TOWARDS AN AMERICAN ARTS INDUSTRY

Harry Hillman Chartrand  ©
in The Public Life of the Arts in America
Joni Cherbo and M. Wyszomirski (eds),
Rutgers University Press, April 2000

Introduction

In this article I summarize twenty years of cultural economic research conducted by myself and other researchers directed towards a clearer definition of the American arts industry.  To do so, I will map findings into a mainstream economic framework - the Industrial Organization Model or 'IO'.  As will be evident, more primary and secondary research is required to complete the framework.  I call upon my colleagues in the arts and economics to aid in realizing this ambitious and important undertaking.

a) The Industrial Organization Model  

IO is the brain-child of the late Joe Bain. His seminal work - Industrial Organization - was published in 1959 (Bain 1968).  Using IO, Bain began what has become an ongoing process within the economics profession of linking macroeconomics (the study of the economy as a whole) to microeconomics (consumer, producer and market theory) to better understand the way the 'real' world works.

The IO schema (Exhibit 1) consists of four parts.  First, basic conditions face an industry on the supply- (production) and demand-side (consumption) of the economic equation.  Second, an industry has a structure or organizational character.  Third, enterprise in an industry tend to follow typical patterns of conduct or behavior in adapting and adjusting to a specific but ever changing and evolving marketplace.  Fourth, an industry achieves varying levels of performance with respect to contemporary socio-economic-political goals.

b) Elemental Economic Terms  

Four elemental economic terms will be used.  First, buyers and sellers exchange of goods and services in markets - geographic and/or commodity-based.  Second, an enterprise is any entity engaging in productive activity - with or without the hope of making a profit.  This thus includes profit, nonprofit and public enterprise as well as self-employed individuals.  All enterprises have scarce resources and are accountable to shareholders and/or the public and the courts.  An enterprise is defined in terms of total assets and operations controlled by a single management empowered by a common ownership.  Third, an industry is a group of sellers of close-substitutes to a common group of buyers, e.g. the automobile industry.  Fourth, a sector is a group of related industries, e.g. the automobile, airline and railway industries form part of the transportation sector.  Often, as herein, 'sector' and 'industry' are used interchangeably, for example - the transportation industry or sector.

c) The Arts Industry  

For purposes of this demonstration, the arts industry (Exhibit 2), or more properly, 'the arts sector', includes all profit, nonprofit and public enterprises including incorporated and unincorporated businesses that, and self-employed individuals who:

i - use one or more of the arts including the heritage, literary, media, performing or visual arts - live or recorded - as a primary factor of production, e.g. in advertising, fashion, industrial & product design as well as Internet, magazine and newspaper publishing;

ii - rely on one or more of the arts as a 'tied-good' in consumption, e.g. home entertainment hardware and software; or,

iii - produce one or more of the arts as their final output, i.e. they create, produce, distribute and/or conserve artistic goods and services.

Using this definition the Arts Industry can be seen as the center of a circle of circles made up of the so-called 'cultural industries' or the widely defined Arts & Cultural Industry (Exhibit 2).  The economic term 'tied-good' requires explanation. An example is the old 'punch card' computer.  The computer could not operate without such cards which, technically, were an output of the pulp, paper and publishing industries, sequentially.  The computer and cards were tied-goods in production of computational results.  Similarly, there can only be a market for audio-visual software, e.g. records and tapes if there is a market for home entertainment hardware, e.g. cameras, record players, TV sets, etc.  They are tied-goods in consumption fitting hand in glove.  In this regard, it is likely, but not proved, that the home entertainment center (HEC) is the third most expensive consumer durable purchased by the average consumer after house and car.  Similarly, private collections of audio-visual software including phonographs, photographs and video tapes constitute an enormous stock of American cultural wealth.

d) Caveat Emptor  

There are four biases inherent in this demonstration.  First, it is based on a compilation of findings stretching over decades.  Accordingly much of the evidence needs to be updated.  Second, the demonstration is incomplete.  The full IO framework cannot be completed at this time.  In some cases, evidence required may be available but I am unaware of its existence.  In other cases, no primary research has been conducted.  Third, the demonstration assumes a 'wide definition' of art including 'utilitarian' art, entertainment art as well as 'art-for-art's-sake'.  Finally, this demonstration is by one economist.  There is no consensus within the profession as a whole about the appropriate definition of economics and the arts.

