Northfield Squanders its Intangible Wealth

Chinese pictograph - WealthThe World Bank recently published a study, “Where is the Wealth of Nations?: Measuring Capital for the 21st Century”, which is generating a lot of buzz. Why? Because, in trying to quantify the value of capital and resources in economic development, the found that most of the world’s wealth was…. missing.

The study started with an inventory of each nation’s natural capital – nonrenewable resources such as oil, natural gas, coal, minerals; and agricultural resources such as crop and pasture land, forests, protected areas – then added the value of built capital, e.g. infrastructure, buildings, machinery, equipment. By tallying the value of natural and built capital, the World Bank found that those figures alone could not account for a country’s level of income. The majority percentage of the world’s wealth is not attributable to natural or built capital.

I love stuff like this, partly because it validates my deeply-held belief that some of the most important things in life are qualitative and thus very hard to quantify. Quantification and measurement should be tools, not goals or philosophies – even in business. But I digress.

So what accounts for the majority of the wealth of nations? According to the study, “Human capital and the value of institutions (as measured by rule of law) constitute the largest share of wealth in virtually all countries.” The term used for the combined value of this human and institutional capital is “intangible capital”, and it includes labor, human skills and know-how, social capital and societal trust, and the quality of social institutions (including government). “For example, if an economy has a very efficient judicial system, clear property rights, and an effective government, the result will be a higher total wealth and thus an increase in the intangible capital residual.”

The implications for Northfield are interesting. If we put as much time and money into developing our human capital as we do wrangling about new liquor stores, our long-term prospects for community health and vitality would be much stronger. Why do we, as a community, seem so focused on the tangible capital? Is it because of a mistaken belief that it’s the main contributor to community wealth and health? Is it because it’s safe and comfortable? (Liquor stores aren’t likely to grow legs and walk away, whereas human beings are distressingly mobile.) Or is it because outcomes and results of investing in intangible capital are just not easy to measure, making it subject to political machinations?

Read more about it here, or download the World Bank study.

40 thoughts on “Northfield Squanders its Intangible Wealth”

  1. I think movements to attract artists and entrepreneurs to town, and encourage their development are tangible efforts at increasing Northfield’s intangible capital, which is why many in town have generally been advocates for both. Witness the arts town initiative, etc…

  2. I’m drawing different implications for Northfield than Tracy. The study found that the single largest intangible contributing to wealth development was efficient rule of law (i.e. certain property rights, efficient resolution of disputes, and societal trust). Conversely, the single largest impediment to wealth development is government interference in capital (natural and produced) management and leverage.

    I found the study to be confirmation of Adam Smith’s “The Wealth of Nations”. (I’ve only read the Executive Summary of this report.)

    Consider this: when the hospital was looking at its options, it decided to make a large capital investment, which it has leveraged into substantially more wealth at its new facility than it could have ever generated at its old facility, regardless of how much investment it made in “intangibles”. The new building didn’t create the wealth; it just offered the opportunity. If there had been a political movement to keep the hospital at its old location, and if it had succeeded, the hospital would have had to eventually close because of its inability to compete.

    That is why those in business are so concerned about capital investment.

  3. A tad specious D.L. …A capital investment can bring new opportunity, but if there is not the sometimes harder to measure real quality produced by that capital investment and its supposed opportunity, then the dollars have been ill spent, producing only empty false value, and in the end deteriorated capital investment/bricks and mortar. Opportunity which creates real value can sometimes be amazingly small capital investment, i.e. Gates foundation malaria program, which produces an abundant return of the more intangible human value …in turn, down the road , making sure that all kinds of value, both tangible and intangible, will have the opportunity to occur.

    Great post, Tracy.

  4. Maybe investment in tangible capital can be a tool for increasing human capital. That is not to say that tangible capital creates human capital, but that tangible capital can create opportunities for human capital. In order to make that tangible capital an opportunity, maybe we need to focus on the goal–human capital–when making decisions about what tangible investments we pursue.

    The hard thing is that planning does not always mean reality. However, it does help if there is a common goal. Sometimes there needs to be more than one opportunity. If all community investment had a common goal of increasing human capital, there would be more opportunities for it to flourish.

