Mixing art and economics is a hazardous endeavor. As the saying goes, “Art is art, everything else is everything else,” presumably including economics. Hazard aside, this brief paper examines the different ways economists look at the arts, and suggests how data (more and better) can aid the economists’ quest.
While acknowledging some overlap, our task is simplified by subdividing the economics of art into three distinct areas: 1) intrinsic, 2) dynamic growth, and 3) static economic base.[1. Seaman describes this three-way classification with the labels “consumption impact,” “long-run growth impact,” and “short-run spending impact.” See Seaman, Bruce. “The Economic Impact of the Arts.” The Handbook of Cultural Economics, 2nd edition, Ruth Towse, ed, Edward Elgar Publishing, 2011: 201-210.] Our main focus will be on the third of these, arts and economic base theory. Before turning to this, let us briefly consider the other two areas, intrinsic and dynamic growth.
Intrinsic Value of the Arts
It is the wont of economists to put dollar values on everything they see, and so it is with the value of the arts. Suppose I travel to New York City to take in a special exhibition at the Museum of Modern Art. General admission and special exhibition fees run $40, and I drop $10 in the donation box on my way out. So my museum visit is worth $50 to me, right?
Actually much more: two nights in a midtown hotel, airfare and other transportation, and meal expenses amount to $1,000, so my visit has been worth at least $1,050. But this still likely falls way short of the total value. Had prices been higher, I may have been willing to pay three or four times as much.[2. Economists call the difference between what consumers are willing to pay and what they actually pay “consumer surplus.”] So the actual value of my museum visit might be in the neighborhood of $3,000 or $4,000. Note that the intrinsic value of art occurs in the mind of individuals – in the above case, a single individual.
Dynamic Growth and the Arts
While intrinsic values occur with individuals, dynamic growth is a strictly regional phenomenon.[3. The definition of “region” is an area of regional science all to itself. For our purposes, a region might be a single well-defined city or town, or it might be some collection of inter-linked cities and towns that together function as a distinct economy. Functional economies exhibit some degree of closure with regard to labor and the goods and services produced and consumed in the region.] The dynamic growth argument is that the presence of a thriving arts community bestows external benefits on its neighbors in the business community, making the latter more profitable and thus more well-rounded. Regional economists will refer to this as the “second paycheck,” whereby workers accept less for the opportunity to live and work in a region rich in art opportunities.
A recently popular variant on the arts and dynamic growth argument is advanced in Richard Florida’s 2002 book, Rise of the Creative Class. Florida argues that creative people are drawn to places rich in art, and vital businesses are drawn to the creative workforce. The net effect is that a region well represented by the arts will benefit from a growth dynamic that over time expands jobs, incomes, property values, and government revenues.
The Economic Base Story
The Traditional Arts and Economic Base Story
In terms of regional economics and the arts, the easiest thing to measure, and the most commonly measured, is the impact of spending on the arts. Let us return again to New York City for our example. New York annually attracts thousands of visitors drawn in significant measure by its wealth of art: including museums, galleries, theatres, shows, clubs, and much more. The injection of moneys occurs before they even leave the plane, as the local airport operations depend on visitors for a substantial part of their revenues. More moneys are spent getting to the hotel, paying for the hotel, getting around the city, buying meals and souvenirs, paying admissions fees, and so on and so on.
And the spending doesn’t stop here. Merchants, restaurants, galleries, hotels, and all the rest purchase business inputs, and they pay wages, and these lead to further purchases, and these to still more purchases, and so on. The process is described by an infinite progression, conveniently captured by an economic multiplier model – an input-output or social accounting matrix model. In the case of an art mecca, such as New York City, these spending affects can be quite large, made even more so by a larger-than-average multiplier resulting from the city’s dense and highly integrated economy.
Arts and Import Substitution
There is another aspect of the economic base story that needs considering. Standard best practice would generally label as error any accounting of resident spending on the arts. The argument runs as follows: A resident spends money attending a local art function, but had they not spent the money there they would have spent it somewhere else in the local economy, renting videos, bowling, buying camping gear, or whatever. What the economy gains on account of spending on the arts, it loses from forgone spending on some other locally available good or service.
