Economics and the cultural sector: can they achieve a more diplomatic relationship?

Instead of only asking what economics can tell us about the value of cultural activities, maybe we should also ask what cultural activities can tell us about how to improve economics.

Dave O'Brien
8 March 2012

Culture has long been a bit of a difficult issue for economics. Homo economicus, the rational individual out to make the best use of their own scarce resources, is hard to locate within social forms of activity such as culture. It is often hard to put monetary prices on the value of cultural goods, particularly when completely free and open to the public, as is the case with monuments, public art or free museums.

Moreover, the benefits of engaging with culture, whether as audiences, participants or producers, are hard to value, particularly as these benefits tend to be much less tangible than the benefits of, say, clean air or good health. It’s common to see defenders of public funding for music, visual arts, dance or heritage begin with the claim that it is impossible to quantify the benefits of these activities and that to even think about quantifying them or describing them in terms like ‘benefits’ is to miss their essential nature. But just because valuation of the arts is difficult, and resistant to the tools of neo-classical economics, does not mean that policy-makers should not explore the interactions of markets and culture more broadly. New forms of dialogue between culture and market economics are imaginable.

The Department for Culture, Media and Sport (DCMS) is in the middle of a research programme and accompanying debate about measurement in cultural policy. This isn’t a new or revolutionary discussion; how to fit arts and culture into the finance and accounting practices of central government has been a longstanding issue and since the 1980s ideas about both the ‘economic impact’ and ‘social impact’ of the arts have become a popular way of articulating the value of investment in the cultural sector.

What is new about the current debate is that DCMS is exploring how it might use existing economic guidance from the Treasury to help bring cultural policy into line with other parts of Whitehall. Treasury guidance suggests viewing the rationale for all public policy through the framework of 'market-failure', taking decisions about whether to intervene (or do nothing) based on monetary measurements. This approach from the Treasury has become commonplace when thinking about transport, environment and health policies, albeit using different techniques to understand the value of travel times, clean air or healthy lives. It is probably fair to say that, based on Treasury’s guidance for how to appraise and evaluate policy, the model of economics that views public policy as synonymous with correcting market failure has become very powerful and influential across Whitehall.

But this approach to policy-making still seems at odds with cultural goods, particularly given that economic approaches to valuation within cultural policy are often far removed from the beliefs and ideas of the practitioners and administrators (and often the audiences and participants) of the cultural sector. Yet perhaps, if economics finds it difficult to illuminate cultural goods, insights into cultural activity can help illuminate the limits of economics and markets, contributing to better public policy. They can do this in two ways.

The first concerns the problems of using a policy framework based on market assumptions to understand culture, as this inevitably raises the problem of the incommensurability of the benefits of culture with financial calculations. Often, economists and participants in cultural sectors seem to be speaking different and irreconcilable languages. The work of political philosopher Russell Keat offers a way to move beyond this impasse, highlighting the unique status that cultural goods have in supporting well-functioning markets.

Markets work based on people’s choices about what they value, expressed in prices. In order to understand prices and economic value, we need to be able to make informed judgements about how a given object or activity will contribute to our sense of value. To make judgements about value, people need some vision of what a good (or satisfactory) life will look like and how any given economic decision will contribute to that vision. Economists accept all of this. Take the example of food: an individual might decide that in a good life the taste of chocolate is more important than looking thin. The ability to cultivate a vision of what matters is found, most strongly, in cultural goods, because as Keat argues:

it is a characteristic feature of at least many cultural goods that, directly or indirectly, they address and explore the nature and possibilities of human wellbeing itself’ and that ‘their significance resides to a considerable extent in providing a means by which those audiences can reflect on other goods, and hence make better judgements about their value for them.

In this understanding of the role of cultural institutions, there are important aspects of cultural goods that show us the possibilities of non-market provision. Without cultural goods outside of the limited vision of the market and price, society would lose the chance to cultivate an idea of value provided by cultural activities, artefacts and institutions, and thus damage the operation of the market in the longer term. We would no longer be in a position to make market judgements and would lose our ability to take part in the economic approaches recommended by the Treasury and to engage in the kind of decisions economists think make up the world. Based on this argument the cultural sector can assist in showing us the limits of the market and contribute to developing a more rounded vision of human activity than that currently offered by economics.

As well as showing the limits of the market, culture has a second aspect that can contribute to a better form of economics. Many forms of cultural activity deal with concepts like trust, love friendship, identity, nationhood and community (to name just a small selection), issues which are complex and contested. Were we to value love or friendship in terms of price, we would reduce them to any other market quantity, interchangeable with other activities in the form of comparable monetary valuations. Such ideas are, by their very nature, valuable because they are things which cannot be priced nor can they be bought and sold in markets.

But this is also something economists are prepared to accept. Nobel prize winning economist Kenneth Arrow was famously quoted as describing ideas like trust as things that can’t be bought and sold, but are essential to the operation of markets:

‘If you have to buy it, you already have some doubts about what you've bought. Trust and similar values, loyalty or truth telling, are examples of what the economists would call ‘externalities’. They are goods, they are commodities; they have real, practical economic value; they increase the efficiency of the system, enable you to produce more goods of whatever values you hold in high esteem. But they are not commodities for which trade on the open market is technically possible or even meaningful.’

Cultural institutions are often said to exhibit these same qualities, as organisations like museums contribute to individual and collective identity and express values that go beyond the market, such as aesthetics within art galleries. This is not to deny the importance of the market to the arts, but rather to show how aspects of culture may transcend the market setting. It may even be the case that such cultural activity cannot be judged by market criteria and subjecting these activities to market criteria undermines the purposes of cultural activity. Thus the meanings and importance originally associated with culture (and perhaps what made it possible to relate culture to monetary value) are lost.

How might this translate into policy recommendations? One welcome suggestion [pdf] is that a research unit for 'cultural economics', sponsored by government, could be based within DCMS or Arts Council England. This would bring government economists together with both practitioners and administrators from the cultural sector to develop tools for both sets of participants to help government gain clearer insights into the value of the cultural sector and to help government decision makers see the limits of the dominant economic paradigm. Innovation in public policy-making requires dialogue, and not simply the supremacy of one logic over all others.

More generally it would be worth considering what lessons cultural engagement might have for a whole range of government decisions that draw on economics, for example decisions about the Education Maintenance Allowance (EMA). Decisions like scrapping EMA, justified with regard to the perceived inefficiency of giving grants to young people in post-16 education, may be efficient in narrow terms but miss the benefits of cultural encounters offered by education. Government might, therefore, reflect that instead of narrow discussions of efficiency or cost-effectiveness, it is better to have a well educated population that is able to make sophisticated decisions within markets and produce the creative goods on which the post industrial British economy will have to be based.

This vision of the cultural sector showing the limits of market ideology may sound farfetched or utopian. But it isn’t to suggest that the cultural sector can just boldly assert that it has the answers to complex questions about value, measurement and the limits of the market. Nor should it be read as a demand that we deny the usefulness of economics to aid decisions about the allocation of scarce resources. Rather it suggests partnership between economists and the cultural sector might generate practical understandings of where the market is useful and where it is not, practical understandings to help resolve the crisis in which visions of economics resting solely on the understanding that market and society are synonymous have so clearly failed.

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