    In my opinion, human capital should be the goal. Investment in tangible capital should be directed at increasing that goal. Obviously, defining what tangible capital supports that goal and how it supports that goal requires thoughtful research, analysis, and planning.

  5. I particularly like there definitions from the above source:

    Human Capital
    The knowledge, skills, abilities and capacities possessed by people. Human capital can be accumulated in many ways, including education, on-the-job training, on-the-job experience, investments in health, outreach and extension programs, life experience, migration, and searching for information about goods, services, employment opportunities, etc.

    Human Resources
    In economics, another term for human capital, which is the knowledge, skills, abilities and capacities possessed by people.

    http://450.aers.psu.edu/glossary_search.cfm?letter=h

  6. David,

    I wonder if your example also speaks to the standard or level of care going hand in hand with the level of capital investment. Has the level of capital investment increased or improved the level of care? One would hope, but we don’t see the reports about the change in level of care, just the ones about the level of capital investment! Just because the capital investment is higher doesn’t mean the level of care has also increased just that the hospital can float longer before it sinks. (excuse the pun)

  7. Good point, Katie. The hospital becoming bigger doesn’t mean that it is providing better care, nor improving our quality of life. But, it was the only way it could stay in business long-term. The same rationale holds true for profit businesses as non-profit businesses.

    The idea of creating human capital sounds nice; but what does it mean? St. Olaf is building a new science center because it thinks that it needs to do so to compete. Should it be investing in “human capital” instead?

  8. David,
    Interesting that you choose to make a comparison between a hospital and a college. St. Olaf is investing in human capital by building a new science wing. Increasing human capital is their business. A hospital is a profit driven machine – People don’t have a choice if they are ill they have to go to a hospital. Whereas a college is driven by peoples want to attain the ability to gain more human capital, however not every person has to attend a college during their lifetime. The hospital now has the ability to perform more expensive procedures, (make more money) but the college will have the ability to produce more human capital. The difference, I see, is a hospital only sustains an even level of human capital, whereas a college has the ability to increase human capital exponentially.

  9. Couldn’t health care be seen as an investment in human capital, as it has an effect of the production output from people? Are there services that the new hospital offers that used to only be available elsewhere? Could these new services save money for employers because there is less work time lost from travel? Might people be more likely to use these services to better their health because they are more accessible? If we did not have a “good” hospital, would that affect the prospects of bringing quality workers to our community?

    I do not know the answers the the above questions, but it seems that healthcare could be considered an investment in human capital.

    The Penn State definition of human capital (#8) includes “investments in health” as a way human capital can be accumulated.

  10. Somewhat realted to this discussion, NY Times columnist David Brooks wrote about human capital exactly two years ago, dividing it up into 5 underlying components:

    # Cultural capital: the habits, assumptions, emotional dispositions and linguistic capacities we uncon­sciously pick up from families, neigh­bors and ethnic groups – usually by age 3.

    # Social capital: the knowl­edge of how to behave in groups and within institutions.

    # Moral capital: the ability to be trustworthy.

    # Cognitive capital: This can mean pure, inherited brainpower. But important cognitive skills are not measured by IQ tests and are not fixed.

    # Aspirational capital: the fire-in-the-belly ambition to achieve.

  11. This is the best post for a long time(since Ross’s Democracy piece).

    Katie’s example of the hospital raises a fascinating possibility … When deciding how to invest in large capital projects, should a city take in to consideration the “human capital” element?

    I have long felt, since David Koenig was on the council and always advocated for cost benefit analyses, that those certainly should be done for large city projects.
    The city does not formally do that, as far as I know, but certainly a “city” which is only made of its composite parts, i.e.citizens …should be very concerned about the impact and developmental potential for human capital.

    Wouldn’t it be great if the Council chose to spend time in this sort of discussion, in a work session, instead of spending time to figure out how to deal with each other’s personalities. I apologize for bringing it back to the current situation, but it points up how much productive time we are losing with all this other crap (tracy’s word).

    Of course that also means you have to have a council that is inclined to deal with the philosophical social issues as real value issues. I would think they would love to have the freedom to do so.

