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Bakhshi, Hasan,Cunningham, Stuart, & Mateos-Garcia, Juan (2015)
Public policy for the creative industries.
In Jones, C, Sapsed, J, & Lorenzen, M (Eds.) The Oxford Handbook of Creative Industries.
Oxford University Press, United Kingdom, pp. 465-485.
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Public Policy for the Creative Industries
Hasan Bakhshi, Stuart Cunningham, and Juan Mateos-Garcia Eds. The Oxford Handbook of Creative Industries
Edited by Candace Jones, Mark Lorenzen, and Jonathan Sapsed
Abstract and Keywords
The cultural and creative industries are closely intertwined with government. This chapte r reviews key economic rationales for public policy interventions for the arts, cultural and creative industries. Market failure justifications depend on the status of arts
and culture as non-rival public goods, as ‘meritgoods’, or the need to moderate the
effects of up-front investment costs or monopoly, and the inherent uncertainty of creative
production. ‘Systemsfailure’ too is a regular rationale for policy intervention. Using the
United Kingdom as an example, the chapter shows how emphasis on these rationales has shifted over the last three decades, first in the context of industrial policies for traditional aims such as exports and job growth, which have been joined in recent years by the need for investment in intangibles, knowledge exchange, and spillover effects in the wider economy.
Keywords: creative industries, public policy, market failure, knowledge exchange, spillover effects, creative economy
Introduction
Why do we have public policies for the arts, cultural sector, and creative industries at all? In principle, the production of arts, cultural and creative goods, services and experiences can be organized through markets on their own in the same way as most other sectors in the economy. Yet, if we look around us, we see everywhere high levels of government intervention in the production and consumption of art and culture: artists and cultural institutions receive public grants; film producers benefit from targeted tax relief; broadcasting is heavily regulated; and the intellectual property regime grants rights- holders a temporary monopoly over the exploitation of their creative works.
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In this chapter, we describe three frameworks and the economic rationales for cultural
and creative industries policy they present—market failure, industrial policy, and creative
economy. Then we outline how policy in the UK has evolved over the last three decades to illustrate shifts in the relative importance of these rationales for government
intervention. In doing so, we briefly describe the most important changes in policy-
makers’ definitions and categorizations of the cultural and creative industries, in the role
the creative industries are perceived by policy-makers to play in the economy, and in the policy levers they have deployed in an attempt to support them. Readers are referred to Flew (2011) and Cunningham (2014) for a fuller historical account of policy in the UK. The final section concludes with suggestions for a policy-relevant research agenda.
Our decision to use the language and concepts from economics is motivated by our focus on policies concerning the allocation of scarce public resources between alternative ends (of which arts, culture, and creative activity are but one).1 Where we talk about
commercial creative industries, it is not hard to justify the use of an economics
framework to study government intervention. Where we speak about subsidized arts and cultural activities, however, we acknowledge that there are other important motives
beyond the economic that justify public intervention—the fact that artistic and cultural life ‘represents the values of individuals, their own aesthetic and philosophical
representations and, at a more collective level, all the ways of understanding a people’s
Identity’ (Deroin, 2011). These are compelling, independent reasons for public investment
in the arts; though, we would argue, they are at least to some extent captured by the economic rationales for policy intervention we set out below.
Market Failures in Arts, Culture, and Creativity
The defining principle underpinning the functioning of modern economies is that markets are in general the most efficient mechanism to allocate scarce resources towards the production of goods and services satisfying alternative (and competing) needs. There arediverse—and to a great degree complementary—explanations for why this is held to be
so.
Perhaps the most well known is Adam Smith’s‘InvisibleHand’ theorem, according to
which the actions of self-interested individuals aggregate into socially desirable
outcomes, and support a sophisticated division of labour that is conducive to productive efficiency (and therefore wealth creation) (A. Smith, 1991). By contrast, the Austrian School of economics stresses that markets are much more effective than other
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Resolve economic problems, harnessing the various pools of knowledge distributed across the economy and society (Hayek, 1945).
Government intervention in the economy is justified in instances where it can be shown that, left to its own devices, the market fails to produce socially efficient outcomes (and as long as the benefits of such intervention outweigh the costs). In this section, we overview those features of arts, culture and creative goods, services and experiences that, it has been argued, give rise to these situations of market failure, and which therefore provide an economic rationale for public intervention.
(a)Arts and culture as public goods: Markets function efficiently when businesses, institutions, and households are able to capture all of the benefits from their economic activities and fully bear the costs. This requires that goods and services
produced are ‘rival’—consumption by one individual precludes consumption by
another—and ‘excludable’—it is possible to exclude someone from consuming the
good or service in question. Goods and services not satisfying these two conditions
are said to have ‘public good’ characteristics. The benefits and costs associated with
their production and consumption that are not reflected in their prices are described as their positive or negative ‘externalities’ (or ‘spillovers’). In the absence of
government intervention, the levels of production for goods or services with positive externalities will be below those that are socially desirable. These spillovers are often believed to operate at the local level: for example, when a vibrant local cultural scene benefits the inhabitants of a city, by bringing in tourist income (Long and Sellars, 1995) or by attracting highly educated immigrants and the knowledge- intensive businesses that employ them (Florida, 2002). Such situations may warrant local public support for arts and culture. A similar case might be made for heritage sites and public architecture, whose existence and maintenance generate non-
excludable and non-rival benefits for those living in their vicinity. Certainly in the UK, while local authorities account for less than 8% of overall arts funding (M. Smith, 2010),2 they play an important role in supporting local projects and organizations
(Arts Development, 2011).
