THE HARD FACTS:

Perspectives of Cultural Economics

Harry Hillman Chartrand ©
Transactions of the Royal Society of Canada 1989, Fifth Series, Volume IV
University of Toronto Press 1990

Abstract                  

An unanswered question in the history of thought is why economics has become an abstract discipline void of almost any cultural context.  To answer this question, historic, empiric and theoretic evidence is presented.  Early in the 19th century, Jeremy Bentham began to strip economics of its concern with culture, custom and tradition.  Bentham's assumption that culture was irrelevant was reinforced in mid-century with the schism between Marxist and mainstream economics.  Cultural relativity became Marxist analysis and mainstream economists adopted an increasingly positivist approach.

Because of the Benthamite legacy, the arts and culture have been thought intangibles and frills in a bottom-line economy.  But a fundamental demographic revolution, involving rapid urbanization, rising levels of education, increasing participation of women and aging of the population, has made the arts a significant industry and a force in national competitiveness.

Evolution of art from symbol to source of wealth parallels evolution of the concept of National Income.  Through time, there has been a progressive expansion in the sources of National Income. In this century, technological change is recognized as the most important.  However, the nature of technological change has also changed.  Today, there are three sources of technological change. Research in the physical sciences leads to improvements in physical technology.  Research in the social sciences and humanities leads to improvements in organizational technology, i.e. the ways to organize and motivate capital, labour and technology.  Research in the arts leads to improvements in advertising, consumer research, marketing and product design.  Physical and social science research is centred in the university; research in the arts in the professional fine arts.

Research involves small amount of resources compared to existing capital stock and labour force. However, in economic growth it is a catalyst stimulating changes and improvements in the quality and efficiency of capital and labour.  Research results are embodied in abstract intellectual property rights including copyright, patents, registered industrial design and trademarks. It is buying, selling and licensing of such rights that constitute the quaternary Sector of the Post-Modern Economy.

In this new economy, it is creative workers -- artists and scientists -- who are the source of growth in National Income.  They, the laws protecting their creations, and firms relying on such rights for industrial organization are sensitive to culture, custom and tradition -- as is the increasingly educated and sophisticated consumer.  The Benthamite tradition deeming culture irrelevant to economic behaviour is no longer valid in a mythic or multicultural domestic and international economy.  But we still await emergence of a truly Humane Science to replace the pre-Benthamite Moral Philosophy.

  Introduction  

... better Socrates dissatisfied than a fool satisfied. J.S. Mill

The fabric of intellectual history is partially woven from the threads of coincidence.  One such thread involves great scholars who, distant in space yet near in time, raise the same seminal question, or propose similar answers to fundamental questions troubling the contemporary ethos.  An example drawn from cultural economics and involving a growing divergence between the economic theory of value and evolving social reality will demonstrate.

In May 1972, Tibor Scitovsky began by stating: "What's Wrong with the Arts Is What's Wrong with Society" (Scitovsky 1972).  Then in September 1972, Kenneth Boulding in his seminal article "Towards the Development of a Cultural Economics" raised the related question:

The founding father of economics, Adam Smith, had a strong sense of the cultural matrix of economic phenomena. One of the most interesting of the unasked questions of intellectual history is how the science of economics should have lost this sense and become an abstract discipline void of almost any cultural context (Boulding 1972: 267).

Finally, in December 1974, John Meisel, in his presidential address to the Canadian Political Science Association (which seven years before had split from joint membership in the Canadian political economics association), argued in "Political Culture and the Politics of Culture":

political science has neglected many critical aspects of ... leisure culture and... this state of affairs ought to change. To remedy this neglect ... [we] shall have to ask ourselves whether all that is needed is an additional focus for research - whether we merely need to explore and work a heretofore neglected field - or whether what is required is a fundamental reorientation of the discipline, like those associated with the behavioural and post-behavioural revolutions (Meisel 1974: 601).

While accepting Scitovsky's statement, but to answer Boulding and, at the same time, to shed some light on Meisel's question will require a brief review of the history of economic thought, analysis of available empirical evidence and presentation of a theoretical framework explaining the contribution of art and culture to economic growth and development.  These three steps will, for purposes of this paper, establish what can be called the hard facts from three perspectives of cultural economics -- historic, empiric and theoretic.

