reporting? I can’t believe JSB and JH would have overlooked this so I offer the explanation tentatively. If companies are adding ingtagile assets in (patent rights, brand valuations) then their RoA will apepar to be down because their asset base will suddenly increase?


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