In addition to this, some cultural and creative goods and services have ‘information
goods’ features that generate ‘knowledgeexternalities’—they embody ‘intangible’ ideas,
concepts, and themes that can inspire, be developed and built on, or be imitated by others without compensating their originators. An influential work of art, or new genre, may, for example, inspire subsequent projects that entrepreneurs exploit in the market. Some have again suggested that these knowledge externalities are strongest at the local level (Chapain et al., 2010), and may even show up in higher levels of business
productivity and therefore wages. Recent research shows that wages are indeed
significantly higher in British cities which have more concentrated cultural activity, but that the wage premium disappears once variations in local levels of education are allowed for.3
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Of course, the arts and culture generate other externalities which are much more difficult to define, but nonetheless play an important role in justifying public funding. A cultural good or service may have social value if it conveys a sense of connection with others, for example, or helps us understand the nature of the society in which we live (Throsby, 2000). It may also contribute to a sense of identity and place. Many have notions that the
arts create a ‘better society’, for example through instilling values of beauty and respect
in the community (Bakhshi, 2010). Economic studies of cultural value are few and far
between in the UK, but a rare exception—the contingent valuation of the British Library
in 2003—concluded that such ‘non-use’ values, according to the general public,
Accounted for the majority of the British Library’s overall value (Pung, Clarke, and Patten, 2004).
(b)Arts and culture as merit goods: While the predominant challenge when arts and culture have public good characteristics is to coordinate collective action between
self-interested individuals to ensure that they are funded, there are separate—
paternalistic—arguments for publicly funding arts and culture if consumers are in
fact unaware of their benefits; that is, if they are ‘meritgoods’. An added
consideration is that many arts and cultural activities tend to be experience goods—
their enjoyment increases with experience (Van der Ploeg, 2002).
Some governments have in the past used such arguments to justify early-years intervention to boost cultural consumption, as in the case of the Netherlands where cultural vouchers have been issued to school children (children who were issued
vouchers showed a greater propensity to visit museums later in life when compared with others (Van der Ploeg, 2002)) or in the case of the UK, controversially, through the issue of free theatre tickets (DCMS/Arts Council England, 2012).
(c)Increasing returns to scale, piracy, and monopoly: Another consequence of the
‘informationgoods’ nature of artistic, creative, and cultural goods and services is
that although the production of an initial ‘master’ may require substantial investment, subsequent copies are relatively cheap to make. In other words, the ‘marginalcosts’
of producing additional units are relatively low. Think of, say, the initial investments required to produce and broadcast original television content compared with the costs of a repeat transmission. Or the costs of shooting a film or developing a new video game (now up to $50 million excluding marketing in the case of the latter), compared with the costs of reproduction (at the cost of a blank DVD, less than $1, or even lower if the content is downloaded or streamed online). This distinctive production cost structure creates both opportunities and challenges for cultural institutions and creative businesses. On the one hand, success in the market can generate substantial profits because the low marginal cost structure enables production to be scaled up quickly and at little cost. On the other hand, there is a greater likelihood of
‘cannibalization’ of sales through piracy (legal and illegal copies become closer
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between them are small and the costs of copying are low (Oberholzer-Gee and Strumpf, 2009)).
This has implications for policy—the prospect of high and rapid economic returns on public
investment make the content industries a ripe target for industrial policy-makers (which we discuss in further detail in the next section), while the challenge of piracy also warrants the attention of policy-makers, even if there is little agreement on what measures are needed to address it. Regarding the latter, as well as the obvious option of stricter enforcement of intellectual property rights, other candidates include digital rights management solutions (Liebowitz, 2002), the compensation of rights-holders through levies on technologies that can be used to make illegal copies (though there are good economic reasons for avoiding this (Oxera, 2012)), or measures to lower the transaction costs of copyright licensing to enable the development of new business models
(Hargreaves, 2011).
The high fixed cost structure of cultural and creative content production can also generate barriers to entry that preclude competition from new entrants, and enable incumbents to extract rents from consumers through higher prices or lower quality. This
results in another class of market failure, a ‘monopoly’, which policy-makers seek to
prevent and/or regulate through competition policy, or, in extreme cases, through direct state ownership of the monopoly supplier (as often happens in public broadcasting).
Policy also seeks to safeguard (at least implicitly) on economic grounds some of the public goods features of impartial news and information by enshrining the principle of media plurality (Seabright and Von Hagen, 2006; Pratt and Stromberg, 2010).