Historic

Economics, as a discipline of thought or "a recognized field of tooled knowledge" (Schumpeter 1949: 143) emerged in the late 18th century at about the same time as political rights of the individual became a reality with the American and then the French Revolutions.  Adam Smith, writing just as the flood tide of revolution began to inundate the Old Order of Privilege and Preference, demonstrated a strong awareness of the cultural matrix of economic phenomena (Smith 1776).  Two of his successors, however, stripped economics of its cultural context -- Jeremy Bentham and Karl Marx.

conflicting

* views concerning the impact of culture or stage of cultural development on economic behaviour - yes for Marxists, no for the mainstream; 

* conflicting theories of value, specifically whether labour was the only productive economic factor as Marxists believed or, whether capital was also productive as the mainstream contended; 

* conflicting beliefs in the efficacy of collectivist solutions to political economic problems such as the role of the Party as revolutionary vanguard and the dictatorship of the proletariat versus individualist solutions such as pluralistic democracy and the market mechanism; and, 

* conflicting theories about the legitimacy of private property deemed exploitive by the Marxists and essential by the mainstream.

The intensity of this schism became, by the mid-20th century, as potentially apocalyptic as the European Religious Wars of the 16th and 17th centuries.  It was, of course, the turmoil of these wars which led to the triumph of secular science.  The schism, however, completed the fissioning of the old Moral Philosophy -- the total of all the sciences of mind and society (Schumpeter 1949: 141) -- into sociology, political science, psychology and what can be called Market Economics.  This further contributed to economics losing its original sense of culture and becoming an abstract discipline which assumes itself unaffected by culture and disembodies the volitional behaviour of labour into a shadow of homogenous units (Boulding 1972: 267).

The Benthamite Legacy

Following Bentham, each generation of mainstream economists struggled for release from Utilitarian inhibition.  John Stuart Mill tried to modify Benthamite confidence in the calculus of happiness by, among other things, apparently observing "better Socrates dissatisfied than a fool satisfied" to express different orders of pleasure and the importance of qualitative as well as quantitative factors in economic analysis (Barber 1967: 94-5).  He also highlighted the cultural factors contributing to the subjugation of women (Mill 1869).  Similarly, Marshall attempted a reconciliation of the Benthamite calculus of happiness with the English historical school and its insistence on the cultural and historical context of economic behaviour (Blaug 1968: 305).

Keynes, like Mill and Marshall before him, thought that he and his generation had finally thrown off restrictive Protestant hedonism and escaped the Benthamite tradition (Innis 1951: 79-80):

I do now regard that as the worm which has been gnawing at the insides of modern civilization and is responsible for its present moral decay.  We used to regard the Christians as the enemy, because they appeared as the representatives of tradition, convention and hocus-pocus.  In truth, it was the Benthamite calculus, based on an over-valuation of the economic criterion, which was destroying the quality of the popular Ideal.  Moreover, it was this escape from Bentham, ... which has served to protect the whole lot of us from the final reductio ad absurdum of Benthamism known as Marxism (Keynes 1949: 96-7).

Between the two is Scitovsky (Scitovsky 1972, 1976, 1989) who, on the one hand, insightfully and explicitly recognizes the impact of culture and, on the other, is attempting to re-tool Benthamite analysis. All three are required for a complete understanding of economic phenomena, if for no other reason than that all three form part of the contemporary economic ethos. But we still must await, it appears, for the emergence of a truly Humane Science to replace the integration of thought embodied in pre-Benthamite Moral Philosophy.

Empiric

While Institutional Economics maintains a linkage between cultural context and economic behaviour, it also plays a critical ongoing role in the development of empirical evidence. To Institutionalists, empirical statistical evidence is necessary but not sufficient for economic analysis. Development of the modern System of National Accounts will demonstrate the role of the Institutionalists (Chartrand 1988).

While the concept of national income accounting goes back at least to the 17th century, it was not until 1944 that discussions between the United States of America, the United Kingdom and Canada resulted in adoption of the essential rules and framework for what are now called the System of National Accounts (Raynault 1967). These discussions emerged partially in response to extensive statistical development conducted in the United States by members of the Institutional School of Economics, particularly the work of the National Bureau of Economic Research established by W.C. Mitchell as well as Schumpeter's extensive statistical work on business cycles. These collections of statistical evidence were used in conjunction with the macroeconomic model of national income and expenditure developed by Keynes. From this marriage of two distinct economic traditions, the System of National Accounts emerged. In 1947, the United Nations proposed international standards for creation of the SNA with associated sub-sets such as the Standard Industrial Classification (Chartrand 1988).

In contrast to the simple Benthamite assumption that economic behaviour can be measured, Institutionalists have spent much time and effort extending the technology of measurement.  As noted by Scherer (Scherer 1971: 7), mainstream economists tend to accept available data and subject it to extensive manipulation in order to approximate theoretic concepts rather than taking the time and effort to build up data sets.

