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Safeguarding the Bioeconomy (2020) / Chapter Skim
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3 Frameworks for Measuring the Value of the U.S. Bioeconomy
Pages 73-150

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From page 73...
... Many of the metrics commonly used to classify, collect, and report economic data fail to capture bio economic activity. • A satellite account for the bioeconomy that includes intangible as sets and its foreign supply chain has the potential to collect com prehensive data on the bioeconomy and to capture its potential for innovation and growth.
From page 74...
... It then addresses how to measure the bioeconomy by identifying approaches to valuing the bioeconomy and intangible assets, ultimately delineating a path forward. Several factors make it difficult to measure the contribution of the bioeconomy to the overall economy: (1)
From page 75...
... and that yields both inputs to and products 2GDP is a broad measure of a nation's overall economic activity. It may be viewed as the sum of gross value added (GVA)
From page 76...
... To help provide an approach for characterizing the bioeconomy as a sector for economic analysis, Table 3-1 presents a typology of economic sectors and technologies. The typology distinguishes sectors on two dimensions, one (the columns of the table)
From page 77...
... . First, the materials costs are built from Consumer Price Indexes and producer price indexes that are designed to be quality-adjusted.
From page 78...
... Business R&D investments in the bioeconomy, particularly for the clinical trials stage of new drug development, loom large relative to R&D conducted by other industry sectors. Venture capitalists have recently geared up their investments in start-ups with an edge in synthetic biology.
From page 79...
... Second, the outcomes of many investments in bioeconomy innovation are highly regulated, as their potential for manipulating human, animal, and plant genetic material is closely connected with human health and the condition of environmental ecosystems. As a result, the bioeconomy's commercial innovation process is increasingly costly in relative terms.
From page 80...
... . 9Although the price index was constructed by a researcher at BEA, the government agency that issues the national accounts for the United States, the work currently is not included in headline real GDP.
From page 81...
... For biotechnology companies working to develop new microbial products for industrial use, the costs of testing and obtaining approval for new commercial applications are not commonly included in R&D because while these steps do require testing and experimentation, they are not counted as part of the basic research that led to the product's creation. It is also possible that emerging companies in the biotechnology space (including synthetic biology companies)
From page 82...
... . This implies recognizing that investments in new models are needed for organizations to execute data-driven plans, and that a period of time may elapse before the fruits of these changes will be seen in outcome data.12 MEASURING THE BIOECONOMY: APPROACHES FOR VALUATION AND IDENTIFICATION OF BIOECONOMY INTANGIBLE ASSETS This section first summarizes existing approaches to studying innovation, focusing on those that attempt to place investments in knowledge, both scientific and commercial, at the center of the process.
From page 83...
... whose margins are included in the final price and ultimate value of economic activity generated by biobased production. This suggests that the bottom line of the GVA approach -- measurement of GVA in bio-producing sectors -- is a partial impact that does not account 13I-O analysis is a form of macroeconomic analysis based on the interdependencies be tween economic sectors or industries.
From page 84...
... . 15Biobased production uses different inputs than petroleum-based production, however, and when these activities occur within the same industry, the I-O system's data will need to be augmented to reflect the appropriate inputs to each type of production.
From page 85...
... . Models are usually calibrated to suit the analysis of an aspect of economic activity (e.g., energy consumption and climate change)
From page 86...
... Intangible investment has emerged as a key value driver in today's knowledge economy and a key factor in competitive advantage for firms.17 A widely used framework for studying intangible investment is summarized in Annex 3-2. The framework set out in Annex 3-2 is suitable for valuing intangible assets that are common to most companies in the U.S.
From page 87...
... Other types of intangible assets include software tools, attributed designs, and marketing and other forms of organizational capability. See Annex 3-2 for a generic list of intangible assets commonly used in studies.
From page 88...
... economy, it is generally agreed that public biological data, especially digital data containing genomic sequences (digital sequence information, or DSI) , have spurred commercial biotechnology-based economic activity.
From page 89...
... FIGURE 3-4  National Center for Biotechnology Information: Data (sequences) and users.
From page 90...
... , who document that patent deposit libraries had a positive impact on regional innovation in those areas that received such libraries in the pre-Internet age. Valuation of Intangible Assets Knowledge creation underlies the value of intangible assets.
From page 91...
... This value encompasses not only the quantity and quality of the company's databases, patents, and other innovative property, but also its capabilities to exploit those assets for profit.24 Investments in certain intangible assets are included in GDP, and values for their corresponding stocks are estimated and published regularly as part of the U.S. national accounts.
From page 92...
