Introduction to CI
Chapter 1: Introduction to Cultural Economics
What are economics & cultural economics?
- Use of economic principles to analyse problems and empirical evidence to answer them
- Cultural economics applies this analysis to cultural sector
- Adapting economics to take into account the specificities of the cultural sector
- Economics studies reaction of people and organisations to incentives (rewards, benefits)
and disincentives these reactions coordinated through marketplace
- Market are both real and virtual
- Opportunity cost - when you spend money on one thing, you can’t spend them on another
anymore choices
- Governments also make choices public finance – CE uses ideas from it
- Social welfare – greatest happiness for the greatest number
- Welfare economics – rationalizing state intervention in the market mechanisms
- Positive X normative analysis
positive can be tested by evidence
normative – matter of opinion, value judgement
- Critique of economics – it is impossible to avoid value judgement; especially in welfare
economics
Examples: people aren’t always rational in arts, they are influenced by society; sovereign
consumers who best understand their needs
- Cultural industries regarded as dynamic and important sources of economic growth
means of economic development
A Brief History of Cultural Economics
- Baumol & Bowen – book on the performing arts
- Empirical study of finance, costs and prices in theatre, orchestras, opera and ballet;
payments and employment of performing artists in the US
- Cost disease – ever increasing costs of producing the performing arts (it’s a labour intensive
sector; costs rise due to external and unstoppable economic factors?)
- Rising costs of supplying the arts would mean prices having to be increased reduction of
demand shortfall of revenues from sales of tickets = earnings gap
- Earnings gap need for subsidy
CE and Creative Industries
- Term CI comes from sociology (1930’s – mass production changing nature of art)
- Late 1990’s and early 2000’s – rise of ‘creative industries’ (Caves, UK Department for Culture,
Media and Sport)
- Caves – creators of work must collaborate
, - UCMS – CI are based on individual creativity, skill and talent; they have a potential to create
wealth and jobs through developing and exploiting intellectual property
- Movement into the IP direction with WIPO and UNCTAD; TRIPS
Market Forces in CI
- Commercialised culture relies on market forces
- Economists – consumer sovereignty; consumers can best decide what they want
- Some other people – consumers are not well informed enough (the peasants need expert
judgement) or not WTP art cannot be sustained through the market
Neoclassical economics
- Individual producers and consumers rationally calculate all alternatives when making choices
and have sufficient information when doing so
- Producers and consumers are able to anticipate and allow for future income and
expenditures
- S and D respond to prices and to competition, and prices therefore act as signals as to what
to produce
Other types of economics
Macroeconomics: aggregate economics variables (national income, employment)
Microeconomics: economic behavior of individual producer and consumer
Welfare economics: analyses conditions for achieving maximum social efficiency from the
use of resources in every market in the economy; analyzing market failure
cost-benefit analysis of long-term investment (theater, museum building)
contingent valuation (people’s subjective estimates of the value they place on projects)
Public choice theory: economic approach to political decision making
principal-agent analysis (principal – voter or taxpayer)
asymmetric information (voters and politicians less info than the enterprises)
Transaction cost economics: costs of using the market economy (costs of making deals,
finding information, enforcing contracts, etc.)
Property rights approach (contract theory and analysis) – copyright, intellectual property
Creative Economy
- 2000-05: growth of international trade in creative goods and services at 8,7% per year
- Creative economy a central concept in policy discussion
- Creative economy = evolving concept based on creative assets potentially generating
economic growth and development; at its heart – creative industries
it can foster income generation, job creation, export earnings while promoting social
inclusion and cultural diversity
econ, culture and social aspects with tech (IP, tourism objectives)
knowledge-based
- Sectors such as software, design, marketing increasingly integrated with arts
, - Emphasis on institution, local increasing returns to scale
- Cultural clusters
Example: Dalton, Georgia – someone started a carped production there; other carpet companies
followed because there was trained supply of labour and infrastructure growing population
money Dalton more attractive to live
- Other clusters in other parts of the world (Hollywood, reggae in Jamaica) increasing
returns to scale
- Cultural policy therefore less separate from economic policy (incl urban, edu, transport
policy)
- Good urban policies may be some of the best cultural policies
- Subsidy for arts is thus less likely to be discussed in ‘stand-alone’ terms, but more as a part of
a cultural network (nourishing a whole area)
- Production & generation of ideas – more likely non-rival in consumption (one person can
borrow an idea without restricting the ability of others to use the same idea)
- Production of ideas – more social then firm-specific
- Creative arts as a development engine used in poorer countries; which develop cultural
sectors by expressing their histories and identities
- Economic value embodies in IP rights copyright and patent laws more contentious
these favour corporate interests rather than consumer interests
- Preventing human capital from fleeing – important (after WWII, many European cultural
centres are no longer)
Creative Industries
- Combination of industrial-scale production with creative content
- Commercialisation – due to development of technologies
- Creativity as engine of wealth creation; rather than the other way around
- Commercialization via intl trade (globalisation) has led to homogeneity
- Macroeconomic measurement of the economic contribution of CI + application of
microeconomic theory of production and supply (theory of the firm, contract theory,
transaction cost economics)
ECONOMIC CHARACTERISTICS OF CI
- CI share features of other knowledge or information goods producers
high fixed cost of producing the original master copy
very low marginal cost of making copies
Characteristic of a natural monopoly subsidy or price regulation is in order
- Risky products, subject to radically uncertain reception high failure rate (adds to fixed
costs)
- Entry barriers – high initial capital requirements for production and global marketing; IP
INDUSTRIAL ORGANISATION & COPYRIGHT
- Flexible specialization – freelancing on short-term contracts
