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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

chapter 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 ‘merit goods’, or the need to moderate the

effects of up-front investment costs or monopoly, and the inherent uncertainty of creative

production. ‘Systems failure’ 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.

(p. 466)

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 are

diverse—and to a great degree complementary—explanations for why this is held to be

so.

Perhaps the most well known is Adam Smith’s ‘Invisible Hand’ 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

alternatives (in particular, central planning) in promoting experimentation and learning to

(p. 467)

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 ‘knowledge externalities’—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

(p. 468)

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 ‘merit goods’. 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

‘information goods’ 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 ‘marginal costs’

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

substitutes in the eyes of consumers when the differences in quality

(p. 469)

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

(p. 470)

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

‘funding gap’ (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

systems failure has also informed policies and programmes to increase connectivity

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).

(p. 471)

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 ‘export base’

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 ‘strategic sectors’ 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

(p. 472)

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 ‘propping up’ 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’

‘Creative economy’ 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.

(p. 473)

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 ‘cultural economy’.

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’s Digital 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

long-standing distinctions between the creative industries and other, technology-intensive

(p. 474)

sectors such as ‘high tech’ 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

‘Creative Trident’ 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

(p. 475)

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&D lab’ 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 ‘staged investments’ 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.

(p. 476)

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

(p. 477)

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’s sake’

and ‘popular, commercialized art’ (Garnham, 1987).

On the intellectual ‘supply side’, 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 ‘demand side’, 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 ‘market failure’ rationale for government intervention in the arts

and cultural arena with a ‘market opportunity’ 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 ‘creative industries’ 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’s Creative 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,

2005), the already discussed strong presence of creative professionals outside of the

(p. 479)

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

Commission, 2010a; see also Dyson, 2010).

(p. 480)

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

‘knowledge modes’ 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 ‘creative economy’ 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

in individual creativity, skill and talent and which have a potential for wealth and job

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.