The Economics of the Arts and Culture

Econ 191ac

Professor Julia Lowell North Hall 3020

lowell@econ.ucsb.edu

Spring 2012

4/2/2012 1 Econ 191ac -- Lecture 1

Outline: Lecture 1

• Course overview

• Defining the arts and culture

• Characterizing the U.S. arts and cultural sector

• In-class survey of Econ191ac participation in the arts

• Homework problem due Weds

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Course Overview (1)

About this course – This course is a survey of topics in the

economics of the arts and culture – We will cover a lot of ground

What this course covers – Microeconomics of selected performing

and visual art forms – Public policy issues surrounding the arts

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Course Overview (2)

Readings (due before class) – Most readings are available on the class

webpage, econ.ucsb.edu/~lowell/191ac – Readings are password-protected

• user: econ191ac • password: *******

– Heilbrun & Gray, Caves on library reserve This class may have more readings than you are used to in economics – it is as much qualitative as quantitative

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Course Overview (3)

Homework assignments – Will be relatively short

– Will often involve gathering data from online databases

– Do count towards your grade

Midterm & Final – You may skip the midterm; if you do, the final

will count for more (no make-ups)

– Final is a take-home exam

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Course Overview (4)

Class project – Explore cultural economy of 2 mid-sized U.S.

cities – Research will be conducted by teams of 4-5

students – Team members will help grade each other

Grading – Participation & assignments, 15% – Midterm, 15% – Final, 40% – Project presentation, 30%

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Course Overview (5)

Adding and dropping the class – Class size limit is 30 – Will almost certainly get some drops, so

get on the waitlist

Office hours – MW 1-2pm, North Hall 3020

Have you already taken an Econ 191 class? Check on your eligibility with Dina.

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Course Overview (5)

What I would like you to get out of this class

• Understanding of some key issues in the economics of the arts and culture, with focus on their public policy implications

• Some research skills (data gathering & descriptive analysis)

• Some presentation skills

Please don’t text or surf the Net in class. If you are busy or bored, don’t come.

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What Is Art? What Is Culture?

• And what is entertainment? You tell me.

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What Is Art? What Is Culture? Views Have Evolved Over Time

• Immanuel Kant (1700s): Art is intellectually challenging. Absolute standards of beauty exist.

• Matthew Arnold (1800s): Art is the disinterested pursuit of beauty and perfection.

• John Ruskin (1800s): Art communicates an understanding and a truth about nature.

• John Carey (2005): Art is art if someone thinks it is. – Cannot define art by aesthetic properties – Cannot define art by subject matter – “Expert” views of what is art change over time

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Art, Entertainment, and Culture Are Intertwined

• Frank Hodsoll: Interaction between the commercial and nonprofit arts is everywhere and seamless – People in both sectors seek to pursue artistic

vision *and* make (at least some) money – Both sectors have highly variable returns

(risky!) – Audiences and artists regularly move across

sectors

• Anthony Keller: Public funding has perpetuated myth that high arts are universal while other cultural forms are anthropological

4/2/2012 Econ 191ac -- Lecture 1 11

Close-to-Consensus: Characteristics of “Cultural Goods”

Cultural goods: • Result from production processes in which human

creativity is an important input

• Contain intellectual property attributable to the producer

• Transmit symbolic messages to those who consume them (form of communication)

• Yield positive externalities (benefits to the community)

• Embody forms of value that are not fully expressible in monetary terms

• Are subject to rational addiction (taste for them grows with consumption)

Throsby, Handbook of the Economics of Arts and Culture, p.7

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Why Should We Care How the Arts and Culture Are Defined?

• Research issue – For comparability, classification systems require commonly agreed set of activities and products

• Policy issue – Classification decisions have important – and sometimes unintended – effects – Brancusi ordered to pay customs on sculpture in US – Hip-hop artist Jay-Z prosecuted for copyright violation for

music sampling – Tagging considered criminal, but graffiti artist Banksy

world-renowned – NEA can’t fund commercial art, but does fund art that

some consider pornographic

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Framework for Analysis • Classification by cultural form

– Each cultural form has its own history, requires its own set of skills, has a unique mode of production, and involves different types of organizations

• Classification by market sector/tax status – Tax-exempt, commercial, amateur,

government • Classification by activity

– artists, audiences, presenters, performers, distributors, funders, educators…

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Classifying Culture by Cultural Form

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Theater

Dance

Music

Opera

Performing

Film

Digital

InstallationArt

Photography

Media

Painting

Sculpture

Crafts

Visual

Fiction

Poetry

Literary Architecture/Built Heritage

Graphic

Industrial

Fashion

Digital

Design

The Arts and Cultureor

"Creative Industries"

Classifying Culture by Market Sector/Tax Status

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Organizations • Commercial aka “for-profit” sector • Tax-exempt aka “nonprofit” sector • Amateur aka “voluntary” sector • Governmental aka “public” sector

Individuals are all treated as for-profit

entities; individual earnings are taxable

Classifying Culture by Activity– Symphonic Music Industry Example

Performers and

Performing Groups

2

Reproducers

Audiences

Presenters

Distributors

Composers and Arrangers

3

1

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Live performance

Recorded performance

1-music publisher; 2-promoter; 3-management agency

Classifying Culture- The Ecosystem

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What Is the Appropriate Universe for the “Cultural Sector”?

