The Supply and Location of the Arts and Creative Industries

– An Economic Perspective

by Trine Bille, Associate Professor, Ph.D.

Copenhagen Business School, Denmark

Cultural industries Seminar Network

New Directions in Research: Substance, Method and Critique

11th and 12th January 2007 in Edinburgh

Purpose

• Guinding principles for the change of supply conditions for arts and creative industries in the course of economic development

• Guinding principles for the location of arts and creative industries, depending on the economic charcteristics of the institutions and individuals that comprise different part of the sector

Work to draw on:

• With co-author Professor Günther Schulze: Culture in urban and regional development;

In: D. Throsby and V. Ginsburgh (ed.): The Handbook of the Economics of Arts and Culture, Elsevier, 2006

• Current research project, financed by the Tuborg Foundation, on creative industries and the experience economy in Denmark. With Associate Professor Mark Lorenzen.

Background

• The creative industries have attracted special attention from a development perspective, because this sector has been characterized as a growth sector:• The creative industries contribution to GDP,

employment, export etc. has been calculated • Their average growth rates has been

calculated, showing higher averate growth rates than ”traditional” manufacturing industries

Defining the creative industries

1. Industrial scale-production combined with cultural content• Industries that mass-produce goods and

services with sufficient artistic content to be considered creative and cultural significant

2. Industries that relies upon copyright law to protect the creative or cultural content, i.e. their intellectural property.

(Ruth Towse, 2003)

Problems defining the creative industries

• ”Creative content”: when is the content sufficient artistic to be considered creative or cultural significant?

No ”objective” criteria exists for defining this.

• ”Copy-right industries”: the content do not need to be cultural but can be creative in a very broad sence. Very broad definition.

Practice

• Often in practice a pragmatic solution is used.

• A typical list consists of: performing arts, the arts market, crafts, design, fashion, film and videos, the music industry, publishing, software, toys and games, television and radio, advertising and architecture.

• Sometimes also sports, tourism etc. are included.

To sum up:

• No commen argeement on what can be considered creative industries• Different defintions in different countries

• The measurement of employment and earnings in this sector is very difficult, mostly because of problems with official data in this area.

• Most defintions comprise a very wide spectrum from commercial business to subsidized cultural institutions and non-profit organizations• Includes many different kinds of culture with different

structures, economy and development potential

The supply of cultural goods

• Economic development can have different manifestations, like it:• brings about technological progress which is

unevenly distributed• increases per capita income and education

levels• increases the share of economic activiy

traded in the market

• This can influence the supply conditions for creative industries in different ways

Production process in the arts and creative industries• How will supply conditions for the arts and

creative industries change in course of economic development?

• Obviously, a unique answer is impossible because supply conditions differ fundamentally between art forms.

• Classification based on production process:• Live performing arts (music concerts of all styles,

plays, opears, ballet and dance)• Visual arts (paintings, drawings, sculptures)• Reproducible arts (literature, recordings, movies,

digital art) with an industrial reproduction process (but also design, fashion etc.)

Production processes

• Visual arts:• No scale economics• Production technology prevents easy and perfect copying• The art is unique

• Live performing arts:• Hardly scale economics• Uniqueness is a matter of degree• ”The handicraft attribute of their supply processes”

characterizes these art forms (Baumol, 1996)

• Reproducible arts:• The creative process does not exhibit scale economics• The reproduction of the final output exhibits very strong scale

economis• Serious copy-right issues

Live performing arts and visual arts

• Baumol’s cost disease (Baumol and Bowen, 1966)

• Relative price effects, which tend to make those arts forms more expensive that have the ”handicraft attribute”. Price elasticity of demand trigger a subsitution away from there art forms.

• Positive income effects• The net effect depends on the relative strength of

these to effects• Countervailing secondary supply side effects

Reproducible arts

• Reduction in prices due to technical progress• on CD’s, movies on video and dvd etc.• on necessary equipment (CD and dvd players etc.)

• Television and radio technology• Development of Internet and CD burners:

• made copying easy, crowd out sales, makes this music cheaper

• Made artists more global than they already are (consumption may shift from local live performing arts towards international music)

Globalization and trade

• Globalization has increased exchange of cultural goods

• Trade in cultural goods follow normal trading patterns: closer and larger economic trade more with each other

• But, the positive effects of common language, geographical closeness and GDP per capita are significant stronger for trade in work of arts than for overall trade (Schulze, 1999)

Globalization and trade

• In the coure of increased trade the ”cultural discount rate” may become less and less

• Local culture may play a diminished role in local cultural life

• A clear demonstration of this effect may be the changing composition of trade in movies in European countries, with American movies increasing their share dramatically

Development and public support for the arts

• How do we expect public support for the arts to change in the course of economic development?

• Individual’s valuation of cultural goods and services is only partially reflected in the market demand for culture, since cultural goods produce non-use values as well.