Although new technologies have lowered the barriers to entry in creative markets (for example, through digital distribution of creative content), they have also
reinforced the returns to scale that characterize production arising from ‘network
effects’ (that is, when the value to individuals of joining a network increases with the
number of existing members in the network). This can result in ‘winner takes all’
dynamics, and therefore give rise to monopolies, in digital industries such as software or social media, as well as the increasingly important digital platforms through which much creative content is now distributed (Liebowitz and Margolis, 1998, p. 671). In these complex and fast-moving areas, policy-makers face the challenge of striking the right balance between the desire for efficient scale and innovation, and protecting consumers and competitors from abuse by the companies that eventually achieve dominance.
(d)Information asymmetries and uncertainty: Another important condition for the
efficient operation of markets is complete and ‘symmetric’ information about the
quality of the inputs going into, and the outputs from, production, and the intentions of participants in a market transaction. When such information is unavailable, or is held asymmetrically across agents, transacting in the market becomes costly (as participants need to invest valuable resources in assessing quality, contracting, and
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Monitoring performance of their counterparties). As a consequence, some exchanges that would otherwise be mutually beneficial are forgone.
Artists and cultural and creative organizations indeed operate in extremely uncertain and volatile environments (Caves, 2000). Past performance is usually a highly imperfect predictor of present demand, not least because audiences tend to demand an element of novelty in their experiences. As Hollywood screenwriter William Goldman famously put it,
‘Nobody knows anything’. Arguably, this creates especially high barriers to finance for
production of cultural and creative goods, which justifies public intervention to bridge the
‘fundinggap’ (Fraser and IFF Research, 2011). It may also reinforce misalignments in
incentives (actual or perceived) between intrinsically motivated creatives that are pursuing their artistic objectives (Caves, 2000) and financiers who are keen to recoup their investments, which, in turn, further exacerbates the barriers to finance.
(e)Network and system failure: Last, we mention a rationale for creative industries policy which, although rarely mentioned as a specific type of market failure,
nevertheless stems from a deviation from the conditions where, according to
economists, markets generate efficient outcomes. The source of the problem, in this case, is that productive activities in the creative industries take place as part of
systems or networks of agents (both public and private—such as universities) who
supply a variety of ideas and inputs—for example talent, finance, or a distribution
infrastructure—which are combined into cultural and creative goods and services
and supplied in the market (requiring a further connection with consumers or public sector procurers) (Barber and Georgioui, 2008). Although this situation obtains in
many—if not all—other industries, the need to satisfy an infinite variety of needs in
creative markets (for which ex ante demand is hard to gauge) has in fact led the creative industries to develop models of production which are particularly
networked, and help it to generate novelty while dealing with uncertainty (Caves, 2000; Storper and Christopherson, 1987). A situation of ‘systems’ failure is
one where gaps or holes emerge in these systems, perhaps as a consequence of
externalities (those agents who act as the ‘glue’ that binds the creative network fail
to capture all the value from their brokerage activities), or uncertainty (creative organizations find it difficult to measure the benefits of establishing risky
connections with improbable rewards and untrusted partners like those in other
sectors, types of institutions, or expertise in other creative disciplines—and therefore
do so less than would be desirable), resulting in higher costs of transacting in the market, inefficiencies, and lower levels of creativity and innovation (Uzzi and Spiro, 2005). The idea of systems failure underpins the ‘National Systems of Innovation’
framework used by scholars in the field of innovation studies to examine institutional differences across countries resulting in variation in their innovative performance and, ultimately, their economic growth (Lundvall, 2007)—a concept that has started to be applied to the creative industries too, through the idea of the ‘Creative
Innovation System’ (Bakhshi, Hargreaves, and Mateos-Garcia, 2013). A perception of
within the creative industries through intermediaries, as well as between creative firms and financiers and universities (Sapsed, Grantham, and DeFillippi, 2007; Mateos-Garcia and Sapsed, 2011).
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Cultural and Creative Industrial Policies
For all the reasons above, it is argued, targeted government interventions in the cultural and creative industries may be justified, not because of their value-added or their
potential for exports, growth, and job creation per se, but if and only if there are market
failures. But in practice, we often see governments adopting ‘strategic’ policies to
support individual creative sectors for precisely these reasons and seemingly regardless of the strength of the case for market failures.4
One such consideration is a sector’s export potential which, according to ‘exportbase’
accounts of development (Thirlwall, 2002), is the main way in which industrial sectors contribute to growth and employment. Although the traditional industrial policy heartland has been manufacturing, the cultural and creative industries have also in recent years
been identified as ‘strategicsectors’ across the world (Moons, Ranaivoson, and De Vinck, 2013), partly because of the particularly rapid growth in their trade volumes (UNCTAD/ UNDP, 2010). There is a general perception that as the wealth of nations increases, so does their demand for the culture, media, and entertainment products from the creative industries (Andari et al., 2007), meaning that those countries with a competitive
advantage in these industries stand to benefit disproportionately from global economic development.
High-productivity—that is, innovative—industries are also a frequent target for
industrial policy strategies, not least because they are believed to generate beneficial externalities, such as those that we described in the previous section (and which are
often believed to operate within the confines of industrial ‘clusters’). Although the
evidence base is far from satisfactory, an increasing number of studies report that the creative industries are indeed relatively innovative (Bakhshi and McVittie, 2009; Muller, Rammer, and Truby, 2009; Falk et al., 2011).