• Which cultural forms should be included? – Advertising? – Knitting? – Cooking?

• Should market sector matter? • Which activities within each cultural industry

should be included? – Should “cashier at a bookstore” be categorized as an

literature-related occupation?

– Should a university that teaches and presents visual art be considered a visual arts organization?

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The Appropriate Universe for the Cultural Sector…

Depends on – the research question – the policy question

that is, – your question

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Cultural Organizations in the U.S.: A (Very) Brief History

• Colonial period to mid-19th century: Cultural organizations are for-profit. Higher socio-economic groups also participate in arts as amateurs.

• Mid-19th-late 20thc: Evolution of a distinct nonprofit cultural sector

• Late 20thc-present: Reintegration of the nonprofit and for-profit cultural sectors? All socio-economic groups participate in arts as amateurs.

4/2/2012 Econ 191ac -- Lecture 1 21

Distribution of U.S. Cultural Organizations: A (Very) Brief History

• Late 19th to mid-20th century: – Symphonies and art museums established in

major cities (New York, Boston, Wash DC, Chicago, San Francisco).

– Theatre, dance, opera concentrated in New York

• Mid-20thc to present: Nonprofit arts organizations of all types spread across country

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Late 19th Century: U.S. Distribution of Art Museums

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Geographic Distribution of U.S. Art Museums in 2010

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How Big Is the Cultural Sector Today? How Can It Be Measured?

• Expenditures data – Consumer spending on cultural events and products

• Income data – Revenues of cultural organizations – Earnings of artists

• Counts of organizations – Numbers of firms engaged in cultural activities

• Employment data – Employment in arts-related firms and occupations

• Participation data – Attendance at arts events and activities

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Size of the Nonprofit Cultural Sector as Measured by Heilbrun & Gray (2001)

A Total consumer spending on admissions to the live performing arts 9,991 Less Broadway 499

Less road companies 782

Equals nonprofit sector 8,710

B Estimated art museum operating income less private donations & government support 1,736

C Total direct government assistance 2,096 2,096 Federal 1,167

State 254

Local 675

D Estimated private charitable support 3,760 3,760

GRAND TOTAL 14566 17,583 4/2/2012 Econ 191ac -- Lecture 1 26

1997, $ millions

Putting the Size of the Nonprofit Arts in Perspective – 1997 data

Consumer spending on • live performing arts ~$10 billion • gardening ~$16b • cable tv ~$28.3b

Total expenditures on • arts ~ $17.6b • all goods and services ~ $7,191b

NP Arts as a percentage of GDP: 0.22

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Distribution of Live Performing Arts Organizations by Tax Status, 2002

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0

10

20

30

40

50

60

70

80

90

100

Theater Dance Opera ClassicalMusic

Other Music

Percent of Organizations

Commercial

Nonprofit

Governance Structure of U.S. Museums, 2008

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Tax Status of Other Cultural Industries (Economic Census, 2002)

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Industry % For-Profit % Nonprofit Architectural Services 100 --

Landscape Architectural Services

100 --

Graphic Design Services 100

Book Publishers ? ?

Periodical Publishers ? ?

Radio Stations ? ?

Libraries and Archives ? ?

In-Class Survey of Participation

Take 5-10 minutes to fill out the participation survey being passed out in class. This survey is conducted every 5 years for the National Endowment of the Arts by the U.S. Census Bureau. I will analyze the data for the class and present your results – plus various national, regional, and age-specific results – in class on Wednesday.

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Homework Assignment

Based on the characteristics of a cultural good identified by Throsby, explain why you believe the following are or are not cultural goods:

a. Leonardo da Vinci’s painting, “Portrait of Mona Lisa” b. A Quarter Pounder with cheese at McDonalds c. Disney Hall in downtown Los Angeles d. The Goleta Costco building

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Reminder: Throsby’s Six Characteristics of “Cultural Goods”

Cultural goods: • Result from production processes in which human

creativity is an important input

• Contain intellectual property attributable to the producer

• Transmit symbolic messages to those who consume them (form of communication)

• Yield positive externalities (benefits to the community)

• Embody forms of value that are not fully expressible in monetary terms

• Are subject to rational addiction (taste for them grows with consumption)

David Throsby, Handbook of the Economics of Arts and Culture, p.7

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