• An increase in national or regional income over time will typically give rise to increasing public expenditures on culture.

The public cultural expences in the nordic countries:

”…we can conclude that cultural expenses have an income elasticity of 1 or perhaps a little more. Or in other, less tecyhnical terms: when the national economcy is doing well, there is a spill-over effect on culture. Every time Danish society becomes DKK 10 billion richer, this will affect culture with a 0.5 to 0.6 percent increase or DKK 50 ti 60 million. Thus, economic growth seems to be the right thing for a rich cultural life! Seen in this perspective, the nordic countries seem remarkably similar.”, (Bille and Hjorth-Andersen, 2003)

Assessment. To sum up:

• We have taken economic development to have three manifestations:• It brings about techonogical progress which is

unevenly distributed• It increases per capital income and education

levels• It increases the share of economic activity

traded in the market

Consequences

• Relative price effects• Technological progress pertains to live

performing and visual arts less than to the production of other good, including industrially-produced cultural goods

• The relative price of the live performing arts and visual arts tends to rice, thereby reducing the demand for them through a substitution effect

Consequences

Positive income effects• Reproducible arts: Income and substitution effects

work in the same direction for industrially-produced cultural goods such as music CD’s and dvd’s

• Live perfoming arts and visible arts: Income and substitution effects have opposing directions for unique art such as theatrical plays.

• Net effects: is undetermined a priori, it depends on how goverments react to an increase of relative prices.

• The arts forms affected by rising costs are those that enjoy the largest subsidies as a share of production costs.

Consequences

• Technological advances in the internet and i reproduction technologies for digital cultural products – music, film, and digital books – have led to copyright infringements and declining sales. Some possible effects:• Average movie production budgets may fall• The complementarity between live shows and record

sales as well as movie visits and video sales will weaken with the consequence of rising ticket prices

• In less developed countries, devemopment will also increase the share of monetized transactions

Overall consequence

• There is a strong presumption that the share of cultural goods produced by creative industries (in constant prices) will increase – as the income and substitution effects work in the same direction.

• This will tend to reduce the influence of truly local culture

• Will the tendencies of the arts and creative industires to cluser reinforce this overall trend?

Location of the arts and creative industries

• Arts and creative industries tends to cluster.• What are the economic reasons for this?• Do different art forms have different tendencies to

cluster?

• Distance, or rather the absence of it, matters• Proximity to market• Proximity to other producers, either competitors or

producers of intermediate inputs

• Agglomeration economics can be due to economics of scale and scope either in production or in consumption – or both

Live performing arts

• Demand-side explanations• Proximity to market – potential consumers –

matters

• Supply-side explanations• Economics of scale or scope at the firm level,

lead to larger firms, but not necessarily to agglomeration of differnet firms

Reproducible arts

• Clustering of different firms caused by economics of scale or scope external to the firm. Three principal causes:• Labour-market economics• Scale economics in the production of

intermediate inputs• Communication economics on the local level

• They all refer to essential inputs for the production of cultural industries

Input markets

• Labor market economics of scale and scope occur when firms tap a common pool of artists which are hired only for short periodes of time, then to be released into that pool again to be hired by other firms.

• The more production activities there are in a given area, the stronger is the incentive for actors to move into this area – agglomeration is reinforcing.

• The argument applies not only to artistic labor, but also to highly specialized inputs.

Creative artists

• Creative artists like writers, painters, composers and sculptors do not face ”technological” incentives for agglomeration

• However, many of them have opted to live close to their peers, because of mutual inspiration or ”creativity spillovers”

• An institutionalized form of creativity spillovers occurs in arts schools and colleges

• Creativity spillovers apply in principle to all art forms, thereby reinforcing existing incentives to cluster

Conclusions• Economic development will have very

different impact on the supply of creative industries, depending on whether we look at live performing arts, visual arts or reproducible arts

• Clustering effects and factors affecting the agglomeration of arts and creative industries will also have different importance for the different part of this sector.

Conclusions

• There is a strong presumption that the share of cultural goods produced by creative industries will increase, as income and subsitution effects works in the same direction.

• Increased exchange of cultural goods makes the artists more global than they already are

• Agglomeration in the creative industries is reinforcing

• This will tend to reduce the influence of local culture!

• How will governments react to an increase of relative prices?

Employment in some Danish creative industries

Employment2004

Growth in employment1995-2004

Annual growth1995-2004

Computersoftware 28.429 130% 9,7%

Advertising 13.697 29% 2,9%

Cultural institutions 10.600 24% 2,4%

Publishing 6.792 - 9% - 1,0%

Tv and radio 6.200 9% 1,0%

Architecture 5.890 26% 3,4%

Film and video 5.155 120% 9,2%

Design 1.286 171% 11,7%

Music industry 795 563% 23,4%

Independent artists 196 87% 7,2%

All industries 2.706.434 3,4% 0,4%