A third reason why the creative industries are perceived as an attractive target for
industrial policy-makers is that, by definition, they are ‘upstream’ in the value chain, and
as such, their activities are viewed as harder to imitate or outsource to lower cost
emerging market competitors along the lines of what has happened with, say, traditional manufacturing (Miles and Green, 2008).
For all these reasons, we frequently see policies making use of subsidy and tax measures to support individual creative sectors, be it through increasing the international
competitiveness of indigenous producers or attracting inward foreign investments. Some governments have also implemented import quotas, tariffs, and screen quotas, although these are as often motivated by cultural factors (e.g. preservation of national identity and language) as economic ones (the so-called cultural exceptions introduced in successive trade agreements (Van Grasstek, 2006) and the UNESCO Convention on the Promotion of
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the Diversity of Cultural Expressions (UNESCO, 2005) are the most obvious manifestations of this).
Industrial policies—including those in the cultural and creative domain—have been
criticized for several reasons.
In the first place they are seen as distortionary, because they interfere with the investment decisions of economic agents (favouring some sectors over others) and the operation of
the market (by potentially ‘proppingup’ otherwise uncompetitive industries).
There are also concerns about the ability of governments to accurately identify future
growth sectors or companies (what is sometimes referred to disparagingly as ‘picking
winners’), about the risk of regulatory capture by rent-seeking industries, and about the
sustainability of ‘beggar thy neighbour’ policies where different countries and regions
compete against each other to attract inward investment from footloose sources of finance. This last consideration explains why there are grounds to be sceptical about the long-run efficacy of support initiatives such as tax reliefs aimed at boosting national film or videogames industries.
The
‘Creative
Economy
’
‘Creativeeconomy’ arguments have emerged only in recent years as an independent
rationale for intervention in the creative industries and, as such, are less developed than their market failure and industrial policy counterparts. Their emergence, particularly in Australia (QUT CIRAC and Cutler & Company, 2003), the UK (DCMS, 2008), and, more
recently, other parts of Europe (European Commission, 2010b, 2010a), is linked to parallel developments in new growth theory, institutional economics, and evolutionary economics (Potts, 2011), which emphasize the importance of ‘intangible’ investments
(Corrado, Hulten, and Sichel, 2009; in particular, knowledge) and innovation (which begins with creativity (Cox, 2005)) as long-term sources of productivity growth and competitiveness.
Proponents of this approach emphasize that countries achieve long-term growth only by investing in the production of new ideas (Nesta, 2009). Although these ideas are to some degree non-rival and non-excludable in the way we described previously, imitating them is not in general trivial. The reason for this is that new ideas emerge within institutional
systems (‘National’ (Edquist, 1997) or ‘Regional’ (Braczyk, Cooke, and Heidenreich, 1998) Systems of Innovation) that are networked in unique, historically determined ways, and endowed with tacit knowledge (such as management expertise) and complementary capabilities (for example, access to finance) that help those who develop them harness their value ahead of competitors.
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The cultural and creative industries, the argument goes, lie at the heart of such
innovation systems, where they produce novel ideas and ways of thinking about—and
seeing—the world, as well as skills and organizational models that other industries can
acquire or imitate to enhance their ability to innovate. According to one version of this vision, some parts of the cultural and creative industries, such as advertising and design, play privileged roles in the innovation system by directly feeding innovation inputs into the production processes of businesses in other sectors (Potts and Morrison, 2009).
These perspectives are complementary to the notion of the ‘culturization’ of the economy,
and a school of contemporary thought that seeks to radically collapse the relations
between culture and the economy—called by shorthand ‘culturaleconomy’.
The concept of the culturization of the economy, first developed by Lash and Urry (1994), directly relates to our discussion of the creative economy by first distinguishing between
the ‘industrialization of culture’ (Adorno and Horkheimer’s (1979) original dystopian
version of Cultural Industries) and the more contemporary ‘culturization of industry’.
‘Ordinary manufacturing industry’,Lash and Urry (1994, p. 123) state, ‘is becoming more
and more like the production of culture’.
Lash and Urry’s culturization thesis sees not only standard cultural products and services
growing as a proportion of the whole economy (that was the starting point for the whole idea of the Creative Industries) but also cultural ideas, processes, and dispositions being recognized and adopted in non-cultural products and services like mobile phones, clothes, education (games-based learning), retail precincts (malls as entertainment venues), and so on.5 This is consistent with the emphasis we will shortly place on creative employment
in wider labour markets, as these economic domains need creatively trained people to inform the culturization process.
Howkins (2001) pushes the claims further with his take on the management of creativity,
or ‘the economics of the imagination’. Howkins talks of special personality traits of
creative people, creative entrepreneurship (which unlocks the wealth that lies in human
capital), the ‘post-employment job’ (in other words, the portfolio career), the just-in-time
company, the temporary company, and the network office.