    Popular song :”Freedom’s just another word for nothing left to lose …”

  12. Has a cost benefit analysis been done on the streetscape project? I guess I am surprised that those types of analyses are not always done. Granted, the investment in human capital is sometimes difficult to measure, but I believe both tangible and intangible capital should be considered. The thought that not even tangible capital is considered when planning is concerning, to say the least.

  13. I mentioned the hospital and St. Olaf to cite examples of non-profits that found it necessary to create bricks and mortar in order to advance their respective businesses. Even though these institutions are non-profit, they are selling something – medical services and education respectively.

    The World Bank cites the “rule of law” as being the single biggest intangible (57%) which results in the increase of total capital. This “human capital” to which David Brooks addresses and which Griff references, is mainly the ability of everyone to get along and honor each other’s property and rights without trying to rule over their choices.

    Consequently, “squandering intangible wealth” is a misnomer. The World Bank’s report focuses on how countries fail to take advantage of their natural and produced capital. The two main ways countries fail to leverage this capital is that the people are uneducated (36%) so they don’t know how to increase their wealth. Second, even if they know how to use their wealth, if the government is not trustworthy, or their wealth accumulatation is subject to inefficient justice, they won’t invest.

    I think that the implications for Northfield is that if we want to increase our wealth, we need to ensure that governmental policies don’t place impediments in the way of profit sectors when the market exists for the product. When the rule of law prevents capital accumulation, those businesses (e.g. Ryt-Way, College City Beverage) go someplace else, and those communities benefit from the wealth, both tangible and intangible, that those companies bring.

  14. David is absolutely correct that a balance needs to exist between hard investment costs and the opportunities for both kinds of capital return, that thoughtfully (more philosophically?) invested dollars may bring.

    To that end, the plan commission needs to be urged to return the rezoned (from industrial to commercial) Gleason movie theatre land, back to the industrial land pool that the Chamber and EDA are actively trying to develop. After all, it is off the highway corridor,and has possibilities for really attractive business development other than highway visibility commercial. That rezoning was done to accommodate a landowner’s request, when there was a viable project in the offing, but once that project is dead, the land should return to the previous zoning status that was more beneficial to the community as a whole.

  15. The Water Street Streetscape project is a good example of squandering “real” capital. We already have a functioning parking lot, street, and sidewalk. After one-half of a million dollars, we will end up with a nicer looking parking lot, street, and sidewalk.

    If we ask ourselves whether we have increased the wealth of the community, the project is impossible to justify. On the other hand, the Target development was a wealth enhancement project for greater Northfield area.

    Let’s be realistic. Northfield cannot afford nice things, like the Streetscape, by investing in human capital. Governments use real, not intangible, wealth. Governments get more real dollars when people pay more propery taxes and user fees.

  16. I guess I do not see it as an either/or issue, Dave. Yes, there needs to be more of a vested interest in keeping/bringing in existing/new tax dollars through business, but I also see that making our community a desireable place to live is important.

    Not having seen the latest plans for 5th and Water, I cannot say whether I think it is money well spent or not. However the cost of the project does concern me.

    With that said, I have to disagree with your statement, “If we ask ourselves whether we have increased the wealth of the community, the project is impossible to justify.” It depends on your definition of wealth. To me, monetary value is only one definition of wealth. True, other values of wealth may be difficult to measure, but I do not feel that makes them unjustifiable.

  17. I was talking about wealth in the same terms as the World Bank – namely a monetary amount. “Intangible wealth” refers to a specific amount of wealth from an intangible source. That is different from “quality of life” issues, which are an intangible amount of benefit from a known source (e.g. “making our community a desirable place to live” from having a vibrant arts community).

    The World Bank didn’t equate increased wealth with improved quality of life, although that certainly seemed to be its underlying premise.

  18. David:

    In comment #19, Christine asks (I think, YOU, as Chamber President) why College City Beverage and Ryt-way left town.

    A couple of your board members were rather closely connected to those situations, I’m sure that they’d think it was important for the citizens to understand the issues.