BASIC CONDITIONS  

The IO model requires information about basic conditions facing an industry on the supply- (production) and demand-side (consumption) of the economic equation (Exhibit 1).  Only two facets are examined.  On the supply-side, the economic meaning of knowledge, specifically Art as a knowledge-based technology, is defined.  On the demand-side, 'co-demand' for the Arts is considered.

a) Supply  

Economics recognizes three primary factors of production - capital, labor and technology.  Through time understanding of these factors has changed and expanded (Exhibit 3).  Today it is generally accepted that improvements and changes in capital and labor including education have accounted for between 25 and 33% of growth in National Income over the last century [Shapiro 1970].  The vast majority of growth is thus attributable to technological change.

In the Neoclassical Period of economic thought (roughly the 1870s to the 1930s), economist first identified 'disembodied' technological change reflected in general improvements communications (e.g. telegraph and telephone) and transportation (e.g. steam, electric and gas powered engines).  During the Keynsian period (roughly the 1930s to the late 1980s) the contribution of physical science research to the war effort - first the Allies and Axis Powers (radar to ballistic missiles and jet aircraft to the A-bomb) and then the Cold War warriors - expanded economists' vision to see 'embodied' technological change reflecting specific bits of new knowledge embodied in specific products such as the transistor in the transistor radio.  Up to the present (1998), however, there has been one constant: we really do not know why somethings are invented, and others are not; and why somethings that are invented are brought to market (i.e. innovated), and others are not.  This has been called "the measure of our economic ignorance" (Lithwick 1968).

I have argued elsewhere that our economic ignorance (66-75%) is attributable, in part, to a narrow definition of technology (Chartrand 1989, 1990; 1992b).  The word derives from the classical Greek techne meaning 'art' and logos meaning 'reason', that is, reasoned art.  In turn, the English word art means 'skill' or 'craft', forms of 'experiential' knowledge gained by doing or applying as opposed to systematizing knowledge by which the ancient Greeks meant 'science'.  Feedback between application and systematization of knowledge results in 'learning' or education in the sense of educe - to bring out from someone an understanding of something outside of oneself. In this sense, technological change in a knowledge-based economy results from application of new knowledge.  This constitutes 'epistemologic' or knowledge-based technological change.

Today's economic landscape is dominated by three primary yet interactive domains of human knowledge: the Natural Sciences & Engineering (NSE), the Social Sciences & Humanities (SSH), and the Arts (Chartrand 1992). Knowledge-based technological change results from increases in these domains when applied in the real world.

Each domain rises up like a mountain above the lowlands and valleys of the traditional industrial economy.  Each has its own historical and institutional foundation; each reaches up to its own lofty, specialized glacial summit of excellence - individual and institutional.  For the NSE and SSH, the traditional institutional peak has been the university.  For the Arts, it has been the arts academy, production company, conservatory or school.  Accretions to a domain takes place through 'research', the results of which, when applied, causes feedback resulting in learning how to do something better next time.

Institutionalization of knowledge domains varies between countries. In the English-speaking world, for example Canada has a Canada Council for the Arts, a Social Sciences & Humanities Research Council and a Natural Sciences & Engineering Research Council.  In the United Kingdom, there are separate councils for each of the Arts, Engineering, Humanities, Natural Sciences and Social Sciences.  In the United States, there is a national endowment for the Arts, another for the Humanities and a National Science Foundation that subsumes the Social Sciences.

In summary, knowledge-based technological change involves one or more of the following:

- new goods, services and improved production processes primarily emerging from NSE;
- more effective, efficient and humane ways of combining financial, human, information and physical resources emerging primarily from SSH embodied in improved management methods and practices; and,
- new aesthetics primarily emerging from the Arts and embodied in better designed, more attractive, creatively advertised and intelligently marketed goods and services.

These are the primary sources of 'value-added' in a knowledge-based economy (Chartrand 1989).

b) Co-Demand for the Arts  

Much research has been conducted about the socio-economic characteristics of consumers of specific artistic goods and services, e.g. modern dance, museums, and TV.  Little, however, has been conducted about generic consumer demand for the Arts as a knowledge domain.

Over the years I have evolved a five-fold framework to classify market demand for the Arts (Exhibit 4).  In this framework, there are five motivations for consuming the Arts.  Each generates its own distinct industry with its own plant and equipment, talent pool, specialized repertoire of works and its own market made up of individual as well as public, private and nonprofit consumers (as investor, patron or donor).  All five are interrelated through cross-overs between audiences (demand-side, hence 'co-demand') and capital, labor and technology (supply-side).

