AN OVERVIEW OF CULTURAL ECONOMICS AND RELATED TOPICS

Cultural economics developed in the 1960s from a concern about the sustainability of subsidies to performing arts organizations and museums, which led to analysis of the costs and benefits of the arts.

Cultural economics was initially concerned with the operation of non-profit organi­zations, public finance and welfare economics. It was essentially only after the turn of this century that interest extended to what are now called the cultural industries - those producing commercial ‘recorded’ versions of music, film, broadcasts and so on, primarily in for-profit firms. Cultural economics has yet to develop a literature on the Internet per se, though there is increasing awareness of the opportunities presented to ‘traditional’ art forms by digitization and the Internet (Rochelandet, 2011).

The arts (theatre, opera, dance, literature, visual art) and cultural heritage (tangible items like museums, built and human-made structures and objects as well as intangibles like traditional knowledge and skills) are not normal goods: they are experience goods that have external benefits of consumption and production and other characteristics of public goods.

It became clear early on in the study of cultural economics that analysis of the produc­tion and consumption of cultural goods and services demanded the adaptation of tradi­tional economic models. Two areas of interest in cultural economics in particular have led to modifications of existing economic theory: taste formation on the part of consumers and intrinsic motivation of artists and other creators. Cultural economics has developed models that incorporate these issues by importing concepts from social psychology.

An important aspect of the arts is that they change people’s tastes and perceptions (and that is indeed a major reason for subsidizing them), which is associated with bandwagon effects and fashions in the cultural and social environment. In addition, as cultural goods are experience goods, consumers need information and education in order to make effec­tive choices. Some cultural economists argue that the arts are rationally addictive, as past consumption and learning seems to increase the utility of some artistic works (Becker and Murphy, 1988). Addiction is also invoked for Internet use, even though with a more conventional, negative connotation.

On the supply side, empirical work on artists’ labor market behavior produced two par­ticularly noteworthy insights. First, creators and performers tend to accept below average pecuniary rewards. The human capital model based on economically rational (that is, financially rewarding) behavior breaks down when applied to artists: though artists have higher than average education, they earn, on average, less than other workers and an unquantifiable factor of talent makes earnings and career success unpredictable using the standard model (Towse, 2006). Second, most artists do both arts and non-arts work. According to the ‘work preference’ model (Throsby [1994] 2007), artists ‘buy time’ with income from non-arts work to finance time spent on their preferred arts work. Overall, artists’ labor markets exhibit the effects of excess supply. Many hopefuls seek to make a career, and most are unlikely to succeed. All but the most successful artists are in a weak bargaining position when dealing with intermediary firms such as publishers. Cultural economists’ work on intrinsic motivation has resonance for understanding the explosion of user-generated content on the Internet.

Furthermore, consumer behavior in markets for creative goods and services as well as artists’ labor markets gives rise to ‘winner-takes-all’ or superstar effects: a small minor­ity of suppliers captures most of the revenues, often without an apparent explanation in terms of talent or the quality of the works supplied, and dominates markets. No method has yet been developed for predicting success not only for individual artists but also for many of the products of the creative industries. Uncertainty rules -summed up in the phrase ‘nobody knows’ (Caves, 2000). The discussion among cultural economists on uncertainty, superstars, as well as fads and fashions provides a useful framework in which to study the impact of the Internet on markets for creative works.

7.2.1 Cultural and Creative Industries

Though political economists and cultural sociologists had turned their attention to the cultural and media industries from the mid-1970s, cultural economists were until quite recently primarily concerned with the subsidized arts and heritage (‘high art’).

(2011) documents that goods specific to a geographical area are often held in collective property.

There are various ways of defining the creative industries and of identifying what falls into the ‘sector’ (UNCTAD, 2010). A ‘typical’ list consists of the following: advertising, architecture, the art and antiques market, crafts, design, fashion, film, games, heritage services/museums and libraries, publishing, software, television and radio, and other edu­cational or entertaining audiovisual media content. Copyright law has figured so promi­nently in the conceptualization of the creative industries that they are often designated as ‘copyright based’ or just ‘copyright’ industries. Though the vast majority of the output of the creative industries is undoubtedly protected by copyright this does not mean that copyright is the sine qua non of value added in this sector.

The concept of the creative industries embraces both the creation of content and its processing and distribution. Firm sizes range from one-person operations, such as self­employed creators (for instance authors, artists, and composers), to big multinational media conglomerates.

7.2.2 Economic Importance of the Creative Industries

In many countries, the creative industries are now regarded as a significant sector of the economy (Towse, 2010). Much work, however, remains to be done in national income accounting to bring all relevant items into a suitable system of industrial classification. Despite a lack of standardization of products and consistent designation of creative industries, there have been many studies (often by consultants) measuring their size and growth (for example, UNESCO, 2012). Estimates of the contribution of the cultural industries to GDP typically range between 2 percent and 7 percent for highly developed economies but many difficulties remain in delineating cultural industries and developing valid results.

These estimates are often referred to in policy debates. One case in point is the debate on copyright policy, which also illustrates some pitfalls in using such data.

7.2.3 Unauthorized Copying

Even before digitization, creative industries were characterized by high sunk costs of product creation and relatively low marginal costs of delivery (Caves, 2000).

Over the centuries copyright law has adapted to new technologies for producing and disseminating creative works, while retaining the same underlying principles. Copyright may have worked well enough as long as creative works were disseminated in association with tangible carriers such as printed books or vinyl records. It seems to have floundered with the purely digital dissemination of creative goods and services as downloads and streams online. Copyrights are infringed upon or circumvented on a massive scale online. There is a burgeoning literature on the economics of digital copying and copyright, much of which falls into the realm of applied econometrics (Handke, 2012). This literature has little association with cultural economics, however (Towse, 2008), and tends to sideline issues like intrinsic motivation or taste formation.

While some progress has been made recently on the measurement of investment in copyright assets (Farooqui et al., 2011), none of the work on the economic import of creative industries and the effect of unauthorized copying has been able to establish the extent to which copyright is an economic incentive to authors and publishers in the crea­tive industries. That copyright applies to many creative works does not mean that the supply of such work hinges on copyright protection. Measures of the contribution to GDP of the creative industries are inappropriately adopted as estimates of the ‘impact’ or value of copyright and, conversely, of the value lost due to unauthorized copying. The subject has become increasingly politicized as the sector is seen as a major source of growth, especially in post-industrial developed countries but also for developing countries.

This is all too familiar to cultural economists who lived through the era in the 1980s of measurement of the ‘value’ of the arts and the economic importance of the arts to the national economy. The implication was always there (often made explicit) that if resources - regularly meaning state subsidy in that context - were not devoted to the arts, the ‘loss’ would reduce national income. Exactly the same line has been spun for the economic importance of the creative industries and the need for ever-greater copyright protection. Thus, cultural economists have been well armed to resist these assertions, though lobbyists have mostly managed to grab the attention of policy-makers, not the dismal scientists (Towse, 2011b).

7.3