    (Warning, if David answers “lack of commercial land”, he’s not telling the WHOLE truth.)

    Go for it!

    Ross

  19. To look at the whole picture Ross, we need to ask why Menard’s chose Dundas over Northfield. Why did Sears locate in Dundas? Why did Keith Lauver leave Northfield for Eagan? Why did Radio Shack leave for Dundas? Why did Speech Gear leave downtown Northfield? Why did Marathon Multimedia leave for Faribault? Why is Coach Crafters leaving Northfield? Why did FMC FoodTech move all of its manufacturing operation to Ohio? Why did Sage Electronics locate in Faribault? Why did Aldi grocery distribution locate to Faribault? There is a lot more than available commercial land availability at work here.

  20. Finding out why businesses don’t come to Northfield or leave it is extremely important information. I have been working and doing business in Northfield for nearly 6 years and from my experience Northfield and “the powers that be” are not business friendly. Why does everything have to be a fight? Business owners are constantly asked to do more for the community, which we do, but how often has our city and those who run it offered to be of help to businesses? My parents had a store in Northfield about 20 years ago and had a terrible experience. Things haven’t changed. How sad.
    This “intangible wealth” is not only (IMHO) being squandered in Northfield, it is also under attack. This may seem like a dramatic statement, but I do believe it is worth looking at. According to Tracy’s post this “intangible wealth includes labor, human skills & know how, social capital and societal trust…” By losing businesses it is obvious that Northfield has a problem – a big one!

  21. David, my question was not directed at you regarding why Ryt-way and College City Beverage left Northfield, but your opinion, along with others, would be nice to hear. I really have no idea why these businesses left.

    As far as quality of life issues, I guess I see that attempts to increase our quality of life can sometimes be an investment in human capital versus just a benefit of it. If human capital consists of health and positive social interation, might projects such as the streetscape, which encourages people to walk and interact, be an investment in human capital?

  22. Ross,

    I asked Chris Sawyer to respond to that question, and he said he will. It’s time to get the truth from the actual people involved.

  23. If you look at Griff’s post #13, human capital is derived primarily from attitudes, not from monetary investments. Cultural, social, moral, cognitive, and aspirational capital are attitudes people take to putting natural and produces capital to work thus creating the “intangible wealth” to which the World Bank references.

    Julie (Post #25) does an excellent job of explaining Northfield’s general attitude towards for-profit businesses.

    The Chamber hopes to gradually change that attitude, or at least be an effective advocate for what wealth it can bring it the community if businesses are put on the same level as non-profits.

  24. Christine,

    Post #25 states the same reason why Ryte-Way left Northfield. I called my clients to ask them to make a statement regarding their experience with Northfield, so hopefully they will respond soon.

  25. Larry, in your post #24 you ask about Sage Electrochromics. I have a very small piece of information on them.

    Sage moved from New Jersey in the late 1990s, renting space in Viracon’s building by the Faribault airport. They had only a handful of employees. I built some manufacturing equipment for them when they were starting up and got to know a couple of the principals. They were enthused about their unique, new technology. They said they were planning on building a new manufacturing plant but hadn’t chosen a location yet. Naturally, I gave them a sales pitch, trying to get them to consider Northfield. They didn’t like Northfield because it wasn’t close enough to highway 35 and they wanted to be on a big electrical trunk line (I think), that Faribault had, but Northfield didn’t. I thought those were objections that could be overcome and asked if I could have someone from the city talk to them.

    I brought the contact information to the city’s economic development person (now long gone). She said, “Maybe I’ll send them a flier.” I was stunned. “Howabout a phone call or a visit?” I asked. Since I wasn’t satisfied with her attitude, I brought the contact info to someone else on the EDA, who I know is more of a go-getter. After that, I don’t know if Northfield ever talked with Sage, or if Northfield ever made a serious effort to get them here. Maybe a flier was sent.

    I think opportunities like Sage are few and far between. Here’s what we’re missing:

    http://www.startribune.com/535/story/1511617.html

  26. Thanks for your background, Curt, on Sage. I think the EDA lady was Jill. She loved sending flyers.
    The city seems to wait for “luck” to stumble upon a business who would like to relocate or build here in Northfield. In the business world, luck takes a back seat to good sound strategic planning to identify customers and develop new ones. But in the world of small town government, there apparently is no incentive to “land” a new customer. Why does it have to be that way?