... These are serious omissions for the upstream research-dependent bioeconomy, but all such institutions are in scope for national accounts. The valuation methods used for assets in national accounts do not depend on whether assets are held by the for-profit, nonprofit, or public sectors, although differences in the sectors' character, such as the longevity of services derived from the assets, are recognized: basic research in the life sciences funded and conducted by the public sector is deemed to yield assets with a longer service life than a commercial software package/tool.
From page 93...
... This is because the outcomes of the conduct of this R&D include not only new scientific findings (or new drugs) , but also genomic data or other DSI made available to the public for future use via NCBI (as discussed earlier in the section on valuation of intangible assets)
From page 94...
... An industry's value added includes that industry's own production of investment goods, that is, its own conduct of R&D and generation of other intangible assets, including tools that enable data-driven capabilities. Some of these assets are not currently capitalized in the national accounts, suggesting that delineating the bioeconomy using official statistics for sector value added represents an approximation, indeed an understatement, unless this shortcoming is remedied.
From page 95...
... . In NAICS, the system currently used to classify economic activity by industry,29 these industry sectors are represented by four categories of codes: Pharmaceutical and Medicine Manufacturing, NAICS 3254; Electromedical Instruments Manufacturing, NAICS 334510, 334516, and 334517; Surgical and Medical Instrument Manufacturing, NAICS 339112; and Research and Development Services in Biotechnology (except nanobiotechnology)
From page 96...
... economy -- the North American Industry Classifica tion System (NAICS)
From page 97...
... and purchased equipment services (e.g., sequencing services) ; and • design of biological data-driven patient health care solutions (i.e., precision medicine inputs)
From page 98...
... ; and • long-lived services (intangible assets) purchased by bioeconomy firms for product development (e.g., specialized software and consulting services, including data analytic services)
From page 99...
... Because activities within the bioeconomy will continue to evolve, data collection and ac counting procedures may also need to evolve to enable measurement of the bioeconomy. A satellite account system for the bioeconomy would, ideally, develop the appropriate interindustry relationships for biobased production, include a full accounting of intangible assets and bioeconomy databases, incorporate quality-adjusted price deflators for relevant products (e.g., biopharmaceuticals and biomedical equipment)
From page 100...
... Valuing the Bioeconomy In lieu of a satellite account, the committee approached valuing the bioeconomy and its intangible assets in the context of the committee's definition as a pilot experiment: What can existing tools, data, and studies demonstrate about the bioeconomy and its reach? Consider, then, marrying the committee's components discussed earlier with the I-O approach set out in Daystar et al.
From page 101...
... b. Obtain estimates for value added for each relevant bioeconomy activity based on the same methods and data used in national accounts ("GDP by industry")
From page 102...
... code, where relevant) Added1 Current Potential Private Industry Sector Segments 1.
From page 103...
... Bioeconomy R&D services 541714, 541715pt Annex 3-1 discussion 43,090 43,090 Intangible Investments Not Included in Value Added as Detailed Above 14. Data services/software Private bioeconomy segments listed National accounts and 5,615 7,880 purchases above INTAN-Invest 14a.
From page 104...
... Second, estimates of non-national accounts intangible assets for each bioeconomy segment listed in Table 3-2 were obtained using each segment's share of value added in the industry-level data used to develop industry-level estimates of intangible investment; the industry-level intangible asset estimates were based on estimates that followed methods documented at www.intaninvest.net. Third, the value of purchased software assets and data analytic services was accounted for separately using the same shares.
From page 105...
... After applying the multipliers described above, economic activity driven by the bioeconomy is estimated to have accounted for nearly 5.1 percent of GDP in 2016, and would have accounted for 7.4 percent with biobased production at its estimated potential level. We stress that this guideline for the size of the bioeconomy is offered only as suggestive of the current state of the literature in the form of a rough estimate.
From page 106...
... GDP in 2016, which was $18,715 billion. Valuation of the Bioeconomy's Intangible Assets A takeaway from the earlier discussion of the valuation of intangible assets is that using a national accounts approach to estimate the value of an asset stock requires a time series of investments in the asset and a rate of depreciation for the asset.
From page 107...
... . The analysis of biological data stores requires a fresh look, beginning with defining the data types of interest and identifying where each type is being held throughout the economy at large.
From page 108...
... The most widely used subaggregate within total federal and university R&D spending is "life sciences," which includes as major subcategories biological and medical sciences (bioengineering and biomedical engineering data are not measured)
From page 109...
... SOURCES: Gross domestic product (GDP) figures are from the Bureau of Economic Analysis, the National Economic Accounts, GDP, https://www.bea.gov/national (accessed July 20, 2019)
From page 110...