Three terms require definition.  First, 'recreation' refers to the 19th century British concept of time free to re-create a worker's ability to work.  This contrasts with the aristocratic concept of 'leisure' as time free to develop consumption skills especially appreciation (Chartrand 1987).  Finally, philanthropic refers to the altruistic giving of wealth, wisdom or work to a nonprofit or public cause (Boulding 1973).

i - Amateur Art  

Amateur art is motivated by self-actualization, -education and -realization including of one's own cultural heritage.   It is less concerned about pleasing an audience and more about developing self-expression and -understanding.  Amateur art is practiced during and after primary, secondary and tertiary school.  It is in the amateur arts that talent is first disciplined in an artistic craft and an informed and appreciative audience is initially cultivated.

Amateur art is part of the public sector in the schools; part of the nonprofit sector in amateur or community institutions such as amateur theater and orchestras; and, part of the profit sector through private teachers and instructors.  It provides four kinds of experiences:

• arts education, i.e. education in how to create art;

• education through art, i.e. art as a distinct way of understanding the world and of problem-solving;

• education of citizen consumers with respect to recognizing quality in advertising - commercial and political - and industrial and product design; and,

• therapy - physical and psychological.

ii - Applied & Decorative Art  

Applied and decorative art includes advertising, architecture and urban design, the crafts, jewelry and fashion as well as industrial, product and interior design.  To a degree, it involves the use of style for enjoyment and persuasion.  Production is motivated by the challenge of marrying aesthetic to utilitarian value.  At its best it contributes 'elegance' to the human environment defined as simple but effective, or 'the best looking thing that works'.  From buildings to urban planning; from product design to effective advertising; from corporate 'imaging' to designer fashion: applied and decorative art probably, but not proven, has the most pervasive and significant economic impact of any segment of the arts industry accounting for 45% of the total arts labor force (Chartrand 1996).

iii - Entertainment Art  

Entertainment art generates enjoyment, amusement and recreation. In the entertainment arts, America currently leads the world.  Thus entertainment programming (film, recordings and TV) is reported to be the second largest net export of the United States after defense products (The Economist March 11, 1989: 65-66).

Entertainment art is dominated by for-profit global media conglomerates with linked interests in television, film, music, video and print media.  The five largest firms in the world had combined revenues of $45 billion in 1988 and accounted for 18% of a $250 billion world-wide entertainment market (National Telecommunications and Information Administration 1990).  Only one of the five, however, was American-owned - Time/Warner.  There has been significant merger and acquisition activity in the ten years since 1988.  Concentration and foreign-ownership have probably increased.  There is, however, to my knowledge, no more recent comprehensive study of global integration and convergence of the broadcast, cable, motion picture, publishing and recording industries.

iv - Fine Art

Fine art is motivated by 'art-for-art's-sake'.  It is the primary research and development segment of the arts industry.  It generates 'enlightenment', i.e. it sheds light on the nature of the human condition - on the individual and society.

It is primarily in the fine arts that new talent and technique are developed; new scripts and scores created; and, new images and styles set.  Results of fine art 'R&D', like the results of scientific research, are sometimes adopted by for-profit enterprises in and out of the arts industry.  And, as in pure science, fine art is not financially self-supporting.  It operates, primarily, in the nonprofit sector relying on public and private patronage.  As in the Natural Sciences, a thousand new plays (experiments) must be tried if one is to become a box office smash.  The right to fail is an essential artistic and scientific freedom - a freedom that requires patience and risk-taking on the part of patrons, investors and audiences.

v - Heritage Art  

Heritage art subsumes the amateur, applied and decorative, entertainment and fine arts as residuals of contemporary and past creation preserved for and/or by subsequent generations.  It feeds back on contemporary art setting standards and inspiring creators. It generates 'enrichment' through the marriage of scarcity and aesthetic value including a sense of social cohesion and continuity.  Heritage art thus links us back to our past reminding us of who we are and from where and when we come.  It can also, however, impose the deadening hand of the past on contemporary creators who must compete not just with domestic and foreign peers, but also with works tried and tested through time.

Between 1969 and 1989, heritage art yielded the highest return of all financial investment opportunities (The Economist July 1, 1989).  Furthermore, theft of antiquities is the most lucrative international crime.  Ounce for ounce, an antiquity can be more valuable than drugs.  It can yield a higher return, at lower risk of being caught, and generally produces less jail time if one is convicted (Chartrand 1992a).