It’s shaping up to be a tough few years for Canadian artists. Last year, the Harper government cut more than $44.8 million from groups that subsidize Canadian art and culture. The funding slashes stirred up an ugly debate over whether a recession-struck government should spend any money on jobs for the beret-wearing urban elite, rather than tax cuts for regular folk.
Economists and artists may not hang out much, but if they did, they would have a few things to talk about. British economist John Maynard Keynes, whose ideas about how to recover from a depression are suddenly back in vogue, was the first Chairman of the Arts Council of Great Britain. Britain was in tough economic shape after the Second World War—it remained on food rations until 1954—but Keynes made sure that the Royal Opera House stayed open.
The Canada Council for the Arts estimated that in 2003-04, arts and culture made up $40 billion of our economy. In that year, Canadian governments spent $7.7 billion on arts funding. With billions at stake, it’s worth asking: is there an economic argument for arts funding?
In Canada, cultural support is usually defended in terms of national identity. Without the government, we are told, Canadians would have access to little or no Canadian content. But if American movies are cheaper and more popular than Canadian movies, why waste our money on the National Film Board?
It all depends on how you think the movie business works. Agglomeration economies kick in when companies benefit from being located close together. Imagine two studios move into the same neighbourhood. Their employees might start hanging out, swapping ideas, and learning new skills. With a big market to sell to, companies that supply movie-making equipment might specialize and lower their own prices.
Where agglomeration economies exist, the location of an industry, like in Hollywood, can be a historical accident. If Canada’s industry is given a leg up, over time it could tap into agglomeration economies and lower costs, thus becoming more competitive.
Curiously, this isn’t the argument made by most cultural economists. The classic argument for arts subsidies is something called Baumol’s Cost Disease, after NYU economist William J. Baumol.
Productivity expresses how much a worker can produce in a given period of time. In an efficient economy, wages should reflect productivity, which in much of the world has grown since the Industrial Revolution.
Baumol argued that in performance-based art forms, productivity growth is close to zero. A string quartet, he claimed, is no more productive now than it was in Beethoven’s time. But string quartets must compete for workers with other industries, where productivity and wages have grown. Due to this competition, costs would rise in the performance arts, eventually bankrupting symphonies and theatres the world over. But on the whole, Baumol’s predictions have not panned out, and costs have not risen dramatically. This might be because new technology, like recording equipment, has increased productivity even in the performance arts.
Baumol’s Cost Disease doesn’t necessarily suggest a subsidy in any case. If you believe that markets are perfect, then low productivity should lead to high costs. On balance, a pack of Smarties is a cheaper form of entertainment than a symphony. Any government subsidy that tries to artificially reverse this is inefficient. But no one really believes that markets are flawless, which brings us to a more convincing set of arguments for arts funding: positive externalities.
An externality is a cost or benefit that spills outside of a transaction. If you buy paper from a company dumping toxic waste, that has a negative effect on people living near the dump. Because those people have no part in the transaction, their interests are not taken into account, and none of our assumptions about efficiency hold. As a result, paper, and pollution, will be overproduced. Where there are externalities, governments can justify intervention.
Many argue that art has positive externalities. In a peculiar analogy, Lionel Robbins, another famous British economist, compared supporting the arts to building a sewer system, because the benefits of both are widely distributed. More modern theorists suggest that people are happier just knowing that high-quality culture is being produced in their city or country, even if they never experience it.
It’s fashionable to claim that arts stimulate economic growth. U of T’s Richard Florida is often identified with this argument, but Florida’s “creative class” actually includes quite a few non-artists, such as engineers. Yet most economists would argue that rich cities produce more art, not the other way around.
Probably the most convincing argument in favour of arts funding, especially for music and television, is the Internet’s evisceration of copyright. Today, there are huge positive externalities associated with releasing a song, if only because people will download and enjoy the track without paying. This means that quality music, television, and movies might be underproduced. The Internet, unexpectedly, might make stuffy institutions like the Canada Council more important than ever.