In a sense, technology of measurement, at any point in time, is a cultural artifact which may not be adequate for testing theoretical propositions. Unlike physics, where theory and measurement go hand-in-hand, in the social sciences theory is not directly related to measurement. In fact, much of existing theory is speculation that goes far beyond the available technology. It stands or falls not on measurement but on believability (Sen 1973). In future, with the advent of "Point-of-Sale" computer systems, universal product codes and Arbitron ratings (The Economist, April 22, 1989: 63-66), it may be possible to empirically test basic premises of the economic theory of consumption including marginal utility. Serious questions, however, will arise concerning governmental and academic access to such private commercial data files. At present, however, data requirements for testing far exceed the technology of measurement.

To provide an empirical picture of cultural economics, I will draw on the extensive data bases developed at the Canada Council over the last 10 years.  These data bases are, in the most part, published in an annual publication entitled: Selected Arts Research Statistics  (Research & Evaluation 1988).  In fact, development of these data bases was conducted using an Institutionalist approach -- first you develop the data, then the theory.

There are 4 demographic factors, however, which dramatically affect cultural consumption, particularly consumption of "high culture" products (Chartrand 1987b).  First, the city provides the necessary threshold and concentration of population required to support an integrated network of cultural facilities, pools of artistic talent and a rich spectrum of audiences.  These facilities, talent and audiences are spread out across the country in a hierarchy of regional and national centres of excellence which collectively constitute national civilization.  As the level of urbanization increases, so does the level of arts-related activities.

Second, education is the best indicator of arts participation. In 1961,11% of adults had some post-secondary education or more. In 1985, some 33% had attained this level. By the year 2000, nearly 40% of adults will have some post-secondary education or more (Research & Evaluation 1988: Table 4). Third, women are disproportionately represented in the arts audience (60/40). Traditionally, they have been the "carriers of culture" in North America.  As the participation of women in the labour force and political system grows, so will their demand for more cultural as opposed to recreational or sports activities.  Fourth, while it is generally recognized that the "baby boom" is turning into the "geriatrics boom", it is not generally known that the older one gets (at least to official retirement age), the more likely one is to participate in arts activities (McCaughey 1984).

Rapid urbanization, rising levels of education, increasing economic and political participation of women and aging of the population are fuelling a market shift towards higher quality goods and services including arts and cultural activities, i.e. the so-called "Yuppie" marketplace.  The impact of these variables is visible in projected rates of participation in different leisure activities. Between 1985 and 1990, it is projected that the adult population will grow at 1.1% a year.  Attendance at live theatre is forecasted to grow at 1.5% per year, library use by 1.6% and attendance at galleries and museums by 2.0%.  By contrast, attendance at sports events is projected to grow at 0.7% per year over the period (Research & Evaluation 1988: Table 5).

Production  

UNESCO has been concerned for more than 20 years with development of a methodology for the collection of statistical evidence concerning cultural activities.  During this period, UNESCO has developed a framework for cultural statistics that identifies 11 statistical categories: Cultural Heritage, Printed Matter and Literature, Music, Performing Arts, Visual Arts, Cinema and Photography, Radio and Television, Socio-cultural Activities, Sports and Games, Nature and the Environment and General Administration of Culture and Non-apportionable Activities. A statistical profile of culture, in the UNESCO sense, includes everything from art to funeral rites (Chartrand March 1988).

Consideration in this paper can be given only to the arts industry. There are 4 distinct parts of the industry - the amateur, commercial, fine and applied arts. Production in the amateur arts is motivated by "self-actualization" or "self-realization" including realization of cultural heritage. Production in the commercial arts is motivated by the pursuit of profit. In the fine arts, production is motivated by the search for `art-for-art's-sake`. In many ways the fine arts are the R&D sector of the industry. Finally, production in the applied arts including the crafts is motivated by the addition of aesthetic value to function, e.g. the aesthetic design of an automobile or a coffee pot.

There is only limited statistical evidence available concerning the amateur and the applied arts. However, the commercial and fine arts can be statistically defined as the arts industry to include: advertising, broadcasting, motion pictures, the performing arts, publishing, recordings and the visual arts. In the statistical estimate, sectors such as designer clothing and jewelry are excluded, even though artistic design plays an important role. Between 1977 and 1985, arts industry revenue grew from $6.9 billion to $8.7 billion, measured in constant 1981 dollars. Compared to all 22 major manufacturing industries recognized by Statistics Canada, arts industry revenues increased from 10th to 9th largest. Salaries and wages grew from 6th largest to 3rd largest over the period (Research & Evaluation 1988; Table 7).

