The Price of Everything

The Price of Everything

Are the arts & culture a public good?

Rod, CC BY

Regular readers of this column will know that I’m neither an artist nor a cultural expert, but something much more déclassé: I’m a cultural economist.

Part of this involves studying the incentives that operate in the making of art and culture, and its consumption, and thus extends to the institutions that shape and govern those incentives. But mostly this involves arguing the extent to which art and culture are a public good.

I want to elucidate this much misunderstood concept here “as an economist”. This matters because the basic rule of a modern economy in a modern political system, as certified by economists, is as follows: if something is a public good, then it should be provided by government (and financed by willing taxpayers).

These are the arguments that occupy cultural economists, both as friends of the arts, and as friends of taxpayers. There is a certain lose-lose dynamic here that makes being a cultural economist sometimes a thankless task. But to do this we do need to be clear about what a public good really is.

First, calling something a public good is not a moral claim, but a statement about economic efficiency. Public goods experience what is called “market failure”, which means that markets will create insufficient incentives to induce producers to supply the socially optimal level.

Second, a public good is not something that is public, and good. It doesn’t mean something we all like, or can in some majority sense agree is socially valuable.

The technical definition is a good that is both “non-rival” and “non-excludable”. Goods that are rivalrous (if I consume it, you can’t) and excludable (I can stop you from consuming it) are private goods: markets work well for them. Non-rivalrous and excludable are “club goods”. Whereas rivalrous and non-excludable goods are “common pool resources”. These require somewhat different governance mechanisms in order to be efficiently provided.

Pure public goods are actually quite rare: e.g. national defence. If you provide it for one, you provide it for all (non-rivalrous), and if produced I can’t stop you from consuming it (non-excludable). Another example is a mathematical algorithm. But many things that we commonly think of as public goods – such as health-care and education – actually aren’t. Hospital beds are rivalrous, and education places are excludable. That’s why private markets can work in these areas.

So is art and culture a public good? Here’s the thing. It’s tricky – you can argue it in good faith either way. On the one hand, a piece of music or sculpture or the aesthetic feeling of beautiful design is plainly a public good in the same way the formula for calculating the solution to a quadratic equation is. If I’m enjoying it, you can too, and moreover I can’t exclude you from the experience. But on the other hand, I can devise mechanisms to make it rivalrous or excludable – an obvious one being attaching intellectual property rights, or by limiting access by making it a commodity or a service. These are sometimes called business models.

For an economist, then, the economics of art and culture come down to the study of the efficacy of this translation between a public and a private good. The main point is that this rarely stays fixed. It is limited not only by artistic imagination, but by entrepreneurial imagination in ways of converting an idea into a revenue stream. This is affected by new technologies – the printing press, for example, and again with the Internet – and by new business models – William Shakespeare not only wrote plays, as high-school students know him for, but was the entrepreneur behind the commercial venture of the Globe Theatre, which MBA students might appreciate him for.

The fundamental question of the economics of arts & culture – is art and culture a public good? – has only circumstantial answers that for the most part turn not on the objective merits of the artistic and cultural output, but on the entrepreneurial imagination of the artist and their backers.

The first step in any engagement with the economics of arts and culture is to buttress their status as a public good. But that also does a disservice, because the ongoing viability – i.e. the sustainability – of an art form depends on its transformation into a private good.

The public good argument for government support of the arts has costs as well as benefits. Strong public support encourages, to be sure, but it also distorts incentives. The role of the cultural economist is to point out that any eventual total classification of arts and culture as a public good by arts and culture lobbyists risks being a Pyrrhic victory.