... Certain detailed tables in the federal survey enable compilation of the appropriate statistics, and the desirability of doing this is seen by triangulating historical statistics reported in the HERD survey.37 The S&E reports time-series data for federally financed HERD in engineering subfields, including expenditures for bioengineering and biomedical engineering. Although these expenditures are very small relative to total federally funded life sciences R&D (about 3 percent in 2016 and 2017)
From page 111...
... national accounts'
From page 112...
... . Business R&D in biotechnology and bioengineering cannot be wholly identified in national accounts data; despite this gap, however (and the need to remedy it)
From page 113...
... national accounts' industry data on R&D. "Digital" includes R&D in the electronics products manufacturing, software publishing, and telecommunications services industries, plus software product development in all other industries.
From page 114...
... SOURCES: National Science Foundation, National Center for Science and Engineering Statistics, and U.S. Census Bureau, Business R&D and Innovation Survey, various years.
From page 115...
... Health care services (621–623) 423 848 49.9 NOTES: NAICS = 2012 North American Industry Classification System; the table shows company performance of R&D regardless of the source of funds (e.g., own funds, government funds)
From page 116...
... Entrepreneurship and the Bioeconomy: Synthetic Biology as a Case Analysis The data reviewed in the previous section suggest a robust rate of growth in R&D in bioengineering and biomedical engineering at institutions of higher education, but they are not dispositive regarding growth in business biotechnology R&D outside of pharmaceuticals. Nonetheless, in the broader picture, other sources suggest that a number of areas within the bioeconomy are experiencing investment and have the potential for accelerating its economic and social impacts.
From page 117...
... The difference with synthetic biology is that these tools can now be deployed to affect, rapidly and vastly, enzymes, biological systems, and entire organisms.
From page 118...
... . According to SynBioBeta data, funding for synthetic biology companies had risen from less than $250 million in 2009 to $1 billion by 2015, and increased nearly fourfold thereafter to $3.8 billion in 2018 (see Figure 3-12)
From page 119...
... FIGURE 3-12  Funding for synthetic biology companies, 2009–2018. NOTE: 2018 ≅ $3.8 billion.
From page 120...
... report notes that facilities engaged in synthetic biology research or entrepreneurship existed in 40 of the 50 states as of 2013. Private Bioeconomy Employment: Biotechnology Research and Development Services Along with R&D expenditures and entrepreneurship, employment in the bioeconomy is a potentially valuable indicator of the extent and nature of its economic activity.
From page 121...
... FIGURE 3-14  U.S. locations of synthetic biology firms.
From page 122...
... Overall (nonfarm) labor has been rising since the Great Recession, but since 2013 it has not increased at nearly the same rate as employment in the biotechnology R&D services industry.
From page 123...
... ; data on Employment, Hours, and Earnings from the Current Employment Statistics survey. biotechnology R&D services workforce; the remaining 25 percent is dispersed around the country.
From page 124...
... Private, NAICS 541714 Research and development in biotechnology (except nanobiotechnology) , All Metropolitan Statistical Areas 2017 Annual Averages, All establishment sizes.
From page 125...
... New Biobased Products and Production Processes Although optimism about the future outputs of biotechnology R&D is substantial (see, e.g., NASEM, 2017) , evidence of strong growth in biotechnology outcomes is mixed.
From page 126...
... Firm sales and productivity in the bioeconomy are difficult economic concepts to measure, as economic data are typically focused on specific industries rather than on technological approaches within industry. However, insights can be gained about the bioeconomy by examining some detailed sales data collected by NSF from R&D-performing firms only.
From page 127...
... FIGURE 3-17  U.S. Food and Drug Administration (FDA)
From page 128...
... Other Innovation Outcomes and Outputs Microbial commercial activity notices The Toxic Substances Control Act (TSCA) gives authority to EPA to review industrial platforms that employ biotechnology.
From page 129...
... . SOURCES: Business R&D and Innovation Survey, which is compiled based on data from the National Science Foundation, the National Center for Science and Engineering Statistics, and the U.S.
From page 130...
... SOURCES: Business R&D and Innovation Survey, which is compiled based on data from the National Science Foundation, the National Center for Science and Engineering Statistics, and the U.S. Census Bureau (Table 74, available at https:// ncses.nsf.gov/pubs/nsf18313/#data-tables& [accessed August 1, 2019]
From page 131...
... . FIGURE 3-22  Fraction of planted acres, by genetically modified crop type, 1996– 2018.
From page 132...