Within the arts industry in 1985, publishing accounted for 49% of all revenues; broadcasting 31%; motion pictures 12%; recordings 4% and advertising (using the last available Statistics Canada survey of 1977) only 2%. The performing arts accounted for over 1% while the visual arts accounted for just 1% of industry revenue using available data sets. Production of "canned" cultural product such as books, films, records and television programs has traditionally been dominated by foreign, generally American firms; the live arts including the performing and visual arts by domestic producers (Department of Communications 1987). This situation is changing with the internationalization of the American cultural enterprise (New York Times, April 16, 1989: Section 3-1).

The distribution of industry activity between the provinces was dramatically skewed towards Ontario which accounted for 46% of all activity; Quebec 24%; British Columbia 10%; and Alberta almost 8%. In total, the Atlantic provinces accounted for 5.7% of industrial activity, Manitoba 3.4% and Saskatchewan 2.4% (Research & Evaluation 1989).

The impact of urbanization is visible from the relative concentration of population and industrial activity.  Toronto accounts for approximately 12% of the population but 33% of all arts industry activity.  In the case of Montreal, the corresponding figures are 12% and 21%; for Vancouver 5% and 8% (Research & Evaluation 1989).

Employment  

Employment data does not permit distinction between the fine arts and the commercial arts. Furthermore, arts-related workers cross back and forth. Accordingly, total arts-related employment will be reported. There are two distinct arts-related employment populations. Together they included 414,000 workers or 4% of the Canadian labour force in 1981 (Research & Evaluation 1988: Tables 11-23). In fact, arts-related employment was as large as the agricultural labour force and federal government employment including crown corporations.

The first group is the arts labour force including workers who use arts-related skills in day-to-day jobs such as artists and arts technicians including curators, librarians and camerapersons.  Using 1971 definitions, between 1971 and 1981 the arts labour force increased 74% from 156,455 to 272,640 or 2.3% of the Canadian labour force which, as a whole, increased 39%.

Recently, the first output from the 1986 Census of Canada has become available (Statistics Canada 1988).  Between 1981 and 1986, the arts labour force increased 14% compared to a 6% increase in the total Canadian labour force. By 1986, the arts labour force included 311,610 workers, or 2.4% of the total labour force.

The second group is the arts industry labour force made up of workers employed in arts industries such as advertising, publishing, motion pictures, live staged events, fine arts schools, libraries, etc.  Only 35% of the arts labour force was employed in the arts industry in 1981.  The rest of the arts labour force worked in all other parts of the economy, e.g. product designers employed in manufacturing industries and window designers employed in the retail trade industries. Thus arts labour force occupations are similar to scientific and technical professions in that arts-related skills are used throughout the economy, not just in the arts industry. Relevant 1986 Census information concerning the arts industry are not currently available.

On a comparative 1971 Census basis, between 1971 and 1981 the arts industry labour force increased 58% from 150,080 to 236,610. The arts industry labour force was 2% of the total Canadian labour force. Of this total, 52% were men. Compared to all manufacturing industries, the arts industry was the largest employer with over 234,000 employees.

In the airline industry, large numbers of ground personnel are required to keep an airplane flying.  Similarly in the arts industry, large numbers of technical and administrative personnel are required to keep artists on stage, in front of the camera, in print or in galleries.  In fact, artists make up only 24% of the arts industry labour force, other arts-related occupations such as librarians, camerapersons and projectionists 18%, arts administrators 8%, and support personnel 50%.

Public Support  

The most reliable data concerning public sector cultural expenditures is the Canadian System of Government Financial Management Statistics (CSGFMS). It is used to determine equalization payments under the Fiscal Arrangements Act.  The system reports the broader category of culture rather than the arts.  Culture in the CSGFMS includes zoos and botanical gardens as well as the literary, media, performing and visual arts.  Furthermore, it excludes public broadcasting including the CBC and provincial broadcast authorities (Research & Evaluation 1989: Table 24).

Between 1975-76 and 1984-85 (the last year for which complete data is available) tri-level support to culture increased from $891 million in constant 1981 dollars to $1.2 billion in 1984-85.  As a percentage of gross general government spending, culture remained at 0.6% throughout the period. Spending per capita, however, increased from $39.20 in constant 1981 dollars to $47.90 in 1984-85.  The federal share of tri-level cultural expenditure declined over the period from 33% to 28%, the provincial share grew from 32% to 36% and local support remained at roughly 36%.

Using the annual federal estimates and Public Accounts, between 1977-78 and 1988-89, federal gross expenditure on culture (including the CBC) increased from $1.2 billion in constant 1981 dollars to $1.4 billion in 1988-89.  The CBC's share declined from more than 70% to less than 63%. Telefilm's share over the period increased from 0.4% to 5.6%.  The now defunct National Museums Corporation's share increased from 6.5% to 7.2% while the National Library increased its share from 1.9% to 2.4% and the National Archives from 2.6% to 3.6%.  The Canada Council's share remained roughly 5.5% while the National Arts Centre declined from 2% to 1.7% and the National Film Board's share declined from 5.9% to 3.8% (Research & Evaluation 1988; Table 25).

