Nobel laureate in Economics Paul Krugman pointed out that economies can grow in two ways: through sweat or through inspiration. Sweat o inspiración. The former refers to growth based on effort, using the factors of production, including both labor (the effort of workers) and capital (the sacrifice of current consumption to be able to consume more in the future). The inspiration, on the other hand, relies on innovation and technological progress that permit more output from the same resources. In other words, by jointly increasing the productivity of capital and labor, what is called total factor productivity (TFP).
In the eighties of the last century, the growth of TFP accelerated, driven largely by the spectacular takeoff of information and communication technologies (ICT). However, at the beginning of the twenty-first century Western economies experienced a significant slowdown, known as the productivity puzzle, as progress in technical advancement —closely tied to ICT— did not translate into gains in TFP.
According to the Productivity Observatory (OPCE 2025) of the Fundación BBVA and the Valencian Institute of Economic Investigations (Ivie), the Spanish economy has begun to show signs of recovery in recent yearsthat are likely linked to the Next Generation EU funds. We will need to wait a few years to confirm that, indeed, they have managed to improve our deficient growth pattern. Among the many arguments advanced to explain the paradox, one has received much attention: the recognition that investment in tangible assets (such as machinery or buildings) must be combined with investment in intangible assets to unlock the full potential, especially of ICT.
“Investment in tangible assets (such as machinery or buildings) needs to be complemented by investment in intangible assets to unlock the full potential, especially of ICT”
The next step was to identify which intangibles were crucial for productivity growth. Currently, the System of National Accounts recognises as assets —on an equal footing with machinery and other tangible assets— software (since 1995); research and development (R&D) (2008), and artificial intelligence (2025). Corrado, Hulten and Sichel (2005) proposed adding three more intangible assets: brand image (marketing assets), firm-provided employee training, and organizational capital.
Innovation and growth
The six intangible assets mentioned are relevant for productivity growth because: 1. They accelerate innovation and knowledge transfer (allowing the faster creation of new products and services); 2. They reduce coordination and transaction costs (e-commerce platforms enable small firms to reach global markets with minimal investment); 3. They boost scalability (they speed up growth significantly without raising costs, effort, or resources), and 4. They increase the value of production (investment in design and brand image helps distinguish it from mere commodities).
The recognition of R&D as a source of economic growth is not new. The more recent literature has emphasized the importance of management practices that accompany the digital revolution. They have stressed that investment in ICT yields large productivity gains only when accompanied by complementary intangible assets, especially organizational capital. This underscores the importance of how firms are organized, the decision-making process, and the training of their workers. It has also been observed that large, highly productive firms (superstars) have pulled ahead of the rest thanks to intensive use of intangible assets, whether in terms of better management, improvements in brand image, or investing more in innovation. Despite their importance, measurement issues have so far hindered these assets from being recognized as assets by the System of National Accounts.
Because digitization and intangible assets are closely linked and have significant impacts on productivity growth, it is worth asking where Spain stands. This can be approached from two complementary angles. The first analyzes the investment effort (investment/GDP) in intangibles compared with other developed countries. The second considers the sectoral composition of production, taking into account the share of ICT-producing sectors in different economies—the most digitalized (those that invest most in ICT and intangibles) and those that invest less. Both perspectives have played a relevant role in shaping the NextGen funds.
Despite the recent improvements, Spain remains relatively poorly positioned in terms of productivity. In the period 1995-2023 Spain—with an average annual TFP decline of 0.7%—ranked second to last, behind Italy and just ahead of Portugal. These three countries are also the most analogous (less digitalized). According to the criterion of the investment effort in intangibles, they also occupy the last positions. Moreover, while in the United States investment in intangibles far exceeded (more than 50%) that in tangibles, in these three countries the opposite occurred: investment was clearly higher in tangibles than in intangibles (in Spain, the worst-positioned, nearly 50%).
“Spain remains relatively poorly positioned in terms of productivity. In the period 1995-2023 it occupied the second-to-last position, behind Italy and only ahead of Portugal”
Regarding the second criterion —the sectoral composition of production—, Spain is also the country with the smallest share of the most digitalized sectors, which are precisely those that show the highest productivity growth. The United States heads the ranking , with the greatest weight and growth of productivity in the aggregate and in the most digitalized sectors.
For the countries for which information is available (the United States and eleven EU countries), it is possible to identify their main source of growth. In the United States and the EU-11, productivity growth in the aggregate is based on inspiration (software and R&D) while in Spain it rests on sweat (tangibles). The ICT-producing sectors rely on TFP and intangibles in the United States, the EU-11, and also Spain. In the more digitalized sectors, the main growth driver are the intangibles in the United States and the EU-11, while in Spain it is the upgrading of workers’ skills. Lastly, the more traditional sectors base their growth on sweat, with the largest contribution coming from tangible capital and the smallest from TFP.
In short, Spain faces two challenges if it wants to raise productivity growth: increasing the endowments of intangible assets across all industries, as highlighted in a recent report by the Foro de Marcas Renombradas, and reducing the weight of the less digitalized sectors, since they impede productivity growth, and therefore wages and well-being.
In alliance with