The traditional criticism is not always warranted. What if absent the art spending residents leave the region to seek pleasures, perhaps art, someplace else. From the standpoint of theory, these moneys are leakage, and the leakage of resident income has the same economic impact (except negative) as a dollar of visitor spending.
Return to New York City. Residents there are huge consumers of the local arts: they join and visit art museums, attend plays and shows, and patronize the many galleries and assorted art schools. Certainly absent the rich art opportunities available in the city, some more or less large segment of the population would be spending these moneys on things that leak money from the region.
Economic Base & Functional Economic Areas: An Overlooked Aspect of the Arts Economy
Central Place Theory and Functional Economic Areas
Economic base theory as outlined above is most often described in the context of the single region.[4. The “region” might be the smallest town, or a large multi-state area, the “economy of the Pacific Northwest” for example.] With a broader look, however, single region economies are seen as part of a system of economies, linked one to another by a predictable pattern of trade – the pattern trade indicated by central place theory (CPT).
Simply stated, CPT sees the landscape populated with places of varying sizes (e.g., hamlets, towns, cities, and metropolitan areas). Consumer goods and services are available in hierarchical fashion. The smallest hamlet may offer no more than the services of a tavern and convenience store. Moving up the hierarchy, at the small town we add post offices, barber and beauty shops, dry goods stores, and similar still small-scale businesses. At the top of the hierarchy is the larger region’s “central place,” the metropolitan center, where all goods are available plus a handful of “highest order” goods: an airport with multiple carriers and regularly scheduled air service, highly specialized legal and financial services, a university, and other relatively large-scale enterprises.
From the standpoint of region definition, the importance of the hierarchical structure is economic cohesion. Lowest order places supply their own lowest-order goods, and obtain higher-order goods from higher-order places. The “highest-order place,” the metropolitan area in our example, supplies the whole region with “highest-order goods.” Moneys flow up the hierarchy in purchase of consumer goods and services, and down the hierarchy in purchase of raw and semi-finished goods, and labor. The entire region is thus linked together in trade, and thereby functions as a distinct economic region, or “Functional Economic Area.” [5. The notion of the central place-based “functional economic area” is generally traced to work by Karl Fox. See for example: Fox, K.A. and K. Kumar. “The Functional Economic Area: Delineation and Implications for Economic Analysis and Policy.” Papers of Regional Science Association, 15 (1965): 57-85. Fox’s work inspired an ongoing program by the US Department of Commerce, Bureau of Economic Analysis to map the “BEA Economic Areas” of the US. See: BEA.gov for underlying methodologies and the latest update on BEA Economic Areas.]
A Regional Hierarchy of Arts
It is easy to imagine art activities arrayed in central place-like hierarchy – see for example the hypothetical array in the table below. Art clubs (poetry painting and such) are fairly ubiquitous, and cafes with local art for sale are commonplace. As we move from smaller to larger places, we encounter more and more art opportunities, community theaters, formal art galleries, art instruction, and so on. At the highest-order place, we find formal art museums with paid staff, performing arts (a regional orchestra, dance company, and theater group). As with the traditional central place hierarchy, the highest-order place (in our case the “metro-area) serves the entire region, as lower-order places serve progressively smaller sub-regions. The table below shows a hypothetical hierarchy or art activities across a 6-order trade hierarchy.
Art Offerings in a Central Place Hierarchy
- Art clubs.
- Art clubs,
- Café galleries.
- Art clubs,
- Café galleries,
- Community Theater, Club music.
- Art clubs,
- Café galleries,
- Community Theater, Club music,
- Art Galleries, Art Instruction.
- Art clubs,
- Café galleries,
- Community Theater, Club music,
- Art Galleries, Art Instruction,
- Arts Museum, Theatre troop, Performing Arts.