With respect to federal spending, there has been a significant shift of support from 'cultural' producers such as the CBC, National Arts Centre, Film Board and the Canada Council towards 'commercial' producers and heritage institutions and activities.  This shift represents a change in direction from a socially oriented cultural policy of 'democratization and decentralization' pursued in the 1960s and '70s towards an industrial policy of 'commercial viability' in the 1980s, with attendant implications for the cultural content of production.

Theoretic  

Through time, the means by which we earn the income to consume, invest and pay taxes has come from a changing set of factors of production including capital, labour and technology (Chartrand 1989).  In each period of economic thought -- Pre-Classical, Classical, Neo-Classical and Keynesian -- a different factor has been considered dominant in economic growth (Exhibit 3).

At present, however, no school of thought enjoys general public confidence. This lack of consensus is similar to that in architecture where the certainties of the Internationalist school have been displaced by an eclectism of design known as Post-Modern Architecture.  By analogy, we have entered the period of Post-Modern Economics (Chartrand 1987b).  Various proposals have been put forward in recent years suggesting that new factors of production have emerged as the dominant source of economic growth.  Such new factors generally emerge through re-definition of older concepts such as capital and technological change. In the case of capital, revisionism includes human capital, information or knowledge capital (Porat 1977) and cultural capital (Wriston 1985).

There are two reasons why re-definition of technological change is more appropriate.  First, the traditional political schism between Left and Right would be accentuated through expansion of the definition of capital and glorification of the capitalist entrepreneur.  Similarly, the schism would be exasperated by attributing to a mythic working class responsibility for all economic growth and development (Perlman 1929).

Second, in this century, technological change has become recognized as the most important source of economic growth.  Understanding of such change, however, is limited (Bell 1981: 80).  We do not understand why some things are invented and others are not; why some things that are invented are innovated and brought to market, and others are not.  In fact, technological change represents a measure of our ignorance. The importance of an improved understanding of technological change is apparent from the fact that less than one-third of the growth rate of National Income per worker since the turn of the century is attributable to the rise in capital per worker while more than two-thirds is attributable to that catchall term -technological change (Shapiro 1970: 493).

The word technology is, in fact, derived from the Greek tekhne meaning Art and logos meaning reason, i.e. reasoned art.  Since the so-called Neo-Classical Period of economic thought, when technological change was first introduced as a factor of production, the concept has evolved.  At that time, technological change was considered "disembodied" or systemic, e.g. general improvements in communications and transportation.  After the Second World War, during the so-called Keynsian period, the concept changed to "embodied" technological change, i.e. specific bits of scientific knowledge embodied in specific products such as the transistor in the transistor radio (Chartrand 1989).

Epistemologic Technology Change  

We have now entered an era of what can be called epistemologic technology change (Chartrand 1989), i.e. technological change resulting from research in separate and distinct fields of knowledge.  There are, in my opinion, three epistemologic sources of technological change.  First, research in the physical sciences leads to change in physical technology (T), the most obvious form of technological change.  The phrase generally used to express the best in contemporary physical technology is State-of-the-Art.

Research in the social sciences and the humanities results in improved organizational technology, i.e. the ways and means to organize and motivate capital, labour and physical technology (O).  The search for the best in organizational technology is known as the Search for Excellence.

It is estimated that poor motivation of workers and managers annually costs the USA between 20 to 40% of gross national product (Liebenstein 1981).  Similarly, it is generally agreed that the success of the Japanese economy is attributable, not to superior physical science research, but rather to superior organizational and design technology.  The inability of Canadian managers to effectively innovate new products and processes is an example of poor organizational technology (Economic Council 1985).

Just as the physical sciences are the source of Physical Technology and the social and management sciences the source of Organizational Technology, the arts are the source of Design Technology (D).  Research in the arts, however, does not generally take place in the university.  Rather, it emerges from the professional nonprofit fine arts where art-for-art's-sake is the dominant motivation (Chartrand, 1987b).

Thus unlike Science, the role of the University in professional training and development in art is relatively small and historically recent, except for music (Robinson 1982: 134).  With the exception of music and literature (rhetoric and grammar), art was not part of the ancient or medieval liberal arts curriculum (Cantor 1969: 66-67).  It was only in the Renaissance that the Fine Art Academy emerged as a formal centre for visual art education (vom Busch 1985, 3).  In theatre and dance, there were no formal training institutions in the English-speaking world until the late 19th and early 20th centuries (Robinson 1982: 178-179; 191- 192). The traditional independent status of the music conservatory is also evidence of the separate institutional pattern of learning pursued in art and science.