Content industries are for their part presented as suppliers of complementary goods that increase the uptake of digital infrastructure services that enhance growth (in
the language of Stephen Carter’sDigital Britain review, they are the ‘poetry’ that drives investment in digital ‘pipes’ (Carter, 2009)), lead users of advanced technologies whose innovation they pull through sophisticated demand (Chapain et al., 2010), and recruiters of high human capital individuals (Williams, Hillage, Pinto, and Garrett, 2012) whose skills are transferrable to other parts of the economy.
In studying the Creative Economy as a ‘networked’ ecology, this framework challenges
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sectors such as ‘hightech’ manufacturing, IT, pharmaceuticals, and life-sciences that
have traditionally been the subject of innovation (science and technology) policy.
The strong presence of creative professionals across many parts of the economy outside of the cultural and creative industries deserves a special mention. Studies within the
‘CreativeTrident’ framework, which have used census and labour force surveys in
Australia, the UK, France, and other parts of Europe to examine the industries where such creative occupations can be found, have shown that there are more creative
professionals working outside of the creative industries (‘embedded’) than inside them
(Higgs and Cunningham, 2008; Higgs, Cunningham, and Bakhshi, 2008; Growth Analysis, 2009).6
To take an example, Pagan et al. (2009) illustrate the scope of their contributions to the development and delivery of healthcare goods and services, the initial training and ongoing professionalism of doctors and nurses, and the effective functioning of
healthcare buildings. Creative activities within healthcare services are also undertaken by medical professionals and patients. Key functions that creative activities address are innovation and service delivery in information management and analysis and making complex information comprehensible or more useful, assisting communication and reducing psycho-social and distance-mediated barriers, and improving the efficiency and effectiveness of services.
This approach to the creative workforce shares similarities with, but is substantially different from, the high-profile work of Richard Florida which brings together white and
‘no-collar’ workers within the orbit of the creative class (Florida, 2002; Boschma and
Fritsch, 2009; Clifton, 2008). While Florida’s wider thesis has been the subject of much
criticism (Markusen, 2006; Pratt, 2009; Nathan, 2007), both approaches highlight the importance of those in creative occupations being studied in their own right, rather than focusing narrowly on industries in which they work.
Importantly, and analogously to the way in which innovation policy encompasses both the public (primarily basic science) and private (applied and experimental development science and engineering) sectors, some advocates of the Creative Economy framework grant special importance to the role of not-for-profit arts and cultural activities within the creative economy and (by extension) the innovation system.7
Conceptually, creative activities like painting, writing, and performing are often described as being at the centre of the creative industries, as pure acts of content creation
(Throsby, 2008; KEA, 2006). In the Staying Ahead report to the British government (Andari et al., 2007), the creative dimension of these activities is described as
their creation of ‘core expressive value’, an attempt to commonly link these activities to
the institution of copyright as per the official UK definitions.8
According to this view, activities in the creative industries like distribution and
publication entail the direct mass exploitation of creative outputs with a high degree of expressive value, whereas sectors such as design and software benefit indirectly through
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their wider commercial use of the expressive value. An implication is that any commercial benefits that spill over from core artistic activity to the wider creative industries and which are not reflected in market prices (a market failure) provide a further rationale for public support.
That there are very close links between the UK’s arts and cultural sector and its
commercial creative industries is beyond doubt. Even a cursory look at the career
biographies of the UK’s most commercially successful creative talent, for example,
reveals that many of these experienced their formative moments in the subsidized sector. Albert et al. (2013) report that almost a third of talent working in commercial theatre had
its ‘break’ in subsidized theatre, or moved fluidly between the subsidized and commercial
sectors. As it is, this research reveals much complexity in the relationship between subsidy and commerce, with large numbers of people working in the subsidized arts attributing key moments in their career development to their experiences in commercial theatre.
Perhaps the ‘spillover’ argument that resonates most with cultural institutions in the
subsidized sector is that they take socially valuable risks which the wider creative industries are not prepared to. Sometimes this is expressed as the subsidized arts being
an ‘R&Dlab’ for the creative industries.
Dempster (2006) describes the exceptionally high risks that characterize innovative theatrical productions, for example. Aside from the usual demand uncertainties (Caves, 2000), the collaborative development process is highly uncertain itself—depending as it
does on the quality of a large number of individual contributions and also the
coordination between them all, and over time. Using the case study of Jerry Springer the
Opera Dempster shows how ‘stagedinvestments’ can facilitate the development of a
venture which is not otherwise commercially viable. The subsidized arts—in this case, the
inputs of the Battersea Arts Centre, the Edinburgh Fringe Festival, and the National
Theatre—all played a critical role in the developmental stages before the production went
on to great commercial success in the West End and beyond.
Policy in the UK: Before and Up To the Creative
Industries
Having surveyed the main economic rationales underpinning government policy in the arts, cultural, and creative industries, we now move on to comment on how these policies have been framed and implemented in practice, with a specific focus on the UK.