  27. Be they out-of-town businesses wishing to establish themselves in Northfield, businesses already here that wish to relocate or expand within Northfield, or local people who simply want to ‘have a go’, they all come up against an entrenched negative mind-set in City Hall – not at all general I hasten to add but very localized in those very few individuals who are in the prime position to support, facilitate, enable but who would rather interrogate, deter, discourage, disable. BTW, whatever happened to the Building Board of Appeals? A lot of people spent a lot of time attempting to ameliorate one of the more negative impacts of the mind-set, but to what end…?

    And what of the Rental Board Of Appeal? A friend of mine bought a house a few months ago. He has since died. His family considered selling or renting, investigated renting, talked to the Building Official who looked at his map and said ‘the block has eight houses, three are already rental properties, 20% is the limit, the limit is already exceeded, No, you cannot rent it out’ (or words to that effect). Does anyone out there other than me consider this rental ordinance both droconian (a sledgehammer to crack the walnut of noise and parking) and typical of both Northfield City Staff and a perfect example of Tracy’s ’10 habits of incompetent City Officials’? And, most importantly, Why do we the citizens and our representatives put up with kind of time-, money-, and energy-wasting nonsense? “Cos they are the professionals”!

  28. Norman,
    Don’t confuse professionals with incompetence. The 10 habits of incompetence speak to inability of people to take their profession seriously enough to ensure that this type of nonsense does not happen. One the other hand, how many incompetent professionals does take to change a light bulb?

  29. This article is called “Where is the Wealth of Nations?”

    Northfield is not a nation. Northfield is not even a state, or a region or a county. Northfield is a city of 15,000 people – many of whom like or find power in, pushing all discussions into bigger & broader pictures – politically, religiously, etc.

    Northfield has some great institutions in Carleton, St Olaf, Malt-o-Meal and some great sub-institutions Jesse James Days, the Arts Guild, Just Foods, the Archer House, etc. But in a way these are all kind of hidden and to a degree clicky. The signage program is attempting to address the hidden aspect. But realistically when someone new pulls into Northfield the WOW factor is just not there. There are little WOW pieces interlaced with little ticky tacky pieces. Unless they pulled in when Harry Potter was released – that did have a WOW factor.

    Northfield is not as boring like Apple Valley or Lakeville – but based on recent development I believe it would be boring if the campuses didn’t block boring development. Most towns do not have the WOW factor but Northfield should have the WOW factor because it has enough pieces of the puzzle.

    Carleton, St Olaf and to a degree MN should have an interest in Northfield having more historic and architecturally specific development codes and some type of major bonding to influence development. Carleton and St Olaf are “nice” “kind-a prestigious” colleges but to become “great” “super-prestigious” colleges they would benefit from Northfield being a WOW town. And MN should have an interest in another WOW town with two super prestigious colleges.

    One symptom to me that something is wrong or missing in the city leadership is that Northfield is a town with 2 sides, 2 colleges on opposite sides, lots of kids and yet there is no pedestrian bridge over Highway 3 or 19 for that matter. This is such a basic and obvious need that were it proposed tomorrow then it should be funded and built within 6 months – this is a no brainer for the city and for the colleges. If things like a pedestrian bridge cannot get built then how will larger development ever get done ?

  30. David : I think you make a very good point re: the lack of connectedness between the two sides of town…
    The pedestrian bridge over hwy 3 is something that has been discussed ever since I’ve lived here, and has never been considered feasible because of the cost, and the amount of space it would occupy on both sides of the hwy in order to comply with ADA rules on slopes, etc.
    Wouldn’t it be great if it could be a design project for the School of Architecture at the U.of M. and then we got a Blandin Grant to make it happen; wouldn’t there be federal grants for that sort of project, also?

    Think of the magnificent bridge (actually a piece of structural public art) from Loring Park to the sculpture garden at the Walker, in MPLS …

Leave a Reply