Both organizational and design technology are, a priori, more sensitive to culture, custom and tradition than physical technology.  This may explain why there has been little investigation of these factors by mainstream economics.

The contribution of Design to the marketplace is Elegance, a term also used in mathematics, the physical sciences and economics.  It expresses Occam's Razor, a guiding principle of the scientific method: the fewest assumptions for the maximum explanation. Elegance can also be defined as "ingeniously simple and effective" (Sykes 1985; 311) or "more for less."  This catches the sense of economy as frugality.

Aesthetic Design is fundamentally different from technical or functional design such as a more efficient automobile engine.  Its impact on is consumer behaviour involves what has been called "the best looking thing that works" (Cwi 1985). If a consumer does not like the way a product looks, he or she may not even try it.

Emergence of Design Technology in the 19th Century  

The importance of Art and Design to international economic competitiveness was first recognized in the English-speaking world over 150 years ago in the United Kingdom with the establishment of the first school of design in 1836, only 4 years after Bentham's death.  Until 1814, the Statute of Artificers had regulated training and employment of artisans in the craft guild tradition.  In that year, responding to deregulation or laissez-faire economic and Benthamite social policies, Parliament abolished the Statute.  In short order, the guild system collapsed and the labour market became flooded with unskilled workers.  By 1835 the quality of British production, particularly textiles, had declined to the point that the British Board of Trade appointed a Select Committee to investigate the problem and recommend remedies.  The Committee called for the direct application of Art in manufacturing in order to maintain competitiveness with European rivals.  The result was creation of schools of design (Savage 1985).

Similarly, in 1870, the Commonwealth of Massachussets became the first American State to make Art Education a requirement in the public schools with passage of the Drawing Act.  The Act originated through pressure from Boston manufacturers who argued that European students were trained in design and drawing and therefore American manufacturers suffered a competitive disadvantage (Freedman 1985: 21).  Within two decades, the same argument served to introduce art education in Canadian schools (Chalmers 1985).  During this period, the most eminent of contemporary economists, Alfred Lord Marshall, explicitly recognized the importance of Art to economic life, even if he questioned the moral result of art education.

Education in art stands on a somewhat different footing from education in hard thinking: for while the latter nearly always strengthens the character, the former not infrequently fails to do this. Nevertheless the development of the artistic faculties of the people is in itself an aim of the very highest importance, and is becoming a chief factor of industrial efficiency .... Increasingly wealth is enabling people to buy things of all kinds to suit the fancy, with but a secondary regard to their powers of wearing; so that in all kinds of clothing and furniture it is every day more true that it is the pattern which sells the things (Marshall 1920; 177-8).

Eclipse during the 1930s

Since the Great Depression of the 1930s, however, the economic importance of design, and therefore the contribution of the arts and crafts to National Income, was, in effect, forgotten.  This amnesia resulted partially from the pedagogic triumph of the Pestolozzian tradition in art education, i.e. to develop creativity and expression, which displaced the economic rationale in the 1930s (Betenas 1985).  The success of what is essentially an upper class concept of arts education reflected the triumph of the Arts for Art's Sake Movement which beginning in the mid-19th century withdrew the Arts from the de-humanizing impact of the Industrial Revolution (Henderson 1984: 46).

It also reflected traditional dis-ease on the part of political and economic philosophers concerning the arts since the time of Plato:

we must remain firm in our conviction that hymns to the gods and praise of famous men are the only poetry which ought to be admitted into our State. For if you go beyond this and allow the honeyed muse to enter, either in epic or lyric verse, not law and the reason of mankind, which by common consent have ever been deemed best, but pleasure and pain will be the rulers in our State (Plato 1952).

Beyond the irony of Bentham introducing pleasure and pain as the logical ruler of the State, the eclipse of design technology in the 1930s also reflects a more general short-sightedness on the part of economists and other social scientists concerning the nature and implications of the Industrial Revolution.  The Revolution not only transformed economic production (which is the central focus of mainstream economics), it also transformed consumption-creating phenomena such as advertising, consumer research, the department store, fashion, marketing and the mail order catalogue, phenomena which are critical to the modern economy (McCracken 1988).  The hesitation of mainstream economics to deal with questions of consumer taste and "non-rational' issues such as advertising reflects the lingering impact of the Benthamite tradition, a tradition that must play a declining role in an increasingly multicultural domestic and world economy.

Re-Emergence in the 1980s 

This lack of study has resulted in little empirical evidence concerning the impact of Art on economic competitiveness.  But while the impact of improved Design has not been quantified, its impact on competitiveness is again being recognized.