Each of the policy frameworks that we consider has included (and excluded) distinctive subsets of the cultural and creative industries, articulated a vision about their role in society and the economy, defined and evidenced (or not) specific market failures in
their provision that may prevent the fulfilment of this role (market failure having been the dominant evidence paradigm in UK policy (Ridge et al., 2007)), and implemented specific policy interventions to address them.
We note at the outset that the transitions between policy frameworks, driven by wider technological, societal, economic, and ideological shifts, have not been truly revolutionary (in the sense of wholly displacing each other), but rather cumulative. However, that does not mean they have not been controversial.
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Cultural industries
Until the 1990s, the UK’s cultural policy as such focused primarily on the visual arts,
music and performance (including theatre, ballet, and opera), libraries, and museums and heritage. The key bodies in charge of cultural policy were the Department for National Heritage (established in 1992, taking on responsibilities previously carried out by the Home Office, the Privy Council, and the Departments for Education and the Environment) and the Arts Council of Great Britain, an independent body formally set up under J. M. Keynes in 1946, to channel government funding into cultural institutions.
Support for these activities was generally justified in terms of their public good and merit
good benefits—on the grounds that they generated wide societal benefits such as social
cohesion and an enlightened and well-informed citizenry, and helped preserve national identity. In the absence of public subsidies, it was argued, they would not take place to the extent that was socially desirable, or in the case of some cultural activities, such as opera, which required substantial fixed investments, they would not take place at all.
Public funds were further argued to substitute for commercial revenues that might
compromise the quality of artistic outputs, reflecting Adorno’s critique that art and
culture become commoditized (Adorno and Horkheimer, 1979).
Although Adorno’s criticism was not formulated in terms of a market failure, it is not
difficult to interpret it in that light: the issue was not whether cultural production could or could not be organized through the market (because it self-evidently could), but that
when it was, some of its defining features (e.g. ‘uniqueness’,‘truthfulness’) became corrupted by capitalism’s accumulation logic.
Cultural industries, as a concept renovated in the 1970s from Adorno’s (and the Frankfurt
School’s) anti-commercial bias, challenged this traditional purview for cultural policy
(Garnham, 1987). This account of cultural industries included the industrial strength of sectors such as broadcasting, film, and music and emphasized that significant cultural demand from consumers was being met by such enterprises. While mass-media markets were given their due in this account, there remained further market failures, which furnished reasons for the state to intervene. These included the need to mandate a major role for the BBC (and, in the 1980s, Channel 4) to address the civic, nation-
binding function considered essential in the era antecedent to today’s superabundant
electronic media offer. In fact, so successful has the BBC been in occupying a central role in the UK communication landscape that much media policy in recent decades has
concerned itself with addressing competition concerns and the potential of the BBC to crowd out private sector initiatives (Cave, Collins, and Crowther, 2004).
Another powerful historical reason for state intervention does not follow a strict economic logic but is also based on nation building and cultural maintenance. The best-known
example of a cultural industry operating along the lines of Adorno’s logic of cultural
commoditization and capitalist propaganda was of course Hollywood, and it was a concern about its cultural hegemony in the UK that first informed the formulation of
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policies to support the UK film industry, the only commercial cultural industry to benefit from government funding at the time (Magor and Schlesinger, 2009). This illustrates how indigenous cultural production for the dominant cultural medium was seen as an
expression of national identity, and thus deserving of protection—first through quotas,
and then subsidies—against its overseas competitors.
The advent of the creative industries
By the 1990s, several trends had undermined the dominant approach to cultural policy-
making, particularly in regards to the opposition it set between ‘high art for art’ssake’
and ‘popular, commercialized art’ (Garnham, 1987).
On the intellectual ‘supplyside’, British cultural studies had since the 1970s paid more
attention to the ways in which audiences actively reconfigured culture (rather than
passively absorbed it), and challenged traditional barriers between ‘high-brow’ and ‘low-
brow’ culture. It also highlighted the contradictions between predictable revenues in a
capitalistically organized cultural industry, and an audience’s demand for novelty. In
doing this, it reconceptualized creative professionals and artists, from exploited victims of capitalism to cultural entrepreneurs (Leadbeater and Oakley, 1999).
On the policy ‘demandside’, the need to formulate new growth strategies in the face of
deindustrialization since the 1970s—and which stepped up a gear in the UK in the 1980s
—had led to the formulation of local development strategies (exemplified by the Greater
London Council) that saw cultural and creative activities less primarily as a source of cultural value, and more one of employment and urban regeneration (Hesmondhalgh and Pratt, 2005; Mulgan and Worpole, 1986).
Overall, the perception of a mismatch between what cultural and creative industries in the UK were offering, and what audiences wanted (which could no longer be explained away by arguments about the elitism of the arts) prepared the ground for the advent of the creative industries framework, which brought a whole new set of market-driven and commercialized providers of cultural and creative goods and, crucially, services, to the attention of policy-makers.
Meanwhile, globalization, and increasing worldwide demand for cultural and entertainment goods reinforced by the greater access given by digital technologies, led to
the replacement of a ‘marketfailure’ rationale for government intervention in the arts
and cultural arena with a ‘marketopportunity’ one—in other words, a case for a more
active industrial policy for the creative industries (BIS, 2010; Cunningham, 2006).