Data and the Economics of the Arts
Which of our three economic perspectives on the arts is the more important (or fundamental) is an open question – all three have their critics.[6. See for example: Madden, Christopher. “Using ‘Economic’ Impact Studies in Arts and Cultural Advocacy: A Cautionary Note.” Media International Australia Incorporating Culture and Policy (2001): 161-178 (98).] This said, there is no question as to which has been most affected by the recent explosion in data and computing power: the economic base perspective. The current state-of-the-art in economic multiplier models (the underlying foundation for an economic base model) is the detailed Social Accounting Matrix (SAM) model. The current EMSI SAM model for a single region has just under 2,000 sectors of detail, and an underlying “multiplier matrix” that has 2,0002 data points.[7. EMSI Analyst 3.0 conveys maximum detail for every sector in the Census Bureau’s NAICS System coupled with maximum detail for every sector in the Department of Labor’s SOC System.] The current EMSI SAM model is available in EMSI’s Analyst 3.0.
Models with the fine sectoral detail of the EMSI SAM model provide for a more complete accounting of arts-affected sectors. There is for example detail (jobs, earnings, profits, production methods, and more) with sectors as finely defined as:
NAICS 323110: Art prints lithographic printing
NAICS 323111: Art prints gravure printing
NAICS 323112: Art prints flexographic printing
NAICS 323113: Art prints screen printing.
Similarly fined detailed data exist for the full collection of sectors catering to art visitors (e.g., the hospitality sectors, art museums, galleries, theaters, and such).
EMSI SAM model capabilities extend to modeling the effect of resident arts import substitution discussed above. Except for hospitality sectors, the same sectors that cater to the arts visitor also cater to the resident arts consumer. With some assumption (or field research) regarding imports absent local arts, the economic benefit of residents’ art consumption can be added to the traditional economic base assessment. In some regions this component could be significant.
EMSI’s SAM model conveys detailed on 900 different occupations; a level of detail unseen in regional modeling systems until now. In a study of economic development and the Houston, Texas economy, the EMSI occupation detail was used to analyze the existence of “creative occupations,” and “creative industries,” with a view to suggesting development paths consistence with the “creative class” literature discussed above.[8. EMSI is in the midst of completing that work for the Houston Arts Alliance. A copy of the Executive Summary is available from EMSI by request once the study is finalized.]
Finally, the EMSI SAM model includes an ambitious multi-regional component. This capability opens the door to an examination of the arts economy as a system of interdependent places, as envision by the functional economic area approach discussed above. The process is framed as a multi-regional model, with counties as building block, and a central-placed-centered functional economic area as defining criteria for encompassing region. The model would show how policy decisions aimed at the arts trickle through the system, and how targeting efforts in one place might provide superior results to targeting them at others. We would argue that this is a new and promising avenue of research into the economics of the arts.
Economists look at the arts from three general perspectives. The intrinsic value of art originates in the mind of the individual – and might be summed across all individuals. Dynamic growth effects of the arts, and economic base assessments of the arts, refer to regional economies.
Dynamic growth effects are said to occur as a result of certain positive spillovers of the arts. While these are unquestionably important in framing economic development policy, they are difficult to measure and apply. Work is ongoing on the creative class literature, and this is clearly a promising area of research.
The economic base approach to the arts is the most tried, tested, and applied. And it is the area where recent data and computing advancements have their greatest effect. The great sectoral detail offered in a model such as the newly available EMSI SAM provides a vehicle for more precisely examining the impacts of the arts visitor, and the possibly significant effect of resident import substitution stemming from the availability of local arts.
An as yet little explored application of the EMSI SAM entails looking at the spatial character of regional art economies, and how cultivation of the arts in one part of the regional economy impacts the overall economy. This work is sure to highlight the importance of framing art development policy against the backdrop of economic as opposed to political regions.
Do economists have anything to contribute to the understanding of the arts? While their contributions will likely always be peripheral, with expanded data and computing power, certainly the regional economic impact of the arts is more precisely measured and better understood.
Illustration by Mark Beauchamp.
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