Today, the importance of design in international competitiveness can be seen in the United States and Canada where higher quality consumer products tend to come from abroad, particularly from Europe.  Why?  Given capital plant and equipment in North America is as good as that in Europe, the answer is not superior European production technology.  In fact, it results from a combination of factors including retention of craft traditions (The Economist, March 4, 1989; 64) such as apprenticeship systems and feedback between skilled consumption and production. As noted by Tibor Scitovsky in his path-breaking book, The Joyless Economy, North American 

... (c)onsumers seem willing to pay a high price, in terms of money, for the reputation of European imports, that is we pay cash to obtain high quality without having to pay for it in terms of careful shopping" (Scitovsky 1976: 176).

When the design advantage of European producers, and increasingly that of Japanese producers, is combined with the wage advantage of offshore or Third World producers, then the North American producer is left with a narrowing midrange market.  This combination of design and wage disadvantages may explain the apparent de-industrialization of North America.  Improved productivity through robotics and other new technologies may lower costs of production, but only improved design will secure for North American producers a share of the growing up-scale consumer market (Business Week, November 21, 1983; July 2, 1984).

Partially in light of continuing trade deficits with the Japanese and Europeans, the importance of enhanced design is becoming apparent to some major North American corporations including SCM, Teledyne, Black and Decker, and J.C. Penney (Skolnick 1985: 46). But from where do these design skills come?  They come from the arts, as was recognized by the MacDonald Royal Commission.

There is, then, another aspect to culture, namely good taste, good design and creative innovation, that should enable smaller industrial economies to compete effectively in the world economy... In this endeavour, higher quality implies an organic relationship between business and engineering, on the one hand, and design and craftsmanship on the other... High quality products, technologies, plants, homes, cities and locales require the long-run presence of creative artists of all kinds. To increase the long-run supply of artists... governments must support the artists and the arts. The long-term return from investment in artists and the arts is real and substantial. In the absence of strong public support of this sector, Canada will not reap these benefits. Governments at all levels should increase their contribution to their respective arts councils (Royal Commission 1985: Vol. II, 115-6).

Beyond product design, design technology also plays a crucial role in contemporary advertising.  It is generally forgotten that within the ecology of capitalist realism, advertising is the lubricant of the market economy. And advertising, to a great extent, is the application of the literary, media, performing and visual arts to sell goods and services.  Actors, dancers, singers, musicians, graphic artists, copywriters, and editors are employed to sell everything from fruit to nuts; from cars to computers, from beer to toilet paper.  Traditionally, mainstream economics has viewed advertising (with the exception of pure information) as unproductive because it manipulates consumer wants through non-rational techniques.  Such manipulation supposedly reduces consumer sovereignty.

Design technology is also playing an increasingly significant role in consumer research.  Many researchers have begun to question the dominance of the information processing model in consumer research. This model essentially views consumer behaviour as a question of a consumer with a problem searching for information concerning the best product or service to solve his or her problem.  This model, however, is increasingly seen as neglecting important consumption phenomena such as playful leisure activities, sensory pleasures, daydreams, aesthetic enjoyment, and emotional responses (Holbrook, Hirschman 1982; Holbrook 1987).

To the degree that fantasy and aesthetics are playing an increasingly important role in contemporary consumer behaviour, then to that degree a mythic economy has emerged.  This economy involves what traditionally has been considered irrational motivations.  The form and nature of fantasy, e.g. in motivating consumers to buy Jaguars, BMWs and Rolls-Royces for status and other subjective reasons, not simple transportation, is becoming more important to an economic understanding of what the consumer is actually maximizing in an increasingly multicultural domestic and international economy.

The Quaternary Sector 

Advances in physical, organizational and design technology are legally protected by intellectual property rights legislation including: patents emerging from the physical sciences; registered industrial design emerging from research in the physical sciences and the arts; trademarks emerging from the arts and copyright emerging from research in the physical and social sciences, humanities and the arts.  Managerial and industrial know-how also falls into this category of abstract goods and services.  To a degree, one can also include heritage and natural beauty as possessing similar abstract properties which become realized in the marketplace through tourism.  The combination of art, heritage and natural beauty are particularly rich sources of information, the market for which will expand significantly in future (McHale 1978).

Intellectual property rights serve as the legal foundation for the industrial organization of the arts and sciences (Commons 1926).  But legal systems are the product of specific cultures.  For example, in French-speaking and most Western European countries, droits d'auteur or author's rights are the core of what in English-speaking countries is called copyright.  Such rights are rooted in the Republican Revolution of the late 18th century, and the Rights of Man Movement.  In the Communist Bloc (all of whose members are not signators to international copyright conventions), the situation is similar yet different.  While moral rights of the creator are recognized through one-time awards, all subsequent rights revert to the State.