... biofuel production between 2001 and 2017, during which time the production TABLE 3-7  Sales, Acreage, and Value of Selected Genetically Modified (GM) Crops in the United States, 2017 Imputed Imputed Gross Percentage Percentage Revenues of Acreage of U.S.
From page 133...
... On the basis of this discussion, the committee arrived at the following conclusions. Conclusion 3-1: The sector-specific aspects of the bioeconomy, its diffusion across industries, its potential for large societal benefits, its large science base and reliance on data-intensive research, the closeness of commercial innovation to a science base, and a high relative cost of commercial innovation make it difficult both to track the bioeconomy's contribution to the larger U.S.
From page 134...
... Refining categorization of certain activities within broad categories of chemical manufacturing, research and development, and computer and electronic product manufacturing would facili tate future measurement of bioeconomy activities. Conclusion 3-4: A satellite account system for the bioeconomy that includes the appropriate interindustry relationships for bio based production, a full articulation of the foreign versus domestic sources of supply for bioeconomy products, and a full accounting of the bioeconomy's intangible assets and databases (including ownership)
From page 135...
... OVERVIEW OF THE LITERATURE Several studies have taken a sector-based approach to defining and measuring the contribution of the industrial bioeconomy to a country's or region's overall economy. In these studies, economic activity within the bioeconomy is defined in terms of a country's system of national accounts, using North American Industry Classification System (NAICS)
From page 136...
... Not surprisingly, the term "circular bioeconomy" has gained traction in the European Union, and policies are being developed to maximize the use of biobased resources regarded as wastes (such as agricultural and forestry residues) , with the long-term objective of gradually replacing fossil-based with biobased production (Philp and Winickoff, 2018)
From page 137...
... collected data on gross sales revenues from industrial biobased activities. While his approach has the advantage of relying on data that "are publicly available at no cost or obtainable with minimal registration from sources on the Internet," some problems are entailed in comparing gross sales with the gross domestic product (GDP)
From page 138...
... Official statistics from the U.S. Census Bureau for the biotechnology segment of the R&D services industry suggest that revenues in 2012 were much larger ($16.9 billion)
From page 139...
... Census Bureau's revenue data because not all firms in the R&D services industry conduct scientific R&D; the NSF data are 60 percent of U.S. Census Bureau revenues for biotechnology and 75 percent of revenues for the other life sciences segments in 2012.
From page 140...
... Consumer biobased products are one of the drivers of the synthetic biology start-up business segment of the bioeconomy discussed in the main chapter text. No studies or industry estimates assign a revenue figure to the consumer-driven portion of this activity, despite ample evidence of the importance of doing so.
From page 141...
... would amount to as much as 9.4 million barrels of oil, based on 2016 data. In terms of reductions in GHG emissions, they estimate the reduction attributable to the biobased products industry to be as much as 12.7 million metric tons of carbon dioxide equivalent in 2016.
From page 142...
... , as well as induced effects via linkages to final demand. SOURCE: Daystar et al., 2018, p.
From page 143...
... Note that the framework is aligned with national accounts estimates consistent with the System of National Accounts 2008 (EC et al., 2009) to the extent that gross fixed capital formation includes computer software (which is believed to capture private databases)
From page 144...
... , emphasizing the context-driven aspects of growth dividends to specific investments in specific industries. With respect to valuing intangible assets, they are commonly regarded as company assets that are not physical.47 Knowledge creation underlies the value of intangible assets (i.e., the types of spending listed in column 2 of Table Annex 3-2-1 produce knowledge of commercial [or public]
From page 145...
... This calculation produces an estimate of the volume of the stock; the value of the stock at replacement cost is obtained by multiplying the volume estimate by today's price.48 Note that in companion wealth accounts, the national accounts' estimates of corporate assets at replacement cost are reconciled with the valuation of corporations in capital markets, connecting national accounting valuations to market valuations.49 Some of the earliest studies of intangibles were motivated by the observation 48Note that a simple accumulation and correction for economic depreciation assumes that there are no natural disasters or noneconomic events that diminish the volume of net stocks; in practice, these "other changes in volume" are accounted for when such events (e.g., a hurricane) destroy capital.
From page 146...
... . The replacement cost method for obtaining estimates of intangible assets depends on identifying consistent time series on investment in each asset and estimating a depreciation rate for the asset.
From page 147...
... 2001. Satellite accounts for agribusiness.
From page 148...
... 2009. System of national accounts 2008.
From page 149...
... 2009. Intangible assets: Measuring and enhancing their con tribution to corporate value and economic growth: Summary of a workshop.
From page 150...
... 2017. Unlocking investment in intangible assets.


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