What the DCMS 1998 and 2001 Creative Industries Mapping Documents (British Council, 2010) did was to put forward the creative industries as a driver of economic growth through the transformation of individual creativity and talent into intellectual property (and in particular copyright) to be exploited commercially. Crucially, the definition of the sector was taken to include suppliers of creative services such as advertising and design,
(p. 478)
and controversially, software. The key thrust of the ‘creativeindustries’ way of thinking
was that these were sectors where the UK enjoyed a competitive advantage over other countries, and that if only barriers to entrepreneurialism and growth were removed, they could make an even more substantial contribution to the UK economy.
The Mapping Documents provided a frame for areas for policy intervention that would be
later articulated in further detail in government reports like 2008’sCreative Britain
strategy for the creative industries. They included talent generation through the
education system and the strengthening of the copyright regime. The other main barriers to growth were seen as a lack of business capacity (a manifestation of the predominantly small size of companies operating in the sector, as well as tensions between arts and commerce), and barriers to finance (Nesta, 2006).
More evidence also emerged that the creative industries were characterized by high levels of innovativeness (Bakhshi and McVittie, 2009; for instance in terms of bringing new products and services to market, and finding novel ways to reach their audiences), a feature that would be further explored (including the possibility of spillovers into other sectors of the economy) in more recent attempts to develop creative economy policies.
The creative economy
The principal conceptual preoccupations of the first ‘generation’ of creative industries
policy we have just described were to map the newly defined industrial sector in respect of contribution to jobs and economic value-added, and to explore some of the policy avenues by which it could be better supported to grow. These were baseline
considerations that did not yet seek to account for wider economic spillovers and
contributions to other sectors or to consumption patterns and innovation processes in the wider economy.
There were, however, several reasons to consider these relationships more explicitly. First and foremost, the original definition of the creative industries put forward by DCMS had
a fuzzy boundary. What was ‘in’ and ‘out’ remained contestable and its relation to
neighbouring sectors undecided (Pratt, 2000).
In particular, and as already mentioned, there were concerns over the ‘promiscuous’
insertion of a broad definition of software in the original DCMS characterization
(Hesmondhalgh and Pratt, 2005). Critics argued that this was done in order to boost its size. But it could also be argued that it was a function of the highly aggregated SIC (Standard Industry Classification) codes by which industry sectors perforce were classified.
At the same time, there were obvious overlaps between the ‘content’ and ‘digital
industries’, leading to the conflation of the culture and information sectors (Garnham,
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creative (including ‘digital’ (Bakhshi, Freeman, and Higgs, 2013)) industries, as well as studies suggesting the presence of spillovers from creative activity into other high tech sectors (Chapain et al., 2010).
Thus, there has been some evolution in policy-makers’ interests and a broadening of the
remit of the state’s purview of creativity and the economy (Cox, 2005), which at times has caused some tensions with traditional sectoral interests, most obviously in the Digital Britain and Hargreaves reviews of intellectual property (Carter, 2009; Hargreaves, 2011).
The sector skills councils—Creative Skillet, Creative and Cultural Skills, and e-Skills UK,
whose focus is on the value of creative inputs into the broader economy—have seen their
profile raised within policy (as seen, for example, in their prominent role in the
government’s Creative Industries Council). The Next Gen review of skills initiative
(Nesta, 2011), which started off as a review of the skills needs of two creative sectors (videogames and visual effects), quickly evolved into a general campaign for more effective technology education in schools, straddling a number of different interest groups (both creative industry and non-creative industry). The Cox Review of 2005 was an earlier example: it recommended a series of measures to stimulate the use of design solutions in different sectors of the economy (Cox, 2005).
Yet, it is fair to say that concrete policies to support this wider concept of creative
economy have been few and far between in the UK. It was left largely to regional policy- makers and, in particular, in England the now defunct regional development agencies to pick up the baton from the Cox Review, with relatively small-scale programmes like Designing Demand led by the Design Council, which twinned small and medium enterprises (SMEs) with mentors with design skills (Design Council, 2008), and innovation voucher schemes like Creative Credits, piloted by Nesta in Manchester in partnership with the North-West Development Agency, which connected creative service businesses with SMEs (Bakhshi, Edwards, Roper, et al., 2013). National policy-making remains a far cry from the rhetoric of creative innovation in government documents like the 2008 Innovation Nation White Paper (DIUS, 2008).9 Undoubtedly, the badly
underdeveloped state of the evidence base on the creative economy helps explain this. In the absence of clear definitions, agreed metrics, and rigorous understandings of its place in the wider economy, we should not be surprised that policy-makers have struggled to develop policies to support it.
Paradoxically, the success of the creative industries as a policy concept in the UK may not have helped either. There is a suggestion that in other countries, like the US, where
policy-makers have focused more on creative knowledge workers such as
engineers, scientists, architects, artists, and writers—Florida’s creative class—the
creative industries have not been seen as having a ‘monopoly’ over creativity (European
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A Creative Economy Research Programme
We briefly conclude this survey by sketching out priorities for a research programme to address the aforementioned gaps in the evidence base. We single out four areas as warranting particular attention: mapping, spillovers, knowledge exchange, and evaluating policy.