Moral rights are not, however, the historical root of copyright in the English-speaking world. Rather, in the 15th century with the introduction of the printing press, Tudor monarchs began to grant to approved printers the right to copy approved works, i.e. copyright. Thus, the roots of copyright are censorship and feudal grants of commercial privilege (MacDonald 1971: 1416).  These residuals of feudal and crown law did not vanish with the advent of democracy. On the contrary, they survived in attenuated form to plague democratic law and government.  Obsolete in practice, they still influence the spirit of the law (Gray 1981: 108).  In English-speaking countries copyright and industrial design are the legal foundation of industrial organization of the arts.

Furthermore, the concept of native copyright, while not yet incorporated into statute, is based on yet another tradition.  Specifically, among native peoples, the rights to a cultural work such as a song, story or icon do not belong to an individual but rather to the tribe or to one individual in each generation generally through matrilinear inheritance.

If culture is the transmission of knowledge, then the power of the State can be measured by its ability of enforce the integrity of such transmissions.  This links duration and mobility of a medium highlighted by Innis and enforcement of intellectual property rights to the content and integrity of transmissions through time and space (Chartrand 1987b).

At any point in time, however, there exists a stock of capital and labour which embodies current and past technical and educational attainment.  Advances in physical, organizational and design technologies are flows that become embodied in new products, industrial processes and equipment, organizational methods, styles and fashions.  Creative workers who `invent'; the laws protecting their inventions; and, firms relying on such rights for industrial organization are all subject to culture, custom and tradition.

At present such abstract goods and services constitute a Quaternary or Fourth Sector of the economy.  The empirical importance of abstract goods and services is difficult to demonstrate. Existing technology of measurement is extremely poor.  The System of National Accounts does not adequately cover even the Tertiary or Service Sector, with serious implications for policy-making. In a society in which "if you aren't counted, you don't count", a sector for which statistical information is scarce receives little attention from decision-makers.  In the case of Quaternary or abstract goods and services, the data problem is even worse.  In the most general terms, their importance can be illustrated using what is called invisible exports, which, in the United States, minimized the impact of enormous price increases in petroleum imports during the 1970s and 1980s (Ginzberg, Vojta 1981).  The value of invisible or abstract goods and services to societal decision-making is rising, e.g. long-term environmental costs are beginning to displace short-term economic gains in the social calculus. 

A Summing Up

An unanswered question in intellectual history is why economics has become an abstract discipline almost void of any cultural context.  Early in the 19th century, Jeremy Bentham began to strip economics of its concern with culture, custom and tradition. Bentham's assumption that culture was irrelevant was reinforced in mid-century with the schism between Marxist and mainstream economics.  Cultural relativity became Marxist analysis and mainstream economists adopted an increasingly positivist approach.

Because of the Benthamite legacy, the arts and culture have been thought intangibles and frills in a bottom-line economy.  But a fundamental demographic revolution involving rapid urbanization, rising levels of education, increasing participation of women and the aging of the population, has made the arts and culture a significant industry and a major force in national competitiveness.

Evolution of art from symbol to source of wealth parallels evolution of the concept of National Income.  Through time, there has been a progressive expansion in the sources of National Income.  In this century, technological change is recognized as the most important. However, the nature of technological change has also changed.  Today, there are three sources of technological change. Research in the physical sciences leads to improvements in physical technology.  Research in the social sciences and humanities leads to improvements in organizational technology, i.e. the ways to organize and motivate capital, labour and technology.  Research in the arts leads to improvements in advertising, consumer research, marketing and product design.  Physical and social science research is centred in the university; research in the arts in the professional fine arts.

Research involves small amount of resources compared to existing capital stock and labour force.  However, in economic growth is a catalyst stimulating changes and improvements in the quality and efficiency of capital and labour.  Research results are embodied in abstract intellectual property rights including copyright, patents, registered industrial design and trademarks.  It is buying, selling and licensing of such rights that constitute the quaternary Sector of the Post-Modern Economy.

In this new economy, it is creative workers -- artists and scientists - who are the source of growth in National Income.  They, the laws protecting creations, and firms relying on rights for industrial organization are sensitive to culture, custom and tradition -- as is the increasingly educated and sophisticated consumer.  The Benthamite tradition deeming culture irrelevant to economic behaviour is no longer valid in a mythic or multicultural domestic and international economy.  There are other examples where the growing divergence between the economic theory of value and evolving social reality is becoming apparent, e.g. the environment.  But we still await emergence of a truly Humane Science to replace the pre-Benthamite Moral Philosophy.

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