Mapping
We need to ground our definitions of the creative economy in terms of where creative activity is genuinely taking place in the economy. As discussed, previous mappings have suggested that very large numbers of creative talent work outside of the creative
industries in countries like the UK, Australia, France, and Sweden. However, industry definitions dominate most policy discussions, at least in Europe, and are rarely connected to an analysis of creative occupations. Recent research has shown, for example, that
some of the industry categories included for many years as ‘creative’ by the UK’s DCMS
employed only small numbers of creative workers as a proportion of their overall workforce, whereas a number of sectors that had been excluded were intensive employers of creative professionals (Bakhshi, Freeman, and Higgs, 2013). Research is
also needed on how the creative intensity of a sector’s workforce relates to the creative
nature of its outputs, as per the original DCMS definitions.
Spillovers
As we have discussed, a growing number of studies suggest mechanisms by which the creative industries may impart positive spillovers on other sectors of the economy:
knowledge externalities on co-located firms, spillovers embodied in mobile human capital, and spillovers which operate through supply-chain links. But whether or not these are genuine spillovers, and therefore constitute a market failure which warrants policy intervention, depends crucially on such linkages with the wider economy not being reflected in market prices. No existing studies that we are aware of rigorously establish this.
Knowledge exchange
Traditionally, the process by which university research impacts on innovation has been thought of as one in which knowledge outputs are codified, packaged as intellectual property, and then licensed out in the commercial marketplace (Lambert, 2003).
Crossick (2006) warns of the damage that is done by viewing the value of research to the
creative economy in terms of this model. In creative disciplines, he argues, ‘it is more difficult to identify—let alone to bottle, protect and transmit—the new knowledge. It [is] articulated through [the artist’s] creative work, [now] and in the future.’
If true, this has significant implications for the nature of any knowledge spillovers and the design of policies to exploit them. We need quantitative research into the particularities of knowledge exchange in the creative economy. Knowledge activities in the creative economy, in our view, are better thought of as sitting along a spectrum of different
‘knowledgemodes’ with characteristics that are more or less ‘scientific’ (predictive,
universalizable) and ‘humanistic’ (interpretive, intuitive) (Bakhshi, Schneider, and Walker, 2009). Research is needed into what approaches best promote knowledge exchange in these different cases.
Evaluating policy
In devising policies in areas like the creative industries, which are so poorly supported by a prior evidence base, it is even more important than usual for policy-makers to design interventions in a way that their impact can be rigorously evaluated (Bakhshi, Freeman, and Potts, 2011). New policies should have clear and measurable objectives and have clear data strategies in place so that their performance against these objectives can be assessed. Evaluations need to be research-led and, where possible, make use of random assignment to establish the additional impact of new policies (Bakhshi, Edwards, Roper, et al., 2013).
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Notes:
(1) It should be noted that in the sections that follow, we are eclectic in our use of economics concepts and frameworks, and some may argue, excessively loose in
stretching the term to encompass the innovation studies tradition which much research
on the ‘creativeeconomy’ adopts.
(2) Note that reliable estimates of local authority funding in the UK which are
independent of other funding sources are hard to find (many local authorities themselves are funded by Arts Councils and other public funding sources).
(3) And in fact turns negative, consistent with the idea that workers are willing to accept lower wages to live in areas with more developed cultural amenities. (Bakhshi, Lee, and Mateos-Garcia, 2013. Also see Rauch. 1993, for similar evidence in the US.
(4) For example, the tax breaks and subsidies offered to indigenous videogames developers in Canada and France. In some countries, however, such measures are
justified as copycat measures to ‘level the playing field’, as in the case of the development
tax breaks for videogames in the UK.
(5) Also see Stoneman (2010) on the growing importance of what he calls aesthetic or
‘soft’ innovation in non-traditionally creative industries, such as pharmaceuticals and
financial services.
(6) P. Higgs and S. Cunningham, ‘Creative Industries Mapping: Where Have We Come
From and Where Are We Going?’Creative Industries Journal 1(1) (2008): 7–30; P. Higgs, S. Cunningham, and H. Bakhshi, Beyond the Creative Industries: Mapping the Creative
Economy in the UK (London: Nesta 2008); Growth Analysis, ‘Cultural Industries in
Swedish Statistics: Proposal on Delimitation for Future Mappings’, mimeo (2009); Deroin
(2011) reviews similar work done by culture ministries in continental Europe, including the French Ministry of Culture and Communication.
(7) See, for example, KEA, (2009), which argues that ‘culture-based creativity’ makes a
strong contribution to innovation in Europe.
(8) The DCMS defines the creative industries as ‘those activities which have their origin
creation through the generation and exploitation of intellectual property’. See British Council, 2010.
(9) Arguably, the European Commission has been quicker to explore policy interventions aimed at strengthening the creative economy. See also interventions like the Productivity and Innovation Credit in Singapore and the discussion in GPrix, 2012.